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, 2020.
Third Quarter 2020 Highlights
and Recent Developments
- Increased gross profit by
23.7% to $126.3 million as compared to $102.1 million in the prior
year quarter and improved gross profit margin by 560 basis points
year-over-year
- Net income
increased by 28.6% to $28.8
million compared to $22.4 million in the prior year
quarter
- Increased Adjusted
EBITDA1 by 23.8% to $99.0 million as compared
to $80.0 million in the prior year quarter, and Adjusted EBITDA
margin1 improved by 440 basis points
year-over-year
- Year-to-date operating cash
flow increased by 147% to $162.6
million, compared to $65.7 million in the prior year
period
- Voluntarily prepaid $143.7
million of term loan, reducing Net Leverage
Ratio2 to 4.2x from 6.1x at the beginning of
the year and from 6.7x at the end of the third quarter of
2019
- Received credit rating
upgrades from both Moody’s and S&P
- Received favorable
arbitration decision in earnout dispute with
HeidelbergCement AG
Forterra CEO Karl Watson, Jr. commented, “The
third quarter was another solid one for the company despite the
continued challenges associated with the COVID-19 pandemic. We
generated progressive improvement in Adjusted EBITDA, Adjusted
EBITDA margin, and operating cash flow in the quarter.
Additionally, we received a favorable arbitration decision in
connection with the Heidelberg earnout dispute, and lastly, both
rating agencies issued credit rating upgrades, which highlight the
progress we have made since 2019."
1 A reconciliation of non-GAAP financial
measures, including Adjusted EBITDA, Adjusted EBITDA margin and net
debt, to comparable GAAP financial measures is provided in the
reconciliation of Non-GAAP measures section of this press release.2
Ratio represents net debt divided by adjusted EBITDA for the prior
twelve-month period. Net debt and adjusted EBITDA are non-GAAP
measures and a reconciliation thereof to comparable GAAP financial
measures is provided in the reconciliation of Non-GAAP measures
section of this press release.
“We continue to demonstrate our ability to
achieve higher profitability and cash flow. Importantly, we were
able to continue to expand our gross profit margins and our
Adjusted EBITDA margins, thus generating higher operating cash flow
in both segments despite a double-digit decline in shipment volumes
year-over-year in our Drainage segment. These results reflect our
continued progress towards earning a full and fair return on the
products we produce and the capital we have deployed. As we carry
this momentum through the remainder of the year, we now expect our
full year 2020 net income in the range of $30 to $40 million, and
Adjusted EBITDA in the range of $265 to $280 million.”
Mr. Watson continued, “With the amount of debt
we voluntarily prepaid so far this year, our net leverage ratio2
was reduced to 4.2x at the end of the quarter, and we expect to
achieve our target of 3-3.5x in the near term. This improvement was
only possible due to the dedication and hard work of our team
members. I cannot thank them enough for their achievements.”
Segment Results
Drainage Pipe & Products
(“Drainage”) - Key Financial and Operational
Statistics:
Key Financial
Statistics ($ in millions) |
|
Q3 2020 |
|
Q3 2019 |
|
|
|
|
|
Net Sales |
|
$ |
256.6 |
|
|
$ |
280.7 |
|
Gross Profit |
|
71.9 |
|
|
74.3 |
|
EBITDA |
|
64.8 |
|
|
67.4 |
|
Adjusted EBITDA1 |
|
68.4 |
|
|
69.6 |
|
Gross Profit
Margin |
|
28.0 |
% |
|
26.5 |
% |
Adjusted EBITDA
Margin1 |
|
26.7 |
% |
|
24.8 |
% |
Key Operational Statistics3 |
|
Q3 2020 vs. Q3 2019 |
|
|
|
Shipment Volumes |
|
-16% |
Average Selling Prices |
|
+8% |
Drainage net sales decreased by 8.6% to $256.6
million, compared to $280.7 million in the prior year quarter. The
decrease in net sales was driven by lower shipment volumes
primarily due to less favorable weather conditions during the
quarter as compared to last year and our margin-enhancing value
before volume commercial strategy. The decline in volumes was
partially offset by higher average selling prices across all
regions which was caused by a combination of both true pricing
improvement and the effect of product and geographic sales mix.
3 Operational statistics only pertain to pipe
and precast products and do not include other services,
non-volume-based products, or non-core products. Pipe and precast
products revenue accounted for approximately 90% of Drainage
segment revenue.
Drainage gross profit decreased slightly to
$71.9 million compared to $74.3 million in the prior year quarter,
driven by the lower shipment volumes. However, Drainage gross
profit margin increased by 150 basis points to 28% from 26.5% in
the prior year quarter, primarily driven by the higher average
selling price that exceeded the increase in input costs.
Consequently, Drainage EBITDA, Adjusted EBITDA1 and Adjusted EBITDA
margin1 were $64.8 million, $68.4 million and 26.6%, respectively,
as compared to the prior year quarter of $67.4 million, $69.6
million and 24.8%, respectively.
Water Pipe & Products (“Water”) -
Key Financial and Operational Statistics:
Key Financial
Statistics ($ in millions) |
|
Q3 2020 |
|
Q3 2019 |
|
|
|
|
|
Net Sales |
|
$ |
201.0 |
|
|
$ |
183.8 |
|
Gross Profit |
|
54.4 |
|
|
27.8 |
|
EBITDA |
|
47.0 |
|
|
25.6 |
|
Adjusted EBITDA1 |
|
47.0 |
|
|
25.8 |
|
Gross Profit
Margin |
|
27.1 |
% |
|
15.1 |
% |
Adjusted EBITDA
Margin1 |
|
23.4 |
% |
|
14.0 |
% |
Key Operational Statistics4 |
|
Q3 2020 vs. Q3 2019 |
|
|
|
Shipment Volumes |
|
-2% |
Average Selling Prices |
|
+17% |
Water net sales increased by 9.4% to $201.0
million, compared to $183.8 million in the prior year quarter. The
increase in net sales was primarily driven by higher average
selling prices while shipment volumes were relatively flat
year-over-year.
Water gross profit and gross profit margin
increased to $54.4 million and 27.1%, respectively, compared to
$27.8 million and 15.1%, respectively, in the prior year quarter.
Water EBITDA, Adjusted EBITDA1 and Adjusted EBITDA margin1
increased to $47.0 million, $47.0 million and 23.4%, respectively,
compared to $25.6 million, $25.8 million and 14.0%, respectively,
in the prior year quarter. The higher gross profit and gross profit
margin primarily reflect the benefit of higher average selling
prices and cost controls from operational improvement initiatives,
partially offset by higher compensation costs. The improvements in
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin were driven by
higher gross profit, partially offset by higher general and
administrative expenses primarily related to a non-recurring legal
accrual.
4 Operational statistics only pertain to ductile
iron pipe products and do not include other services,
non-volume-based products, or non-core products. Ductile iron pipe
revenue accounted for more than 85% of Water segment revenue.
Corporate and Other (“Corporate”) -
Third Quarter 2020 Results
Corporate EBITDA and Adjusted EBITDA1 losses
were $30.6 million and $16.4 million, respectively, in the third
quarter of 2020 compared to $17.2 million and $15.4 million,
respectively, in the prior year quarter. On a reported basis, the
increase in Corporate segment EBITDA loss was primarily driven by a
$11.5 million loss on extinguishment of debt as a result of the
Company’s prepayments of long-term debt and the consequent
write-offs of the corresponding debt issuance costs. This non-cash
charge was excluded when calculating Adjusted EBITDA. On an
adjusted basis, the year-over-year increase in Corporate EBITDA
loss was slightly higher than prior year due to increased annual
bonus accruals driven by the significantly improved business
performance.
Balance Sheet, Liquidity and Cash
Flow
In July 2020, the Company completed the offering
of $500 million senior secured notes due in 2025 and used the net
proceeds to prepay $492.5 million of its term loan. In addition,
during the third quarter the Company continued voluntary
prepayments of its term loan in the amount of $128.2 million using
the cash flow generated from business operations, bringing
year-to-date voluntary prepayments to a total of $143.7 million,
excluding the amount repaid with proceeds from the note offering,
compared to $16.5 million in the prior year period.
The Company’s net leverage ratio2 as of
September 30, 2020 was 4.2x, compared to 6.1x at December 31, 2019
and 6.7x at September 30, 2019, and the Company remains committed
to its communicated plan to reduce leverage to between 3.0x and
3.5x in the near term.
On September 29, 2020, Moody’s Investors Service
upgraded the Company’s Corporate Family Rating to B1 from B3 and
senior secured ratings to B2 from B3. On October 2, 2020, S&P
Global Ratings upgraded the Company’s issuer credit rating to B
from B-, and issuer-level ratings on the Company’s term loan and
senior secured notes to B from B-. The outlook from both rating
agencies remains stable.
2020 Outlook
Regarding the Company’s 2020 outlook, Mr. Watson
stated, “We expect shipment volumes in the fourth quarter to
continue to be lower than the prior year level; however, we believe
the decline in Drainage will be less than what we experienced
during the third quarter and Water will be about the same. We
believe our continued execution on plant-level operational
discipline and enhanced commercial capabilities will further expand
our product unit margin, and therefore improve our profit margins
year-over-year. As a result, we expect our net income for the full
year 2020 to be in the range of $30 million to $40 million and
Adjusted EBITDA to be in the range of $265 million to $280 million.
In addition, we expect our voluntary prepayments of long-term debt
to be between $170 million and $185 million for the year.”
Conference Call and Webcast Information
Forterra will host a conference call to review
its third quarter 2020 results on October 29 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
6592608. 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 scale help
make it a preferred supplier for water-related pipe and products,
serving 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.
Some of the risks and uncertainties that could
cause actual results to differ materially from those expressed in
any forward-looking statements include risks and uncertainties
relating to the impacts of the COVID-19 pandemic; 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;
the possibility that HeidelbergCement will dispute the arbitrator’s
recent decision that no earnout payment is owed; 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 to; our dependence on key
executives and key management personnel; our ability, or that of
the customers with which we work, 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, including our
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 millions, except per share data)
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(unaudited) |
|
(unaudited) |
Net sales |
|
$ |
457.6 |
|
|
$ |
464.5 |
|
|
$ |
1,214.6 |
|
|
$ |
1,166.6 |
|
Cost of goods
sold |
|
331.3 |
|
|
362.4 |
|
|
924.0 |
|
|
936.8 |
|
Gross
profit |
|
126.3 |
|
|
102.1 |
|
|
290.6 |
|
|
229.8 |
|
Selling, general & administrative expenses |
|
(57.1 |
) |
|
(55.2 |
) |
|
(164.6 |
) |
|
(165.3 |
) |
Impairment and exit charges |
|
(1.4 |
) |
|
(0.5 |
) |
|
(2.5 |
) |
|
(1.3 |
) |
Other operating income, net |
|
0.2 |
|
|
0.8 |
|
|
(0.4 |
) |
|
1.0 |
|
|
|
(58.3 |
) |
|
(54.9 |
) |
|
(167.5 |
) |
|
(165.6 |
) |
Income from
operations |
|
68.0 |
|
|
47.2 |
|
|
123.1 |
|
|
64.2 |
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
|
|
|
|
Interest expense |
|
(20.1 |
) |
|
(23.3 |
) |
|
(60.5 |
) |
|
(73.7 |
) |
Gain (loss) on extinguishment of debt |
|
(11.5 |
) |
|
0.4 |
|
|
(11.5 |
) |
|
0.3 |
|
Earnings from equity method investee |
|
2.3 |
|
|
4.0 |
|
|
8.2 |
|
|
9.0 |
|
Income (loss) before
income taxes |
|
38.7 |
|
|
28.3 |
|
|
59.3 |
|
|
(0.2 |
) |
Income tax (expense) benefit |
|
(9.9 |
) |
|
(5.9 |
) |
|
(17.4 |
) |
|
0.5 |
|
Net
income |
|
$ |
28.8 |
|
|
$ |
22.4 |
|
|
$ |
41.9 |
|
|
$ |
0.3 |
|
|
|
|
|
|
|
|
Earnings per
share: |
|
|
|
|
|
|
Basic |
|
$ |
0.44 |
|
|
$ |
0.35 |
|
|
$ |
0.64 |
|
|
$ |
0.01 |
|
Diluted |
|
$ |
0.42 |
|
|
$ |
0.34 |
|
|
$ |
0.62 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding: |
|
|
|
|
|
|
Basic |
|
65.3 |
|
|
64.2 |
|
|
65.1 |
|
|
64.1 |
|
Diluted |
|
68.7 |
|
|
65.0 |
|
|
67.9 |
|
|
64.5 |
|
Condensed Consolidated Balance
Sheets(in millions)
|
|
September 30,2020 |
|
December 31,2019 |
ASSETS |
|
(unaudited) |
|
|
Current
assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
32.8 |
|
|
$ |
34.8 |
|
Receivables, net |
|
276.8 |
|
|
205.8 |
|
Inventories |
|
219.3 |
|
|
238.5 |
|
Prepaid expenses |
|
11.8 |
|
|
11.0 |
|
Other current assets |
|
1.4 |
|
|
8.9 |
|
Total current assets |
|
542.1 |
|
|
499.0 |
|
Non-current
assets |
|
|
|
|
Property, plant and equipment, net |
|
444.7 |
|
|
475.6 |
|
Operating lease right-of-use assets |
|
55.8 |
|
|
60.3 |
|
Goodwill |
|
508.5 |
|
|
508.8 |
|
Intangible assets, net |
|
111.7 |
|
|
142.7 |
|
Investment in equity method investee |
|
50.7 |
|
|
50.0 |
|
Other long-term assets |
|
5.2 |
|
|
3.7 |
|
Total assets |
|
$ |
1,718.7 |
|
|
$ |
1,740.1 |
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
Current
liabilities |
|
|
|
|
Trade payables |
|
$ |
143.3 |
|
|
$ |
102.4 |
|
Accrued liabilities |
|
110.0 |
|
|
88.8 |
|
Deferred revenue |
|
8.2 |
|
|
9.5 |
|
Current portion of long-term debt |
|
12.5 |
|
|
12.5 |
|
Current portion of tax receivable agreement |
|
8.7 |
|
|
13.2 |
|
Total current liabilities |
|
282.7 |
|
|
226.4 |
|
Non-current
liabilities |
|
|
|
|
Senior term loan |
|
456.7 |
|
|
1,085.8 |
|
Senior secured notes |
|
491.6 |
|
|
— |
|
Long-term finance lease liabilities |
|
141.4 |
|
|
137.4 |
|
Long-term operating lease liabilities |
|
51.6 |
|
|
54.4 |
|
Deferred tax liabilities |
|
25.5 |
|
|
28.9 |
|
Other long-term liabilities |
|
35.3 |
|
|
22.0 |
|
Long-term tax receivable agreement |
|
64.2 |
|
|
64.2 |
|
Total liabilities |
|
1,549.0 |
|
|
1,619.1 |
|
Equity |
|
|
|
|
Common stock, $0.001 par value, 190,000 shares authorized; 65,673
and 64,741 shares issued and outstanding |
|
— |
|
|
— |
|
Additional paid-in-capital |
|
253.9 |
|
|
244.5 |
|
Accumulated other comprehensive loss |
|
(9.7 |
) |
|
(7.1 |
) |
Retained deficit |
|
(74.5 |
) |
|
(116.4 |
) |
Total shareholders' equity |
|
169.7 |
|
|
121.0 |
|
Total liabilities and shareholders' equity |
|
$ |
1,718.7 |
|
|
$ |
1,740.1 |
|
Condensed Consolidated Statements of Cash
Flows(in millions)
|
|
Nine months ended |
|
|
September 30, |
|
|
2020 |
|
2019 |
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
(unaudited) |
Net income |
|
$ |
41.9 |
|
|
$ |
0.3 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation & amortization expense |
|
67.3 |
|
|
73.0 |
|
Loss on disposal of property, plant and equipment |
|
1.9 |
|
|
1.6 |
|
(Gain) loss on extinguishment of debt |
|
11.5 |
|
|
(0.4 |
) |
Amortization of debt discount and issuance costs |
|
5.3 |
|
|
6.0 |
|
Stock-based compensation expense |
|
7.8 |
|
|
4.8 |
|
Impairment charges |
|
1.3 |
|
|
— |
|
Earnings from equity method investee |
|
(8.2 |
) |
|
(9.0 |
) |
Distributions from equity method investee |
|
7.5 |
|
|
6.5 |
|
Unrealized loss on derivative instruments, net |
|
0.9 |
|
|
5.9 |
|
Unrealized foreign currency loss, net |
|
0.3 |
|
|
— |
|
Provision (recoveries) for doubtful accounts |
|
0.2 |
|
|
0.5 |
|
Deferred taxes |
|
(3.5 |
) |
|
(11.7 |
) |
Other non-cash items |
|
3.8 |
|
|
(0.2 |
) |
Change in assets and liabilities: |
|
|
|
|
Receivables, net |
|
(71.2 |
) |
|
(88.1 |
) |
Inventories |
|
18.8 |
|
|
29.1 |
|
Other current assets |
|
6.3 |
|
|
1.3 |
|
Accounts payable and accrued liabilities |
|
59.3 |
|
|
37.3 |
|
Other assets and liabilities |
|
11.4 |
|
|
8.8 |
|
NET CASH PROVIDED BY OPERATING
ACTIVITIES |
|
162.6 |
|
|
65.7 |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES |
|
|
|
|
Purchase of property, plant and equipment, and intangible
assets |
|
(15.5 |
) |
|
(44.3 |
) |
Proceeds from sale of fixed assets |
|
10.7 |
|
|
10.6 |
|
NET CASH USED IN INVESTING
ACTIVITIES |
|
(4.8 |
) |
|
(33.7 |
) |
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
|
Proceeds from senior secured notes |
|
500.0 |
|
|
— |
|
Payment of debt issuance costs |
|
(11.3 |
) |
|
— |
|
Repayments of term loans |
|
(644.9 |
) |
|
(25.1 |
) |
Proceeds from revolver |
|
180.0 |
|
|
54.0 |
|
Repayments of revolver |
|
(180.0 |
) |
|
(54.0 |
) |
Proceeds from issuance of common stock |
|
2.3 |
|
|
1.3 |
|
Payment pursuant to tax receivable agreement |
|
(4.4 |
) |
|
— |
|
Other financing activities |
|
(1.2 |
) |
|
(0.6 |
) |
NET CASH USED IN FINANCING
ACTIVITIES |
|
(159.5 |
) |
|
(24.4 |
) |
Effect of exchange rate
changes on cash |
|
(0.3 |
) |
|
0.5 |
|
Net change in cash and cash
equivalents |
|
(2.0 |
) |
|
8.1 |
|
Cash and cash equivalents,
beginning of period |
|
34.8 |
|
|
35.8 |
|
Cash and cash equivalents, end
of period |
|
$ |
32.8 |
|
|
$ |
43.9 |
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
Cash interest paid |
|
$ |
44.3 |
|
|
$ |
59.1 |
|
Income taxes paid, net |
|
8.8 |
|
|
5.1 |
|
Non-GAAP
Measures(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 income (loss), before
interest expense (including (gains) losses from extinguishment of
debt), depreciation and amortization, income tax benefit (expense)
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-rata 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.
This release also presents both GAAP and
non-GAAP financial measures on a last twelve month (“LTM”) basis.
LTM information corresponding to fiscal years (i.e., the periods
ended Q4 2019) reflects our audited historical results for such
fiscal years presented in accordance with GAAP. Information
presented for other LTM periods (i.e., the periods ended Q3 2019,
Q1 2020, Q2 2020 and Q3 2020) reflect unaudited trailing four
quarter financial information calculated by starting with the
results from the most recent audited fiscal year included in such
LTM period and then (x) adding quarterly information for subsequent
fiscal quarters and (y) subtracting quarterly information for the
corresponding prior year period. For example, LTM Q3 2020 has been
calculated by starting with the data from the twelve months ended
Q4 2019 and then adding data for the nine months ended Q3 2020,
followed by subtracting data for the nine months ended Q3 2019.
This presentation is not in accordance with GAAP. However, we
believe this information is useful to investors as we use it to
evaluate our financial performance for ongoing planning purposes,
including a continuous assessment of our financial performance in
comparison to budgets and internal projections. We also use such
LTM financial data to test compliance with covenants under our debt
facilities. This presentation has limitations as an analytical
tool, and you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP.
Please see our Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q for the relevant periods for the historical amounts used
to calculate the LTM information presented.
This release also includes Net debt, a non-GAAP
measure that represents the sum of long-term debt, the current
portion of long-term debt, debt issuance cost and original issue
discount and finance lease liabilities less cash and cash
equivalents. Management uses net debt as one of the means by which
it assesses financial leverage, and it is therefore useful to
investors in evaluating our business using the same measures as
management. Net debt is also useful to investors because it is
often used by securities analysts and other interested parties in
evaluating our business. Net debt does however have certain
limitations and should not be considered as an alternative to or in
isolation from long-term debt or any other measure calculated in
accordance with GAAP.
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 these non-GAAP measures, 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 non-GAAP measures as supplemental financial metrics and in
conjunction with results prepared in accordance with GAAP.
Reconciliation of net income to Adjusted
EBITDA(in millions)
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(unaudited) |
|
(unaudited) |
Net income |
|
$ |
28.8 |
|
|
$ |
22.4 |
|
|
$ |
41.9 |
|
|
$ |
0.3 |
|
Interest expense |
|
20.1 |
|
|
23.3 |
|
|
60.5 |
|
|
73.7 |
|
Depreciation and
amortization |
|
22.4 |
|
|
24.2 |
|
|
67.3 |
|
|
73.0 |
|
Income tax (benefit)
expense |
|
9.9 |
|
|
5.9 |
|
|
17.4 |
|
|
(0.5 |
) |
EBITDA1 |
|
81.2 |
|
|
75.8 |
|
|
187.1 |
|
|
146.5 |
|
Loss on sale of property,
plant & equipment, net |
|
0.6 |
|
|
0.5 |
|
|
2.0 |
|
|
1.6 |
|
Loss (gain) on extinguishment
of debt |
|
11.5 |
|
|
(0.4 |
) |
|
11.5 |
|
|
(0.4 |
) |
Impairment and exit
charges2 |
|
1.4 |
|
|
0.5 |
|
|
3.5 |
|
|
1.3 |
|
Transaction costs3 |
|
1.0 |
|
|
0.7 |
|
|
5.5 |
|
|
2.0 |
|
Inventory step-up impacting
margin4 |
|
— |
|
|
— |
|
|
— |
|
|
0.3 |
|
Non-cash compensation5 |
|
2.3 |
|
|
2.2 |
|
|
7.8 |
|
|
4.8 |
|
Other6 |
|
— |
|
|
(0.2 |
) |
|
— |
|
|
3.5 |
|
Earnings from equity method
investee7 |
|
(2.3 |
) |
|
(4.0 |
) |
|
(8.2 |
) |
|
(9.0 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee8 |
|
3.3 |
|
|
4.9 |
|
|
11.1 |
|
|
11.9 |
|
Adjusted EBITDA |
|
$ |
99.0 |
|
|
$ |
80.0 |
|
|
$ |
220.3 |
|
|
$ |
162.5 |
|
Adjusted EBITDA margin |
|
21.6 |
% |
|
17.2 |
% |
|
18.1 |
% |
|
13.9 |
% |
Gross profit |
|
$ |
126.3 |
|
|
$ |
102.1 |
|
|
$ |
290.6 |
|
|
$ |
229.8 |
|
Gross profit margin |
|
27.6 |
% |
|
22.0 |
% |
|
23.9 |
% |
|
19.7 |
% |
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 Impairment or abandonment of long-lived assets and
other exit charges.3 Legal, valuation, accounting, advisory and
other costs related to business combinations and other
transactions.4 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.5 Non-cash equity compensation
expense.6 Other includes one-time charges such as executive
severance costs.7 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.8 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.
Reconciliation of segment EBITDA to
segment Adjusted EBITDA(in millions)
Three months ended
September 30, 2020 |
|
Drainage Pipe& Products |
|
Water Pipe &Products |
|
Corporateand Other |
|
Total |
EBITDA1 |
|
$ |
64.8 |
|
|
$ |
47.0 |
|
|
$ |
(30.6 |
) |
|
$ |
81.2 |
|
Loss on sale of property,
plant & equipment, net |
|
0.4 |
|
|
0.2 |
|
|
— |
|
|
0.6 |
|
Loss on extinguishment of
debt |
|
— |
|
|
— |
|
|
11.5 |
|
|
11.5 |
|
Impairment and exit
charges2 |
|
1.4 |
|
|
— |
|
|
— |
|
|
1.4 |
|
Transaction costs3 |
|
— |
|
|
— |
|
|
1.0 |
|
|
1.0 |
|
Inventory step-up impacting
margin4 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-cash compensation5 |
|
0.4 |
|
|
0.2 |
|
|
1.7 |
|
|
2.3 |
|
Other6 |
|
0.4 |
|
|
(0.4 |
) |
|
— |
|
|
— |
|
Earnings from equity method
investee7 |
|
(2.3 |
) |
|
— |
|
|
— |
|
|
(2.3 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee8 |
|
3.3 |
|
|
— |
|
|
— |
|
|
3.3 |
|
Adjusted EBITDA |
|
$ |
68.4 |
|
|
$ |
47.0 |
|
|
$ |
(16.4 |
) |
|
$ |
99.0 |
|
Adjusted EBITDA margin |
|
26.7 |
% |
|
23.4 |
% |
|
|
NM |
|
|
21.6 |
% |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
256.6 |
|
|
$ |
201.0 |
|
|
$ |
— |
|
|
$ |
457.6 |
|
Gross profit |
|
71.9 |
|
|
54.4 |
|
|
— |
|
|
126.3 |
|
Three months ended
September 30, 2019 |
|
Drainage Pipe& Products |
|
Water Pipe &Products |
|
Corporateand Other |
|
Total |
EBITDA1 |
|
$ |
67.4 |
|
|
$ |
25.6 |
|
|
$ |
(17.2 |
) |
|
$ |
75.8 |
|
Loss on sale of property,
plant & equipment, net |
|
0.5 |
|
|
— |
|
|
— |
|
|
0.5 |
|
Gain on extinguishment of
debt |
|
— |
|
|
— |
|
|
(0.4 |
) |
|
(0.4 |
) |
Impairment and exit
charges2 |
|
— |
|
|
0.5 |
|
|
— |
|
|
0.5 |
|
Transaction costs3 |
|
— |
|
|
— |
|
|
0.7 |
|
|
0.7 |
|
Inventory step-up impacting
margin4 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-cash compensation5 |
|
0.4 |
|
|
0.1 |
|
|
1.7 |
|
|
2.2 |
|
Other6 |
|
0.4 |
|
|
(0.4 |
) |
|
(0.2 |
) |
|
(0.2 |
) |
Earnings from equity method
investee7 |
|
(4.0 |
) |
|
— |
|
|
— |
|
|
(4.0 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 8 |
|
4.9 |
|
|
— |
|
|
— |
|
|
4.9 |
|
Adjusted EBITDA |
|
$ |
69.6 |
|
|
$ |
25.8 |
|
|
$ |
(15.4 |
) |
|
$ |
80.0 |
|
Adjusted EBITDA margin |
|
24.8 |
% |
|
14.0 |
% |
|
|
NM |
|
|
17.2 |
% |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
280.7 |
|
|
$ |
183.8 |
|
|
$ |
— |
|
|
$ |
464.5 |
|
Gross profit |
|
74.3 |
|
|
27.8 |
|
|
— |
|
|
102.1 |
|
Nine months ended
September 30, 2020 |
|
Drainage Pipe& Products |
|
Water Pipe &Products |
|
Corporateand Other |
|
Total |
EBITDA1 |
|
$ |
148.2 |
|
|
$ |
109.6 |
|
|
$ |
(70.7 |
) |
|
$ |
187.1 |
|
Loss on sale of property,
plant & equipment, net |
|
— |
|
|
2.0 |
|
|
— |
|
|
2.0 |
|
Loss on extinguishment of
debt |
|
— |
|
|
— |
|
|
11.5 |
|
|
11.5 |
|
Impairment and exit
charges2 |
|
1.3 |
|
|
2.2 |
|
|
— |
|
|
3.5 |
|
Transaction costs3 |
|
— |
|
|
— |
|
|
5.5 |
|
|
5.5 |
|
Inventory step-up impacting
margin4 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-cash compensation5 |
|
1.4 |
|
|
0.8 |
|
|
5.6 |
|
|
7.8 |
|
Other6 |
|
1.2 |
|
|
(1.2 |
) |
|
— |
|
|
— |
|
Earnings from equity method
investee7 |
|
(8.2 |
) |
|
— |
|
|
— |
|
|
(8.2 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 8 |
|
11.1 |
|
|
— |
|
|
— |
|
|
11.1 |
|
Adjusted EBITDA |
|
$ |
155.0 |
|
|
$ |
113.4 |
|
|
$ |
(48.1 |
) |
|
$ |
220.3 |
|
Adjusted EBITDA margin |
|
23.4 |
% |
|
20.5 |
% |
|
|
NM |
|
|
18.1 |
% |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
662.4 |
|
|
$ |
552.2 |
|
|
$ |
— |
|
|
$ |
1,214.6 |
|
Gross profit |
|
165.8 |
|
|
124.8 |
|
|
— |
|
|
290.6 |
|
Nine months ended
September 30, 2019 |
|
Drainage Pipe& Products |
|
Water Pipe &Products |
|
Corporateand Other |
|
Total |
EBITDA1 |
|
$ |
141.4 |
|
|
$ |
59.3 |
|
|
$ |
(54.2 |
) |
|
$ |
146.5 |
|
Loss on sale of property,
plant & equipment, net |
|
1.3 |
|
|
0.3 |
|
|
— |
|
|
1.6 |
|
Gain on extinguishment of
debt |
|
— |
|
|
— |
|
|
(0.4 |
) |
|
(0.4 |
) |
Impairment and exit
charges2 |
|
0.1 |
|
|
1.2 |
|
|
— |
|
|
1.3 |
|
Transaction costs3 |
|
— |
|
|
— |
|
|
2.0 |
|
|
2.0 |
|
Inventory step-up impacting
margin4 |
|
0.3 |
|
|
— |
|
|
— |
|
|
0.3 |
|
Non-cash compensation5 |
|
1.3 |
|
|
0.3 |
|
|
3.2 |
|
|
4.8 |
|
Other6 |
|
1.2 |
|
|
(1.2 |
) |
|
3.5 |
|
|
3.5 |
|
Earnings from equity method
investee7 |
|
(9.0 |
) |
|
— |
|
|
— |
|
|
(9.0 |
) |
Pro-rata share of Adjusted
EBITDA from equity method investee 8 |
|
11.9 |
|
|
— |
|
|
— |
|
|
11.9 |
|
Adjusted EBITDA |
|
148.5 |
|
|
59.9 |
|
|
(45.9 |
) |
|
162.5 |
|
Adjusted EBITDA margin |
|
21.6 |
% |
|
12.5 |
% |
|
|
NM |
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
686.1 |
|
|
$ |
480.5 |
|
|
$ |
— |
|
|
$ |
1,166.6 |
|
Gross profit |
|
163.4 |
|
|
66.7 |
|
|
(0.3 |
) |
|
229.8 |
|
NM Not meaningful1 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 Impairment or abandonment of
long-lived assets and other exit charges.3 Legal, valuation,
accounting, advisory and other costs related to business
combinations and other transactions.4 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.5 Non-cash equity compensation expense.6 Inter-segment
charges that are eliminated upon consolidation and one-time charges
such as executive severance costs.7 Net income from Forterra's 50%
ownership in the CP&P joint venture accounted for under the
equity method of accounting.8 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.
Reconciliation of Adjusted EBITDA for
Last Twelve-Months(in millions)
|
|
Twelve months ended |
|
|
September30, 2019 |
|
December31, 2019 |
|
March 31,2020 |
|
June 30,2020 |
|
September30, 2020 |
Net (loss) income |
|
$ |
(16.6 |
) |
|
$ |
(7.3 |
) |
|
$ |
3.6 |
|
|
$ |
27.8 |
|
|
$ |
34.2 |
|
Interest expense |
|
99.1 |
|
|
95.0 |
|
|
91.1 |
|
|
84.9 |
|
|
81.8 |
|
Depreciation &
amortization |
|
99.0 |
|
|
97.2 |
|
|
95.4 |
|
|
93.4 |
|
|
91.5 |
|
Income tax (benefit)
expense |
|
(3.8 |
) |
|
(3.3 |
) |
|
4.1 |
|
|
10.7 |
|
|
14.7 |
|
EBITDA1 |
|
177.7 |
|
|
181.6 |
|
|
194.2 |
|
|
216.8 |
|
|
222.2 |
|
(Gain) loss on sale of
property, plant & equipment, net |
|
(0.3 |
) |
|
2.0 |
|
|
2.1 |
|
|
2.4 |
|
|
2.4 |
|
(Gain) loss on extinguishment
of debt |
|
(0.4 |
) |
|
(1.7 |
) |
|
(1.7 |
) |
|
(1.8 |
) |
|
10.1 |
|
Impairment & exit
charges2 |
|
1.8 |
|
|
3.5 |
|
|
4.1 |
|
|
4.9 |
|
|
5.8 |
|
Transaction costs3 |
|
2.3 |
|
|
3.0 |
|
|
4.0 |
|
|
6.2 |
|
|
6.5 |
|
Inventory step-up impacting
margin4 |
|
0.3 |
|
|
0.3 |
|
|
0.2 |
|
|
— |
|
|
— |
|
Non-cash compensation5 |
|
6.5 |
|
|
7.9 |
|
|
9.3 |
|
|
10.7 |
|
|
10.9 |
|
Other6 |
|
3.3 |
|
|
3.3 |
|
|
3.3 |
|
|
(0.3 |
) |
|
— |
|
Earnings from equity method
investee7 |
|
(11.4 |
) |
|
(10.4 |
) |
|
(11.7 |
) |
|
(11.4 |
) |
|
(9.7 |
) |
Pro-rate share of Adjusted
EBITDA from equity method investee8 |
|
15.5 |
|
|
14.4 |
|
|
15.7 |
|
|
15.4 |
|
|
13.7 |
|
Adjusted EBITDA |
|
$ |
195.3 |
|
|
$ |
203.9 |
|
|
$ |
219.5 |
|
|
$ |
242.9 |
|
|
$ |
261.9 |
|
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 Impairment or abandonment of long-lived assets and
other exit charges.3 Legal, valuation, accounting, advisory and
other costs related to business combinations and other
transactions.4 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.5 Non-cash equity compensation
expense.6 Other includes one-time charges such as executive
severance costs and gains on insurance proceeds related to the
destruction property.7 Net income from Forterra's 50% ownership in
the CP&P joint venture accounted for under the equity method of
accounting.8 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.
Reconciliation of Long-Term Debt to Total
Debt and Net Debt(in millions)
|
|
September 30, |
|
December 31, |
|
September 30, |
|
|
2020 |
|
2019 |
|
2019 |
Long-term debt |
|
$ |
948.3 |
|
|
$ |
1,085.8 |
|
|
$ |
1,156.0 |
|
Current portion of long-term
debt |
|
12.5 |
|
|
12.5 |
|
|
12.5 |
|
Carrying value of long-term debt |
|
960.8 |
|
|
1,098.3 |
|
|
1,168.5 |
|
Add: Debt issuance cost and
original issuance discount for Senior Term Loan |
|
8.6 |
|
|
25.1 |
|
|
28.4 |
|
Add: Debt issuance cost and
original issuance discount for Senior Secured Notes |
|
8.4 |
|
|
— |
|
|
— |
|
Gross value of long-term debt |
|
977.8 |
|
|
1,123.4 |
|
|
1,196.9 |
|
Add: Short-term finance lease
liabilities |
|
17.0 |
|
|
16.5 |
|
|
16.5 |
|
Long-term finance lease liabilities |
|
141.4 |
|
|
137.4 |
|
|
136.6 |
|
Total debt |
|
1,136.2 |
|
|
1,277.3 |
|
|
1,350.0 |
|
Less: Cash and cash
equivalents |
|
(32.8 |
) |
|
(34.8 |
) |
|
(43.9 |
) |
Net debt |
|
$ |
1,103.4 |
|
|
$ |
1,242.5 |
|
|
$ |
1,306.1 |
|
Reconciliation of Net Income to Adjusted
EBITDA Guidance for Full Year 2020(in millions)
|
|
FY 2020 Adjusted EBITDA |
|
|
Low |
|
High |
Net income |
|
$ |
30 |
|
|
$ |
40 |
|
Depreciation &
amortization |
|
90 |
|
|
90 |
|
Interest expense |
|
82 |
|
|
82 |
|
Loss on extinguishment of
debt |
|
12 |
|
|
12 |
|
Income tax expense |
|
25 |
|
|
30 |
|
Non-cash compensation
expense |
|
11 |
|
|
11 |
|
Other adjustments |
|
15 |
|
|
15 |
|
Adjusted EBITDA |
|
$ |
265 |
|
|
$ |
280 |
|
Source: Forterra, Inc.
Company Contact Information:Charlie
BrownExecutive Vice President and Chief Financial
Officer469-299-9113IR@forterrabp.com
Forterra (NASDAQ:FRTA)
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