Forterra Announces Third Quarter 2019 Results

Third Quarter 2019 Highlights

• Net sales increased by 7% to $464.5 million as compared to $434.5 million in the prior year quarter
• Consolidated gross profit margin increased by over 400 basis points
• Net income of $22.4 million and Adjusted EBITDA¹ of $80.0 million exceeded prior year quarter by $16.9 million and $18.4 million, respectively
• Repaid the $39 million outstanding borrowings under revolving credit facility; in addition, voluntarily repurchased $16.5 million of term loan

IRVING, Texas, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Forterra, Inc. ("Forterra” or "the Company”) (NASDAQ: FRTA), a leading manufacturer of water and drainage infrastructure pipe and products in the United States and Eastern Canada, today announced results for the quarter ended September 30, 2019.

¹ A reconciliation of non-GAAP financial measures, including EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin, to comparable GAAP financial measures is provided in the reconciliation of Non-GAAP measures section of this press release.

Third Quarter 2019 Consolidated Results
In the third quarter of 2019, consolidated net sales increased by 7% over the prior year quarter to $464.5 million, and consolidated gross profit increased by 32% over the prior year quarter to $102.2 million. These increases were achieved primarily by higher average selling prices in both the Drainage Pipe & Products ("Drainage”) and the Water Pipe & Products ("Water”) segments. As a result, gross profit margins for Drainage and Water segments improved by 290 and 480 basis points, respectively, over the prior year quarter.  Net income for the quarter was $22.4 million, or $0.35 per share, compared to net income of $5.5 million, or $0.09 per share, in the prior year quarter.  Adjusted EBITDA for the third quarter increased by 30% to $80.0 million, compared to $61.6 million in the prior year quarter.

Forterra CEO Karl Watson, Jr. commented, "Our third quarter results demonstrate continued progress in three key levers to advancing our business:  improving plant level production efficiencies, strategic and tactical pricing discipline, and working capital optimization. While still in the early stages of delivering a full and fair return for the products we produce and the capital we deploy, we are glad to see our efforts begin to yield positive results to the bottom line.  Given this success, we are narrowing our guidance and now expect full year 2019 net loss in the range of $35 million to $8 million versus our previous view of $38 million to $16 million; and full year 2019 Adjusted EBITDA in the range of $180 to $200 million versus our previous view of $170 to $200 million."

Business Segment Results
Drainage Pipe & Products ("Drainage”) - Third Quarter 2019 Results
Drainage net sales increased by 16% to $280.7 million, compared to $243.0 million in the prior year quarter.  The increase in net sales was driven by both higher average selling prices and higher shipment volumes primarily driven by more favorable weather conditions compared to last year.  Drainage backlogs at the end of the third quarter remained strong.

Drainage gross profit and gross profit margin were $74.3 million and 26.5%, compared to $57.4 million and 23.6%, respectively, in the prior year quarter.  Drainage EBITDA, Adjusted EBITDA and Adjusted EBITDA margin were $67.4 million, $69.6 million and 24.8%, respectively, compared to $53.3 million, $55.6 million and 22.9%, respectively, in the prior year quarter.  The higher gross profit and gross profit margin primarily reflect the benefit of higher average selling prices and shipment volumes while our cost of goods sold remained relatively flat.  The higher EBITDA, Adjusted EBITDA and Adjusted EBITDA margin reflect the same dynamics, with further support of higher EBITDA from our joint venture, partially offset by higher general and administrative expenses primarily related to increased reserves for certain legal disputes, claims, and credit losses that arose in the ordinary course of our business.

Water Pipe & Products ("Water”) - Third Quarter 2019 Results
Water net sales decreased by 4% to $183.8 million, compared to $191.5 million in the prior year quarter.  The decrease in net sales was driven by a decline in shipment volumes, partially offset by higher average selling prices.  As we expected, our current quarter shipment volumes were lower when compared to the third quarter of 2018 as our customers built inventory levels during the second half of last year.  Over the past year we have worked closely with our customers to ensure we are able to efficiently service their needs, and now see bookings beginning to grow.

Despite the decline in net sales, Water gross profit and gross profit margin in the third quarter increased to $27.9 million and 15.2%, respectively, compared to $20.0 million and 10.4%, respectively, in the prior year quarter.  Water EBITDA, Adjusted EBITDA and Adjusted EBITDA margin in the third quarter increased to $25.6 million, $25.8 million and 14.0%, respectively, compared to $17.8 million, $19.0 million and 9.9%, respectively, in the prior year quarter.  The improvements in gross profit, gross profit margin, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin were driven by higher average selling prices, lower raw material costs, and manufacturing efficiencies, partially offset by lower shipment volumes.

Corporate and Other ("Corporate”) - Third Quarter 2019 Results
Corporate EBITDA and Adjusted EBITDA loss were $17.1 million and $15.4 million, respectively, in the third quarter of 2019 compared to $14.9 million and $13.1 million, respectively, in the prior year quarter.  The increase in both Corporate EBITDA and Adjusted EBITDA loss reflects our investment in information technology systems and business processes.  We expect Corporate Adjusted EBITDA loss for the full year 2019 to be in line with our internal plan.

Balance Sheet and Liquidity
As of September 30, 2019, we had cash of $43.9 million, outstanding debt on our senior term loan of $1.2 billion and no outstanding borrowings under our $300 million asset-based revolving credit facility.  During the third quarter, in addition to repaying the $39 million outstanding borrowings under our revolving credit facility, we voluntarily repurchased $16.5 million of our senior term loan before its maturity.  We expect to make additional voluntary repurchases during the fourth quarter to achieve the previously announced $30 to $85 million senior term loan pay down for the year.

Full Year Financial Outlook
Based on current trends and expectations, management has revised its full-year 2019 guidance as reflected below:

Supporting this revised guidance are our positive pricing trends in both the Drainage and Water segments and our expectation of continued strength in market demand.  We remain focused on executing commercial and operational initiatives geared toward improving operating margins and cash flow while controlling overhead costs.

Drainage - Key Financial Statistics:

Water - Key Financial Statistics:

Conference Call and Webcast Information

Forterra will host a conference call to review its third quarter 2019 results on November 5, 2019 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The dial-in number for the call is 574-990-1396 or toll free 844-498-0572. The participant passcode is 3959906. Please dial in at least five minutes prior to the call to register. The call may also be accessed via a webcast which is available on the Investors section of the Company’s website at http://forterrabp.com.  A replay of the conference call and archive of the webcast will be available for 30 days under the Investor section of the Company's website.

About Forterra

Forterra is a leading manufacturer of water and drainage pipe and products in the U.S. and Eastern Canada for a variety of water-related infrastructure applications, including water transmission, distribution, drainage and stormwater systems. Based in Irving, Texas, Forterra’s product breadth and significant scale help make it a one-stop shop for water related pipe and products, and a preferred supplier to a wide variety of customers, including contractors, distributors and municipalities. For more information on Forterra, visit http://forterrabp.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the use of words such as "anticipate", "believe", "expect", "estimate", "plan", "outlook", and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on historical information available at the time the statements are made and are based on management's reasonable belief or expectations with respect to future events, and are subject to risks and uncertainties, many of which are beyond the Company's control, that could cause actual performance or results to differ materially from the belief or expectations expressed in or suggested by the forward-looking statements. Forward-looking statements speak only as of the date on which they are made and the Company undertakes no obligation to update any forward-looking statement to reflect future events, developments or otherwise, except as may be required by applicable law. Investors are referred to the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, for additional information regarding the risks and uncertainties that may cause actual results to differ materially from those expressed in any forward-looking statement.

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

Condensed Consolidated Balance Sheets
(in thousands)

Condensed Consolidated Statements of Cash Flows
(in thousands)

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-rate share of Adjusted EBITDA from equity method investee, minus earnings from equity method investee.  Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net sales.

Adjusted EBITDA and Adjusted EBITDA margin are presented in this earnings release because they are important metrics used by management as one of the means by which it assesses our financial performance. Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA and Adjusted EBITDA margin as supplements to GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to allocate resources and to compare our performance relative to our peers.  Adjusted EBITDA and Adjusted EBITDA margin are also important measures for assessing our operating results and evaluating each operating segment’s performance on a consistent basis, by excluding the impacts of depreciation, amortization, income tax expense, interest expense and other items not indicative of ongoing operating performance. Additionally, these measures, when used in conjunction with related GAAP financial measures, provide investors with additional financial analytical framework which management uses, in addition to historical operating results, as the basis for financial, operational and planning decisions and present measurements that third parties have indicated are useful in assessing the Company and its results of operations.

Adjusted EBITDA and Adjusted EBITDA margin have certain limitations. Adjusted EBITDA should not be considered as an alternative to consolidated net income (loss), and in the case of our segment results, Adjusted EBITDA should not be considered an alternative to EBITDA, which the chief operating decision maker reviews for purposes of evaluating segment profit, or in the case of any of the non-GAAP measures, as a substitute for any other measure of financial performance calculated in accordance with GAAP.  Similarly, Adjusted EBITDA margin should not be considered as an alternative to gross margin or any other margin calculated in accordance with GAAP.  These measures also should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items for which these non-GAAP measures make adjustments. Additionally, Adjusted EBITDA and Adjusted EBITDA margin are not intended to be liquidity measures because of certain limitations such as: (i) they do not reflect our cash outlays for capital expenditures or future contractual commitments; (ii) they do not reflect changes in, or cash requirements for, working capital; (iii) they do not reflect interest expense, or the cash requirements necessary to service interest, or principal payments, on indebtedness; (iv) they do not reflect income tax expense or the cash necessary to pay income taxes; and (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these non-GAAP measures do not reflect cash requirements for such replacements.

Other companies, including other companies in our industry, may not use such measures or may calculate one or more of the measures differently than as presented in this earnings release, limiting their usefulness as a comparative measure. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments made in the calculations below and the presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to mean that our future results will be unaffected by such adjustments. Management compensates for these limitations by using Adjusted EBITDA and Adjusted EBITDA margin as supplemental financial metrics and in conjunction with results prepared in accordance with GAAP.

Reconciliation of net income (loss) to Adjusted EBITDA
(in thousands)

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) losses from divestiture transactions.
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 thousands)

NM Not meaningful
¹ For purposes of evaluating segment profit, the Company's chief operating decision maker reviews EBITDA as a basis for making the decisions to allocate resources and assess performance.
² 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) losses from divestiture transactions.
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 net loss to Adjusted EBITDA guidance for full year 2019
(in millions)

Source: Forterra, Inc.

Company Contact Information:

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