Second Quarter 2018 Earnings Conference Call Third Quarter Earnings Call November 13, 2018 1 NASDAQ: SIC
Forward-Looking Statements and Non-GAAP Financial Forward-Looking Statements Measures Certain statements in this presentation may constitute forward-looking statements, including statements regarding the Company s financial position, business strategy and plans, and objectives of management for future operations. These statements, which contain words such as "believe, expect, anticipate, intends, estimate, forecast, project, will, may, should and similar expressions, reflect the beliefs and expectations of the Company and are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, our dependency upon the residential construction and repair and remodel market, the achievement of the anticipated levels of profitability, growth, the ability to anticipate consumer preferences and demand, the impact of competitive pricing, and the impact of general business and economic conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Use of Non-GAAP Financial Measures Management believes the non-gaap financial measures discussed in this presentation are useful to both management and investors in their analysis of the Company s financial position and results of operations. Further, management uses these non-gaap financial measures for planning and forecasting future periods. This non-gaap financial information is provided as additional information for investors, is not in accordance with or an alternative to GAAP, and should not be used as a substitute for the Company s operating results presented in accordance with GAAP. These non-gaap measures may be different from similar measures used by other companies. For reconciliations of these non-gaap financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see the appendix of this presentation. 2
SIC Overview Installer and distributor of interior building products Leading positions in residential interior design services Residential Design Services 54% Segments Architectural Surfaces Group 46% LTM 9/30/2018 Sales Mix 1 R&R 23% End market R&R 23% Construction sector 1 Diversified building products and services offerings focused on high-value, high-margin home interior products Commercial 2% Multi-family 3% Single family 72% New construction 77% Scalable platform that can be replicated across geographies, product categories, and services Strong track record of growth through acquisitions and greenfield locations Attractive above-industry margins $ in millions $500 $400 $300 $200 $100 Source: Management estimates Notes 1 Repair andremodel 2 See Reconciliation of Net Income to Adj. EBITDA at the end of this presentation $0 $234 Net Sales $353 $457 2016 2017 LTM 9/30/2018 Key Financials $60 $50 $40 $30 $20 $10 $0 $27 Adjusted EBITDA 2 $47 $53 11.7% 13.3% 11.7% 2016 2017 LTM 9/30/2018 Adjusted EBITDA % Margin 3 50% 40% 30% 20% 10% 0%
SIC Segments Leading provider of turnkey interior design centers and installation services for residential and commercial builders Highly trained and specialized interior designers with proprietary interior design software In-house labor force supplemented by subcontractors Strong merchandising and sourcing capabilities Significant customer value add through optional upgrades Constantly evolving service offering with proactive customer service 29 locations, including 19 design centers RDS Products and Services Leading importer and distributor of natural stone, engineered stone, and related products used in residential construction, commercial construction and remodeling across the U.S Sophisticated global supply chain complemented with product design, development and marketing Efficient hub-and-spoke distribution 22 strategically located design showrooms and warehouses Exclusive vendor agreements and high quality quarries Strong relationships with diverse channels (fabricators, builders, designers, dealers and architect firms) ASG Products Tile Flooring Door Hardware Quartz Granite Engineered Stone Counters Cabinetry Marble Tile 4
Pillars for SIC Growth Expand geographically Open new greenfield facilities in markets with attractive characteristics and existing footprint Low investment and short payback Diversify product and service offering Diversify into additional product lines such as cabinets, finish carpentry, doors and windows Additional materials, e.g. porcelain surfaces Increase share in current markets Target multi-family housing market, where we see share growth potential Increase cross-selling of products and identify new customers Expand coverage to new segments Pursue additional opportunities in the Repair and Remodel (R&R) market, with margin increase potential Design centers well positioned for the initiative without material incremental capex Dedicated M&A strategy Pursue opportunistic tuck under acquisitions to bolster existing geographic reach and provide new product or services Target business operations of $10 100 million annual revenue Completed 7 acquisitions in the last two years 5
Q3 2018 Acquisitions Tuscany Collection In August 2018 Architectural Surface Group (ASG) acquired Tuscany Collection, a distributor of natural stone, quartz and tile in Las Vegas, NV Expanded ASG s footprint to 22 locations across the United States Customers will benefit from superior distribution capabilities throughout the Western United States Summit Stoneworks In August 2018, Residential Design Services (RDS) acquired Summit Stoneworks, a leading provider of high-quality flooring and countertops to national and local builders and fabricators Expanded operations in the Austin, San Antonio and Houston, TX markets Expanded RDS footprint to 29 locations including 19 design centers across the United States 6
Growth Opportunities: New Products and Channels RDS ASG Products Description Products Description New channels New products Cabinets Appliances Doors & windows Address cabinet supply and installation needs in the industry Facilitate cross-selling Address dearth of adequate suppliers and installers in the industry Multi-family housing Assisted living New channels New products Tile & backsplash Engineered stone slabs for backsplash and wall tile applications and ceramic and porcelain for flooring applications Introduce new colors in Metro Quartz line and Natural stone Sinks Cross-sell existing customers looking for a one-stop-shop Porcelain slabs Cross-selling opportunity via ASG brands to meet shifts in market demand toward engineered stone Commercial Targeting high end commercial segment through Pental brand for designing and delivering high end stone products Pental s pre-fabrication capabilities at low cost facilities Estimated $20,000+ per house in additional interior finish products that SIC can readily provide and effectively sell through its design centers 7
Third Quarter 2018 Financial Highlights Net Sales ($M) Third Quarter Highlights For Q3 2018, net sales increased $33.0 million, or 34.9%, to $127.6 million, from $94.6 million in Q3 2017 For the first nine months of 2018, net sales increased $104.1 million, or 41.2%, to $356.8 million, from $252.7 million in the first nine months of 2017 Adj. EBITDA ($M) 1 For Q3 2018, Adjusted EBITDA 1 increased $1.9 million to $15.1 million, or 14.4%, from $13.2 million in Q3 2017 For the first nine months of 2018, Adjusted EBITDA increased $6.5 million to $39.6 million, or 19.6%, from $33.1 million in the first nine months 2017 Notes 1 See Reconciliation of Net Income to Adj. EBITDA at the end of this presentation 8
Third Quarter 2018 Year-over-Year Net Sales Bridge $ in millions Net sales in RDS increased 32.7% and ASG increased 37.6% Organic sales growth of 9.3% RDS: favorable mix of products and end markets ASG: broad volume gains; overall price up despite regional volatility Acquisitions: RDS: Greencraft 4Q17 and Summit 3Q18 ASG: Cosmic 4Q17, Bedrock 1Q18, NSI 1Q18 and Tuscany 3Q18 9
Third Quarter 2018 Year-over-Year Adj. EBITDA Bridge 1 $ in millions Volume/Price/Mix offset higher product and labor costs Gross margin improvement year over year, excluding acquisitions Acquisitions: focused on integration and cross-selling to accelerate synergies New public company costs, input cost inflation, investments in business development to support growth Notes 1 See Reconciliation of Net Income to Adj. EBITDA at the end of this presentation 10
Third Quarter 2018 Balance Sheet and Capital Resources Effectively Positioned Balance Sheet Advantageous capital position to support growth objectives Total liquidity of $39 million Conservative leverage metrics 2.7x net debt-to-ltm Adjusted EBITDA 1 Positive cash flow from operating activities in Q3 2018 YTD Strategic expansion driving growth $32 million deployed on attractive acquisitions in Q3 2018 YTD Investing in organic growth initiatives to drive share gains and efficiencies $ in millions Liquidity / Leverage Revolver $ 44.2 Term Loan 101.6 Total Debt $ 145.8 Cash (3.9) Net Debt $ 141.9 Liquidity $ 38.8 Net Debt/ LTM Adj. EBITDA 1 2.7x Notes 1 See Reconciliation of Net Income to Adj. EBITDA at the end of this presentation 11
Third Quarter 2018 Key Take-Aways Executing on core objectives Strong organic growth in RDS and ASG Market leadership promotes high barriers to competition Successfully completed two acquisitions Strong customer relationships Investing in operations to grow margins Solid capital position to support growth Strong and experienced management team Strong Adj. EBITDA base leading into 2019 12
Appendix
2018 YTD Year-over-Year Net Sales Bridge $ in millions 14
2018 YTD Year-over-Year Adj. EBITDA Bridge 1 $ in millions Notes 1 See Reconciliation of Net Income to Adj. EBITDA at the end of this presentation 15
Statement of Profit and Loss (in thousands, except share data) Three Months Ended September 30, Nine Months Ended September 30, Consolidated Statement of Operations Information: 2018 2017 2018 2017 Net revenue $ 127,553 $ 94,605 $ 356,801 $ 252,690 Cost of revenue 91,083 66,490 257,975 177,594 Gross profit 36,470 28,115 98,826 75,096 Sales and marketing 7,274 5,555 19,047 14,237 General and administrative 25,192 15,431 71,214 45,981 Operating expenses 32,466 20,986 90,261 60,218 Interest expense 2,881 3,667 8,161 9,397 Loss on extinguishment of debt - - 42 748 Other expense, net 412 105 1,584 423 (Loss) income before tax expense 711 3,357 (1,222) 4,310 Income tax (benefit) expense (42) 545 (580) 687 Consolidated net (loss) income 753 2,812 (642) 3,623 Loss per common share Basic Class A common $ 0.03 $ - $ (0.03) $ - Diluted Class A common $ 0.03 $ - $ (0.03) $ - Weighted average shares outstanding Basic Class A common 25,640,433-25,623,322 - Diluted Class A common 26,611,500-25,623,322-16
Balance Sheet (Dollars in thousands) ASSETS September 30, 2018 December 31, 2017 Cash and cash equivalents $ 3,891 $ 2,547 Restricted cash 3,000 3,000 Accounts receivable, net 56,375 45,284 Inventory 117,364 87,629 Prepaid expenses and other current assets 2,958 2,625 Income taxes receivable 4,228 1,520 Total Current Assets 187,816 142,605 Property and equipment, net 18,619 13,226 Goodwill 76,076 66,326 Intangibles assets, net 83,448 82,263 Deferred tax assets, net 12,668 11,569 Other assets 1,549 4,257 Total Assets $ 380,176 $ 320,246 LIABILITIES AND EQUITY Accounts payable $ 40,659 $ 38,491 Accrued expenses 30,983 19,840 Current Portion of Long-Term Debt 1,386 1,449 Current Portion of Capital Leases 497 229 Customer Deposits 10,122 5,320 Total Current Liabilities 83,647 65,329 Long-Term Debt (less current portion) 100,190 86,897 Long-Term Capital Leases 1,594 664 Line of Credit 44,170 19,269 Total Liabilities 229,601 172,159 Stockholders' Equity 150,575 148,087 Total Liabilities and Stockholders' Equity $ 380,176 $ 320,246 17
Cash Flow (Dollars in thousands) Three Months Ended Sept 30, Nine Months Ended September 30, Condensed Statement of Cash flows 2018 2017 2018 2017 Operating Activities Net cash provided by (used in) operating activities 2,858 (4,253) 2,759 (546) Purchase of property and equipment, net (661) (855) (7,061) (2,521) Acquisitions (20,470) - (32,252) (88,000) Net cash used in investing activities (21,131) (855) (39,313) (90,521) Distributions - (208) - (35,067) Contributions - - - 30 Proceeds on line of credit, net 8,764 6,768 25,362 30,766 Proceeds from Term Loan 8,000-14,250 116,500 Principal payments on Term Loan (263) (1,158) (788) (21,376) Proceeds from employee stock purchase 543-543 - Deferred debt issuance costs - - (517) (2,826) Payments on notes payable (990) (457) (952) (768) Net cash provided by financing activities 16,054 4,945 37,898 87,259 Net increase (decrease) in cash (2,219) (163) 1,344 (3,808) Cash and restricted cash, beginning of period 9,111 1,083 5,547 4,727 Cash and restricted cash, end of period 6,891 919 6,891 919 18
Revenue by Segment Select Interior Concepts, Inc. Segment Information (in thousands) Three Months Ended September 30, Nine Months Ended September 30, Revenue by Business Segment: 2018 2017 2018 2017 Residential Design Services $ 68,172 $ 51,445 $ 193,589 $ 137,905 Architectural Surfaces Group 59,964 43,565 164,525 115,699 Eliminations (583) (405) (1,313) (914) Total net revenues $ 127,553 $ 94,605 $ 356,801 $ 252,690 19
Reconciliation of Net Income to Adj. EBITDA (in thousands) Three Months Ended September 30, Nine Months Ended September 30, Reconciliation of net income to Adj. EBITDA 2018 2017 2018 2017 Consolidated net (loss) income $ 753 $ 2,812 $ (642) $ 3,623 Income tax (benefit) expense (42) 545 (580) 687 Interest expense 2,881 3,667 8,203 10,145 Depreciation and amortization 5,108 3,830 14,777 10,381 EBITDA 8,700 10,854 21,758 24,836 Consulting Fees to Trive Capital - 409-925 Share Based and Transaction Incentive Compensation 1,254-4,935 381 Nonrecurring Costs 5,116 1,945 12,872 6,981 Adjusted EBITDA 15,070 13,208 39,565 33,123 EBITDA is defined as consolidated net income before interest, taxes and depreciation and amortization. Adjusted EBITDA is defined as consolidated net income before (i) income tax expense, (ii) interest expense, (iii) depreciation and amortization expense, and (iv) adjustments for costs that are deemed to be transitional in nature or not related to our core operations, such as severance, facility closure costs, and professional and legal fees related to business acquisitions, or similar transitional costs and expenses related to integrating acquired businesses into our Company. Adjusted EBITDA is a non-gaap financial measure used by us as supplemental measure in evaluating our operating performance. 20