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BMC Stock Holdings, Inc. Announces 2016 Third Quarter Results

ATLANTA, Nov. 07, 2016 (GLOBE NEWSWIRE) -- BMC Stock Holdings, Inc. (Nasdaq:BMCH) (“BMC” or 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, 2016.

Third Quarter 2016 Financial Highlights and Merger Integration Update
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 “Third Quarter 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.

During the third quarter of 2016, the Company generated solid operating result improvements and continued to make substantial progress on its integration plan.

  • Net sales increased 97.2% to $821.2 million, compared to net sales of $416.5 million in the third quarter of 2015, and net sales increased 6.0% to $821.2 million, compared to Adjusted net sales (non-GAAP) of $775.0 million in the third quarter of 2015
  • Net income increased to $9.2 million, or $0.14 per diluted share, including Merger and integration costs of $4.7 million and a loss on debt extinguishment of $12.5 million, compared to net income of $4.0 million, or $0.10 per diluted share, in the third quarter of 2015
  • Adjusted net income (non-GAAP) increased to $21.3 million, or $0.32 per diluted share, compared to Adjusted net income of $15.1 million, or $0.23 per diluted share, in the third quarter of 2015
  • Adjusted EBITDA (non-GAAP) increased 41.9% to $58.2 million, compared to adjusted EBITDA of $41.0 million in the third quarter of 2015
  • Adjusted EBITDA margin (non-GAAP) improved 180 basis points to 7.1%, compared to adjusted EBITDA margin of 5.3% in the third quarter of 2015
  • Net cash provided by operating activities increased $27.7 million to $24.4 million, compared to net cash used in operating activities of $3.3 million in the third quarter of 2015
  • Since closing the Merger, the Company has implemented cost synergy initiatives totaling approximately $28 million in future annual run rate savings, and remains on track to achieve annual run rate synergies of $40 to $50 million by the end of 2017

Peter Alexander, President and Chief Executive Officer of BMC, commented, “In the third quarter, our employees continued to provide best-in-class customer service and solutions to grow revenue and further improve profitability. Net sales for the quarter increased 97.2% compared to net sales in the third quarter of 2015 and grew 6.0% when compared to Adjusted net sales in the third quarter of 2015, including millwork, doors and windows Adjusted net sales growth of 9.7%. Another important component of the third quarter net sales growth was ReadyFrame®, our whole-house solution, which enables builders to frame houses 20 to 30 percent faster with less labor and significantly less waste. I am extremely pleased that ReadyFrame®, which grew 43% to $28.6 million in net sales during the quarter, is now available in all of our major markets, setting the stage for substantial future growth capacity for this innovative product offering.”

Jim Major, Executive Vice President and Chief Financial Officer of BMC, added, “We are very encouraged by the significant progress we’ve made on our integration efforts and are pleased with how well positioned we are to execute on future profitable growth opportunities. Specifically, during the third quarter, we achieved additional cost synergies and ended September with $28 million in future annual run rate cost savings. Also, during the quarter, we successfully refinanced our senior secured notes due 2018, extending our maturity to 2024. These refinancing transactions will lower our future interest expense obligations and allow us to maintain an attractive balance sheet with the ratio of long-term debt to trailing twelve month Adjusted EBITDA at the low-end of our target range of two to three times.”

Third Quarter 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 nine months ended September 30, 2016, and the three months and nine months ended September 30, 2015. The prior year Adjusted financial information combines the historical results of Legacy BMC and SBS for the three months and nine months ended September 30, 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.

Third Quarter 2016 Financial Results Compared to Prior Year Period
Net sales in the third quarter of 2016 increased 97.2% to $821.2 million, compared to the third quarter of 2015, primarily as a result of the Merger and the acquisition of Robert Bowden, Inc. (“RBI”). Net sales in the third quarter of 2016 increased 6.0% to $821.2 million, compared to Adjusted net sales in the third quarter of 2015. The Company estimates net sales, as compared to Adjusted net sales in the third quarter of 2015, increased 2.0% as a result of the RBI acquisition completed in 2015, 1.6% from other volume growth and 2.4% as a result of lumber and sheet goods commodity price inflation.

Gross profit in the third quarter of 2016 increased 109.0% to $203.0 million, compared to the third quarter of 2015, primarily driven by the Merger and the acquisition of RBI. Gross profit as a percentage of sales increased to 24.7%, compared to 23.3% for the third quarter of 2015, primarily driven by a higher percentage of total net sales being derived from millwork, doors & windows, which generally are sold at a higher gross margin than our other product categories, as well as increased consideration from supplier agreements.

Third quarter 2016 selling, general and administrative expenses increased 95.6% to $149.5 million, compared to the third quarter of 2015, primarily as a result of the Merger and the acquisition of RBI.

Depreciation expense in the third quarter of 2016, including the portion reported within cost of sales, increased to $11.9 million, compared to $4.7 million in the third quarter of 2015. The increase was primarily driven by fixed assets acquired through the Merger and the acquisition of RBI, as well as replacements and additions of delivery fleet, material handling equipment and operating equipment.

Amortization expense in the third quarter of 2016 was $5.3 million, compared to $0.7 million in the third quarter of 2015. The increase in amortization expense for the three months ended September 30, 2016 related to intangible assets acquired through the Merger and the acquisition of RBI.

Interest expense in the third quarter of 2016 was $7.7 million, including $0.8 million of non-cash amortized debt issuance costs, compared to $7.0 million in the third quarter of 2015. This increase was primarily the result of borrowings assumed in the Merger as well as borrowings used to fund the acquisition of RBI.

Merger and integration costs in the third quarter of 2016 were $4.7 million consisting primarily of severance, system integration costs and professional fees, compared to $1.0 million in the third quarter of 2015.

For the third quarter of 2016, the Company reported operating income of $33.7 million, compared to operating income of $15.3 million in the third quarter of 2015, and net income of $9.2 million, or $0.14 per diluted share, compared to net income of $4.0 million, or $0.10 per diluted share, in the third quarter of 2015.

Adjusted net income in the third quarter of 2016 was $21.3 million, or $0.32 per diluted share, compared to Adjusted net income of $15.1 million, or $0.23 per diluted share, in the third quarter of 2015. Adjusted EBITDA in the third quarter of 2016 was $58.2 million, compared to Adjusted EBITDA of $41.0 million in the third quarter of 2015. Adjusted EBITDA margin improved 180 basis points in the third quarter of 2016 to 7.1%, compared to Adjusted EBITDA margin of 5.3% in the third quarter of 2015.

Liquidity and Capital Resources
Total liquidity as of September 30, 2016 was approximately $274.8 million, which includes cash and cash equivalents of $6.8 million and $268.0 million of borrowing availability under the Company’s asset-backed revolver. Capital expenditures during the third quarter of 2016 totaled $6.6 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 $5.2 million of assets, consisting primarily of material handling equipment, under capital lease arrangements.

During the third quarter of 2016, the Company completed an issuance of $350.0 million of 5.5% senior secured notes due 2024 and utilized the net cash proceeds from the issuance to redeem, in full, the $250.0 million 9.0% senior secured notes due 2018 issued by Legacy BMC as well as repay a portion of the outstanding borrowings under the Company’s asset-backed revolver. In connection with this refinancing, the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the extinguished senior notes. The loss was made up of a call premium of $8.4 million and the write-off of unamortized debt issuance costs and original issue discount of $4.1 million. As a result of this refinancing, and based on current borrowing levels and interest rates on its asset-backed revolver, the Company expects to save approximately $7 million in future annualized interest expenses.

Outlook
“Macroeconomic trends remain favorable and should support further growth in the U.S. single-family housing market,” said Alexander. “We are uniquely positioned with a solid balance sheet, which provides substantial flexibility. Therefore, we expect to continue to execute our integration and business plans as we look for opportunities to achieve profitable growth both through organic initiatives as well as through strategic investments next year.”

Conference Call Information
BMC will host a conference call on Monday, November 7, 2016 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 the live call and the replay is 13646529. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on November 14, 2016. 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 and Adjusted net income, 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 measure 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.
Headquartered in Atlanta, Georgia, BMC is one of the nation’s leading providers of diversified building products and services to professional builders and contractors in the residential housing market. The Company's comprehensive portfolio of products and services 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 capable of supporting all of the Company's customers’ needs. BMC 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;
  • 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 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 potential loss of significant customers;
  • natural or man-made disruptions to our distribution and manufacturing facilities;
  • our exposure to environmental liabilities and subjection to environmental laws and regulation;
  • cybersecurity risks;
  • risks related to the continued integration of Legacy BMC and Legacy SBS and successful operation of the post-merger company;
  • our ability to operate multiple ERP information systems, while we convert multiple systems to a single system;
  • our ability to retain qualified employees following the Merger, while controlling labor costs;
  • our ability to operate on multiple ERP information systems and the subsequent conversion to a single system;
  • the impact of additional indebtedness assumed through the Merger;
  • the various financial covenants in our secured credit agreement and senior secured notes indenture; and
  • other factors discussed or referred to in the “Risk Factors” section of BMC’s most recent Annual Report on Form 10-K filed with the SEC on March 15, 2016, and our subsequent quarterly Form 10-Q filings with the SEC.

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
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts) 2016 2015 2016 2015
Net sales
Building products $613,763 $296,956 $1,768,834 $767,234
Construction services 207,441 119,515 577,335 299,350
821,204 416,471 2,346,169 1,066,584
Cost of sales
Building products 446,028 222,289 1,309,925 574,720
Construction services 172,210 97,081 475,006 244,248
618,238 319,370 1,784,931 818,968
Gross profit 202,966 97,101 561,238 247,616
Selling, general and administrative expenses 149,498 76,436 431,176 206,800
Depreciation expense 9,784 3,549 27,866 10,255
Amortization expense 5,349 735 15,882 999
Impairment of assets 82 11,883 82
Merger and integration costs 4,655 998 11,088 4,040
169,286 81,800 497,895 222,176
Income from operations 33,680 15,301 63,343 25,440
Other income (expense)
Interest expense (7,668) (7,038) (24,020) (20,498)
Loss on debt extinguishment (12,529) (12,529)
Other income (expense), net 735 (48) 3,601 968
Income before income taxes 14,218 8,215 30,395 5,910
Income tax expense 4,982 4,168 9,933 3,299
Net income $9,236 $4,047 $20,462 $2,611
Weighted average common shares outstanding
Basic 66,435 39,105 65,873 39,051
Diluted 67,085 39,358 66,455 39,329
Net income per common share
Basic $0.14 $0.10 $0.31 $0.07
Diluted $0.14 $0.10 $0.31 $0.07


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts) September 30,
2016
December 31,
2015
Assets
Current assets
Cash and cash equivalents $6,750 $1,089
Accounts receivable, net of allowances 346,915 303,176
Inventories, net 276,794 243,960
Costs in excess of billings on uncompleted contracts 26,814 22,528
Income taxes receivable 11,390
Prepaid expenses and other current assets 42,066 31,817
Total current assets 699,339 613,960
Property and equipment, net of accumulated depreciation 281,174 295,978
Deferred income taxes 1,617
Customer relationship intangible assets, net of accumulated amortization 167,405 177,036
Other intangible assets, net of accumulated amortization 4,649 10,900
Goodwill 254,832 254,664
Other long-term assets 18,120 18,601
Total assets $1,427,136 $1,371,139
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $185,561 $135,632
Accrued expenses and other liabilities 89,616 91,888
Billings in excess of costs on uncompleted contracts 17,429 15,888
Current taxes payable 1,869
Interest payable 985 6,882
Current portion:
Long-term debt and capital lease obligations 10,179 10,129
Insurance deductible reserves 15,513 17,888
Total current liabilities 321,152 278,307
Insurance deductible reserves 40,500 37,334
Long-term debt 372,371 400,216
Long-term portion of capital lease obligations 17,503 16,495
Deferred income taxes 3,021
Other long-term liabilities 5,942 6,834
Total liabilities 757,468 742,207
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 50.0 million shares authorized, no shares issued and outstanding at September 30, 2016 and December 31, 2015
Common stock, $0.01 par value, 300.0 million shares authorized, 66.5 million and 65.4 million shares issued, and 66.4 million and 65.3 million outstanding at September 30, 2016 and December 31, 2015, respectively 665 654
Additional paid-in capital 647,409 626,402
Retained earnings 22,764 2,302
Treasury stock, at cost, 0.1 million and less than 0.1 million shares at September 30, 2016 and December 31, 2015, respectively (1,170) (426)
Total stockholders' equity 669,668 628,932
Total liabilities and stockholders' equity $1,427,136 $1,371,139


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
(in thousands) 2016 2015
Cash flows from operating activities
Net income $20,462 $2,611
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense 35,215 13,836
Amortization of intangible assets 15,882 999
Amortization of debt issuance costs 2,690 1,796
Amortization of original issue discount 174 183
Amortization of inventory step-up charges 2,884
Deferred income taxes (4,638) 3,799
Non-cash stock compensation expense 5,544 2,470
Impairment of assets 11,883 82
Gain on sale of property, equipment and real estate (363) (520)
Gain on insurance proceeds (1,003)
Loss on debt extinguishment 12,529
Change in assets and liabilities
Accounts receivable, net of allowances (43,739) (42,707)
Inventories, net (35,718) (9,006)
Accounts payable 49,462 14,643
Other assets and liabilities (7,443) (105)
Net cash provided by (used in) operating activities 63,821 (11,919)
Cash flows from investing activities
Purchases of property, equipment and real estate (26,126) (20,752)
Insurance proceeds 1,151
Proceeds from sale of property, equipment and real estate 1,066 2,439
Purchases of businesses, net of cash acquired (149,661)
Change in restricted assets 21,009
Other investing activities 239
Net cash used in investing activities (23,909) (146,726)
Cash flows from financing activities
Proceeds from revolving line of credit 1,227,050 120,500
Repayments of proceeds from revolving line of credit (1,352,408) (15,000)
Proceeds from issuance of senior secured notes 350,000
Redemption of senior secured notes (250,000)
Borrowings under other notes 2,491
Principal payments on other notes (2,900) (4,679)
Proceeds from issuance of common stock, net of offering costs 13,776
Payments of debt issuance costs (5,824) (887)
Payments of debt extinguishment costs (8,438)
Payments on capital lease obligations (6,300) (3,140)
Other financing activities 793 (410)
Net cash (used in) provided by financing activities (34,251) 98,875
Net increase (decrease) in cash and cash equivalents 5,661 (59,770)
Cash and cash equivalents
Beginning of period 1,089 63,262
End of period $6,750 $3,492


BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES
Net Sales by Product Category
(unaudited)
Three Months Ended
September 30, 2016
Three Months Ended
September 30, 2015
(in thousands)Net Sales % of Sales Net Sales % of Sales % Change
Structural components$126,818 15.4% $68,987 16.6% 83.8%
Lumber & lumber sheet goods244,885 29.8% 121,282 29.1% 101.9%
Millwork, doors & windows233,418 28.4% 111,037 26.7% 110.2%
Other building products & services216,083 26.4% 115,165 27.6% 87.6%
Total net sales$821,204 100.0% $416,471 100.0% 97.2%


Nine Months Ended
September 30, 2016
Nine Months Ended
September 30, 2015
(in thousands)Net Sales % of Sales Net Sales % of Sales % Change
Structural components$360,433 15.4% $170,763 16.0% 111.1%
Lumber & lumber sheet goods692,650 29.5% 319,226 29.9% 117.0%
Millwork, doors & windows680,416 29.0% 290,610 27.2% 134.1%
Other building products & services612,670 26.1% 285,985 26.9% 114.2%
Total net sales$2,346,169 100.0% $1,066,584 100.0% 120.0%



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 ended and nine months ended September 30, 2015 is defined as BMC net sales plus pre-Merger SBS net sales.
  • Adjusted EBITDA for the three months and nine months ended September 30, 2016 is defined as BMC net income plus interest expense, income tax expense, depreciation and amortization, Merger and integration costs, non-cash stock compensation expense, loss on debt extinguishment, impairment of assets and inventory step-up charges. Adjusted EBITDA for the three months and nine months ended September 30, 2015 is defined as BMC net income plus pre-Merger SBS income from continuing operations, interest expense, income tax expense, depreciation and amortization, Merger and integration costs, non-cash stock compensation expense, impairment of assets, headquarters relocation expense, loss portfolio transfer, insurance deductible reserve adjustments, casualty fire loss and other items.
  • Adjusted EBITDA margin for the three months and nine months ended September 30, 2016 is defined as Adjusted EBITDA divided by net sales and for the three months and nine months ended September 30, 2015 is defined as Adjusted EBITDA divided by Adjusted net sales.
  • Adjusted net income for the three months ended September 30, 2016 is defined as BMC net income plus Merger and integration costs, non-cash stock compensation expense, loss on debt extinguishment and after tax effecting those items, and for the three months ended September 30, 2015 is defined as BMC net income plus pre-Merger SBS income from continuing operations, Merger and integration costs, non-cash stock compensation expense, impairment of assets, headquarters relocation expense, insurance deductible reserve adjustments, casualty fire loss 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)

The following is a reconciliation of net sales to Adjusted net sales and net income to Adjusted EBITDA and Adjusted net income.

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts) 2016 2015 2016 2015
Net sales $821,204 $416,471 $2,346,169 $1,066,584
SBS net sales (a) 358,540 1,006,225
Adjusted net sales $821,204 $775,011 $2,346,169 $2,072,809
Net income $9,236 $4,047 $20,462 $2,611
SBS income from continuing operations (a) 6,024 10,406
Interest expense (b) 7,668 7,783 24,020 22,631
Income tax expense (b) 4,982 7,188 9,933 5,165
Depreciation and amortization (b) 17,276 9,643 51,097 26,665
Merger and integration costs (b) 4,655 2,181 11,088 8,692
Non-cash stock compensation expense (b) 1,851 1,524 5,544 4,571
Loss on debt extinguishment 12,529 12,529
Impairment of assets 82 11,883 82
Inventory step-up charges (c) 2,884
Headquarters relocation (d) 359 2,811
Loss portfolio transfer (e) 2,826
Insurance deductible reserve adjustments and casualty fire loss (f) 694 1,059
Other items (b), (g) 1,482 4,191
Adjusted EBITDA $58,197 $41,007 $149,440 $91,710
Adjusted EBITDA margin 7.1% 5.3% 6.4% 4.4%
Net income $9,236 $4,047
SBS income from continuing operations (a) 6,024
Merger and integration costs (b) 4,655 2,181
Non-cash stock compensation expense (b) 1,851 1,524
Loss on debt extinguishment 12,529
Impairment of assets 82
Headquarters relocation (d) 359
Insurance deductible reserve adjustments and casualty fire loss (f) 694
Other items (b), (g) 1,482
Tax effect of adjustments to net income (h) (6,927) (1,297)
Adjusted net income $21,344 $15,096
Diluted weighted average shares used to calculate Adjusted net income per diluted share (i) 67,085 65,712
Adjusted net income per diluted share $0.32 $0.23


(a)Represents pre-Merger net sales and income from continuing operations for SBS for the three and nine months ended September 30, 2015.
(b)Includes pre-Merger expense for SBS for the three and nine months ended September 30, 2015.
(c)Represents $2.9 million of expense incurred during the nine months ended September 30, 2016 in relation to the sell-through of SBS inventory which was stepped up in value in connection with the Merger.
(d)Represents expenses to relocate Legacy BMC's headquarters to Atlanta, Georgia.
(e)Represents premium and brokerage fees paid to a reinsurer for their assumption of the insurance deductible reserves relating to workers’ compensation claims incurred for claim years from 2006 through 2011.
(f)Represents adjustments to deductible reserves for workers compensation, general liability, automobile and construction claims incurred prior to Legacy BMC's restructuring and a casualty loss related to a fire at one of the Company’s facilities during 2015.
(g)Primarily represents severance expense, acquisition costs and expenses related to closed locations.
(h)The tax effect of adjustments to net income was based on the respective transactions’ income tax rate, which was 37.6% and 38.2% for the three months ended September 30, 2016 and 2015, respectively. The tax effect of adjustments to net income for the three months ended September 30, 2016 and 2015 exclude approximately $0.6 million and $2.9 million, respectively, of non-deductible Merger, integration and acquisition costs.
(i)Diluted weighted average shares used to calculate Adjusted net income per diluted share for the three months ended September 30, 2015 were calculated assuming the Merger closed January 1, 2015.

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

Three Months Ended
September 30, 2016
Three Months Ended
September 30, 2015
(in thousands)Net Sales % of Sales Adjusted Net
Sales
% of Sales % Change
Structural components$126,818 15.4% $119,918 15.5% 5.8%
Lumber & lumber sheet goods244,885 29.8% 238,580 30.8% 2.6%
Millwork, doors & windows233,418 28.4% 212,685 27.4% 9.7%
Other building products & services216,083 26.4% 203,828 26.3% 6.0%
Total net sales and Adjusted net sales$821,204 100.0% $775,011 100.0% 6.0%


Nine Months Ended
September 30, 2016
Nine Months Ended
September 30, 2015
(in thousands)Net Sales % of Sales Adjusted Net
Sales
% of Sales % Change
Structural components$360,433 15.4% $312,787 15.1% 15.2%
Lumber & lumber sheet goods692,650 29.5% 655,580 31.6% 5.7%
Millwork, doors & windows680,416 29.0% 576,781 27.8% 18.0%
Other building products & services612,670 26.1% 527,661 25.5% 16.1%
Total net sales and Adjusted net sales$2,346,169 100.0% $2,072,809 100.0% 13.2%

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

Source:BMC Stock Holdings, Inc.