- Revenue Increased 28% to $259
Million
- Operating Income increased 20% to $15
Million
- Adjusted EBITDA increased 62% to $47
Million
- Reaffirm 2017 Adjusted EBITDA Guidance
of $235 to $250 Million
HEADWATERS INCORPORATED (NYSE: HW), a building products
company dedicated to improving lives through innovative
advancements in construction materials, today announced results for
its second quarter of fiscal 2017.
Second Quarter 2017 Highlights
- Building products revenue increased 43%
and operating income increased 79%, compared to the March 2016
quarter
- Building products Adjusted EBITDA
increased 74% over 2016 and Adjusted EBITDA margin increased 360
basis points to 20.2%
- Construction materials revenue
increased 13% and operating income increased 11%, compared to the
March 2016 quarter
- Construction materials Adjusted EBITDA
increased 16% over 2016 and Adjusted EBITDA margin increased 50
basis points to 18.3%
CEO Commentary
“Headwaters grew Adjusted EBITDA by $18 million or 62% in the
quarter, a growth rate that exceeds the upper end of our 2017
guidance and brings our fiscal year-to-date Adjusted EBITDA growth
rate up to 28%. Our strong performance allows us to confirm our
Adjusted EBITDA guidance range of $235 to $250 million for 2017,”
said Kirk A. Benson, Chairman and Chief Executive Officer of
Headwaters. “We are continuing to work toward the closing of our
previously announced transaction with Boral Limited (BLD:ASX), and
we are pleased that we are on track to deliver strong earnings
potential to Boral.
“Increasing supply of high quality fly ash was one of our 2017
objectives, and we experienced a year-over-year increase of 112,000
tons of high quality ash delivered to customers during the quarter.
It is exciting to see our supply increase to meet the demand for
ash,” continued Mr. Benson. “We opened our new state-of-the-art
storage facility in Houston and made progress in several other 2017
initiatives as we continue to focus on increasing fly ash
supply.
“Adjusted EBITDA in our Building Products segment increased by
74% year-over-year. Window’s margins continue to be accretive, and
we completed a small acquisition in Atlanta, further expanding
window sales in the Southeast United States. We experienced a very
positive quarter in our siding group with double digit top-line
growth and margin accretion compared to last year.”
Second Quarter Summary
Headwaters’ second quarter 2017 consolidated revenue increased
by 28% to $259.3 million from $202.3 million for the second quarter
of 2016. Gross profit was $70.5 million, compared to $54.9 million
in 2016, and operating income was $14.7 million, compared to $12.2
million in 2016. Certain non-routine merger and acquisition-related
costs of approximately $9.1 million, primarily related to the Boral
transaction, impacted operating income in 2017. Adjusted EBITDA
increased by $18.0 million to $47.1 million, or 62% over 2016.
Income from continuing operations was $5.1 million, or $0.06 per
diluted share, for the second quarter of 2017, compared to $2.6
million, or $0.03 per diluted share, for the second quarter of
2016. Second quarter adjusted income from continuing operations was
$16.1 million, or $0.21 per diluted share in 2017, compared to $6.7
million, or $0.09 per diluted share in 2016. Discontinued
operations were immaterial in both 2017 and 2016.
Six Months Ended March 31, 2017
Our total revenue for the six months ended March 31, 2017 was
$514.9 million, up 22% from $420.8 million for 2016. Gross profit
increased 18%, from $119.1 million in 2016 to $141.1 million in
2017. Operating income of $37.0 million in 2016 decreased to $34.0
million in 2017, and income from continuing operations of $15.5
million, or diluted income per share of $0.20, decreased to $11.8
million, or $0.15 per diluted share, in 2017. The 2017 results
include non-routine merger and acquisition-related costs of
approximately $13.5 million, primarily related to the Boral
transaction. Discontinued operations were immaterial in both 2017
and 2016.
Adjusted EBITDA increased by $19.7 million or 28%, from $69.3
million to $89.0 million for the six months ended March 31, 2017,
as compared to 2016, and Adjusted EPS increased by 30%, from $0.30
in 2016 to $0.39 in 2017.
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 43%, from $98.1 million in
the second quarter of 2016 to $140.7 million in the second quarter
of 2017. Gross profit was $40.9 million compared to $28.5 million
in 2016 and operating income was $11.4 million compared to $6.3
million in 2016. Adjusted EBITDA increased 74% to $28.4 million,
from $16.3 million in 2016, with a large portion of the growth due
to our windows product group which we acquired in late fiscal 2016.
In January, we closed a small window acquisition in the Atlanta
market, which will further expand our presence in the Southeast
United States.
We are finishing the integration of our Metro and Gerard
stone-coated metal roofing manufacturing sites and have experienced
a 30% increase in manufacturing efficiency since the beginning of
the fiscal year. We anticipate continued improvement in roofing
performance in the second half of the fiscal year as we reduce
fixed costs and optimize manufacturing. Siding revenue increased by
19% during the March 2017 quarter and Adjusted EBITDA margins
expanded over 500 basis points to 20% despite cost pressures from
rising resin and other costs. Stone continued its growth in the
quarter with Adjusted EBITDA margins greater than 20%. Our building
products segment completed the quarter with its highest Adjusted
EBITDA margin for a March quarter since 2006.
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 last quarter, we have reported our concrete
block group in the construction materials segment. Prior period
results have been adjusted to reflect this reporting change.
Second quarter 2017 revenue increased by 13% to $116.0 million,
compared to $102.8 million in 2016. The increase in revenue was
attributable to organic growth as well as the acquisition of SynMat
in March 2016. SynMat had a very positive quarter, growing its
top-line revenue over 30% year-over-year, and we continue to be
optimistic concerning synthetic gypsum opportunities. Including
SynMat, service revenue represented approximately 21% of total
segment revenue for the second quarter of 2017, compared to 17% for
2016.
Gross profit was $28.1 million in 2017, compared to $25.5
million in 2016 and operating income was $15.2 million in 2017,
compared to $13.7 million in 2016. Adjusted EBITDA increased $3.0
million from $18.3 million in 2016 to $21.3 million in 2017.
We forecasted between 200,000 and 300,000 tons of net fly ash
sales in fiscal 2017 from new supply contracts. For the first six
months of the fiscal year we shipped over 170,000 tons of high
quality fly ash from four previously executed new contracts.
We also anticipated 150,000 to 250,000 tons of new fly ash in
fiscal 2017 from storage and reclamation. Construction on our first
2017 storage project was completed in the second quarter and we
have commenced shipping tons from that facility. Negotiations are
advancing on our second new storage facility, which will be located
in New England. Minor modifications were made to our first
reclamation project which slowed mobilization of equipment, but we
continue to believe that the site will be operational this fiscal
year.
We forecasted between 100,000 and 200,000 tons of additional fly
ash supply in fiscal 2017 resulting from enhanced utilization.
Through the first six months of the fiscal year we have achieved a
total of 115,000 tons of high quality ash from enhanced utilization
activities. We are currently installing or planning to install our
RestoreAir technology at six sites in fiscal 2017. We expect to
treat over 250,000 tons of fly ash at those sites when the
technology is fully operational.
Our block product group is experiencing strong demand, but
shipments were hampered in the second quarter by the number of rain
days in the Texas market, slowing construction projects. As the
weather improved, shipping volumes increased and inventory levels
were reduced. Our new block plant is fully operational and helping
to improve overall margins in the block group through efficient
manufacturing of more sophisticated high end products.
Outlook
“We are pleased with the March quarter’s financial performance
and see potential for a strong second half of fiscal 2017,” said
Don P. Newman, Headwaters’ Chief Financial Officer. “We have
significantly improved our fly ash supply situation through new
contracts and storage capacity, which should add to sales as we
move into the summer construction season. In addition, our building
products segment experienced strong revenue and Adjusted EBITDA
growth in the March quarter, which is typically our lowest seasonal
quarter for sales and profitability.
“At the end of March, 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. We anticipate cash
flows to be strong in the second half of the year and should
position us to reduce debt by an additional $85 million before the
end of the calendar year.”
Financial Supplement Attached
Headwaters’ condensed consolidated statements of income for the
quarters and six-month periods ended March 31, 2016 and 2017 and
balance sheets as of September 30, 2016 and March 31, 2017,
prepared 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 consolidated 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, without limitation, Headwaters’
expectations as to the agreement and plan of merger with Boral
Limited (“Boral”), 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; 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; and risks and
considerations relating to the pending Boral transaction, including
that: conditions to the closing of the transaction with Boral may
not be satisfied and the merger may not be consummated, the
transaction with Boral may involve unexpected costs, liabilities or
delays, the business of the Company may suffer as a result of
uncertainty surrounding the transaction with Boral, an event,
change or other circumstance could give rise to the termination of
the transaction with Boral, the parties may not be able to
recognize the benefits of the transaction, the transaction may
disrupt current plans and operations and it may be difficult to
retain employees as a result of the transaction. 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
Six Months Ended March 31,
March 31, 2016 2017
2016 2017 Revenue:
Building products $ 98,101 $ 140,716 $ 199,696 $ 275,757
Construction materials 102,849 116,037 219,097 236,028 Energy
technology 1,382 2,540 1,957
3,083
Total revenue 202,332
259,293 420,750 514,868 Cost of
revenue: Building products 69,639 99,782 139,191 196,311
Construction materials 77,347 87,948 161,624 176,212 Energy
technology 469 1,056 787
1,219
Total cost of revenue
147,455 188,786
301,602 373,742 Gross
profit 54,877 70,507 119,148
141,126 Operating expenses: Selling, general
and administrative 37,882 49,394 72,764 94,375 Amortization
4,815 6,438 9,381 12,736
Total operating expenses 42,697
55,832 82,145
107,111 Operating income 12,180
14,675 37,003 34,015 Net interest
expense (8,056 ) (8,222 ) (16,273 ) (17,141 ) Other income
(expense), net (12 ) 1,973 (81 )
2,127
Income from continuing operations before income
taxes 4,112 8,426 20,649 19,001
Income tax provision (1,500 ) (3,300 )
(5,100 ) (7,200 )
Income from continuing operations
2,612 5,126 15,549 11,801 Income
(loss) from discontinued operations, net of income taxes
(228 ) 6 (444 ) 159
Net
income 2,384 5,132 15,105 11,960
Net income attributable to non-controlling interest
(283 ) (591 ) (579 ) (752 )
Net income
attributable to Headwaters Incorporated $ 2,101
$ 4,541 $ 14,526
$ 11,208
Diluted income (loss) per share
attributable to Headwaters Incorporated:
From continuing operations $ 0.03 $ 0.06 $ 0.20 $ 0.15 From
discontinued operations 0.00 0.00
(0.01 ) 0.00
$ 0.03
$ 0.06 $ 0.19 $
0.15 Diluted weighted average shares
outstanding 75,341 75,982
75,353 75,827
Operating
income (loss) by segment: Building products $ 6,344 $ 11,383 $
18,018 $ 22,783 Construction materials 13,691 15,195 34,055 33,793
Energy technology (1,163 ) (1,489 ) (2,884 ) (3,302 ) Corporate
(6,692 ) (10,414 ) (12,186 ) (19,259 )
Total $ 12,180 $ 14,675
$ 37,003 $ 34,015
HEADWATERS INCORPORATED CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands)
September 30,
March 31, Assets: 2016 2017 Current
assets: Cash and cash equivalents $ 65,298 $ 58,128 Trade
receivables, net 152,084 133,725 Inventories 72,668 89,997 Other
14,704 12,757
Total current
assets 304,754 294,607 Property, plant and
equipment, net 206,792 218,399 Goodwill 290,503 300,265 Intangible
assets, net 319,162 306,304 Deferred income taxes 68,059 66,532
Other assets 49,173 43,530
Total
assets $ 1,238,443 $
1,229,637 Liabilities and Stockholders'
Equity: Current liabilities: Accounts payable $ 30,211 $
28,159 Accrued liabilities 109,151 94,470 Current portion of
long-term debt 7,785 0
Total current
liabilities 147,147 122,629 Long-term
debt, net 746,716 741,048 Other long-term liabilities 41,230
44,498
Total liabilities
935,093 908,175
Redeemable non-controlling interest in consolidated
subsidiary 13,363 13,458 Stockholders'
equity: Common stock - par value 74 75 Capital in excess of par
value 733,117 739,905 Retained earnings (accumulated deficit)
(441,793 ) (430,585 ) Treasury stock (1,411 ) (1,391
)
Total stockholders' equity 289,987 308,004
Total liabilities and stockholders' equity
$ 1,238,443 $ 1,229,637
HEADWATERS INCORPORATED Reconciliations of
Non-GAAP Financial Measures (Unaudited) (in millions, except
per-share amounts)
Quarter
Ended Six Months Ended March
31, March 31,
2016 2017 2016
2017
Reconciliation of Income from
Continuing Operations to Adjusted EDITDA
Income from continuing operations (GAAP) $
2.6 $ 5.1 $ 15.5 $
11.8 Non-controlling interest of subsidiary (0.3 ) (0.6 )
(0.6 ) (0.7 ) Net interest expense 8.1 8.2 16.3 17.1 Income taxes
1.5 3.3 5.1 7.2 Depreciation, amortization, and equity-based
compensation 14.8 18.6 29.2 36.8
Non-routine customer and business
acquisition-related costs and adjustments
0.7 2.2 1.6 3.8 Consolidation of acquired businesses 1.7 - 2.2 0.5
Boral merger-related costs - 8.0 - 10.2 Energy segment losses
- 2.3 - 2.3
Adjusted EBITDA $ 29.1 $
47.1 $ 69.3 $ 89.0
Segment Adjusted EBITDA Building
Products $ 16.3 $ 28.4 $ 37.2 $ 53.5 Construction materials 18.3
21.3 43.2 45.3 Energy technology (0.8 ) 1.6 (2.1 ) - Corporate
(4.7 ) (4.2 ) (9.0 ) (9.8 )
Adjusted
EBITDA $ 29.1 $ 47.1
$ 69.3 $ 89.0
Twelve Months Ended
9/30/2015 9/30/2016 3/31/2017
TTM Adjusted EBITDA
Reconciliation
Income from continuing operations (GAAP) $
132.1 $ 49.6 $ 45.9
Non-controlling interest of subsidiary (0.9 ) (1.7 ) (1.8 ) Net
interest expense 64.2 42.5 43.3 Income taxes (94.5 ) 22.8 24.9
Depreciation, amortization, and equity-based compensation 56.2 65.1
72.7
Non-routine customer and business
acquisition-related costs and adjustments
1.8 1.3 3.5 Consolidation of acquired businesses - 7.8 6.1 Boral
merger-related costs - - 10.2 Energy segment losses - - 2.3 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 $
209.3 Segment TTM Adjusted EBITDA
Building Products $ 86.2 $ 101.1 $ 117.5 Construction
materials 96.2 110.7 112.7 Energy technology 2.2 (1.1 ) 1.0
Corporate (25.1 ) (21.1 ) (21.9 ) Cash-based compensation tied to
stock price 6.1 - -
TTM Adjusted EBITDA $ 165.6 $
189.6 $ 209.3
Quarter Ended Six Months Ended March 31,
March 31,
2016 2017 2016 2017
Reconciliation of Diluted EPS from
Continuing Operations to Adjusted EPS
Reported numerator for diluted earnings
per share from continuing operations in accordance with GAAP -
income from continuing operations attributable to Headwaters
Incorporated
$ 2.3 $ 4.5 $ 14.9
$ 11.1 Adjustments to numerator: Amortization expense
related to acquired intangible assets 4.7 6.4 9.2 12.6
Non-routine customer and business
acquisition-related costs and adjustments
0.7 2.2 1.6 3.8 Consolidation of acquired businesses 1.7 - 2.2 0.5
Boral merger-related costs - 8.0 - 10.2 Energy segment losses - 2.3
- 2.3
Non-routine interest expense related to
early debt repayments, repricings, new debt issuances
- - - 0.2 Income tax effect of above pretax adjustments (2.7
) (7.3 ) (5.0 ) (11.5 )
Total adjustments to income from
continuing operations, net of income tax effect
4.4 11.6 8.0 18.1
Numerator for adjusted diluted earnings
per share from continuing operations
$ 6.7 $ 16.1 $
22.9 $ 29.2
Reported denominator for diluted earnings
per share in accordance with GAAP and for adjusted earnings per
share
75.3 76.0 75.4
75.8
Reported diluted income per share from
continuing operations (GAAP)
$ 0.03 $ 0.06 $ 0.20
$ 0.15 Effect of adjustments on diluted income per
share calculation 0.06 0.15 0.10
0.24
Adjusted diluted income per share from
continuing operations (Adjusted EPS)
$ 0.09 $ 0.21 $
0.30 $ 0.39
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Headwaters IncorporatedSharon MaddenVice President of
Investor Relations(801) 984-9400orAnalyst Contact:Financial
ProfilesTricia Ross(310) 622-8226
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