Forterra Announces Third Quarter 2018 Results
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 September 30, 2018.
Third Quarter Highlights
- Stronger end-market demand in both the Drainage and Water
segments
- Improved results in the Drainage segment due to higher selling
prices and cost controls
- Progress from operational and commercial initiatives in the
Water segment late in the third quarter
- Estimated negative impact of extraordinary weather to net
income and Adjusted EBITDA1 was approximately $3.7 million and $5.0
million, respectively
CEO CommentaryForterra CEO Jeff
Bradley commented, “We are pleased to report organic sales growth
in both of our segments, driven by strong demand across all of our
end markets. The significant rain in the quarter that caused
shipment delays created additional backlog against a backdrop of
growing demand. We are capitalizing on these strong demand
fundamentals with higher selling prices while also ramping up our
cost control programs."
Bradley continued, "In our Drainage segment, we
delivered another quarter of margin improvement reflecting the
benefit of higher selling prices and the strategic transactions
completed over the last year. In our Water segment, we are
now realizing higher selling prices and lower manufacturing costs
that began to impact the quarter following the significant
organizational changes that we announced at the end of July.
These improvements and the strong market demand for ductile iron
pipe support our outlook for the fourth quarter and our expectation
for higher top-line and profitability in 2019."
Third Quarter 2018 Consolidated
ResultsThird quarter 2018 net sales of $434.5 million
decreased from $444.3 million in the prior year quarter. The
decline is due to the impact of previously disclosed asset sales
and divestitures. Net sales excluding the impact of asset
sales and divestitures of $21.6 million grew by approximately
3%. Net income for the quarter was $5.5 million, or net
income of $0.09 per share, compared to a net loss of $11.5 million,
or a loss of $0.18 per share, in the prior year quarter.
Adjusted EBITDA for the third quarter was $61.6 million, compared
to $61.9 million in the prior year quarter. Forterra changed
the methodology for the calculation of Adjusted EBITDA for the
current period as well as the comparable prior year periods. The
change in methodology involved the Adjusted EBITDA add-back
associated with Forterra's 50% ownership in the Concrete Pipe &
Precast LLC ("CP&P") joint venture accounted for under the
equity method of investment. The change in methodology
resulted in a $1.0 million and $1.1 million increase in Adjusted
EBITDA for the third quarter ended 2018 and 2017, respectively, as
compared to the previous calculation methodology.2
Drainage Pipe & Products
(“Drainage”) - Third Quarter 2018 ResultsDrainage net
sales decreased to $243.0 million, compared to $248.2 million in
the prior year quarter. Net sales excluding the impact of
asset sales of $10.8 million grew by over 2% due to higher average
selling prices for pipe and precast products that offset the impact
of a decline in shipments due primarily to weather related delays,
most notably heavy rainfall in Texas, the Midwest and Eastern U.S.
The organic sales growth also reflected the benefit of the
continued strength from our Bio Clean stormwater systems
business.
Drainage gross profit and gross profit margin
were $57.4 million and 23.6%, compared to $51.8 million and 20.9%,
respectively, in last year's third quarter. The higher gross
profit and gross profit margin primarily reflect the benefit of
higher average selling prices, cost controls from the operational
excellence and procurement initiatives and higher margins in the
Bio Clean stormwater systems business. EBITDA and Adjusted
EBITDA were higher, at $53.3 million and $55.6 million,
respectively, compared to $47.3 million and $49.2 million,
respectively, in the prior year quarter due to higher gross profit
and lower selling, general and administrative expenses. The
estimated EBITDA and Adjusted EBITDA impact of weather that
resulted in shipment delays during the quarter was approximately
$4.2 million, as compared to $3.0 million in the prior year
quarter.
Water Pipe & Products (“Water”) -
Third Quarter 2018 ResultsWater net sales decreased to
$191.5 million, compared to $196.0 million in the prior year
quarter. Excluding the impact of the divestiture of the U.S.
concrete and steel pressure pipe business of $10.8 million, net
sales increased by 3%, due primarily to higher shipments of ductile
iron pipe that offset a decline in sales from the Canadian pressure
pipe business.
Water gross profit and gross profit margin in
the third quarter were $20.0 million and 10.4%, respectively,
compared to $30.9 million and 15.8%, respectively, in the prior
year quarter. Third quarter 2018 Water EBITDA and Adjusted
EBITDA of $17.8 million and $19.0 million, respectively, compared
to $(4.1) million and $28.4 million, respectively, in the prior
year quarter. The decline in gross profit, gross profit
margin and Adjusted EBITDA was driven by weaker ductile iron pipe
margins due to higher scrap, labor and freight costs that were not
fully offset by higher average selling prices. The estimated
EBITDA and Adjusted EBITDA impact of heavy rainfall on ductile iron
pipe was approximately $0.8 million, as compared to $0.7 million in
the prior year period. The decline was also due to lower
sales and margins in the Canadian pressure pipe business due
primarily to a sales mix shift due in part to shipment delays on
certain longer-term higher margin projects.
Corporate and Other (“Corporate”) -
Third Quarter 2018 ResultsCorporate EBITDA and Adjusted
EBITDA losses improved to $14.9 million and $13.1 million,
respectively, in the third quarter of 2018 from $18.4 million and
$15.6 million, respectively, in the prior year quarter. The
year over year improvement is due to lower professional fees and
the benefit of certain cost accrual adjustments in the third
quarter of 2018.
Balance Sheet and LiquidityOn
September 30, 2018, the Company had cash of $30.3 million,
outstanding debt on its senior term loan of $1.2 billion and no
outstanding balance on the Company's $300 million asset based
revolving credit facility. The Company expects to build its
cash position through the end of 2018 reflecting the anticipated
benefit of positive cash flow from working capital during the
fourth quarter.
Financial OutlookFor the fourth
quarter of 2018, the Company expects that net loss will range from
$18 million to $15 million and Adjusted EBITDA will range from $30
million to $35 million. Corporate Adjusted EBITDA losses are
expected to be approximately $15 million. For the first time
this year, results in Water are expected to be in line with the
prior year quarter of $18 million in Adjusted EBITDA, reflecting
the benefit of higher selling prices and improved operational
efficiency. Results in Drainage will be impacted by
significant shipment delays already realized in October 2018 due to
record rainfall again in Texas, Hurricane Michael in Florida and
the carry-over effect of Hurricane Florence on Forterra's CP&P
joint venture. For the full year ended December 31, 2018, the
Company expects that net loss will range from $25 million to $22
million and Adjusted EBITDA will range from $166 million to $171
million.
Drainage - Key Financial
Statistics:
($ in
millions) |
|
|
|
|
|
|
|
Q3 2018 |
|
Q3 2017 |
|
|
|
|
|
|
|
|
|
Net
Sales |
|
$ |
243.0 |
|
|
$ |
248.2 |
|
|
Gross
Profit |
|
57.4 |
|
|
51.8 |
|
|
EBITDA |
|
53.3 |
|
|
47.3 |
|
|
Adjusted EBITDA |
|
55.6 |
|
|
49.2 |
|
|
Gross Profit Margin |
23.6 |
% |
|
20.9 |
% |
|
Adjusted EBITDA Margin |
22.9 |
% |
|
19.8 |
% |
|
Water - Key Financial
Statistics:
($ in
millions) |
|
|
|
|
|
|
|
Q3 2018 |
|
Q3 2017 |
|
|
|
|
|
|
|
|
|
Net
Sales |
|
$ |
191.5 |
|
|
$ |
196.0 |
|
|
Gross
Profit |
|
20.0 |
|
|
30.9 |
|
|
EBITDA |
|
17.8 |
|
|
(4.1 |
) |
|
Adjusted EBITDA |
|
19.0 |
|
|
28.4 |
|
|
Gross Profit Margin |
10.4 |
% |
|
15.8 |
% |
|
Adjusted EBITDA Margin |
9.9 |
% |
|
14.5 |
% |
|
Conference Call and Webcast
InformationForterra will host a conference call to review
third quarter 2018 results on November 6, 2018 at 10:00 a.m.
Eastern Time (9:00 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 2467118. Please dial in at least five minutes prior to
the call to register. The call may also be accessed via a webcast
which is 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 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 systems. 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 A reconciliation of non-GAAP financial
measures, including EBITDA, EBITDA margin, Adjusted EBITDA and
Adjusted EBITDA margin, to comparable GAAP financial measures is
provided in the reconciliation of Non-GAAP measures section of this
press release.2 A reconciliation to the comparable historical
calculation methodology is included in the Reconciliation of
Non-GAAP measures section of this press release. All prior
periods have been adjusted to reflect this change in
methodology.
Condensed Consolidated Statements of
Operations (in thousands, except per share data)
|
Three months ended |
|
Nine months ended |
|
September 30, |
|
September 30, |
|
2018 |
2017 |
|
2018 |
2017 |
|
(unaudited) |
|
(unaudited) |
Net
sales |
$ |
434,510 |
|
$ |
444,257 |
|
|
$ |
1,140,557 |
|
$ |
1,219,244 |
|
Cost of
goods sold |
357,374 |
|
362,150 |
|
|
953,743 |
|
1,022,574 |
|
Gross
profit |
77,136 |
|
82,107 |
|
|
186,814 |
|
196,670 |
|
Selling, general & administrative expenses |
(48,492 |
) |
(59,366 |
) |
|
(151,617 |
) |
(191,964 |
) |
Impairment and exit charges |
(2,170 |
) |
(1,193 |
) |
|
(3,891 |
) |
(13,004 |
) |
Earnings from equity method investee |
2,224 |
|
2,936 |
|
|
7,745 |
|
9,449 |
|
Other operating income, net |
1,538 |
|
2,008 |
|
|
6,864 |
|
5,251 |
|
|
(46,900 |
) |
(55,615 |
) |
|
(140,899 |
) |
(190,268 |
) |
Income
from operations |
30,236 |
|
26,492 |
|
|
45,915 |
|
6,402 |
|
|
|
|
|
|
|
Other
income (expense) |
|
|
|
|
|
Interest expense |
(21,940 |
) |
(15,582 |
) |
|
(52,993 |
) |
(46,202 |
) |
Other income (expense), net |
— |
|
(30,866 |
) |
|
6,016 |
|
(30,866 |
) |
Income
(loss) before income taxes |
8,296 |
|
(19,956 |
) |
|
(1,062 |
) |
(70,666 |
) |
Income tax benefit (expense) |
(2,793 |
) |
8,454 |
|
|
(6,351 |
) |
25,448 |
|
Net
income (loss) |
$ |
5,503 |
|
$ |
(11,502 |
) |
|
$ |
(7,413 |
) |
$ |
(45,218 |
) |
|
|
|
|
|
|
Basic and
Diluted earnings (loss) per share: |
|
|
|
|
|
Net income (loss) |
$ |
0.09 |
|
$ |
(0.18 |
) |
|
$ |
(0.12 |
) |
$ |
(0.71 |
) |
|
|
|
|
|
|
Weighted
average common shares outstanding: |
|
|
|
|
|
Basic |
63,919 |
|
63,799 |
|
|
63,883 |
|
63,794 |
|
Diluted |
64,269 |
|
63,799 |
|
|
63,883 |
|
63,794 |
|
Condensed Consolidated Balance
Sheets(in thousands)
|
September 30, 2018 |
|
December 31, 2017 |
ASSETS |
(unaudited) |
|
|
Current
assets |
|
|
|
Cash and cash equivalents |
$ |
30,348 |
|
|
$ |
104,534 |
|
Receivables, net |
280,831 |
|
|
192,654 |
|
Inventories |
265,609 |
|
|
236,655 |
|
Prepaid expenses |
7,315 |
|
|
5,381 |
|
Other current assets |
18,170 |
|
|
27,059 |
|
Current assets held for sale |
— |
|
|
12,242 |
|
Total current assets |
602,273 |
|
|
578,525 |
|
Non-current assets |
|
|
|
Property, plant and equipment, net |
490,439 |
|
|
412,572 |
|
Goodwill |
507,002 |
|
|
496,141 |
|
Intangible assets, net |
196,987 |
|
|
225,304 |
|
Investment in equity method investee |
53,315 |
|
|
54,445 |
|
Other long-term assets |
18,086 |
|
|
18,866 |
|
Non-current assets held for sale |
— |
|
|
25,385 |
|
Total assets |
$ |
1,868,102 |
|
|
$ |
1,811,238 |
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
Current
liabilities |
|
|
|
Trade payables |
$ |
145,112 |
|
|
$ |
108,560 |
|
Accrued liabilities |
70,321 |
|
|
72,782 |
|
Deferred revenue |
8,384 |
|
|
9,029 |
|
Current portion of long-term debt |
12,510 |
|
|
12,510 |
|
Current portion of tax receivable agreement |
34,601 |
|
|
34,601 |
|
Current liabilities held for sale |
— |
|
|
4,615 |
|
Total current liabilities |
270,928 |
|
|
242,097 |
|
Non-current liabilities |
|
|
|
Long term debt |
1,177,382 |
|
|
1,181,277 |
|
Long-term capital leases |
134,867 |
|
|
4,155 |
|
Deferred tax liabilities |
43,014 |
|
|
67,481 |
|
Deferred gain on sale-leaseback |
9,406 |
|
|
75,743 |
|
Other long-term liabilities |
20,670 |
|
|
25,032 |
|
Long-term tax receivable agreement |
82,962 |
|
|
82,962 |
|
Total liabilities |
1,739,229 |
|
|
1,678,747 |
|
Equity |
|
|
|
Common stock, $0.001 par value, 190,000 shares authorized; 64,202
and 64,231 shares issued and outstanding |
18 |
|
|
18 |
|
Additional paid-in-capital |
234,487 |
|
|
230,023 |
|
Accumulated other comprehensive loss |
(6,598 |
) |
|
(5,098 |
) |
Retained deficit |
(99,034 |
) |
|
(92,452 |
) |
Total shareholders' equity |
128,873 |
|
|
132,491 |
|
Total liabilities and shareholders' equity |
$ |
1,868,102 |
|
|
$ |
1,811,238 |
|
Condensed Consolidated Statements of Cash
Flows(in thousands)
|
|
Nine months ended |
|
|
September 30, |
|
|
2018 |
|
2017 |
CASH FLOWS FROM
OPERATING ACTIVITIES |
|
(unaudited) |
Net loss |
|
$ |
(7,413 |
) |
|
$ |
(45,218 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
Depreciation & amortization expense |
|
79,373 |
|
|
87,463 |
|
(Gain) / loss on business divestiture |
|
(6,016 |
) |
|
31,606 |
|
(Gain) / loss on disposal of property, plant and equipment |
|
(2,447 |
) |
|
1,749 |
|
Amortization of debt discount and issuance costs |
|
6,099 |
|
|
6,061 |
|
Stock-based compensation expense |
|
4,588 |
|
|
2,838 |
|
Impairment charges |
|
936 |
|
|
10,551 |
|
Earnings from equity method investee |
|
(7,745 |
) |
|
(9,449 |
) |
Distributions from equity method investee |
|
8,875 |
|
|
9,000 |
|
Unrealized gain on derivative instruments, net |
|
(4,291 |
) |
|
(2,035 |
) |
Unrealized foreign currency gains, net |
|
(358 |
) |
|
(1,314 |
) |
Provision (recoveries) for doubtful accounts |
|
(1,905 |
) |
|
2,289 |
|
Deferred taxes |
|
(24,787 |
) |
|
(16,321 |
) |
Deferred rent |
|
1,022 |
|
|
1,941 |
|
Other non-cash items |
|
77 |
|
|
166 |
|
Change in assets and liabilities: |
|
|
|
|
Receivables, net |
|
(83,720 |
) |
|
(84,974 |
) |
Inventories |
|
(25,019 |
) |
|
(18,217 |
) |
Other current assets |
|
6,910 |
|
|
(15,522 |
) |
Accounts payable and accrued liabilities |
|
25,042 |
|
|
2,668 |
|
Other assets & liabilities |
|
2,184 |
|
|
(2,415 |
) |
NET CASH USED IN
OPERATING ACTIVITIES |
|
(28,595 |
) |
|
(39,133 |
) |
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES |
|
|
|
|
Purchase of property, plant and equipment, and intangible
assets |
|
(31,474 |
) |
|
(38,729 |
) |
Proceeds from business divestiture |
|
618 |
|
|
23,200 |
|
Proceeds from sale of fixed assets |
|
4,874 |
|
|
— |
|
Settlement of net investment hedges |
|
(4,990 |
) |
|
— |
|
Business combinations, net of cash acquired |
|
(4,500 |
) |
|
(35,380 |
) |
NET CASH USED IN
INVESTING ACTIVITIES |
|
(35,472 |
) |
|
(50,909 |
) |
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES |
|
|
|
|
Payment of debt issuance costs |
|
— |
|
|
(2,498 |
) |
Payments on term loans |
|
(9,383 |
) |
|
(8,880 |
) |
Proceeds from term loans, net |
|
— |
|
|
200,000 |
|
Proceeds from revolver |
|
— |
|
|
194,000 |
|
Payments on revolver |
|
— |
|
|
(293,000 |
) |
Other financing activities |
|
(385 |
) |
|
(232 |
) |
NET CASH (USED
IN) PROVIDED BY FINANCING ACTIVITIES |
|
(9,768 |
) |
|
89,390 |
|
Effect of
exchange rate changes on cash |
|
(351 |
) |
|
1,759 |
|
Net change in
cash and cash equivalents |
|
(74,186 |
) |
|
1,107 |
|
Cash and cash
equivalents, beginning of period |
|
104,534 |
|
|
40,024 |
|
Cash and cash
equivalents, end of period |
|
$ |
30,348 |
|
|
$ |
41,131 |
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES: |
Cash interest
paid |
|
50,217 |
|
|
40,968 |
|
Income taxes
paid |
|
21,508 |
|
|
27,590 |
|
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING DISCLOSURES: |
Assets and
liabilities acquired in non-cash exchange |
|
18,140 |
|
|
— |
|
Fair value
changes of derivatives recorded in OCI, net of tax |
|
970 |
|
|
(4,103 |
) |
Capital lease
obligation |
|
(148,962 |
) |
|
— |
|
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 EBITDA
and adjusted EBITDA margin. 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 EBITDA as the sum of net (loss), before interest
expense, depreciation and amortization, income tax benefit and
before (gains)/losses on the sale of property, plant and equipment,
impairment and exit charges and certain other non-recurring income
and expenses, such as transaction costs, inventory step-up
impacting margin, non-cash compensation expense and pro-rate share
of Adjusted EBITDA from equity method investee, minus earnings from
equity method investee. Adjusted EBITDA margin represents
Adjusted EBITDA as a percentage of net sales.
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 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 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 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 EBITDA and adjusted EBITDA margin have
certain limitations. Adjusted EBITDA should not be considered as an
alternative to consolidated net income (loss), and in the case of
our segment results, Adjusted EBITDA should not be considered an
alternative to EBITDA, which the chief operating decision maker
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 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 cash 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 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 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 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 EBITDA(in thousands)
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
(unaudited) |
|
(unaudited) |
Net income
(loss) |
$ |
5,503 |
|
|
$ |
(11,502 |
) |
|
$ |
(7,413 |
) |
|
$ |
(45,218 |
) |
Interest
expense |
21,940 |
|
|
15,582 |
|
|
52,993 |
|
|
46,202 |
|
Depreciation and
amortization |
25,922 |
|
|
29,158 |
|
|
79,370 |
|
|
87,463 |
|
Income tax
(benefit) expense |
2,793 |
|
|
(8,454 |
) |
|
6,351 |
|
|
(25,448 |
) |
EBITDA1 |
56,158 |
|
|
24,784 |
|
|
131,301 |
|
|
62,999 |
|
(Gain) loss on
sale of property, plant & equipment, net2 |
124 |
|
|
555 |
|
|
(2,447 |
) |
|
1,749 |
|
Impairment and
exit charges3 |
2,170 |
|
|
1,193 |
|
|
3,891 |
|
|
13,004 |
|
Transaction
costs4 |
675 |
|
|
1,553 |
|
|
2,243 |
|
|
6,291 |
|
Inventory
step-up impacting margin5 |
— |
|
|
394 |
|
|
464 |
|
|
2,151 |
|
Loss on
divestitures6 |
— |
|
|
31,606 |
|
|
— |
|
|
31,606 |
|
Non-cash
compensation7 |
1,450 |
|
|
1,444 |
|
|
4,588 |
|
|
2,688 |
|
Other (gains)
losses8 |
— |
|
|
(679 |
) |
|
(6,688 |
) |
|
(1,217 |
) |
Earnings from
equity method investee 9 |
(2,224 |
) |
|
(2,936 |
) |
|
(7,745 |
) |
|
(9,449 |
) |
Pro-rata share
of Adjusted EBITDA from equity method investee 10 |
3,221 |
|
|
4,026 |
|
|
10,198 |
|
|
12,671 |
|
Adjusted
EBITDA |
$ |
61,574 |
|
|
$ |
61,940 |
|
|
$ |
135,805 |
|
|
$ |
122,493 |
|
Adjusted EBITDA
margin |
14.2 |
% |
|
13.9 |
% |
|
11.9 |
% |
|
10.0 |
% |
Gross
profit |
77,136 |
|
|
82,107 |
|
|
186,814 |
|
|
196,670 |
|
Gross profit
margin |
17.8 |
% |
|
18.5 |
% |
|
16.4 |
% |
|
16.1 |
% |
1 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.2 (Gain) loss on sale of property, plant
and equipment, primarily related to the disposition of
manufacturing equipment.3 Impairment or abandonment of
long-lived assets and other exit charges.4 Legal, valuation,
accounting, advisory and other costs related to business
combinations and other transactions. 5 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. 6 Loss on divestiture of U.S. concrete and
steel pressure pipe 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. 7 Non-cash equity compensation
expense. 8 Other (gains) or losses, including the
non-cash gain on a divestiture transaction completed in January
2018 and gains on insurance proceeds related to the destruction of
property. 9 Net income from Forterra's 50% ownership in
the Concrete Pipe & Precast LLC ("CP&P") joint venture
accounted for under the equity method of
accounting. 10 Adjusted EBITDA from Forterra's 50%
ownership in the CP&P joint venture. Calculated as CP&P net
income adjusted primarily to add back Forterra's pro-rata portion
of CP&P's depreciation and amortization and interest
expense. Prior to the quarter ended September 30, 2018,
Forterra did not adjust for this item in its calculation of
Forterra's EBITDA and Adjusted EBITDA.
Reconciliation of segment EBITDA to
segment Adjusted EBITDA(in thousands)
Three
months ended September 30, 2018 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
53,271 |
|
|
$ |
17,818 |
|
|
$ |
(14,931 |
) |
|
$ |
56,158 |
|
|
|
|
|
|
|
|
|
(Gain) loss on
sale of property, plant & equipment, net2 |
(14 |
) |
|
138 |
|
|
— |
|
|
124 |
|
Impairment and
exit charges3 |
571 |
|
|
1,599 |
|
|
— |
|
|
2,170 |
|
Transaction
costs4 |
— |
|
|
— |
|
|
675 |
|
|
675 |
|
Non-cash
compensation7 |
410 |
|
|
(157 |
) |
|
1,197 |
|
|
1,450 |
|
Other (gains)
losses8 |
401 |
|
|
(401 |
) |
|
— |
|
|
— |
|
Earnings from
equity method investee 9 |
(2,224 |
) |
|
— |
|
|
— |
|
|
(2,224 |
) |
Pro-rata share of
Adjusted EBITDA from equity method investee 10 |
3,221 |
|
|
— |
|
|
— |
|
|
3,221 |
|
Adjusted
EBITDA |
$ |
55,636 |
|
|
$ |
18,997 |
|
|
$ |
(13,059 |
) |
|
$ |
61,574 |
|
Adjusted EBITDA
margin |
22.9 |
% |
|
9.9 |
% |
|
|
NM |
|
|
14.2 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
242,997 |
|
|
$ |
191,513 |
|
|
$ |
— |
|
|
$ |
434,510 |
|
Gross Profit |
$ |
57,441 |
|
|
$ |
19,972 |
|
|
$ |
(277 |
) |
|
$ |
77,136 |
|
Three
months ended September 30, 2017 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
47,342 |
|
|
$ |
(4,144 |
) |
|
$ |
(18,414 |
) |
|
$ |
24,784 |
|
|
|
|
|
|
|
|
|
(Gain) loss on
sale of property, plant & equipment, net2 |
(75 |
) |
|
680 |
|
|
(50 |
) |
|
555 |
|
Impairment and
exit charges3 |
— |
|
|
354 |
|
|
839 |
|
|
1,193 |
|
Transaction
costs4 |
— |
|
|
— |
|
|
1,553 |
|
|
1,553 |
|
Inventory
step-up impacting margin5 |
394 |
|
|
— |
|
|
— |
|
|
394 |
|
Loss on
divestitures6 |
— |
|
|
31,606 |
|
|
— |
|
|
31,606 |
|
Non-cash
compensation7 |
405 |
|
|
308 |
|
|
731 |
|
|
1,444 |
|
Other (gains)
losses8 |
— |
|
|
(404 |
) |
|
(275 |
) |
|
(679 |
) |
Earnings from
equity method investee 9 |
(2,936 |
) |
|
— |
|
|
— |
|
|
(2,936 |
) |
Pro-rata share
of Adjusted EBITDA from equity method investee 10 |
4,026 |
|
|
— |
|
|
— |
|
|
4,026 |
|
Adjusted
EBITDA |
$ |
49,156 |
|
|
$ |
28,400 |
|
|
$ |
(15,616 |
) |
|
$ |
61,940 |
|
Adjusted EBITDA
margin |
19.8 |
% |
|
14.5 |
% |
|
|
NM |
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
248,231 |
|
|
$ |
195,987 |
|
|
$ |
39 |
|
|
$ |
444,257 |
|
Gross
Profit |
$ |
51,825 |
|
|
$ |
30,920 |
|
|
$ |
(638 |
) |
|
$ |
82,107 |
|
Nine
months ended September 30, 2018 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
122,841 |
|
|
$ |
48,923 |
|
|
$ |
(40,463 |
) |
|
$ |
131,301 |
|
|
|
|
|
|
|
|
|
(Gain) loss on
sale of property, plant & equipment, net2 |
(3,419 |
) |
|
972 |
|
|
— |
|
|
(2,447 |
) |
Impairment and
exit charges3 |
1,733 |
|
|
2,166 |
|
|
(8 |
) |
|
3,891 |
|
Transaction
costs4 |
— |
|
|
— |
|
|
2,243 |
|
|
2,243 |
|
Inventory
step-up impacting margin5 |
464 |
|
|
— |
|
|
— |
|
|
464 |
|
Non-cash
compensation7 |
1,285 |
|
|
206 |
|
|
3,097 |
|
|
4,588 |
|
Other (gains)
losses8 |
519 |
|
|
(1,270 |
) |
|
(5,937 |
) |
|
(6,688 |
) |
Earnings from
equity method investee9 |
(7,745 |
) |
|
— |
|
|
— |
|
|
(7,745 |
) |
Pro-rata share
of Adjusted EBITDA from equity method investee 10 |
10,198 |
|
|
— |
|
|
— |
|
|
10,198 |
|
Adjusted
EBITDA |
$ |
125,876 |
|
|
$ |
50,997 |
|
|
$ |
(41,068 |
) |
|
$ |
135,805 |
|
Adjusted EBITDA
margin |
20.3 |
% |
|
9.8 |
% |
|
|
NM |
|
|
11.9 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
621,523 |
|
|
$ |
519,031 |
|
|
$ |
3 |
|
|
$ |
1,140,557 |
|
Gross
Profit |
$ |
133,708 |
|
|
$ |
53,640 |
|
|
$ |
(534 |
) |
|
$ |
186,814 |
|
Nine
months ended September 30, 2017 |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
98,832 |
|
|
$ |
30,881 |
|
|
$ |
(66,714 |
) |
|
$ |
62,999 |
|
|
|
|
|
|
|
|
|
(Gain) loss on
sale of property, plant & equipment, net2 |
(4 |
) |
|
1,753 |
|
|
— |
|
|
1,749 |
|
Impairment and
exit charges3 |
(14 |
) |
|
12,179 |
|
|
839 |
|
|
13,004 |
|
Transaction
costs4 |
— |
|
|
— |
|
|
6,291 |
|
|
6,291 |
|
Inventory step-up
impacting margin5 |
2,151 |
|
|
— |
|
|
— |
|
|
2,151 |
|
Loss on
divestitures6 |
— |
|
|
31,606 |
|
|
— |
|
|
31,606 |
|
Non-cash
compensation7 |
454 |
|
|
345 |
|
|
1,889 |
|
|
2,688 |
|
Other (gains)
losses8 |
— |
|
|
(942 |
) |
|
(275 |
) |
|
(1,217 |
) |
Earnings from
equity method investee9 |
(9,449 |
) |
|
— |
|
|
— |
|
|
(9,449 |
) |
Pro-rata share of
Adjusted EBITDA from equity method investee 10 |
11,654 |
|
|
— |
|
|
— |
|
|
11,654 |
|
Adjusted
EBITDA |
$ |
103,624 |
|
|
$ |
75,822 |
|
|
$ |
(57,970 |
) |
|
$ |
121,476 |
|
Adjusted EBITDA
margin |
16.4 |
% |
|
12.9 |
% |
|
|
NM |
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
630,200 |
|
|
$ |
588,999 |
|
|
$ |
45 |
|
|
$ |
1,219,244 |
|
Gross Profit |
$ |
112,323 |
|
|
$ |
86,327 |
|
|
$ |
(1,980 |
) |
|
$ |
196,670 |
|
1 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.2 (Gain) loss on sale of property, plant
and equipment, primarily related to the disposition of
manufacturing equipment.3 Impairment or abandonment of
long-lived assets and other exit charges.4 Legal, valuation,
accounting, advisory and other costs related to business
combinations and other transactions. 5 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. 6 Loss on divestiture of U.S. concrete and
steel pressure pipe 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. 7 Non-cash equity compensation
expense. 8 Other (gains) or losses, including the
non-cash gain on a divestiture transaction completed in January
2018 and gains on insurance proceeds related to the destruction of
property. 9 Net income from Forterra's 50% ownership in
the CP&P joint venture accounted for under the equity method of
accounting. 10 Adjusted EBITDA from Forterra's 50%
ownership in the CP&P joint venture. Calculated as CP&P net
income adjusted primarily to add back Forterra's pro-rata portion
of CP&P's depreciation and amortization and interest
expense. Prior to the quarter ended September 30, 2018,
Forterra did not adjust for this item in its calculation of
Forterra's EBITDA and Adjusted EBITDA.
Reconciliation of Net Income (Loss) to
Adjusted EBITDA Guidance for Q4 and Year Ended 2018(in
millions)
|
|
Q4 2018 Guidance |
|
Full Year 2018 Guidance |
|
|
Low |
|
High |
|
Low |
|
High |
Net income
(loss) |
|
$ |
(18.0 |
) |
|
$ |
(15.0 |
) |
|
$ |
(25.4 |
) |
|
$ |
(22.4 |
) |
Interest
expense |
|
22.0 |
|
|
22.0 |
|
|
75.0 |
|
|
75.0 |
|
Income tax
(benefit) expense |
|
(3.0 |
) |
|
(1.0 |
) |
|
3.4 |
|
|
5.4 |
|
Depreciation and
amortization |
|
27.0 |
|
|
27.0 |
|
|
106.4 |
|
|
106.4 |
|
Other EBITDA
adjustments |
|
2.0 |
|
|
2.0 |
|
|
6.4 |
|
|
6.4 |
|
Adjusted
EBITDA |
|
$ |
30.0 |
|
|
$ |
35.0 |
|
|
$ |
165.8 |
|
|
$ |
170.8 |
|
Source: Forterra, Inc.
Company Contact Information: David J. Lawrence Vice President of
Treasury and Investor Relations 469-299-9113 IR@forterrabp.com
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