- Residential
and Commercial Outlook Remains Strong
- Excessive
Rainfall Negatively Impacted Shipments
- Closed the
Sale of U.S. Concrete and Steel Pressure Pipe Assets
IRVING, Texas, Aug. 10, 2017 (GLOBE NEWSWIRE) --
Forterra, Inc. ("Forterra" or the "Company") (NASDAQ:FRTA), a
leading manufacturer of water and drainage infrastructure pipe and
products in the United States and Eastern Canada, today announced
results for the quarter ended June 30, 2017.
Second Quarter 2017
Results
Second quarter 2017 net sales increased to $436.7 million, compared
to $381.7 million in the prior year quarter, driven mainly by
acquisitions that contributed $56.1 million. Net sales were
negatively impacted by Tropical Storm Cindy, excessive rainfall
events around the country and a decline in average sales prices of
products sold. Net income for the quarter was $(11.2)
million, or $(0.18) per share, compared to net income of $36.7
million, or $0.70 per share, in the prior year quarter.
Adjusted net income1 was $(1.3) million in the second quarter
of 2017 compared to Adjusted net income1 of $43.4 million in
the prior year quarter. Adjusted EBITDA1 for the second
quarter was $46.5 million compared to $74.0 million in the prior
year quarter.
Forterra CEO Jeff Bradley commented, "Our
financial results this quarter were lower than we expected,
reflecting the impact of weather, unanticipated competitive pricing
pressure in certain areas and higher costs of goods sold. We
continue to aggressively pursue price increases and growth of
higher margin products, and we have positive momentum on this front
heading into the second half of 2017. I remain enthusiastic
about the longer term growth prospects for the Company."
Drainage Pipe & Products ("Drainage") net
sales increased to $221.5 million, compared to $192.2 million in
the prior year quarter, due to $27.7 million of net sales from
acquisitions. Drainage gross profit was $43.1 million
compared to $48.1 million in the prior year quarter, primarily due
to a decline in average sales prices due to increased competition
in certain regions as well as higher cost of goods sold. Cost
of goods sold increased due to higher labor costs in tight labor
markets, freight and raw materials costs. Second quarter 2017
Drainage EBITDA2 and Adjusted EBITDA1 were $40.1 million
and $40.5 million, respectively, compared to $47.1 million and
$48.3 million, respectively, in the prior year quarter.
Water Pipe & Products ("Water") net sales
increased to $215.2 million, compared to $189.2 million in the
prior year quarter, due to the acquisition in the second quarter of
2016 of U.S. Pipe, which provided an additional $28.4 million of
net sales. Second quarter 2017 Water EBITDA2 and
Adjusted EBITDA1decreased to $17.9 million and $29.6 million,
respectively, compared to $32.5 million and $41.7 million,
respectively, in the prior year quarter, due to lower gross
profit. Water gross profit was $33.3 million compared to
$35.2 million in the prior year quarter. The ductile iron
pipe portion of the Water segment was impacted by lower average
sales prices due to increased competition and higher scrap prices
that reduced gross margin for the quarter. In the concrete
and steel pressure pipe portion of the Water segment, net sales
increased modestly with higher sales in the U.S., partially offset
by a decline in net sales in Canada. The higher U.S. concrete
and steel pressure pipe net sales was driven by deliveries on a
large project that had been delayed from the fourth quarter of 2016
and the first quarter of 2017. U.S. concrete and steel
pressure pipe gross profit declined due primarily to lower average
sales prices. In Canada, the higher sales and gross margin
from concrete and steel pressure pipe in the prior year quarter
were driven primarily by a large multi-year project that was
completed in the fourth quarter of 2016.
Second quarter 2017 results were impacted by
higher SG&A costs. The increase in SG&A was due
primarily to higher professional fees associated with the
previously announced cost savings initiatives and Sarbanes-Oxley
compliance work. Bradley explained, "We have invested
significantly in cost-cutting initiatives, integration of
acquisitions and SOX compliance, and I expect that these costs will
be substantially behind us as we head into 2018."
Bradley continued, "While our outlook for the
third quarter of 2017 reflects a more challenging market
environment than we had previously expected, I am confident that we
are taking the right steps to improve our top line growth, lower
our costs and increase our operating efficiency. We have made
significant progress on our cost-cutting initiatives that I expect
will materially lower our costs in 2018 and beyond."
Completion of Sale of U.S.
Concrete and Steel Pressure Pipe Assets
The Company closed its previously announced sale of its U.S.
concrete and steel pressure pipe assets on July 31, 2017 and used
proceeds of $23.2 million to partially pay down the balance
outstanding on its $300 million asset-based revolving credit
facility (the "Revolver"). The transaction, which allowed
Forterra to exit a business with unfavorable market dynamics in the
U.S., is expected to be immediately accretive to Forterra's
earnings, margins and cash flows. Forterra also acquired
assets relating to a Drainage facility in Conroe, Texas as a part
of the transaction, which will bolster Forterra's position in the
large and growing Houston Drainage market. The assets sold
contributed EBITDA2 and Adjusted EBITDA1 of $(8.6)
million and $(1.1) million, respectively, on net sales of $34.2
million in Q2 2017, compared to EBITDA2 and Adjusted
EBITDA1 of $7.3 million and $1.3 million, respectively, on net
sales of $23.1 million in Q2 2016. For the six months ended
June 30, 2017 and June 30, 2016 and full year 2016, the assets sold
generated EBITDA2 of $(13.9) million, $9.2 million, and $4.8
million, respectively, and Adjusted EBITDA1 of $(6.6) million,
$3.3 million, and $1.4 million, respectively, on net sales of $61.9
million, $53.1 million, and $99.7 million, respectively.
Balance Sheet and
Liquidity
At June 30, 2017, the Company had cash of $22.0 million and
total borrowings under its credit agreements of $1.32 billion.
Availability under the Revolver as of June 30, 2017 was $204.3
million. Including the benefit of the net proceeds from the
sale of the U.S. concrete and steel pressure pipe business and
anticipated positive cash flows from working capital in the second
half of 2017, Forterra expects to end the year with no borrowings
outstanding under the Revolver while maintaining a cash surplus
heading into the seasonal increase in working capital in Q1
2018. The Company anticipates that maintenance capital
expenditures will be approximately 2.5% of net sales for 2017 with
no major growth capital expenditures planned through the end of
2017. Since June 30, 2017, including the application of
proceeds from U.S. concrete and steel pressure pipe assets, the
Company has repaid $55.0 million on the Revolver, and the
outstanding balance on the Revolver was $25.0 million on August 9,
2017.
Financial
Outlook
The Company expects that the average sales prices in both segments
in the third quarter of 2017 will be similar to the averages in the
third quarter of 2016. However, the Company expects higher
costs, including labor, freight and raw materials costs in the
Drainage segment and scrap costs in the Water segment, will
negatively impact margins as compared to the same period in the
prior year. The Company also expects that the earnings
contribution of the Canadian concrete and steel pressure pipe
portion of the Water segment in the third quarter of 2017 will be
negatively impacted by lower anticipated net sales as compared to
the third quarter of 2016, consistent with the year over year trend
from the second quarter of 2016 to the second quarter of
2017. The Company expects that costs in the Corporate segment
in the third quarter of 2017 will be in line with costs in the
first quarter of 2017, reflecting lower professional fees as
compared to the second quarter of 2017. The Company expects
that net income for the third quarter of 2017 will range from $1.0
million to $7.0 million and Adjusted EBITDA1 will range from
$55.0 million to $65.0 million. The Company anticipates that
the factors influencing expectations for the third quarter of 2017
will also impact results in the fourth quarter of 2017. The
Company expects that EBITDA and Adjusted EBITDA margins in the
third quarter of 2017 will be lower than the third quarter of 2016
levels, which were 16.5% and 18.2%, respectively. The Company
will reevaluate whether or not to provide guidance beyond the third
quarter of 2017 prior to reporting results for the third quarter of
2017 and will continue to reevaluate on an ongoing basis. The
decision to provide guidance for the third quarter of 2017 was
based on the significantly lower expectations for the Company for
the third quarter of 2017 and the balance of the year.
Given the lower expectations for the balance of
2017, the Company is reassessing the timetable to achieve the
previously announced target of a 400 basis point increase in income
from operations, EBITDA and Adjusted EBITDA as a percentage of
sales as compared to full-year 2016. While the Company
expects to see the benefit of its initiatives in 2018 and beyond
and believes that there are further opportunities to reduce its
costs and increase margins, the increased market uncertainty, as
reflected in the lower expectations for full year 2017, reduces the
Company's visibility to achieving the previously communicated
margin expansion by 2019.
Asset
Impairment
As of June 30, 2017, the Company determined that the assets and
liabilities associated with its now-sold U.S. concrete and steel
pressure pipe assets met the criteria required to be classified as
held for sale, and therefore are carried at fair value less selling
costs. An analysis indicated that the carrying value of the
long-lived assets held for sale exceeded the fair value less costs
to sell, and as a result, a pre-tax impairment charge of $7.5
million was recorded within impairment and exit charges for the
three and six month periods ended June 30, 2017.
During the second quarter of 2017, the Company
performed interim goodwill impairment testing of the Canadian
concrete and steel pressure pipe reporting unit after identifying
indicators it was more-likely-than-not that the reporting unit's
carrying value was in excess of its fair value. As a result
of the interim impairment testing, the Company determined that the
carrying value of the reporting unit's goodwill was fully impaired
and a goodwill impairment charge of $3.0 million was recorded.
Conference Call and Webcast
Information
Forterra will host a conference call to review second quarter 2017
results on August 10, 2017 at 8:30 a.m. Eastern Time (7:30
a.m. Central Time). The dial-in number for the call is 574-990-1396
or toll free 844-498-0572. The participant passcode is 58439727.
Please dial in at least five minutes prior to the call to register.
The call may also be accessed via a webcast which, along with the
supplemental presentation that will be referenced during the call,
are available on the Investors section of the Company's website
at http://forterrabp.com. A replay of the conference
call and archive of the webcast along with the supplemental
materials will be available for 30 days under the Investor section
of the Company's website.
About
Forterra
Forterra is a leading manufacturer of water and drainage pipe and
products in the U.S. and Eastern Canada for a variety of
water-related infrastructure applications, including water
transmission, distribution, drainage and stormwater management.
Based in Irving, Texas, Forterra's product breadth and significant
scale help make it a one-stop shop for water related pipe and
products, and a preferred supplier to a wide variety of customers,
including contractors, distributors and municipalities. For more
information on Forterra, visit http://forterrabp.com.
Forward-Looking
Statements
This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements may be identified by the use of words
such as "anticipate", "believe", "expect", "estimate", "plan",
"outlook", and "project" and other similar expressions that predict
or indicate future events or trends or that are not statements of
historical matters. Forward-looking statements should not be read
as a guarantee of future performance or results, and will not
necessarily be accurate indications of the times at, or by, which
such performance or results will be achieved. Forward- looking
statements are based on historical information available at the
time the statements are made and are based on management's
reasonable belief or expectations with respect to future events,
and are subject to risks and uncertainties, many of which are
beyond the Company's control, that could cause actual performance
or results to differ materially from the belief or expectations
expressed in or suggested by the forward-looking statements.
Forward-looking statements speak only as of the date on which they
are made and the Company undertakes no obligation to update any
forward-looking statement to reflect future events, developments or
otherwise, except as may be required by applicable law. Investors
are referred to the Company's filings with the Securities and
Exchange Commission, including its Annual Report on Form 10-K, for
additional information regarding the risks and uncertainties that
may cause actual results to differ materially from those expressed
in any forward-looking statement.
1 Adjusted net income, Adjusted EBITDA and
Adjusted EBITDA margin are non-GAAP measures. See the
financial schedules at the end of this press release for how we
define these measures, a discussion of why we believe they are
useful and reconciliation thereof to the most directly comparable
GAAP financial measures.
2 For purposes of evaluating segment profit, the Company's
chief operating decision maker reviews EBITDA as a basis for making
the decisions to allocate resources and assess performance.
Condensed Consolidated Statements of Operations (in thousands) |
|
|
|
|
|
Three months ended |
|
Six months ended |
|
June 30, |
|
June 30, |
|
2017 |
2016 |
|
2017 |
2016 |
|
(unaudited) |
|
(unaudited) |
Net
sales |
$ |
436,685 |
|
$ |
381,723 |
|
|
$ |
774,987 |
|
$ |
568,719 |
|
Cost of
goods sold |
361,089 |
|
298,632 |
|
|
660,424 |
|
449,937 |
|
Gross
profit |
75,596 |
|
83,091 |
|
|
114,563 |
|
118,782 |
|
Selling, general &
administrative expenses |
(67,297 |
) |
(57,060 |
) |
|
(132,598 |
) |
(90,721 |
) |
Impairment and exit
charges |
(11,376 |
) |
(23 |
) |
|
(11,811 |
) |
(23 |
) |
Earnings from equity method
investee |
3,342 |
|
3,565 |
|
|
6,513 |
|
4,868 |
|
Other operating income,
net |
2,010 |
|
2,116 |
|
|
3,243 |
|
3,344 |
|
|
(73,321 |
) |
(51,402 |
) |
|
(134,653 |
) |
(82,532 |
) |
Income
(loss) from operations |
2,275 |
|
31,689 |
|
|
(20,090 |
) |
36,250 |
|
|
|
|
|
|
|
Other
income (expenses) |
|
|
|
|
|
Interest expense |
(17,078 |
) |
(24,839 |
) |
|
(30,620 |
) |
(42,129 |
) |
Other income (expense),
net |
- |
|
(1,177 |
) |
|
- |
|
(1,177 |
) |
Income
(loss) before income taxes |
(14,803 |
) |
5,673 |
|
|
(50,710 |
) |
(7,056 |
) |
Income tax benefit |
3,630 |
|
26,173 |
|
|
16,994 |
|
36,740 |
|
Income
(loss) from continuing operations |
(11,173 |
) |
31,846 |
|
|
(33,716 |
) |
29,684 |
|
|
|
|
|
|
|
Discontinued operations, net of tax |
- |
|
4,843 |
|
|
- |
|
3,069 |
|
|
|
|
|
|
|
Net
income (loss) |
$ |
(11,173 |
) |
$ |
36,689 |
|
|
$ |
(33,716 |
) |
$ |
32,753 |
|
Condensed Consolidated Balance Sheets
(in thousands, except share data) |
|
|
|
|
|
June 30,
2017 |
|
December 31,
2016 |
ASSETS |
(unaudited) |
|
|
Current
assets |
|
|
|
Cash and cash equivalents |
$ |
22,024 |
|
|
$ |
40,024 |
|
Receivables, net |
240,058 |
|
|
201,481 |
|
Inventories |
287,300 |
|
|
279,502 |
|
Prepaid expenses |
7,363 |
|
|
6,417 |
|
Other current assets |
18,885 |
|
|
5,179 |
|
Current assets held for
sale |
77,244 |
|
|
- |
|
Total current assets |
652,874 |
|
|
532,603 |
|
Non-current assets |
|
|
|
Property, plant and equipment,
net |
432,477 |
|
|
452,914 |
|
Goodwill |
508,474 |
|
|
491,447 |
|
Intangible assets, net |
256,362 |
|
|
281,598 |
|
Investment in equity method
investee |
56,499 |
|
|
55,236 |
|
Other long-term assets |
12,072 |
|
|
10,988 |
|
Non-current assets held for
sale |
18,585 |
|
|
- |
|
Total assets |
$ |
1,937,343 |
|
|
$ |
1,824,786 |
|
LIABILITIES AND EQUITY |
|
|
|
Current
liabilities |
|
|
|
Trade payables |
$ |
125,372 |
|
|
$ |
134,059 |
|
Accrued liabilities |
59,293 |
|
|
82,165 |
|
Deferred revenue |
10,329 |
|
|
20,797 |
|
Current portion of long-term
debt |
12,510 |
|
|
10,500 |
|
Current liabilities held for
sale |
21,564 |
|
|
- |
|
Total current liabilities |
229,068 |
|
|
247,521 |
|
Non-current liabilities |
|
|
|
Senior term loan |
1,183,809 |
|
|
990,483 |
|
Revolving credit facility |
76,471 |
|
|
95,064 |
|
Deferred tax liabilities |
87,267 |
|
|
100,550 |
|
Deferred gain on
sale-leaseback |
76,982 |
|
|
78,215 |
|
Other long-term
liabilities |
27,039 |
|
|
23,253 |
|
Long-term TRA Payable |
156,783 |
|
|
156,783 |
|
Total liabilities |
1,837,419 |
|
|
1,691,869 |
|
Commitments and
Contingencies |
|
|
|
Equity |
|
|
|
Common stock, $0.001 par
value, 64,165,557 and 63,924,124, shares issued and outstanding,
respectively and 190,000,000 shares authorized |
18 |
|
|
18 |
|
Additional
paid-in-capital |
229,711 |
|
|
228,316 |
|
Accumulated other
comprehensive loss |
(5,697 |
) |
|
(5,025 |
) |
Retained deficit |
(124,108 |
) |
|
(90,392 |
) |
Total shareholders'
equity |
99,924 |
|
|
132,917 |
|
Total liabilities and
shareholders' equity |
$ |
1,937,343 |
|
|
$ |
1,824,786 |
|
Condensed Consolidated Statements of Cash
Flows
(in thousands) |
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2017 |
|
2016 |
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
(unaudited) |
|
(unaudited) |
Net Income (loss) |
|
$ |
(33,716 |
) |
|
$ |
32,753 |
|
Adjustments to reconcile net loss to net cash used in
operating activities: |
Depreciation &
amortization expense |
|
58,305 |
|
|
40,420 |
|
Loss (gain) on disposal of
property, plant and equipment |
|
1,194 |
|
|
(1,217 |
) |
Amortization of debt discount
and issuance costs |
|
3,994 |
|
|
3,760 |
|
Impairment charges |
|
10,551 |
|
|
- |
|
Earnings from equity method
investee |
|
(6,513 |
) |
|
(4,868 |
) |
Distributions from equity
method investee |
|
5,250 |
|
|
4,500 |
|
Unrealized (gain) loss on
derivative instruments, net |
|
(1,326 |
) |
|
1,026 |
|
Provision (recoveries) for
doubtful accounts |
|
1,398 |
|
|
360 |
|
Deferred taxes |
|
(12,112 |
) |
|
(38,376 |
) |
Deferred rent |
|
1,122 |
|
|
- |
|
Other non-cash items |
|
571 |
|
|
54 |
|
Change in
assets and liabilities: |
|
|
|
|
Receivables, net |
|
(70,062 |
) |
|
(47,321 |
) |
Inventories |
|
(49,458 |
) |
|
6,940 |
|
Other assets |
|
(8,190 |
) |
|
(10,917 |
) |
Accounts payable and accrued
liabilities |
|
(21,031 |
) |
|
(1,841 |
) |
Other assets &
liabilities |
|
(6,021 |
) |
|
8,361 |
|
NET CASH USED IN OPERATING
ACTIVITIES |
|
(126,044 |
) |
|
(6,366 |
) |
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES |
|
|
|
|
Purchase of property, plant
and equipment |
|
(30,024 |
) |
|
(16,340 |
) |
Assets and liabilities
acquired, business combinations, net |
|
(35,380 |
) |
|
(841,861 |
) |
NET CASH USED IN INVESTING
ACTIVITIES |
|
(65,404 |
) |
|
(858,201 |
) |
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
|
Proceeds from
sale-leaseback |
|
- |
|
|
216,280 |
|
Deferred transaction costs on
failed sale-leaseback |
|
- |
|
|
(6,492 |
) |
Payment of debt issuance
costs |
|
(2,498 |
) |
|
(6,896 |
) |
Payments on Senior and Junior
Term Loans |
|
(5,753 |
) |
|
(2,191 |
) |
Proceeds from Senior and
Junior Term Loans, net |
|
200,000 |
|
|
548,400 |
|
Proceeds from Revolver |
|
194,000 |
|
|
106,611 |
|
Payments on Revolver |
|
(213,000 |
) |
|
(55,173 |
) |
Proceeds from settlement of
derivatives |
|
- |
|
|
6,546 |
|
Capital contribution from
parent |
|
- |
|
|
402,127 |
|
Payments for return of
contributed capital |
|
- |
|
|
(347,344 |
) |
Other financing
activities |
|
(110 |
) |
|
- |
|
NET CASH PROVIDED BY FINANCING
ACTIVITIES |
|
172,639 |
|
|
861,868 |
|
Effect of exchange rate
changes on cash |
|
809 |
|
|
926 |
|
Net change in cash and cash
equivalents |
|
(18,000 |
) |
|
(1,773 |
) |
Cash and cash equivalents,
beginning of period |
|
40,024 |
|
|
43,590 |
|
Cash and cash equivalents, end
of period |
|
$ |
22,024 |
|
|
$ |
41,817 |
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES: |
Cash interest paid |
|
26,465 |
|
|
26,915 |
|
Income taxes paid |
|
25,882 |
|
|
- |
|
SUPPLEMENTAL NON-CASH
INVESTING AND FINANCING DISCLOSURES: |
Fair value changes of
derivatives recorded in OCI, net of tax |
|
(1,908 |
) |
|
(1,427 |
) |
Additional Statistics (unaudited)
Reconciliation of Non-GAAP Measures
In addition to our results
calculated under generally accepted accounting principles in the
United States ("GAAP"), in this earnings release we also present
adjusted net income, adjusted EBITDA and adjusted EBITDA margin.
Adjusted net income, adjusted EBITDA and adjusted EBITDA margin are
non-GAAP measures and have been presented in this earnings release
as supplemental measures of financial performance that are not
required by, or presented in accordance with GAAP. We calculate
adjusted net income as net income (loss) after adjusting for
(earnings)/loss from discontinued operations, impairment and
restructuring charges, (gains)/losses on the sale of property,
plant and equipment and certain other income and expenses, such as
transaction costs, and costs associated with disposed sites and
including normalized income tax expense for the adjustments
to net income (loss). We calculate adjusted EBITDA as net
income (loss) before (earnings)/loss from discontinued operations,
interest expense, income tax benefit (expense), depreciation and
amortization and before impairment and restructuring charges,
(gains)/losses on the sale of property, plant and equipment and
certain other income and expenses, such as transaction costs, and
costs associated with disposed sites. Adjusted EBITDA margin
represents adjusted EBITDA as a percentage of net sales.
Adjusted net income, adjusted
EBITDA and adjusted EBITDA margin are presented in this earnings
release because they are important metrics used by management as
one of the means by which it assesses our financial performance.
Adjusted net income, adjusted EBITDA and adjusted EBITDA margin are
also frequently used by analysts, investors and other interested
parties to evaluate companies in our industry. We use
adjusted net income, adjusted EBITDA and adjusted
EBITDA margin as supplements to GAAP measures of performance to
evaluate the effectiveness of our business strategies, to make
budgeting decisions, to allocate resources and to compare our
performance relative to our peers. Adjusted net income, adjusted
EBITDA and adjusted EBITDA margin are also important measures for
assessing our operating results and evaluating each operating
segment's performance on a consistent basis, by excluding the
impacts of depreciation, amortization, income tax expense, interest
expense and other items not indicative of ongoing operating
performance. Additionally, these measures, when used in conjunction
with related GAAP financial measures, provide investors with
additional financial analytical framework which management uses, in
addition to historical operating results, as the basis for
financial, operational and planning decisions and present
measurements that third parties have indicated are useful in
assessing the Company and its results of operations.
Adjusted net income, adjusted
EBITDA and adjusted EBITDA margin have certain limitations.
Adjusted net income and adjusted EBITDA should not be considered as
alternatives to consolidated net income, and in the case of our
segment results, adjusted EBITDA should not be considered an
alternative to EBITDA, which the CODM reviews for purposes of
evaluating segment profit, or in the case of any of the non-GAAP
measures, as a substitute for any other measure of financial
performance calculated in accordance with GAAP. Similarly, adjusted
EBITDA margin should not be considered as an alternative to gross
margin or any other margin calculated in accordance with GAAP.
These measures also should not be construed as an inference that
our future results will be unaffected by unusual or nonrecurring
items for which these non-GAAP measures make adjustments.
Additionally, adjusted net income, adjusted EBITDA and adjusted
EBITDA margin are not intended to be liquidity measures because of
certain limitations such as: (i) they do not reflect our cash
outlays for capital expenditures or future contractual commitments;
(ii) they do not reflect changes in, or cash requirements for,
working capital; (iii) they do not reflect interest expense, or the
cash requirements necessary to service interest, or principal
payments, on indebtedness; (iv) they do not reflect income tax
expense or the tax necessary to pay income taxes; and (v) although
depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in
the future, and these non-GAAP measures do not reflect cash
requirements for such replacements.
Other companies, including other
companies in our industry, may not use such measures or may
calculate one or more of the measures differently than as presented
in this earnings release, limiting their usefulness as a
comparative measure. In evaluating adjusted net income, adjusted
EBITDA and adjusted EBITDA margin, you should be aware that
in the future we will incur expenses that are the same as or
similar to some of the adjustments made in the calculations below
and the presentation of adjusted net income, adjusted EBITDA and
adjusted EBITDA margin should not be construed to mean that our
future results will be unaffected by such adjustments. Management
compensates for these limitations by using adjusted net income,
adjusted EBITDA and adjusted EBITDA margin as supplemental
financial metrics and in conjunction with results prepared in
accordance with GAAP.
Reconciliation of net income (loss) to adjusted net income
(loss)
(in thousands) |
|
|
|
Three months ended June 30, |
|
2017 |
|
2016 |
|
(unaudited) |
|
(unaudited) |
Net income (loss) |
$ |
(11,173 |
) |
|
$ |
36,689 |
|
Loss from discontinued
operations, net |
- |
|
|
(4,843 |
) |
(Gain) loss on sale of
property, plant & equipment, net1 |
420 |
|
|
(368 |
) |
Impairment and exit
charges2 |
11,376 |
|
|
23 |
|
Transaction costs3 |
2,679 |
|
|
7,152 |
|
Inventory step-up impacting
margin4 |
338 |
|
|
11,465 |
|
Costs associated with disposed
sites5 |
- |
|
|
99 |
|
Non-cash compensation7 |
887 |
|
|
- |
|
Tax impact of net income
adjustments8 |
(5,809 |
) |
|
(6,797 |
) |
Adjusted net income
(loss) |
$ |
(1,282 |
) |
|
$ |
43,420 |
|
|
Six months ended June 30, |
|
2017 |
|
2016 |
|
(unaudited) |
|
(unaudited) |
Net income (loss) |
$ |
(33,716 |
) |
|
$ |
32,753 |
|
Loss from discontinued
operations, net |
- |
|
|
(3,069 |
) |
(Gain) loss on sale of
property, plant & equipment, net1 |
1,194 |
|
|
(370 |
) |
Impairment and exit
charges2 |
11,811 |
|
|
23 |
|
Transaction costs3 |
4,738 |
|
|
11,089 |
|
Inventory step-up impacting
margin4 |
1,757 |
|
|
12,515 |
|
Costs associated with disposed
sites5 |
- |
|
|
188 |
|
Other (gains) expenses6 |
(538 |
) |
|
- |
|
Non-cash compensation7 |
1,244 |
|
|
- |
|
Tax impact of net income
adjustments8 |
(7,476 |
) |
|
(8,675 |
) |
Adjusted net income
(loss) |
$ |
(20,986 |
) |
|
$ |
44,454 |
|
1 (Gain) loss on sale of property, plant and
equipment, primarily related to the disposition of manufacturing
facilities.
2 Impairment of goodwill and long-lived assets and other exit
charges.
3 Legal, valuation, accounting, advisory and other costs
related to business combinations and other transactions.
4 Effect of the purchase accounting step-up in the value of
inventory to fair value recognized in cost of goods sold as a
result of business combinations.
5 Results of operations of our disposed roof tile business
and other disposed sites for the periods presented, net of specific
items for which adjustments are separately made elsewhere in the
calculation of adjusted net income (loss) presented
herein.
6 Other (gains) losses, such as gain on insurance proceeds
related to the destruction of property.
7 Non-cash equity based compensation expense.
8 Assumes a normalized tax rate of 37% applied to the
adjustments to net income.
Reconciliation of net income (loss) to Adjusted
EBITDA
(in thousands) |
|
|
|
Three months ended June 30, |
|
2017 |
|
2016 |
|
unaudited |
|
unaudited |
Net income (loss) |
$ |
(11,173 |
) |
|
$ |
36,689 |
|
Loss from discontinued
operations, net |
- |
|
|
(4,843 |
) |
Interest expense |
17,078 |
|
|
24,839 |
|
Depreciation and
amortization |
28,501 |
|
|
25,136 |
|
Income tax benefit |
(3,630 |
) |
|
(26,173 |
) |
EBITDA |
30,776 |
|
|
55,648 |
|
(Gain) loss on sale of
property, plant & equipment, net1 |
420 |
|
|
(368 |
) |
Impairment and exit
charges2 |
11,376 |
|
|
23 |
|
Transaction costs3 |
2,679 |
|
|
7,152 |
|
Inventory step-up impacting
margin4 |
338 |
|
|
11,465 |
|
Costs associated with disposed
sites5 |
- |
|
|
99 |
|
Non-cash compensation6 |
887 |
|
|
- |
|
Adjusted EBITDA |
$ |
46,476 |
|
|
$ |
74,019 |
|
Adjusted EBITDA margin |
10.6 |
% |
|
19.4 |
% |
Gross profit |
75,596 |
|
|
83,091 |
|
Gross profit margin |
17.3 |
% |
|
21.8 |
% |
|
Six months ended June 30, |
|
2017 |
|
2016 |
|
unaudited |
|
unaudited |
Net income (loss) |
$ |
(33,716 |
) |
|
$ |
32,753 |
|
Loss from discontinued
operations, net |
- |
|
|
(3,069 |
) |
Interest expense |
30,620 |
|
|
42,129 |
|
Depreciation and
amortization |
58,305 |
|
|
36,428 |
|
Income tax benefit |
(16,994 |
) |
|
(36,740 |
) |
EBITDA |
38,215 |
|
|
71,501 |
|
(Gain) loss on sale of
property, plant & equipment, net1 |
1,194 |
|
|
(370 |
) |
Impairment and exit
charges2 |
11,811 |
|
|
23 |
|
Transaction costs3 |
4,738 |
|
|
11,089 |
|
Inventory step-up impacting
margin4 |
1,757 |
|
|
12,515 |
|
Costs associated with disposed
sites5 |
- |
|
|
188 |
|
Non-cash compensation6 |
1,244 |
|
|
- |
|
Other (gains) expenses7 |
(538 |
) |
|
- |
|
Adjusted EBITDA |
$ |
58,421 |
|
|
$ |
94,946 |
|
Adjusted EBITDA margin |
7.5 |
% |
|
16.7 |
% |
Gross profit |
114,563 |
|
|
118,782 |
|
Gross profit margin |
14.8 |
% |
|
20.9 |
% |
1 (Gain) loss on sale of property,
plant and equipment, primarily related to the disposition of
manufacturing facilities.
2 Impairment of goodwill and long-lived assets and other
exit charges.
3 Legal, valuation, accounting, advisory and other costs
related to business combinations and other transactions.
4 Effect of the purchase accounting step-up in the value
of inventory to fair value recognized in cost of goods sold as a
result of business combinations.
5 Results of operations of our disposed roof tile
business and other disposed sites for the periods presented, net of
specific items for which adjustments are separately made elsewhere
in the calculation of adjusted EBITDA presented herein.
6 Non-cash equity compensation expense.
7 Other (gains) losses, such as gain on insurance
proceeds related to the destruction of property.
Reconciliation of segment EBITDA to segment Adjusted
EBITDA
(in thousands) |
|
|
|
|
|
|
|
|
Three
months ended June 30, 2017 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA |
$ |
40,079 |
|
|
$ |
17,913 |
|
|
$ |
(27,216 |
) |
|
$ |
30,776 |
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
property, plant & equipment, net1 |
77 |
|
|
293 |
|
|
50 |
|
|
420 |
|
Impairment and exit
charges2 |
(14 |
) |
|
11,390 |
|
|
- |
|
|
11,376 |
|
Transaction costs3 |
- |
|
|
- |
|
|
2,679 |
|
|
2,679 |
|
Inventory step-up impacting
margin4 |
338 |
|
|
- |
|
|
- |
|
|
338 |
|
Non-cash compensation7 |
28 |
|
|
18 |
|
|
841 |
|
|
887 |
|
Adjusted EBITDA |
$ |
40,508 |
|
|
$ |
29,614 |
|
|
$ |
(23,646 |
) |
|
$ |
46,476 |
|
Three
months ended June 30, 2016 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA |
$ |
47,085 |
|
|
$ |
32,464 |
|
|
$ |
(23,901 |
) |
|
$ |
55,648 |
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
property, plant & equipment, net1 |
243 |
|
|
(1,458 |
) |
|
847 |
|
|
(368 |
) |
Impairment and exit
charges2 |
- |
|
|
23 |
|
|
- |
|
|
23 |
|
Transaction costs3 |
- |
|
|
69 |
|
|
7,083 |
|
|
7,152 |
|
Inventory step-up impacting
margin4 |
828 |
|
|
10,637 |
|
|
- |
|
|
11,465 |
|
Costs associated with disposed
sites5 |
99 |
|
|
- |
|
|
- |
|
|
99 |
|
Other (gains) expenses6 |
- |
|
|
- |
|
|
- |
|
|
- |
|
Adjusted EBITDA |
$ |
48,255 |
|
|
$ |
41,735 |
|
|
$ |
(15,971 |
) |
|
$ |
74,019 |
|
Six
months ended June 30, 2017 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA |
$ |
51,490 |
|
|
$ |
35,025 |
|
|
$ |
(48,300 |
) |
|
$ |
38,215 |
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
property, plant & equipment, net1 |
71 |
|
|
1,073 |
|
|
50 |
|
|
1,194 |
|
Impairment and exit
charges2 |
(14 |
) |
|
11,825 |
|
|
- |
|
|
11,811 |
|
Transaction costs3 |
|
|
- |
|
|
4,738 |
|
|
4,738 |
|
Inventory step-up impacting
margin4 |
1,757 |
|
|
- |
|
|
- |
|
|
1,757 |
|
Costs associated with disposed
sites5 |
- |
|
|
- |
|
|
- |
|
|
- |
|
Other (gains) expenses6 |
- |
|
|
(538 |
) |
|
- |
|
|
(538 |
) |
Non-cash compensation7 |
49 |
|
|
37 |
|
|
1,158 |
|
|
1,244 |
|
Adjusted EBITDA |
$ |
53,353 |
|
|
$ |
47,422 |
|
|
$ |
(42,354 |
) |
|
$ |
58,421 |
|
Six
months ended June 30, 2016 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA |
$ |
75,034 |
|
|
$ |
36,617 |
|
|
$ |
(40,150 |
) |
|
$ |
71,501 |
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
property, plant & equipment, net1 |
241 |
|
|
(1,458 |
) |
|
847 |
|
|
(370 |
) |
Impairment and exit
charges2 |
- |
|
|
23 |
|
|
- |
|
|
23 |
|
Transaction costs3 |
- |
|
|
69 |
|
|
11,020 |
|
|
11,089 |
|
Inventory step-up impacting
margin4 |
1,878 |
|
|
10,637 |
|
|
- |
|
|
12,515 |
|
Costs associated with disposed
sites5 |
188 |
|
|
- |
|
|
- |
|
|
188 |
|
Adjusted EBITDA |
$ |
77,341 |
|
|
$ |
45,888 |
|
|
$ |
(28,283 |
) |
|
$ |
94,946 |
|
1 (Gain) loss on sale of property, plant and
equipment, primarily related to the disposition of manufacturing
facilities.
2 Impairment of goodwill and long-lived assets and other
exit charges.
3 Legal, valuation, accounting, advisory and other costs
related to business combinations and other transactions.
4 Effect of the purchase accounting step-up in the value
of inventory to fair value recognized in cost of goods sold as a
result of business combinations.
5 Results of operations of our disposed roof tile
business and other disposed sites for the periods presented, net of
specific items for which adjustments are separately made elsewhere
in the calculation of adjusted EBITDA presented herein.
6 Other (gains) losses, such as gain on insurance
proceeds related to the destruction of property.
7 Non-cash equity compensation expense.
Reconciliation of Net Income to Adjusted EBITDA Guidance
for Q3 2017 (in
millions) |
|
|
|
|
|
Q3
2017 EBITDA Guidance |
|
|
Low |
|
High |
Net income |
|
$ |
1 |
|
|
$ |
7 |
|
Interest expense |
|
16 |
|
|
16 |
|
Income tax expense |
|
7 |
|
|
11 |
|
Depreciation and
amortization |
|
31 |
|
|
31 |
|
Adjusted EBITDA |
|
$ |
55 |
|
|
$ |
65 |
|