Forterra Announces Fourth Quarter and Full Year 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 and full year ended December 31, 2018.
CEO CommentaryForterra CEO Jeff
Bradley commented, “We delivered higher year over year gross profit
margins, income from operations and Adjusted EBITDA margins for
both the quarter and the full year on the benefit of higher selling
prices, our cost control programs and increased operational
efficiency. We were pleased to deliver earnings improvement
in 2018 in spite of record levels of rainfall in certain of our key
regions."
Mr. Bradley continued. "We believe we are well
positioned to deliver further earnings improvement and positive
cash flow in 2019 against the backdrop of solid market demand
fundamentals. We anticipate continued earnings growth in Drainage
in 2019 on the benefit of growing infrastructure demand. In Water,
we expect the actions taken in the second half of 2018 to position
us for margin expansion in 2019."
Fourth Quarter 2018
ResultsFourth quarter 2018 net sales were $339.2 million,
compared to $361.2 million in the prior year quarter. Net loss for
the quarter was $17.0 million, or $0.27 per share, compared to net
income of $43.2 million, or $0.67 per share, in the prior year
quarter. Net income in the prior year quarter included the benefit
of a $45.4 million reduction in the Company's Tax Receivable
Agreement liability as described in the Corporate results below.
Adjusted EBITDA for the fourth quarter was up 12.2% to $32.9
million, compared to $29.3 million in the prior year quarter.
Drainage Pipe & Products
(“Drainage”) - Fourth Quarter 2018 ResultsDrainage net
sales were $190.0 million, compared to $204.6 million in the prior
year quarter. Excluding net sales from divestitures of $9.6
million, net sales declined by approximately 3% due to shipment
delays as a result of significant rain.
Drainage gross profit and gross profit margin
increased to $41.1 million and 21.6%, compared to $35.4 million and
17.3%, respectively, in the prior year quarter. The increase in
gross profit and gross profit margin was due to higher average
selling prices, the benefit of cost control initiatives and lower
rent expense. Fourth quarter 2018 Drainage EBITDA and Adjusted
EBITDA increased to $33.9 million and $33.8 million, respectively,
compared to $30.8 million and $32.5 million, respectively, in the
prior year quarter.
Water Pipe & Products (“Water”) -
Fourth Quarter 2018 ResultsWater net sales were $149.2
million, compared to $156.6 million in the prior year
quarter. The decline in net sales was due to lower volumes
resulting from significant rain.
Water gross profit in the fourth quarter was
$17.8 million compared to $22.0 million in the prior year quarter.
Fourth quarter 2018 Water EBITDA and Adjusted EBITDA of $15.6
million and $15.9 million, respectively, compared to $16.7 million
and $18.0 million, respectively, in the prior year quarter.
The declines in gross profit, EBITDA and Adjusted EBITDA were due
to the impact of higher scrap costs for ductile iron pipe that were
not fully offset by an increase in selling prices. The gross profit
decline was also due to lower net sales of concrete pressure pipe
in Canada.
Corporate and Other (“Corporate”) -
Fourth Quarter 2018 ResultsCorporate EBITDA loss of $18.3
million and Adjusted EBITDA loss of $16.8 million in Q4 2018
compared to EBITDA of $21.8 million and Adjusted EBITDA loss of
$21.1 million, respectively, in the prior year quarter. Corporate
EBITDA in Q4 2017 included the benefit of a $45.4 million reduction
in the Company's Tax Receivable Agreement liability due to the
benefit of U.S. tax reform under the Tax Cuts and Jobs Act.
Excluding this one-time benefit, the improved results in Corporate
were due primarily to lower professional fees, including reduced
audit fees and fees related to external consultants associated with
the Company’s Sarbanes-Oxley compliance and material weakness
remediation work. Corporate costs were higher than the guidance due
to incremental work required in the fourth quarter to remediate the
material weakness related to the Company's information technology
systems that was identified during the quarter. As noted below, the
Company successfully completed the remediation of all of its
previously reported material weaknesses.
Full Year 2018 ResultsFull year
2018 net sales were $1,479.7 million, compared to $1,580.4 million
in the prior year, with the decrease as a result of divestitures.
The divestiture of the U.S. concrete and steel pressure pipe
business in July 2017 resulted in a $72.7 million decline in net
sales. The Foley Exchange, completed in January 2018, resulted in a
$42.3 million decline in net sales. Excluding the impact of these
two transactions, net sales increased by 1.0%, due primarily to
higher average selling prices.
Gross profit and gross profit margin were $245.6
million and 16.6%, respectively, compared to $253.1 million and
16.0%, respectively, in the prior year. Income from operations
increased to $51.0 million, compared to $2.4 million in the prior
year. Net loss for the year was $24.4 million, or a loss of $0.38
per share, compared to a net loss of $2.1 million, or a loss of
$0.03 per share, in the prior year. The prior year period
included a pre-tax benefit of $46.2 million due to a reduction in
the tax receivable agreement liability and a $40.7 million income
tax benefit, both due primarily to U.S. tax reform. The prior
year benefits from U.S. tax reform were partially offset by a $32.5
million loss due to the divestiture of the U.S. concrete and steel
pressure pipe business. Adjusted EBITDA for the year was $168.7
million, compared to $151.8 million in the prior year.
Drainage EBITDA and Adjusted EBITDA were $156.7 and $159.7 million,
respectively, compared to $129.6 and $137.1 million in the prior
year. The $22.6 million increase in Drainage Adjusted EBITDA
was due primarily to higher average selling prices that more than
offset the impact of increased costs including raw materials, labor
and freight. Water EBITDA and Adjusted EBITDA were $64.5
million and $66.9 million, respectively, compared to $47.6 million
and $93.8 million in the prior year. Water Adjusted EBITDA
decreased by $26.9 million due primarily to steel scrap, labor and
freight costs that were not fully offset by higher average selling
prices. Corporate EBITDA and Adjusted EBITDA loss were $58.8
million and $57.9 million, respectively, compared to $44.9 million
and $79.1 million in the prior year. Corporate Adjusted
EBITDA loss improved by $21.2 million due primarily to lower
professional fees, including lower audit fees and lower fees
relating to the Company’s Sarbanes-Oxley compliance and material
weakness remediation work.
Balance Sheet and LiquidityOn
December 31, 2018, the Company had cash of $35.8 million and
outstanding debt on its senior term loan of $1.2 billion. As
of December 31, 2018, there was no outstanding balance on the
Company's $300 million Revolver. Cash flow from operations
for the year was $15.1 million lower than the prior year due
primarily to an increase in working capital, partially offset by
higher earnings after adjusting for non-cash income and
expenses. Change in assets and liabilities was a cash use of
$39.4 million compared to a cash use of $57.6 million in the prior
year period. Excluding the impact of changes in tax-related
receivables and payables that resulted in a cash inflow of $12.8
million in 2018 and a cash outflow of $43.3 million in 2017, the
change in assets and liabilities in 2018 was a cash use of $52.2
million, compared to a cash use of $14.3 million in the prior year,
due primarily to an increase in ending inventory. The
increase in inventory was due to weather-related shipment delays as
well as a strategic decision to accelerate the normal seasonal
build in inventory of ductile iron pipe to support customers.
Cash interest paid of $69.4 million was $14.7 million higher than
the prior year due to $8.5 million in payments associated with the
sale leaseback agreement as well as the impact of higher average
interest rates. Cash taxes of $11.1 million were $17.0
million lower than the prior year due primarily to the benefit of a
$20.0 million tax refund pertaining to the 2017 tax year.
Remediation of Previously Reported
Material WeaknessesThe Company completed the remediation
of previously reported material weaknesses in the internal control
over financial reporting, including the material weakness related
to the Company's information technology systems that was identified
in the fourth quarter of 2018. Management's Report on
Internal Control over Financial Reporting, included in our Annual
Report on Form 10-K that is expected to be filed with the SEC
effective March 12, 2019, includes a more detailed discussion of
the matter.
2019 OutlookThe Company expects
the full year 2019 net loss will be in the range of $38 to $16
million and Adjusted EBITDA in the range of $170 million to $200
million. The Company anticipates continued strong execution
in Drainage and margin improvement in Water on the benefit of
higher selling prices and operational improvements. The
Company's end-market demand outlook supports its expectation for
top-line growth.
Key Components of Expected 2019
Cashflows:
($ in millions) |
Low |
|
High |
Cash Interest |
$(82) |
|
$(80) |
Capital Expenditures |
(50) |
|
(45) |
TRA Payments |
(12) |
|
(11) |
Cash Taxes |
(10) |
|
(16) |
Principal Amortization |
(13) |
|
(13) |
Working Capital |
30 |
|
50 |
Total |
$(137) |
|
$(115) |
Forterra CEO Jeff Bradley commented, "We believe
market demand for our products is strong, and I am encouraged by
conversations with our customers about the anticipated level of
activity this year that support our outlook. The first
quarter, our seasonally weakest period of the year, has been
impacted by above average rainfall, snow and abnormally cold
temperatures in many of our key markets. In addition to
weather, we believe that the first quarter will be impacted by
higher year over year steel and scrap costs in both
businesses. We therefore expect that our full year forecasted
growth will be weighted towards the back half of the year."
Mr. Bradley continued, "Our forecast for 2019
cash flow items reflects our disciplined approach to cash
management. We are committed to strengthening our capital
structure through a combination of earnings growth, debt repayment
and prudent investment in the business. We expect to generate
meaningful available cash flow in 2019 and plan to use a
significant portion to make voluntary repayments on our term
loan."
Drainage - Key Financial and Operational
Statistics:
($ in
millions) |
|
Fourth Quarter |
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 2018 |
|
Q4 2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
190.0 |
|
|
$ |
204.6 |
|
|
$ |
811.5 |
|
|
$ |
834.8 |
|
Gross Profit |
|
41.1 |
|
|
35.4 |
|
|
174.8 |
|
|
147.7 |
|
EBITDA |
|
33.9 |
|
|
30.8 |
|
|
156.7 |
|
|
129.6 |
|
Adjusted
EBITDA |
|
$ |
33.8 |
|
|
$ |
32.5 |
|
|
$ |
159.7 |
|
|
$ |
137.1 |
|
Gross
Profit Margin |
21.6 |
% |
|
17.3 |
% |
|
21.5 |
% |
|
17.7 |
% |
Adjusted
EBITDA Margin |
17.8 |
% |
|
15.9 |
% |
|
19.7 |
% |
|
16.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Water - Key Financial and Operational
Statistics:
($ in
millions) |
|
Fourth Quarter |
|
Full Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 2018 |
|
Q4 2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
149.2 |
|
|
$ |
156.6 |
|
|
$ |
668.2 |
|
|
$ |
745.6 |
|
Gross Profit |
|
17.8 |
|
|
22.0 |
|
|
71.5 |
|
|
108.3 |
|
EBITDA |
|
15.6 |
|
|
16.7 |
|
|
64.5 |
|
|
47.6 |
|
Adjusted
EBITDA |
|
$ |
15.9 |
|
|
$ |
18.0 |
|
|
$ |
66.9 |
|
|
$ |
93.8 |
|
Gross
Profit Margin |
11.9 |
% |
|
14.0 |
% |
|
10.7 |
% |
|
14.5 |
% |
Adjusted
EBITDA Margin |
10.7 |
% |
|
11.5 |
% |
|
10.0 |
% |
|
12.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
Conference Call and Webcast
InformationForterra will host a conference call to review
fourth quarter and full year 2018 results on March 12, 2019 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 8297545. Please dial in at least five
minutes prior to the call to register. The call may also be
accessed via a webcast that is available on the Investors section
of the Company’s website at http://forterrabp.com. A replay
of the conference call 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 storm water 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,
including additional information regarding risks and uncertainties
relating to the level of construction activity, particularly in the
residential construction and non-residential construction markets;
government funding of infrastructure and related construction
activities; the highly competitive nature of our industry and our
ability to effectively compete; the availability and price of the
raw materials we use in our business; the ability to implement our
growth strategy; our dependence on key customers and the absence of
long-term agreements with these customers; the level of
construction activity in Texas; energy costs; disruption at one or
more of our manufacturing facilities or in our supply chain;
construction project delays and our inventory management; our
ability to successfully integrate acquisitions; labor disruptions
and other union activity; a tightening of mortgage lending or
mortgage financing requirements; our current dispute with
HeidelbergCement related to the payment of an earnout; compliance
with environmental laws and regulations; compliance with health and
safety laws and regulations and other laws and regulations to which
we and our products are subject; our dependence on key executives
and key management personnel; our ability to retain and attract
additional skilled and non-skilled technical or sales personnel;
credit and non-payment risks of our customers; warranty and related
claims; legal and regulatory claims; the seasonality of our
business and its susceptibility to adverse weather; our contract
backlog; our ability to maintain sufficient liquidity and ensure
adequate financing or guarantees for large projects; delays or
outages in our information technology systems and computer
networks; security breaches in our information technology systems
and other cybersecurity incidents; and additional factors discussed
in our filings with the Securities and Exchange Commission, or the
SEC.
FORTERRA,
INC.Consolidated Statements of
Operations(in thousands, except per share data)
|
Quarter ended |
|
Year ended |
|
December 31, |
|
December 31, |
|
2018 |
2017 |
|
2018 |
2017 |
|
unaudited |
unaudited |
|
|
Net sales |
$ |
339,155 |
|
$ |
361,169 |
|
|
$ |
1,479,712 |
|
$ |
1,580,413 |
|
Cost of goods
sold |
280,400 |
|
304,731 |
|
|
1,234,143 |
|
1,327,305 |
|
Gross
profit |
58,755 |
|
56,438 |
|
|
245,569 |
|
253,108 |
|
Selling, general & administrative expenses |
(58,260 |
) |
(63,070 |
) |
|
(209,877 |
) |
(255,034 |
) |
Impairment and exit charges |
(445 |
) |
(216 |
) |
|
(4,336 |
) |
(13,220 |
) |
Earnings from equity method investee |
2,417 |
|
2,911 |
|
|
10,162 |
|
12,360 |
|
Other operating income, net |
2,659 |
|
(54 |
) |
|
9,523 |
|
5,197 |
|
|
(53,629 |
) |
(60,429 |
) |
|
(194,528 |
) |
(250,697 |
) |
Income (loss) from
operations |
5,126 |
|
(3,991 |
) |
|
51,041 |
|
2,411 |
|
|
|
|
|
|
|
Other income
(expenses) |
|
|
|
|
|
Interest expense |
(25,344 |
) |
(13,206 |
) |
|
(78,337 |
) |
(59,408 |
) |
Change in tax receivable agreement liability |
— |
|
45,440 |
|
|
— |
|
46,180 |
|
Other income (expense), net |
— |
|
(309 |
) |
|
6,016 |
|
(31,915 |
) |
Income (loss) before
income taxes |
(20,218 |
) |
27,934 |
|
|
(21,280 |
) |
(42,732 |
) |
Income tax (expense) benefit |
3,266 |
|
15,224 |
|
|
(3,085 |
) |
40,672 |
|
Net income
(loss) |
$ |
(16,952 |
) |
$ |
43,158 |
|
|
$ |
(24,365 |
) |
$ |
(2,060 |
) |
|
|
|
|
|
|
Basic and diluted
earnings (loss) per share: |
|
|
|
|
|
Net income (loss) |
$ |
(0.27 |
) |
$ |
0.67 |
|
|
$ |
(0.38 |
) |
$ |
(0.03 |
) |
|
|
|
|
|
|
Weighted average
common shares outstanding: |
|
|
|
|
|
Basic |
63,965 |
|
63,824 |
|
|
63,904 |
|
63,801 |
|
Diluted |
63,965 |
|
63,952 |
|
|
63,904 |
|
63,801 |
|
FORTERRA,
INC.Consolidated Balance Sheets(in
thousands)
|
December 31, |
|
2018 |
|
2017 |
ASSETS |
|
|
|
Current
assets |
|
|
|
Cash and cash equivalents |
$ |
35,793 |
|
|
$ |
104,534 |
|
Receivables, net |
198,468 |
|
|
192,654 |
|
Inventories |
285,030 |
|
|
236,655 |
|
Prepaid expenses |
7,289 |
|
|
5,381 |
|
Other current assets |
17,509 |
|
|
27,059 |
|
Current assets held for sale |
— |
|
|
12,242 |
|
Total current assets |
544,089 |
|
|
578,525 |
|
Non-current
assets |
|
|
|
Property, plant and equipment, net |
492,167 |
|
|
412,572 |
|
Goodwill |
508,193 |
|
|
496,141 |
|
Intangible assets, net |
183,789 |
|
|
225,304 |
|
Investment in equity method investee |
50,607 |
|
|
54,445 |
|
Other long-term assets |
14,407 |
|
|
18,866 |
|
Non-current assets held for sale |
— |
|
|
25,385 |
|
Total assets |
$ |
1,793,252 |
|
|
$ |
1,811,238 |
|
LIABILITIES AND
EQUITY |
|
|
|
Current
liabilities |
|
|
|
Trade payables |
$ |
114,708 |
|
|
$ |
108,560 |
|
Accrued liabilities |
70,236 |
|
|
72,782 |
|
Deferred revenue |
9,138 |
|
|
9,029 |
|
Current portion of long-term debt |
12,510 |
|
|
12,510 |
|
Current portion of tax receivable agreement |
15,457 |
|
|
34,601 |
|
Current liabilities held for sale |
— |
|
|
4,615 |
|
Total current liabilities |
222,049 |
|
|
242,097 |
|
Non-current
liabilities |
|
|
|
Long-term debt |
1,176,095 |
|
|
1,181,277 |
|
Long-term capital leases |
134,948 |
|
|
4,155 |
|
Deferred tax liabilities |
46,615 |
|
|
67,481 |
|
Deferred gain on sale-leaseback |
9,338 |
|
|
75,743 |
|
Other long-term liabilities |
22,667 |
|
|
25,032 |
|
Long-term tax receivable agreement |
73,318 |
|
|
82,962 |
|
Total liabilities |
1,685,030 |
|
|
1,678,747 |
|
Commitments and Contingencies |
|
|
|
Equity |
|
|
|
Common stock, $0.001 par value. 190,000 shares authorized; 64,206
and 64,231 shares issued and outstanding at December 31, 2018 and
December 31, 2017, respectively |
18 |
|
|
18 |
|
Additional paid-in-capital |
234,931 |
|
|
230,023 |
|
Accumulated other comprehensive loss |
(10,740 |
) |
|
(5,098 |
) |
Retained deficit |
(115,987 |
) |
|
(92,452 |
) |
Total shareholders' equity |
108,222 |
|
|
132,491 |
|
Total liabilities and shareholders' equity |
$ |
1,793,252 |
|
|
$ |
1,811,238 |
|
FORTERRA,
INC.Consolidated Statements of Cash
Flows(in thousands)
|
Year endedDecember 31, |
|
2018 |
|
2017 |
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
|
|
Net loss |
$ |
(24,365 |
) |
|
$ |
(2,060 |
) |
Adjustments to reconcile net loss to net cash provided by operating
activities: |
Depreciation & amortization expense |
105,423 |
|
|
115,659 |
|
(Gain) / loss on business divestiture |
(6,016 |
) |
|
32,278 |
|
(Gain) / loss on disposal of property, plant and equipment |
(4,266 |
) |
|
2,107 |
|
Amortization of debt discount and issuance costs |
8,143 |
|
|
8,123 |
|
Stock-based compensation expense |
6,240 |
|
|
3,696 |
|
Impairment on property, plant, and equipment and goodwill |
956 |
|
|
10,551 |
|
Earnings from equity method investee |
(10,162 |
) |
|
(12,360 |
) |
Distributions from equity method investee |
13,141 |
|
|
13,717 |
|
Unrealized gain on derivative instruments, net |
(1,408 |
) |
|
(5,251 |
) |
Unrealized foreign currency gains, net |
(527 |
) |
|
(615 |
) |
Provision (recoveries) for doubtful accounts |
(1,224 |
) |
|
2,947 |
|
Deferred income taxes |
(20,768 |
) |
|
(25,496 |
) |
Tax receivable agreement non-cash items |
— |
|
|
(46,180 |
) |
Deferred rent |
1,373 |
|
|
2,616 |
|
Other non-cash items |
83 |
|
|
196 |
|
Change in assets and liabilities: |
|
|
|
Receivables, net |
(2,466 |
) |
|
(16,831 |
) |
Inventories |
(45,313 |
) |
|
1,838 |
|
Other current assets |
8,657 |
|
|
(24,003 |
) |
Accounts payable and accrued liabilities |
(4,548 |
) |
|
(19,424 |
) |
Other assets & liabilities |
4,243 |
|
|
826 |
|
NET CASH PROVIDED BY OPERATING
ACTIVITIES |
27,196 |
|
|
42,334 |
|
CASH FLOWS FROM INVESTING
ACTIVITIES |
|
|
|
Purchase of property, plant and equipment, and intangible
assets |
(50,609 |
) |
|
(52,514 |
) |
Proceeds from business divestiture |
618 |
|
|
23,200 |
|
Proceeds from sale of fixed assets |
8,429 |
|
|
— |
|
Settlement of net investment hedges |
(4,990 |
) |
|
— |
|
Assets and liabilities acquired, business combinations, net |
(4,500 |
) |
|
(36,709 |
) |
NET CASH USED IN INVESTING
ACTIVITIES |
(51,052 |
) |
|
(66,023 |
) |
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
Payment of debt issuance costs |
— |
|
|
(2,498 |
) |
Payments on senior term loan |
(12,510 |
) |
|
(12,008 |
) |
Proceeds from senior term loan, net |
— |
|
|
200,000 |
|
Proceeds from revolver |
— |
|
|
194,000 |
|
Payments on revolver |
— |
|
|
(293,000 |
) |
Payment pursuant to tax receivable agreement |
(30,407 |
) |
|
— |
|
Other financing activities |
(534 |
) |
|
(244 |
) |
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES |
(43,451 |
) |
|
86,250 |
|
Effect of exchange rate
changes on cash |
(1,434 |
) |
|
1,949 |
|
Net change in cash and cash
equivalents |
(68,741 |
) |
|
64,510 |
|
Cash and cash equivalents,
beginning of period |
104,534 |
|
|
40,024 |
|
Cash and cash equivalents, end
of period |
$ |
35,793 |
|
|
$ |
104,534 |
|
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 net income (loss)
before net interest expense, depreciation and amortization, income
tax (expense) benefit, and before loss (gain) on sale of property,
plant and equipment, impairment and exit charges, transaction
costs, inventory step-up impacting margins, loss on business
divestitures, non-cash compensation and certain other income and
expenses, such as the change in the tax receivable agreement
liability. Adjusted EBITDA margin represents adjusted EBITDA as a
percentage of net sales. Prior period amounts have been
adjusted to reflect the current period calculation of adjusted
EBITDA.
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 that 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 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 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 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.
FORTERRA,
INC.Reconciliation of net income (loss) to
adjusted EBITDA(in thousands)
|
Three months ended December 31, |
|
Year ended December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
unaudited |
|
unaudited |
|
|
|
|
Net income (loss) |
$ |
(16,952 |
) |
|
$ |
43,158 |
|
|
$ |
(24,365 |
) |
|
$ |
(2,060 |
) |
Interest expense |
25,344 |
|
|
13,206 |
|
|
78,337 |
|
|
59,408 |
|
Depreciation and
amortization |
26,053 |
|
|
28,196 |
|
|
105,423 |
|
|
115,659 |
|
Income tax (benefit)
expense |
(3,266 |
) |
|
(15,224 |
) |
|
3,085 |
|
|
(40,672 |
) |
EBITDA1 |
31,179 |
|
|
69,336 |
|
|
162,480 |
|
|
132,335 |
|
(Gain) loss on sale of
property, plant & equipment, net2 |
(1,820 |
) |
|
358 |
|
|
(4,267 |
) |
|
2,107 |
|
Impairment and exit
charges3 |
445 |
|
|
216 |
|
|
4,336 |
|
|
13,220 |
|
Transaction costs4 |
298 |
|
|
1,452 |
|
|
2,541 |
|
|
7,743 |
|
Inventory step-up impacting
margin5 |
— |
|
|
282 |
|
|
464 |
|
|
2,433 |
|
Loss on business
divestitures6 |
— |
|
|
672 |
|
|
— |
|
|
32,278 |
|
Non-cash compensation7 |
1,652 |
|
|
1,008 |
|
|
6,240 |
|
|
3,696 |
|
Change in tax receivable
agreement liability8 |
— |
|
|
(45,440 |
) |
|
— |
|
|
(46,180 |
) |
Other (gains) losses9 |
— |
|
|
360 |
|
|
(6,688 |
) |
|
(117 |
) |
Earnings from equity method
investee 10 |
(2,417 |
) |
|
(2,911 |
) |
|
(10,162 |
) |
|
(12,360 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 11 |
3,553 |
|
|
3,995 |
|
|
13,751 |
|
|
16,666 |
|
Adjusted EBITDA |
$ |
32,890 |
|
|
$ |
29,328 |
|
|
$ |
168,695 |
|
|
$ |
151,821 |
|
Adjusted EBITDA margin |
9.7 |
% |
|
8.1 |
% |
|
11.4 |
% |
|
9.6 |
% |
Gross profit |
58,755 |
|
|
56,438 |
|
|
245,569 |
|
|
253,108 |
|
Gross profit margin |
17.3 |
% |
|
15.6 |
% |
|
16.6 |
% |
|
16.0 |
% |
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 facilities. |
3 |
Impairment of goodwill and long-lived assets and other exit and
disposal costs. |
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, 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 |
Adjustments to the estimated value of the tax receivable agreement
due primarily to the December 2017 Tax Cuts and Jobs Act. |
9 |
Other (gains) 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. |
10 |
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. Prior to the quarter ended September
30, 2018, Forterra did not adjust for this item in its calculation
of Adjusted EBITDA. |
11 |
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 Adjusted EBITDA. |
FORTERRA,
INC.Reconciliation of segment EBITDA to segment
adjusted EBITDA(in thousands)
For the three months
ended December 31, 2018: |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
33,894 |
|
|
$ |
15,624 |
|
|
$ |
(18,339 |
) |
|
$ |
31,179 |
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
property, plant & equipment, net2 |
(2,179 |
) |
|
344 |
|
|
15 |
|
|
(1,820 |
) |
Impairment and exit
charges3 |
153 |
|
|
292 |
|
|
— |
|
|
445 |
|
Transaction costs4 |
— |
|
|
— |
|
|
298 |
|
|
298 |
|
Inventory step-up impacting
margin5 |
— |
|
|
— |
|
|
— |
|
|
— |
|
Loss on divestitures6 |
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-cash compensation7 |
410 |
|
|
50 |
|
|
1,192 |
|
|
1,652 |
|
Other (gains) losses9 |
401 |
|
|
(401 |
) |
|
— |
|
|
— |
|
Earnings from equity method
investee 10 |
(2,417 |
) |
|
— |
|
|
— |
|
|
(2,417 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 11 |
3,553 |
|
|
— |
|
|
— |
|
|
3,553 |
|
Adjusted EBITDA |
$ |
33,815 |
|
|
$ |
15,909 |
|
|
$ |
(16,834 |
) |
|
$ |
32,890 |
|
Adjusted EBITDA margin |
17.8 |
% |
|
10.7 |
% |
|
NM |
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
189,951 |
|
|
$ |
149,204 |
|
|
$ |
— |
|
|
$ |
339,155 |
|
Gross profit |
$ |
41,078 |
|
|
$ |
17,831 |
|
|
$ |
(154 |
) |
|
$ |
58,755 |
|
For the three months
ended December 31, 2017: |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
30,786 |
|
|
$ |
16,706 |
|
|
$ |
21,844 |
|
|
$ |
69,336 |
|
|
|
|
|
|
|
|
|
Loss on sale of property,
plant & equipment, net2 |
19 |
|
|
339 |
|
|
— |
|
|
358 |
|
Impairment and exit
charges3 |
— |
|
|
216 |
|
|
— |
|
|
216 |
|
Transaction costs4 |
— |
|
|
— |
|
|
1,452 |
|
|
1,452 |
|
Inventory step-up impacting
margin5 |
282 |
|
|
— |
|
|
— |
|
|
282 |
|
Loss on divestitures6 |
— |
|
|
672 |
|
|
— |
|
|
672 |
|
Non-cash compensation7 |
257 |
|
|
34 |
|
|
717 |
|
|
1,008 |
|
Change in tax receivable
agreement liability8 |
— |
|
|
— |
|
|
(45,440 |
) |
|
(45,440 |
) |
Other (gains) losses9 |
29 |
|
|
— |
|
|
331 |
|
|
360 |
|
Earnings from equity method
investee 10 |
(2,911 |
) |
|
— |
|
|
— |
|
|
(2,911 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 11 |
3,995 |
|
|
— |
|
|
— |
|
|
3,995 |
|
Adjusted EBITDA |
$ |
32,457 |
|
|
$ |
17,967 |
|
|
$ |
(21,096 |
) |
|
$ |
29,328 |
|
Adjusted EBITDA margin |
15.9 |
% |
|
11.5 |
% |
|
NM |
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
204,610 |
|
|
$ |
156,556 |
|
|
$ |
3 |
|
|
$ |
361,169 |
|
Gross profit |
$ |
35,418 |
|
|
$ |
21,993 |
|
|
$ |
(973 |
) |
|
$ |
56,438 |
|
FORTERRA,
INC.Reconciliation of segment EBITDA to segment
adjusted EBITDA(in thousands)
For the year ended
December 31, 2018: |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
156,735 |
|
|
$ |
64,547 |
|
|
$ |
(58,802 |
) |
|
$ |
162,480 |
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of
property, plant & equipment, net2 |
(5,598 |
) |
|
1,316 |
|
|
15 |
|
|
(4,267 |
) |
Impairment and exit
charges3 |
1,886 |
|
|
2,458 |
|
|
(8 |
) |
|
4,336 |
|
Transaction costs4 |
— |
|
|
— |
|
|
2,541 |
|
|
2,541 |
|
Inventory step-up impacting
margin5 |
464 |
|
|
— |
|
|
— |
|
|
464 |
|
Non-cash compensation7 |
1,695 |
|
|
256 |
|
|
4,289 |
|
|
6,240 |
|
Change in tax receivable
agreement liability8 |
— |
|
|
— |
|
|
— |
|
|
— |
|
Other (gains) losses9 |
920 |
|
|
(1,671 |
) |
|
(5,937 |
) |
|
(6,688 |
) |
Earnings from equity method
investee 10 |
(10,162 |
) |
|
— |
|
|
— |
|
|
(10,162 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 11 |
13,751 |
|
|
— |
|
|
— |
|
|
13,751 |
|
Adjusted EBITDA |
$ |
159,691 |
|
|
$ |
66,906 |
|
|
$ |
(57,902 |
) |
|
$ |
168,695 |
|
Adjusted EBITDA margin |
19.7 |
% |
|
10.0 |
% |
|
NM |
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
811,477 |
|
|
$ |
668,235 |
|
|
$ |
— |
|
|
$ |
1,479,712 |
|
Gross profit |
$ |
174,786 |
|
|
$ |
71,471 |
|
|
$ |
(688 |
) |
|
$ |
245,569 |
|
For the year ended
December 31, 2017: |
Drainage Pipe & Products |
|
Water Pipe & Products |
|
Corporate and Other |
|
Total |
EBITDA1 |
$ |
129,618 |
|
|
$ |
47,587 |
|
|
$ |
(44,870 |
) |
|
$ |
132,335 |
|
|
|
|
|
|
|
|
|
Loss on sale of property,
plant & equipment, net2 |
15 |
|
|
2,092 |
|
|
— |
|
|
2,107 |
|
Impairment and exit
charges3 |
(14 |
) |
|
12,395 |
|
|
839 |
|
|
13,220 |
|
Transaction costs4 |
— |
|
|
— |
|
|
7,743 |
|
|
7,743 |
|
Inventory step-up impacting
margin5 |
2,433 |
|
|
— |
|
|
— |
|
|
2,433 |
|
Loss on divestitures6 |
— |
|
|
32,278 |
|
|
— |
|
|
32,278 |
|
Non-cash compensation7 |
711 |
|
|
379 |
|
|
2,606 |
|
|
3,696 |
|
Change in tax receivable
agreement liability8 |
— |
|
|
— |
|
|
(46,180 |
) |
|
(46,180 |
) |
Other (gains) losses9 |
29 |
|
|
(942 |
) |
|
796 |
|
|
(117 |
) |
Earnings from equity method
investee 10 |
(12,360 |
) |
|
— |
|
|
— |
|
|
(12,360 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 11 |
16,666 |
|
|
— |
|
|
— |
|
|
16,666 |
|
Adjusted EBITDA |
$ |
137,098 |
|
|
$ |
93,789 |
|
|
$ |
(79,066 |
) |
|
$ |
151,821 |
|
Adjusted EBITDA margin |
16.4 |
% |
|
12.6 |
% |
|
NM |
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
Net sales |
$ |
834,810 |
|
|
$ |
745,555 |
|
|
$ |
48 |
|
|
$ |
1,580,413 |
|
Gross profit |
$ |
147,741 |
|
|
$ |
108,320 |
|
|
$ |
(2,953 |
) |
|
$ |
253,108 |
|
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 facilities. |
3 |
Impairment of goodwill and long-lived assets and other exit and
disposal costs. |
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, 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 |
Adjustments to the estimated value of the tax receivable agreement
due primarily to the December 2017 Tax Cuts and Jobs Act. |
9 |
Other (gains) 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. |
10 |
Net income from Forterra's 50% ownership in the CP&P joint
venture accounted for under the equity method of accounting. Prior
to the quarter ended September 30, 2018, Forterra did not adjust
for this item in its calculation of Adjusted EBITDA. |
11 |
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 Adjusted EBITDA. |
FORTERRA,
INC.Reconciliation of Net Income to Adjusted
EBITDA Guidance for Full Year 2019(in millions)
|
|
FY 2019 Adjusted EBITDA Guidance |
|
|
Low |
|
High |
Net Loss |
|
$ |
(38 |
) |
|
$ |
(16 |
) |
Interest expense |
|
90 |
|
|
92 |
|
Income tax expense |
|
10 |
|
|
16 |
|
Depreciation and
amortization |
|
104 |
|
|
104 |
|
Other EBITDA adjustments |
|
4 |
|
|
4 |
|
Adjusted EBITDA |
|
$ |
170 |
|
|
$ |
200 |
|
Source: Forterra, Inc.
Company Contact Information:
David J. LawrenceVice President of Treasury and Investor
Relations469-299-9113IR@forterrabp.com
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