BMC Stock Holdings, Inc. Announces 2016 Fourth Quarter and Full Year Results

ATLANTA, March 01, 2017 (GLOBE NEWSWIRE) -- BMC Stock Holdings, Inc. (Nasdaq:BMCH) (“BMC” or the “Company”), one of the nation’s leading providers of diversified building products and services in the U.S. residential construction market, today reported its financial results for the fourth quarter and full year ended December 31, 2016.

On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS”) completed its merger transaction (the “Merger”) with Building Material Holdings Corporation (“Legacy BMC”).  As a result of the Merger, current year results reported pursuant to U.S. generally accepted accounting principles (“GAAP”) are not comparable to prior year periods.  For a more detailed explanation, see the “Fourth Quarter and Full Year 2016 Financial Results - Basis of Presentation” section of this press release.  A reconciliation of non-GAAP financial measures to comparable GAAP financial measures is provided in the “Reconciliation of GAAP to Non-GAAP Measures” section of this press release.

Fourth Quarter 2016 Highlights, Compared to the Prior Year Period

• Net sales of $747.6 million, an increase of 46.5% as compared to net sales, and an increase of 2.7% as compared to Adjusted net sales (non-GAAP)
• Net income of $10.4 million, an increase of $17.9 million
• Adjusted EBITDA (non-GAAP) of $44.5 million, an increase of 17.5%
• Diluted earnings per share of $0.16, an increase of $0.32 per share
• Adjusted net income per diluted share (non-GAAP) of $0.21, an increase of $0.04 per share

Full Year 2016 Highlights, Compared to Full Year 2015

• Net sales of $3.1 billion, an increase of 96.2% as compared to net sales, and an increase of 10.5% as compared to Adjusted net sales (non-GAAP)
• Net income of $30.9 million, an increase of $35.7 million
• Adjusted EBITDA (non-GAAP) of $193.9 million, an increase of 49.7%, with Adjusted EBITDA margin (non-GAAP) expansion of 170 basis points
• Cash provided by operating activities of $106.9 million, an increase of $106.1 million
• Highly successful integration efforts, which included the realization of approximately $31 million of cost savings within 2016 operating results
• Estimate of total annual run rate cost savings from the Merger of $46 million to $52 million by the end of 2017, an increase over the previously communicated estimate
• Successful debt refinancing in September 2016 that extended the maturity of the Company’s senior notes to 2024 and reduced future annual interest expense by approximately $7 million
• Solid growth across value-added product categories, including ReadyFrame® sales of $103 million, an increase of 46%

Commenting on the Company’s 2016 performance, Peter Alexander, President and Chief Executive Officer of BMC stated, “Our Merger, which we completed a little more than a year ago, unlocked numerous opportunities to expand the business and improve profitability.  During 2016, we achieved strong operational and financial results including significant gains in operating margins and cash generation.  Net sales in 2016 increased 96% as compared to the prior year, and 10.5% when compared to 2015 Adjusted net sales.  Net income in 2016 increased to $30.9 million while Adjusted EBITDA margins expanded 170 basis points as compared to 2015.”

“In addition,” Mr. Alexander continued, “we made significant strides on our integration efforts and technology initiatives, including the achievement of $31 million in cost synergy savings in our 2016 operating results.  Also, during the year, we rolled out ReadyFrame®, our differentiated whole-house framing solution that assists professional builders and contractors to reduce their labor needs and shorten cash conversion cycles, to the remainder of our major markets.  This product offering grew more than 46% during 2016 to over $100 million in sales.  With a remarkably strong team in place and what I believe are the best products and solutions available to professional builders and remodelers in the residential homebuilding space, I am very optimistic about our prospects for 2017 and beyond.”

Fourth Quarter and Full Year 2016 Financial Results - Basis of Presentation

The Merger was accounted for as a “reverse acquisition” under the acquisition method of accounting, with SBS treated as the legal acquirer and Legacy BMC treated as the acquirer for accounting purposes.  As such, the Company has accounted for the Merger by using the Legacy BMC historical information and accounting policies and adding the assets and liabilities of SBS as of the completion date of the Merger at their estimated fair values.  As a result, current year results reported pursuant to GAAP are not comparable to prior year periods.

For informational purposes only, the Company has furnished certain Adjusted financial information for the three months and twelve months ended December 31, 2016, and the three months and twelve months ended December 31, 2015.  The prior year Adjusted financial information combines the historical results of Legacy BMC and SBS for the three months and twelve months ended December 31, 2015.  The Adjusted financial information has not been prepared in accordance with GAAP, and is based upon information and assumptions deemed appropriate by the Company’s management.  This Adjusted financial information is not necessarily indicative of what the Company’s results actually would have been had the Merger been completed as of January 1, 2015.  In addition, this Adjusted financial information is not indicative of future results or current financial conditions and does not reflect any anticipated synergies, operating efficiencies, cost savings or integration costs that have resulted or may result in the future from the Merger.  All Adjusted financial information should be read in conjunction with separate historical financial statements and accompanying notes filed with the Securities and Exchange Commission (“SEC”).  A reconciliation of Adjusted financial measures to GAAP financial measures is provided in the “Reconciliation of GAAP to Non-GAAP Measures” section of the press release.

Fourth Quarter and Full Year 2016 Summary of Financial Results

During the three and twelve months ended December 31, 2016, the Company generated solid operating result improvements and continued to make substantial progress on its Merger integration plan.

Fourth Quarter 2016 Financial Results Compared to Prior Year Period

• Net sales increased 46.5% to $747.6 million primarily as a result of the Merger.
  
• Net sales increased 2.7% as compared to Adjusted net sales (non-GAAP) in the fourth quarter of 2015.  The Company estimates net sales, as compared to Adjusted net sales (non-GAAP) in the prior year period, increased 3.6% as a result of lumber and sheet goods commodity price inflation but was partially offset by a modest decline in volumes due to one less selling day.  
  
• Gross profit as a percent of sales increased to 24.2%, as compared to 22.3% for the fourth quarter of 2015.  
  
• Selling, general and administrative expenses increased 40.6% to $140.6 million.  The increase was primarily due to the Merger.  Selling, general and administrative expenses as a percent of sales declined to 18.8%, compared to 19.6% for the fourth quarter of 2015. 
  
• Depreciation expense, including the portion reported within cost of sales, increased to $12.7 million, compared to $7.1 million in the fourth quarter of 2015.  The increase was primarily driven by fixed assets acquired through the Merger, as well as replacements and additions of delivery fleet, material handling equipment and operating equipment.
  
• Amortization expense was $4.8 million, compared to $2.6 million in the fourth quarter of 2015.  This increase related to intangible assets acquired through the Merger. 
  
• Interest expense decreased to $6.1 million, compared to $7.1 million in the fourth quarter of 2015.  
  
• Net income increased $17.9 million to $10.4 million, including Merger and integration costs of $4.3 million.
  
• Adjusted net income (non-GAAP) increased to $14.3 million, or $0.21 per diluted share, compared to Adjusted net income of $11.4 million, or $0.17 per diluted share, in the fourth quarter of 2015. 
  
• Adjusted EBITDA (non-GAAP) increased 17.5% to $44.5 million.
  
• Adjusted EBITDA margin (non-GAAP) expanded 70 basis points to 5.9%.
  

Full Year 2016 Financial Results Compared to Full Year 2015

• Net sales increased 96.2% to $3.1 billion, primarily as a result of the Merger and the acquisitions of Robert Bowden Inc. (“RBI”) and VNS Corporation (“VNS”).  
  
• Net sales increased 10.5% as compared to 2015 Adjusted net sales (non-GAAP).  The Company estimates net sales for 2016, as compared to 2015 Adjusted net sales (non-GAAP), increased 5.1% from volume growth, 4.2% from acquisitions and 1.2% from lumber and sheet goods commodity price inflation.  
  
• Gross profit as a percentage of sales increased to 24.0%, as compared to 22.9% for full year 2015, primarily driven by a higher percentage of total net sales being derived from millwork, doors and windows, which are generally sold at a higher gross margin than our other product categories, as well as increased consideration from supplier agreements.  
  
• Selling, general and administrative expenses increased 86.3% to $571.8 million, primarily as a result of the Merger and acquisitions of RBI and VNS.  Selling, general and administrative expenses as a percent of sales declined to 18.5%, as compared to 19.5% in 2015.  
  
• Depreciation expense, including the portion reported within cost of sales, increased to $48.0 million, as compared to $21.0 million in 2015.  The increase was primarily driven by fixed assets acquired through the Merger and the acquisition of RBI and VNS, as well as replacements and additions of delivery fleet, material handling equipment and operating equipment.
  
• Amortization expense was $20.7 million, as compared to $3.6 million in 2015.  The increase in amortization expense for full year 2016 related to intangible assets acquired through the Merger and the acquisition of RBI and VNS. 
  
• Interest expense increased to $30.1 million, primarily due to borrowings assumed in the Merger as well as borrowings used to fund the acquisition of RBI.
  
• Net income increased $35.7 million to $30.9 million for 2016, including Merger and integration costs of $15.3 million and a loss on debt extinguishment of $12.5 million, which was recorded during the third quarter of 2016.
  
• Adjusted EBITDA (non-GAAP) increased by 49.7% to $193.9 million.
  
• Adjusted EBITDA margin (non-GAAP) expanded 170 basis points to 6.3%.
  

Liquidity and Capital Resources

Total liquidity as of December 31, 2016 was approximately $283.2 million, which included cash and cash equivalents of $8.9 million and $274.3 million of borrowing availability under the Company’s asset-backed revolver.  Capital expenditures during the fourth quarter and full year of 2016 totaled $11.9 million and $38.1 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 and technology investments to support our operations.  In addition, the Company acquired approximately $6.6 million of assets during the fourth quarter and $15.1 million of assets during the full year 2016 under capital lease arrangements, consisting primarily of material handling equipment.

Outlook

“We are well-positioned to capitalize on the steady growth we expect in the residential construction markets we serve,” said Mr. Alexander. “Our innovative approach to improving productivity and efficiency for our customers, our broad selection of value-added offerings, and our solid financial position set BMC apart from our competitors and create multiple avenues to drive future shareholder value.  Compared to the mild weather we enjoyed during the first quarter of 2016, we have experienced more normal seasonal trends during the first two months of 2017.  However, we also believe that underlying demand remains robust and will support another solid year of organic growth for 2017.  With a large portion of our Merger integration efforts behind us, we are increasing our efforts to accelerate our growth strategy both through organic and inorganic means.  We will continue to target opportunities that further enhance our value-added product offerings and/or expand our geographic footprint into attractive markets.”

Conference Call Information

BMC will host a conference call on Wednesday, March 1, 2017 at 10:00 a.m. Eastern Time and will simultaneously broadcast it live over the Internet.  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 13652791.  The telephonic replay will be available until 11:59 p.m. (Eastern Time) on March 8, 2017.  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.

Non-GAAP Financial Measures

This press release presents Adjusted net sales, 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 net sales, 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 tables included in this document under "Reconciliation of GAAP to Non-GAAP Measures."

About BMC Stock Holdings, Inc.

With over $3 billion in annual revenues, BMC is one of the nation's leading providers of diversified building products and services to builders, contractors and professional remodelers in the U.S. residential housing market. 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, which is headquartered in Atlanta, Georgia, serves 42 metropolitan areas across 17 states, principally in the fast-growing 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;
• seasonality and cyclicality of the building products supply and services industry;
• competitive industry pressures and competitive pricing pressure from our customers and competitors;
• inflation or deflation of prices of our products;
• our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings;
• our ability to maintain profitability;
• the impact of our indebtedness;
• the various financial covenants in our secured credit agreement and senior secured notes indenture;
• our concentration of business in the Texas, California and Georgia markets;
• the potential negative impacts from the significant decline in oil prices on employment, home construction and remodeling activity in Texas (particularly the Houston metropolitan area) and other markets dependent on the energy industry;
• 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 a housing market decline may have on our business, including the potential for impairment losses or the closing or idling of under-performing locations;
• 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;
• the impact of pricing pressure from our customers;
• our ability to identify or respond effectively to consumer needs, expectations 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;
• the potential loss of significant customers or a reduction in the quantity of products they purchase;
• 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 disruptions to our information technology systems;
• cybersecurity risks;
• risks related to the continued integration of Legacy BMC and SBS and successful operation of the post-merger company;
• our ability to operate on multiple Enterprise Resource Planning information systems and convert multiple systems to a single system; 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 March 1, 2017.

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.

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

Adjusted net sales, Adjusted EBITDA and Adjusted net income 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 net sales, Adjusted EBITDA and Adjusted net income provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and operating results.

• Adjusted net sales for the three months and twelve months ended December 31, 2015 is defined as BMC net sales plus pre-Merger SBS net sales.
  
• Adjusted EBITDA for the three months and twelve months ended December 31, 2016 is defined as BMC net income plus interest expense, income tax expense, depreciation and amortization, impairment of assets, Merger and integration costs, inventory step-up charges, non-cash stock compensation expense and loss on debt extinguishment. Adjusted EBITDA for the three months and twelve months ended December 31, 2015 is defined as BMC net loss plus pre-Merger SBS (loss) income from continuing operations, interest expense, depreciation and amortization, impairment of assets, Merger and integration costs, inventory step-up charges, non-cash stock compensation expense, headquarters relocation expense, loss portfolio transfer, insurance deductible reserve adjustments, fire casualty loss and other items, and minus income tax benefit.
  
• Adjusted EBITDA margin for the three months and twelve months ended December 31, 2016 is defined as Adjusted EBITDA divided by net sales and for the three months and twelve months ended December 31, 2015 is defined as Adjusted EBITDA divided by Adjusted net sales.
  
• Adjusted net income for the three months and twelve months ended December 31, 2016 is defined as BMC net income plus impairment of assets, Merger and integration costs, inventory step-up charges, non-cash stock compensation expense and loss on debt extinguishment, and after tax effecting those items, and for the three months and twelve months ended December 31, 2015 is defined as BMC net loss plus pre-Merger SBS (loss) income from continuing operations, impairment of assets, Merger and integration costs, inventory step-up charges, non-cash stock compensation expense, headquarters relocation expense, loss portfolio transfer, insurance reserve adjustments, fire casualty loss, tax benefit from NOL adjustments, recognition of previously unrecognized tax benefits and other items, and after tax effecting those items.
  

Company management uses Adjusted net sales, Adjusted EBITDA and Adjusted net income for trend analyses, for purposes of determining management incentive compensation and for budgeting and planning purposes.  Adjusted net sales and Adjusted EBITDA are used in monthly financial reports prepared for management and the board of directors.  The Company believes that the use of Adjusted net sales, Adjusted EBITDA and Adjusted net income provide 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 net sales, Adjusted EBITDA and Adjusted net income are not necessarily comparable to similarly titled measures reported by other companies.  Company management does not consider Adjusted net sales, Adjusted EBITDA and Adjusted net income in isolation or as alternatives to financial measures determined in accordance with GAAP.  The principal limitation of Adjusted EBITDA and Adjusted net income 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 and Adjusted net income do not reflect changes in, or cash requirements for, working capital needs; (ii) Adjusted EBITDA does not reflect interest expense, or the requirements necessary to service interest or principal payments on debt; (iii) Adjusted EBITDA does not reflect income tax expenses or the cash requirements to pay taxes; (iv) Adjusted net income and Adjusted EBITDA 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 and Adjusted net income do not reflect any cash requirements for such replacements and (vi) Adjusted net income and Adjusted EBITDA do not consider the potentially dilutive impact of issuing non-cash stock-based compensation.  In order to compensate for these limitations, management presents Adjusted net sales, Adjusted EBITDA and Adjusted net income in conjunction with GAAP results.  Readers should review the reconciliations of net sales to Adjusted net sales, 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)

Net sales and Adjusted net sales by product category (unaudited):

Investor Relations Contact
BMC Stock Holdings, Inc.
Carey Phelps
(919) 431-1160