GlobeNewswire Inc | Aug 3, 2020 04:05PM EDT

August 03, 2020

Record Net Income, Adjusted EBITDA1 and Adjusted EBITDA Margin1

Accelerating Productivity and Structural Cost Savings Initiatives

Strong Operating Cash Flow Drives Liquidity Over $600 Million

RALEIGH, N.C., Aug. 03, 2020 (GLOBE NEWSWIRE) -- BMC Stock Holdings, Inc. (Nasdaq: BMCH) (BMC or the Company), one of the nations leading providers of diversified building materials and solutions to new construction builders and professional remodelers in the U.S., today announced its financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights

-- Net sales increased 3.5% to $979.9 million -- Gross profit increased 2.9% to $252.8 million -- SG&A expenses as a percent of net sales declined 150 basis points to 17.7% -- Net income increased 22.2% to $43.6 million -- Adjusted EBITDA1 improved by 23.2% to a record $90.3 million -- Adjusted EBITDA margin1 increased 150 basis points to a record 9.2% -- Diluted earnings per share (EPS) increased 22.6%, or $0.12, to $0.65 -- Adjusted net income per diluted share1 increased 23.7%, or $0.14, to $0.73 -- Total liquidity was approximately $615.7 million, which included $253.4 million of cash and $362.3 million of borrowing capacity under the revolver, with no debt maturities until 2024. The Company repaid its $144 million precautionary revolver borrowings.

Our record second-quarter results exceeded our expectations and were driven by the steadfast execution of our strategy, accelerated productivity and structural cost savings across our business, coupled with a strong pipeline of construction activity, said Dave Flitman, President and CEO of BMC. These strong results are a testament to the determination of our associates, who remain focused on growing our business and providing outstanding customer service despite their personal sacrifice in this unprecedented environment. I couldnt be more proud of their efforts.

Mr. Flitman added, Our top priority remains keeping our associates, suppliers and customers safe as the pandemic evolves. We continue to take any and all necessary steps to protect our team while simultaneously growing our value-added products, which remain in high demand from our customers.

Mr. Flitman continued, We are pleased that our teams efforts enabled us to generate strong net sales growth in Millwork, Doors and Windows and our Pro Remodel and Multi-Family segments, as well as outperform the market in single-family starts which resulted in record net income, Adjusted EBITDA and Adjusted EBITDA margin in the quarter. We believe our solid first-half results and momentum, coupled with strong homebuyer demand, low housing inventories and record low interest rates will result in continued strength in our business in the second half of 2020. I believe we have the best talent on the field, the right business strategies, and as we remain focused on strengthening our execution, we will continue to transform our company into an operational powerhouse. I am confident that our efforts will enable our ability to sustainably outperform the market and deliver long-term shareholder value.

1 Non-GAAP Financial Measures

This press release presents Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share, which are non-GAAP financial measures within the meaning of applicable SEC rules and regulations. For a reconciliation of Adjusted EBITDA and Adjusted net income to the most comparable GAAP measures 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 discussion and tables included in this press release under Reconciliation of GAAP to Non-GAAP Measures.

Second Quarter 2020 Summary of Financial Results

During the three months ended June 30, 2020, the Company generated strong net income, diluted earnings per share and Adjusted EBITDA.

Three Months Ended June 30,(in thousands, except per 2020 2019 Varianceshare data)Net sales $ 979,896 $ 946,375 $ 33,521 Net income and EPS Net income (GAAP) $ 43,622 $ 35,699 $ 7,923 Diluted earnings per share $ 0.65 $ 0.53 $ 0.12 (GAAP)Adjusted net income $ 49,309 $ 39,363 $ 9,946 (non-GAAP)Adjusted net income per $ 0.73 $ 0.59 $ 0.14 diluted share (non-GAAP) Adjusted EBITDA (non-GAAP) $ 90,349 $ 73,329 $ 17,020 Adjusted EBITDA margin 9.2 % 7.7 % 1.5 %(non-GAAP) Net cash provided by $ 136,101 $ 51,553 $ 84,548 operating activities

Second Quarter 2020 Financial Results Compared to Prior Year Period

-- Net sales increased 3.5% to $979.9 million, primarily driven by growth from acquisitions of 4.3%, and 2.0% from price inflation. These increases were partially offset by a 2.2% decrease from other organic sales declines due to the impact of the COVID-19 pandemic and a closed location of 0.6%. -- Gross profit increased 2.9% to $252.8 million. Gross profit as a percentage of sales (gross margin) was 25.8%, compared to 26.0% for the second quarter of 2019. The 20 basis point decline in gross margin was driven by a decrease in the gross margin in the lumber and lumber sheet goods and structural components product categories, which benefited from unusually high commodity price-related gross margins during the prior year period, partially offset by an increase in the percent of net sales derived from our millwork, doors and windows product category, which often generates higher gross margins relative to other products. -- Selling, general and administrative (SG&A) expenses decreased 4.4% or $8.0 million to $173.4 million. Excluding the $4.3 million impact of an out of period correction during the three months ended June 30, 2019, SG&A expenses decreased $3.7 million. Other factors impacting SG&A expenses were an approximately $10.0 million decrease in employee wages, benefits and other employee-related costs, which was partially offset by an increase of $9.0 million related to SG&A expenses of recently acquired businesses. The remaining decrease was primarily related to lower fuel costs and a reduction in other costs. SG&A expenses as a percent of net sales declined 150 basis points to 17.7% -- Depreciation expense, including the portion reported within cost of sales, increased $2.0 million to $15.3 million, compared to $13.3 million in the second quarter of 2019. -- Merger and integration costs decreased to $0.4 million, consisting primarily of system integration costs, compared to $1.4 million in the second quarter of 2019. -- Amortization expense was $5.0 million compared to $4.3 million in the second quarter of 2019. This increase was primarily due to the amortization of intangible assets at recently acquired businesses. -- Interest expense was $6.2 million compared to $5.6 million in the second quarter of 2019. -- Other income, net, which was derived primarily from state and local tax incentives, interest income and customer service charges, was $2.9 million compared to $3.7 million in the second quarter of 2019. -- Net income was $43.6 million, or $0.65 per diluted share for the quarter, compared to $35.7 million, or $0.53 per diluted share, in the second quarter of 2019. -- Adjusted net income1 increased to $49.3 million, or $0.73 per diluted share, compared to Adjusted net income1 of $39.4 million, or $0.59 per diluted share, in the second quarter of 2019. -- Adjusted EBITDA1 was $90.3 million, up 23.2% from the second quarter of 2019. -- Adjusted EBITDA margin1, defined as Adjusted EBITDA1 as a percentage of net sales, was a record 9.2%, up 150 basis points from the prior year period. -- Cash provided by operating activities increased $84.5 million to $136.1 million primarily due to changes in working capital.

COVID-19 Update

As one of the Companys core values, the safety of BMCs associates and families is of the utmost importance during these challenging times. Over the course of the past several months, the Company took numerous steps to protect our associates, suppliers, customers and the community. In mid-March, the Company created a cross-function task force, which continues to meet daily to ensure that the Company is responding with the development of the necessary processes, protocols, training and communications related to our response.

The Company has implemented detailed cleaning and disinfecting processes at its facilities and is adhering to social distancing protocols. It also continues to suspend non-essential air travel and is encouraging employees to work from home when possible. To date, the Company and its customers businesses have generally been classified as essential business in most of the jurisdictions in which the Company operates.

Liquidity and Capital Resources

Total liquidity as of June 30, 2020 was approximately $615.7 million, which included $253.4 million of cash and cash equivalents and $362.3 million of borrowing availability under the Companys asset-backed revolving credit facility. During the first quarter, the Company borrowed $144 million under its revolving credit facility as a precautionary measure. In June 2020, the Company repaid this amount and had no outstanding borrowings under its revolver as of June 30, 2020. In addition, the Company has no long-term debt maturities until 2024.

Capital expenditures during the second quarter of 2020, net of proceeds from the sale of property, equipment and real estate, totaled $18.3 million which was down $10.4 million from the prior year period. These expenditures were primarily used to fund purchases of vehicles and equipment to replace aged assets and support increased sales volume and facility, technology and automation investments to support our operations. The Company has postponed future growth-related capital projects until further notice, but is accelerating investment in safety and productivity-related capital expenditures. Cash provided by operating activities increased $84.5 million to $136.1 million primarily due to changes in working capital. The Company continues to focus on cash generation.

Stock Repurchases

During the second quarter of 2020, the Company did not repurchase any shares of stock. As of June 30, 2020, the Company had approximately $54.2 million of capacity remaining under the current share repurchase authorization, which expires in November 2020.

2020 Third-Quarter Outlook

The Company estimates its 2020 third quarter net sales will be up 5% to 10% compared to the third quarter of 2019. BMC withdrew its full-year 2020 outlook on April 6, 2020, as management was unable to predict the potential negative impacts that COVID-19 could have on housing starts and the Companys financial results over the remainder of the year.

Conference Call Information

BMC will host a conference call on Monday, August 3, 2020 at 5:00 p.m. Eastern Time and will simultaneously broadcast it live over the Internet. Prior to the call, an earnings release presentation will be posted on the Companys investor relations website ir.buildwithbmc.com in the Events and Presentations tab under the heading Presentation Archive. The conference call can be accessed by dialing 1-877-407-0784 (domestic) or 1-201-689-8560 (international). A telephonic replay will be available approximately three hours after the call and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for both the live call and the replay is 13706969. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on August 10, 2020. The live webcast of the conference call can be accessed on the Companys investor relations website at ir.buildwithbmc.com and will be available for approximately 90 days.

About BMC Stock Holdings, Inc.

With $3.6 billion in 2019 net sales, BMC is one of the nations leading providers of diversified building materials and solutions to new construction builders and professional remodelers in the U.S. Headquartered in Raleigh, North Carolina, 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 and an innovative eBusiness platform. BMC serves 45 metropolitan areas across 18 states, principally in the 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 BMCs 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, and many of these risks and uncertainties are, and may continue to be, amplified by the COVID-19 pandemic.

A number of important factors could cause actual results to differ materially from those indicated by forward-looking statements. These factors include without limitation:

-- the impact of the COVID-19 pandemic on our business operations and on local, national and global economies; -- the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets; -- fluctuation of commodity prices and prices of our products as a result of national and international economic and other conditions; -- the impact of potential changes in our customer or product sales mix; -- our concentration of business in the Texas, California and Georgia markets; -- the potential loss of significant customers or a reduction in the quantity of products they purchase; -- seasonality and cyclicality of the building products supply and services industry; -- competitive industry pressures and competitive pricing pressure from our customers and competitors; -- our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings; -- our ability to maintain profitability and positive cash flows; -- 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 noncancellable leases at our facilities; -- our ability to effectively manage inventory and working capital; -- the credit risk from our customers; -- our ability to identify or respond effectively to consumer needs, expectations, market conditions or trends; -- our ability to successfully implement our growth strategy; -- the impact of federal, state, local and other laws and regulations; -- the impact of changes in legislation and government policy; -- the impact of unexpected changes in our tax provisions and adoption of new tax legislation; -- our ability to utilize our net operating loss carryforwards; -- natural or man-made disruptions to our distribution and manufacturing facilities; -- our exposure to environmental liabilities and subjection to environmental laws and regulation; -- the impact of health and safety laws and regulations; -- the impact of disruptions to our information technology systems; -- cybersecurity risks; -- our exposure to losses if our insurance coverage is insufficient; -- our ability to operate on multiple Enterprise Resource Planning (ERP) information systems and convert multiple systems to a single system; -- the impact of our indebtedness; -- the impact of 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 February 27, 2020 as supplemented in our Quarterly Report on Form 10-Q.

All such factors are difficult to predict and are beyond BMCs control. All forward-looking statements attributable to BMC or persons acting on BMCs 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, unless otherwise required by law.

Investor Relations ContactBMC Stock Holdings, Inc.Michael NeeseSVP, Strategy and Investor Relations(919) 431-1796

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Operations(unaudited)

Three Months Ended June 30, Six Months Ended June 30,(in thousands,except per 2020 2019 2020 2019share amounts)Net sales $ 979,896 $ 946,375 $ 1,900,775 $ 1,771,780 Cost of sales 727,074 700,598 1,410,825 1,309,881 Gross profit 252,822 245,777 489,950 461,899 Selling,general and 173,420 181,431 360,342 351,365 administrativeexpensesDepreciation 11,704 10,043 23,223 19,616 expenseAmortization 5,016 4,338 10,029 8,685 expenseImpairment of 2,255 529 2,255 529 assetsMerger andintegration 357 1,382 1,525 4,172 costs 192,752 197,723 397,374 384,367 Income from 60,070 48,054 92,576 77,532 operationsOther income (expense)Interest (6,204 ) (5,574 ) (12,136 ) (11,612 ) expenseOther income, 2,920 3,709 5,839 6,619 netIncome before 56,786 46,189 86,279 72,539 income taxesIncome tax 13,164 10,490 20,628 16,490 expenseNet income $ 43,622 $ 35,699 $ 65,651 $ 56,049 Weightedaverage common sharesoutstandingBasic 67,022 66,578 66,931 66,679 Diluted 67,564 67,077 67,604 67,179 Net income per common shareBasic $ 0.65 $ 0.54 $ 0.98 $ 0.84 Diluted $ 0.65 $ 0.53 $ 0.97 $ 0.83

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets(unaudited)

(in thousands, except share and per share June 30, December 31,amounts) 2020 2019Assets Current assets Cash and cash equivalents $ 253,443 $ 165,496 Accounts receivable, net of allowances of$9,895 and $8,318 at June 30, 2020 and 361,953 325,741 December31, 2019, respectivelyInventories 326,807 331,969 Contract assets 33,871 32,125 Income taxes receivable ? 7,504 Prepaid expenses and other current assets 70,926 66,818 Total current assets 1,047,000 929,653 Property and equipment, net of accumulated 368,378 345,466 depreciationOperating lease right-of-use assets 136,540 139,907 Customer relationship intangible assets, 175,150 185,049 net of accumulated amortizationOther intangible assets, net of accumulated 450 580 amortizationGoodwill 295,402 297,146 Other long-term assets 7,443 8,300 Total assets $ 2,030,363 $ 1,906,101 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 237,029 $ 189,644 Accrued expenses and other liabilities 97,127 117,825 Contract liabilities 42,610 31,094 Income taxes payable 2,640 ? Interest payable 4,947 4,759 Current portion: Long-term debt and finance lease 4,214 5,577 obligationsOperating lease liabilities 27,411 26,147 Insurance reserves 18,487 16,328 Total current liabilities 434,465 391,374 Insurance reserves 42,473 43,536 Long-term debt 346,450 346,032 Long-term portion of finance lease 5,131 6,959 obligationsLong-term portion of operating lease 118,705 120,832 liabilitiesDeferred income taxes 25,601 15,195 Other long-term liabilities 7,474 661 Total liabilities 980,299 924,589 Commitments and contingencies Stockholders' equity Preferred stock, $0.01 par value, 50.0million shares authorized, no shares issued ? ? and outstanding at June 30, 2020 andDecember 31, 2019Common stock, $0.01 par value, 300.0million shares authorized, 68.8 million and68.3 million shares issued, and 67.1 688 683 million and 66.8 million outstanding atJune 30, 2020 and December 31, 2019,respectivelyAdditional paid-in capital 694,113 687,255 Retained earnings 385,841 320,190 Treasury stock, at cost, 1.7 million and1.5 million shares at June 30, 2020 and (30,578 ) (26,616 ) December 31, 2019, respectivelyTotal stockholders' equity 1,050,064 981,512 Total liabilities and stockholders' equity $ 2,030,363 $ 1,906,101

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows(unaudited)

Six Months Ended June 30,(in thousands) 2020 2019Cash flows from operating activities Net income $ 65,651 $ 56,049 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation expense 30,265 25,739 Amortization of intangible assets 10,029 8,685 Amortization of debt issuance costs 634 807 Deferred income taxes 10,406 6,888 Non-cash stock compensation expense 6,498 6,163 Gain on sale of property, equipment and real (351 ) (1,949 ) estateOther non-cash adjustments 2,248 2,200 Change in assets and liabilities, net of effects of acquisitionsAccounts receivable, net of allowances (36,201 ) (30,725 ) Inventories 5,175 (8,557 ) Accounts payable 49,401 85,178 Other assets and liabilities 9,412 (21,166 ) Net cash provided by operating activities 153,167 129,312 Cash flows from investing activities Purchases of property, equipment and real (49,079 ) (45,905 ) estateProceeds from sale of property, equipment and 633 4,153 real estatePurchases of businesses, net of cash acquired ? (52,012 ) Insurance proceeds ? 107 Net cash used in investing activities (48,446 ) (93,657 ) Cash flows from financing activities Proceeds from revolving credit facility 144,000 110,987 Repayments of proceeds from revolving credit (144,000 ) (110,987 ) facilityRepurchases of common stock under share (1,416 ) (16,446 ) repurchase programPayments on finance lease obligations (3,166 ) (3,385 ) Other financing activities, net (12,192 ) (6,001 ) Net cash used in financing activities (16,774 ) (25,832 ) Net increase in cash and cash equivalents 87,947 9,823 Cash and cash equivalents Beginning of period 165,496 150,723 End of period $ 253,443 $ 160,546

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIESNet Sales by Product Category(unaudited)

Three Months Ended Three Months Ended Core June 30, 2020 June 30, 2019 Organic(in Net Sales % of Sales Net Sales % of Sales % Change Growth (a)thousands)Millwork,doors & $ 287,999 29.4 % $ 271,135 28.6 % 6.2 % 1.1 %windowsStructural 164,535 16.8 % 166,955 17.6 % (1.4 ) % (5.6 ) %componentsLumber&lumber 292,817 29.9 % 281,855 29.8 % 3.9 % (3.5 ) %sheetgoodsOtherbuilding 234,545 23.9 % 226,430 24.0 % 3.6 % (2.0 ) %products& servicesTotal net $ 979,896 100.0 % $ 946,375 100.0 % 3.5 % (2.2 ) %sales Six Months Ended Six Months Ended Core June 30, 2020 June 30, 2019 Organic(in Net Sales % of Sales Net Sales % of Sales % Change Growth (a)thousands)Millwork,doors & $ 583,668 30.7 % $ 511,057 28.8 % 14.2 % 5.3 %windowsStructural 324,879 17.1 % 308,231 17.4 % 5.4 % 1.9 %componentsLumber &lumber 551,956 29.0 % 523,814 29.6 % 5.4 % 0.3 %sheetgoodsOtherbuilding 440,272 23.2 % 428,678 24.2 % 2.7 % (3.1 ) %products &servicesTotal net $ 1,900,775 100.0 % $ 1,771,780 100.0 % 7.3 % 1.2 %sales

Net Sales by Customer Type(unaudited)

Three Months Ended Three Months Ended Core June 30, 2020 June 30, 2019 Organic(in Net Sales % of Sales Net Sales % of Sales % Change Growth (a)thousands)Single-family $ 702,388 71.7 % $ 716,974 75.8 % (2.0 ) % (6.3 ) %homebuildersRemodeling 127,699 13.0 % 110,313 11.7 % 15.8 % 6.6 %contractorsMulti-family,commercial & 149,809 15.3 % 119,088 12.5 % 25.8 % 14.5 %othercontractorsTotal net $ 979,896 100.0 % $ 946,375 100.0 % 3.5 % (2.2 ) %sales Six Months Ended Six Months Ended June 30, 2020 June 30, 2019 Core Organic(in Net Sales % of Sales Net Sales % of Sales % Change Growth (a)thousands)Single-family $ 1,377,159 72.5 % $ 1,345,692 76.0 % 2.3 % (2.4 ) %homebuildersRemodeling 232,368 12.2 % 198,521 11.2 % 17.0 % 9.1 %contractorsMulti-family,commercial & 291,248 15.3 % 227,567 12.8 % 28.0 % 16.1 %othercontractorsTotal net $ 1,900,775 100.0 % $ 1,771,780 100.0 % 7.3 % 1.2 %sales

(a) Core Organic Growth is calculated as the total change in net sales excluding the estimated impact of changes in commodity-related prices, the net sales of non-comparable acquired or closed operations and changes in selling days, as applicable.

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIESReconciliation of GAAP to Non-GAAP Measures(unaudited)

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share are intended as supplemental measures of the Companys performance that are not required by, or presented in accordance with, GAAP. The Company believes that Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share provide useful information to management and investors regarding certain financial and business trends relating to the Companys financial condition and operating results.

-- Adjusted EBITDA is defined as net income plus interest expense (income), income tax expense, depreciation and amortization, merger and integration costs, non-cash stock compensation expense, acquisition costs and other items. -- Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales. -- Adjusted net income is defined as net income plus merger and integration costs, non-cash stock compensation expense, acquisition costs, other items and after tax effecting those items. -- Adjusted net income per diluted share is defined as Adjusted net income divided by diluted weighted average shares.

Company management uses Adjusted EBITDA and Adjusted net income for trend analysis, for purposes of determining management incentive compensation and for budgeting and planning purposes. Adjusted EBITDA is used in monthly financial reports prepared for management and the board of directors. The Company believes that the use of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share provides additional tools for investors to use in evaluating ongoing operating results and trends and in comparing the Companys financial measures with other distribution and retail companies, which may present similar non-GAAP financial measures to investors. However, the Companys calculation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share are not necessarily comparable to similarly titled measures reported by other companies. Company management does not consider Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share in isolation or as alternatives to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share is that they exclude significant expenses and income that are required by GAAP to be recorded in the Companys financial statements. Some of these limitations are: (i)Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect changes in, or cash requirements for, working capital needs; (ii)Adjusted EBITDA and Adjusted EBITDA margin do not reflect interest expense, or the requirements necessary to service interest or principal payments on debt; (iii)Adjusted EBITDA and Adjusted EBITDA margin do not reflect income tax expenses or the cash requirements to pay taxes; (iv)Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share 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, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not reflect any cash requirements for such replacements and (vi) Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share do not consider the potentially dilutive impact of issuing non-cash stock-based compensation. In order to compensate for these limitations, management presents Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income and Adjusted net income per diluted share in conjunction with GAAP results. Readers should review the reconciliations of net income to Adjusted EBITDA and Adjusted net income below, and should not rely on any single financial measure to evaluate the Companys business.

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIESReconciliation of GAAP to Non-GAAP Measures (continued)(unaudited)

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

Three Months Ended June 30, Six Months Ended June 30,(in thousands,except per 2020 2019 2020 2019share amounts)Net income $ 43,622 $ 35,699 $ 65,651 $ 56,049 Interest 6,204 5,574 12,136 11,612 expenseInterest income (339 ) (844 ) (922 ) (1,785 ) Income tax 13,164 10,490 20,628 16,490 expenseDepreciationand 20,299 17,632 40,294 34,424 amortizationMerger andintegration 357 1,382 1,525 4,172 costsNon-cash stockcompensation 3,328 3,248 6,498 6,163 expenseAcquisition 495 18 2,326 598 costsBusinessreorganization 3,219 228 3,219 228 costs (a)Other items (b) ? (98 ) ? (222 ) Adjusted EBITDA $ 90,349 $ 73,329 $ 151,355 $ 127,729 Adjusted EBITDA 9.2 % 7.7 % 8.0 % 7.2 %margin Net income $ 43,622 $ 35,699 $ 65,651 $ 56,049 Merger andintegration 357 1,382 1,525 4,172 costsNon-cash stockcompensation 3,328 3,248 6,498 6,163 expenseAcquisition 495 18 2,326 598 costsBusinessreorganization 3,219 228 3,219 228 costs (a)Other items (b) ? (98 ) ? (222 ) Tax effect ofadjustments to (1,712 ) (1,114 ) (3,185 ) (2,588 ) net income (c)Adjusted net $ 49,309 $ 39,363 $ 76,034 $ 64,400 income Dilutedweighted 67,564 67,077 67,604 67,179 average sharesAdjusted netincome per $ 0.73 $ 0.59 $ 1.12 $ 0.96 diluted share

(a) For the three and six months ended June 30, 2020, represents asset impairment charges related to the closure or relocation of the operations of certain of the Companys facilities (Impairment Charges), which were not related to the COVID-19 pandemic, and severance expense related to permanent headcount reductions due to the impact of the COVID-19 pandemic. For the three and six months ended June30, 2019, represents Impairment Charges and the effect of certain customary post-closing adjustments related to the November 1, 2018 disposition of the Companys Coleman Floor business.

(b) For the three months ended June30, 2019, represents income from a recovery made by the Company related to a fire at one of the Companys facilities during 2015 (the Recovery Income). For the six months ended June 30, 2019, represents the Recovery Income and the effect of the settlement of pending litigation for an amount below what was previously accrued.

(c) The tax effect of adjustments to net income was based on the respective transactions income tax rate, which was 23.1%, 23.3%, 23.5% and 23.7% for the three months ended June 30, 2020 and 2019 and the six months ended June 30, 2020 and 2019, respectively.