Financials Q3 ended June2010 • Investor Presentation • Bob Buck • Chairman and CEO • Summer 2010
Forward looking statements • This presentation contains “forward-looking statements”. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to place undue reliance on forward-looking statements, which reflect our analysis only and speak only as of the date of this presentation, and you should refer to the “Risk Factors” section of our latest Form 10K. We undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances. 1
Company Overview • Paul Isabella • President and COO 2
Founded in 1928, Beacon Roofing Supply, Inc. has grown to be one of the largest distributors of residential and non-residential roofing materials in the United States and Canada Beacon Overview • A leader in key metropolitan markets in the Northeast, Mid-Atlantic, Midwest, Central Plains, Southeast and Southwest regions in the United States and in Eastern Canada • 179 branches across 37 U.S. states and 3 Canadian provinces • Over 40,000 customers • Broad product offering of up to 10,000 SKUs • Strong long-term historical performance • FY 2009 Sales of $1.73 billion (10-year CAGR 30%) • FY 2009 Operating Income of $109.2 million (10-year CAGR 29%) • FY 2009 Operating margin of 6.3% • Successfully completed 12 major acquisitions since our IPO in 2004 • Opened 25 new greenfield locations since the IPO
Comprehensive assortment of products for all external residential and commercial building needs Complete product offering Revenue product mix1 1 Steep Slope Roofing System 2 Underlayment 3 Custom Metals 4 Substrates 5 Wood & Vinyl Siding 6 Flat Roof Systems 7 Rigid Insulations 8 Air & Vapor Barriers 9 Pressure Treated Lumber 10 Cavity Wall Air & Vapor Barrier Systems 11 Doors & Windows 12 Through Wall Flashings 13 Expansion Joints 14 Below Grade Waterproofing System 15 Below Grade Drainage Systems 16 Waterstop 17 Concrete Sealers & Coatings 18 Ground Barriers Non-residential roofing34% Complementary building products14% Residential roofing52% 1 Reflects net revenue for FY 2009 • 10,000 SKUs offered • Selected relationships with manufacturers to achieve substantial volume discounts • Historically re-roofing makes up approximately 70% and 80% of residential and non-residential demand* *source – Freedonia April 2008
High value-added distributor performing a critical role in the roofing supply chain Market leader in an attractive, growing and fragmented industry Highly scalable platform and proven business model with minimal capital expenditures Superior financial performance highlighted by attractive growth and margins Historical 10-year sales CAGR: 30% (2000-2009) CAGR internal sales growth since our IPO: 4.1% Strong EBITDA margins: 8.3% in 2009 Results-oriented management, corporate culture and controls Why Invest in Beacon?
U.S. roofing materials market (SQS) Overview Large and Attractive Market • $15.0 billion industry* in the U.S. with a projected growth rate of 2.4% annually through 2014 • Re-roofing (vs. new construction) accounts for approximately 70% of roofing expenditures • In 2009 re-roofing made up approximately 90% and 79% of residential and non-residential demand, respectively • The median age of the housing stock as of 2009 is 35 years old. • Roofing demand has grown every year since 1993 • Grown through four years of declining building construction expenditures (1995, 2001, 2002, 2007) Year of construction of housing stock, 2009 (129.5 million units) Source: The Freedonia Group – March 2010 *represents sales by manufacturers Roofing market is somewhat insulated from swings in the overall building cycle
Re-Roofing Concentration Drives Stable Growth Roofing Demand Compared to Interest Rates • Total roofing demand is very stable • Installed base of existing homes and commercial buildings is large and growing • Re-roofing is not a luxury expenditure, and it is not discretionary • There is virtually no correlation between interest rates and demand for roofing Source: The Freedonia Group
Construction Spending Growth by Category Re-Roofing Concentration Drives Stable Growth • Residential new construction activity has been volatile • Commercial new construction is also volatile and closely follows economic cycles • Demand for roofing, due to the large installed base of aging structures, remains very stable and consistent despite the construction cycles Source: The Freedonia Group
Highly Fragmented Market is Ripe for Consolidation Roofing Distributors Key Considerations • Beacon is the second largest roofing distributor in North America • Although over 1,500 distributors serve the roofing materials market, fewer than 5% are regional • Consolidation driven by customer demands and needs < 5% are regional Market Share by Revenue Total number of roofing distributors > 1,500 Source: IBIS World Pty Ltd. Source: Company estimate
Compelling customer-driven rationale for industry consolidation Acquisition opportunities are identified and actionable Highly fragmented market Over 1,500 players Long history of successful integration Margin and revenue improvement Scalable platform Targeted number: 6-12 locations per year Incremental sales effect: $12–25mm EBITDA impact: Typically breakeven in year one Strong Platform for Growth and Acquisitions 5–10% “organic” average annual growth potential 15–25% 10–15% 3–5% 2–5% Acquisitions 1,500+ distributors Potential average annual growth Existing market growth New branch openings(e.g., Boston/Houston) = + + • Actual sales 10-year CAGR: 30% • Market plans by location • Sales rep productivity • Identify new prospects • New product offerings
Disciplined approach to new branch openings in contiguous markets Most branches opened by Beacon have been successful 36 branches opened since 1997, only one of which has closed Low initial investment: $600,000 – $1,000,000 Rapid breakeven – typically cash flow positive within one year New markets are consistently being identified and evaluated 25 branches have been opened since the IPO Others in location identification stage Branch managers have been identified Growth Through New Branch Openings Selective geographic expansion through new branch openings
Acquisitions Come with Significant Synergy Potential Revenue Expansion Best Practices Sophisticated Uniform IT Platform Large Operational Scale Beacon has a Highly Scalable Business Model
Significant sales growth Net Sales ($ in millions) YTD 2010 Fiscal years 9.5% Contraction 2000–2009 30% CAGR
Operating Income ($ in millions) YTD 2010 Fiscal years 41.2% Contraction 2000—2009 30% CAGR Note: Operating income for pro forma 2004 excludes certain stock-based-compensation of $9.0mm.
Margin Analysis Gross profit margin Operating income margin Note: Operating income for pro forma 2004 excludes certain stock-based-compensation of $9.0mm.
Financial Review ($ millions, except EPS) (1) For a reconciliation of Adjusted EBITDA to Net Income, please reference our press releases dated December 1, 2009 and August 5, 2010
Financially Positioned to Deliver on Growth • Ample Liquidity • $150 million U.S. revolving line of credit and CDN $15 million Canadian revolving line of credit, with initial term loans totaling $350 million, through October 2013 • $159 million available at June 30, 2010, plus approximately $82 million in cash • Conservative Capital Structure • Strong free cash flow • Net Debt/Total capital ratio of 36% at June 30, 2010 • Net debt to Adjusted EBITDA ratio(1) of 2.33 to 1 as of June 30, 2010 • Robust Financial Controls • Systems integrated • Sarbanes-Oxley compliant • Disciplined financial approach • 2009 bad debt expense of 0.4% of net sales • Minimal Capital Expenditures of Less than 2% of Sales • $23.1 million in 2007, $5.7 million in 2008, $13.7 million in 2009 (1) Calculated as defined under our credit facilities.
Annual Financial Performance Objectives • Long-term average sales growth goal of 5%-10% (excluding acquisitions) • Gross margin between 22.5%–24% • Operating margin between 6%-8% • Capital expenditures of less than 2% of sales
Beacon – A Company of Substance Benchmarking Fundamentals Culture Forecasting & Accountability Excellent Track Record Routines