Net sales for the quarter ended June 30, 2018 were $2.1 billion, a 13.4 percent increase over net sales for the second quarter of 2017, including approximately 8.8 percent from the impact of commodity price inflation and 4.6 percent from sales volume growth. Sales volume, excluding commodity inflation, grew approximately 6.0 percent in the single family homebuilding end market and 1.8 percent in the repair and remodeling/other end market, offset by declines in multi-family. Value added products sales, including our windows, doors and millwork and manufactured products categories, grew by 11.1 percent.

Gross margin of $496.3 million in the second quarter of 2018 increased by $35.5 million over the second quarter of 2017. Gross margin percentage was 23.7 percent, a decrease of 130 basis points compared to the second quarter of 2017. Our gross margin decreased largely due to the sharp rise in commodity prices relative to our short-term customer pricing commitments. Although rapid commodity inflation can cause short term gross margin percentage compression as prices are rising, higher sustained commodity prices generally benefit the Company’s gross profit and Adjusted EBITDA dollars.

SG&A in the second quarter of 2018 was $391.8 million or 18.7 percent of sales, a decrease of 130 basis points versus the second quarter of 2017. The significant decrease in SG&A as a percent of sales was driven by cost leverage and continued cost management, which enabled the company to fully offset the short term impact of commodity inflation on Adjusted EBITDA as a percentage of sales.

Interest expense in the second quarter of 2018 was $29.0 million compared to $33.7 million in the second quarter of 2017. The year over year reduction is largely a result of refinancing transactions the Company executed in 2017 to lower go forward interest, slightly offset by rising market interest rates.

Although the Company did not pay federal cash taxes, GAAP income tax expense in the second quarter of 2018 was $19.0 million compared to income tax expense of $19.7 million in the second quarter of 2017. This represents a 25.1% effective tax rate, which is in line with the company’s balance of year expectations.

GAAP net income for the second quarter 2018 was $56.6 million, or $0.49 per diluted share, compared to $37.9 million, or $0.33 per diluted share, for the second quarter of 2017.

Adjusted net income was $62.6 million, or $0.54 per diluted share, compared to $43.0 million, or $0.37 per diluted share, in the second quarter of 2017. The year over year increase of $19.6 million, or 45.6 percent, was primarily driven by sales growth, cost management, and lower interest expense.

Second quarter Adjusted EBITDA grew $15.1 million to $139.1 million, or 6.7 percent of sales, compared to $124.0 million, or 6.7 percent of sales, for the second quarter of 2017, an increase of 12.2 percent. The year over year improvement was largely driven by sales increases, and strong, sustained cost management which enabled the company to fully offset the short term impact of commodity inflation on Adjusted EBITDA as a percentage of sales.

Net sales year to date were $3.8 billion, a 12.3 percent increase over the first half of 2017.

In the first half of 2018, GAAP net income was $79.8 million, or $0.68 per diluted share, compared to $41.7 million, or $0.36 per diluted share, in the first half of 2017, an increase of $0.32 per diluted share, or 88.9 percent.

Adjusted net income was $90.2 million, or $0.77 per diluted share, compared to $55.1 million, or $0.48 per diluted share, in the first half of 2017, an increase of $0.29 per diluted share. The year over year increase of $35.1 million, or 63.7 percent, was primarily driven by the Company’s sales growth, ongoing cost management, and lower interest expense.

Adjusted EBITDA for the first half of 2018 grew $21.7 million to $221.8 million, or 5.9 percent of sales, compared to $200.1 million, or 5.9 percent of sales, for the first half of 2017, an increase of 10.8 percent. The year over year improvement was primarily attributable to sales growth and ongoing cost management, offset in part by the impact of commodity inflation on gross margin.

Adjusted EBITDA, on a trailing 12 month basis, was $440.6 million and net debt was $1,972.8 million as of June 30, 2018. The Company decreased its leverage ratio versus June 30^th, 2017 by 0.3x, to 4.5x net debt / Adjusted EBITDA. The Company expects to reduce its leverage ratio to below 3.5x by year end.

Due to seasonal working capital needs in the first half, net cash used in operations and investing was $217.8 million. The Company expects to generate $170-190 million in cash from operations and investing activities for the full year 2018, in line with its full year cash flow guidance.

Liquidity at June 30, 2018 was $298.0 million, which consisted of net borrowing availability under the revolving credit facility and cash on hand.

(Unaudited)

(In thousands, except per share amounts)

Sales

Cost of sales

Gross margin

Selling, general and administrative expenses

Income from operations

Interest expense, net

Income before income taxes

Income tax expense

Net Income

Comprehensive Income

Net income per share:

Basic

Diluted

Weighted average common shares:

Basic

Diluted

(Unaudited)

(In thousands, except per share amounts)

Current assets:

Cash and cash equivalents

Accounts receivable, less allowances of $13,437 and $11,771 at June 30, 2018 and December 31, 2017, respectively

Other receivables

Inventories, net

Other current assets

Total current assets

Property, plant and equipment, net

Assets held for sale

Goodwill

Intangible assets, net

Deferred income taxes

Other assets, net

Total assets

Current liabilities:

Checks outstanding

Accounts payable

Accrued liabilities

Current maturities of long-term debt and lease obligations

Total current liabilities

Long-term debt and lease obligations, net of current maturities, debt discount and debt issuance costs

Other long-term liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding

Common stock, $0.01 par value, 200,000 shares authorized; 114,671 and 113,572 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

(Unaudited)

(In thousands)

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

Amortization and write-off of debt issuance costs and debt discount

Deferred income taxes

Stock compensation expense

Net loss (gain) on sale of assets and asset impairments

Changes in assets and liabilities:

Receivables

Inventories

Other current assets

Other assets and liabilities

Accounts payable and checks outstanding

Accrued liabilities

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property, plant and equipment

Proceeds from sale of property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Borrowings under revolving credit facility

Repayments under revolving credit facility

Repayments of long-term debt and other loans

Payments of loan costs

Exercise of stock options

Repurchase of common stock

Net cash provided by financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Reconciliation to Adjusted EBITDA:

GAAP Net Income

Integration related expenses

Debt issuance and refinancing cost⁽¹⁾

Revaluation of NOL⁽²⁾

Adjusted Net Income

Weighted average diluted common shares (in millions)

Diluted adjusted net income per share:

Reconciling items:

Depreciation and amortization expense

Interest expense, net

Income tax (benefit) expense

Stock compensation expense

(Gain)/loss on sale and asset impairments

Other management-identified adjustments⁽³⁾

Adjusted EBITDA

Adjusted EBITDA Margin

Cost associated with refinancing long term debt in 2017.

In 2017, the company revalued its NOL tax asset given the tax reform that allows for a lower federal corporate tax rate.

Primarily relates to severance and one time cost.

Net sales

Sales adjustment for closed locations

Net sales excluding closed locations

Gross margin

Gross margin %

Adjusted SG&A/Other (excluding depreciation and amortization) as a % of sales⁽¹⁾

Adjusted EBITDA

Adjusted EBITDA margin %

Depreciation and amortization

Interest expense, net of debt issuance cost and refinancing

Income tax expense

Other adjustments

Adjusted Net Income

Basic adjusted net income per share:

Diluted adjusted net income per share:

Weighted average common shares (in millions)

Basic

Diluted

Adjusted SG&A and other as a percentage of sales is defined as GAAP SG&A less depreciation and amortization, stock comp, acquisition, integration and other expenses. GAAP SG&A in Q2-18 of $391.8M less $24.8M depreciation and amortization, less $6.0M of integration expenses, less $3.5M of stock comp and $0.2M loss from sales, impairments, and other. GAAP SG&A in 1H-18 of $750.7M less $47.6M depreciation and amortization, less $10.4M of integration expenses, less $6.4M of stock comp and $0.7M loss from sales, impairments, and other.

Lumber & Lumber Sheet Goods

Manufactured Products

Windows, Doors & Millwork

Gypsum, Roofing & Insulation

Siding, Metal & Concrete Products

Other

Total adjusted net sales

2024 Secured Notes @ 5.625% Fixed

2024 Term Loan @ 5.0% (Floating LIBOR)⁽²⁾

Revolving Credit Facility @ 3.8% (Floating LIBOR)⁽²⁾

Amortization of deferred loan costs and debt discount

Lease finance obligations and capital leases

Other

Cash

Total

Excludes issuance cost and one time items. Assumes Q2 borrowing rates on variable debt.

Assumes average forecasted 2018 balances for the Term Loan and the Revolving Credit Facility