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Second Quarter Highlights
- Higher Income from operations, EBITDA and Adjusted EBITDA1 in the Drainage segment due to higher selling prices and mitigation of inflationary cost pressures
- Lower Corporate costs as a result of reduced consulting spend and continued cost savings initiatives
- Net income of
$7.0 million and Adjusted EBITDA of$57.6 million
CEO Commentary
Bradley continued, “Our Water segment has proven to be more challenging than we previously expected in the face of continued higher average scrap costs on both a sequential quarter and year over year basis that have not yet been offset by higher average selling prices. In response, we are taking price and cost actions to better capitalize on strong market demand. Our pricing initiatives are gaining momentum and we are seeing the benefit in our bookings and in our backlog. We are implementing an initiative focused on improving margins through a number of commercial and operational enhancements, including our recently announced senior leadership organizational realignment. Market demand for ductile iron pipe in the first half of 2018 was well above levels seen in 2017, and the outlook for the next twelve months appears strong, as supported by our backlog and discussions with our customers. We are committed to increasing our margins in Water, and I believe that we are taking the right steps.”
Second Quarter 2018 Consolidated Results
Second quarter 2018 net sales of
Drainage Pipe & Products (“Drainage”) - Second Quarter 2018 Results
Drainage net sales increased to
Drainage gross profit and gross profit margin were
Water Pipe & Products (“Water”) - Second Quarter 2018 Results
Water net sales decreased to
Water gross profit and gross profit margin in the second quarter were
Corporate and Other (“Corporate”) - Second Quarter 2018 Results
Corporate EBITDA and Adjusted EBITDA losses of
Balance Sheet and Liquidity
On
Organizational Realignment of Water Pipe & Products
In
Amendment and Restatement of Existing Sale-Leaseback Arrangement
As previously announced in
Certain modifications to the SLB, including an increase in the lease term, resulted in a change in accounting treatment for a portion of the SLB from an operating lease to a finance lease effective with the completion of the transaction in early
In the
Financial Outlook
For the third quarter of 2018, the Company expects that net income will range from
- Continued gradual year over year improvement in Drainage, including expected net sales growth on the benefit of higher shipments and higher average selling prices mitigating the impact of continued cost inflation
- Lower expected EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin in Water, as compared to the same quarter last year, due primarily to higher scrap costs, as well as higher labor and freight costs, not yet fully offset by higher average selling prices
- Corporate costs of
$15 to$16 million , consistent with previously provided expectations. As compared to the average quarterly Corporate costs of approximately$14 million in the first half of 2018, the Q3 2018 Corporate cost reflects the timing of certain cost accruals and the completion of a transition service agreement that provided an income offset to Corporate expenses in the first half of 2018.
Drainage - Key Financial Statistics:
($ in millions) | |||||||
Q2 2018 | Q2 2017 | ||||||
$ | 222.9 | $ | 221.5 | ||||
Gross Profit | 49.8 | 43.1 | |||||
EBITDA | 48.4 | 40.1 | |||||
Adjusted EBITDA | 46.4 | 40.5 | |||||
Gross Profit Margin | 22.4 | % | 19.5 | % | |||
Adjusted EBITDA Margin | 20.8 | % | 18.3 | % |
Water - Key Financial Statistics:
($ in millions) | |||||||
Q2 2018 | Q2 2017 | ||||||
$ | 193.2 | $ | 215.2 | ||||
Gross Profit | 25.6 | 33.3 | |||||
EBITDA | 24.2 | 17.9 | |||||
Adjusted EBITDA | 24.3 | 29.6 | |||||
Gross Profit Margin | 13.3 | % | 15.5 | % | |||
Adjusted EBITDA Margin | 12.6 | % | 13.8 | % |
Conference Call and Webcast Information
About
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
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended | Six months ended | ||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||
(unaudited) | (unaudited) | ||||||||||||
Net sales | $ | 416,087 | $ | 436,685 | $ | 706,047 | $ | 774,987 | |||||
Cost of goods sold | 340,774 | 361,089 | 596,369 | 660,424 | |||||||||
Gross profit | 75,313 | 75,596 | 109,678 | 114,563 | |||||||||
Selling, general & administrative expenses | (51,263 | ) | (67,297 | ) | (103,125 | ) | (132,598 | ) | |||||
Impairment and exit charges | (276 | ) | (11,376 | ) | (1,721 | ) | (11,811 | ) | |||||
Earnings from equity method investee | 3,672 | 3,342 | 5,521 | 6,513 | |||||||||
Other operating income, net | 4,536 | 2,010 | 5,326 | 3,243 | |||||||||
(43,331 | ) | (73,321 | ) | (93,999 | ) | (134,653 | ) | ||||||
Income (loss) from operations | 31,982 | 2,275 | 15,679 | (20,090 | ) | ||||||||
Other income (expense) | |||||||||||||
Interest expense | (17,745 | ) | (17,078 | ) | (31,053 | ) | (30,620 | ) | |||||
Other income, net | — | — | 6,016 | — | |||||||||
Income (loss) before income taxes | 14,237 | (14,803 | ) | (9,358 | ) | (50,710 | ) | ||||||
Income tax benefit (expense) | (7,243 | ) | 3,630 | (3,558 | ) | 16,994 | |||||||
Net income (loss) | $ | 6,994 | $ | (11,173 | ) | $ | (12,916 | ) | $ | (33,716 | ) | ||
Basic and Diluted earnings (loss) per share: | |||||||||||||
Net income (loss) | $ | 0.11 | $ | (0.18 | ) | $ | (0.20 | ) | $ | (0.53 | ) | ||
Weighted average common shares outstanding: | |||||||||||||
Basic | 63,893 | 63,793 | 63,865 | 63,791 | |||||||||
Diluted | 64,209 | 63,793 | 63,865 | 63,791 |
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
2018 |
2017 |
||||||
ASSETS | (unaudited) | ||||||
Current assets | |||||||
Cash and cash equivalents | $ | 30,182 | $ | 104,534 | |||
Receivables, net | 267,266 | 192,654 | |||||
Inventories | 275,850 | 236,655 | |||||
Prepaid expenses | 7,268 | 5,381 | |||||
Other current assets | 6,335 | 27,059 | |||||
Current assets held for sale | — | 12,242 | |||||
Total current assets | 586,901 | 578,525 | |||||
Non-current assets | |||||||
Property, plant and equipment, net | 489,527 | 412,572 | |||||
506,750 | 496,141 | ||||||
Intangible assets, net | 208,211 | 225,304 | |||||
Investment in equity method investee | 54,966 | 54,445 | |||||
Other long-term assets | 17,927 | 18,866 | |||||
Non-current assets held for sale | — | 25,385 | |||||
Total assets | $ | 1,864,282 | $ | 1,811,238 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities | |||||||
Trade payables | $ | 148,843 | $ | 108,560 | |||
Accrued liabilities | 66,415 | 72,782 | |||||
Deferred revenue | 10,263 | 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 | 272,632 | 242,097 | |||||
Non-current liabilities | |||||||
Long term debt | 1,178,665 | 1,181,277 | |||||
Long-term capital leases | 134,042 | 4,155 | |||||
Deferred tax liabilities | 45,075 | 67,481 | |||||
Deferred gain on sale-leaseback | 9,497 | 75,743 | |||||
Other long-term liabilities | 20,946 | 25,032 | |||||
Long-term tax receivable agreement | 82,962 | 82,962 | |||||
Total liabilities | 1,743,819 | 1,678,747 | |||||
Equity | |||||||
Common stock, |
18 | 18 | |||||
Additional paid-in-capital | 233,065 | 230,023 | |||||
Accumulated other comprehensive loss | (8,084 | ) | (5,098 | ) | |||
Retained deficit | (104,536 | ) | (92,452 | ) | |||
Total shareholders' equity | 120,463 | 132,491 | |||||
Total liabilities and shareholders' equity | $ | 1,864,282 | $ | 1,811,238 |
Condensed Consolidated Statements of Cash Flows
(in thousands)
Six months ended | |||||||
2018 | 2017 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | (unaudited) | ||||||
Net loss | $ | (12,916 | ) | $ | (33,716 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation & amortization expense | 53,449 | 58,305 | |||||
Gain on business divestiture | (6,016 | ) | — | ||||
(Gain) / loss on disposal of property, plant and equipment | (2,571 | ) | 1,194 | ||||
Amortization of debt discount and issuance costs | 4,050 | 3,994 | |||||
Stock-based compensation expense | 3,138 | 1,395 | |||||
Impairment charges | — | 10,551 | |||||
Earnings from equity method investee | (5,521 | ) | (6,513 | ) | |||
Distributions from equity method investee | 5,000 | 5,250 | |||||
Unrealized gain on derivative instruments, net | (4,220 | ) | (1,326 | ) | |||
Unrealized foreign currency gains, net | (195 | ) | (934 | ) | |||
Provision (recoveries) for doubtful accounts | (316 | ) | 1,398 | ||||
Deferred taxes | (22,722 | ) | (12,112 | ) | |||
Deferred rent | 979 | 1,122 | |||||
Other non-cash items | 471 | 110 | |||||
Change in assets and liabilities: | |||||||
Receivables, net | (72,062 | ) | (70,062 | ) | |||
Inventories | (35,625 | ) | (49,458 | ) | |||
Other current assets | 18,861 | (8,190 | ) | ||||
Accounts payable and accrued liabilities | 25,464 | (21,031 | ) | ||||
Other assets & liabilities | 4,094 | (6,021 | ) | ||||
(46,658 | ) | (126,044 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Purchase of property, plant and equipment | (17,629 | ) | (30,024 | ) | |||
Proceeds from sale of fixed assets | 4,874 | — | |||||
Settlement of net investment hedges | (4,990 | ) | — | ||||
Assets and liabilities acquired, business combinations, net | (2,914 | ) | (35,380 | ) | |||
(20,659 | ) | (65,404 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Payment of debt issuance costs | — | (2,498 | ) | ||||
Payments on term loans | (6,255 | ) | (5,753 | ) | |||
Proceeds from term loans, net | — | 200,000 | |||||
Proceeds from revolver | — | 194,000 | |||||
Payments on revolver | — | (213,000 | ) | ||||
Other financing activities | (265 | ) | (110 | ) | |||
(6,520 | ) | 172,639 | |||||
Effect of exchange rate changes on cash | (515 | ) | 809 | ||||
Net change in cash and cash equivalents | (74,352 | ) | (18,000 | ) | |||
Cash and cash equivalents, beginning of period | 104,534 | 40,024 | |||||
Cash and cash equivalents, end of period | $ | 30,182 | $ | 22,024 | |||
SUPPLEMENTAL DISCLOSURES: | |||||||
Cash interest paid | 30,613 | 26,465 | |||||
Income taxes paid | 4,608 | 25,882 | |||||
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 | (1,908 | ) | ||||
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
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 (loss) to Adjusted EBITDA
(in thousands)
Three months ended |
Six months ended |
||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Net income (loss) | $ | 6,994 | $ | (11,173 | ) | $ | (12,916 | ) | $ | (33,716 | ) | ||||
Interest expense | 17,745 | 17,078 | 31,053 | 30,620 | |||||||||||
Depreciation and amortization | 26,036 | 28,501 | 53,448 | 58,305 | |||||||||||
Income tax (benefit) expense | 7,243 | (3,630 | ) | 3,558 | (16,994 | ) | |||||||||
EBITDA1 | 58,018 | 30,776 | 75,143 | 38,215 | |||||||||||
(Gain) loss on sale of property, plant & equipment, net2 | (2,624 | ) | 420 | (2,571 | ) | 1,194 | |||||||||
Impairment and exit charges3 | 276 | 11,376 | 1,721 | 11,811 | |||||||||||
Transaction costs4 | 407 | 2,679 | 1,568 | 4,738 | |||||||||||
Inventory step-up impacting margin5 | 291 | 338 | 464 | 1,757 | |||||||||||
Non-cash compensation6 | 1,984 | 887 | 3,138 | 1,244 | |||||||||||
Other (gains) losses7 | (712 | ) | — | (6,688 | ) | (538 | ) | ||||||||
Adjusted EBITDA | $ | 57,640 | $ | 46,476 | $ | 72,775 | $ | 58,421 | |||||||
Adjusted EBITDA margin | 13.9 | % | 10.6 | % | 10.3 | % | 7.5 | % | |||||||
Gross profit | 75,313 | 75,596 | 109,678 | 114,563 | |||||||||||
Gross profit margin | 18.1 | % | 17.3 | % | 15.5 | % | 14.8 | % |
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, including the non-cash gain on a divestiture transaction completed in
Reconciliation of segment EBITDA to segment Adjusted EBITDA
(in thousands)
Three months ended |
Drainage Pipe & Products | Water Pipe & Products | Corporate and Other | Total | |||||||||||
EBITDA1 | $ | 48,411 | $ | 24,196 | $ | (14,589 | ) | $ | 58,018 | ||||||
(Gain) loss on sale of property, plant & equipment, net2 | (3,080 | ) | 456 | — | (2,624 | ) | |||||||||
Impairment and exit charges3 | 1 | 275 | — | 276 | |||||||||||
Transaction costs4 | — | — | 407 | 407 | |||||||||||
Inventory step-up impacting margin5 | 291 | — | — | 291 | |||||||||||
Non-cash compensation6 | 635 | 199 | 1,150 | 1,984 | |||||||||||
Other (gains) losses7 | 134 | (869 | ) | 23 | (712 | ) | |||||||||
Adjusted EBITDA | $ | 46,392 | $ | 24,257 | $ | (13,009 | ) | $ | 57,640 | ||||||
Net sales | $ | 222,881 | $ | 193,205 | $ | 1 | $ | 416,087 | |||||||
Gross Profit | $ | 49,851 | $ | 25,585 | $ | (123 | ) | $ | 75,313 |
Three months ended |
Drainage Pipe & Products | Water Pipe & Products | Corporate and Other | Total | |||||||||||
EBITDA1 | $ | 40,079 | $ | 17,913 | $ | (27,216 | ) | $ | 30,776 | ||||||
(Gain) loss on sale of property, plant & equipment, net2 | 77 | 293 | 50 | 420 | |||||||||||
Impairment and exit charges3 | (14 | ) | 11,390 | — | 11,376 | ||||||||||
Transaction costs4 | — | — | 2,679 | 2,679 | |||||||||||
Inventory step-up impacting margin5 | 338 | — | — | 338 | |||||||||||
Non-cash compensation6 | 28 | 18 | 841 | 887 | |||||||||||
Adjusted EBITDA | $ | 40,508 | $ | 29,614 | $ | (23,646 | ) | $ | 46,476 | ||||||
Net sales | $ | 221,521 | $ | 215,163 | $ | 1 | $ | 436,685 | |||||||
Gross Profit | $ | 43,121 | $ | 33,252 | $ | (777 | ) | $ | 75,596 |
Six months ended |
Drainage Pipe & Products | Water Pipe & Products | Corporate and Other | Total | |||||||||||
EBITDA1 | $ | 69,570 | $ | 31,105 | $ | (25,532 | ) | $ | 75,143 | ||||||
(Gain) loss on sale of property, plant & equipment, net2 | (3,405 | ) | 834 | — | (2,571 | ) | |||||||||
Impairment and exit charges3 | 1,162 | 567 | (8 | ) | 1,721 | ||||||||||
Transaction costs4 | — | — | 1,568 | 1,568 | |||||||||||
Inventory step-up impacting margin5 | 464 | — | — | 464 | |||||||||||
Non-cash compensation6 | 875 | 363 | 1,900 | 3,138 | |||||||||||
Other (gains) losses7 | 118 | (869 | ) | (5,937 | ) | (6,688 | ) | ||||||||
Adjusted EBITDA | $ | 68,784 | $ | 32,000 | $ | (28,009 | ) | $ | 72,775 | ||||||
Net sales | $ | 378,526 | $ | 327,518 | $ | 3 | $ | 706,047 | |||||||
Gross Profit | $ | 76,267 | $ | 33,668 | $ | (257 | ) | $ | 109,678 |
Six months ended |
Drainage Pipe & Products | Water Pipe & Products | Corporate and Other | Total | |||||||||||
EBITDA1 | $ | 51,490 | $ | 35,025 | $ | (48,300 | ) | $ | 38,215 | ||||||
(Gain) loss on sale of property, plant & equipment, net2 | 71 | 1,073 | 50 | 1,194 | |||||||||||
Impairment and exit charges3 | (14 | ) | 11,825 | — | 11,811 | ||||||||||
Transaction costs4 | — | — | 4,738 | 4,738 | |||||||||||
Inventory step-up impacting margin5 | 1,757 | — | — | 1,757 | |||||||||||
Non-cash compensation6 | 49 | 37 | 1,158 | 1,244 | |||||||||||
Other (gains) losses7 | — | (538 | ) | — | (538 | ) | |||||||||
Adjusted EBITDA | $ | 53,353 | $ | 47,422 | $ | (42,354 | ) | $ | 58,421 | ||||||
Net sales | $ | 381,969 | $ | 393,012 | $ | 6 | $ | 774,987 | |||||||
Gross Profit | $ | 60,498 | $ | 55,407 | $ | (1,342 | ) | $ | 114,563 |
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, including the non-cash gain on a divestiture transaction completed in
Reconciliation of Net Income to Adjusted EBITDA Guidance for Q3 2018
(in millions)
Q3 2018 Guidance | |||||
Low | High | ||||
Net income | $ | 5 | $ | 11 | |
Interest expense | 21 | 21 | |||
Income tax expense | 5 | 7 | |||
Depreciation and amortization | 29 | 29 | |||
Adjusted EBITDA | $ | 60 | $ | 68 |
Source:
Company Contact Information:
Vice President of
469-299-9113
IR@forterrabp.com