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Beacon Roofing Supply Reports Second Quarter 2019 Results

HERNDON, Va.--(BUSINESS WIRE)--

  • Record second quarter net sales of $1.43 billion
  • Existing market daily sales growth of 1.2% year-over-year
  • Second quarter net income (loss) of $(68.1) million vs. $(66.7) million in the prior year; Adjusted Net Income (Loss) of $(30.9) million vs. $(23.5) million in the prior year
  • Second quarter EPS of $(1.08) vs. $(1.07) in the prior year; Adjusted EPS of $(0.45) vs. $(0.35) in the prior year
  • Opened four greenfield locations in the second quarter (five total in fiscal 2019 to-date)

Beacon Roofing Supply, Inc. (BECN) (“Beacon” or the “Company”) announced results today for its second quarter and six-month period ended March 31, 2019 (“2019”).

Paul Isabella, the Company's President and Chief Executive Officer, stated: “We produced positive organic sales growth, highlighted by a daily sales increase of nearly 5% in residential roofing, despite the harsh weather adversely impacting quarterly demand (as noted in our March 25 press release). In an effort to help mitigate the challenging weather patterns, we were able to implement more aggressive late-quarter cost controls to match the unusually soft seasonal environment. We once again exhibited attractive price-cost performance in the second quarter, as we have done in each of the past four quarters. Importantly, the winter is now behind us and existing market sales accelerated the last several weeks of March, and that momentum has continued into April. Through key initiatives, including digital, private label, and complementary products, coupled with new branch openings, we are continuing to expand our competitive advantage in the marketplace. We remain firmly committed to reaching our long-term sales and margin objectives.”

Second Quarter

Net sales increased 0.2% to $1.43 billion in 2019, a level similar to 2018. Residential roofing product sales increased 2.9%, non-residential roofing product sales decreased 5.7% and complementary product sales increased 1.1% over the prior year. Existing markets net sales decreased 0.4% compared to the prior year period, primarily due to weather related events; however, sales by business day increased by 1.2% compared to the prior year period. The second quarter of fiscal years 2019 and 2018 had 63 and 64 business days, respectively.

Net income (loss) attributable to common shareholders was $(74.1) million, compared to $(72.7) million in 2018. Net income (loss) per share (“EPS”) was $(1.08), compared to $(1.07) in 2018. Second quarter results were positively impacted by strong sales in geographies less impacted by the unfavorable weather and lower operating expense. Second quarter results were negatively impacted by lower gross margins.

Adjusted Net Income (Loss) was $(30.9) million, compared to $(23.5) million in 2018. Adjusted EPS was $(0.45), compared to $(0.35) in 2018. Adjusted EBITDA was $27.4 million, compared to $31.7 million in 2018. (Please see the included financial tables for a reconciliation of “Adjusted” financial measures to the most directly comparable GAAP financial measures as well as further detail on the components driving the net changes over the comparative periods).

Six Months

Net sales increased 23.7% to $3.15 billion, up from $2.55 billion in the comparative 2018 period. Residential roofing product sales increased 13.5%, non-residential roofing product sales increased 10.7% and complementary product sales increased 52.0% over the prior year. Existing markets net sales increased 0.8% compared to the prior year period, primarily due to price gains across all product lines. The first six months of fiscal years 2019 and 2018 each had 125 business days.

Net income (loss) attributable to common shareholders was $(81.0) million, compared to $(5.1) million in 2018. Net income (loss) per share (“EPS”) was $(1.18), compared to $(0.07) in 2018. The six-month results were positively impacted by price gains across all product lines and improved gross margin performance. The six-month results were negatively impacted by higher operating expenses and increase in interest expense and preferred dividend payments that were both related to the acquisition of Allied. In addition, 2018 results include a $48.0 million non-recurring net tax benefit resulting from the enactment of the Tax Cuts and Jobs Act of 2017.

Adjusted Net Income (Loss) was $9.6 million, compared to $23.2 million in 2018. Adjusted EPS was $0.14, compared to $0.34 in 2018. Adjusted EBITDA was $149.1 million, compared to $117.6 million in 2018. (Please see the included financial tables for a reconciliation of “Adjusted” financial measures to the most directly comparable GAAP financial measures as well as further detail on the components driving the net changes over the comparative periods).

The Company will host a webcast and conference call today at 5:00 p.m. ET to discuss these results. The webcast link and call-in details are as follows:

           
What: Beacon Roofing Supply Second Quarter 2019 Earnings Conference Call
When Tuesday, May 7, 2019
Time: 5:00 p.m. ET
Webcast:

http://ir.beaconroofingsupply.com/events.cfm (live and replay)

Live Call: 720-634-9063; Conf. ID #6843668
 

To assure timely access, conference call participants should dial in prior to the 5:00 p.m. ET start time.

Forward-Looking Statements:

This release contains information about management's view of the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including, but not limited to, those set forth in the "Risk Factors" section of the Company's latest Form 10-K. In addition, the forward-looking statements included in this press release represent the Company's views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point, the Company specifically disclaims any obligation to do so, other than as required by federal securities laws. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of this press release.

About Beacon Roofing Supply

Founded in 1928, Beacon Roofing Supply, Inc. is the largest publicly traded distributor of residential and commercial roofing materials and complementary building products, operating over 500 branches throughout all 50 states in the U.S. and 6 provinces in Canada. To learn more about Beacon and its family of regional brands, please visit www.becn.com.

 
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
   
Three Months Ended March 31, Six Months Ended March 31,
2019  

% of
Net
Sales

  2018  

% of
Net
Sales

2019  

% of
Net
Sales

  2018  

% of
Net
Sales

Net sales $ 1,429,037   100.0 % $ 1,425,625   100.0 % $ 3,150,713   100.0 % $ 2,547,604   100.0 %
Cost of products sold   1,094,049     76.6 %   1,087,248     76.3 %   2,380,156     75.5 %   1,939,474     76.1 %
Gross profit 334,988 23.4 % 338,377 23.7 % 770,557 24.5 % 608,130 23.9 %
Operating expense1:
Selling, general and administrative 320,408 22.4 % 341,587 24.0 % 648,101 20.6 % 535,340 21.0 %
Depreciation 17,447 1.2 % 17,120 1.2 % 35,048 1.1 % 25,829 1.0 %
Amortization   51,763     3.6 %   37,068     2.6 %   103,784     3.3 %   55,263     2.2 %
Total operating expense   389,618     27.2 %   395,775     27.8 %   786,933     25.0 %   616,432     24.2 %
Income (loss) from operations (54,630 ) (3.8 %) (57,398 ) (4.1 %) (16,376 ) (0.5 %) (8,302 ) (0.3 %)
Interest expense, financing costs, and other2   40,452     2.8 %   39,570     2.8 %   78,813     2.5 %   62,138     2.4 %
Income (loss) before provision for income taxes (95,082 ) (6.6 %) (96,968 ) (6.9 %) (95,189 ) (3.0 %) (70,440 ) (2.7 %)
Provision for (benefit from) income taxes   (26,996 )   (1.8 %)   (30,313 )   (2.2 %)   (26,210 )   (0.8 %)   (71,381 )   (2.7 %)
Net income (loss)   (68,086 )   (4.8 %)   (66,655 )   (4.7 %)   (68,979 )   (2.2 %)   941     0.0 %
Dividends on preferred shares3   6,000     0.4 %   6,000     0.4 %   12,000     0.4 %   6,000     0.2 %
Net income (loss) attributable to common shareholders $ (74,086 )   (5.2 %) $ (72,655 )   (5.1 %) $ (80,979 )   (2.6 %) $ (5,059 )   (0.2 %)
 
Weighted-average common stock outstanding:
Basic 68,451,920 68,019,300 68,348,850 67,922,276
Diluted 68,451,920 68,019,300 68,348,850 67,922,276
 
Net income (loss) per share4:
Basic $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
Diluted $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
 
______________________________________________

1

  Operating expense for the three months ended March 31, 2019 and 2018 includes non-recurring acquisition costs of $6.7 million ($4.7 million, net of taxes) and $28.3 million ($20.0 million, net of taxes), respectively. Operating expense for the six months ended March 31, 2019 and 2018 includes non-recurring acquisition costs of $15.6 million ($11.4 million, net of taxes) and $33.9 million ($23.9 million, net of taxes), respectively.
 
2 Interest expense, financing costs, and other for the three months ended March 31, 2019 and 2018 includes non-recurring acquisition costs of $3.0 million ($2.2 million, net of taxes) and $6.3 million ($4.5 million, net of taxes), respectively. Interest expense, financing costs, and other for the six months ended March 31, 2019 and 2018 includes non-recurring acquisition costs of $6.1 million ($4.4 million, net of taxes) and $18.6 million ($13.2 million, net of taxes), respectively.
 
3 Amounts for the three months ended March 31, 2019 and the three and six months ended March 31, 2018 are composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $1.0 million of Preferred Stock dividends that had been declared and paid as of period end. Six months ended March 31, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $7.0 million of Preferred Stock dividends that had been declared and paid as of period end.
 
4 Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents or the conversion of Preferred Stock. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock unit awards. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the fully diluted weighted-average number of common shares outstanding during the period. The following table presents the components and calculations of basic and diluted net income (loss) per share for each period presented (in thousands, except share and per share amounts):
 
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018 2019   2018
Net income (loss) $ (68,086 ) $ (66,655 ) $ (68,979 ) $ 941
Dividends on preferred shares   6,000     6,000     12,000     6,000  
Net income (loss) attributable to common shareholders $ (74,086 ) $ (72,655 ) $ (80,979 ) $ (5,059 )
Undistributed income allocated to participating securities   -     -     -     -  
Net income (loss) attributable to common shareholders - basic and diluted $ (74,086 ) $ (72,655 ) $ (80,979 ) $ (5,059 )
 
Weighted-average common shares outstanding - basic 68,451,920 68,019,300 68,348,850 67,922,276
Effect of common share equivalents   -     -     -     -  
Weighted-average common shares outstanding - diluted   68,451,920     68,019,300     68,348,850     67,922,276  
 
Net income (loss) per share - basic $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
Net income (loss) per share - diluted $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Balance Sheets
(Unaudited; In thousands)
     
March 31, September 30, March 31,
2019 2018 2018
Assets
Current assets:
Cash and cash equivalents $ 645 $ 129,927 $ 16,000
Accounts receivable, net 869,760 1,090,533 832,823
Inventories, net 1,031,183 936,047 1,005,577
Prepaid expenses and other current assets   332,100     244,360     240,315  
Total current assets 2,233,688 2,400,867 2,094,715
Property and equipment, net 271,022 280,407 294,222
Goodwill 2,490,326 2,491,779 2,381,620
Intangibles, net 1,229,949 1,334,366 1,410,302
Other assets, net   1,243     1,243     1,511  
Total assets $ 6,226,228   $ 6,508,662   $ 6,182,370  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 510,434 $ 880,872 $ 593,559
Accrued expenses 453,889 611,539 348,050
Current portions of long-term debt/obligations   19,988     19,661     19,597  
Total current liabilities 984,311 1,512,072 961,206
Borrowings under revolving lines of credit, net 416,614 92,442 424,528
Long-term debt, net 2,494,673 2,494,725 2,493,889
Deferred income taxes, net 110,064 106,994 91,101
Long-term obligations under equipment financing and other, net 8,527 13,639 18,313
Other long-term liabilities   5,702     5,290     10,617  
Total liabilities   4,019,891     4,225,162     3,999,654  
 
Convertible preferred stock   399,195     399,195     399,195  
 
Stockholders' equity:
Common stock 684 681 680
Undesignated preferred stock - - -
Additional paid-in capital 1,073,243 1,067,040 1,056,248
Retained earnings 752,855 833,834 743,127
Accumulated other comprehensive income (loss)   (19,640 )   (17,250 )   (16,534 )
Total stockholders' equity   1,807,142     1,884,305     1,783,521  
Total liabilities and stockholders' equity $ 6,226,228   $ 6,508,662   $ 6,182,370  
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows
(Unaudited; In thousands)
 
Six Months Ended March 31,
2019   2018
Operating Activities
Net income (loss) $ (68,979 ) $ 941
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 138,832 81,092
Stock-based compensation 8,264 7,835
Certain interest expense and other financing costs 6,051 3,987
Beneficial lease amortization 1,145 -
Loss on debt extinguishment - 1,725
Gain on sale of fixed assets (1,172 ) (319 )
Deferred income taxes 3,086 (47,260 )
Changes in operating assets and liabilities, net of the effects of businesses acquired in the period:
Accounts receivable 219,740 186,170
Inventories (96,052 ) (131,789 )
Prepaid expenses and other assets (85,320 ) 67,425
Accounts payable and accrued expenses (368,154 ) (130,695 )
Other liabilities   415     854  
Net cash provided by (used in) operating activities   (242,144 )   39,966  
 
Investing Activities
Purchases of property and equipment (26,320 ) (24,833 )
Acquisition of businesses, net (163,973 ) (2,726,561 )
Proceeds from the sale of assets   1,428     413  
Net cash provided by (used in) investing activities   (188,865 )   (2,750,981 )
 
Financing Activities
Borrowings under revolving lines of credit 1,880,684 1,530,667
Repayments under revolving lines of credit (1,557,615 ) (1,097,463 )
Borrowings under term loan - 970,000
Repayments under term loan (4,850 ) (441,000 )
Borrowings under senior notes - 1,300,000
Payment of debt issuance costs - (67,723 )
Repayments under equipment financing facilities and other (2,642 ) (5,643 )
Proceeds from issuance of convertible preferred stock - 400,000
Payment of stock issuance costs - (1,279 )
Payment of dividends on preferred stock (12,000 ) (978 )
Proceeds from issuance of common stock related to equity awards 1,559 5,317
Taxes paid related to net share settlement of equity awards   (3,617 )   (3,933 )
Net cash provided by (used in) financing activities   301,519     2,587,965  
 
Effect of exchange rate changes on cash and cash equivalents   208     800  
 
Net increase (decrease) in cash and cash equivalents (129,282 ) (122,250 )
Cash and cash equivalents, beginning of period   129,927     138,250  
Cash and cash equivalents, end of period $ 645   $ 16,000  
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)
 
Consolidated Sales by Product Line
  Three Months Ended March 31,      
2019   2018 Change
Net Sales   Mix % Net Sales   Mix % $ %
Residential roofing products $ 598,917   42.0 % $ 581,834   40.8 % $ 17,083 2.9 %
Non-residential roofing products 313,626 21.9 % 332,690 23.3 % (19,064 ) (5.7 %)
Complementary building products   516,494     36.1 %   511,101     35.9 %   5,393   1.1 %
$ 1,429,037     100.0 % $ 1,425,625     100.0 % $ 3,412   0.2 %
 
 
Existing Market1 Sales by Product Line
Three Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 598,795 42.2 % $ 581,834 40.9 % $ 16,961 2.9 %
Non-residential roofing products 313,591 22.1 % 332,651 23.3 % (19,060 ) (5.7 %)
Complementary building products   506,602     35.7 %   510,622     35.8 %   (4,020 ) (0.8 %)
$ 1,418,988     100.0 % $ 1,425,107     100.0 % $ (6,119 ) (0.4 %)
 
 
Existing Market1 Sales By Business Day2
Three Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 9,505 42.2 % $ 9,091 40.9 % $ 414 4.6 %
Non-residential roofing products 4,978 22.1 % 5,198 23.3 % (220 ) (4.2 %)
Complementary building products   8,041     35.7 %   7,978     35.8 %   63   0.8 %
$ 22,524     100.0 % $ 22,267     100.0 % $ 257   1.2 %
__________________________________________________
1   Excludes acquired branches that have not been under ownership for at least four fiscal quarters prior to the start of the second quarter of fiscal year 2019.
 
2 There were 63 and 64 business days in the quarters ended March 31, 2019 and 2018, respectively.
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)
 
Consolidated Sales by Product Line
  Six Months Ended March 31,      
2019   2018   Change
Net Sales   Mix % Net Sales   Mix % $ %
Residential roofing products $ 1,323,780   42.0 % $ 1,166,361   45.8 % $ 157,419 13.5 %
Non-residential roofing products 729,939 23.2 % 659,431 25.9 % 70,508 10.7 %
Complementary building products   1,096,994     34.8 %   721,812     28.3 %   375,182   52.0 %
$ 3,150,713     100.0 % $ 2,547,604     100.0 % $ 603,109   23.7 %
 
 
Existing Market1 Sales by Product Line
Six Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 971,124 52.7 % $ 945,947 51.8 % $ 25,177 2.7 %
Non-residential roofing products 524,728 28.5 % 531,956 29.1 % (7,228 ) (1.4 %)
Complementary building products   345,553     18.8 %   348,509     19.1 %   (2,956 ) (0.8 %)
$ 1,841,405     100.0 % $ 1,826,412     100.0 % $ 14,993   0.8 %
 
 
Existing Market1 Sales By Business Day2
Six Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 7,769 52.7 % $ 7,568 51.8 % $ 201 2.7 %
Non-residential roofing products 4,198 28.5 % 4,256 29.1 % (58 ) (1.4 %)
Complementary building products   2,764     18.8 %   2,788     19.1 %   (24 ) (0.8 %)
$ 14,731     100.0 % $ 14,612     100.0 % $ 119   0.8 %
__________________________________________________

1

 

Excludes acquired branches that have not been under ownership for at least four fiscal quarters prior to the start of fiscal year 2019.

 

2

There were 125 business days in each of the six month periods ended March 31, 2019 and 2018.

 
 
BEACON ROOFING SUPPLY, INC.

Adjusted Net Income (Loss) and Adjusted EPS1

(Unaudited; In thousands, except per share amounts)
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018   2019   2018
Amount  

Per
Share2

  Amount  

Per
Share2

Amount  

Per
Share3

  Amount  

Per
Share3

Net income (loss) $ (68,086 ) $ (0.99 ) $ (66,655 ) $ (0.98 ) $ (68,979 ) $ (1.01 ) $ 941 $ 0.01
Dividends on preferred shares   6,000     0.09     6,000     0.09     12,000     0.18     6,000     0.08  
Net income (loss) attributable to common shareholders $ (74,086 ) $ (1.08 ) $ (72,655 ) $ (1.07 ) $ (80,979 ) $ (1.18 ) $ (5,059 ) $ (0.07 )
Adjustments:
Acquisition costs4 43,664 0.64 50,604 0.74 91,057 1.33 76,237 1.12
Effects of tax reform5   (462 )   (0.01 )   (1,491 )   (0.02 )   (462 )   (0.01 )   (47,983 )   (0.71 )
Adjusted Net Income (Loss) $ (30,884 ) $ (0.45 ) $ (23,542 ) $ (0.35 ) $ 9,616   $ 0.14   $ 23,195   $ 0.34  
____________________________________________

1

 

Adjusted Net Income (Loss) is defined as net income that excludes non-recurring acquisition costs, the amortization of intangibles, business restructuring costs, and the non-recurring effects of tax reform. Adjusted net income (loss) per share or "Adjusted EPS" is calculated by dividing the Adjusted Net Income (Loss) for the period by the weighted-average diluted shares outstanding for the period.

 

2

The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended March 31, 2019 is 68,451,920. The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended March 31, 2018 is 68,019,300.

 

3

The weighted-average share count utilized in the calculation of Adjusted EPS for the six months ended March 31, 2019 is 68,348,850. The weighted-average share count utilized in the calculation of Adjusted EPS for the six months ended March 31, 2018 is 67,922,276.

 

4

Three months ended March 31, 2019 amount is composed of $9.7 million of non-recurring acquisition costs ($6.9 million, net of tax) and $51.8 million of amortization expense related to intangibles ($36.8 million, net of tax). Three months ended March 31, 2018 amount is composed of $34.6 million of non-recurring acquisition costs ($24.4 million, net of tax) and $37.1 million of amortization expense related to intangibles ($26.2 million, net of tax). Six months ended March 31, 2019 amount is composed of $21.7 million of non-recurring acquisition costs ($15.7 million, net of tax) and $103.8 million of amortization expense related to intangibles ($75.3 million, net of tax). Six months ended March 31, 2018 amount is composed of $52.5 million of non-recurring acquisition costs ($37.1 million, net of tax) and $55.3 million of amortization expense related to intangibles ($39.1 million, net of tax).

 

5

Impact of the Tax Cuts and Jobs Act of 2017.

 
 
We use Adjusted Net Income (Loss) and Adjusted EPS to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources.
 
We believe that Adjusted Net Income (Loss) and Adjusted EPS are useful measures because they permit investors to better understand changes in underlying operating performance over comparative periods by providing financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.
 
While we believe Adjusted Net Income (Loss) and Adjusted EPS are useful to investors when evaluating our business, they are not prepared and presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), and therefore should be considered supplemental in nature. You should not consider Adjusted Net Income (Loss) or Adjusted EPS in isolation or as a substitute for net income and net income per share or diluted earnings per share calculated in accordance with GAAP. In addition, Adjusted Net Income (Loss) and Adjusted EPS may have material limitations and may differ from similarly titled measures presented by other companies.
 
 
BEACON ROOFING SUPPLY, INC.

Adjusted EBITDA1

(Unaudited; In thousands)
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018 2019   2018
Net income (loss) $ (68,086 ) $ (66,655 ) $ (68,979 ) $ 941
Acquisition costs2 6,687 28,301 15,605 33,870
Interest expense, net 41,815 41,763 81,631 65,279
Income taxes (26,996 ) (30,313 ) (26,210 ) (71,381 )
Depreciation and amortization 69,210 54,188 138,832 81,092
Stock-based compensation   4,807     4,376     8,264     7,835  
Adjusted EBITDA $ 27,437   $ 31,660   $ 149,143   $ 117,636  
 
Adjusted EBITDA as a % of net sales 1.9 % 2.2 % 4.7 % 4.6 %
__________________________________________________

1

 

Adjusted EBITDA is defined as net income plus interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, non-recurring acquisition costs, and business restructuring costs. EBITDA is a measure commonly used in the distribution industry, and we present Adjusted EBITDA to enhance your understanding of our operating performance.

 

2

Represents non-recurring acquisition costs (excluding the impact of tax) that are included in operating expense and not embedded in other balances of the table.

 
 
We use Adjusted EBITDA to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources.
 
We believe that Adjusted EBITDA is a useful measure because it permits investors to better understand changes in underlying operating performance over comparative periods by providing financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.
 
While we believe Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), and therefore should be considered supplemental in nature. Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operations, or any other items calculated in accordance with GAAP. In addition, Adjusted EBITDA may have material limitations and may differ from similarly titled measures presented by other companies.
 

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