Chronicle Journal: Finance

BMC Stock Holdings, Inc. Announces Record 2020 Third Quarter Results

Double-Digit Net Sales, Net Income, Adjusted EBITDA1 and EPS Growth

Record Net Sales, Gross Profit, Adjusted EBITDA1 and Adjusted Net Income1

Builders FirstSource and BMC Merger Proceeding On Schedule

RALEIGH, N.C., Nov. 03, 2020 (GLOBE NEWSWIRE) -- BMC Stock Holdings, Inc. (Nasdaq: BMCH) (“BMC” or the “Company”), one of the nation’s leading providers of diversified building materials and solutions to new construction builders and professional remodelers in the U.S., today announced its financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Highlights

  • Net sales increased 13.1% to a record $1,090.3 million
  • Gross profit increased 7.2% to a record $273.1 million
  • SG&A expenses as a percent of net sales declined 190 basis points to 17.9%
  • Net income increased 33.6% to $44.9 million
  • Adjusted EBITDA1 improved by 32.9% to a record $99.2 million
  • Adjusted EBITDA margin1 increased 140 basis points to 9.1%
  • Diluted earnings per share (EPS) increased 32.0%, or $0.16, to $0.66
  • Adjusted net income per diluted share1 increased 44.8%, or $0.26, to a record $0.84
  • Total liquidity was approximately $648.5 million, which included $286.2 million of cash and $362.3 million of borrowing capacity under the revolver, with no debt maturities until 2024.

“BMC delivered record third quarter results, including double-digit net sales and net income growth, and record gross profit, Adjusted EBITDA1 and Adjusted Net Income1,” said Dave Flitman, President and CEO of BMC. “These strong results were driven by strong demand in our single-family homes and pro remodel segments and higher lumber pricing, combined with solid execution against our four-pillar strategy, including our BMC Operating System-led productivity and cost savings initiatives. The double- digit sales growth led to sales in the third quarter exceeding $1 billion for the first time in our Company’s history. In conjunction with this momentum, we remain vigilant about keeping our associates, suppliers and customers safe as the pandemic continues to evolve.”

Mr. Flitman continued, “Looking ahead, I am even more excited about the strategic combination with Builders FirstSource, which remains on track to close in late 2020 or early 2021, and I believe it will deliver meaningful shareholder value in the years to come.”

1 Non-GAAP Financial Measures
This press release presents Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share, which are non-GAAP financial measures within the meaning of applicable SEC rules and regulations. For a reconciliation of Adjusted EBITDA and Adjusted net income to the most comparable GAAP measures and a discussion of the reasons why the Company believes that these non-GAAP financial measures provide information that is useful to investors, see the discussion and tables included in this press release under “Reconciliation of GAAP to Non-GAAP Measures.”

Third Quarter 2020 Summary of Financial Results

 Three Months Ended September 30,
(in thousands, except per share data) 2020   2019
 Variance
Net sales$1,090,343 $964,249 $126,094 
       
Net income and EPS      
Net income (GAAP)$44,895 $33,597 $11,298 
Diluted earnings per share (GAAP)$0.66 $0.50 $0.16 
Adjusted net income (non-GAAP)$57,244 $38,756 $18,488 
Adjusted net income per diluted share (non-GAAP)$0.84 $0.58 $0.26 
       
Adjusted EBITDA (non-GAAP)$99,188 $74,658 $24,530 
Adjusted EBITDA margin (non-GAAP)9.1%7.7%1.4%
       
Net cash provided by operating activities$54,027 $69,105 $(15,078)


Third Quarter 2020 Financial Results Compared to Prior Year Period

  • Net sales increased 13.1% to a record $1,090.3 million, primarily driven by growth from price inflation of 10.0%, acquisitions of 3.5% and Core Organic Growth of 0.6%. These increases were partially offset by a decrease of 1.0% from closed facilities.
  • Gross profit increased 7.2% to $273.1 million. Gross profit as a percentage of sales (gross margin) was 25.0%, compared to 26.4% for the third quarter of 2019. The 140 basis point decline in gross margin was driven by a decrease in the gross margin in the lumber and lumber sheet goods and structural components product categories, and a higher percentage of net sales being derived from lumber and lumber sheet goods. Gross margins in our lumber and lumber sheet goods and structural components product categories were lower due to a significant increase in commodity costs, which increased at a faster rate than our average selling prices.
  • Selling, general and administrative (“SG&A”) expenses increased 2.4% or $4.6 million to $195.1 million. This increase was primarily related to an increase of approximately $8.5 million from costs incurred in relation to the merger transaction with Builders FirstSource and $7.6 million related to SG&A expenses of recently acquired businesses. Excluding merger related costs and SG&A from recently acquired businesses, SG&A expenses declined by $11.5 million or 6.0%, primarily related to decreases in employee wages, benefits and other employee-related costs, lower fuel costs and targeted reductions in other costs. SG&A expenses as a percent of net sales declined 190 basis points to 17.9%.
  • Depreciation expense, including the portion reported within cost of sales, increased $1.4 million to $15.4 million, compared to $14.0 million in the third quarter of 2019.
  • Amortization expense was $5.0 million compared to $4.6 million in the third quarter of 2019. This increase was primarily due to the amortization of intangible assets at recently acquired businesses.
  • Interest expense was $5.7 million compared to $5.8 million in the third quarter of 2019.
  • Other income, net, which was derived primarily from state and local tax incentives, interest income and customer service charges, was $3.3 million compared to $3.5 million in the third quarter of 2019.
  • Net income was $44.9 million, or $0.66 per diluted share for the quarter, compared to $33.6 million, or $0.50 per diluted share, in the third quarter of 2019.
  • Adjusted net income1 increased to $57.2 million, or $0.84 per diluted share, compared to Adjusted net income1 of $38.8 million, or $0.58 per diluted share, in the third quarter of 2019.
  • Adjusted EBITDA1 was $99.2 million, up 32.9% from the third quarter of 2019.
  • Adjusted EBITDA margin1, defined as Adjusted EBITDA1 as a percentage of net sales, was 9.1%, up 140 basis points from the prior year period and was a record for the third quarter.
  • Cash provided by operating activities declined $15.1 million to $54.0 million primarily due to changes in working capital.

Builders FirstSource and BMC Transaction

On August 27, 2020, Builders FirstSource, Inc. and BMC announced that they entered into a definitive merger agreement under which Builders FirstSource and BMC will combine in an all-stock merger transaction to create the nation’s premier supplier of building materials and services. Under the terms of the agreement, which was unanimously approved by the Boards of Directors of both companies, BMC shareholders will receive a fixed exchange ratio of 1.3125 shares of Builders FirstSource common stock for each share of BMC common stock. Upon completion of the merger, existing Builders FirstSource shareholders will own approximately 57% and existing BMC shareholders will own approximately 43% of the combined company on a fully diluted basis. The merger is expected to be tax free for U.S. federal income tax purposes. The transaction is expected to close in late 2020 or early 2021, subject to, among other things, the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as other customary closing conditions. The transaction requires the approval of shareholders of both Builders FirstSource and BMC.

Liquidity and Capital Resources

Total liquidity as of September 30, 2020 was approximately $648.5 million, which included $286.2 million of cash and cash equivalents and $362.3 million of borrowing availability under the Company’s asset-backed revolving credit facility. In addition, the Company has no long-term debt maturities until 2024.

Capital expenditures during the third quarter of 2020, net of proceeds from the sale of property, equipment and real estate, totaled $21.3 million which was down $0.1 million from the prior year period. These expenditures were primarily used to fund purchases of vehicles and equipment to replace aged assets and support increased sales volume and facility, technology and automation investments to support our operations. Cash provided by operating activities declined $15.1 million to $54.0 million primarily due to changes in working capital. For the first nine months, cash provided by operating activities increased $8.8 million to $207.2 million. The Company continues to focus on cash generation.

Stock Repurchases

During the third quarter of 2020, the Company did not repurchase any shares of stock. As of September 30, 2020, the Company had approximately $54.2 million of capacity remaining under the current share repurchase authorization, which expires in November 2020.

Conference Call Information

BMC will broadcast a pre-recorded conference call which will be available on Tuesday, November 3, 2020 at 7:30 a.m. Eastern Time. Prior to the call, an earnings release presentation will be posted on the Company’s investor relations website ir.buildwithbmc.com in the “Events and Presentations” tab under the heading “Presentation Archive.” The pre-recorded conference call can be accessed by dialing 1-877-407-0784 (domestic) or 1-201-689-8560 (international). The passcode for the pre-recorded call and replay is 13712113. A telephonic replay will be available approximately three hours after the call and can be accessed by dialing 1-844-512-2921 or for international callers, 1-412-317-6671. The pre-recorded call will be available until 11:59 p.m. (Eastern Time) on November 10, 2020.

The webcast of the conference call can be accessed on the Company’s investor relations website at ir.buildwithbmc.com and will be available for approximately 90 days.

About BMC Stock Holdings, Inc.

With $3.6 billion in 2019 net sales, BMC is one of the nation’s leading providers of diversified building materials and solutions to new construction builders and professional remodelers in the U.S. Headquartered in Raleigh, North Carolina, the Company's comprehensive portfolio of products and services spans building materials, including millwork and structural component manufacturing capabilities, consultative showrooms and design centers, value-added installation management and an innovative eBusiness platform. BMC serves 45 metropolitan areas across 18 states, principally in the South and West regions.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this document may include, without limitation, statements regarding sales growth, price changes, earnings performance, strategic direction and the demand for our products. Forward-looking statements are typically identified by words or phrases such as “may,” “might,” “predict,” “future,” “seek to,” “assume,” “goal,” “objective,” “continue,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “prospects,” “guidance,” “possible,” “predict,” “propose,” “potential” and “forecast,” or the negative of such terms and other words, terms and phrases of similar meaning. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties, many of which are outside BMC’s control. BMC cautions readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement; therefore, investors and shareholders should not place undue reliance on such statement. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this communication, and many of these risks and uncertainties are, and may continue to be, amplified by the COVID-19 pandemic.

A number of important factors could cause actual results to differ materially from those indicated by forward-looking statements. These factors include without limitation:

  • the impact of the COVID-19 pandemic on our business operations and on local, national and global economies;
  • the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets;
  • fluctuation of commodity prices and prices of our products as a result of national and international economic and other conditions;
  • the impact of potential changes in our customer or product sales mix;
  • our concentration of business in the Texas, California and Georgia markets;
  • the potential loss of significant customers or a reduction in the quantity of products they purchase;
  • seasonality and cyclicality of the building products supply and services industry;
  • competitive industry pressures and competitive pricing pressure from our customers and competitors;
  • our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings;
  • our ability to maintain profitability and positive cash flows;
  • our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs;
  • product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and manufacturers;
  • the implementation of our supply chain and technology initiatives;
  • the impact of long-term noncancellable leases at our facilities;
  • our ability to effectively manage inventory and working capital;
  • the credit risk from our customers;
  • our ability to identify or respond effectively to consumer needs, expectations, market conditions or trends;
  • our ability to successfully implement our growth strategy;
  • the impact of federal, state, local and other laws and regulations;
  • the impact of changes in legislation and government policy;
  • the impact of unexpected changes in our tax provisions and adoption of new tax legislation;
  • our ability to utilize our net operating loss carryforwards;
  • natural or man-made disruptions to our distribution and manufacturing facilities;
  • our exposure to environmental liabilities and subjection to environmental laws and regulation;
  • the impact of health and safety laws and regulations;
  • the impact of disruptions to our information technology systems;
  • cybersecurity risks;
  • our exposure to losses if our insurance coverage is insufficient;
  • our ability to operate on multiple Enterprise Resource Planning (“ERP”) information systems and convert multiple systems to a single system;
  • the impact of our indebtedness;
  • the impact of the various financial covenants in our secured credit agreement and senior secured notes indenture
  • the completion of the merger with Builders FirstSource, including the receipt of required approvals and satisfying the other closing conditions;
  • the disruption to and restrictions placed on our business in connection with the merger with Builders FirstSource;
  • the incurrence of costs related to the merger with Builders FirstSource; and
  • other factors discussed or referred to in the “Risk Factors” section of BMC's most recent Annual Report on Form 10-K filed with the SEC on February 27, 2020 as supplemented in our Quarterly Report on Form 10-Q.

Cautionary Notice Regarding Forward-Looking Statements

This communication, in addition to historical information, contains “forward-looking statements” (as defined in the Private Securities Litigation Reform Act of 1995) regarding, among other things, future events or the future financial performance of BMC Stock Holdings, Inc. (“BMC”) and Builders FirstSource, Inc. (“Builders FirstSource”). Words such as “may,” “will,” “should,” “plans,” “estimates,” “predicts,” “potential,” “anticipate,” “expect,” “project,” “intend,” “believe,” or the negative of these terms, and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. Any forward-looking statements involve risks and uncertainties that are difficult to predict or quantify, and such risks and uncertainties could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks, or uncertainties related to the novel coronavirus disease 2019 (also known as “COVID-19”) pandemic and its impact on the business operations of BMC and Builders FirstSource and on local, national and global economies, the growth strategies of BMC and Builders FirstSource, fluctuations of commodity prices and prices of the products of BMC and Builders FirstSource as a result of national and international economic and other conditions, or the significant dependence of both companies’ revenues and operating results on, among other things, the state of the homebuilding industry and repair and remodeling activity, lumber prices and the economy. Neither BMC nor Builders FirstSource may succeed in addressing these and other risks or uncertainties.

Forward-looking statements relating to the proposed business combination between BMC and Builders FirstSource include, but are not limited to: statements about the benefits of the proposed business combination between BMC and Builders FirstSource, including future financial and operating results; the plans, objectives, expectations and intentions of BMC and Builders FirstSource; the expected timing of completion of the proposed business combination; and other statements relating to the proposed merger that are not historical facts. Forward-looking statements are based on information currently available to BMC and Builders FirstSource and involve estimates, expectations and projections. Investors are cautioned that all such forward-looking statements are subject to risks and uncertainties, and important factors could cause actual events or results to differ materially from those indicated by such forward- looking statements. With respect to the proposed business combination between BMC and Builders FirstSource, these factors could include, but are not limited to: the risk that BMC and Builders FirstSource may be unable to obtain governmental and regulatory approvals required for the business combination, or that required governmental and regulatory approvals may delay the business combination or result in the imposition of conditions that could reduce the anticipated benefits from the proposed business combination or cause the parties to abandon the proposed business combination; the risk that a condition to closing of the business combination may not be satisfied, including as a result of the failure to obtain approval of stockholders of BMC and Builders FirstSource on the expected terms and schedule or at all; the length of time necessary to consummate the proposed business combination, which may be longer than anticipated for various reasons; the risk that the businesses will not be integrated successfully; the risk that the cost savings, synergies and growth from the proposed business combination may not be fully realized or may take longer to realize than expected; the assumptions on which the parties’ estimates of future results of the combined business have been based may prove to be incorrect in a number of material ways, which could result in an inability to realize the expected benefits of the proposed business combination or exposure to material liabilities; the diversion of management time on issues related to the business combination; the effect of future regulatory or legislative actions on the companies or the industries in which they operate; the risk that the credit ratings of the combined company may be different from what the parties expect; economic and foreign exchange rate volatility; changes in the general economic environment, or social or political conditions, that could affect the businesses; the potential effect of the announcement or consummation of the proposed business combination on relationships with customers, suppliers, competitors, lenders, landlords, management and other employees; the ability to attract new customers and retain existing customers in the manner anticipated or at all; the ability to hire and retain key personnel; reliance on and integration of information technology systems; the risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; certain restrictions during the pendency of the business combination that may affect the ability of BMC and Builders FirstSource to pursue certain business opportunities or strategic transactions; and the potential of international unrest, economic downturn or effects of anticipated tax rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs.

Additional information concerning other risk factors pertaining to BMC and Builders FirstSource is also contained in the parties’ respective most recently filed Annual Reports on Form 10-K, subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information filed with the Securities and Exchange Commission (the “SEC”). Many of these risks and uncertainties are beyond BMC’s or Builders FirstSource’s ability to control or predict. Because of these risks and uncertainties, you should not place undue reliance on these forward-looking statements. It is not possible to anticipate or foresee all risks and uncertainties, and investors should not consider any list of risks and uncertainties to be exhaustive or complete. Furthermore, neither BMC nor Builders FirstSource undertakes any obligation to update publicly or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this communication. Nothing in this communication is intended, or is to be construed, as a profit forecast or to be interpreted to mean that the earnings per share of the common stock of BMC or of the common stock of Builders FirstSource for the current or any future financial years, or the earnings per share of the common stock of the combined company, will necessarily match or exceed the historical published earnings per share of the common stock of BMC or Builders FirstSource, as applicable. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results. All subsequent written and oral forward-looking statements concerning BMC, Builders FirstSource, the proposed business combination, the combined company or other matters and attributable to BMC, Builders FirstSource or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above.

Additional Information and Where to Find It

In connection with the proposed business combination, Builders FirstSource filed with the SEC on October 8, 2020 a registration statement on Form S-4 (the “Registration Statement”) that includes a prospectus with respect to the shares of common stock to be issued by Builders FirstSource in the business combination and a joint proxy statement for BMC’s and Builders FirstSource’s respective stockholders (the “Joint Proxy Statement”). This Registration Statement has not yet been declared effective and the Joint Proxy Statement included therein is in preliminary form. Each of BMC and Builders FirstSource will send the definitive Joint Proxy Statement to its stockholders and may file other documents regarding the business combination with the SEC. This communication is not a substitute for the Registration Statement, the Joint Proxy Statement, or any other document that BMC or Builders FirstSource may send to its stockholders in connection with the proposed business combination. This communication is for informational purposes only and does not constitute, or form a part of, an offer to sell or the solicitation of an offer to sell or an offer to buy or the solicitation of an offer to buy any securities, and there shall be no sale of securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law. INVESTORS AND SECURITY HOLDERS OF BMC AND BUILDERS FIRSTSOURCE ARE URGED TO READ THE REGISTRATION STATEMENT, THE JOINT PROXY STATEMENT, AND ANY OTHER RELEVANT DOCUMENTS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT BMC, BUILDERS FIRSTSOURCE, THE PROPOSED BUSINESS COMBINATION AND RELATED MATTERS. Investors and security holders of BMC and Builders FirstSource may obtain free copies of the Registration Statement, the Joint Proxy Statement, and other documents (including any amendments or supplements thereto) containing important information about BMC and Builders FirstSource filed with the SEC, through the website maintained by the SEC at www.sec.gov. BMC and Builders FirstSource make available free of charge at ir.buildwithbmc.com and investors.bldr.com, respectively, copies of materials they file with, or furnish to, the SEC.

Participants in the Solicitation

BMC, Builders FirstSource, and their respective directors, executive officers, and other members of management and employees may be deemed to be participants in the solicitation of proxies from the stockholders of BMC and Builders FirstSource in connection with the proposed business combination.

The identity of BMC’s directors and executive officers and their ownership of BMC’s common stock is set forth in BMC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on February 27, 2020, and its proxy statement for its 2020 Annual Meeting of Stockholders, which was filed with the SEC on March 27, 2020.

The identity of Builders FirstSource’s directors and executive officers and their ownership of the common stock of Builders FirstSource is set forth in Builders FirstSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on February 21, 2020, and its proxy statement for its 2020 Annual Meeting of Stockholders, which was filed with the SEC on April 28, 2020.

Investors may obtain additional information regarding the interest of such participants and a description of their direct and indirect interests, by security holdings or otherwise, by reading the Registration Statement, the Joint Proxy Statement, and other materials filed with the SEC in connection with the proposed business combination when they become available. You may obtain these documents free of charge through the website maintained by the SEC at www.sec.gov and from the websites of BMC or Builders FirstSource as described above.

Investor Relations Contact

BMC Stock Holdings, Inc.
Michael Neese
SVP, Strategy and Investor Relations
(919) 431-1796


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)

 


 Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts) 2020  2019  2020  2019 
Net sales$1,090,343 $964,249 $2,991,118 $2,736,029 
Cost of sales 817,261  709,482  2,228,086  2,019,363 
Gross profit 273,082  254,767  763,032  716,666 
             
Selling, general and administrative expenses 195,143  190,579  557,010  546,116 
Depreciation expense 11,767  10,501  34,990  30,117 
Amortization expense 5,016  4,552  15,045  13,237 
Impairment of assets   115  2,255  644 
  211,926  205,747  609,300  590,114 
Income from operations 61,156  49,020  153,732  126,552 
Other income (expense)    
Interest expense (5,744) (5,773) (17,880) (17,385)
Other income, net 3,289  3,540  9,128  10,159 
Income before income taxes 58,701  46,787  144,980  119,326 
Income tax expense 13,806  13,190  34,434  29,680 
Net income$44,895 $33,597 $110,546 $89,646 

Weighted average common shares outstanding

Basic 67,141 66,685 67,001 66,681
Diluted 67,967 67,361 67,725 67,240
     
Net income per common share    
Basic$0.67$0.50$1.65$1.34
Diluted$0.66$0.50$1.63$1.33


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)


(in thousands, except share and per share amounts)September 30,
2020
December 31,
2019
Assets  
Current assets  
Cash and cash equivalents$286,221$165,496
Accounts receivable, net of allowances of $9,671 and $8,318 at September 30, 2020 and December 31, 2019, respectively 393,735 325,741
Inventories 413,031 331,969
Contract assets 36,422 32,125
Income taxes receivable  7,504
Prepaid expenses and other current assets 76,239 66,818
Total current assets 1,205,648 929,653
Property and equipment, net of accumulated depreciation 366,444 345,466
Operating lease right-of-use assets 131,868 139,907
Customer relationship intangible assets, net of accumulated amortization 170,200 185,049
Other intangible assets, net of accumulated amortization 385 580
Goodwill 295,390 297,146
Other long-term assets 7,599 8,300
Total assets$2,177,534$1,906,101

Liabilities and Stockholders' Equity
Current liabilities

Accounts payable$300,075 $189,644 
Accrued expenses and other liabilities 116,285  117,825 
Contract liabilities 44,980  31,094 
Income taxes payable 10,395   
Interest payable 9,572  4,759 
Current portion:  
Long-term debt and finance lease obligations 3,210  5,577 
Operating lease liabilities 27,635  26,147 
Insurance reserves 16,746  16,328 
Total current liabilities 528,898  391,374 
Insurance reserves 43,287  43,536 
Long-term debt 346,659  346,032 
Long-term portion of finance lease obligations 4,689  6,959 
Long-term portion of operating lease liabilities 113,572  120,832 
Deferred income taxes 22,613  15,195 
Other long-term liabilities 15,309  661 
Total liabilities 1,075,027  924,589 
Commitments and contingencies  
Stockholders' equity
Preferred stock, $0.01 par value, 50.0 million shares authorized, no shares issued and outstanding at September 30, 2020 and December 31, 2019    
Common stock, $0.01 par value, 300.0 million shares authorized, 69.0 million and 68.3 million shares issued, and 67.2 million and 66.8 million outstanding at September 30, 2020 and December 31, 2019, respectively 690  683 
Additional paid-in capital 702,045  687,255 
Retained earnings 430,736  320,190 
Treasury stock, at cost, 1.8 million and 1.5 million shares at September 30, 2020 and December 31, 2019, respectively (30,964) (26,616)
Total stockholders' equity 1,102,507  981,512 
Total liabilities and stockholders' equity$2,177,534 $1,906,101 


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)


 Nine Months Ended September 30,
(in thousands) 2020  2019 
Cash flows from operating activities  
Net income$110,546 $89,646 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation expense 45,702  39,722 
Amortization of intangible assets 15,045  13,237 
Amortization of debt issuance costs 952  1,124 
Deferred income taxes 7,418  4,857 
Non-cash stock compensation expense 11,110  9,177 
Gain on sale of property, equipment and real estate (518) (1,839)
Other non-cash adjustments 2,395  2,314 
Change in assets and liabilities, net of effects of acquisitions  
Accounts receivable, net of allowances (68,365) (24,068)
Inventories (81,004) (494)
Accounts payable 121,405  68,456 
Other assets and liabilities 42,508  (3,715)
Net cash provided by operating activities 207,194  198,417 
Cash flows from investing activities  
Purchases of property, equipment and real estate (71,037) (67,582)
Proceeds from sale of property, equipment and real estate 1,258  4,444 
Purchases of businesses, net of cash acquired   (85,780)
Insurance proceeds   107 
Net cash used in investing activities (69,779) (148,811)
Cash flows from financing activities  
Proceeds from revolving credit facility 144,000  110,987 
Repayments of proceeds from revolving credit facility (144,000) (110,987)
Repurchases of common stock under share repurchase program (1,416) (16,446)
Payments on finance lease obligations (4,613) (5,094)
Other financing activities, net (10,661) (5,530)
Net cash used in financing activities (16,690) (27,070)
Net increase in cash and cash equivalents 120,725  22,536 
Cash and cash equivalents  
Beginning of period 165,496  150,723 
End of period$286,221 $173,259 


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Net Sales by Product Category
(unaudited)


 Three Months Ended
September 30, 2020
Three Months Ended
September 30, 2019
  
(in thousands)Net Sales% of SalesNet Sales% of Sales% ChangeCore
Organic
Growth (a)
Millwork, doors & windows$299,81227.5%$285,75029.6%4.9%2.0%
Structural components185,91017.1%175,34418.2%6.0%3.1%
Lumber & lumber sheet goods383,62635.2%274,90828.5%39.5%3.7%
Other building products & services220,99520.2%228,24723.7%(3.2)%(7.1)%
Total net sales$1,090,343100.0%$964,249100.0%13.1%0.6%


 Nine Months Ended
September 30, 2020

Nine Months Ended
September 30, 2019

  
(in thousands)Net Sales% of SalesNet Sales% of Sales% ChangeCore
Organic
Growth (a)
Millwork, doors & windows$883,48029.5%$796,80729.1%10.9%4.4%
Structural components510,78917.1%483,57517.7%5.6%2.3%
Lumber & lumber sheet goods935,58231.3%798,72229.2%17.1%1.4%
Other building products & services661,26722.1%656,92524.0%0.7%(4.4)%
Total net sales$2,991,118100.0%$2,736,029100.0%9.3%1.0%

Net Sales by Customer Type
(unaudited)

 
Three Months Ended
September 30, 2020
Three Months Ended
September 30, 2019

  
(in thousands)Net Sales% of SalesNet Sales% of Sales% ChangeCore
Organic
Growth (a)
Single-family homebuilders$811,08174.4%$718,69074.5%12.9%0.8%
Remodeling contractors143,53613.2%115,75612.0%24.0%5.0%
Multi-family, commercial & other contractors135,72612.4%129,80313.5%4.6%(4.9)%
Total net sales$1,090,343100.0%$964,249100.0%13.1%0.6%


 
Nine Months Ended
September 30, 2020
Nine Months Ended
September 30, 2019

  
(in thousands)Net Sales% of SalesNet Sales% of Sales% ChangeCore
Organic
Growth (a)
Single-family homebuilders$2,188,24073.2%$2,064,38275.5%6.0%(1.2)%
Remodeling contractors375,90412.6%314,27711.5%19.6%7.1%
Multi-family, commercial & other contractors426,97414.2%357,37013.0%19.5%8.7%
Total net sales$2,991,118100.0%$2,736,029100.0%9.3%1.0%


(a)Core Organic Growth is calculated as the total change in net sales excluding the estimated impact of changes in commodity-related prices, the net sales of non-comparable acquired or closed operations and changes in selling days, as applicable.

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Measures (unaudited)

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share are intended as supplemental measures of the Company’s performance that are not required by, or presented in accordance with, GAAP. The Company believes that Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and operating results.

  • Adjusted EBITDA is defined as net income plus interest expense (income), income tax expense, depreciation and amortization, merger-related costs, non-cash stock compensation expense, acquisition and integration costs and other items.
  • Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales.
  • Adjusted net income is defined as net income plus merger-related costs, non-cash stock compensation expense, acquisition and integration costs, other items and after tax effecting those items.
  • Adjusted net income per diluted share is defined as Adjusted net income divided by diluted weighted average shares.

Company management uses Adjusted EBITDA and Adjusted net income for trend analysis, for purposes of determining management incentive compensation and for budgeting and planning purposes. Adjusted EBITDA is used in monthly financial reports prepared for management and the board of directors. The Company believes that the use of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share provides additional tools for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other distribution and retail companies, which may present similar non-GAAP financial measures to investors. However, the Company’s calculation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share are not necessarily comparable to similarly titled measures reported by other companies. Company management does not consider Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share in isolation or as alternatives to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. Some of these limitations are: (i) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect changes in, or cash requirements for, working capital needs; (ii) Adjusted EBITDA and Adjusted EBITDA margin do not reflect interest expense, or the requirements necessary to service interest or principal payments on debt; (iii) Adjusted EBITDA and Adjusted EBITDA margin do not reflect income tax expenses or the cash requirements to pay taxes; (iv) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; (v) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect any cash requirements for such replacements and (vi) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not consider the potentially dilutive impact of issuing non-cash stock-based compensation. In order to compensate for these limitations, management presents Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share in conjunction with GAAP results. Readers should review the reconciliations of net income to Adjusted EBITDA and Adjusted net income below, and should not rely on any single financial measure to evaluate the Company’s business.


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Measures (continued)
(unaudited)

The following is a reconciliation of net income to Adjusted EBITDA and Adjusted net income.

 
Three Months Ended September 30,
 Nine Months Ended September 30,
(in thousands, except per share amounts) 2020  2019  2020  2019 
Net income$44,895 $33,597 $110,546 $89,646 
Interest expense 5,744  5,773  17,880  17,385 
Interest income (224) (1,047) (1,146) (2,832)
Income tax expense 13,806  13,190  34,434  29,680 
Depreciation and amortization 20,453  18,535  60,747  52,959 
Merger-related costs 8,488    9,150   
Non-cash stock compensation expense 4,612  3,014  11,110  9,177 
Acquisition and integration costs (a) 1,377  1,524  4,566  6,294 
Business reorganization costs (b) 37  72  3,256  300 
Other items (c)       (222)
Adjusted EBITDA$99,188 $74,658 $250,543 $202,387 
Adjusted EBITDA margin 9.1% 7.7% 8.4% 7.4%
     
Net income$44,895 $33,597 $110,546 $89,646 
Merger-related costs 8,488    9,150   
Non-cash stock compensation expense 4,612  3,014  11,110  9,177 
Acquisition and integration costs (a) 1,377  1,524  4,566  6,294 
Business reorganization costs (b) 37  72  3,256  300 
Other items (d)   1,635    1,413 
Tax effect of adjustments to net income (e) (2,165) (1,086) (5,350) (3,674)
Adjusted net income$57,244 $38,756 $133,278 $103,156 
     
Diluted weighted average shares 67,967  67,361  67,725  67,240 
Adjusted net income per diluted share$0.84 $0.58 $1.97 $1.53 


(a)Represents costs for acquisitions and related integration costs, as well as system integration and other costs related to the integration of Building Materials Holding Corporation and Stock Building Supply Holdings, Inc. as a result of the 2015 merger transaction (which  have been separately called out in historical presentations).
(b)For the three and nine months ended September 30, 2020, represents asset impairment and other charges related to the closure or relocation of the operations of certain of the Company’s facilities, which were not related to the COVID-19 pandemic, and severance expense related to permanent headcount reductions due to the impact of the COVID-19 pandemic. For the three and nine months ended September 30, 2019, represents asset impairment charges and the effect of certain customary post-closing adjustments related to the November 1, 2018 disposition of the Company’s Coleman Floor business.
(c)For the nine months ended September 30, 2019, represents income from a recovery made by the Company related to a fire at one of the Company’s facilities during 2015 (the “Recovery Income”) and the effect of the settlement of pending litigation for an amount below what was previously accrued (the “Litigation Settlement”).
(d)For the three months ended September 30, 2019, represents out of period income tax expense (the “Income Tax Adjustment”). For the nine months ended September 30, 2019, represents the Income Tax Adjustment, Recovery Income and Litigation Settlement.
(e)The tax effect of adjustments to net income was based on the respective transactions’ income tax rate, which was 23.4%, 23.6%, 23.5% and 23.6% for the three months ended September 30, 2020 and 2019 and the nine months ended September 30, 2020 and 2019, respectively. The tax effect of adjustments to net income excludes non-deductible merger-related costs of $5.3 million for the three and nine months ended September 30, 2020 and the Income Tax Adjustment for the three and nine months ended September 30, 2019.

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