UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
OR
For the Transition Period from _________ to __________
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of April 30, 2022,
1
BEACON ROOFING SUPPLY, INC.
FORM 10-Q
For the Quarter Ended March 31, 2022
TABLE OF CONTENTS
PART I. |
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Financial Information (unaudited) |
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Item 1. |
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Condensed Consolidated Financial Statements |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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32 |
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Item 4. |
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PART II. |
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Other Information |
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Item 1. |
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Item 2. |
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Item 6. |
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34 |
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2
PART I. Financial Information (Unaudited)
Item 1. Condensed Consolidated Financial Statements
BEACON ROOFING SUPPLY, INC.
Condensed Consolidated Balance Sheets
(Unaudited; in millions, except per share amounts)
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March 31, |
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December 31, |
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March 31, |
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2022 |
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2021 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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$ |
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Accounts receivable, less allowance of $ |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Intangibles, net |
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Operating lease right-of-use assets, net |
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Deferred income taxes, net |
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Other assets, net |
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Total assets |
$ |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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$ |
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Accrued expenses |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Current portion of long-term debt/obligations |
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Total current liabilities |
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Borrowings under revolving lines of credit, net |
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— |
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— |
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Long-term debt, net |
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Deferred income taxes, net |
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— |
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Operating lease liabilities |
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Finance lease liabilities |
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Total liabilities |
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Convertible Preferred Stock (voting); $ |
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Stockholders' equity: |
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Common stock (voting); $ |
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Undesignated preferred stock; |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
$ |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
3
BEACON ROOFING SUPPLY, INC.
Condensed Consolidated Statements of Operations
(Unaudited; in millions, except per share amounts)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net sales |
$ |
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$ |
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Cost of products sold |
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Gross profit |
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Operating expense: |
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Selling, general and administrative |
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Depreciation |
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Amortization |
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Total operating expense |
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Income (loss) from operations |
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Interest expense, financing costs, and other |
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Loss on debt extinguishment |
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Income (loss) from continuing operations before income taxes |
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Provision for (benefit from) income taxes |
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Net income (loss) from continuing operations |
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Net income (loss) from discontinued operations1 |
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— |
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Net income (loss) |
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Dividends on Preferred Stock |
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Net income (loss) attributable to common stockholders |
$ |
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$ |
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Weighted-average common stock outstanding2: |
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Basic |
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Diluted |
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Net income (loss) per share2: |
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Basic - Continuing operations |
$ |
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$ |
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Basic - Discontinued operations |
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Basic net income (loss) per share |
$ |
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$ |
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Diluted - Continuing operations |
$ |
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$ |
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Diluted - Discontinued operations |
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— |
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Diluted net income (loss) per share |
$ |
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$ |
( |
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______________________________
1
2
See accompanying Notes to Condensed Consolidated Financial Statements
4
BEACON ROOFING SUPPLY, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited; in millions)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net income (loss) |
$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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Unrealized gain (loss) due to change in fair value of derivatives, net of tax |
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Total other comprehensive income (loss) |
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Comprehensive income (loss) |
$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
5
BEACON ROOFING SUPPLY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited; in millions)
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Common Stock |
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Retained |
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Shares |
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Amount |
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APIC1 |
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Earnings |
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AOCI2 |
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Total |
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Three Months Ended March 31, 2022 |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Repurchase and retirement of common stock, net3 |
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— |
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— |
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Equity forward contract3 |
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Issuance of common stock, net of shares withheld for taxes |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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Net income (loss) |
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— |
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— |
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— |
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— |
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Dividends on Preferred Stock |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance as of March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2021 |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock, net of shares withheld for taxes |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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Net income (loss) |
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— |
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— |
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— |
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( |
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— |
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( |
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Dividends on Preferred Stock |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance as of March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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____________________________________
See accompanying Notes to Condensed Consolidated Financial Statements
6
BEACON ROOFING SUPPLY, INC.
Condensed Consolidated Statements of Cash Flows1
(Unaudited; in millions)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Operating Activities |
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Net income (loss) |
$ |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Certain interest expense and other financing costs |
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Loss on debt extinguishment |
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Gain on sale of fixed assets and other |
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Deferred income taxes |
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Loss on sale of business |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Accounts payable and accrued expenses |
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Other assets and liabilities |
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Net cash provided by (used in) operating activities |
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Investing Activities |
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Purchases of property and equipment |
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( |
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Acquisition of business, net |
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— |
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Proceeds from sale of business |
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— |
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Proceeds from the sale of assets |
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Net cash provided by (used in) investing activities |
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Financing Activities |
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Borrowings under revolving lines of credit |
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— |
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Payments under revolving lines of credit |
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( |
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( |
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Payments under term loan |
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( |
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( |
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Payments under equipment financing facilities and finance leases |
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( |
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( |
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Repurchase and retirement of common stock, net |
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( |
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— |
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Advance payment for equity forward contract |
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( |
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Payment of dividends on Preferred Stock |
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Proceeds from issuance of common stock related to equity awards |
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Payment of taxes related to net share settlement of equity awards |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
$ |
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$ |
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Supplemental Cash Flow Information |
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Operating cash flows provided by (used in) discontinued operations |
$ |
— |
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( |
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Cash paid during the period for: |
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Interest |
$ |
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$ |
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Income taxes, net of refunds2 |
$ |
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$ |
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______________________________
See accompanying Notes to Condensed Consolidated Financial Statements
7
BEACON ROOFING SUPPLY, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited; in millions, except per share amounts or otherwise indicated)
1. Company Overview
Beacon Roofing Supply, Inc. (“Beacon” or the “Company”) was incorporated in the state of Delaware on
On February 10, 2021, the Company completed the sale of its interior products and insulation businesses (“Interior Products”) to Foundation Building Materials Holding Company LLC (“FBM”), pursuant to that certain Equity Purchase Agreement, dated as of December 20, 2020 (the “Purchase Agreement”), by and between the Company and ASP Sailor Acquisition Corp. (“ASP”), for approximately $
The Company operates its business primarily under the trade name "Beacon Building Products" and services customers in all
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company prepared the condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the requirements of the Securities and Exchange Commission (“SEC”). As permitted under those rules, certain footnotes or other financial information have been condensed or omitted. Additionally, the Company has reflected Interior Products as discontinued operations for the three months ended March 31, 2021. Unless otherwise noted, amounts and disclosures throughout these Notes to Condensed Consolidated Financial Statements relate to the Company's continuing operations. Certain prior period amounts have been reclassified to conform to current period presentation.
The balance sheet as of March 31, 2021 has been presented for a better understanding of the impact of seasonal fluctuations on the Company’s financial condition. The three-month periods ended March 31, 2022 and 2021 each had 63 business days.
On August 11, 2021, the Company’s Board of Directors approved a change in its fiscal year end from September 30 to December 31. The Company’s 2022 fiscal year began on January 1, 2022 and will end on December 31, 2022. This change better aligns the Company’s financial reporting calendar with many of its industry peers and provides internal benefits by shifting the timing of the budgeting, physical inventory, and performance review cycles away from the Company’s busiest time of year.
In management’s opinion, the condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the twelve months ending December 31, 2022.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2021 as well as the unaudited Condensed Consolidated Financial Statements and Notes thereto contained in the Company’s Transition Report on Form 10-Q for the period from October 1, 2021 to December 31, 2021.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates include accounts receivable, vendor incentives, inventories, purchase price allocations, goodwill and intangibles, and income taxes. Assumptions made in the development of these estimates contemplate the impact of the novel coronavirus (“COVID‑19”) on the economy and the Company’s anticipated results. Actual amounts could differ materially from these estimates.
Business Combinations
The Company records acquisitions resulting in the consolidation of a business using the acquisition method of accounting. Under this method, the Company records the assets acquired, including intangible assets that can be identified and named, and liabilities assumed based on their estimated fair values at the date of acquisition. The Company uses an income approach to determine the fair value of
8
acquired intangible assets, specifically the multi-period excess earnings method for customer relationships and the relief from royalty method for trade names. Various Level 3 fair value assumptions are used in the determination of these estimated fair values, including items such as sales growth rates, cost synergies, customer attrition rates, discount rates, and other prospective financial information. The purchase price in excess of the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Transaction costs associated with acquisitions are expensed as incurred and are included as a component of selling, general and administrative expense within the condensed consolidated statements of operations.
Recent Accounting Pronouncements—Not Yet Adopted
In October 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU 2021-08, “Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The guidance is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. The guidance requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts, as opposed to recognizing and measuring such contract assets and liabilities at fair value on the acquisition date. The standard will be effective for business combinations that occur after January 1, 2023. Early adoption is permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. The Company will continue to evaluate the impact of this guidance, which would depend on the contract assets and liabilities assumed in any future business combinations.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional practical expedients to ease the potential burden in accounting for contract modifications and hedge accounting related to reference rate reform. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848), Scope,” to clarify the scope of the guidance and reduce potential diversity in practice. The standard is effective as of March 12, 2020 through December 31, 2022. However, the standard is not applicable to contract modifications made, and hedging relationships entered into or evaluated after, December 31, 2022. The Company will evaluate and disclose the impact of this guidance in the period of election, as well as the nature and reason for doing so.
3. Acquisitions
The Company has not provided pro forma results of operations for the transactions below, as the transactions individually and in the aggregate are not material to the Company. The results of operations for these transactions are included in the Company’s condensed consolidated statements of operations from the date of the acquisition.
Midway
On November 1, 2021, the Company acquired
The Company recorded the acquired assets and assumed liabilities related to this transaction at their estimated acquisition date fair values, which resulted in $
Crabtree
On January 1, 2022, the Company purchased
The Company recorded the acquired assets and assumed liabilities related to this transaction at their estimated acquisition date fair values, which resulted in $
Lowry’s
In connection with our May 1, 2017 acquisition of Lowry’s Inc., the Company recorded an indemnity holdback liability, which was remeasured to fair value at each reporting period until the contingency was resolved. During the three months ended March 31, 2022, the contingency was resolved and the Company released the indemnity holdback liability, resulting in a gain of $
9
4. Divestitures
Solar Products
On December 1, 2021, the Company completed the divestiture of its solar products business ("Solar Products") in order to focus on the Company’s core exteriors business. The Company recorded a loss on sale of $
Interior Products
On February 10, 2021, the Company completed the sale of Interior Products to FBM pursuant to the Purchase Agreement for approximately $
The Company completed this divestiture of net assets previously acquired in 2018 as part of the Allied Acquisition (as defined in Note 6) to reduce net leverage, strengthen its balance sheet, enhance leadership focus, and provide the financial flexibility to pursue strategic growth initiatives in its core exteriors business.
The following table reconciles major line items constituting pretax income (loss) from discontinued operations to net income (loss) from discontinued operations as presented in the condensed consolidated statements of operations (in millions):
|
Three Months Ended |
|
|
|
March 31, 2021 |
|
|
Net sales |
$ |
|
|
Cost of products sold |
|
( |
) |
Selling, general and administrative |
|
( |
) |
Depreciation and amortization |
|
( |
) |
Other income (loss) |
|
— |
|
Loss on sale |
|
( |
) |
Pretax income (loss) from discontinued operations |
|
|
|
Provision for (benefit from) income taxes |
|
|
|
Net income (loss) from discontinued operations |
$ |
|
There were
5. Net Sales
The following table presents the Company’s net sales by product line and geography (in millions):
|
U.S. |
|
|
Canada |
|
|
Total |
|
|||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|||
Residential roofing products |
$ |
|
|
$ |
|
|
$ |
|
|||
Non-residential roofing products |
|
|
|
|
|
|
|
|
|||
Complementary building products |
|
|
|
|
|
|
|
|
|||
Total net sales |
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|||
Residential roofing products |
$ |
|
|
$ |
|
|
$ |
|
|||
Non-residential roofing products |
|
|
|
|
|
|
|
|
|||
Complementary building products |
|
|
|
|
|
|
|
|
|||
Total net sales |
$ |
|
|
$ |
|
|
$ |
|
6. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents or the conversion of Preferred Stock (as defined below). Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock unit awards. Diluted net income (loss) per common share is calculated by dividing net
10
income (loss) attributable to common stockholders by the fully diluted weighted-average number of common shares outstanding during the period.
In connection with the acquisition of Allied Building Products Corp. (“Allied”) on January 2, 2018 (the “Allied Acquisition”), the Company completed the sale of
Diluted net income (loss) per share is calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income (loss) attributable to common stockholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.
The following table presents the components and calculations of basic and diluted net income (loss) per share (in millions, except per share amounts; certain amounts may not recalculate due to rounding):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Numerator: |
|
|
|
|
|
||
Net income (loss) from continuing operations |
$ |
|
|
$ |
( |
) |
|
Dividends on Preferred Stock |
|
( |
) |
|
|
( |
) |
Undistributed income from continuing operations allocated to participating securities |
|
( |
) |
|
|
— |
|
Net income (loss) from continuing operations attributable to common stockholders - Basic and Diluted |
|
|
|
|
( |
) |
|
Net income (loss) from discontinued operations attributable to common stockholders - Basic and Diluted |
|
— |
|
|
|
|
|
Net income (loss) attributable to common stockholders - Basic and Diluted |
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
||
Weighted-average common shares outstanding - Basic |
|
|
|
|
|
||
Effect of common share equivalents |
|
|
|
|
— |
|
|
Weighted-average common shares outstanding - Diluted |
|
|
|
|
|
||
|
|
|
|
|
|
||
Net income (loss) per share: |
|
|
|
|
|
||
Basic - Continuing operations |
$ |
|
|
$ |
( |
) |
|
Basic - Discontinued operations |
|
— |
|
|
|
|
|
Basic net income (loss) per share |
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Diluted - Continuing operations |
$ |
|
|
$ |
( |
) |
|
Diluted - Discontinued operations |
|
— |
|
|
|
|
|
Diluted net income (loss) per share |
$ |
|
|
$ |
( |
) |
The following table includes the number of shares that may be dilutive common shares in the future (in millions). These shares were not included in the computation of diluted net income (loss) per share because the effect was either anti-dilutive or the requisite performance conditions were not met:
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Stock options |
|
|
|
|
|
||
Preferred Stock |
|
|
|
|
|
||
Equity forward contract |
|
|
|
|
— |
|
7. Stock-based Compensation
On December 23, 2019, the Board of Directors of the Company approved the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan (the “2014 Plan”). On February 11, 2020, the stockholders of the Company approved an additional
11
employees and non-employee directors. The 2014 Plan mandates that all shares underlying lapsed, forfeited, expired, terminated, cancelled and withheld awards, including those from the predecessor plan, be returned to the 2014 Plan and made available for issuance. As of March 31, 2022, there were
All unvested equity awards contain a “double trigger” change in control mechanism. Unless an award is continued or assumed by a public company in an equitable manner, such award shall become fully vested immediately prior to a change in control (in the case of a restricted stock unit award with performance conditions at
Stock Options
Non-qualified stock options generally expire
The fair values of the options granted for the three months ended March 31, 2022 were estimated on the dates of grants using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Risk-free interest rate |
|
% |
|
Expected volatility |
|
% |
|
Expected life (in years) |
|
|
|
Dividend yield |
|
|
The following table summarizes all stock option activity for the three months ended March 31, 2022 (in millions, except per share amounts and time periods):
|
Options |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Balance as of December 31, 2021 |
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Canceled/Forfeited |
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balance as of March 31, 2022 |
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest after March 31, 2022 |
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of March 31, 2022 |
|
|
|
$ |
|
|
|
|
|
$ |
|
_____________________________
During the three months ended March 31, 2022 and 2021, the Company recorded stock-based compensation expense related to stock options of $
The following table summarizes additional information on stock options (in millions, except per share amounts):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Weighted-average fair value per share of stock options granted |
$ |
|
|
$ |
— |
|
|
Total grant date fair value of stock options vested |
$ |
|
|
$ |
|
||
Total intrinsic value of stock options exercised |
$ |
|
|
$ |
|
Restricted Stock Units
Time-based restricted stock unit (“RSU”) awards granted to employees are subject to continued employment and generally vest on the third anniversary of the grant date. The Company also grants certain RSU awards to management that additionally may contain market
12
or performance conditions. Market conditions are incorporated into the grant date fair value of the management awards with market conditions using a Monte Carlo valuation model. Compensation expense for management awards with market conditions is recognized over the service period and is not reversed if the market condition is not met. For awards with performance conditions, the actual number of awards that will vest can range from
RSUs granted to non-employee directors are subject to continued service and vest on the first anniversary of the grant date (except under certain conditions). Generally, the common shares underlying the RSUs are not eligible for distribution until the non-employee director’s service on the Board has terminated, and for non-employee director RSU grants made prior to fiscal year 2014, the share distribution date is six months after the director’s termination of service on the board. Any non-employee directors who have Beacon equity holdings (defined as common stock and outstanding vested equity awards) with a total fair value that is greater than or equal to five times the annual Board cash retainer may elect to have any future RSU grants settle simultaneously with vesting.
The following table summarizes all RSU activity for the three months ended March 31, 2022 (in millions, except grant date fair value amounts):
|
RSUs |
|
|
Weighted-Average Grant Date Fair Value |
|
||
Balance as of December 31, 2021 |
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
||
Released |
|
( |
) |
|
|
|
|
Canceled/Forfeited |
|
( |
) |
|
|
|
|
Balance as of March 31, 2022 |
|
|
|
$ |
|
||
Vested and expected to vest after March 31, 20221 |
|
|
|
$ |
|
_________________________________________
The above table represents regular annual RSU awards granted during the three months ended March 31, 2022, as well as a special grant, made in connection with the Company’s Ambition 2025 strategic plan to approximately
During the three months ended March 31, 2022 and 2021, the Company recorded stock-based compensation expense related to RSUs of $
The following table summarizes additional information regarding RSUs (in millions, except per share amounts):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Weighted-average fair value per share of RSUs granted |
$ |
|
|
$ |
|
||
Total grant date fair value of RSUs vested |
$ |
|
|
$ |
|
||
Total intrinsic value of RSUs released |
$ |
|
|
$ |
|
8. Share Repurchase Program
On February 24, 2022, the Company announced a new share repurchase program (the “Repurchase Program”), pursuant to which the Company may purchase up to $
13
timing, volume, and nature of share repurchases pursuant to the Repurchase Program are at the discretion of management and may be suspended or discontinued at any time. Shares repurchased under the Repurchase Program are retired immediately and are included in the category of authorized but unissued shares. The excess of the purchase price over the par value of the common shares is reflected in retained earnings.
On March 10, 2022, pursuant to the Repurchase Program, the Company entered into a Variable Tenor ASR Master Agreement (the “ASR Agreement”) with Citibank, N.A. (“Citi”) to repurchase $
During the three months ended March 31, 2022, the Company also repurchased on the open market
As of March 31, 2022, the Company had approximately $
9. Goodwill and Intangible Assets
Goodwill
The following table sets forth the change in the carrying amount of goodwill during the three months ended March 31, 2022 (in millions):
Balance as of December 31, 2021 |
$ |
|
|
Acquisitions |
|
( |
) |
Translation and other adjustments |
|
|
|
Balance as of March 31, 2022 |
$ |
|
The changes in the carrying amount of goodwill for the three months ended March 31, 2022 were driven primarily by measurement period adjustments for the acquisition of Midway. See Note 3 for additional information.
Intangible Assets
The intangible asset lives range from
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
Weighted- |
|
||||
|
2022 |
|
|
2021 |
|
|
2021 |
|
|
(Years) |
|
||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Non-compete agreements |
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
||||
Trademarks |
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
||||
Accumulated amortization |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total amortizable intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
||||
Indefinite-lived trademarks |
|
|
|
|
|
|
|
|
|
|
|
||||
Total intangibles, net |
$ |
|
|
$ |
|
|
$ |
|
|
|
|
__________________________________
14
The following table summarizes the estimated future amortization expense for intangible assets (in millions):
Year Ending December 31, |
|
|
|
2022 (Apr - Dec) |
$ |
|
|
2023 |
|
|
|
2024 |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
Thereafter |
|
|
|
Total future amortization expense |
$ |
|
10. Financing Arrangements
The following table summarizes all outstanding debt (presented net of unamortized debt issuance costs) and other financing arrangements (in millions):
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|||
|
2022 |
|
|
2021 |
|
|
2021 |
|
|||
Revolving Lines of Credit |
|
|
|
|
|
|
|
|
|||
2026 ABL: |
|
|
|
|
|
|
|
|
|||
U.S. Revolver1 |
|
|
|
|
— |
|
|
|
— |
|
|
2026 Canada Revolver |
|
— |
|
|
|
— |
|
|
|
— |
|
Borrowings under revolving lines of credit, net |
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|||
Long-term Debt, net |
|
|
|
|
|
|
|
|
|||
Term Loan: |
|
|
|
|
|
|
|
|
|||
Term Loan2 |
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Term Loan3 |
|
|
|
|
|
|
|
— |
|
||
Current portion |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Long-term borrowings under term loan |
|
|
|
|
|
|
|
|
|||
Senior Notes: |
|
|
|
|
|
|
|
|
|||
|
— |
|
|
|
— |
|
|
|
|
||
Senior Notes5 |
|
|
|
|
|
|
|
|
|||
Senior Notes6 |
|
|
|
|
|
|
|
— |
|
||
Long-term borrowings under senior notes |
|
|
|
|
|
|
|
|
|||
Long-term debt, net |
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|||
Equipment Financing Facilities, net |
|
|
|
|
|
|
|
|
|||
Equipment financing facilities7 |
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Current portion |
|
|
|
|
|
|
|
( |
) |
||
Long-term obligations under equipment financing, net |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
_______________________________
2021 Debt Refinancing
In May 2021, the Company entered into various financing arrangements to refinance certain debt instruments to take advantage of lower market interest rates (the “2021 Debt Refinancing”). The transactions included a new $
15
The financing arrangements entered into in connection with the 2021 Debt Refinancing had certain lenders who also participated in previous financing arrangements entered into by the Company; therefore, portions of the transactions were accounted for as either debt extinguishments or debt modifications. The Company recognized a loss on debt extinguishment totaling $
2029 Senior Notes
On May 10, 2021, the Company and certain subsidiaries of the Company as guarantors completed a private offering of $
The 2029 Senior Notes and related subsidiary guarantees were offered and sold in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to non-U.S. persons outside of the United States pursuant to Regulation S under the Securities Act. The 2029 Senior Notes and related subsidiary guarantees have not been, and will not be, registered under the Securities Act or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and other applicable securities laws.
As of March 31, 2022, the outstanding balance on the 2029 Senior Notes, net of $
2026 ABL
On May 19, 2021, the Company entered into a $
In addition, the New Senior Secured Credit Facilities and the 2029 Senior Notes are subject to negative covenants that, among other things and subject to certain exceptions, limit the Company’s ability and the ability of its restricted subsidiaries to: (i) incur indebtedness (including guarantee obligations); (ii) incur liens; (iii) engage in mergers or other fundamental changes; (iv) dispose of certain property or assets; (v) make certain payments, dividends or other distributions; (vi) make certain acquisitions, investments, loans and advances; (vii) prepay certain indebtedness; (viii) change the nature of their business; (ix) engage in certain transactions with affiliates; (x) engage in sale-leaseback transactions; and (xi) enter into certain other restrictive agreements. The 2026 ABL is secured by a first priority lien over substantially all of the Company’s and each guarantor’s accounts and other receivables, chattel paper, deposit accounts (excluding any such account containing identifiable proceeds of Term Priority Collateral (as defined below)), inventory, and, to the extent related to the foregoing and other ABL Priority Collateral, general intangibles (excluding equity interests in any subsidiary of the Company and all intellectual property), instruments, investment property (but not equity interests in any subsidiary of the Company), commercial tort claims, letters of credit, supporting obligations and letter of credit rights, together with all books, records and documents related to, and all proceeds and products of, the foregoing, subject to certain customary exceptions (the “ABL Priority Collateral”), and a second priority lien over substantially all of the Company’s and each guarantor’s other assets, including all of the equity interests of any subsidiary held by the Company or any guarantor, subject to certain customary exceptions (the “Term Priority Collateral”). Beacon Sales Acquisition,
16
Inc., a Delaware corporation and subsidiary of the Company, is a U.S. Borrower under the 2026 ABL and Beacon Roofing Supply Canada Company, an unlimited liability company organized under the laws of Nova Scotia and subsidiary of the Company, is a Canadian borrower under the 2026 ABL. The 2026 ABL is fully and unconditionally guaranteed, on a joint and several basis, by the Company’s active U.S. subsidiaries.
As of March 31, 2022, the outstanding balance on the 2026 ABL, net of $
2028 Term Loan
On May 19, 2021, the Company entered into a $
The 2028 Term Loan is secured by a shared first-priority lien on the Term Priority Collateral and a shared second-priority lien on the ABL Priority Collateral. Certain excluded assets will not be included in the Term Priority Collateral and the ABL Priority Collateral. The 2028 Term Loan is fully and unconditionally guaranteed, on a joint and several basis, by certain of the Company’s active U.S. subsidiaries.
As of March 31, 2022, the outstanding balance on the 2028 Term Loan, net of $
2019 Debt Refinancing
2026 Senior Notes
On October 9, 2019, the Company, and certain subsidiaries of the Company as guarantors, completed a private offering of $
The 2026 Senior Notes and related subsidiary guarantees were offered and sold in a private transaction exempt from the registration requirements of the Securities Act, to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to non-U.S. persons outside of the United States pursuant to Regulation S under the Securities Act. The 2026 Senior Notes and related subsidiary guarantees have not been, and will not be, registered under the Securities Act or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and other applicable securities laws.
The Company capitalized debt issuance costs of $
As of March 31, 2022, the outstanding balance on the 2026 Senior Notes, net of $
Financing - Allied Acquisition
In connection with the Allied Acquisition, the Company entered into various financing arrangements totaling $
17
The proceeds from these financing arrangements were used to finance the Allied Acquisition, to refinance or otherwise extinguish all third-party indebtedness, to pay fees and expenses associated with the acquisition, and to provide working capital and funds for other general corporate purposes. The Company capitalized new debt issuance costs totaling approximately $
2023 ABL
On January 2, 2018, the Company entered into a $
2025 Term Loan
On January 2, 2018, the Company entered into a $
2025 Senior Notes
On October 25, 2017, Beacon Escrow Corporation, a wholly owned subsidiary of the Company, completed a private offering of $
11. Leases
The following table summarizes components of lease costs recognized in the condensed consolidated statements of operations (in millions; amounts include both continuing and discontinued operations):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating lease costs |
|
$ |
|
|
$ |
|
||
Finance lease costs: |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
|
||
Interest on lease obligations |
|
|
|
|
|
|
||
Variable lease costs |
|
|
|
|
|
|
||
Total lease costs |
|
$ |
|
|
$ |
|
18
The following table presents supplemental cash flow information related to the Company's leases (in millions):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash paid for amounts included in measurement of lease obligations: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance leases |
|
$ |
|
|
$ |
|
||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for new finance lease liabilities |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
|
|
$ |
|
As of March 31, 2022, the Company’s operating leases had a weighted-average remaining lease term of
The following table summarizes future lease payments as of March 31, 2022 (in millions):
Year Ending December 31, |
|
Operating Leases |
|
|
Finance Leases |
|
||
2022 (Apr - Dec) |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total future lease payments |
|
|
|
|
|
|
||
Imputed interest |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
$ |
|
12. Commitments and Contingencies
The Company is subject to loss contingencies pursuant to various federal, state and local environmental laws and regulations; however, the Company is not aware of any reasonably possible losses that would have a material impact on its results of operations, financial position, or liquidity. Potential loss contingencies include possible obligations to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical or other substances by the Company or by other parties. In connection with its acquisitions, the Company’s practice is to request indemnification for any and all known material liabilities of significance as of the respective dates of acquisition. Historically, environmental liabilities have not had a material impact on the Company’s results of operations, financial position or liquidity.
The Company is subject to litigation from time to time in the ordinary course of business; however, the Company does not expect the results, if any, to have a material adverse impact on its results of operations, financial position or liquidity. The Company accrues a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The Company also considers whether an insurance recovery receivable is applicable and appropriate based on the specific legal claim. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims.
In December of 2018, a Beacon vehicle was involved in an accident that resulted in a fatality. The estate of the decedent and two bystanders have filed a lawsuit against the driver and Beacon. Trial is scheduled for August 2022. There can be no assurance as to the ultimate outcome of this legal proceeding; however, the Company intends to vigorously defend this case, unless it is determined that it is appropriate to be settled. As of March 31, 2022, the Company had no significant amounts accrued with respect to this matter as payment, if any, is not yet probable or reasonably estimable.
13. Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) is composed of certain gains and losses that are excluded from net income under GAAP and instead recorded as a separate element of stockholders’ equity.
19
The following table summarizes the components of, and changes in, accumulated other comprehensive loss (in millions):
|
Foreign |
|
|
Derivative |
|
|
|
|
|||
|
Currency |
|
|
Financial |
|
|
AOCI |
|
|||
Balance as of December 31, 2021 |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income before reclassifications |
|
|
|
|
|
|
|
|
|||
Balance as of March 31, 2022 |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
Gains (losses) on derivative instruments are recognized in the condensed consolidated statements of operations in interest expense, financing costs, and other.
14. Geographic Data
The following table summarizes certain geographic information (in millions):
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|||
|
2022 |
|
|
2021 |
|
|
2021 |
|
|||
Long-lived assets: |
|
|
|
|
|
|
|
|
|||
U.S. |
$ |
|
|
$ |
|
|
$ |
|
|||
Canada |
|
|
|
|
|
|
|
|
|||
Total long-lived assets |
$ |
|
|
$ |
|
|
$ |
|
15. Fair Value Measurement
As of March 31, 2022, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses approximated fair value because of the short-term nature of these instruments. The Company measures its cash equivalents at amortized cost, which approximates fair value based upon quoted market prices (Level 1).
As of March 31, 2022, based upon recent trading prices (Level 2), the fair value of the Company’s $
As of March 31, 2022, the fair value of the Company’s term loan and revolving lines of credit approximated the amount outstanding. The Company estimates the fair value of its term loan and revolving lines of credit by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles (Level 3).
16. Financial Derivatives
The Company uses interest rate derivative instruments to manage the risk related to fluctuating cash flows from interest rate changes by converting a portion of its variable-rate borrowings into fixed-rate borrowings.
On September 11, 2019, the Company entered into
The effectiveness of the swaps will be assessed qualitatively by the Company during the lives of the hedges by (i) comparing the current terms of the hedges with the related hedged debt to assure they continue to coincide and (ii) through an evaluation of the ability of the counterparty to the hedges to honor their obligations under the hedges. The Company performed a qualitative analysis as of March 31, 2022 and concluded that the swap agreements continue to meet the requirements under ASC 815 to qualify for cash flow hedge accounting. As of March 31, 2022, the fair value of the 3‑year swap, net of tax, was $
20
The Company records any differences paid or received on its interest rate hedges to interest expense, financing costs and other within the condensed consolidated statements of operations. The following table summarizes the combined fair values, net of tax, of the interest rate derivative instruments (in millions):
|
|
|
|
Net Assets (Liabilities) as of |
|
|||||||||
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|||
Instrument |
|
Fair Value Hierarchy |
|
2022 |
|
|
2021 |
|
|
2021 |
|
|||
Designated interest rate swaps1 |
|
Level 2 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
_______________________
The fair value of the interest rate swaps is determined through the use of a pricing model, which utilizes verifiable inputs such as market interest rates that are observable at commonly quoted intervals (generally referred to as the “LIBOR Curve”) for the full terms of the hedge agreements. These values reflect a Level 2 measurement under the applicable fair value hierarchy.
The following table summarizes the amounts of gain (loss) on the interest rate derivative instruments recognized in other comprehensive income (in millions):
|
|
Three Months Ended March 31, |
|
|||||
Instrument |
|
2022 |
|
|
2021 |
|
||
Designated interest rate swaps |
|
$ |
|
|
$ |
|
17. Quarterly Financial Data
The following table sets forth certain unaudited quarterly data for 2022 and 2021, which, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of this data. Results of any one or more quarters are not necessarily indicative of results for an entire fiscal year or of continuing trends (in millions, except per share amounts):
|
Three Months Ended |
|
|||||||||||||||||
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
% of fiscal year’s net sales |
n/m |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross profit |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
% of fiscal year’s gross profit |
n/m |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) from continuing operations |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
Net income (loss) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
Net income (loss) attributable to common stockholders |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) from continuing operations per share - Basic |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
Net income (loss) per share - Basic |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) from continuing operations per share - Diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
Net income (loss) per share - Diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
___________________________________________
n/m = not meaningful.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto and Management’s Discussion and Analysis included in our 2021 Annual Report on Form 10-K, our Condensed Consolidated Financial Statements and the notes thereto included in our Transition Report on Form 10-Q for the period from October 1, 2021 to December 31, 2021 and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to “2022” refer to the three months ended March 31, 2022 being discussed and references to “2021” refer to the three months ended March 31, 2021 being discussed.
Cautionary Statement Regarding Forward-Looking Information
Our disclosure and analysis in this report contains forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, that involves risks and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management’s plans and objectives, future contracts, and forecasts of trends and other matters. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “believe,” “will likely result,” “outlook,” “project” and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.
Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The Company may not succeed in addressing these and other risks. Consequently, all forward-looking statements in this report are qualified by the factors, risks and uncertainties contained therein and readers are cautioned not to place undue reliance on forward-looking statements.
Overview
We are the largest publicly traded distributor of roofing materials and complementary building products in North America. We have served the building industry for over 90 years and as of March 31, 2022, we operated 448 branches throughout all 50 states in the U.S. and 6 provinces in Canada. We offer one of the most extensive ranges of high-quality professional grade exterior products comprising over 100,000 SKUs, and we serve over 80,000 residential and non-residential customers who trust us to help them save time, work more efficiently and enhance their businesses.
On January 1, 2022, the Company purchased 100% of the equity interests in Crabtree Siding and Supply (“Crabtree”), a wholesale distributor of residential exterior building materials, including a broad offering of complementary products, to contractors and homebuilder customers and annual sales of approximately $1 million prior to the acquisition. For additional information, see Note 3 in the Notes to Condensed Consolidated Financial Statements.
On December 1, 2021, we completed the divestiture of our solar products business ("Solar Products") in order to focus on the Company’s core exterior products business. The results of operations from Solar Products were not material to the Company. For additional information, see Note 4 in the Notes to Condensed Consolidated Financial Statements.
On November 1, 2021, the Company acquired 100% of the equity interests of Midway Sales & Distributing, Inc. ("Midway"), a leading Midwest distributor of residential and commercial exterior building and roofing supplies with 10 branches across Kansas, Missouri and Nebraska and annual sales of approximately $130 million prior to the acquisition. This acquisition strengthened the Company’s presence in the Midwest. For additional information, see Note 3 in the Notes to Condensed Consolidated Financial Statements.
On February 10, 2021, we completed the sale of our interior products and insulation businesses (“Interior Products”) to Foundation Building Materials Holding Company LLC for approximately $850 million in cash (subject to a working capital and certain other adjustments as set forth in the purchase agreement). As of September 30, 2021, the adjusted purchase price for Interior Products was $842.7 million. We used the proceeds from the divestiture of our Interior Products business to reduce net debt leverage and strengthen our balance sheet, which provides us the financial flexibility to pursue strategic growth initiatives in our core exterior products business. Beginning with the condensed consolidated financial statements for the three months ended December 31, 2020, we have reflected Interior Products as discontinued operations for the three months ended March 31, 2021. Unless otherwise noted, amounts and disclosures relate to our continuing operations. For additional information, see Note 4 in the Notes to Condensed Consolidated Financial Statements.
We are strategically focused on the two core markets of residential and non-residential roofing. As a distributor, we have a strong value proposition for both customers and suppliers providing scale, our networked model and specialized capabilities as competitive
22
advantages. We intend to grow faster than the market by enhancing our customers’ experience, activating a complete go-to market strategy, expanding our footprint and driving margin enhancing initiatives.
Our differentiated service model is designed to solve customer needs. The scale of our business provides branch coverage, technology enablement and investment in our team that is the foundation of customer excellence. In addition, service is further enhanced by our On Time and Complete network (Beacon OTC®), market-based sales teams, and national call center. We also provide the most complete digital commerce platform in building products distribution creating value for customers who are able to operate their businesses more effectively and efficiently.
Our history has been strongly influenced by significant acquisition-driven growth, highlighted by the acquisitions of Allied Building Products Corp. (“Allied”) for $2.88 billion in 2018 (the “Allied Acquisition”) and Roofing Supply Group, LLC for $1.17 billion in 2016. These strategic acquisitions expanded our geographic footprint, enhanced our market presence, and diversified our product offerings. The scale we have achieved from our expansion efforts serves as a competitive advantage, allowing us to use our assets more efficiently, and control our expenses to drive operating leverage.
On February 24, 2022, we announced our Ambition 2025 Value Creation Framework to drive growth, enhance customer service and expand our footprint in key markets, which included new Ambition 2025 financial targets and the Repurchase Program (as defined and further detailed below) as well as strategic deployment of capital on acquisitions. We have pursued and finalized numerous smaller acquisitions in key markets to complement the expansion of our geographic footprint, such as our recently completed acquisitions of Midway and Crabtree. As part of Ambition 2025, we will continue to pursue strategic acquisitions to grow our business, and we remain heavily focused on improving our operations and continuing to identify additional opportunities for organic growth. Our recent highlights in these pursuits are demonstrated by the following results:
COVID-19 Pandemic
We continue to monitor the ongoing impact of the COVID-19 pandemic, including the effects of recent notable variants of the virus. The health and safety of our employees, customers, and the communities in which we operate remains our top priority. Additional safety measures have been implemented in response to the COVID-19 pandemic. Our essential business designation status in all the local markets that we serve has not changed, and we have yet to experience a significant amount of business disruption from forced temporary branch closures due to COVID-19. To date, our business experienced the largest adverse impact from COVID-19 in the third quarter of fiscal year 2020, mainly in areas with significant government construction restrictions that have since been largely eliminated. We have the financial strength and operational flexibility to respond to future COVID-19 pandemic restrictions, and have taken proactive steps to make a number of the cost management initiatives undertaken in response to the COVID-19 pandemic permanent.
The exterior products industry experienced constrained supply chain dynamics in 2021, which has continued in 2022. As a result, we experienced cost increases and, at times, a limited ability to purchase enough product to meet consumer demand. We have continued to see an increase in our short-cycle backlog metrics. Open orders, a measure of our backlog, ended the quarter higher than the prior quarter-end. These trends, caused in large part from global disruptions related to the COVID-19 pandemic, may persist in the near-term. We took proactive measures to actively increase our inventory, price efficiently and deliver high-value solutions to our customers’ critical building material needs. As a leading distributor of essential building materials, we will continue to react quickly to market and supply chain developments and ensure high-quality service for our customers.
23
Comparison of the Three Months Ended March 31, 2022 and 2021
The following tables set forth condensed consolidated statements of operations data and such data as a percentage of total net sales for the periods presented (in millions):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Net sales |
$ |
1,686.9 |
|
|
$ |
1,318.0 |
|
Cost of products sold |
|
1,247.4 |
|
|
|
985.2 |
|
Gross profit |
|
439.5 |
|
|
|
332.8 |
|
Operating expense: |
|
|
|
|
|
||
Selling, general and administrative |
|
309.3 |
|
|
|
267.8 |
|
Depreciation |
|
17.5 |
|
|
|
14.6 |
|
Amortization |
|
21.4 |
|
|
|
27.6 |
|
Total operating expense |
|
348.2 |
|
|
|
310.0 |
|
Income (loss) from operations |
|
91.3 |
|
|
|
22.8 |
|
Interest expense, financing costs, and other |
|
16.6 |
|
|
|
28.6 |
|
Loss on debt extinguishment |
|
— |
|
|
|
9.5 |
|
Income (loss) from continuing operations before income taxes |
|
74.7 |
|
|
|
(15.3 |
) |
Provision for (benefit from) income taxes |
|
18.9 |
|
|
|
(4.8 |
) |
Net income (loss) from continuing operations |
|
55.8 |
|
|
|
(10.5 |
) |
Net income (loss) from discontinued operations |
|
— |
|
|
|
4.2 |
|
Net income (loss) |
|
55.8 |
|
|
|
(6.3 |
) |
Dividends on Preferred Stock |
|
6.0 |
|
|
|
6.0 |
|
Net income (loss) attributable to common stockholders |
$ |
49.8 |
|
|
$ |
(12.3 |
) |
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Net sales |
|
100.0 |
% |
|
|
100.0 |
% |
Cost of products sold |
|
73.9 |
% |
|
|
74.7 |
% |
Gross profit |
|
26.1 |
% |
|
|
25.3 |
% |
Operating expense: |
|
|
|
|
|
||
Selling, general and administrative |
|
18.4 |
% |
|
|
20.3 |
% |
Depreciation |
|
1.0 |
% |
|
|
1.1 |
% |
Amortization |
|
1.3 |
% |
|
|
2.1 |
% |
Total operating expense |
|
20.7 |
% |
|
|
23.5 |
% |
Income (loss) from operations |
|
5.4 |
% |
|
|
1.8 |
% |
Interest expense, financing costs, and other |
|
1.0 |
% |
|
|
2.3 |
% |
Loss on debt extinguishment |
|
0.0 |
% |
|
|
0.7 |
% |
Income (loss) from continuing operations before income taxes |
|
4.4 |
% |
|
|
(1.2 |
%) |
Provision for (benefit from) income taxes |
|
1.1 |
% |
|
|
(0.4 |
%) |
Net income (loss) from continuing operations |
|
3.3 |
% |
|
|
(0.8 |
%) |
Net income (loss) from discontinued operations |
|
0.0 |
% |
|
|
0.3 |
% |
Net income (loss) |
|
3.3 |
% |
|
|
(0.5 |
%) |
Dividends on Preferred Stock |
|
0.3 |
% |
|
|
0.4 |
% |
Net income (loss) attributable to common stockholders |
|
3.0 |
% |
|
|
(0.9 |
%) |
When we refer to regions, we are referring to our geographic regions. When we refer to our net product costs, we are referring to our invoice cost less the impact of short-term buying programs.
As of March 31, 2022, we had a total of 448 branches in operation.
Net Sales
Net sales increased 28.0% to $1.69 billion in 2022, up from $1.32 billion in 2021. Net sales increased across all three lines of business, substantially driven by a weighted-average selling price increase of approximately 23-24% as well as an estimated volumes increase of approximately 3-4%. Net sales in 2022 includes the results of acquired branches, while net sales in 2021 includes the results of divested branches that were included in continuing operations, the combined results of which drove a net 0.5% increase from 2021 to 2022.
24
Net sales by geographic region increased from 2021 to 2022 as follows: Northeast 27.3%; Mid-Atlantic 22.9% Southeast 16.9%; Southwest 33.9%; Midwest 49.7%; West 15.1%; and Canada 24.5%.
We estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins (discussed below). To calculate approximate weighted average selling price and product cost changes, we review organic U.S. warehouse sales of the same items sold regionally period over period and normalize the data for non-representative outliers. To determine estimated volumes, we subtract the change in weighted average selling price, calculated as described above, from the total changes in net sales, excluding acquisitions and dispositions. As a result, and especially in high inflationary periods, the weighted average selling price and estimated volumes changes may not be directly comparable to changes reported in prior periods.
The following table summarizes net sales by product line for the periods presented (in millions):
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2022 |
|
|
2021 |
|
|
Year-over-Year Change |
|
|||||||||||||||
|
Net Sales |
|
|
Mix % |
|
|
Net Sales |
|
|
Mix % |
|
|
$ |
|
|
% |
|
||||||
Residential roofing products |
$ |
846.4 |
|
|
|
50.2 |
% |
|
$ |
695.0 |
|
|
|
52.7 |
% |
|
$ |
151.4 |
|
|
|
21.8 |
% |
Non-residential roofing products |
|
487.7 |
|
|
|
28.9 |
% |
|
|
329.7 |
|
|
|
25.0 |
% |
|
|
158.0 |
|
|
|
47.9 |
% |
Complementary building products |
|
352.8 |
|
|
|
20.9 |
% |
|
|
293.3 |
|
|
|
22.3 |
% |
|
|
59.5 |
|
|
|
20.3 |
% |
Total net sales |
$ |
1,686.9 |
|
|
|
100.0 |
% |
|
$ |
1,318.0 |
|
|
|
100.0 |
% |
|
$ |
368.9 |
|
|
|
28.0 |
% |
Gross Profit
The following table summarizes gross profit and gross margin for the periods presented (in millions):
|
Three Months Ended March 31, |
|
|
Change1 |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Gross profit |
$ |
439.5 |
|
|
$ |
332.8 |
|
|
$ |
106.7 |
|
|
|
32.1 |
% |
Gross margin |
|
26.1 |
% |
|
|
25.3 |
% |
|
N/A |
|
|
|
0.8 |
% |
_________________________________________
1 Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.
Gross margin was 26.1% in 2022, up 0.8 percentage points from 25.3% in 2021. The comparative increase in gross margin resulted from a weighted-average selling price increase (calculated as described above) of approximately 23-24%, partially offset by a weighted-average product cost increase of approximately 22-23%.
Operating Expense
The following table summarizes operating expense for the periods presented (in millions):
|
Three Months Ended March 31, |
|
|
Change1 |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Selling, general and administrative |
$ |
309.3 |
|
|
$ |
267.8 |
|
|
$ |
41.5 |
|
|
|
15.5 |
% |
Depreciation |
|
17.5 |
|
|
|
14.6 |
|
|
|
2.9 |
|
|
|
19.9 |
% |
Amortization |
|
21.4 |
|
|
|
27.6 |
|
|
|
(6.2 |
) |
|
|
(22.5 |
%) |
Operating expense |
$ |
348.2 |
|
|
$ |
310.0 |
|
|
$ |
38.2 |
|
|
|
12.3 |
% |
% of net sales |
|
20.7 |
% |
|
|
23.5 |
% |
|
N/A |
|
|
|
(2.8 |
%) |
_________________________________________________
Operating expense increased 12.3% to $348.2 million in 2022, from $310.0 million in 2021. The comparative increase in operating expense was mainly influenced by the following factors:
25
Operating expense in 2022 includes the results of acquired branches, while operating expense in 2021 includes the results of divested branches that were included in continuing operations, the combined results of which drove a net increase of $5.6 million from 2021 to 2022.
Interest Expense, Financing Costs and Other
Interest expense, financing costs and other expense was $16.6 million in 2022, compared to $28.6 million in 2021. The comparative decrease is primarily due to decreased debt balances and a lower weighted-average interest rate on our outstanding debt.
Income Taxes
Income tax provision (benefit) was $18.9 million in 2022, compared to $(4.8) million in 2021. The comparative increase in income tax provision was primarily due to higher pre-tax income from continuing operations. The effective tax rate, excluding any discrete items, was 25.9% in 2022, compared to 27.4% in 2021. We expect our 2022 effective tax rate, excluding any discrete items, will range from approximately 25.5% to 26.5%.
Net Income (Loss)/Net Income (Loss) Per Share
Net income (loss) from continuing operations was $55.8 million in 2022, compared to $(10.5) million in 2021. Net income (loss) from discontinued operations was $4.2 million in 2021 (see Note 4 in the Notes to Condensed Consolidated Financial Statements for further discussion). Consolidated net income (loss) was $55.8 million in 2022, compared to $(6.3) million in 2021. There were $6.0 million of dividends on preferred shares for both 2022 and 2021, making consolidated net income (loss) attributable to common stockholders $49.8 million and $(12.3) million, respectively.
We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 6 in the Notes to Condensed Consolidated Financial Statements for further discussion).
The following table presents all the components utilized to calculate basic and diluted net income (loss) per share (in millions, except per share amounts; certain amounts may not recalculate due to rounding):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Numerator: |
|
|
|
|
|
||
Net income (loss) from continuing operations |
$ |
55.8 |
|
|
$ |
(10.5 |
) |
Dividends on Preferred Stock |
|
(6.0 |
) |
|
|
(6.0 |
) |
Undistributed income from continuing operations allocated to participating securities |
|
(6.1 |
) |
|
|
— |
|
Net income (loss) from continuing operations attributable to common stockholders - Basic and Diluted (if-converted and two-class method) |
|
43.7 |
|
|
|
(16.5 |
) |
Net income (loss) from discontinued operations attributable to common stockholders - Basic and Diluted (if-converted and two-class method) |
|
— |
|
|
|
4.2 |
|
Net income (loss) attributable to common stockholders - Basic and Diluted |
$ |
43.7 |
|
|
$ |
(12.3 |
) |
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
||
Weighted-average common shares outstanding - Basic |
|
70.1 |
|
|
|
69.6 |
|
Effect of common share equivalents |
|
1.2 |
|
|
|
— |
|
Weighted-average common shares outstanding - Diluted |
|
71.3 |
|
|
|
69.6 |
|
|
|
|
|
|
|
||
Net income (loss) per share: |
|
|
|
|
|
||
Basic - Continuing operations |
$ |
0.62 |
|
|
$ |
(0.24 |
) |
Basic - Discontinued operations |
|
— |
|
|
|
0.06 |
|
Basic net income (loss) per share |
$ |
0.62 |
|
|
$ |
(0.18 |
) |
|
|
|
|
|
|
||
Diluted - Continuing operations |
$ |
0.61 |
|
|
$ |
(0.24 |
) |
Diluted - Discontinued operations |
|
— |
|
|
|
0.06 |
|
Diluted net income (loss) per share (if-converted and two-class method) |
$ |
0.61 |
|
|
$ |
(0.18 |
) |
26
Non-GAAP Financial Measures
To provide investors with additional information regarding our financial results, we prepare certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), specifically:
We use these supplemental non-GAAP measures to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources. We expect to compute our non-GAAP financial measures consistently using the same methods each period.
We believe these non-GAAP measures are useful measures because they permit investors to better understand changes over comparative periods by providing financial results that are unaffected by certain items that are not indicative of ongoing operating performance.
While we believe that these non-GAAP measures are useful to investors when evaluating our business, they are not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. These non-GAAP measures should not be considered in isolation or as a substitute for other financial performance measures presented in accordance with GAAP. These non-GAAP financial measures may have material limitations including, but not limited to, the exclusion of certain costs without a corresponding reduction of net income for the income generated by the assets to which the excluded costs relate. In addition, these non-GAAP financial measures may differ from similarly titled measures presented by other companies.
Adjusting Items to Non-GAAP Financial Measures
The impact of the following expense (income) items is excluded from each of our non-GAAP measures (the “adjusting items”):
The following table presents the impact of the adjusting items on our condensed consolidated statements of operations for each of the periods indicated (in millions):
|
Operating Expense |
|
|
Non-Operating Expense |
|
|
|
|
|
|
|
||||||||||||
|
SG&A1 |
|
|
Amorti-zation |
|
|
Interest Expense |
|
|
Other (Income) Expense |
|
|
Income Taxes2 |
|
|
Total |
|
||||||
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Acquisition costs |
$ |
0.5 |
|
|
$ |
21.4 |
|
|
$ |
1.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
22.9 |
|
Restructuring costs |
|
1.7 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
2.0 |
|
COVID-19 impacts |
|
1.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
Total adjusting items |
$ |
3.6 |
|
|
$ |
21.4 |
|
|
$ |
1.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
26.3 |
|
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Acquisition costs |
$ |
0.7 |
|
|
$ |
25.3 |
|
|
$ |
1.8 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
27.8 |
|
Restructuring costs3 |
|
3.0 |
|
|
|
2.3 |
|
|
|
0.8 |
|
|
|
9.5 |
|
|
|
— |
|
|
|
15.6 |
|
COVID-19 impacts |
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
Total adjusting items |
$ |
4.2 |
|
|
$ |
27.6 |
|
|
$ |
2.6 |
|
|
$ |
9.5 |
|
|
$ |
— |
|
|
$ |
43.9 |
|
______________________________
27
Adjusted Operating Expense
The following table presents a reconciliation of operating expense, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted Operating Expense for each of the periods indicated (in millions):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Operating expense |
$ |
348.2 |
|
|
$ |
310.0 |
|
Acquisition costs |
|
(21.9 |
) |
|
|
(26.0 |
) |
Restructuring costs |
|
(1.7 |
) |
|
|
(5.3 |
) |
COVID-19 impacts |
|
(1.4 |
) |
|
|
(0.5 |
) |
Adjusted Operating Expense |
$ |
323.2 |
|
|
$ |
278.2 |
|
|
|
|
|
|
|
||
Net sales |
$ |
1,686.9 |
|
|
$ |
1,318.0 |
|
Operating expense as % of net sales |
|
20.7 |
% |
|
|
23.5 |
% |
Adjusted Operating Expense as % of net sales |
|
19.2 |
% |
|
|
21.1 |
% |
Adjusted Net Income (Loss)
The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted Net Income (Loss) for each of the periods indicated (in millions):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Net income (loss) from continuing operations |
$ |
55.8 |
|
|
$ |
(10.5 |
) |
Adjusting items: |
|
|
|
|
|
||
Acquisition costs |
|
22.9 |
|
|
|
27.8 |
|
Restructuring costs |
|
2.0 |
|
|
|
15.6 |
|
COVID-19 impacts |
|
1.4 |
|
|
|
0.5 |
|
Total adjusting items |
|
26.3 |
|
|
|
43.9 |
|
Less: tax impact of adjusting items1 |
|
(6.5 |
) |
|
|
(11.3 |
) |
Total adjustments, net of tax |
|
19.8 |
|
|
|
32.6 |
|
Adjusted Net Income (Loss) |
$ |
75.6 |
|
|
$ |
22.1 |
|
|
|
|
|
|
|
||
Net sales |
$ |
1,686.9 |
|
|
$ |
1,318.0 |
|
Net income (loss) as % of sales |
|
3.3 |
% |
|
|
(0.8 |
%) |
Adjusted Net Income (Loss) as % of sales |
|
4.5 |
% |
|
|
1.7 |
% |
______________________________
28
Adjusted EBITDA
The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated (in millions):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Net income (loss) from continuing operations |
$ |
55.8 |
|
|
$ |
(10.5 |
) |
Interest expense, net |
|
17.2 |
|
|
|
29.6 |
|
Income taxes |
|
18.9 |
|
|
|
(4.8 |
) |
Depreciation and amortization |
|
38.9 |
|
|
|
42.2 |
|
Stock-based compensation |
|
5.1 |
|
|
|
4.2 |
|
Acquisition costs1 |
|
0.5 |
|
|
|
0.7 |
|
Restructuring costs1 |
|
1.7 |
|
|
|
12.5 |
|
COVID-19 impacts1 |
|
1.4 |
|
|
|
0.5 |
|
Adjusted EBITDA |
$ |
139.5 |
|
|
$ |
74.4 |
|
|
|
|
|
|
|
||
Net sales |
$ |
1,686.9 |
|
|
$ |
1,318.0 |
|
Net income (loss) as % of net sales |
|
3.3 |
% |
|
|
(0.8 |
%) |
Adjusted EBITDA as % of net sales |
|
8.3 |
% |
|
|
5.6 |
% |
______________________________
Seasonality and Quarterly Fluctuations
The demand for building materials is closely correlated to both seasonal changes and unpredictable weather patterns, therefore demand fluctuations are expected.
In general, our net sales and net income are highest in quarters ending June 30, September 30 and December 31, which represent the peak months of construction and re-roofing. Conversely, we have historically experienced low net income levels or net losses in quarters ending March 31, when winter construction cycles and cold weather patterns have an adverse impact on our customers’ ability to conduct their business.
Our balance sheet fluctuates throughout the year, driven by similar seasonal trends. We generally experience an increase in inventory and peak cash usage in the quarters ending March 31 and June 30, driven primarily by increased purchasing that is necessary to meet the rise in demand for our products during the warmer months. Accounts receivable, accounts payable, and cash collections are generally at their highest during the quarters ending June 30 and September 30, when sales are typically at their peak.
At times, we experience fluctuations in our financial performance that are driven by factors outside of our control, including the impact that severe weather events and unusual weather patterns may have on the timing and magnitude of demand and material availability.
In addition, the impact of the COVID-19 pandemic has caused, and may continue to cause, fluctuations in our financial results and working capital that are not aligned with the seasonality we generally experience.
Liquidity
Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities, taking into consideration available borrowings and the seasonal nature of our business.
Our principal sources of liquidity as of March 31, 2022 were our cash and cash equivalents of $52.4 million and our available borrowings of approximately $1.13 billion under our asset-based revolving lines of credit.
Significant factors which could affect future liquidity include the following:
29
Our primary capital needs are for working capital obligations and other general corporate purposes, including acquisitions and capital expenditures. Our primary sources of working capital are cash from operations and bank borrowings. We have financed large acquisitions through increased bank borrowings and the issuance of long-term debt and common or preferred stock. We then repay any such borrowings with cash flows from operations or subsequent financings. We have funded most of our capital expenditures with cash on hand, increased bank borrowings, or equipment financing, and then reduced those obligations with cash flows from operations. We may explore additional or replacement financing sources in order to bolster liquidity and strengthen our capital structure.
We believe we currently have adequate liquidity and availability of capital to fund our present operations, meet our commitments on our existing debt and fund anticipated growth, including expansion in existing and targeted market areas. We may seek potential acquisitions from time to time and hold discussions with certain acquisition candidates. If suitable acquisition opportunities or working capital needs arise that require additional financing, we believe that our financial position and earnings history provide a sufficient base for obtaining additional financing resources at reasonable rates and terms. We may also choose to issue additional shares of common stock or preferred stock in order to raise funds.
The following table summarizes our cash flows for the periods indicated (in millions):
|
Three Months Ended March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Net cash provided by (used in) operating activities |
$ |
(162.0 |
) |
|
$ |
(84.0 |
) |
Net cash provided by (used in) investing activities |
|
(22.0 |
) |
|
|
823.7 |
|
Net cash provided by (used in) financing activities |
|
11.0 |
|
|
|
(582.0 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
(0.4 |
) |
|
|
0.2 |
|
Net increase (decrease) in cash and cash equivalents |
$ |
(173.4 |
) |
|
$ |
157.9 |
|
Operating Activities
Net cash used in operating activities, including both continuing and discontinued operations, was $162.0 million in 2022, compared to $84.0 million in 2021. Cash from operations decreased $78.0 million primarily due to an incremental cash outflow of $200.8 million stemming from changes to our net working capital, mainly driven by an unfavorable change in cash outflows related to accounts receivable and inventories compared to the prior year. The unfavorable change in cash outflows related to accounts receivable compared to the prior year is largely driven by increased sales, while the unfavorable change in cash outflows related to inventories compared to the prior year is primarily due to product cost inflation as well as a build-up of product inventories in anticipation of peak selling season. The decrease was partially offset by an increase in net income after adjustments for non-cash items of $122.8 million. Operating cash flows used in discontinued operations for the three months ended March 31, 2021 were $21.8 million.
Investing Activities
Net cash used in investing activities was $22.0 million in 2022, compared to cash provided by investing activities of $823.7 million in 2021. The $845.7 million decrease in cash from investing activities was primarily due to the 2021 sale of Interior Products. There were no investing cash flows from discontinued operations.
Financing Activities
Net cash provided by financing activities was $11.0 million in 2022, compared to cash used in financing activities of $582.0 million in 2021. The $593.0 million increase in cash used in financing activities was primarily due to a decrease in repayments of borrowings under our term loan and revolving lines of credit, partially offset by $113.0 million in cash used to repurchase our common stock and a $25.0 million advance payment for shares of our common stock, both under the Repurchase Program (as defined below).
Share Repurchase Program
On February 24, 2022, we announced a new share repurchase program (the “Repurchase Program”), pursuant to which we may purchase up to $500 million of our common stock. Shares repurchased under the Repurchase Program are retired immediately and are included in the category of authorized but unissued shares. As of March 31, 2022, we had approximately $362.1 million remaining under the Repurchase Program. The pace of our repurchase activity will depend on factors such as our working capital needs, our cash requirements for acquisitions, our debt repayment obligations, our stock price, and economic and market conditions.
30
On March 10, 2022, we entered into a Variable Tenor ASR Master Agreement (the “ASR Agreement”) with Citibank, N.A. (“Citi”) to repurchase $125 million (the “Repurchase Price”) of our common stock. Under the terms of the ASR Agreement, we paid the Repurchase Price to Citi and received an initial share delivery of 1,689,189 shares of our common stock from Citi, representing 80% of the expected share repurchases under the ASR Agreement, based on our closing price of common stock of $59.20 on March 11, 2022. The final number of shares to be repurchased pursuant to the ASR Agreement will be determined upon settlement. As of March 31, 2022, the remaining $25 million of the Repurchase Price was evaluated as an unsettled equity forward contact indexed to our common stock and classified within stockholders’ equity as a reduction to additional paid in capital. The final settlement of the ASR Agreement is expected to be completed in the second quarter of 2022.
During the three months ended March 31, 2022, we also repurchased on the open market 221,658 shares of our common stock at an average price of $57.98 per share for an aggregate purchase price of $12.9 million.
See Note 8 in the Notes to Condensed Consolidated Financial Statements for additional information.
Capital Resources
In May 2021, we entered into a series of financing arrangements to refinance certain debt instruments to take advantage of lower market interest rates (the “2021 Debt Refinancing”). Upon completion of the 2021 Debt Refinancing, the weighted-average interest rate on our outstanding debt was 3.13% as of March 31, 2022, down from 4.21% as of March 31, 2021 (prior to the 2021 Debt Refinancing).
As of March 31, 2022, we had access to the following financing arrangements:
See Note 10 in the Notes to Condensed Consolidated Financial Statements for additional information on our current financing arrangements and the 2021 Debt Refinancing.
31
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 have not changed materially during the three months ended March 31, 2022.
Item 4. Controls and Procedures
As of March 31, 2022, management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, management, including the CEO and CFO, concluded that as of March 31, 2022, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.
There have been no material changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12 in the Notes to Condensed Consolidated Financial Statements for information about pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information with respect to the Company’s purchases of its common stock during the first quarter of 2022:
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1, 2, 3 |
|
|
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1, 2 |
|
||||
January 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
February 2022 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
500,000,000 |
|
March 2022 |
|
|
1,910,847 |
|
|
|
59.06 |
|
|
|
1,910,847 |
|
|
$ |
362,100,000 |
|
Total |
|
|
1,910,847 |
|
|
$ |
59.06 |
|
|
|
1,910,847 |
|
|
|
|
______________________________
See Note 8 in the Notes to Condensed Consolidated Financial Statements for additional information on our Share Repurchase Program.
33
Item 6. Exhibits
|
|
|
|
Incorporated by Reference |
|||||||
Exhibit Number |
Description |
|
Form |
|
Exhibit |
|
Filing Date |
|
|||
|
|
|
|
|
|
|
|
|
|
||
10.1*+ |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||
10.2*+ |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||
10.3*+ |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||
10.4*+ |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||
10.5*+ |
|
|
|
|
|
|
|
||||
|
|
|
|
|
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10.6+ |
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8-K |
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10.1 |
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March 14, 2022 |
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31.1* |
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) |
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31.2* |
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) |
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32.1** |
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101* |
101.INS Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH Inline XBRL Taxonomy Extension Schema |
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101.CAL Inline XBRL Taxonomy Extension Calculation |
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101.PRE Inline XBRL Taxonomy Extension Presentation |
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101.LAB Inline XBRL Taxonomy Extension Labels |
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101.DEF Inline XBRL Taxonomy Extension Definition |
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104* |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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_________________________________________
+ Management contract or compensatory plan/arrangement
* Filed herewith
** Furnished herewith
Pursuant to Rule 405 of Regulation S-T, the following interactive data files formatted in Inline Extensible Business Reporting Language (iXBRL) are attached as Exhibit 101 to this Quarterly Report on Form 10-Q:
34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BEACON ROOFING SUPPLY, INC. |
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Date: May 6, 2022 |
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/s/ FRANK A. LONEGRO |
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Frank A. Lonegro |
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Executive Vice President & Chief Financial Officer |
35