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CST: 25/08/2019 15:10:12   

Forterra Announces First Quarter 2019 Results

110 Days ago

Highlights

  • Net sales ahead of last year supported by pricing gains in both segments
  • Income from operations increased by $9 million compared to first quarter 2018
  • Gross profit as a percent of net sales improved by 240 basis points

IRVING, Texas, May 06, 2019 (GLOBE NEWSWIRE) -- 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 March 31, 2019.

CEO Commentary
Forterra CEO Jeff Bradley commented, “Our first quarter results were slightly ahead of our internal operating plan and represent a good start to the year.  In both of our business segments, backlogs and pricing levels strengthened.  Both segments realized higher gross profits as a percentage of net sales, and we remain focused on delivering further improvements in operating efficiencies and margins.  Recent investments in plant productivity and inventory position us well to meet our customers' needs as we head into the busier portion of the construction season.  As a result, we reiterate our full year expectations for net earnings and Adjusted EBITDA1."

First Quarter 2019 Consolidated Results
First quarter 2019 net sales were $291.9 million, compared to $290.0 million in the prior year quarter. Net loss for the quarter was $25.0 million, or $0.39 per share, compared to a net loss of $19.9 million, or $0.31 per share, in the prior year quarter.  Excluding the gain from a divestiture transaction in first quarter 2018, net loss was flat.  Adjusted EBITDA for the first quarter was up 23.2% to $19.9 million, compared to $16.22 million in the prior year quarter.

____________
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.
   

Drainage Pipe & Products (“Drainage”) - First Quarter 2019 Results
Drainage net sales increased to $163.7 million, compared to $155.6 million in the prior year quarter.  Net sales grew by over 5% 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 the Eastern U.S.

Drainage gross profit and gross profit margin were $31.4 million and 19.2%, compared to $26.4 million and 17.0%, respectively, in the prior year quarter.  Drainage EBITDA and Adjusted EBITDA were $25.1 million and $26.5 million, respectively, compared to $21.2 million and $23.4 million, respectively, in the prior year quarter.  The higher gross profit, gross profit margin, EBITDA and Adjusted EBITDA primarily reflect the benefit of higher average selling prices, cost controls from operational excellence initiatives and lower rent expense somewhat offset by higher input costs.

Water Pipe & Products (“Water”) - First Quarter 2019 Results
Water net sales decreased to $128.1 million, compared to $134.3 million in the prior year quarter, primarily due to lower volumes driven by heavy rains along both the east and west coasts - including record rainfall in California - that were partially offset by improvements in average selling prices.

Despite the decline in volumes, Water gross profit and gross profit margin in the first quarter increased to $10.7 million and 8.4%, respectively, compared to $8.1 million and 6.0%, respectively, in the prior year quarter.  Water EBITDA and Adjusted EBITDA in the first quarter both increased to $8.7 million, compared to $6.9 million and $7.7 million, respectively, in the prior year quarter.  The improvements in gross profit, gross profit margin, EBITDA and Adjusted EBITDA were driven by higher average selling prices, manufacturing efficiencies and the lost sales in the 2018 period due to the outage at our Bessemer facility, partially offset by raw material pricing increases and lower volumes.

Corporate and Other (“Corporate”) - First Quarter 2019 Results
Corporate EBITDA and Adjusted EBITDA loss of $17.1 million and $15.3 million, respectively, in the first quarter of 2019 compared to EBITDA and Adjusted EBITDA loss of $10.9 million and $15.0 million, respectively, in the prior year quarter.  The year-over-year change in Corporate EBITDA was caused by a non-cash gain of $6.0 million related to a divestiture transaction in the first quarter of 2018.

Balance Sheet and Liquidity
As of March 31, 2019, we had cash of $8.2 million, outstanding debt on our senior term loan of $1.2 billion and a $42.0 million borrowing under our $300.0 million asset based revolving credit facility. Production will be managed to balance working capital needs, and as such we expect to draw further on our revolving credit facility through the second quarter to support our seasonal working capital requirements.

Financial Outlook
The Company continues to expect full year 2019 net loss will be in the range of $16 million to $38 million and Adjusted EBITDA in the range from $170 million to $200 million.  Supporting this guidance, we anticipate further strengthening in public infrastructure spending, continued positive pricing trends and stabilizing input costs.  We remain focused on executing commercial and operational initiatives geared toward improving operating margins and cash flow.  In the second half, we expect to pay down our asset-based revolving credit facility, rebuild our cash position and make an expected $30 million to $85 million voluntary repayment on our term loan.

Drainage - Key Financial Statistics:

($ in millions)    
         
    Q1 2019   Q1 2018
         
Net Sales   $ 163.7     $ 155.6  
Gross Profit   31.4     26.4  
EBITDA   25.1     21.2  
Adjusted EBITDA   26.5     23.4  
Gross Profit Margin   19.2 %   17.0 %
Adjusted EBITDA Margin   16.2 %   15.0 %
             

Water - Key Financial Statistics:

($ in millions)    
         
    Q1 2019   Q1 2018
         
Net Sales   $ 128.1     $ 134.3  
Gross Profit   10.7     8.1  
EBITDA   8.7     6.9  
Adjusted EBITDA   8.7     7.7  
Gross Profit Margin   8.4 %   6.0 %
Adjusted EBITDA Margin   6.8 %   5.7 %
             

Conference Call and Webcast Information
Forterra will host a conference call to review first quarter 2019 results on May 7, 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 7375814. 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 Forterra
Forterra 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 Statements
This 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 and Quarterly Reports on Form 10-Q, for additional information regarding the risks and uncertainties that may cause actual results to differ materially from those expressed in any forward-looking statement.


Condensed Consolidated Statements of Operations
(in thousands, except per share data)

    Three months ended
    March 31,
    2019 2018
    (unaudited)
Net sales   $ 291,858   $ 289,960  
Cost of goods sold   250,053   255,595  
Gross profit   41,805   34,365  
Selling, general & administrative expenses   (51,391 ) (51,862 )
Impairment and exit charges   (231 ) (1,445 )
Other operating income, net   579   790  
    (51,043 ) (52,517 )
Loss from operations   (9,238 ) (18,152 )
       
Other income (expense)      
Interest expense   (24,665 ) (13,308 )
Earnings from equity method investee   1,567   1,849  
Other income, net     6,016  
Loss before income taxes   (32,336 ) (23,595 )
Income tax benefit   7,297   3,685  
Net loss   $ (25,039 ) $ (19,910 )
       
Basic and Diluted loss per share:      
Net loss   $ (0.39 ) $ (0.31 )
       
Weighted average common shares outstanding:      
Basic and Diluted   64,004   63,838  
           


Condensed Consolidated Balance Sheets
(in thousands)

  March 31,
 2019
  December 31,
 2018
ASSETS (unaudited)    
Current assets      
Cash and cash equivalents $ 8,175     $ 35,793  
Receivables, net 206,283     198,468  
Inventories 305,534     285,030  
Other current assets 31,801     24,798  
Total current assets 551,793     544,089  
Non-current assets      
Property, plant and equipment, net 496,741     492,167  
Operating lease right-of-use assets 63,397      
Goodwill 508,473     508,193  
Intangible assets, net 178,450     183,789  
Investment in equity method investee 50,674     50,607  
Other long-term assets 2,389     14,407  
Total assets $ 1,851,917     $ 1,793,252  
       
LIABILITIES AND EQUITY      
Current liabilities      
Trade payables $ 118,379     $ 114,708  
Accrued liabilities 59,798     70,236  
Deferred revenue 8,948     9,138  
Current portion of long-term debt 12,510     12,510  
Current portion of tax receivable agreement 15,457     15,457  
Total current liabilities 215,092     222,049  
Non-current liabilities      
Long term debt 1,214,659     1,176,095  
Long-term finance lease liabilities 135,520     134,948  
Long-term operating lease liabilities 58,420      
Deferred tax liabilities 43,069     46,615  
Deferred gain on sale-leaseback     9,338  
Other long-term liabilities 18,315     22,667  
Long-term tax receivable agreement 73,318     73,318  
Total liabilities 1,758,393     1,685,030  
Equity      
Common stock, $0.001 par value, 190,000 shares authorized; 64,263 and 64,206 shares issued and outstanding 18     18  
Additional paid-in-capital 236,434     234,931  
Accumulated other comprehensive loss (8,859 )   (10,740 )
Retained deficit (134,069 )   (115,987 )
Total shareholders' equity 93,524     108,222  
Total liabilities and shareholders' equity $ 1,851,917     $ 1,793,252  
               


Condensed Consolidated Statements of Cash Flows
(in thousands)

    Three months ended
    March 31,
    2019   2018
     
CASH FLOWS FROM OPERATING ACTIVITIES   (unaudited)
Net loss   $ (25,039 )   $ (19,910 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation & amortization expense   24,392     27,412  
(Gain) / loss on business divestiture       (6,016 )
(Gain) / loss on disposal of property, plant and equipment   (53 )   53  
Amortization of debt discount and issuance costs   1,999     2,017  
Stock-based compensation expense   1,529     1,154  
Earnings from equity method investee   (1,567 )   (1,849 )
Distributions from equity method investee   1,500      
Unrealized loss / (gain) on derivative instruments, net   2,092     (3,349 )
Unrealized foreign currency gains, net   (260 )   (187 )
Provision (recoveries) for doubtful accounts   487     (614 )
Deferred taxes   (5,927 )   (8,644 )
Deferred rent       585  
Other non-cash items   387     457  
Change in assets and liabilities:        
Receivables, net   (8,145 )   (3 )
Inventories   (20,100 )   (30,772 )
Other current assets   (2,860 )   2,870  
Accounts payable and accrued liabilities   (12,447 )   (7,980 )
Other assets & liabilities   57     1,435  
NET CASH USED IN OPERATING ACTIVITIES   (43,955 )   (43,341 )
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of property, plant and equipment, and intangible assets   (22,949 )   (9,273 )
Proceeds from sale of fixed assets   174      
Settlement of net investment hedges       (4,990 )
Business combinations, net of cash acquired       10,055  
NET CASH USED IN INVESTING ACTIVITIES   (22,775 )   (4,208 )
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Payments on term loans   (3,128 )   (3,128 )
Proceeds from revolver   42,000      
Other financing activities   (183 )   (136 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   38,689     (3,264 )
Effect of exchange rate changes on cash   423     (366 )
Net change in cash and cash equivalents   (27,618 )   (51,179 )
Cash and cash equivalents, beginning of period   35,793     104,534  
Cash and cash equivalents, end of period   $ 8,175     $ 53,355  
         
SUPPLEMENTAL DISCLOSURES:                
Cash interest paid   $ 18,987     $ 14,096  
Income taxes paid   1,209     899  
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  
Leased assets obtained in exchange for new lease liabilities   1,609      
             


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.  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 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 March 31,
    2019   2018
     
    (unaudited)
Net loss   $ (25,039 )   $ (19,910 )
Interest expense   24,665     13,308  
Depreciation and amortization   24,392     27,412  
Income tax benefit   (7,297 )   (3,685 )
EBITDA1   16,721     17,125  
(Gain) loss on sale of property, plant & equipment, net2   (53 )   53  
Impairment and exit charges3   231     1,445  
Transaction costs4   420     1,161  
Inventory step-up impacting margin5   93     173  
Non-cash compensation6   1,529     1,154  
Other (gains) losses7       (5,976 )
Earnings from equity method investee8   (1,567 )   (1,849 )
Pro-rata share of Adjusted EBITDA from equity method investee9   2,536     2,878  
Adjusted EBITDA   $ 19,910     $ 16,164  
Adjusted EBITDA margin   6.8 %   5.6 %
Gross profit   $ 41,805     $ 34,365  
Gross profit margin   14.3 %   11.9 %



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 Non-cash equity compensation expense.
7 Other (gains) or losses includes the non-cash gain on a divestiture transaction completed in January 2018.
8 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 period amounts have been adjusted to reflect the current period calculation of Adjusted EBITDA.
9 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 period amounts have been adjusted to reflect the current period calculation of Adjusted EBITDA.
   


Reconciliation of segment EBITDA to segment Adjusted EBITDA
(in thousands)

Three months ended March 31, 2019 Drainage
Pipe &
Products
  Water Pipe &
Products
  Corporate
and Other
  Total
EBITDA1 $ 25,066     $ 8,741     $ (17,086 )   $ 16,721  
(Gain) loss on sale of property, plant & equipment, net2 (140 )   87         (53 )
Impairment and exit charges3 23     208         231  
Transaction costs4         420     420  
Inventory step-up impacting margin5 93             93  
Non-cash compensation6 72     49     1,408     1,529  
Other (gains) losses 401     (401 )        
Earnings from equity method investee8 (1,567 )           (1,567 )
Pro-rata share of Adjusted EBITDA from equity method investee 9 2,536             2,536  
Adjusted EBITDA $ 26,484     $ 8,684     $ (15,258 )   $ 19,910  
Adjusted EBITDA margin 16.2 %   6.8 %     NM     6.8 %
               
Net sales $ 163,734     $ 128,124     $     $ 291,858  
Gross Profit 31,433     10,735     (363 )   41,805  


Three months ended March 31, 2018 Drainage
Pipe &
Products
  Water Pipe &
Products
  Corporate
and Other
  Total
EBITDA1 $ 21,159     $ 6,909     $ (10,943 )   $ 17,125  
(Gain) loss on sale of property, plant & equipment, net2 (325 )   378         53  
Impairment and exit charges3 1,161     292     (8 )   1,445  
Transaction costs4         1,161     1,161  
Inventory step-up impacting margin5 173             173  
Non-cash compensation6 240     164     750     1,154  
Other (gains) losses7 (16 )       (5,960 )   (5,976 )
Earnings from equity method investee 8 (1,849 )           (1,849 )
Pro-rata share of Adjusted EBITDA from equity method investee 9 2,878             2,878  
Adjusted EBITDA $ 23,421     $ 7,743     $ (15,000 )   $ 16,164  
Adjusted EBITDA margin 15.0 %   5.8 %     NM     5.6 %
               
Net sales $ 155,645     $ 134,313     $ 2     $ 289,960  
Gross Profit 26,416     8,083     (134 )   34,365  


NM Not meaningful
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 Non-cash equity compensation expense.
7 Other (gains) or losses includes the non-cash gain on a divestiture transaction completed in January 2018.
8 Net income from Forterra's 50% ownership in the CP&P joint venture accounted for under the equity method of accounting. Prior period amounts have been adjusted to reflect the current period calculation of Adjusted EBITDA.
9 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 period amounts have been adjusted to reflect the current period calculation of Adjusted EBITDA.
   

         

Reconciliation of Net Loss to Adjusted EBITDA Guidance for Full Year 2019
(in millions)

    Full Year 2019 Guidance
    Low   High
Net loss   $ (38 )   $ (16 )
Interest expense   90     92  
Income tax benefit   10     16  
Depreciation and amortization   104     104  
Other EBITDA adjustments   4     4  
Adjusted EBITDA   $ 170     $ 200  


Source: Forterra, Inc.


Company Contact Information:

Charlie Brown
Executive Vice President and Chief Financial Officer
469-299-9113
IR@forterrabp.com


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