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8-K - FORM 8-K - BMC STOCK HOLDINGS, INC.d62522d8k.htm

Exhibit 99.1

 

LOGO

Stock Building Supply Announces 2015 Third Quarter Results

Raleigh, NC - November 5, 2015 - Stock Building Supply Holdings, Inc. (NASDAQ: STCK) (the “Company”), a diversified lumber and building materials distributor and solutions provider that sells primarily to new construction and remodeling contractors, today reported its financial results for the third quarter ended September 30, 2015.

Third Quarter 2015 Financial Highlights

 

  Net sales of $358.5 million, up 1.3%, compared to $354.1 million in the prior year period

 

  Gross profit of $89.1 million, up 5.6%, compared to $84.4 million in the prior year period

 

  Net income of $6.0 million, or $0.23 per diluted share, including $1.2 million of merger-related costs, compared to net income of $5.0 million, or $0.19 per diluted share, in the prior year period

 

  Adjusted EBITDA of $16.4 million, up 24.5%, compared to $13.2 million in the prior year period

 

  Adjusted income from continuing operations of $8.0 million, or $0.30 per diluted share, compared to $5.8 million, or $0.22 per diluted share, in the prior year period

Commenting on the Company’s third quarter 2015 results, Jeff Rea, President and Chief Executive Officer, stated, “Residential construction activity and our sales volumes continued to improve at a gradual but steady pace in most of the markets we serve. Decelerating macro conditions in certain Texas markets and extended residential construction cycle times constrained overall sales volume growth to approximately 5%, as compared to the prior year quarter, while deflation in lumber and lumber sheet goods prices also restrained the year over year increase in net sales. Despite this challenging environment for sales growth, we built upon our consistent trend of profit improvement by increasing gross profit by nearly 6% and adjusted income from continued operations per diluted share by more than 38%, as compared to the prior year. These results once again illustrate the flexibility in our operating model, the focused execution of our operating teams and the value of our differentiated customer service capabilities supported by strategic eBusiness technology investments.”

Jim Major, Executive Vice President and Chief Financial Officer, stated, “Consistent with recent quarters, our sales and operating teams leveraged top-line growth and improved the sales mix from our strategic product categories to further expand gross profit. Our gross margin percentage for the quarter improved 110 basis points to 24.9%, as compared to the prior year period. The combination of gross profit improvement and operating expense discipline resulted in adjusted EBITDA growth of nearly 25% and strong pull-through of incremental sales and gross profit dollars. As prevailing market conditions gradually improve, we plan to maintain investments in our business to drive additional sales growth and realize opportunities to further enhance operating results.”

Third Quarter 2015 Financial Results Compared to Prior Year Period

Net sales for the third quarter of 2015 totaled $358.5 million, up $4.5 million, or 1.3%, compared to $354.1 million in the third quarter of 2014. The Company estimates net sales grew approximately 4.5% related to increased volume but was largely offset by reduced selling prices on commodity products.

 

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Gross profit in the third quarter of 2015 was $89.1 million, up $4.7 million, or 5.6%, compared to $84.4 million in the third quarter of 2014, primarily as a result of increased sales volume. The gross margin percentage for the third quarter of 2015 increased 110 basis points to 24.9%, compared to 23.8% in the third quarter of 2014. The increase in gross margin percentage was driven by improved gross margins on sales of structural components and a higher percentage of total net sales being derived from non-commodity products.

Selling, general and administrative expenses during the third quarter of 2015 were $75.3 million, up $1.6 million, or 2.2%, from $73.7 million in the third quarter of 2014. The increase was primarily related to higher salary, wage and incentive compensation costs to serve higher sales volume.

Operating income for the third quarter of 2015 was $9.6 million, compared to operating income of $8.4 million in the third quarter of 2014. During the third quarter of 2015, the Company incurred approximately $1.2 million of costs related to the previously announced merger (“the Merger”) with Building Materials Holding Corporation (“BMC”).

Net income during the quarter totaled $6.0 million, or $0.23 per diluted share, compared to net income of $5.0 million, or $0.19 per diluted share, in the third quarter of 2014. Adjusted income from continuing operations for the third quarter of 2015 was $8.0 million, or $0.30 per diluted share, compared to adjusted income from continuing operations of $5.8 million, or $0.22 per diluted share, in the third quarter of 2014.

Adjusted EBITDA in the third quarter of 2015 totaled $16.4 million, up $3.2 million, compared to $13.2 million in the third quarter of 2014. A reconciliation of non-GAAP (Adjusted) financial measures to comparable GAAP financial measures is provided in the “Reconciliation of GAAP to Non-GAAP Measures” section of this press release.

Liquidity and Capital Resources

Total liquidity as of September 30, 2015 was approximately $118.3 million, which includes cash and cash equivalents of $5.4 million and $112.9 million of borrowing availability under our existing revolver.

Capital expenditures during the third quarter of 2015 totaled $4.9 million, primarily 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 $3.9 million of assets, primarily vehicles and equipment, under capital lease arrangements.

Merger with BMC

On June 3, 2015, the Company announced it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BMC, pursuant to which BMC will merge with and into the Company with the Company surviving. The Merger, which remains subject to certain closing conditions (including approval by both the Company and BMC stockholders), is on track to close in the fourth quarter of 2015.

Outlook

“The positive trends in employment expansion, consumer sentiment and builder confidence for the U.S. housing market provides a solid backdrop for the continued execution of our profitable growth strategy,” stated Mr. Rea. “Our announced strategic merger with BMC, which significantly expands our operating footprint and adds more than $1.3 billion in annual net sales to the Company’s historical financial results, remains on track to close in the fourth quarter of 2015. Furthermore, we are finalizing development and beginning the launch of our 24x7 eCommerce platform, which provides a customer portal into our ERP and eBusiness suite of services. This platform is expected to deliver meaningful improvements in customer and employee productivity. Once fully implemented across the Company, we expect that our integrated suite of eBusiness services will have a significant positive effect on our customer service, growth potential and productivity that will support continued expansion of our operating margins.”

 

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Conference Call

The Company will host a conference call on Thursday, November 5, 2015 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 877-870-5176, or for international callers, 858-384-5517. The passcode for the live call and the replay is 13622789. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on November 12, 2015. The live webcast and archived replay can be accessed on the “Events & Presentations” section of the Company’s Investor Relations website at ir.stocksupply.com. The online archive of the webcast will be available for approximately 90 days.

 

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About Stock Building Supply

Stock Building Supply operates 69 strategically located facilities in 20 metropolitan areas in 13 states primarily in the South and West regions of the United States (as defined by the U.S. Census Bureau). We offer a broad range of products, including lumber and lumber sheet goods, millwork, doors, flooring, windows, structural components, engineered wood products, trusses, wall panels and other exterior products. Our customer base includes production homebuilders, custom homebuilders and remodeling contractors.

Non-GAAP Financial Measures

This press release presents Adjusted EBITDA and Adjusted income from continuing operations, which are non-GAAP financial measures within the meaning of applicable Securities and Exchange Commission (“SEC”) rules and regulations. For a discussion of the reasons why the Company believes that these non-GAAP financial measures provide information that is useful to investors and a reconciliation of Adjusted EBITDA and Adjusted income from continuing operations to the most comparable GAAP measure, see the “Reconciliation of GAAP to Non-GAAP Measures” section of this press release.

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this presentation 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,” “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. The Company 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. Such forward-looking statements include, but are not limited to, statements about the benefits of the Merger involving BMC and the Company, including future financial and operating results, the Company’s or BMC’s plans, objectives, expectations and intentions, the expected timing of completion of the transaction, and other statements that are not historical facts. 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. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include risks and uncertainties relating to: the ability to obtain the requisite BMC and the Company stockholder approvals; the risk that the Company or BMC may be unable to obtain governmental and regulatory approvals required for the Merger, or required governmental and regulatory approvals may delay the Merger or result in the imposition of conditions that could cause the parties to abandon the Merger; the risk that a condition to closing of the Merger may not be satisfied; the timing to consummate the Merger; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; the diversion of management time on Merger-related issues; general worldwide economic conditions and related uncertainties; the effect of changes in governmental regulations; and other factors discussed or referred to in the “Risk Factors” section of the Company’s most recent Annual Report on Form 10-K filed with the SEC on March 2, 2015, the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 5, 2015, and our subsequent filings with the SEC. These risk factors, as well as other risks associated with the Merger, are more fully discussed in the Registration Statement and the Proxy/Consent Solicitation Statement/Prospectus (as defined below). All such factors are difficult to predict and are beyond the Company and BMC’s control. All forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by the foregoing cautionary

 

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statements. All such statements speak only as of the date made, and the Company and BMC undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

No Offer or Solicitation

The information in this communication is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. 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.

Additional Information and Where to Find it

The proposed transaction involving the Company and BMC will be submitted to the respective stockholders of the Company and BMC for their consideration. In connection with the Merger and special meeting of the Company’s stockholders, the Company has filed with the SEC a registration statement on Form S-4 (the “Registration Statement”) that includes a proxy statement/consent solicitation statement/prospectus (the “Proxy/Consent Solicitation Statement/Prospectus”). The Registration Statement has been declared effective by the SEC, and the definitive Proxy/Consent Solicitation Statement/Prospectus was first mailed or otherwise delivered to the stockholders of the Company on or about October 30, 2015. The definitive Registration Statement and the Proxy/Consent Solicitation Statement/Prospectus contain important information about the Merger, the Merger Agreement and related matters.

This communication may be deemed to be solicitation material in respect of the proposed transaction between BMC and the Company. This communication is not a substitute for the Registration Statement, Proxy/Consent Solicitation/Prospectus or any other documents that the Company or BMC has filed or may file with the SEC or send to stockholders in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS OF THE COMPANY AND BMC ARE URGED AND ADVISED TO READ THE REGISTRATION STATEMENT AND THE PROXY/CONSENT SOLICITATION STATEMENT/PROSPECTUS CAREFULLY, AS WELL AS ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC AND ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The Registration Statement, the Proxy/Consent Solicitation Statement/Prospectus and any other documents filed or furnished by the Company with the SEC may be obtained free of charge at the SEC’s website (www.sec.gov). The Registration Statement, the Proxy/Consent Solicitation Statement/Prospectus and other relevant documents are also available to security holders, without charge, from the Company by going to its investor relations page on its corporate website at http://ir.stocksupply.com or from BMC by directing a request to Paul Street, Corporate Secretary of BMC, via email or telephone (paul.street@buildwithbmc.com, (208) 331-4300).

Participation in the Solicitation

The Company, BMC, their respective directors and certain of their executive officers and employees may be deemed to be participants in the solicitation of proxies in connection with the Merger. Information about the directors and executive officers of the Company is set forth in the proxy statement for the Company’s 2015 Annual Meeting of Stockholders, which was filed with the SEC on April 30, 2015. Information about the directors and executive officers of BMC and more detailed information regarding the identity of all potential participants, and their direct and indirect interests, by security holdings or otherwise, are set forth in the Registration Statement and the Proxy/Consent Solicitation Statement/Prospectus. Investors may obtain additional information regarding the interests of such participants by reading the Registration Statement and

 

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the Proxy/Consent Solicitation Statement/Prospectus. You may obtain a free copy of the proxy statement for the Company’s 2015 Annual Meeting of Stockholders by going to its investor relations page on its corporate website at http://ir.stocksupply.com. You may obtain free copies of the Registration Statement, the Proxy/Consent Solicitation Statement/Prospectus and other relevant documents as described in the preceding paragraph.

Investor Relations Contact

Stock Building Supply Holdings, Inc.

Mark Necaise

(919) 431-1021

 

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
(in thousands, except share and per share amounts)    2015     2014     2015     2014  

Net sales

   $ 358,540      $ 354,060      $ 1,006,225      $ 978,629   

Cost of goods sold

     269,401        269,668        759,354        746,781   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     89,139        84,392        246,871        231,848   
  

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

     75,286        73,665        219,866        211,878   

Depreciation expense

     2,493        1,681        6,811        4,790   

Amortization expense

     596        563        1,756        1,690   

Impairment of assets held for sale

     —          —          —          48   

Merger-related costs

     1,183        —          4,652        —     

Public offering transaction-related costs

     —          60        —          508   

Restructuring expense

     (14     2        383        11   
  

 

 

   

 

 

   

 

 

   

 

 

 
     79,544        75,971        233,468        218,925   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     9,595        8,421        13,403        12,923   

Other income (expense)

        

Interest expense

     (745     (712     (2,133     (2,011

Other income, net

     194        197        1,002        610   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     9,044        7,906        12,272        11,522   

Income tax expense

     3,020        2,972        1,866        4,417   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     6,024        4,934        10,406        7,105   

Income from discontinued operations, net of income tax expense of $4, $25, $33 and $133, respectively

     7        40        54        208   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 6,031      $ 4,974      $ 10,460      $ 7,313   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

        

Basic

     26,123,202        25,733,833        26,104,425        25,713,688   

Diluted

     26,354,070        26,229,323        26,317,488        26,218,405   

Basic earnings per share

        

Income from continuing operations

   $ 0.23      $ 0.19      $ 0.40      $ 0.27   

Income from discontinued operations

     —          —          —          0.01   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share

   $ 0.23      $ 0.19      $ 0.40      $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

        

Income from continuing operations

   $ 0.23      $ 0.19      $ 0.40      $ 0.27   

Income from discontinued operations

     —          —          —          0.01   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share

   $ 0.23      $ 0.19      $ 0.40      $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

(in thousands, except share and per share amounts)    September 30,
2015
    December 31,
2014
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 5,382      $ 5,806   

Restricted assets

     523        1,076   

Accounts receivable, net

     138,405        114,448   

Inventories, net

     108,726        98,259   

Costs in excess of billings on uncompleted contracts

     10,501        7,981   

Current income taxes receivable

     —          4,863   

Prepaid expenses and other current assets

     13,858        11,718   

Deferred income taxes

     2,063        4,081   
  

 

 

   

 

 

 

Total current assets

     279,458        248,232   

Property and equipment, net of accumulated depreciation

     88,295        90,611   

Intangible assets, net of accumulated amortization

     20,780        22,536   

Goodwill

     7,186        7,186   

Restricted assets

     1,104        861   

Other assets

     1,109        1,792   
  

 

 

   

 

 

 

Total assets

   $ 397,932      $ 371,218   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Accounts payable

   $ 83,376      $ 72,029   

Accrued expenses and other liabilities

     40,203        32,957   

Income taxes payable

     4,640        —     

Current portion of restructuring reserve

     845        892   

Current portion of capital lease obligation

     3,306        1,706   

Billings in excess of costs on uncompleted contracts

     1,064        592   
  

 

 

   

 

 

 

Total current liabilities

     133,434        108,176   

Revolving line of credit

     76,464        90,114   

Long-term portion of capital lease obligation

     12,217        5,955   

Deferred income taxes

     13,079        18,880   

Other long-term liabilities

     9,450        7,222   
  

 

 

   

 

 

 

Total liabilities

     244,644        230,347   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity

    

Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding at September 30, 2015 and December 31, 2014

     —          —     

Common stock, $0.01 par value, 300,000,000 shares authorized, 26,195,627 shares issued and 26,186,111 shares outstanding at September 30, 2015, and 26,176,056 shares issued and outstanding at December 31, 2014

     262        262   

Additional paid-in capital

     149,479        147,340   

Retained earnings (deficit)

     3,729        (6,731

Treasury stock, at cost, 9,516 shares at September 30, 2015

     (182     —     
  

 

 

   

 

 

 

Total stockholders’ equity

     153,288        140,871   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 397,932      $ 371,218   
  

 

 

   

 

 

 

 

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

     Nine Months Ended September 30,  
(in thousands)    2015     2014  

Cash flows from operating activities

    

Net income

   $ 10,460      $ 7,313   

Adjustments to reconcile net income to net cash provided by operating activities

    

Depreciation expense

     10,074        8,054   

Amortization of intangible assets

     1,756        1,690   

Amortization of debt issuance costs

     339        353   

Deferred income taxes

     (3,783     (4,030

Non-cash stock compensation expense

     2,101        1,848   

Impairment of assets held for sale

     —          96   

Gain on sale of property, equipment and real estate

     (370     (1,076

Bad debt expense

     1,801        417   

Change in assets and liabilities

    

Accounts receivable

     (24,535     (19,756

Inventories, net

     (9,693     (23,445

Accounts payable

     11,871        26,951   

Other assets and liabilities

     13,461        6,396   
  

 

 

   

 

 

 

Net cash provided by operating activities

     13,482        4,811   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of property and equipment

     (12,329     (20,795

Purchase of business

     (2,025     —     

Proceeds from sale-leaseback transactions, net

     15,296        —     

Proceeds from sale of property, equipment and real estate

     1,005        3,493   

Change in restricted assets

     310        2   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     2,257        (17,300
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from revolving line of credit

     1,055,182        1,046,220   

Repayments of proceeds from revolving line of credit

     (1,068,832     (1,023,476

Payments on capital leases

     (2,419     (1,177

Other financing activities

     (94     (1,972
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (16,163     19,595   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (424     7,106   

Cash and cash equivalents

    

Beginning of period

     5,806        1,138   
  

 

 

   

 

 

 

End of period

   $ 5,382      $ 8,244   
  

 

 

   

 

 

 

 

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

Sales by Product Category

(unaudited)

 

     Three Months Ended
September 30, 2015
    Three Months Ended
September 30, 2014
       
(in thousands)    Net Sales      % of Sales     Net Sales      % of Sales     % Change  

Structural components

   $ 50,930         14.2   $ 49,163         13.9     3.6

Millwork & other interior products

     65,513         18.3     64,821         18.3     1.1

Lumber & lumber sheet goods

     117,299         32.7     123,116         34.8     (4.7 )% 

Windows & other exterior products

     78,358         21.9     73,626         20.8     6.4

Other building products & services

     46,440         12.9     43,334         12.2     7.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total net sales

   $ 358,540         100.0   $ 354,060         100.0     1.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

     Nine Months Ended
September 30, 2015
    Nine Months Ended
September 30, 2014
       
(in thousands)    Net Sales      % of Sales     Net Sales      % of Sales     % Change  

Structural components

   $ 141,981         14.1   $ 132,846         13.6     6.9

Millwork & other interior products

     187,455         18.6     178,528         18.2     5.0

Lumber & lumber sheet goods

     335,310         33.3     343,279         35.1     (2.3 )% 

Windows & other exterior products

     211,552         21.0     201,921         20.6     4.8

Other building products & services

     129,927         13.0     122,055         12.5     6.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total net sales

   $ 1,006,225         100.0   $ 978,629         100.0     2.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

Adjusted EBITDA is defined as income from continuing operations plus interest expense, income tax expense, depreciation and amortization, impairment of assets held for sale, Merger-related costs, public offering transaction-related costs, restructuring expense, non-cash stock compensation expense, severance and other items related to store closures and other items. Adjusted income from continuing operations is defined as income from continuing operations plus Merger-related costs, public offering transaction-related costs, restructuring expense, non-cash stock compensation expense, severance and other items related to store closures and other items, and after tax effecting those items. Adjusted EBITDA and Adjusted income from continuing operations are intended as supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). We believe that Adjusted EBITDA and Adjusted income from continuing operations provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses Adjusted EBITDA to compare our performance to that of prior periods 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 our board of directors. We believe that the use of Adjusted EBITDA and Adjusted income from continuing operations provide additional tools for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other distribution and retail companies, which may present similar non-GAAP financial measures to investors. However, our calculation of Adjusted EBITDA and Adjusted income from continuing operations are not necessarily comparable to similarly titled measures reported by other companies. Our management does not consider Adjusted EBITDA or Adjusted income from continuing operations in isolation or as alternatives to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA and Adjusted income from continuing operations 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 income from continuing operations do not reflect changes in, or cash requirements for, our working capital needs; (ii) Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt; (iii) Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes; (iv) Adjusted EBITDA and Adjusted income from continuing operations 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 income from continuing operations do not reflect any cash requirements for such replacements and (vi) Adjusted EBITDA and Adjusted income from continuing operations 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 and Adjusted income from continuing operations in conjunction with GAAP results. You should review the reconciliations of income from continuing operations to Adjusted EBITDA and Adjusted income from continuing operations below, and should not rely on any single financial measure to evaluate our business.

 

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Measures (continued)

(unaudited)

The following is a reconciliation of income from continuing operations to adjusted EBITDA.

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(in thousands)    2015      2014      2015      2014  

Income from continuing operations

   $ 6,024       $ 4,934       $ 10,406       $ 7,105   

Interest expense

     745         712         2,133         2,011   

Income tax expense

     3,020         2,972         1,866         4,417   

Depreciation and amortization

     4,186         3,298         11,830         9,744   

Impairment of assets held for sale

     —           —           —           48   

Merger-related costs

     1,183         —           4,652         —     

Public offering transaction-related costs

     —           60         —           508   

Restructuring expense

     (14      2         383         11   

Non-cash stock compensation expense

     775         868         2,101         1,848   

Severance and other items related to store closures (a)

     490         325         1,083         440   

Other items (b)

     32         37         253         126   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 16,441       $ 13,208       $ 34,707       $ 26,258   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a reconciliation of income from continuing operations to adjusted income from continuing operations.

 

     Three Months Ended September 30,  
(in thousands)    2015      2014  

Income from continuing operations

   $ 6,024       $ 4,934   

Merger-related costs

     1,183         —     

Public offering transaction-related costs

     —           60   

Restructuring expense

     (14      2   

Non-cash stock compensation expense

     775         868   

Severance and other items related to store closures (a)

     490         325   

Other items (b)

     32         37   

Tax effect of adjustments to continuing operations (c)

     (478      (457
  

 

 

    

 

 

 

Adjusted income from continuing operations

   $ 8,012       $ 5,769   
  

 

 

    

 

 

 

Weighted average common shares used in calculating adjusted income from continuing operations per diluted share

     26,354,070         26,229,323   

Adjusted income from continuing operations per diluted share

   $ 0.30       $ 0.22   

 

(a) Represents severance expense and other items related to closed locations.
(b) Represents third party costs related to completed acquisitions and the evaluation of acquisition candidates, as well as the expense for advisory services provided by an affiliate of The Gores Group, LLC (“Gores”).
(c) The tax effect of adjustments to continuing operations was based on the respective transactions’ income tax rate, which was 34.0% and 37.5% for the three months ended September 30, 2015 and 2014, respectively. The tax effect of adjustments to continuing operations for the three months ended September 30, 2015 excludes approximately $1.1 million of non-deductible Merger-related costs. The tax effect of adjustments to continuing operations for the three months ended September 30, 2014 excludes approximately $0.1 million of non-deductible public offering transaction-related costs.

 

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