Beacon Roofing Supply(BECN) - 2021 Q2 - Quarterly Report

Part I. Financial Information (unaudited) Condensed Consolidated Financial Statements The company's financial statements reflect the divestiture of its Interior Products business and strong growth in continuing operations Consolidated Balance Sheets Total assets and liabilities decreased significantly following the Interior Products divestiture and subsequent debt repayment Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2021 | Sept 30, 2020 | June 30, 2020 | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $188.9 | $624.6 | $1,018.4 | | Inventories, net | $1,170.7 | $871.4 | $874.2 | | Total current assets | $2,679.5 | $2,976.8 | $3,265.7 | | Goodwill | $1,761.7 | $1,756.1 | $1,755.5 | | Assets held for sale | — | $1,364.3 | $1,363.1 | | Total assets | $5,599.3 | $6,957.5 | $7,279.9 | | Liabilities & Equity | | | | | Total current liabilities | $1,620.9 | $1,631.2 | $1,451.4 | | Long-term debt, net | $1,616.1 | $2,494.2 | $2,494.5 | | Total liabilities | $3,561.7 | $4,797.4 | $5,194.0 | | Total stockholders' equity | $1,638.4 | $1,760.9 | $1,686.7 | Consolidated Statements of Operations Continuing operations show strong year-over-year growth in net sales and a return to profitability for Q3 and the nine-month period Statement of Operations Summary (in millions) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,872.1 | $1,549.3 | $4,766.6 | $4,161.7 | | Gross profit | $517.4 | $368.7 | $1,249.9 | $979.2 | | Income (loss) from operations | $180.8 | $75.2 | $298.7 | $(81.4) | | Net income (loss) from continuing operations | $79.8 | $(4.1) | $116.7 | $(149.5) | | Net income (loss) from discontinued operations | $(3.3) | $(2.6) | $(267.0) | $(3.3) | | Net income (loss) | $76.5 | $(6.7) | $(150.3) | $(152.8) | | Diluted net income (loss) per share | $0.87 | $(0.18) | $(2.38) | $(2.48) | Consolidated Statements of Cash Flows Cash from investing activities was positive due to the business sale, while operating and financing activities used cash Cash Flow Summary (in millions) | Activity | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(20.4) | $250.4 | | Net cash provided by (used in) investing activities | $793.1 | $(23.7) | | Net cash provided by (used in) financing activities | $(1,207.4) | $719.6 | | Net increase (decrease) in cash | $(435.7) | $946.1 | Notes to Condensed Consolidated Financial Statements Notes detail the Interior Products divestiture, a pre-tax loss on the sale, product line sales, and debt refinancing activities - On February 10, 2021, the Company completed the sale of its Interior Products business to FBM for approximately $850 million in cash, with these operations now reflected as discontinued[16][29] - The divestiture of Interior Products resulted in a pre-tax loss on sale of $362.0 million for the nine months ended June 30, 2021, primarily due to the allocation of $730.9 million of consolidated goodwill to the sold component[31] Net Sales by Product Line (Nine Months Ended June 30, in millions) | Product Line | 2021 | 2020 | | :--- | :--- | :--- | | Residential roofing products | $2,521.3 | $2,114.6 | | Non-residential roofing products | $1,214.9 | $1,174.0 | | Complementary building products | $1,030.4 | $873.1 | | Total net sales | $4,766.6 | $4,161.7 | - In May 2021, the company executed a major debt refinancing, issuing $350.0 million of 4.125% Senior Notes due 2029 and a new $1.0 billion Term Loan due 2028, using the proceeds to redeem higher-cost debt, resulting in a $50.7 million loss on debt extinguishment[58][59] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes strong sales growth, margin expansion, and liquidity following the strategic divestiture of Interior Products Overview Beacon is the largest publicly traded distributor of roofing and complementary building products in North America - The company is the largest publicly traded distributor of roofing materials and complementary building products in the U.S. and Canada, with 445 branches as of June 30, 2021[99][102] - Completed the sale of the Interior Products business on February 10, 2021, to reduce net leverage and focus on strategic growth in the core exteriors business[100] - The company's primary focus is on organic growth and operational improvements, highlighted by a 20.8% organic daily sales growth in Q3 2021 and the opening of seven new branches since the start of fiscal 2020[108] Comparison of the Three Months Ended June 30, 2021 and 2020 Q3 2021 net sales grew 20.8% and gross margin expanded by 3.8 percentage points, driving a significant increase in operating income Q3 2021 vs. Q3 2020 Performance (in millions) | Metric | Q3 2021 | Q3 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,872.1 | $1,549.3 | +20.8% | | Gross Profit | $517.4 | $368.7 | +40.3% | | Gross Margin | 27.6% | 23.8% | +3.8 p.p. | | Operating Expense | $336.6 | $293.5 | +14.7% | | Income from Operations | $180.8 | $75.2 | +140.4% | - The increase in gross margin was driven by a weighted-average selling price increase of 10-11%, which was partially offset by a product cost increase of 6-7%[116] Comparison of the Nine Months Ended June 30, 2021 and 2020 Nine-month net sales rose 14.5% and operating expenses decreased, reversing an operating loss from the prior year Nine-Month 2021 vs. 2020 Performance (in millions) | Metric | Nine Months 2021 | Nine Months 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $4,766.6 | $4,161.7 | +14.5% | | Gross Profit | $1,249.9 | $979.2 | +27.6% | | Gross Margin | 26.2% | 23.5% | +2.7 p.p. | | Operating Expense | $951.2 | $1,060.6 | -10.3% | | Income (loss) from Operations | $298.7 | $(81.4) | N/A | - The decrease in operating expense was mainly due to a $153.4 million decrease in amortization, as the prior year included $142.6 million in accelerated amortization from the write-off of certain trade names[132] Non-GAAP Financial Measures Adjusted EBITDA increased significantly for both the third quarter and nine-month period, reflecting improved underlying performance - The company uses non-GAAP measures to provide investors with a view of financial results unaffected by certain items not indicative of ongoing operating performance, such as acquisition costs, restructuring costs, and COVID-19 impacts[139][140][143] Adjusted EBITDA Reconciliation (in millions) | | Three Months Ended June 30 | Nine Months Ended June 30 | | :--- | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2021 | 2020 | | Net income (loss) from continuing operations | $79.8 | $(4.1) | $116.7 | $(149.5) | | Adjustments (Interest, Taxes, D&A, etc.) | $149.7 | $134.7 | $330.0 | $379.0 | | Adjusted EBITDA | $229.5 | $130.6 | $446.7 | $229.5 | | Adjusted EBITDA as % of net sales | 12.3% | 8.4% | 9.4% | 5.5% | Liquidity and Capital Resources The company maintains a strong liquidity position with significant available borrowings and has reduced its borrowing costs through refinancing - Principal sources of liquidity as of June 30, 2021, were $188.9 million in cash and $1.28 billion in available borrowings under revolving credit lines[159] Cash Flow Summary (Nine Months Ended June 30, in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $(20.4) | $250.4 | | Net cash from investing activities | $793.1 | $(23.7) | | Net cash from financing activities | $(1,207.4) | $719.6 | - The May 2021 debt refinancing reduced the weighted-average interest rate on outstanding debt to 3.26% as of June 30, 2021, down from 4.21% as of March 31, 2021[167] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risk disclosures since the prior fiscal year-end - There were no material changes in market risk disclosures during the three or nine-month periods ended June 30, 2021, compared to the fiscal year 2020 Form 10-K[169] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Management concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[170] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2021, and the sale of the Interior Products business did not result in significant changes to internal controls[171] Part II. Other Information Risk Factors The company expands on previously disclosed risks, emphasizing increased cybersecurity threats to its critical IT systems - The company has expanded its disclosure on risks related to information technology systems, noting their critical importance for operations, including inventory management, sales, and accounting[175] - IT systems are vulnerable to various threats, including natural disasters, power outages, employee error, and deliberate cyber-attacks like ransomware and denial-of-service attacks[176] - A successful cybersecurity attack could result in business disruption, theft of confidential data, liability for stolen information, increased costs, and harm to the company's reputation and financial results[177] Exhibits This section lists key legal agreements and required certifications filed as exhibits with the Form 10-Q - Lists key agreements filed as exhibits, including the Indenture for the 2029 Senior Notes, the Amended Term Loan Credit Agreement, and the Amended ABL Credit Agreement[180] - Includes required CEO and CFO certifications (Rule 13a-14(a) and Section 1350) and interactive data files (iXBRL) for the financial statements[181] Signatures