Foundation Building Materials, Inc. Announces Fourth Quarter and Full Year Results for 2016

Growth strategy and operational execution drives record revenue

2016 Fourth Quarter Highlights

  • Record revenue of $462.2 million, an increase of 118.4% over 2015
  • Pro forma revenue of $469.6 million
  • Net loss of $8.8 million
  • Adjusted EBITDA1 of $24.7 million
  • Acquired United Drywall Supply, Inc. on November 30, 2016

2016 Full Year Highlights

  • Record revenue of $1.4 billion, an increase of 69.7% over 2015
  • Pro forma revenue of $1.9 billion
  • Net loss of $28.4 million
  • Adjusted EBITDA1 of $79.8 million
  • Five acquisitions in 2016 contributing revenue of $340.5 million
  • Winroc-SPI integration continues on schedule

TUSTIN, Calif.--()--Foundation Building Materials, Inc. (NYSE:FBM), the second largest specialty distributor of wallboard and suspended ceiling systems in the United States and Canada, today reported fourth quarter and full year results for 2016.

"We generated strong results in 2016 reflecting the execution of the growth strategy and the momentum in the business," said Ruben Mendoza, President and CEO of FBM. He continued, "We achieved record revenues for the quarter and the year, we completed five acquisitions for the year, and we improved our operational efficiencies. We anticipate another year of strong growth in 2017 given healthy market dynamics and further execution of our acquisition strategy. We remain focused on driving growth and delivering operational and financial improvement through our strategic initiatives in the years ahead."

2016 Fourth Quarter Results

Net sales were $462.2 million for the three months ended December 31, 2016. Our base business net sales (net sales from branches that were owned by us since January 1, 2015 and branches that were opened by us during such period) increased $13.6 million, or 10.3%, over the prior year period. Complementary products grew by 96.3% to $118.8 million for the three months ended December 31, 2016.

Gross profit was $132.3 million for the three months ended December 31, 2016, representing a gross margin of 28.6%. Gross margin was impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes.

____________________

1 Adjusted EBITDA is a non-GAAP measure. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate this measure, why we believe it is important and a reconciliation thereof to the most directly comparable GAAP measure.
 

Selling, general and administrative ("SG&A") expenses were $110.1 million for the three months ended December 31, 2016. SG&A expenses were impacted by warehousing and delivery costs driven by increased net sales and acquired branches. Payroll related and other expenses increased due to our continued investment in our infrastructure and support of our operations. We also incurred one-time expenses as a result of our initial public offering process and other transaction costs of $5.0 million. One-time system implementation costs were $0.5 million.

2016 Fourth Quarter Segment Results

Specialty Building Products (SBP). Net sales were $400.5 million for the three months ended December 31, 2016, which were driven by the overall market growth in both the commercial and residential construction markets and our increased market share. The Winroc-SPI acquisition, which occurred in August 2016, contributed $113.6 million to the SBP segment during the three months ended December 31, 2016. Wallboard, ceilings and accessories accounted for the majority of SBP sales for the period.

Gross profit was $115.0 million for the three months ended December 31, 2016, representing a gross margin of 28.7%. Gross margin was impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes and our strategic initiatives to increase the mix of higher margin products.

Mechanical Insulation (MI). Net sales were $61.7 million for the three months ended December 31, 2016. We entered the mechanical insulation market as a result of the Winroc-SPI acquisition in August 2016.

Gross profit was $17.3 million for the three months ended December 31, 2016, representing a gross margin of 28.0%.

2016 Full Year Results

Net sales were $1,392.5 million for the year ended December 31, 2016. Our base business net sales (net sales from branches that were owned by us since January 1, 2015 and branches that were opened by us during such period) increased $49.7 million, or 9.3%, year over year due to our continued organic growth initiatives. Complementary products grew by 66.6% to $369.8 million for the year ended December 31, 2016.

Gross profit was $396.8 million for the year ended December 31, 2016, representing a gross margin of 28.5%. Gross margin was negatively impacted by inventory fair value adjustments of $6.5 million for the year ending December 31, 2016. Excluding these fair value adjustments, gross profit was $403.3 million and gross margin was 29.0% for the year ended December 31, 2016. Gross margin was also impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes.

SG&A expenses were $328.8 million for the year ended December 31, 2016. SG&A expenses were impacted by warehousing and delivery costs driven by increased net sales and acquired branches. Payroll related and other expenses increased due to our continued investment in our infrastructure and support of our operations. We also incurred one-time expenses as a result of our initial public offering and other transaction costs of $23.2 million. One-time system implementation costs for the year were $3.9 million.

2016 Full Year Segment Results

Specialty Building Products (SBP). Net sales were $1,293.5 million for the year ended December 31, 2016, which were driven by the overall market growth in both the commercial and residential construction markets and our increased market share. The Winroc-SPI acquisition, which occurred in August 2016, contributed $194.0 million to the SBP segment. Wallboard, ceilings and accessories accounted for the majority of SBP sales for the year ended December 31, 2016.

Gross profit was $369.4 million for the year ended December 31, 2016, representing a gross margin of 28.6%. Gross margin was impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes. Gross margin was negatively impacted by inventory fair value adjustments of $6.5 million for the year ending December 31, 2016. Excluding these fair value adjustments, gross profit was $375.9 million and gross margin was 29.1% for the year ended December 31, 2016.

Mechanical Insulation. Net sales were $99.0 million for the year ended December 31, 2016. We entered the mechanical insulation market as a result of the Winroc-SPI acquisition in August 2016.

Gross profit was $27.4 million for the year ended December 31, 2016, representing a gross margin of 27.7%.

Acquisitions

2016 Fourth Quarter Activity. On November 30, 2016, we acquired United Drywall Supply, Inc. ("United Drywall") for $30.0 million, subject to post-closing adjustments. United Drywall supplies building materials to commercial and residential developers in the Atlanta, Georgia metropolitan area and expands FBM's presence in this market. For the period from October 1, 2016 to November 30, 2016, United Drywall had sales of $7.4 million, net loss of $0.6 million and EBITDA2 loss of $0.6 million. We expect to realize synergies in connection with the United Drywall acquisition and other 2016 acquisitions through cost savings related to the elimination of redundant overhead costs and the application of volume discounts under our supplier programs. We estimate that these efforts would have resulted in cost savings of $3.7 million during the period.

2016 Full Year Activity. During 2016 we completed five acquisitions for a total of $402.0 million, several of which remain subject to post-closing adjustments. From January 1, 2016 through the date of each company's respective acquisition date, the cumulative revenues were $532.6 million, net income was $9.7 million and EBITDA2 was $20.7 million. We realized synergies in connection with the 2016 acquisitions through cost savings related to the elimination of redundant overhead costs and the application of volume discounts under our supplier programs. We estimate that these efforts would have resulted in cost savings of $17.8 million during the period.

Conference Call Information

In conjunction with this release, Foundation Building Materials, Inc. will host a conference call today, Monday, March 27, 2017, at 5:00 pm Eastern Time. Ruben Mendoza, President and Chief Executive Officer and John Gorey, Chief Financial Officer will host the call.

Investors may dial into the call at (877) 407-9039 (U.S.) or (201) 689-8470 (international) five to ten minutes prior to the start time to allow for registration.

Investors may also listen to the live audio webcast via the Investor Relations page of the Foundation Building Materials, Inc. website, http://investors.fbmsales.com. Please allow 15 minutes prior to the call to download and install any necessary audio software.

An audio replay of the event will be archived on the Investor Relations page of the company's website, at http://investors.fbmsales.com. The audio replay will also be available via telephone from Monday, March 27, 2017, at approximately 5:00 p.m. Pacific Time through Monday, April 3, 2017, at 9:00 p.m. Pacific Time. Dial (844) 512-2921 and enter the passcode 13656948. International callers should dial (412) 317-6671 and enter the same passcode number to access the audio replay.

____________________

(2) EBITDA is a non-GAAP measure. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate this measure, why we believe this is important and a reconciliation thereof to the most directly comparable GAAP measure.

 

About Foundation Building Materials

Foundation Building Materials is a specialty distributor of wallboard and suspended ceiling systems throughout the U.S. and Canada. Based in Tustin, California, the Company employs more than 3,400 people and operates more than 200 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 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 the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and its 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.

 

LSF9 CYPRESS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 
  Successor   Predecessor

Three Months

 

October 9,

October 1,

Ended

2015 to

2015 to

December 31,

December 31,

October 8,

2016

2015

2015

(Unaudited) (Audited) (Unaudited)
Net sales $ 462,194 $ 192,539 $ 19,102
Cost of goods sold (exclusive of depreciation and amortization)   329,937     143,333     12,370  
Gross profit 132,257 49,206 6,732
Operating expenses:
Selling, general and administrative expenses 110,089 47,660 32,571
Depreciation and amortization   17,773     7,170     490  
Total operating expenses   127,862     54,830     33,061  
Income (loss) from operations 4,395 (5,624 ) (26,329 )
Interest expense (15,309 ) (7,044 ) (3,373 )
Other (expense) income, net   (7,265 )   9      
Loss before income taxes (18,179 ) (12,659 ) (29,702 )
Income tax (benefit) expense   (9,375 )   (4,733 )   31  
Net loss $ (8,804 ) $ (7,926 ) $ (29,733 )
Loss per share data:
Basic $ (0.29 ) $ (0.26 )
Diluted $ (0.29 ) $ (0.26 )
Weighted average shares outstanding:
Basic 29,974,239 29,974,239
Diluted 29,974,239 29,974,239
 

LSF9 CYPRESS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (Audited)

(in thousands, except share and per share data)

 
  Successor   Predecessor

Year

 

October 9,

 

January 1,

 

Year

Ended

2015 to

2015 to

Ended

December 31,

December 31,

October 8,

December 31,

2016

2015

 

2015

2014

Net sales $ 1,392,509 $ 192,539 $ 628,066 $ 508,853
Cost of goods sold (exclusive of depreciation and amortization)   995,704     143,333       452,909     368,064  
Gross profit 396,805 49,206 175,157 140,789
Operating expenses:
Selling, general and administrative expenses 328,847 47,660 171,215 120,145
Depreciation and amortization   51,378     7,170     15,615     11,729  
Total operating expenses   380,225     54,830       186,830     131,874  
Income (loss) from operations 16,580 (5,624 ) (11,673 ) 8,915
Interest expense (52,511 ) (7,044 ) (19,090 ) (9,980 )
Other (expense) income, net   (7,172 )   9       14     36  
Loss before income taxes (43,103 ) (12,659 ) (30,749 ) (1,029 )
Income tax (benefit) expense   (14,733 )   (4,733 )     (1,294 )   812  
Net loss $ (28,370 ) $ (7,926 )   $ (29,455 ) $ (1,841 )
Loss per share data:
Basic $ (0.95 ) $ (0.26 )
Diluted $ (0.95 ) $ (0.26 )
Weighted average shares outstanding:
Basic 29,974,239 29,974,239
Diluted 29,974,239 29,974,239
 

LSF9 CYPRESS HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS (Audited)

(in thousands)

 
  Successor

December 31,

 

December 31,

2016

2015

Assets
Current assets:
Cash and cash equivalents $ 28,552

$

10,662

Accounts receivables—net of allowance for doubtful accounts of 2016—$5,685 and 2015—$6,304 261,686 138,621
Other receivables 52,845 24,673
Inventories 157,991 71,876
Prepaid expenses and other current assets   12,516     4,666  
Total current assets 513,590 250,498
Property and equipment, net 144,387 66,141
Intangibles assets, net 215,381 154,458
Goodwill 437,935 289,086
Other assets   9,692     3,204  
Total assets $ 1,320,985   $ 763,387  
Liabilities and member’s equity
Current liabilities:
Asset-based credit facility $ $ 70,000
Accounts payable 119,788 59,193
Accrued payroll and employee benefits 26,956 10,942
Accrued taxes 9,151 5,765
Other current liabilities 49,613 9,501
Current portion of notes payable       1,492  
Total current liabilities 205,508 156,893
Asset-based credit facility 208,469
Long-term portion of notes payable, net 525,487 300,315
Deferred income taxes, net 26,867 15,310
Other liabilities   26,138     118  
Total liabilities 992,469 472,636
Commitments and contingencies
 
Member's equity 364,815 298,677
Accumulated deficit (36,296 ) (7,926 )
Other comprehensive loss   (3 )    
Total member's equity   328,516     290,751  
Total liabilities and member's equity $ 1,320,985   $ 763,387  
 

LSF9 CYPRESS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (Audited)

(in thousands)

 
  Successor   Predecessor

Year

 

October 9,

January 1,

 

Year

Ended

2015 to

2015 to

Ended

December 31,

December 31,

October 8,

December 31,

2016

2015

2015

2014

Cash flows from operating activities:
Net loss $ (28,370 ) $ (7,926 ) $ (29,455 ) $ (1,841 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 16,487 1,973 7,808 7,586
Amortization of intangible assets 34,891 5,197 7,807 4,143
Amortization and write-off of debt issuance costs and debt discount 5,950 787 3,078 411
Inventory fair value adjustment 6,469 7,453 1,606
Loss on extinguishment of debt 5,354
Provision for doubtful accounts 1,608 483 1,511 1,610
Unrealized loss on derivate instruments, net 6,952
Loss (gain) on disposal of property and equipment 1,791 (30 ) 281 202
Paid-in-kind interest 250 322
Deferred income taxes (17,669 ) 6,521 (1,837 ) 113
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivables 5,985 11,436 (24,859 ) (9,375 )
Other receivables (13,220 ) (5,973 ) (2,806 ) (5,293 )
Inventories (9,727 ) 89 4,862 (6,267 )
Prepaid expenses and other current assets (3,588 ) 942 (1,252 ) 787
Other assets (800 ) 10,110 (1,019 ) (651 )
Accounts payable (21,622 ) (13,088 ) 21,437 1,304
Accrued payroll and employee benefits 3,931 1,753 9,342 2,486
Accrued taxes 3,392 (1,399 ) 4,019 1,147
Other liabilities   35,316     (718 )   18,403     (673 )
Net cash provided by (used in) operating activities 33,130 17,610 19,176 (3,989 )
Cash flows from investing activities:
Capital expenditures (30,473 ) (2,760 ) (9,776 ) (9,205 )
Proceeds from the disposal of fixed assets 587
Acquisitions, net of cash acquired   (401,919 )   (657,563 )   (87,490 )   (93,231 )
Net cash used in investing activities (431,805 ) (660,323 ) (97,266 )

 

(102,436 )
Cash flows from financing activities:
Proceeds from asset-based credit facility 456,469 80,000 205,915 75,993
Repayments of asset-based credit facility (318,000 ) (10,000 ) (199,299 ) (34,892 )
Principal borrowings on long-term debt 645,000 307,950 80,000 65,000
Principal payments on long-term debt (397,369 ) (194 )
Debt issuance costs (34,406 ) (8,172 ) (1,165 ) (904 )
Principal repayment of capital lease obligations (1,175 )
Other financing activities (856 )
Capital contributions 66,205 272,904 1,116 326
Capital distributions   (67 )            
Net cash provided by financing activities 416,657 642,682 86,567 104,473
Effect of exchange rate changes on cash   (92 )            
Net increase (decrease) in cash 17,890 (31 ) 8,477 (1,952 )
Cash and cash equivalents at beginning of period   10,662     10,693     2,216     4,168  
Cash and cash equivalents at end of period $ 28,552   $ 10,662   $ 10,693   $ 2,216  
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 4,448   $ 1   $ 257   $ 736  
Cash paid during the period for interest $ 19,745   $ 6,695   $ 15,649   $ 9,978  
Cash paid during the period for early debt repayment penalty $ 1,600   $   $   $  
Supplemental disclosures of non-cash investing and financing activities:
Change in fair value of derivatives, net of tax $ 1,461   $   $   $  
Assets acquired under capital lease $ 3,196   $   $   $  
Embedded derivative $ 6,200   $   $   $  
Goodwill adjustment for purchase price allocation $ 1,210   $   $   $  
Fair value of stock issued in acquisitions $   $   $   $ 800  
 

Supplementary Schedules

LSF9 CYPRESS HOLDINGS, LLC

SALES BY PRODUCT CATEGORY

(in thousands)

 
  Successor

Year Ended

December 31,

2016

Wallboard and accessories

$

640,122

 

Metal framing 218,810
Suspended ceiling systems 191,745
Other products 263,758
Commercial and industrial insulation   78,074  
Net sales $ 1,392,509  
 

Base Business Information

The table below shows the allocation of base business net sales and branches acquired and includes the impact of branches strategically consolidated or closed, for the three months ended December 31, 2016.

(in thousands)  
Net sales for the three months ended December 31, 2015 $

211,641

 

Increase in net sales due to:
Base business net sales(1) 13,632
Branches consolidated/closed(2) 12,643
Branches acquired(3) 224,278  
Net sales for the three months ended December 31, 2016 $ 462,194  
 

The table below shows the allocation of base business net sales and branches acquired and includes the impact of branches strategically consolidated or closed, for the year ended December 31, 2016.

(in thousands)  
Net sales for the year ended December 31, 2015 $

820,605

 

Increase in net sales due to:
Base business net sales(1) 49,673
Branches consolidated/closed(2) 40,340
Branches acquired(3) 481,891  
Net sales for the year ended December 31, 2016 $ 1,392,509  
 
(1)     Represents net sales from branches that were owned by us since January 1, 2015 and branches that were opened by us during such period.
(2) Represents branches consolidated/closed after January 1, 2015, primarily as a result of our strategic consolidation of branches.
(3) Represents branches acquired after January 1, 2015. This includes increases in net sales from branches that assumed operations of closed branches.
 

Non-GAAP (Generally Accepted Accounting Principles) Financial Measures

In addition to results under GAAP, this press release contains certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, which are provided as supplemental measures of financial performance. These measures are not required by, or presented in accordance with, GAAP. We calculate EBITDA as net income (loss) before interest expense, income tax benefit (expense), depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before certain non-recurring adjustments such as purchase accounting adjustments impacting margins, non-cash (gains) losses on the sale of property and equipment and derivative financial instruments and management fees paid to current and former private equity sponsors.

EBITDA and Adjusted EBITDA are presented because they are important metrics used by management as one of the means by which it assesses financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our 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 our company and its results of operations.

EBITDA and Adjusted EBITDA have certain limitations. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income, or as any other measures of financial performance derived 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, EBITDA and Adjusted EBITDA are not intended to be liquidity measures. Other companies, including other companies in our industry, may not use such measures or may calculate one or more of the measures differently than we do, limiting their usefulness as a comparative measure.

The following is a reconciliation of our EBITDA and Adjusted EBITDA to the nearest GAAP measure, net loss:

  Successor

Three Months Ended

 

Year Ended

December 31, 2016

December 31, 2016

(in thousands)
Net loss $ (8,804 ) $ (28,370 )
Interest expense, net(a) 15,303 52,487
Income tax benefit (9,375 ) (14,733 )
Depreciation and amortization 17,773   51,378  
EBITDA $ 14,897 $ 60,762
 
Unrealized non-cash losses on derivative financial instruments(b) 7,271 7,123
Non-cash, purchase accounting effects(c) 96 6,469
Loss on disposal of property and equipment 1,548 1,791
Management fees(d) 903   3,622  
Adjusted EBITDA $ 24,715   $ 79,767  
 
(a)   Represents interest expense and interest income. In addition, included in interest expense, the Company incurred a loss of $7.0 million related to the refinancing of the 2015 Credit Facilities.
(b) Represents non-cash expense related to unrealized losses on derivative financial instruments.
(c) Adjusts for the 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 recent acquisitions.
(d) Represents fees paid to the Sponsor and former private equity sponsors for services provided pursuant to past and present management agreements. These fees are no longer being incurred subsequent to our initial public offering.
 

The table below summarizes total net sales, net loss and EBITDA of United Drywall for the portion of the three months ended December 31, 2016 occurring prior to the acquisition and total net sales, net income, EBITDA and Adjusted EBITDA for the 2016 acquisitions for the period from January 1, 2016 through the date of each company’s respective acquisition date:

  Successor

Three Months Ended

 

Year Ended

December 31, 2016

December 31, 2016

(in thousands)
Net sales $ 7,435 $ 532,605
 
Net (loss) income (636 ) 9,657
Interest, net 10 8,489
Taxes 3,888
Depreciation and amortization 66   4,714  
EBITDA $ (560 ) $ 26,748
Gain on derivative from Winroc-SPI (5,142 )
IFRS adjustment from Winroc-SPI   (947 )
Adjusted EBITDA $ (560 ) $ 20,659  

Pro Forma Net Sales

The following is a reconciliation of net sales to pro forma net sales:

  Successor

Three Months Ended

 

Year Ended

December 31, 2016

December 31, 2016

(in thousands)
Net sales $ 462,194 $

1,392,509

 

Ken Builders Supply, Inc. 23,644
Winroc-SPI 463,398
Unaudited 2016 acquisitions 7,435   45,508  
Pro forma net sales(1) $ 469,629   $ 1,925,059  
(1) Fourth quarter pro forma sales include sales from United Drywall Supply, Inc. from October 1, 2016 through the date of the acquisition. Pro forma sales for 2016 include sales for Ken Builders Supply, Inc., Kent Gypsum Supply Inc., Mid America Drywall Supply, Inc., Winroc-SPI and United Drywall Supply, Inc. from January 1, 2016 through the respective dates of their acquisition.
 

Contacts

Investor Relations:
Foundation Building Materials, Inc.
657-900-3200
Investors@fbmsales.com
or
Media Relations:
Joele Frank, Wilkinson Brimmer Katcher
Jed Repko or Ed Trisell
212-355-4449

Contacts

Investor Relations:
Foundation Building Materials, Inc.
657-900-3200
Investors@fbmsales.com
or
Media Relations:
Joele Frank, Wilkinson Brimmer Katcher
Jed Repko or Ed Trisell
212-355-4449