Beacon Reports Fourth Quarter and Full Year 2023 Results

Record fourth quarter and full year net sales, strong net income, and highest Adjusted EBITDA in history

Ambition 2025 execution continued to generate growth with significant contributions from enhanced sales capabilities, greenfield investments, and M&A

Strong net income margin and double-digit Adjusted EBITDA margin for the third consecutive full year driven by diligent pricing execution, productivity, and improvements from the bottom quintile branch initiative

Record full year cash flow enabled investment in growth initiatives and returns to shareholders while maintaining balance sheet strength

Beacon (the “Company”, “we”, “our”) announced results for the fourth quarter and full year ended December 31, 2023 (“2023”).

“Our 2023 results demonstrate that our Ambition 2025 strategy has multiple paths to growth and can deliver results in a variety of conditions,” said Julian Francis, Beacon’s President & CEO. “We delivered record fourth quarter and full year sales, strong net income, and our highest Adjusted EBITDA in history. We have reported year-over-year net sales growth for the last 12 quarters highlighting the resiliency of our business model and the necessity of our products. We remained focused on those items within our control, including pricing, operating efficiency, and working capital management. Our ability to generate substantial cash flow allowed us to re-invest in future growth. In 2023, we acquired 21 branches and opened 28 greenfield locations in key markets enhancing our customer reach and service. We also enhanced our sales capabilities by adding to our organizational leadership positions and expanding our sales training program. During the year, we also returned a significant amount of capital to shareholders. We deployed more than $800 million to repurchase all of the outstanding preferred shares on top of approximately $111 million in common share repurchases. In addition, we invested in growth capital including the highest capex in our history while, at the same time, maintaining our net debt leverage at 2.4 times as of year-end. Two years since we announced our Ambition 2025 plan, it has proven to be sustainable and we are well positioned in a large, attractive and growing market. Our over 8,000 team members have built a winning culture and stand ready to continue unlocking the long-term potential of Beacon.”

Fourth Quarter

Net sales increased 16.8% compared to the prior year to $2.30 billion, a Company record for fourth quarter net sales. The increase in net sales was driven by organic volume growth including greenfields over the last four quarters. Estimated organic volumes (including greenfields) and weighted-average selling price increased approximately 12-13% and 0-1%, respectively. Additionally, acquired branches contributed more than 4% to the increase in fourth quarter net sales.

Residential roofing product sales increased 20.2%, non-residential roofing product sales increased 11.4%, and complementary product sales increased 16.0% compared to the prior year. The increase in residential roofing product sales was primarily due to higher volumes. The increase in non-residential roofing product sales was primarily due to strong underlying market demand. The increase in complementary product sales was largely due to growth in our waterproofing business primarily due to the November 2022 acquisition of Coastal Construction Products. The three-month periods ended December 31, 2023 and 2022 each had 61 business days.

Gross margin decreased to 25.7%, from 26.2% in the prior year, as higher product costs offset higher average selling prices for our products. The increases in operating expense and Adjusted Operating Expense in 2023 were attributable to an increase in payroll and benefits costs, primarily due to increased headcount attributable to acquired branches and greenfields, as well as wage inflation. Both operating expense and Adjusted Operating Expense as a percent of sales were comparatively lower in the fourth quarter of 2023, driven by higher sales combined with cost management.

Net income (loss) was $95.1 million, compared to $73.3 million in the prior year. Adjusted EBITDA was $216.7 million, compared to $178.5 million in the prior year. Net income (loss) per common share (“EPS”) on a diluted basis was $1.47, compared to $0.88 in the prior year. Fourth quarter results compared to the prior year period were driven by higher net sales.

In February 2023, Beacon announced an increase in its share repurchase program, pursuant to which the Company may purchase up to $500 million of its common stock (inclusive of the $112 million remaining authorization under the program announced in February 2022). In the fourth quarter of 2023, the Company repurchased and retired $11.0 million of its common stock through open market repurchases. As a result, there were 63.3 million shares of common stock outstanding as of December 31, 2023.

Year ended December 31, 2023

Net sales increased 8.2% compared to the prior year to $9.12 billion, a Company record. The increase in net sales was largely driven by the contributions of acquired branches and greenfields over the last four quarters. Additionally, weighted-average selling price and estimated organic volumes (including greenfields) increased approximately 2-3% and 1-2%, respectively. Additionally, acquired branches contributed more than 4% to the year-over-year increase in net sales.

Residential roofing product sales increased 10.3%, non-residential roofing product sales decreased 2.7%, and complementary product sales increased 18.6% compared to the prior year. The increase in residential roofing product sales was primarily due to higher volumes. The increase in complementary product sales was largely due to growth in our waterproofing business primarily due to the November 2022 acquisition of Coastal Construction Products. The years ended December 31, 2023 and 2022 each had 252 business days.

Gross margin decreased to 25.7%, from 26.5% in the prior year as higher product costs more than offset higher average selling prices for our products. The increases in operating expense and Adjusted Operating Expense in 2023 were largely from acquired branches and greenfields. Excluding these impacts, operating expense from existing branches decreased by approximately 0.9%, or $14.0 million. The comparative decrease was related to a decrease in general and administrative expense due to lower professional fees coupled with a decrease in bad debt expense due to improved collections. On a consolidated basis, both operating expense and Adjusted Operating Expense as a percent of sales were lower year-over-year, largely driven by higher sales combined with cost management.

In July 2023, the Company repurchased all 400,000 issued and outstanding shares of its preferred stock from an affiliate of Clayton, Dubilier & Rice, LLC for $805.4 million, including $0.9 million of accrued but unpaid dividends. The aggregate repurchase price and related transaction fees and expenses were financed by a combination of proceeds from a new senior notes offering, as well as borrowings under our secured credit facility and cash on hand.

Net income (loss) was $435.0 million, compared to $458.4 million in the prior year. Adjusted EBITDA was $929.6 million, compared to $910.0 million in the prior year. Diluted EPS was $(0.43), compared to $5.55 in the prior year. The negative diluted EPS in 2023 is attributable to the $414.6 million preferred stock repurchase premium, which is included as a component of net income (loss) attributable to common stockholders in calculating EPS. See full reconciliation in the consolidated statements of operations below.

In 2023, the Company repurchased and retired $110.9 million of its common stock through a combination of a Rule 10b5-1 repurchase plan and open market transactions. As a result, shares of common stock outstanding decreased, net of issuance, to 63.3 million as of December 31, 2023, from 64.2 million as of December 31, 2022. As of December 31, 2023, we had approximately $389.1 million available for repurchases remaining under the current Repurchase Program.

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 calculate estimated volumes, we subtract the change in weighted average selling price, as described above, from the total changes in sales, excluding acquisitions and dispositions. As a result, and especially in high inflationary periods, the weighted average selling price and estimated volume changes may not be directly comparable to changes reported in prior periods.

During the fourth quarter of 2023, we revised our definition of when a branch classification changes from acquired to existing. Previously, the results of operations of branches were designated as acquired until they had been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period, after which such branches were classified as existing. Under our new definition, the results of operations of branches will be designated as acquired until they have been under our ownership and have contributed to our results of operations for at least 12 calendar months (inclusive of partial month activity), after which such branches are classified as existing. The effect of this change in definition is that the prior year results of operations for branches will be reclassified to existing when the comparable current month’s financial results are also classified as existing.

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About Beacon

Founded in 1928, Beacon is a Fortune 500, publicly traded distributor of building products, including roofing materials and complementary products, such as siding and waterproofing. The company operates over 530 branches throughout all 50 states in the U.S. and 6 provinces in Canada. Beacon serves an extensive base of nearly 100,000 customers, utilizing its vast branch network and diverse service offerings to provide high-quality products and support throughout the entire business lifecycle. Beacon offers its own private label brand, TRI-BUILT®, and has a proprietary digital account management suite, Beacon PRO+, which allows customers to manage their businesses online. Beacon’s stock is traded on the Nasdaq Global Select Market under the ticker symbol BECN. To learn more about Beacon, please visit www.becn.com.

Contact:

Binit Sanghvi – VP, Capital Markets and Treasurer – Binit.Sanghvi@becn.com – (972) 369-8005

Source: Beacon Roofing Supply, Inc.