BMCH - BMC Stock Holdings Inc. Announces its 2019 Fourth Quarter and Full-Year Results

Value-Added Products and Acquisitions Drive Double-Digit Volume Growth in Fourth Quarter

Record Gross Profit and Cash Generation for 2019

Fourth Quarter 2019 Highlights

• Net sales increased 3.6% to $890.6 million driven by acquisition growth of 6.1% and Core Organic Growth of 3.9%, partially offset by a decrease of 5.9% from commodity price deflation
• Gross profit increased 2.4% to $234.6 million
• Net income decreased 28.2% to $20.2 million
• Adjusted EBITDA¹ decreased 12.9% to $57.0 million due primarily to impacts from commodity price deflation
• Diluted earnings per share decreased $0.11 to $0.30 per share
• Adjusted diluted earnings per share¹ decreased $0.11 to $0.37 per share
• Completed the acquisition of DeFord Lumber, a leading and highly-respected provider of building materials, primarily to custom and regional homebuilders in the Dallas-Fort Worth market

Full Year 2019 Highlights

• Net sales decreased 1.5% to $3.6 billion driven by commodity price deflation of 7.5%, partially offset by an increase of 3.9% from acquisition growth and 3.1% from Core Organic Growth
• Gross profit increased 4.6% to $951.3 million
• Net income decreased 8.3% to $109.8 million
  
• Adjusted EBITDA¹ decreased 2.4% to $259.4 million
• Diluted earnings per share decreased $0.14 to $1.63 per share
• Adjusted diluted earnings per share¹ declined $0.09 to $1.90 per share
• Cash provided by operating activities improved by $35.8 million to a record $245.9 million
• Completed six acquisitions with annualized sales of approximately $275 million

RALEIGH, N.C., Feb. 27, 2020 (GLOBE NEWSWIRE) -- BMC Stock Holdings, Inc. (Nasdaq: BMCH) (“BMC” or the “Company”), one of the leading providers of diversified building products, services and innovative solutions in the U.S. residential construction market, today announced results for the fourth quarter and full year ended December 31, 2019.  “2019 was a year of significant accomplishment, leveraging our strong culture, innovation and continuous improvement efforts to drive enhancements in safety, customer service, pricing and productivity,” said Dave Flitman, President and CEO of BMC.  “I’m proud of our team’s execution of our strategic initiatives during the year in the face of significant commodity deflation.  Looking ahead to 2020, we believe we have strong underlying strength in our core business segments which, coupled with our strategic acquisitions and record cash generation, positions us well to expect 2020 to be a year of solid revenue and earnings growth.  I’d like to thank our employees for their focused execution during the year and am excited about our momentum heading into 2020.”

Fourth Quarter 2019 Financial Results Compared to Prior Year Period

• Net sales increased 3.6% to $890.6 million.  The Company estimates that net sales increased 6.1% from acquisitions and 3.9% from Core Organic Growth, partially offset by a decrease of 5.9% from commodity price deflation within the lumber and lumber sheet goods and structural components product categories and 0.5% from the disposition of the Coleman Floor business on November 1, 2018.
• Gross profit increased 2.4% to $234.6 million.  Gross margin was 26.3%, compared to 26.7% for the fourth quarter of 2018.  The decrease in gross margin was primarily due to a decrease in gross margin in the lumber and lumber sheet goods and structural components product categories, which benefited from unusually high commodity price-related gross margins in the fourth quarter of 2018.
• Selling, general and administrative expenses increased $12.9 million to $187.0 million.  Approximately $11.6 million of this increase was due to recently completed acquisitions and $1.9 million was due to increased health care costs, partially offset by a net decline of $0.6 million across all other expense categories.  Selling, general and administrative expenses as a percent of net sales were 21.0%, compared to 20.2% for the fourth quarter of 2018.
• Depreciation expense, including the portion reported within cost of sales, increased to $14.4 million, compared to $13.1 million in the fourth quarter of 2018.
• Amortization expense was $4.8 million, compared to $3.8 million in the fourth quarter of 2018.  This increase was primarily due to the amortization of intangible assets at recently acquired businesses.
• Interest expense was $5.8 million, compared to $6.1 million in the fourth quarter of 2018.
• Other income, net, increased to $3.4 million, which was derived primarily from state and local tax incentives, interest income and customer service charges, compared to $2.8 million in the fourth quarter of 2018.  This increase resulted primarily from an increase in interest income.
• Net income decreased $7.9 million to $20.2 million, or $0.30 per diluted share, as compared to $28.1 million, or $0.41 per diluted share, in the fourth quarter of 2018.
• Adjusted diluted EPS decreased $0.11 per diluted per share to $0.37 per share, compared to $0.48 per diluted share, in the fourth quarter of 2018.
• Adjusted EBITDA was $57.0 million, a decrease of $8.5 million.
• Adjusted EBITDA margin declined 120 basis points to 6.4%.
• Cash provided by operating activities of $47.4 million, a decrease of $52.0 million.

Full Year 2019 Financial Results Compared to Full Year 2018

• Net sales decreased 1.5% to $3.6 billion.  The Company estimates that net sales decreased 7.5% from commodity price deflation within the lumber and lumber sheet goods and structural components product categories and 1.0% from the disposition of Coleman Floor, partially offset by an increase of 3.9% from recent acquisitions and 3.1% from Core Organic Growth.
• Gross profit increased 4.6% to $951.3 million.  Gross margin was 26.2%, as compared to 24.7% for full year 2018.  Gross margin for full year 2019 reflects an increase in gross margin within the lumber and lumber sheet goods and structural components product categories, as compared to the prior year, as well as an increase in the percent of total net sales derived from our structural components and millwork, doors and windows product categories.
• Selling, general and administrative expenses increased $47.3 million to $727.6 million.  Approximately $28.1 million of this increase related to selling, general and administrative expenses of the recent acquisitions and $6.4 million related to increased health care costs.  The remaining increase was primarily related to employee wage inflation and other variable costs to serve higher sales volumes.  Selling, general and administrative expenses as a percent of net sales were 20.1%, as compared to 18.5% in 2018.
• Depreciation expense, including the portion reported within cost of sales, increased to $54.1 million, as compared to $50.4 million in 2018.
• Amortization expense was $18.0 million, as compared to $15.0 million in 2018.  The increase in amortization expense for full year 2019 related to intangible assets at recently acquired businesses.
• Interest expense decreased to $23.2 million, compared to $24.0 million in 2018.
• Net income decreased $9.9 million to $109.8 million, or $1.63 per diluted share, as compared to $119.7 million, or $1.77 per diluted share, in 2018.
• Adjusted diluted EPS decreased $0.09 per diluted share to $1.90 per diluted share, compared to $1.99 per diluted share, in 2018.
• Adjusted EBITDA was $259.4 million, a decrease of $6.4 million.
• Adjusted EBITDA margin was 7.2%, unchanged from the prior year.
• Cash provided by operating activities of $245.9 million, an increase of $35.8 million.

Liquidity and Capital Resources

Total liquidity as of December 31, 2019 was approximately $527.8 million, which included cash and cash equivalents of $165.5 million and $362.3 million of borrowing availability under the Company’s asset-backed revolver.  Capital expenditures during the fourth quarter and full year 2019 totaled $21.8 million and $89.4 million, respectively.  These expenditures were primarily used to fund purchases of vehicles and equipment to support increased sales volume and replace aged assets and facility, innovation and technology investments to support our operations.

Fourth Quarter and Full Year 2019 Acquisitions

On December 2, 2019, the Company completed the acquisition of DeFord Lumber (“DeFord”), a leading and highly-respected provider of building materials, primarily to custom and regional homebuilders in the Dallas-Fort Worth market. DeFord generated approximately $75 million in total net sales for the twelve months ended September 30, 2019.  The addition of DeFord enhances BMC’s value-added offerings and customer mix.

During 2019, the Company completed six acquisitions with annualized sales of approximately $275 million.

Stock Repurchase Authorization

On November 26, 2018, the Company announced that its board of directors authorized a $75.0 million share repurchase program, which was to expire on November 20, 2019. During October 2019, the Company’s board of directors authorized extending this share repurchase program for one year, such that it will expire on November 20, 2020. In the fourth quarter of 2019, the Company did not repurchase any shares. As of February 27, 2020, the Company had approximately $55.7 million of capacity remaining under the current share repurchase authorization.

2020 Outlook

For 2020, BMC expects net sales to grow to a range of $3.85 billion to $4.0 billion or approximately 6% to 10% over its 2019 net sales of $3.6 billion.  BMC also expects Adjusted EBITDA to be in a range of $280 million to $295 million or approximately 8% to 14% over its 2019 Adjusted EBITDA of $259.4 million.

This outlook is based on several assumptions, including the following:

• Single family starts growth across our geographies in the mid single digits
• Random Lengths dimensional lumber index to trade in a range of $360/m to $400/m compared to the 2019 full-year average of $356/m
• Gross margin in the 25.5% to 26.0% range
• Capital Expenditures in the range of $80 million to $100 million
• Interest expense in the range of $23 million to $24 million
• An effective tax rate of approximately 24.0% to 25.0%
• Depreciation and amortization expenses in the range of $78 million to $83 million.

BMC’s Adjusted EBITDA outlook and full-year forecast for its effective tax rate on operations exclude the impact of certain income and expense items that management believes are not part of underlying operations. These items may include, but are not limited to, loss on early extinguishment of debt, restructuring charges, certain tax items, and charges associated with non-recurring professional and legal fees associated with acquisitions. BMC’s management cannot estimate on a forward-looking basis without unreasonable effort the impact these income and expense items will have on its reported Net income and its reported effective tax rate because these items, which could be significant, are difficult to predict and may be highly variable. As a result, BMC does not provide a reconciliation to the most comparable GAAP financial measure for its Adjusted EBITDA outlook or its effective tax rate on operations forecast. Please see the Forward-Looking Statements section of this release for a discussion of certain risks relevant to BMC’s outlook.

Conference Call Information

BMC will host a conference call on Thursday, February 27, 2020 at 8:30 a.m. Eastern Time and will simultaneously broadcast it live over the Internet.  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 conference call can be accessed by dialing 877-407-0784 (domestic) or 201-689-8560 (international).  A telephonic replay will be available approximately three hours after the call and can be accessed by dialing 844-512-2921, or for international callers, 412-317-6671.  The passcode for both the live call and the replay is 13698724.  The telephonic replay will be available until 11:59 p.m. (Eastern Time) on March 5, 2020.  The live 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 a leading provider of diversified building products, services and innovative solutions to builders, contractors and professional remodelers in the U.S. residential housing market. Headquartered in Raleigh, North Carolina, the Company’s comprehensive portfolio of products and solutions spans building materials, including millwork and structural component manufacturing capabilities, consultative showrooms and design centers, value-added installation management services 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.

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

• 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 non-cancelable 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; and
• other factors discussed or referred to in the “Risk Factors” section of BMC’s most recent Annual Report on Form 10-K to be filed with the SEC on February 27, 2020.

All such factors are difficult to predict and are beyond BMC’s control. All forward-looking statements attributable to BMC or persons acting on BMC’s behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and BMC undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by law.

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

¹ This earnings release includes several metrics, including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted diluted earnings per share, which are non-GAAP financial measures within the meaning of applicable SEC rules and regulations. For a reconciliation of such non-GAAP financial measures 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 “Reconciliation of GAAP to Non-GAAP Measures.”

Net Sales by Customer Type
(unaudited)

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

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

Company management uses Adjusted EBITDA and Adjusted net income for trend analyses, 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 diluted earnings per 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 diluted earnings per 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 diluted earnings per 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 diluted earnings per 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 diluted earnings per 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 diluted earnings per 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 diluted earnings per share do not reflect any cash requirements for such replacements and (vi) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted diluted earnings per 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 diluted earnings per 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.