- Agreed to Boral Transaction at US$24.25
Per Share
- Revenue Increased 17% to $256
Million
- Operating Income of $19 Million
- Adjusted EBITDA of $42 Million
- Reaffirm 2017 Adjusted EBITDA Guidance
of $235 to $250 Million
(NYSE: HW) HEADWATERS INCORPORATED, a building products
company dedicated to improving lives through innovative
advancements in construction materials, today announced results for
its first quarter of fiscal 2017.
First Quarter 2017 Highlights
- Boral transaction creates substantial
incremental value for Headwaters’ shareholders
- Signed new fly ash agreements with over
500,000 tons of incremental supply
- Roofing sales up 20% and integration of
manufacturing facilities should be completed in the March
quarter
- Building products revenue increased
33%
- Construction materials operating income
margin of 15.5%, and Adjusted EBITDA margin of 20%
- Repaid $15.0 million of our long-term
debt
CEO Commentary
“Headwaters entered into a definitive merger agreement with
Boral Limited (BLD: ASX) pursuant to which Boral will acquire
Headwaters Incorporated for US$24.25 per share in cash,
representing an aggregate enterprise value of approximately US$2.6
billion. We are pleased to create value for our shareholders and
through the combination of businesses create value for our
customers as well,” said Kirk A. Benson, Chairman and Chief
Executive Officer of Headwaters.
“One of our most important objectives for 2017 is to increase
supply of high quality fly ash, and we made meaningful progress
during the December quarter,” continued Mr. Benson. “Many of our
2017 fly ash contract initiatives came to fruition, resulting in an
important expansion of expected supply. We’ve executed four new
contracts and also executed an amendment to one of our supply
agreements that substantially extended its term. This is a
testament to the quality and expertise of our fly ash team and the
strong relationships we have with our suppliers.
“We now expect our sales from net new fly ash sources to exceed
500,000 tons in 2017. In addition, increases to our fly ash storage
capacity are ahead of schedule and should exceed our forecast, all
of which should contribute to a strong year for our Construction
Materials segment.
“Adjusted EBITDA in our Building Products segment increased by
20% year-over-year. We experienced solid margin expansion in our
stone product group and margin accretion from the addition of
windows to our Building Products segment. Roofing products
delivered 20% revenue growth, and we anticipate margin expansion as
we complete the integration of our stone-coated manufacturing
facilities in the March quarter.
First Quarter Summary
Headwaters’ first quarter 2017 consolidated revenue increased by
17% to $255.6 million from $218.4 million for the first quarter of
2016. Gross profit was $70.6 million, compared to $64.3 million in
2016, and operating income was $19.3 million, compared to $24.8
million in 2016. Certain non-routine merger and acquisition-related
costs, primarily related to the Boral transaction, impacted
operating income in 2017. Adjusted EBITDA increased by $1.7 million
to $41.9 million, or 4% over 2016.
Income from continuing operations was $6.7 million, or $0.09 per
diluted share, for the first quarter of 2017, compared to $12.9
million, or $0.17 per diluted share, for the first quarter of 2016.
First quarter adjusted income from continuing operations was $13.1
million, or $0.17 per diluted share in 2017, compared to $16.2
million, or $0.21 per diluted share in 2016. Discontinued
operations were immaterial in both 2017 and 2016.
Although total precipitation in the southern United States
during the first quarter of 2017 was less than in the prior year,
the actual number of business days with rain increased
significantly year-over-year, leading to interruptions in
construction activities in the Southeast, and Texas specifically.
The increase in rain days negatively impacted revenue for our
activities with Southeast exposure, including windows, block, and
ash. However, underlying demand remains strong and we anticipate
overall growth during the 2017 construction season.
Building Products Segment
Headwaters’ Building Products segment is a national brand leader
in innovative building products through superior design,
manufacturing, and channel distribution. The segment markets a wide
variety of niche building products, including siding accessories,
manufactured architectural stone, specialty roofing products, and
windows.
Building Products revenue increased 33%, from $101.6 million in
the first quarter of 2016 to $135.0 million in the first quarter of
2017. Gross profit was $38.5 million compared to $32.0 million in
2016 and operating income was $11.4 million compared to $11.7
million in 2016. Adjusted EBITDA increased 20% to $25.1 million,
from $20.9 million in 2016.
We completed our first full quarter with the Krestmark window
acquisition in our Building Products segment, and as we
anticipated, its Adjusted EBITDA margins were accretive to
Headwaters. Consistent with our strategy to expand window sales
from Texas, west to Phoenix and east to Atlanta, we successfully
grew our window sales in Phoenix. In January, we closed a small
window acquisition in the Atlanta market. We expect this
acquisition to be accretive to both revenue and Adjusted EBITDA in
the March quarter and to increase annual window revenue by
approximately $20 million. We are now well positioned in the
thriving new residential construction markets in the southern half
of the United States, and look forward to the continued execution
of our growth strategy.
Roofing revenue increased by 20% during the quarter. However, we
experienced inefficiencies while consolidating our stone-coated
manufacturing facilities, but we expect to complete the integration
during the March quarter and benefit from margin expansion. The
combination of top line growth and margin expansion should result
in superior roofing performance in the second half of the fiscal
year.
While we have experienced an increase in resin material costs,
including PVC and polypropylene, we believe in the second half of
the fiscal year we will be able to pass through these increased
costs and mitigate any impact on margins. Accordingly, we are
pleased with the 20% increase in Building Products Adjusted EBITDA
year-over-year, despite weather impact, roofing manufacturing
inefficiencies, and increased raw material and other costs. The
combination of passing through costs, improvement in roofing
margins, and continued revenue growth positions us well for the
2017 construction season.
Construction Materials Segment
Headwaters is the largest domestic manager and marketer of coal
combustion products (CCPs), including fly ash. Utilization of these
materials improves performance of concrete and concrete
construction products while creating significant environmental
benefits. Beginning this quarter, we are now reporting our concrete
block group in the construction materials segment. Prior period
results have also been adjusted to reflect this reporting change in
order to have a consistent presentation.
First quarter 2017 revenue increased by 3% to $120.0 million,
compared to $116.2 million in 2016. The increase in revenue was
primarily attributable to a 30% increase in service revenue, a
portion of which was related to the acquisition of SynMat, but also
included an increase in traditional utility service work. Including
SynMat, service revenue represented approximately 20% of total
segment revenue for the first quarter of 2017 compared to 15% for
the same period in 2016.
Gross profit was $31.7 million in 2017, compared to $32.0
million in 2016 and operating income was $18.6 million in 2017,
compared to $20.4 million in 2016. Adjusted EBITDA decreased $0.9
million from $24.9 million in 2016 to $24.0 million in 2017.
Revenue and Adjusted EBITDA in the 2017 quarter were negatively
impacted by rainfall in Texas, as well as normalization of winter
weather conditions in the North Central U.S. relative to milder
weather conditions last year. An increase in service revenue and
the inclusion of the block group into the segment contribute to
slightly lower Adjusted EBITDA margins.
Although block was impacted by the number of rain days in the
Texas market, we finished the quarter with a record backlog because
shipments to a number of large school projects were delayed. We
completed the installation of our “big board” block manufacturing
machine, expanding our capacity and improving efficiency. As
shipments to large school projects begin to reduce our backlog, we
anticipate revenue growth and margin expansion.
In 2017, we initially forecast between 200,000 and 300,000 tons
of net fly ash sales from new supply contracts. We have executed
four new contracts and now expect our sales from net new fly ash
sources to exceed 500,000 tons in 2017. We’ve also executed a
service contract to assist a utility at two different sites to
convert its wet disposal systems to dry systems, which should
generate an increase in service revenue in 2017 and result in a
significant increase in fly ash tons available for marketing in
2018.
We also anticipated 150,000 to 250,000 tons of new fly ash from
storage and reclamation. Construction on our first 2017 storage
project is nearing completion and we currently expect it to receive
ash by the end of the March quarter. In addition, we have been able
to secure incremental storage totaling over 60,000 tons that wasn’t
in our original forecast, bringing our 2017 new storage capability
to 140,000 tons, and total storage to over 600,000 tons. We are
also in negotiations for additional new storage to be located in
New England.
We have ordered the equipment for our first reclamation site and
our team is mobilizing to begin the preparation work for
installation of the equipment. We anticipate that our first fly ash
tons from reclamation will be available for sale in the second half
of fiscal 2017, and should produce between 50,000 and 100,000 tons
of marketable ash annually when fully operational. We are also
doing detailed due diligence on two additional reclamation
sites.
We initially forecasted between 100,000 and 200,000 tons of
additional supply resulting from enhanced utilization. As the value
of fly ash increases, it is economically feasible to deploy
technology to enhance quality and increase utilization. We are
currently installing, or planning to install, our RestoreAir
technology at five to six sites for 2017, and may expand this to
additional sites as needed. We expect to treat over 250,000 tons of
fly ash at these sites. We also plan to convert 100,000 tons of ash
from a low value use to high value replacement of portland
cement.
Outlook
“Underlying demand for our product set continues to be strong
and we are therefore re-affirming our 2017 forecasted Adjusted
EBITDA range of $235 million to $250 million, resulting in growth
of between 24% to 32%,” said Don P. Newman, Headwaters’ Chief
Financial Officer.
“At December 31, our pro forma net debt to Adjusted EBITDA ratio
was 3.1 times, and we expect our net debt ratio to be in the range
of 2.5 times by the end of fiscal 2017. Consistent with our plan to
reduce our gross debt by approximately $100 million in 2017, we
repaid $15.0 million of principal in the December quarter.
“On February 3, we anticipate holding a special stockholder
meeting to allow our stockholders to vote on the proposed merger
with Boral Limited. The meeting will convene at 2:00 p.m. Mountain
Time at Headwaters’ corporate offices in South Jordan, Utah. In
light of the proposed merger transaction, we will not be holding a
quarterly earnings call in conjunction with today’s release.”
Financial Supplement Attached
Headwaters’ condensed consolidated statements of income for the
quarters ended December 31, 2015 and 2016 and balance sheets as of
September 30, 2016 and December 31, 2016, all presented in
accordance with generally accepted accounting principles (GAAP),
are attached to this press release in the financial supplement. In
addition, Headwaters currently uses two non-GAAP financial
measures: Adjusted EBITDA and Adjusted EPS. Headwaters’
calculations of Adjusted EBITDA, trailing twelve months (TTM)
Adjusted EBITDA and Adjusted EPS are also included in the financial
supplement, following the condensed GAAP financial statements.
Headwaters defines Adjusted EBITDA as income from continuing
operations plus net interest expense, income taxes, depreciation
and amortization, equity-based compensation, cash-based
compensation tied to stock price, goodwill and other impairments,
and other non-routine adjustments that arise from time to time, all
as presented in the table in the financial supplement. Headwaters
currently defines Adjusted EPS as diluted EPS from continuing
operations plus the effect of amortization expense related to
acquired intangible assets and other non-routine adjustments that
arise from time to time, as presented in the table in the financial
supplement.
Adjusted EBITDA and Adjusted EPS are used by management,
investors and analysts to measure operating performance, as a
supplement to our consolidated financial statements presented in
accordance with GAAP. Adjusted EBITDA is also used by management,
investors and analysts as one measure of a company’s ability to
service its debt and meet its other cash needs. Our presentations
of Adjusted EBITDA and Adjusted EPS have limitations as analytical
tools, and should not be considered in isolation, or as substitutes
for analysis of our results as reported under GAAP. Accordingly,
they are not presented as alternative measures of liquidity.
Because the definitions of Adjusted EBITDA and Adjusted EPS vary
among companies and industries, our definitions of these non-GAAP
financial measures may not be comparable to similarly-titled
measures used by other companies.
About Headwaters Incorporated
Headwaters Incorporated is improving lives through innovative
advancements in construction materials through application, design,
and purpose. Headwaters is a diversified growth company providing
products, technologies and services to the construction materials
and building products markets. Through its construction materials
and building products businesses, the Company has been able to
improve sustainability by transforming underutilized resources into
valuable products. www.headwaters.com.
CAUTIONARY STATEMENTS RELEVANT TO
FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This press release contains forward-looking statements relating
to Headwaters’ operations that are based on management’s current
expectations, estimates and projections about the industries in
which Headwaters operates. Words such as “may,” “should,”
“anticipates,” “expects,” “intends,” “plans,” “targets,”
“forecasts,” “projects,” “believes,” “seeks,” “schedules,”
“estimates,” “budgets,” “goals,” “outlook” and similar expressions
are intended to help identify such forward-looking statements.
Forward-looking statements include Headwaters’ expectations as to
the agreement and plan of merger with Boral Limited, the managing
and marketing of coal combustion products, and other construction
materials, the production and marketing of building products, the
sales to oil refineries of residue hydrocracking catalysts, the
development, commercialization, and financing of new products and
other strategic business opportunities and acquisitions, and other
information about Headwaters which are not purely historical by
nature, including those statements regarding Headwaters’ future
business plans, the operation of facilities, the availability of
feedstocks, and the marketability of coal combustion products,
construction materials, building products and catalysts. These
statements are not guarantees of future performance and are subject
to certain risks, uncertainties and other factors, many of which
are beyond the Company’s control and are difficult to predict.
Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements.
The reader should not place undue reliance on these forward-looking
statements, which speak only as of the date of this press release.
Unless legally required, Headwaters undertakes no obligation to
update publicly any forward-looking statements, whether as a result
of new information, future events or otherwise. Among the important
factors that could cause actual results to differ materially from
those in the forward-looking statements are: changing feedstock and
energy prices; actions of competitors or regulators; technological
developments; potential disruption of the Company’s production
facilities, transportation networks and information technology
systems due to war, terrorism, malicious attack, civil accidents,
political events, civil unrest or severe weather; potential
environmental liability or product liability under existing or
future laws and litigation; potential liability resulting from
other pending or future litigation; changed accounting rules under
generally accepted accounting principles promulgated by
rule-setting bodies; and the factors set forth under the heading
“Risk Factors” in the Company’s Annual Report on Form 10-K,
quarterly reports on Form 10-Q and other periodic reports. In
addition, such results could be affected by general domestic and
international economic and political conditions and other
unpredictable or unknown factors not discussed in this press
release which could have material adverse effects on
forward-looking statements.
HEADWATERS INCORPORATED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (Unaudited) (in thousands, except
per-share amounts)
Quarter Ended December 31,
2015 2016 Revenue: Building products $
101,595 $ 135,041 Construction materials 116,248 119,991 Energy
technology 575 543
Total revenue
218,418 255,575 Cost of revenue:
Building products 69,552 96,529 Construction materials 84,277
88,264 Energy technology 318 163
Total cost of revenue 154,147 184,956
Gross profit 64,271 70,619
Operating expenses: Selling, general and administrative
34,882 44,981 Amortization 4,566 6,298
Total operating expenses 39,448 51,279
Operating income 24,823 19,340
Net interest expense (8,217 ) (8,919 ) Other income (expense), net
(69 ) 154
Income from continuing operations before
income taxes 16,537 10,575 Income tax
provision (3,600 ) (3,900 )
Income from continuing
operations 12,937 6,675 Income (loss) from
discontinued operations, net of income taxes (216 ) 153
Net income 12,721 6,828 Net
income attributable to non-controlling interest (296 ) (161 )
Net income attributable to Headwaters
Incorporated $ 12,425 $
6,667 Basic and diluted income per
share attributable to Headwaters Incorporated: From
continuing operations $ 0.17 $ 0.09 From discontinued operations
0.00 0.00
$ 0.17
$ 0.09 Weighted average shares
outstanding: Basic 73,789 74,237
Diluted 75,365 75,672
Operating income (loss) by segment: Building products $
11,675 $ 11,400 Construction materials 20,363 18,598 Energy
technology (1,721 ) (1,813 ) Corporate (5,494 )
(8,845 )
Total $ 24,823 $
19,340 HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in
thousands)
September 30, December
31, Assets: 2016 2016 Current
assets: Cash and cash equivalents $ 65,298 $ 70,858 Trade
receivables, net 152,084 118,272 Inventories 72,668 80,466 Other
14,704 14,729
Total current
assets 304,754 284,325 Property, plant and
equipment, net 206,792 212,639 Goodwill 290,503 296,207 Intangible
assets, net 319,162 309,614 Deferred income taxes 68,059 69,367
Other assets 49,173 48,043
Total assets
$ 1,238,443 $ 1,220,195
Liabilities and Stockholders' Equity: Current
liabilities: Accounts payable $ 30,211 $ 25,992 Accrued
liabilities 109,151 93,069 Current portion of long-term debt
7,785 0
Total current liabilities
147,147 119,061 Long-term debt, net 746,716
740,402 Other long-term liabilities 41,230
44,514
Total liabilities 935,093
903,977 Redeemable non-controlling
interest in consolidated subsidiary 13,363 13,524
Stockholders' equity: Common stock - par value 74 75
Capital in excess of par value 733,117 739,156 Retained earnings
(accumulated deficit) (441,793 ) (435,126 ) Treasury stock
(1,411 ) (1,411 )
Total stockholders' equity
289,987 302,694 Total liabilities
and stockholders' equity $ 1,238,443
$ 1,220,195 HEADWATERS
INCORPORATED Reconciliations of Non-GAAP Financial Measures
(Unaudited) (in millions, except per-share amounts)
Reconciliation of Income from Continuing Operations
to Quarter Ended December 31, Adjusted
EDITDA 2015 2016
Income from continuing operations (GAAP)
$ 12.9 $ 6.7 Non-controlling interest
of subsidiary (0.3 ) (0.1 ) Net interest expense 8.2 8.9 Income
taxes 3.6 3.9 Depreciation, amortization, and equity-based
compensation 14.4 18.2 Non-routine customer and business
acquisition-related costs and adjustments 0.9 3.8 Consolidation of
acquired businesses 0.5 0.5
Adjusted
EBITDA $ 40.2 $ 41.9
Segment Adjusted EBITDA Building Products $
20.9 $ 25.1 Construction materials 24.9 24.0 Energy technology (1.3
) (1.6 ) Corporate (4.3 ) (5.6 )
Adjusted
EBITDA $ 40.2 $ 41.9
Twelve Months Ended TTM Adjusted
EBITDA Reconciliation 9/30/2015 9/30/2016
12/31/2016 Income from continuing operations
(GAAP) $ 132.1 $ 49.6 $
43.4 Non-controlling interest of subsidiary (0.9 ) (1.7 )
(1.5 ) Net interest expense 64.2 42.5 43.2 Income taxes (94.5 )
22.8 23.1 Depreciation, amortization, and equity-based compensation
56.2 65.1 68.9 Non-routine customer and business
acquisition-related costs and adjustments 1.8 1.3 4.2 Consolidation
of acquired businesses - 7.8 7.8 Asset impairments, write-offs and
other non-routine items 0.6 2.2 2.2 Cash-based compensation tied to
stock price 6.1 - -
TTM Adjusted EBITDA $ 165.6 $
189.6 $ 191.3 Segment
TTM Adjusted EBITDA Building Products $ 86.2 $ 101.1 $
105.3 Construction materials 96.2 110.7 109.8 Energy technology 2.2
(1.1 ) (1.4 ) Corporate (25.1 ) (21.1 ) (22.4 ) Cash-based
compensation tied to stock price 6.1 -
-
TTM Adjusted EBITDA $ 165.6
$ 189.6 $ 191.3
Reconciliation of Diluted EPS from Continuing
Operations to Quarter Ended December 31, Adjusted
EPS 2015 2016 Reported numerator
for diluted earnings per share from continuing operations in
accordance with GAAP - income from continuing operations
attributable to Headwaters Incorporated $
12.6 $ 6.6 Adjustments to numerator:
Amortization expense related to acquired intangible assets 4.5 6.2
Non-routine customer and business acquisition-related costs and
adjustments 0.9 3.8 Consolidation of acquired businesses 0.5 0.5
Non-routine interest expense related to early debt repayments,
repricings, new debt issuances - 0.2 Income tax effect of above
pretax adjustments (2.3 ) (4.2 ) Total adjustments to income from
continuing operations, net of income tax effect 3.6
6.5
Numerator for adjusted diluted earnings per share from
continuing operations $ 16.2
$ 13.1 Reported denominator for
diluted earnings per share in accordance with GAAP and for adjusted
earnings per share 75.4 75.7
Reported diluted income per share from continuing
operations (GAAP) $ 0.17 $ 0.09
Effect of adjustments on diluted income per share calculation 0.04
0.08
Adjusted diluted income per share from continuing
operations (Adjusted EPS) $ 0.21
$ 0.17
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170131005324/en/
AT THE COMPANY:HeadwatersSharon Madden, 801-984-9400Vice
President of Investor RelationsorANALYST CONTACT:Financial
ProfilesTricia Ross, 310-622-8226
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