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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 25, 2019
 
FOUNDATION BUILDING MATERIALS, INC.
(Exact Name of the Registrant as Specified in Charter)

 
Delaware
 
001-38009
 
81-4259606
(State or Other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
2741 Walnut Avenue, Suite 200, Tustin, California
 
92780
(Address of Principal Executive Offices)
 
(Zip Code)

(714) 380-3127
Registrant’s telephone number, including area code
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
¨

                            
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨






Item 2.02. Results of Operations and Financial Condition.

On February 25, 2019, Foundation Building Materials, Inc. (the “Company”) issued a press release announcing its financial results for its fourth quarter and year ended December 31, 2018, and providing its full-year 2019 guidance. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

The information included or incorporated by reference in this Item 2.02, including Exhibit 99.1, is being furnished to the Securities and Exchange Commission (the “SEC”) and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01. Regulation FD.

The Company intends to reference a slide deck (the “Presentation”) during the Company’s conference call to discuss its financial results for its fourth quarter and year ended December 31, 2018. A copy of the Presentation can be accessed on the Company’s website – investors.fbmsales.com by going to the "Events and Presentations" section and selecting "Read More Events and Presentations."

The information included in this Item 7.01 is being furnished to the SEC and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.
 
(d)
Exhibits
 






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
FOUNDATION BUILDING MATERIALS, INC.
 
 
 
 
Date: February 25, 2019
 
 
 
By:
 
/s /  Richard Tilley
 
 
 
 
Name:
 
Richard Tilley
 
 
 
 
Title:
 
Vice President, General Counsel and Secretary



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


396866218_logofbmtitleclra11.jpg

Foundation Building Materials, Inc. Announces Fourth Quarter and Full Year 2018 Results

2018 Fourth Quarter Highlights

Net sales of $516.2 million, an increase of 16.3% compared to the prior year period
Base business net sales of $439.1 million, an increase of 10.6% compared to the prior year period
Reduced net debt leverage ratio from 4.3x at September 30, 2018 to 3.6x at December 31, 2018
Net income of $1.9 million and adjusted net income(1) of $7.0 million from continuing operations; earnings per share of $0.04 and adjusted earnings per share(1) of $0.16
Adjusted EBITDA(1) of $41.2 million, an increase of 23.9% compared to the prior year period; adjusted EBITDA margin(1) of 8.0% compared to 7.5% in the prior year period
Closed the sale of the Mechanical Insulation segment for approximately $122.5 million

2018 Full Year Highlights

Record net sales of $2.0 billion, an increase of 14.2% compared to the prior year
Base business net sales of $1.8 billion, an increase of 8.4% compared to the prior year
Net loss of $36.4 million and adjusted net income(1) of $17.5 million from continuing operations; loss per share of $0.85 and adjusted earnings per share(1) of $0.41
Adjusted EBITDA(1) of $155.2 million, an increase of 14.7% compared to the prior year period; adjusted EBITDA margin(1) of 7.6%, the same as the prior year period
Completed four acquisitions adding 16 branches across the U.S and opened five greenfield branches

Tustin, CA, February 25, 2019 Foundation Building Materials, Inc. (NYSE: FBM), one of the largest specialty building product distributors of wallboard, suspended ceiling systems and metal framing in North America, today reported fourth quarter and full year 2018 financial results.
“We are very pleased with our fourth quarter and full year results. We delivered double-digit net sales and strong base business growth reflecting our balanced product mix and our ongoing strategies to drive organic growth,” said Ruben Mendoza, President and CEO. “For 2019, our strategic priorities are to reduce debt, execute our business model to drive organic growth and expand profit margin to deliver long-term value to our shareholders.”

2018 Fourth Quarter Results

Net sales for the three months ended December 31, 2018 were $516.2 million compared to $443.7 million for the three months ended December 31, 2017, representing an increase of $72.5 million, or 16.3%. Net sales from base business branches contributed $439.1 million of the increase which was driven by strong commercial activity, price increases and product expansion into new geographic markets.

Gross profit for the three months ended December 31, 2018 was $155.6 million compared to $133.2 million for the three months ended December 31, 2017, representing an increase of $22.5 million, or 16.9%. The increase in gross profit was primarily due to the increase in net sales. Gross margin for the three months ended December 31, 2018 was 30.1% compared to 30.0% for the three months ended December 31, 2017.


(1) Adjusted EBITDA, adjusted net income and adjusted earnings per share are non-GAAP measures. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate these measures, why we believe they are important and a reconciliation thereof to the most directly comparable GAAP measures. Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.
1






Selling, general, and administrative ("SG&A"), expenses for the three months ended December 31, 2018, were $116.4 million compared to $100.6 million for the three months ended December 31, 2017, representing an increase of $15.9 million. As a percentage of net sales, SG&A expenses were 22.6% for the three months ended December 31, 2018, compared to 22.7% for the three months ended December 31, 2017. Excluding non-recurring adjustments of $2.3 million and $0.8 million for the three months ended December 31, 2018 and 2017, respectively, SG&A expenses as a percentage of net sales for the three months ended December 31, 2018 were 22.1% compared to 22.5% for the three months ended December 31, 2017. The decrease in SG&A expenses as a percentage of net sales was due to our continued focus on operating efficiencies, cost reduction initiatives, and leveraging costs with the increase in net sales.
Net income from continuing operations for the three months ended December 31, 2018 was $1.9 million, or $0.04 per share, compared to net income from continuing operations of $74.8 million, or $1.74 per share for the three months ended December 31, 2017. Adjusted net income(1) for the three months ended December 31, 2018 was $7.0 million, or $0.16 per share, a decrease of $0.1 million compared to an adjusted net income(1) of $7.1 million, or $0.17 per share, for the three months ended December 31, 2017.

Adjusted EBITDA(1) was $41.2 million and adjusted EBITDA margin(1) was 8.0% for the three months ended December 31, 2018, compared to adjusted EBITDA(1) of $33.3 million and adjusted EBITDA margin(1) of 7.5% for the three months ended December 31, 2017.

2018 Full Year Results

Net sales for the year ended December 31, 2018 were $2.0 billion compared to $1.8 billion for the year ended December 31, 2017, representing an increase of $254.2 million, or 14.2%. Net sales from base business branches contributed $137.1 million, or 8.4%, of the increase, which was driven by strong commercial activity, price increases and product expansion into new geographic markets.

Gross profit for the year ended December 31, 2018 was $590.4 million compared to $522.2 million for the year ended December 31, 2017, representing an increase of $68.2 million, or 13.1%. The increase in gross profit was primarily due to the increase in net sales. Gross margin for the year ended December 31, 2018 was 28.9% compared to 29.2% for the year ended December 31, 2017. The decrease in gross margin was primarily due to higher product costs.

SG&A expenses for the year ended December 31, 2018 were $444.5 million compared to $399.9 million for the year ended December 31, 2017, representing an increase of $44.7 million, or 11.2%. As a percentage of net sales, SG&A expenses were 21.7% for the year ended December 31, 2018 compared to 22.3% for the year ended December 31, 2017. Excluding non-recurring adjustments of $9.2 million and $11.9 million for the years ended December 31, 2018 and 2017, respectively, SG&A expenses as a percentage of net sales for the year ended December 31, 2018 were 21.3% compared to 21.7% for the year ended December 31, 2017. The decrease in SG&A expenses as a percentage of net sales was due to our continued focus on operating efficiencies, cost reduction initiatives, and leveraging costs with the increase in net sales.

Net loss from continuing operations for the year ended December 31, 2018, was $36.4 million, or $0.85 per share, compared to net income from continuing operations of $77.9 million, or $1.88 per share for the year ended December 31, 2017. Adjusted net income(1) for the year ended December 31, 2018, was $17.5 million, or $0.41 per share, an increase of $7.9 million compared to adjusted net income(1) of $9.6 million, or $0.23 per share, for the year ended December 31, 2017.

Adjusted EBITDA(1) was $155.2 million and adjusted EBITDA margin(1) was 7.6% for the year ended December 31, 2018, compared to adjusted EBITDA(1) of $135.3 million and adjusted EBITDA margin(1) of 7.6% for the year ended December 31, 2017.

Acquisitions and Greenfield Branches

In 2018, the Company completed four acquisitions adding 16 branches with combined annualized net sales in excess of $130.0 million. During 2018 the Company opened five specialty building products greenfield branches and expects to open four to six more branches by the end of 2019. These greenfield branches are projected to yield high returns on invested capital within the first few years of startup. They also serve to further leverage the Company’s national scale, increase the Company’s market share, generate economies of scale and support the Company’s organic growth.





(1) Adjusted EBITDA, adjusted net income and adjusted earnings per share are non-GAAP measures. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate these measures, why we believe they are important and a reconciliation thereof to the most directly comparable GAAP measures. Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.
2





2019 Guidance(1) 
 
2018 Results
 
2019 Guidance
Net sales (in billions)
$2.04
 
$2.10 to $2.25
Gross margin
28.9%
 
29.1% to 29.3%
Adjusted EBITDA (in millions)
$155
 
$160 to $180
Adjusted EBITDA margin
7.6%
 
7.6% to 8.0%
Adjusted EPS
$0.41
 
$0.70 to $0.90
Net debt leverage(2)
3.6x
 
3.2x to 3.5x
(2)For a calculation of net debt leverage, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.

Fourth Quarter Earnings Release and Conference Call

In conjunction with this release, Foundation Building Materials, Inc. will host a conference call tomorrow, Tuesday, February 26, 2019, at 8:30 AM Eastern Time. Ruben Mendoza, President and Chief Executive Officer, John Gorey, Chief Financial Officer, Pete Welly, Chief Operating Office, Kirby Thompson, Senior Vice President of Sales and Marketing and John Moten, Vice President Investor Relations will host the call.
The call can be accessed in three ways:
At the FBM website: www.fbmsales.com in the Investors section of the Company’s website;
By telephone: For both listen-only participants and those who wish to take part in the question and answer portion of the call, the dial-in telephone number in the U.S. is (877) 407-9039. For participation outside the U.S., the dial-in number is (201) 689-8470; and
Audio Replay: A replay of the call will be available beginning at 12:00 PM Eastern Time on Tuesday, February 26, 2019, and ending 11:59 PM Eastern Time on March 6, 2019. Dial-in numbers for U.S. based participants are (844) 512-2921. Participants outside the U.S. should use the replay dial-in number of (412) 317-6671. All callers will be required to provide the Conference ID of 13686920.

About Foundation Building Materials

Foundation Building Materials is a specialty building products distributor of wallboard, suspended ceiling systems, and metal framing throughout North America. Based in Tustin, California, the Company employs more than 3,400 people and operates more than 175 branches across the U.S. and Canada.

Forward-Looking Statements

This press release contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” or words or phrases with similar meaning. 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 contained in this press release relate to, among other things, the Company's projected financial performance and operating results including projected net sales, gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, leverage for 2019, as well as statements regarding the Company's progress towards achieving its strategic objectives, including the performance of current greenfield branches, the opening of additional greenfield branches, and the successful integration and performance of the Company's acquisitions. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. We do not intend and undertake no obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law. Investors are referred to our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K and our 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.

Contact Information:


(1) Adjusted EBITDA, adjusted net income and adjusted earnings per share are non-GAAP measures. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate these measures, why we believe they are important and a reconciliation thereof to the most directly comparable GAAP measures. Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.
3





Investor Relations:
John Moten, IRC
Foundation Building Materials, Inc.
657-900-3200
[email protected]

Media Relations:
Joele Frank, Wilkinson Brimmer Katcher
Jed Repko or Ed Trissel
212-355-4449


- Financial Tables Follow -






FOUNDATION BUILDING MATERIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

 
Three Months Ended December 31, (Unaudited)
 
Year Ended December 31,
 
2018
2017
 
2018
2017
Net sales
$
516,159

$
443,674

 
$
2,044,312

$
1,790,114

Cost of goods sold
360,541

310,523

 
1,453,953

1,267,925

Gross profit
155,618

133,151

 
590,359

522,189

Operating expenses:
 
 
 


Selling, general and administrative expenses
116,438

100,563

 
444,527

399,864

Depreciation and amortization
20,500

18,199

 
77,419

70,861

Total operating expenses
136,938

118,762

 
521,946

470,725

Income from operations
18,680

14,389

 
68,413

51,464

Loss on extinguishment of debt


 
(58,475
)

Interest expense
(10,255
)
(15,864
)
 
(53,283
)
(61,011
)
Other income, net
1,171

68,064

 
1,298

81,488

Income (loss) before income taxes
9,596

66,589

 
(42,047
)
71,941

Income tax expense (benefit)
7,671

(8,170
)
 
(5,628
)
(5,965
)
Income (loss) from continuing operations
1,925

74,759

 
(36,419
)
77,906

Income from discontinued operations, net of tax
2,613

1,133

 
10,523

4,574

Gain on sale of discontinued operations, net of tax
13,712


 
13,713


Net income (loss)
$
18,250

$
75,892

 
$
(12,183
)
$
82,480

 
 
 
 
 
 
Earnings (loss) per share data:
 
 
 
 
 
Earnings (loss) from continuing operations per share - basic
$
0.04

$
1.74

 
$
(0.85
)
$
1.88

Earnings (loss) from continuing operations per share - diluted
$
0.04

$
1.74

 
$
(0.85
)
$
1.88

 
 
 
 
 
 
Earnings from discontinued operations per share - basic
$
0.39

$
0.03

 
$
0.57

$
0.11

Earnings from discontinued operations per share - diluted
$
0.39

$
0.03

 
$
0.57

$
0.11

 
 
 
 
 
 
Earnings (loss) per share - basic
$
0.43

$
1.77

 
$
(0.28
)
$
1.99

Earnings (loss) per share - diluted
$
0.43

$
1.77

 
$
(0.28
)
$
1.99

 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
Basic
42,903,161

42,865,407

 
42,892,879

41,486,496

Diluted
42,912,707

42,890,114

 
42,915,028

41,490,653



5



FOUNDATION BUILDING MATERIALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
December 31, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
15,299

 
$
12,101

Accounts receivable—net of allowance for doubtful accounts of $3,239 and $3,885, respectively
276,043

 
238,091

Other receivables
57,472

 
55,487

Inventories
165,989

 
148,246

Prepaid expenses and other current assets
9,053

 
11,785

Current assets held for sale

 
82,948

Total current assets
523,856

 
548,658

Property and equipment, net
151,641

 
144,524

Intangible assets, net
145,876

 
164,536

Goodwill
484,941

 
452,728

Other assets
10,393

 
5,604

Noncurrent assets held for sale

 
38,220

Total assets
$
1,316,707

 
$
1,354,270

Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
137,773

 
$
134,460

Accrued payroll and employee benefits
28,830

 
17,920

Accrued taxes
11,867

 
7,003

Tax receivable agreement
16,667

 
15,892

Current portion of term loan, net
4,500

 

Other current liabilities
19,979

 
37,270

Current liabilities held for sale

 
29,733

Total current liabilities
219,616

 
242,278

Asset-based revolving credit facility
146,000

 
47,486

Long-term portion of term loan, net
437,999

 

Long-term portion of notes payable, net

 
534,379

Tax receivable agreement
117,948

 
119,912

Deferred income taxes, net
20,678

 
17,912

Other liabilities
8,117

 
12,657

Noncurrent liabilities held for sale

 
982

Total liabilities
950,358

 
975,606

Commitments and contingencies
 
 
 

 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value, authorized 10,000,000 shares; 0 shares issued

 

Common stock, $0.001 par value, authorized 190,000,000 shares; 42,907,326 and 42,865,407 shares issued, respectively
13

 
13

     Additional paid-in capital
332,330

 
330,113

     Retained earnings
34,187

 
46,184

     Accumulated other comprehensive (loss) income
(181
)
 
2,354

          Total stockholders' equity
366,349

 
378,664

Total liabilities and stockholders' equity
$
1,316,707

 
$
1,354,270



6



FOUNDATION BUILDING MATERIALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Year Ended December 31,
 
2018
 
2017
Cash flows from operating activities:

 

Net (loss) income
$
(12,183
)
 
$
82,480

Less: gain on sale of business
13,713

 

Less: net income from discontinued operations
10,523

 
4,574

Net (loss) income from continuing operations
(36,419
)
 
77,906

Adjustments to reconcile net (loss) income to net cash provided by operating activities of continuing operations:


 


     Depreciation
33,437

 
29,404

     Amortization of intangible assets
43,982

 
41,456

     Amortization of debt issuance costs and debt discount
7,370

 
9,910

     Inventory fair value purchase accounting adjustment
1,057

 
720

     Loss on extinguishment of debt
58,475

 

     Provision for doubtful accounts
1,810

 
1,721

     Stock-based compensation
2,175

 
1,902

     Reduction in tax receivable agreement
(1,189
)
 
(68,033
)
     Unrealized gain on derivative instruments, net
(265
)
 
(13,059
)
     Loss on disposal of property and equipment
552

 
200

     Deferred income taxes
221

 
(6,263
)
     Change in assets and liabilities, net of effects of acquisitions:


 


          Accounts receivable
(23,326
)
 
4,602

          Other receivables
(1,721
)
 
(3,610
)
          Inventories
(8,834
)
 
(10,449
)
          Prepaid expenses and other current assets
2,708

 
378

          Other assets
(1,320
)
 
2,970

          Accounts payable
(1,951
)
 
19,362

          Accrued payroll and employee benefits
11,105

 
(5,351
)
          Accrued taxes
4,893

 
(1,528
)
          Other liabilities
(16,911
)
 
(12,186
)
Net cash provided by operating activities from continuing operations
75,849

 
70,052

Cash flows from investing activities from continuing operations:


 


     Purchases of property and equipment
(34,892
)
 
(28,249
)
     Payment of net working capital adjustments related to acquisitions
(40
)
 
(405
)
     Proceeds from net working capital adjustments related to acquisitions
154

 
8,602

     Proceeds from the disposal of fixed assets
2,315

 
2,586

     Acquisitions, net of cash acquired
(93,477
)
 
(73,038
)
Net cash used in investing activities from continuing operations
(125,940
)
 
(90,504
)
Cash flows from financing activities from continuing operations:


 


     Proceeds from asset-based revolving credit facility
897,911

 
400,239

     Repayments of asset-based revolving credit facility
(799,272
)
 
(561,509
)
     Term loan proceeds
450,000

 

     Principal payments on long-term debt
(575,000
)
 

     Prepayment premium on bond
(23,872
)
 


7



     Debt issuance costs and deferred finance costs
(7,935
)
 

     Tax withholding payment related to net settlement of equity awards
(61
)
 

     Principal repayment of capital lease obligations
(2,771
)
 
(2,582
)
     Issuance of common stock

 
163,952

     Capital contributions

 
2,997

Net cash (used in) provided by financing activities from continuing operations
(61,000
)
 
3,097

     Net cash (used in) provided by operating activities from discontinued operations
(6,614
)
 
7,209

     Net cash provided by (used in) investing activities from discontinued operations
121,568

 
(6,434
)
     Net cash used in financing activities of discontinued operations
(162
)
 
(255
)
Net cash provided by discontinued operations
114,792

 
520

Effect of exchange rate changes on cash
(503
)
 
384

Net increase (decrease) increase in cash
3,198

 
(16,451
)
Cash and cash equivalents at beginning of period
12,101

 
28,552

Cash and cash equivalents at end of period
$
15,299

 
$
12,101




 


Supplemental disclosures of cash flow information:


 


Cash paid for income taxes
$
2,507

 
$
4,129

Cash paid for interest
$
61,199

 
$
50,866

Supplemental disclosures of non-cash investing and financing activities:


 


Change in fair value of derivatives, net of tax
$
4,616

 
$
2,970

Assets acquired under capital lease
$

 
$
670

Goodwill adjustment for purchase price allocation
$
202

 
$
519

Tax receivable agreement
$

 
$
203,837

Notes received for disposals of equipment
$

 
$
134






8



FOUNDATION BUILDING MATERIALS, INC.
NET SALES BY MAJOR PRODUCT LINE, GROSS PROFIT AND GROSS MARGIN
FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited)
(in thousands)

 
Three Months Ended December 31,
 
Change
 
2018
 
2017
 
$
 
%
     Wallboard
$
198,014

38.4
%
 
$
172,910

39.0
%
 
$
25,104

 
14.5
%
     Suspended ceiling systems
91,453

17.7
%
 
80,895

18.2
%
 
10,558

 
13.1
%
     Metal framing
97,474

18.9
%
 
67,925

15.3
%
 
29,549

 
43.5
%
     Complementary and other products
129,218

25.0
%
 
121,944

27.5
%
 
7,274

 
6.0
%
Total net sales
$
516,159

100.0
%
 
$
443,674

100.0
%
 
$
72,485

 
16.3
%
Total gross profit
$
155,618

 
 
$
133,151

 
 
$
22,467

 
16.9
%
Total gross margin
30.1
%
 
 
30.0
%
 
 
0.1
%
 
 



9



FOUNDATION BUILDING MATERIALS, INC.
NET SALES BY MAJOR PRODUCT LINE, GROSS PROFIT AND GROSS MARGIN
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(in thousands)

 
Year Ended December 31,
 
Change
 
2018
 
2017
 
$
 
%
     Wallboard
$
781,257

38.2
%
 
$
701,467

39.2
%
 
$
79,790

 
11.4
%
     Suspended ceiling systems
379,809

18.6
%
 
328,815

18.4
%
 
50,994

 
15.5
%
     Metal framing
361,493

17.7
%
 
280,410

15.7
%
 
81,083

 
28.9
%
     Complementary and other products
521,753

25.5
%
 
479,422

26.8
%
 
42,331

 
8.8
%
Total net sales
$
2,044,312

100.0
%
 
$
1,790,114

100.0
%
 
$
254,198

 
14.2
%
Total gross profit
$
590,359

 
 
$
522,189

 
 
$
68,170

 
13.1
%
Total gross margin
28.9
%
 
 
29.2
%
 
 
(0.3
)%
 
 


10



FOUNDATION BUILDING MATERIALS, INC.
BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES
FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited) AND
YEARS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited)
(in thousands)

 
Three Months Ended December 31,
 
Change
 
2018
 
2017
 
$
 
%
Base business (1)
$
439,118

 
$
397,133

 
$
41,985

 
10.6
%
Acquired and combined (2)
77,041

 
46,541

 
30,500

 
65.5
%
Net sales
$
516,159

 
$
443,674

 
$
72,485

 
16.3
%
(1) Represents net sales from branches that were owned by us since January 1, 2017 and branches that were opened by us during such period.
(2) Represents branches acquired and combined after January 1, 2017, primarily as a result of our strategic combination of branches.

 
Year Ended December 31,
 
Change
 
2018
 
2017
 
$
 
%
Base business (1)
$
1,779,036

 
$
1,641,911

 
$
137,125

 
8.4
%
Acquired and combined (2)
265,276

 
148,203

 
117,073

 
79.0
%
Net sales
$
2,044,312

 
$
1,790,114

 
$
254,198

 
14.2
%
(1) Represents net sales from branches that were owned by us since January 1, 2017 and branches that were opened by us during such period.
(2) Represents branches acquired and combined after January 1, 2017, primarily as a result of our strategic combination of branches.


11



FOUNDATION BUILDING MATERIALS, INC.
BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES BY MAJOR PRODUCT LINE
FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited) AND
YEARS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited)
(in thousands)

 
Three Months Ended December 31, 2017
 
Base Business Net Sales Change
 
Acquired and Combined Net Sales Change
 
Three Months Ended December 31, 2018
 
Total Net Sales % Change
Base Business Net Sales % Change(1)
 
Acquired and Combined Net Sales % Change(2)
Wallboard
$
172,910

 
$
9,536

 
$
15,568

 
$
198,014

 
14.5
%
6.1
%
 
88.7
%
Suspended ceiling systems
80,895

 
4,928

 
5,630

 
91,453

 
13.1
%
6.8
%
 
70.6
%
Metal framing
67,925

 
21,785

 
7,764

 
97,474

 
43.5
%
35.2
%
 
129.4
%
Complementary and other products
121,944

 
5,736

 
1,538

 
129,218

 
6.0
%
5.4
%
 
10.3
%
Net sales
443,674

 
41,985

 
30,500

 
516,159

 
16.3
%
10.6
%
 
65.5
%
Average daily net sales
$
7,156

 
$
677

 
$
492

 
$
8,325

 
16.3
%
10.6
%
 
65.5
%
(1) Represents base business net sales change as a percentage of base business net sales for the three months ended December 31, 2017.
(2) Represents acquired and combined as a percentage of acquired and combined net sales for the three months ended December 31, 2017.


 
Year Ended December 31, 2017
 
Base Business Net Sales Change
 
Acquired and Combined Net Sales Change
 
Year Ended December 31, 2018
 
Total Net Sales % Change
Base Business Net Sales % Change(1)
 
Acquired and Combined Net Sales % Change(2)
Wallboard
$
701,467

 
$
28,372

 
$
51,418

 
$
781,257

 
11.4
%
4.4
%
 
92.6
%
Suspended ceiling systems
328,815

 
25,205

 
25,789

 
379,809

 
15.5
%
8.3
%
 
100.0
%
Metal framing
280,410

 
60,535

 
20,548

 
361,493

 
28.9
%
23.2
%
 
106.9
%
Complementary and other products
479,422

 
23,013

 
19,318

 
521,753

 
8.8
%
5.3
%
 
40.5
%
Net sales
1,790,114

 
137,125

 
117,073

 
2,044,312

 
14.2
%
8.4
%
 
79.0
%
Average daily net sales
$
7,104

 
$
542

 
$
463

 
$
8,080

 
13.7
%
8.3
%
 
78.7
%
(1) Represents base business net sales change as a percentage of base business net sales for the year ended December 31, 2017.
(2) Represents acquired and combined as a percentage of acquired and combined net sales for the year ended December 31, 2017.


12



Non-GAAP (Generally Accepted Accounting Principles) Financial Measures

In addition to results under GAAP, this press release contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, net debt leverage and adjusted earnings per share ("EPS"), which are provided as supplemental measures of financial performance. These measures are not required by, or presented in accordance with, GAAP. The Company calculates adjusted EBITDA as net (loss) income before interest expense net, loss on extinguishment of debt, income tax (benefit) expense, depreciation and amortization, unrealized gain on derivative financial instruments, IPO and public company readiness expenses, stock-based compensation, and other non-recurring adjustments such as non-cash purchase accounting effects, (gains) losses on the disposal of property and equipment, hurricane-related costs, transaction costs, management fees and the decrease in the tax receivable agreement liability, or TRA. The Company calculates adjusted EBITDA margin as adjusted EBITDA divided by net sales. The Company calculates adjusted net income as net income (loss) before loss on extinguishment of debt, unrealized losses gains on derivative financial instruments, IPO and public company readiness expenses, stock-based compensation, and other non-recurring adjustments such as non-cash purchase accounting adjustments, (gains) losses on the disposal of property and equipment, hurricane-related costs, transaction costs, management fees and the decrease in the TRA liability. The Company calculates adjusted EPS as adjusted net income on a per weighted average share outstanding basis. For a calculation of net debt leverage, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.
 
These non-GAAP financial measures are presented because they are important metrics used by management as a means by which it assesses financial performance. These measures may also be used by analysts, investors and other interested parties to evaluate companies in the Company’s industry. These measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework that may be useful in assessing the Company’s financial condition and results of operations.
 
These non-GAAP financial measures have certain limitations. These measures should not be considered as alternatives to measures of financial performance derived in accordance with GAAP. In addition, these measures should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. Furthermore, these measures are not intended to be liquidity measures. Other companies, including other companies in the Company’s industry, may not use these measures or may calculate these measures differently than the Company does, limiting their usefulness as comparative measures.

















13



The following is a reconciliation of adjusted EBITDA to the nearest GAAP measure, net income (loss) (unaudited):
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2018
 
2017
 
2018
 
2017
(in thousands)
 
 
 
 

 

Net income (loss) from continuing operations
$
1,925

 
$
74,759

 
$
(36,419
)
 
$
77,906

Interest expense, net
10,244

 
15,838

 
53,201

 
60,924

Loss on extinguishment of debt

 

 
58,475

 

Income tax expense (benefit)
7,671

 
(8,170
)
 
(5,628
)
 
(5,965
)
Depreciation and amortization
20,500

 
18,199

 
77,419

 
70,861

Unrealized gain on derivative financial instruments
(209
)
 
(14
)
 
(265
)
 
(13,059
)
IPO and public company readiness expenses

 
157

 
89

 
5,085

Stock-based compensation
788

 
210

 
2,299

 
1,901

Non-cash purchase accounting effects(a)

 
(127
)
 
413

 
703

(Gain) loss on disposal of property and equipment
(61
)
 
48

 
552

 
199

Hurricane-related costs(b)

 
(20
)
 
(83
)
 
376

Transaction costs(c)
1,553

 
411

 
6,306

 
4,047

Management fees(d)

 

 

 
353

Decrease in TRA liability(e)
(1,189
)
 
(68,033
)
 
(1,189
)
 
(68,033
)
Adjusted EBITDA
$
41,222

 
$
33,258

 
$
155,170

 
$
135,298

Adjusted EBITDA margin(f)
8.0
%
 
7.5
%
 
7.6
%
 
7.6
%


(a)
Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized as a result of acquisitions.
(b)
Represents costs incurred and insurance proceeds resulting from Hurricanes Harvey and Irma.
(c)
Represents costs related to our transactions, including fees to financial advisors, accountants, attorneys, other professionals and certain internal corporate development costs.
(d)
Represents fees paid to our former private equity sponsor for services provided pursuant to past management agreements. These fees are no longer being incurred.
(e)
Related to adjustment in liability related to the Tax Cut and Jobs Act of 2017. See Note 20, Tax Receivable Agreement, in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
(f)
Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.












14



The following is a reconciliation of adjusted net income to the nearest GAAP measure, net income (loss) (unaudited):
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2018
 
2017
 
2018
 
2017
(in thousands, except share and per share data)
 
 
 
 
 
 
 
Net income (loss)
$
1,925

 
$
74,759

 
$
(36,419
)
 
$
77,906

Loss on extinguishment of debt

 

 
58,475

 

Unrealized gain on derivative financial instruments
(209
)
 
(14
)
 
(265
)
 
(13,059
)
IPO and public company readiness expenses

 
157

 
89

 
5,085

Stock-based compensation
788

 
210

 
2,299

 
1,901

Non-cash purchase accounting effects(a)

 
(127
)
 
413

 
703

(Gain) loss on disposal of property and equipment
(61
)
 
48

 
552

 
199

Hurricane-related costs(b)

 
(20
)
 
(83
)
 
376

Transaction costs(c)
1,553

 
411

 
6,306

 
4,047

Management fees(d)

 

 

 
353

Decrease in TRA liability(e)
(1,189
)
 
(68,033
)
 
(1,189
)
 
(68,033
)
Tax effects(f)
4,162

 
(257
)
 
(12,635
)
 
152

Adjusted net income
$
6,969

 
$
7,134

 
$
17,543

 
$
9,630

 
 
 
 
 
 
 
 
Earnings (loss) per share data as reported:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
1.74

 
$
(0.85
)
 
$
1.88

Diluted
$
0.04

 
$
1.74

 
$
(0.85
)
 
$
1.88

Earnings per share data as adjusted:
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.17

 
$
0.41

 
$
0.23

Diluted
$
0.16

 
$
0.17

 
$
0.41

 
$
0.23

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
42,903,161

 
42,865,407

 
42,892,879

 
41,486,496

Diluted
42,912,707

 
42,890,114

 
42,915,028

 
41,490,653

(a)
Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized as a result of acquisitions.
(b)
Represents costs incurred and insurance proceeds resulting from Hurricanes Harvey and Irma.
(c)
Represents costs related to our transactions, including fees to financial advisors, accountants, attorneys, other professionals and certain internal corporate development costs.
(d)
Represents fees paid to former private equity sponsors for services provided pursuant to past management agreements. These fees are no longer being incurred.
(e)
Related to adjustment in liability related to the Tax Cut and Jobs Act of 2017. See Note 20, Tax Receivable Agreement, in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
(f)
Represents the tax effect and one-time, non-recurring tax items.




15
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