Double-Digit
Record
Builders FirstSource and BMC Merger Proceeding On Schedule
Third Quarter 2020 Highlights
- Net sales increased 13.1% to a record
$1,090.3 million - Gross profit increased 7.2% to a record
$273.1 million - SG&A expenses as a percent of net sales declined 190 basis points to 17.9%
- Net income increased 33.6% to
$44.9 million - Adjusted EBITDA1 improved by 32.9% to a record
$99.2 million - Adjusted EBITDA margin1 increased 140 basis points to 9.1%
- Diluted earnings per share (EPS) increased 32.0%, or
$0.16 , to$0.66 - Adjusted net income per diluted share1 increased 44.8%, or
$0.26 , to a record$0.84 - Total liquidity was approximately
$648.5 million , which included$286.2 million of cash and$362.3 million of borrowing capacity under the revolver, with no debt maturities until 2024.
“BMC delivered record third quarter results, including double-digit net sales and net income growth, and record gross profit, Adjusted EBITDA1 and Adjusted Net Income1,” said
1 Non-GAAP Financial Measures
This press release presents Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share, which are non-GAAP financial measures within the meaning of applicable
Third Quarter 2020 Summary of Financial Results
Three Months Ended | |||||||||
(in thousands, except per share data) | 2020 | 2019 | Variance | ||||||
Net sales | $ | 1,090,343 | $ | 964,249 | $ | 126,094 | |||
Net income and EPS | |||||||||
Net income (GAAP) | $ | 44,895 | $ | 33,597 | $ | 11,298 | |||
Diluted earnings per share (GAAP) | $ | 0.66 | $ | 0.50 | $ | 0.16 | |||
Adjusted net income (non-GAAP) | $ | 57,244 | $ | 38,756 | $ | 18,488 | |||
Adjusted net income per diluted share (non-GAAP) | $ | 0.84 | $ | 0.58 | $ | 0.26 | |||
Adjusted EBITDA (non-GAAP) | $ | 99,188 | $ | 74,658 | $ | 24,530 | |||
Adjusted EBITDA margin (non-GAAP) | 9.1 | % | 7.7 | % | 1.4 | % | |||
Net cash provided by operating activities | $ | 54,027 | $ | 69,105 | $ | (15,078 | ) |
Third Quarter 2020 Financial Results Compared to Prior Year Period
- Net sales increased 13.1% to a record
$1,090.3 million , primarily driven by growth from price inflation of 10.0%, acquisitions of 3.5% and Core Organic Growth of 0.6%. These increases were partially offset by a decrease of 1.0% from closed facilities. - Gross profit increased 7.2% to
$273.1 million . Gross profit as a percentage of sales (gross margin) was 25.0%, compared to 26.4% for the third quarter of 2019. The 140 basis point decline in gross margin was driven by a decrease in the gross margin in the lumber and lumber sheet goods and structural components product categories, and a higher percentage of net sales being derived from lumber and lumber sheet goods. Gross margins in our lumber and lumber sheet goods and structural components product categories were lower due to a significant increase in commodity costs, which increased at a faster rate than our average selling prices. - Selling, general and administrative (“SG&A”) expenses increased 2.4% or
$4.6 million to$195.1 million . This increase was primarily related to an increase of approximately$8.5 million from costs incurred in relation to the merger transaction with Builders FirstSource and$7.6 million related to SG&A expenses of recently acquired businesses. Excluding merger related costs and SG&A from recently acquired businesses, SG&A expenses declined by$11.5 million or 6.0%, primarily related to decreases in employee wages, benefits and other employee-related costs, lower fuel costs and targeted reductions in other costs. SG&A expenses as a percent of net sales declined 190 basis points to 17.9%. - Depreciation expense, including the portion reported within cost of sales, increased
$1.4 million to $15.4 million, compared to$14.0 million in the third quarter of 2019. - Amortization expense was
$5.0 million compared to$4.6 million in the third quarter of 2019. This increase was primarily due to the amortization of intangible assets at recently acquired businesses. - Interest expense was
$5.7 million compared to$5.8 million in the third quarter of 2019. - Other income, net, which was derived primarily from state and local tax incentives, interest income and customer service charges, was
$3.3 million compared to$3.5 million in the third quarter of 2019. - Net income was
$44.9 million , or$0.66 per diluted share for the quarter, compared to$33.6 million , or$0.50 per diluted share, in the third quarter of 2019. - Adjusted net income1 increased to
$57.2 million , or$0.84 per diluted share, compared to Adjusted net income1 of$38.8 million , or$0.58 per diluted share, in the third quarter of 2019. - Adjusted EBITDA1 was
$99.2 million , up 32.9% from the third quarter of 2019. - Adjusted EBITDA margin1, defined as Adjusted EBITDA1 as a percentage of net sales, was 9.1%, up 140 basis points from the prior year period and was a record for the third quarter.
- Cash provided by operating activities declined
$15.1 million to$54.0 million primarily due to changes in working capital.
Builders FirstSource and BMC Transaction
On
Liquidity and Capital Resources
Total liquidity as of
Capital expenditures during the third quarter of 2020, net of proceeds from the sale of property, equipment and real estate, totaled
Stock Repurchases
During the third quarter of 2020, the Company did not repurchase any shares of stock. As of
Conference Call Information
BMC will broadcast a pre-recorded conference call which will be available on
The webcast of the conference call can be accessed on the Company’s investor relations website at ir.buildwithbmc.com and will be available for approximately 90 days.
About
With
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this document may include, without limitation, statements regarding sales growth, price changes, earnings performance, strategic direction and the demand for our products. Forward-looking statements are typically identified by words or phrases such as “may,” “might,” “predict,” “future,” “seek to,” “assume,” “goal,” “objective,” “continue,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “prospects,” “guidance,” “possible,” “predict,” “propose,” “potential” and “forecast,” or the negative of such terms and other words, terms and phrases of similar meaning. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties, many of which are outside BMC’s control. BMC cautions readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement; therefore, investors and shareholders should not place undue reliance on such statement. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this communication, and many of these risks and uncertainties are, and may continue to be, amplified by the COVID-19 pandemic.
A number of important factors could cause actual results to differ materially from those indicated by forward-looking statements. These factors include without limitation:
- the impact of the COVID-19 pandemic on our business operations and on local, national and global economies;
- the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets;
- fluctuation of commodity prices and prices of our products as a result of national and international economic and other conditions;
- the impact of potential changes in our customer or product sales mix;
- our concentration of business in the
Texas ,California andGeorgia markets; - the potential loss of significant customers or a reduction in the quantity of products they purchase;
- seasonality and cyclicality of the building products supply and services industry;
- competitive industry pressures and competitive pricing pressure from our customers and competitors;
- our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings;
- our ability to maintain profitability and positive cash flows;
- our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs;
- product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and manufacturers;
- the implementation of our supply chain and technology initiatives;
- the impact of long-term noncancellable leases at our facilities;
- our ability to effectively manage inventory and working capital;
- the credit risk from our customers;
- our ability to identify or respond effectively to consumer needs, expectations, market conditions or trends;
- our ability to successfully implement our growth strategy;
- the impact of federal, state, local and other laws and regulations;
- the impact of changes in legislation and government policy;
- the impact of unexpected changes in our tax provisions and adoption of new tax legislation;
- our ability to utilize our net operating loss carryforwards;
- natural or man-made disruptions to our distribution and manufacturing facilities;
- our exposure to environmental liabilities and subjection to environmental laws and regulation;
- the impact of health and safety laws and regulations;
- the impact of disruptions to our information technology systems;
- cybersecurity risks;
- our exposure to losses if our insurance coverage is insufficient;
- our ability to operate on multiple Enterprise Resource Planning (“ERP”) information systems and convert multiple systems to a single system;
- the impact of our indebtedness;
- the impact of the various financial covenants in our secured credit agreement and senior secured notes indenture
- the completion of the merger with Builders FirstSource, including the receipt of required approvals and satisfying the other closing conditions;
- the disruption to and restrictions placed on our business in connection with the merger with Builders FirstSource;
- the incurrence of costs related to the merger with Builders FirstSource; and
- other factors discussed or referred to in the “Risk Factors” section of BMC's most recent Annual Report on Form 10-K filed with the
SEC onFebruary 27, 2020 as supplemented in our Quarterly Report on Form 10-Q.
Cautionary Notice Regarding Forward-Looking Statements
This communication, in addition to historical information, contains “forward-looking statements” (as defined in the Private Securities Litigation Reform Act of 1995) regarding, among other things, future events or the future financial performance of
Forward-looking statements relating to the proposed business combination between BMC and Builders FirstSource include, but are not limited to: statements about the benefits of the proposed business combination between BMC and Builders FirstSource, including future financial and operating results; the plans, objectives, expectations and intentions of BMC and Builders FirstSource; the expected timing of completion of the proposed business combination; and other statements relating to the proposed merger that are not historical facts. Forward-looking statements are based on information currently available to BMC and Builders FirstSource and involve estimates, expectations and projections. Investors are cautioned that all such forward-looking statements are subject to risks and uncertainties, and important factors could cause actual events or results to differ materially from those indicated by such forward- looking statements. With respect to the proposed business combination between BMC and Builders FirstSource, these factors could include, but are not limited to: the risk that BMC and Builders FirstSource may be unable to obtain governmental and regulatory approvals required for the business combination, or that required governmental and regulatory approvals may delay the business combination or result in the imposition of conditions that could reduce the anticipated benefits from the proposed business combination or cause the parties to abandon the proposed business combination; the risk that a condition to closing of the business combination may not be satisfied, including as a result of the failure to obtain approval of stockholders of BMC and Builders FirstSource on the expected terms and schedule or at all; the length of time necessary to consummate the proposed business combination, which may be longer than anticipated for various reasons; the risk that the businesses will not be integrated successfully; the risk that the cost savings, synergies and growth from the proposed business combination may not be fully realized or may take longer to realize than expected; the assumptions on which the parties’ estimates of future results of the combined business have been based may prove to be incorrect in a number of material ways, which could result in an inability to realize the expected benefits of the proposed business combination or exposure to material liabilities; the diversion of management time on issues related to the business combination; the effect of future regulatory or legislative actions on the companies or the industries in which they operate; the risk that the credit ratings of the combined company may be different from what the parties expect; economic and foreign exchange rate volatility; changes in the general economic environment, or social or political conditions, that could affect the businesses; the potential effect of the announcement or consummation of the proposed business combination on relationships with customers, suppliers, competitors, lenders, landlords, management and other employees; the ability to attract new customers and retain existing customers in the manner anticipated or at all; the ability to hire and retain key personnel; reliance on and integration of information technology systems; the risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; certain restrictions during the pendency of the business combination that may affect the ability of BMC and Builders FirstSource to pursue certain business opportunities or strategic transactions; and the potential of international unrest, economic downturn or effects of anticipated tax rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs.
Additional information concerning other risk factors pertaining to BMC and Builders FirstSource is also contained in the parties’ respective most recently filed Annual Reports on Form 10-K, subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information filed with the
Additional Information and Where to Find It
In connection with the proposed business combination, Builders FirstSource filed with the
Participants in the Solicitation
BMC, Builders FirstSource, and their respective directors, executive officers, and other members of management and employees may be deemed to be participants in the solicitation of proxies from the stockholders of BMC and Builders FirstSource in connection with the proposed business combination.
The identity of BMC’s directors and executive officers and their ownership of BMC’s common stock is set forth in BMC’s Annual Report on Form 10-K for the fiscal year ended
The identity of Builders FirstSource’s directors and executive officers and their ownership of the common stock of Builders FirstSource is set forth in Builders FirstSource’s Annual Report on Form 10-K for the fiscal year ended
Investors may obtain additional information regarding the interest of such participants and a description of their direct and indirect interests, by security holdings or otherwise, by reading the Registration Statement, the Joint Proxy Statement, and other materials filed with the
Investor Relations Contact
SVP, Strategy and Investor Relations
(919) 431-1796
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||
(in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||
Net sales | $ | 1,090,343 | $ | 964,249 | $ | 2,991,118 | $ | 2,736,029 | ||||
Cost of sales | 817,261 | 709,482 | 2,228,086 | 2,019,363 | ||||||||
Gross profit | 273,082 | 254,767 | 763,032 | 716,666 | ||||||||
Selling, general and administrative expenses | 195,143 | 190,579 | 557,010 | 546,116 | ||||||||
Depreciation expense | 11,767 | 10,501 | 34,990 | 30,117 | ||||||||
Amortization expense | 5,016 | 4,552 | 15,045 | 13,237 | ||||||||
Impairment of assets | — | 115 | 2,255 | 644 | ||||||||
211,926 | 205,747 | 609,300 | 590,114 | |||||||||
Income from operations | 61,156 | 49,020 | 153,732 | 126,552 | ||||||||
Other income (expense) | ||||||||||||
Interest expense | (5,744 | ) | (5,773 | ) | (17,880 | ) | (17,385 | ) | ||||
Other income, net | 3,289 | 3,540 | 9,128 | 10,159 | ||||||||
Income before income taxes | 58,701 | 46,787 | 144,980 | 119,326 | ||||||||
Income tax expense | 13,806 | 13,190 | 34,434 | 29,680 | ||||||||
Net income | $ | 44,895 | $ | 33,597 | $ | 110,546 | $ | 89,646 |
Weighted average common shares outstanding
Basic | 67,141 | 66,685 | 67,001 | 66,681 | ||||
Diluted | 67,967 | 67,361 | 67,725 | 67,240 | ||||
Net income per common share | ||||||||
Basic | $ | 0.67 | $ | 0.50 | $ | 1.65 | $ | 1.34 |
Diluted | $ | 0.66 | $ | 0.50 | $ | 1.63 | $ | 1.33 |
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts) | 2020 | 2019 | ||
Assets | ||||
Current assets | ||||
Cash and cash equivalents | $ | 286,221 | $ | 165,496 |
Accounts receivable, net of allowances of | 393,735 | 325,741 | ||
Inventories | 413,031 | 331,969 | ||
Contract assets | 36,422 | 32,125 | ||
Income taxes receivable | — | 7,504 | ||
Prepaid expenses and other current assets | 76,239 | 66,818 | ||
Total current assets | 1,205,648 | 929,653 | ||
Property and equipment, net of accumulated depreciation | 366,444 | 345,466 | ||
Operating lease right-of-use assets | 131,868 | 139,907 | ||
Customer relationship intangible assets, net of accumulated amortization | 170,200 | 185,049 | ||
Other intangible assets, net of accumulated amortization | 385 | 580 | ||
295,390 | 297,146 | |||
Other long-term assets | 7,599 | 8,300 | ||
Total assets | $ | 2,177,534 | $ | 1,906,101 |
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable | $ | 300,075 | $ | 189,644 | ||
Accrued expenses and other liabilities | 116,285 | 117,825 | ||||
Contract liabilities | 44,980 | 31,094 | ||||
Income taxes payable | 10,395 | — | ||||
Interest payable | 9,572 | 4,759 | ||||
Current portion: | ||||||
Long-term debt and finance lease obligations | 3,210 | 5,577 | ||||
Operating lease liabilities | 27,635 | 26,147 | ||||
Insurance reserves | 16,746 | 16,328 | ||||
Total current liabilities | 528,898 | 391,374 | ||||
Insurance reserves | 43,287 | 43,536 | ||||
Long-term debt | 346,659 | 346,032 | ||||
Long-term portion of finance lease obligations | 4,689 | 6,959 | ||||
Long-term portion of operating lease liabilities | 113,572 | 120,832 | ||||
Deferred income taxes | 22,613 | 15,195 | ||||
Other long-term liabilities | 15,309 | 661 | ||||
Total liabilities | 1,075,027 | 924,589 | ||||
Commitments and contingencies | ||||||
Stockholders' equity | ||||||
Preferred stock, | — | — | ||||
Common stock, | 690 | 683 | ||||
Additional paid-in capital | 702,045 | 687,255 | ||||
Retained earnings | 430,736 | 320,190 | ||||
(30,964 | ) | (26,616 | ) | |||
Total stockholders' equity | 1,102,507 | 981,512 | ||||
Total liabilities and stockholders' equity | $ | 2,177,534 | $ | 1,906,101 |
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30, | ||||||
(in thousands) | 2020 | 2019 | ||||
Cash flows from operating activities | ||||||
Net income | $ | 110,546 | $ | 89,646 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation expense | 45,702 | 39,722 | ||||
Amortization of intangible assets | 15,045 | 13,237 | ||||
Amortization of debt issuance costs | 952 | 1,124 | ||||
Deferred income taxes | 7,418 | 4,857 | ||||
Non-cash stock compensation expense | 11,110 | 9,177 | ||||
Gain on sale of property, equipment and real estate | (518 | ) | (1,839 | ) | ||
Other non-cash adjustments | 2,395 | 2,314 | ||||
Change in assets and liabilities, net of effects of acquisitions | ||||||
Accounts receivable, net of allowances | (68,365 | ) | (24,068 | ) | ||
Inventories | (81,004 | ) | (494 | ) | ||
Accounts payable | 121,405 | 68,456 | ||||
Other assets and liabilities | 42,508 | (3,715 | ) | |||
Net cash provided by operating activities | 207,194 | 198,417 | ||||
Cash flows from investing activities | ||||||
Purchases of property, equipment and real estate | (71,037 | ) | (67,582 | ) | ||
Proceeds from sale of property, equipment and real estate | 1,258 | 4,444 | ||||
Purchases of businesses, net of cash acquired | — | (85,780 | ) | |||
Insurance proceeds | — | 107 | ||||
Net cash used in investing activities | (69,779 | ) | (148,811 | ) | ||
Cash flows from financing activities | ||||||
Proceeds from revolving credit facility | 144,000 | 110,987 | ||||
Repayments of proceeds from revolving credit facility | (144,000 | ) | (110,987 | ) | ||
Repurchases of common stock under share repurchase program | (1,416 | ) | (16,446 | ) | ||
Payments on finance lease obligations | (4,613 | ) | (5,094 | ) | ||
Other financing activities, net | (10,661 | ) | (5,530 | ) | ||
Net cash used in financing activities | (16,690 | ) | (27,070 | ) | ||
Net increase in cash and cash equivalents | 120,725 | 22,536 | ||||
Cash and cash equivalents | ||||||
Beginning of period | 165,496 | 150,723 | ||||
End of period | $ | 286,221 | $ | 173,259 |
(unaudited)
Three Months Ended | Three Months Ended | |||||||
(in thousands) | % of Sales | % of Sales | % Change | Core Organic Growth (a) | ||||
Millwork, doors & windows | $ | 299,812 | 27.5% | $ | 285,750 | 29.6% | 4.9% | 2.0% |
Structural components | 185,910 | 17.1% | 175,344 | 18.2% | 6.0% | 3.1% | ||
Lumber & lumber sheet goods | 383,626 | 35.2% | 274,908 | 28.5% | 39.5% | 3.7% | ||
Other building products & services | 220,995 | 20.2% | 228,247 | 23.7% | (3.2)% | (7.1)% | ||
Total net sales | $ | 1,090,343 | 100.0% | $ | 964,249 | 100.0% | 13.1% | 0.6% |
Nine Months Ended | Nine Months Ended | |||||||
(in thousands) | % of Sales | % of Sales | % Change | Core Organic Growth (a) | ||||
Millwork, doors & windows | $ | 883,480 | 29.5% | $ | 796,807 | 29.1% | 10.9% | 4.4% |
Structural components | 510,789 | 17.1% | 483,575 | 17.7% | 5.6% | 2.3% | ||
Lumber & lumber sheet goods | 935,582 | 31.3% | 798,722 | 29.2% | 17.1% | 1.4% | ||
Other building products & services | 661,267 | 22.1% | 656,925 | 24.0% | 0.7% | (4.4)% | ||
Total net sales | $ | 2,991,118 | 100.0% | $ | 2,736,029 | 100.0% | 9.3% | 1.0% |
(unaudited)
Three Months Ended | Three Months Ended | |||||||
(in thousands) | % of Sales | % of Sales | % Change | Core Organic Growth (a) | ||||
Single-family homebuilders | $ | 811,081 | 74.4% | $ | 718,690 | 74.5% | 12.9% | 0.8% |
Remodeling contractors | 143,536 | 13.2% | 115,756 | 12.0% | 24.0% | 5.0% | ||
Multi-family, commercial & other contractors | 135,726 | 12.4% | 129,803 | 13.5% | 4.6% | (4.9)% | ||
Total net sales | $ | 1,090,343 | 100.0% | $ | 964,249 | 100.0% | 13.1% | 0.6% |
Nine Months Ended | Nine Months Ended | |||||||
(in thousands) | % of Sales | % of Sales | % Change | Core Organic Growth (a) | ||||
Single-family homebuilders | $ | 2,188,240 | 73.2% | $ | 2,064,382 | 75.5% | 6.0% | (1.2)% |
Remodeling contractors | 375,904 | 12.6% | 314,277 | 11.5% | 19.6% | 7.1% | ||
Multi-family, commercial & other contractors | 426,974 | 14.2% | 357,370 | 13.0% | 19.5% | 8.7% | ||
Total net sales | $ | 2,991,118 | 100.0% | $ | 2,736,029 | 100.0% | 9.3% | 1.0% |
(a) | Core Organic Growth is calculated as the total change in net sales excluding the estimated impact of changes in commodity-related prices, the net sales of non-comparable acquired or closed operations and changes in selling days, as applicable. |
Reconciliation of GAAP to Non-GAAP Measures (unaudited)
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share are intended as supplemental measures of the Company’s performance that are not required by, or presented in accordance with, GAAP. The Company believes that Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and operating results.
- Adjusted EBITDA is defined as net income plus interest expense (income), income tax expense, depreciation and amortization, merger-related costs, non-cash stock compensation expense, acquisition and integration costs and other items.
- Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales.
- Adjusted net income is defined as net income plus merger-related costs, non-cash stock compensation expense, acquisition and integration costs, other items and after tax effecting those items.
- Adjusted net income per diluted share is defined as Adjusted net income divided by diluted weighted average shares.
Company management uses Adjusted EBITDA and Adjusted net income for trend analysis, for purposes of determining management incentive compensation and for budgeting and planning purposes. Adjusted EBITDA is used in monthly financial reports prepared for management and the board of directors. The Company believes that the use of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share provides additional tools for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other distribution and retail companies, which may present similar non-GAAP financial measures to investors. However, the Company’s calculation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share are not necessarily comparable to similarly titled measures reported by other companies. Company management does not consider Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share in isolation or as alternatives to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. Some of these limitations are: (i) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect changes in, or cash requirements for, working capital needs; (ii) Adjusted EBITDA and Adjusted EBITDA margin do not reflect interest expense, or the requirements necessary to service interest or principal payments on debt; (iii) Adjusted EBITDA and Adjusted EBITDA margin do not reflect income tax expenses or the cash requirements to pay taxes; (iv) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; (v) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect any cash requirements for such replacements and (vi) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not consider the potentially dilutive impact of issuing non-cash stock-based compensation. In order to compensate for these limitations, management presents Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share in conjunction with GAAP results. Readers should review the reconciliations of net income to Adjusted EBITDA and Adjusted net income below, and should not rely on any single financial measure to evaluate the Company’s business.
Reconciliation of GAAP to Non-GAAP Measures (continued)
(unaudited)
The following is a reconciliation of net income to Adjusted EBITDA and Adjusted net income.
Three Months Ended | Nine Months Ended September 30, | |||||||||||
(in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||
Net income | $ | 44,895 | $ | 33,597 | $ | 110,546 | $ | 89,646 | ||||
Interest expense | 5,744 | 5,773 | 17,880 | 17,385 | ||||||||
Interest income | (224 | ) | (1,047 | ) | (1,146 | ) | (2,832 | ) | ||||
Income tax expense | 13,806 | 13,190 | 34,434 | 29,680 | ||||||||
Depreciation and amortization | 20,453 | 18,535 | 60,747 | 52,959 | ||||||||
Merger-related costs | 8,488 | — | 9,150 | — | ||||||||
Non-cash stock compensation expense | 4,612 | 3,014 | 11,110 | 9,177 | ||||||||
Acquisition and integration costs (a) | 1,377 | 1,524 | 4,566 | 6,294 | ||||||||
Business reorganization costs (b) | 37 | 72 | 3,256 | 300 | ||||||||
Other items (c) | — | — | — | (222 | ) | |||||||
Adjusted EBITDA | $ | 99,188 | $ | 74,658 | $ | 250,543 | $ | 202,387 | ||||
Adjusted EBITDA margin | 9.1 | % | 7.7 | % | 8.4 | % | 7.4 | % | ||||
Net income | $ | 44,895 | $ | 33,597 | $ | 110,546 | $ | 89,646 | ||||
Merger-related costs | 8,488 | — | 9,150 | — | ||||||||
Non-cash stock compensation expense | 4,612 | 3,014 | 11,110 | 9,177 | ||||||||
Acquisition and integration costs (a) | 1,377 | 1,524 | 4,566 | 6,294 | ||||||||
Business reorganization costs (b) | 37 | 72 | 3,256 | 300 | ||||||||
Other items (d) | — | 1,635 | — | 1,413 | ||||||||
Tax effect of adjustments to net income (e) | (2,165 | ) | (1,086 | ) | (5,350 | ) | (3,674 | ) | ||||
Adjusted net income | $ | 57,244 | $ | 38,756 | $ | 133,278 | $ | 103,156 | ||||
Diluted weighted average shares | 67,967 | 67,361 | 67,725 | 67,240 | ||||||||
Adjusted net income per diluted share | $ | 0.84 | $ | 0.58 | $ | 1.97 | $ | 1.53 |
(a) | Represents costs for acquisitions and related integration costs, as well as system integration and other costs related to the integration of |
(b) | For the three and nine months ended |
(c) | For the nine months ended |
(d) | For the three months ended |
(e) | The tax effect of adjustments to net income was based on the respective transactions’ income tax rate, which was 23.4%, 23.6%, 23.5% and 23.6% for the three months ended |
Source:
2020 GlobeNewswire, Inc., source