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 ResultsSecond 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 EBITDA1
decreased 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 AssetsThe 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 LiquidityAt 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 OutlookThe 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 ImpairmentAs 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 InformationForterra
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 ForterraForterra 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 StatementsThis 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 |
|
Company Contact Information:
Matt Brown
Executive Vice President and Chief Financial Officer
469-299-9113
IR@forterrabp.com
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