jefferies global industrials conference august 2019 · 3rd quarter recap 4 | adjusted eps of $0.92;...
TRANSCRIPT
Joseph Nowicki, Executive VP & Chief Financial Officer
JefferiesGlobal Industrials Conference August 2019
DISCLOSURE NOTICE
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This presentation contains information about management's view of the Company's future expectations, plans and prospects that constitute forward-lookingstatements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from thoseindicated by such forward-looking statements as a result of various important factors, including, but not limited to, those set forth in the "Risk Factors" sectionof the Company's latest Form 10-K. In addition, the forward-looking statements included in this presentation represent the Company's views as of the date ofthis presentation and these views could change. However, while the Company may elect to update these forward-looking statements at some point, theCompany specifically disclaims any obligation to do so, other than as required by federal securities laws. These forward-looking statements should not be reliedupon as representing the Company's views as of any date subsequent to the date of this presentation.
This presentation contains references to certain financial measures that are not presented in accordance with United States Generally Accepted AccountingPrinciples (“GAAP"). The Company uses non-GAAP financial measures to evaluate financial performance, analyze underlying business trends and establishoperational goals and forecasts that are used when allocating resources. The Company believes these non-GAAP financial measures permit investors to betterunderstand changes in underlying operating performance over comparative periods by providing financial results that are unaffected by cyclical variances thatcan be driven by items such as investment activity or purchase accounting adjustments. While the Company believes these measures are useful to investorswhen evaluating performance, they are not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. TheCompany’s non-GAAP financial measures should not be considered in isolation or as a substitute for other financial performance measures presented inaccordance with GAAP. These non-GAAP financial measures may have material limitations including, but not limited to, the exclusion of certain costs without acorresponding reduction of net income for the income generated by the assets to which the excluded costs are related. In addition, these non-GAAP financialmeasures may differ from similarly titled measures presented by other companies.
A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure can be found in the Appendix as well asCompany’s latest Form 8-K, filed with the SEC on August 6, 2019.
ESTABLISHED TRACK RECORD
Roofing products distribution remains our core• TTM sales two-thirds roofing and one-third complementary
exterior and interior building products
A leader in key metropolitan markets• 537 branches in 50 US states and 6 Canadian provinces*• 100,000+ customers with a broad product offering up to 90,000
SKU’s • Repair & Remodel fuels market demand (~70-75%)
Strong long-term historical performance• Sales CAGR = 17.7%• Adjusted EBITDA CAGR = 17.3%• Adjusted EBITDA Margin Average = 7.6%
Rapid growth since 2004 IPO• Opened 89 new greenfield locations• Completed 46 acquisitions
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$0
$2,000
$4,000
$6,000
$8,000Net Sales Since IPO
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*Branch numbers as of June 30, 2019
43%
24%
33%
TTM Sales Mix
Residential Roofing
Non-Residential Roofing
Complementary Products
3RD QUARTER RECAP
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Adjusted EPS of $0.92; Organic Sales Declined 1%
Severe rain negatively impacted sales by ~$85M (4-5%) and EPS by ~$0.20
FY2019 Adjusted EPS outlook of $2.30-$2.50
Digital platform expected to produce sales of $350M in FY2019
Significant cost reduction actions implemented; expected savings of $25M annually
Positive 3rd Quarter free cash flow* for only the 2nd time in past 12 years
Reduced net debt by $24M during the quarter
July month sales up 3-4% as weather pressures eased
*Free cash flow represents operating cash flow less capital expenditures
FY2016-2019 | BEACON’S TRANSFORMATION
Revenue from $2.5B to $7B+ 16 Acquisitions including RSG and
Allied Market Share ~9% to ~20% Combined RSG + Allied Synergies:
$175M+
EBITDA Margin Opportunity Raised 200-300 bps*
Consolidation Boosting Health of Industry
Digital Platform Launch
Introduction and Buildout of Private Label
Established Multiple Product Platforms
Larger Size Raises Returns on Growth Initiatives
97
44
130
6979
10718
31
68
3348
53
PRE-RSG BRANCH COUNT FYE2018 BRANCH COUNT
5 | www.becn.com*Based on combined Allied & RSG synergies on pro forma revenue base of ~$7B
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ORGANIC GROWTH
Multi-Channel Sales PlatformComplementary ProductsPrivate Label OfferingSelling EffectivenessSelective GreenfieldsHigh R&R Exposure
OPERATIONAL EXECUTION
Reduce Overall Cost StructureRegional Service Areas (RSAs)Allied Synergy Realization Continuous ImprovementGenerate Fixed Cost Leverage
BALANCE SHEET FOCUSED
Net Debt Leverage Targets <3.0xImproving Working Capital EfficiencyLow Capex RequirementsFree Cash Flow ConversionProven De-Leveraging After Large
Strategic Acquisitions
Great Industry and We Are The Innovation Leader
2019… CAPITALIZING ON OUR INVESTMENTS
BUILDING BLOCKS OF GROWTH Source: Company Estimates
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MARKET GROWTH
GREENFIELDS and RSAs
ACQUISITIONSSAME-BRANCH
GROWTH INITIATIVES
Deliver share gains through investments in
growth driversOutperform market
Stable R&R (~70-75% of Sales),
Favorable Economy
46 Acquisitions since IPO; Near-term focus on improving balance
sheet
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Proven Execution to Continue
RSA model improves customer service,
operating efficiency and organic growth
WHY PROS CHOOSE BEACONCustomer Engagement That Drives Customer Retention and Innovation
• Digital Bill Pay• Online Rebate Tracking
• Delivery Tracking • Jobsite Pictures• Triple Check
• Beacon Pro+• 3D+ Estimate to Order • Project Management
PURCHASE MATERIALS
DELIVERY
CLOSE OUT THE JOB
• Homeowner Financing • In-Home Visualizer
• Digital Lead Gen• Logic Track • Storm Tracker
• HomeAdvisor Partnership• Certification Programs • Custom Marketing Programs
SELL THE JOB
GENERATE LEADS
ESTABLISH CREDIBILITY
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CONTRACTOR LIFECYCLE
MULTI-CHANNEL APPROACH
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500+ Branch Locations Pro+ Digital Suite
Expanded Market Presence and Industry Leading Multi-Channel Experience
B2B buyers say personalized customer care has a moderate to major influence on their loyalty82%Source: Salesforce, December 2017
DIGITAL – A DIFFERENTIATOR FOR CUSTOMERS
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24/7 Access Time Savings / Efficiency Improved Order Accuracy Quick, Easy & Paperless
Higher Close Rates Decreased Estimating & Material List Build Time Increased Average Revenue Per Job Higher Number of Estimates Per Day
Advance Notice of Scheduled Delivery Real-Time Photos of Delivered Materials Less Time Waiting, More Time Working Manage Multiple Orders Simultaneously
PRIVATE LABEL EXPANSION
$250Mcombined PL sales
Peak created by RSG
RSG/Peakacquisition
Allied/TRI-BUILTacquisition
TRI-BUILT sales reach $100M
TRI-BUILT sales reach $12M
1990
2006
2012
2014
2016
2018
2018
2,500+SKUs
30+ PRODUCT CATEGORIES
50% CUSTOMERSBUY PRIVATE LABEL
TARGET $500M REVENUE BY 2021
TRI-BUILT created by Allied
JANUARY
OCTOBER
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WILL ACHIEVE SALES AND MARGIN GROWTH BY DRIVING CUSTOMER ADOPTION
Beacon’s High Quality Brand of Products That Deliver Professional Results
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Customers Benefit Improved delivery timetables Inventory availability Improved branch interactions Consistent end-to-end customer experience
Beacon Benefits Enhances sales growth Improves operating cost leverage, reduces
working capital and lowers capex requests Better leverage of size/scale; local market
competitive advantage
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OverviewMarket-based P&Ls Coordinated fleet management / dispatch Geographic alignment of sales force Centralized hub with inventory concentration Relocations improving proximity to customers
REGIONAL SERVICE AREA (RSA)A network of branches sharing resources and coordinating operations
IMPROVING OUR COST STRUCTURE
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Allied Synergies
RSA Model
Seasonal Hiring Controls
Cost Actions
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Recent Operating Cost Actions
Historical EBITDA margin range of 6.0% to 8.5%
9-11% EBITDA margin goal
Significant actions taken to improve cost structure
Aggressively managing costs positions us for breakout margins in the future (especially in active storm years)
-10%
-6%
-2%
2%
6%
10%
5%
6%
7%
8%
9%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
*Org
anic
Sal
es G
row
th (%
)
EBIT
DA M
argi
n (%
)
ADJUSTED EBITDAmargin (%)
Adjusted EBITDA Margins Organic Sales Growth
*2019 based on midpoint of guidance
Active Storm Years
STRENGTHENING OUR BALANCE SHEET
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Drive sustainable and consistent levels of free cash flow
Use working capital efficiently; RSA model helps improve working capital requirements
Capital expenditures ≤ 1% of sales
Proper mix of fixed and pre-payable debt allow quicker deleveraging and protection against a rising interest rate environment
Net Debt Leverage*
*Net debt divided by adjusted EBITDA: 2017 excludes proceeds from September 2017 secondary offering
-10%
-5%
0%
5%
10%0%
100%
200%
300%
400%
500%
600%
Org
anic
Sal
es G
row
th (I
nver
ted)
Ope
ratin
g C
ash
Flow
to N
et In
com
e
Operating Cash Flow to Net Income Organic Sales
Avg Operating Cash Flowto Net Income: 199%
Cash Flow Conversion
-
1.0
2.0
3.0
4.0
5.0Acquisitions
LONG TERM FINANCIAL GOALS
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≤ 3.0x
2019 Forecast 7%
Acquisition Synergies
Digital Growth
Private Label
Cost Actions
Normal Storms
Future 9-11%
FINANCIAL STATEMENT MEASURE LONG-TERM TARGETS
Organic Growth 5 - 10%
Adjusted EBITDA Margins 9 - 11%
≤ 3.0xNet Debt Leverage
BEACON SUMMARY
STRONG INVESTMENT THESIS
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Attractive industry with Beacon the innovation leader
High R&R exposure with relatively low discretion
Substantial industry consolidation
Strong management team and Board
Multi-Channel approach in early stages
Multiple specialty building products platforms
Focused on cost leverage and efficiency gains
Long-term sales growth of 18% since IPO
Above market organic growth history and outlook
Synergy realization upside (RSG, Allied)
9-11% EBITDA target range
Sustainable high levels of free cash flow generation
Planned debt/EBITDA reduction to below 3x
SOLID FINANCIAL PERFORMANCE