Foundation Building Materials, Inc. Announces Second Quarter 2020 Results

SANTA ANA, Calif.–()–Foundation Building Materials, Inc. (NYSE: FBM), one of the largest specialty building products distributors of wallboard, suspended ceiling systems, metal framing and complementary and other products in North America, today reported second quarter 2020 financial results and provided a COVID-19 business update.

Despite the decline in net sales due to the COVID-19 Pandemic, our stable profitability highlighted our second quarter results,” said Ruben Mendoza, President and CEO. “Our long-term strategic focus is unwavering. As we navigate through these challenging market conditions, we remain committed to our strategic priorities that will lead to long-term value creation for our company.”

2020 Second Quarter Results

Net sales for the three months ended June 30, 2020, were $486.1 million compared to $559.9 million for the three months ended June 30, 2019, representing a decrease of $73.8 million, or 13.2%. Net sales from base business decreased $77.4 million compared to the prior period. There was the same number of business days in the current period as compared to the prior period. Net sales from acquired branches and existing branches that were strategically combined increased by $3.6 million. Our base business net sales across all of our major product lines decreased during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, primarily as a result of reduced business activity due to the impacts and disruptions caused by the novel coronavirus COVID-19 (the “COVID-19 Pandemic”).

Gross profit for the three months ended June 30, 2020, was $145.7 million compared to $171.5 million for the three months ended June 30, 2019, representing a decrease of $25.9 million, or 15.1%. The decrease in gross profit was primarily due to lower net sales. Gross margin for the three months ended June 30, 2020, was 30.0% compared to 30.6% for the three months ended June 30, 2019. The decrease in gross margin was primarily due to COVID-19 Pandemic related market disruptions.

Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2020, were $106.3 million compared to $122.7 million for the three months ended June 30, 2019, representing a decrease of $16.5 million, or 13.4%. As a percentage of net sales, SG&A expenses were 21.9% for the three months ended June 30, 2020, compared to 21.9% for the three months ended June 30, 2019. SG&A expenses remained flat as a percentage of net sales primarily due to proactive actions taken to right-size our cost structure in response to a decline in net sales resulting from the COVID-19 Pandemic.

Net income from continuing operations for the three months ended June 30, 2020, was $9.9 million, or $0.23 per share, a decrease of $4.9 million compared to $14.7 million, or $0.34 per share, for the three months ended June 30, 2019. Adjusted net income(1) for the three months ended June 30, 2020, was $11.6 million, or $0.27 per share, a decrease of $4.2 million compared to $15.8 million, or $0.37 per share, for the three months ended June 30, 2019.

Adjusted EBITDA(1) was $42.3 million and adjusted EBITDA margin(1) was 8.7% for the three months ended June 30, 2020, compared to adjusted EBITDA(1) of $50.3 million and adjusted EBITDA margin(1) of 9.0% for the three months ended June 30, 2019.

2020 Year-to-Date Results

Net sales for the six months ended June 30, 2020, were $1,010.3 million compared to $1,074.8 million for the six months ended June 30, 2019, representing a decrease of $64.4 million, or 6.0%. Average daily net sales decreased 6.7% over the prior period. Net sales from base business decreased $78.9 million compared to the prior period, and average daily base business net sales decreased by 8.4% over the prior period. There was one more business day in the current period as compared to the prior period. Net sales from acquired branches and existing branches that were strategically combined increased by $14.5 million. Our base business net sales across all of our major product lines decreased primarily as a result of reduced business activity due to impacts of the COVID-19 Pandemic.

Gross profit for the six months ended June 30, 2020, was $307.8 million compared to $324.5 million for the six months ended June 30, 2019, representing a decrease of $16.7 million, or 5.1%. The decrease in gross profit was primarily due to lower net sales. Gross margin for the six months ended June 30, 2020, was 30.5% compared to 30.2% for the six months ended June 30, 2019. The increase in gross margin was primarily due to improved profitability driven by our ongoing pricing and purchasing initiatives that was partially offset by COVID-19 Pandemic related market disruptions.

SG&A expenses for the six months ended June 30, 2020, were $229.4 million compared to $240.0 million for the six months ended June 30, 2019, representing a decrease of $10.6 million, or 4.4%. As a percentage of net sales, SG&A expenses were 22.7% for the six months ended June 30, 2020, compared to 22.3% for the six months ended June 30, 2019. The increase in SG&A expenses as a percentage of net sales was primarily due to loss of sales leverage resulting from the COVID-19 Pandemic and our continued investment in various company-wide initiatives, partially offset by actions taken to right-size our cost structure in the second quarter in response to a decline in net sales.

Net income from continuing operations for the six months ended June 30, 2020, was $24.2 million, or $0.56 per share, an increase of $4.7 million compared to $19.5 million, or $0.45 per share, for the six months ended June 30, 2019. Adjusted net income(1) for the six months ended June 30, 2020, was $21.3 million, or $0.49 per share, a decrease of $0.5 million compared to $21.9 million, or $0.51 per share, for the six months ended June 30, 2019.

Adjusted EBITDA(1) was $82.5 million and adjusted EBITDA margin(1) was 8.2% for the six months ended June 30, 2020, compared to adjusted EBITDA(1) of $87.8 million and adjusted EBITDA margin(1) of 8.2% for the six months ended June 30, 2019.

COVID-19 Pandemic Business Update

Through July 2020, the COVID-19 Pandemic has had a negative impact on most of the markets in which the Company operates. In a select number of states, including Washington, California, Michigan, New Jersey, and the Commonwealth of Pennsylvania, the Company continued to have jobsite restrictions, which reduced branch operations. As a result, July 2020 net sales were down approximately 7% year over year. The Company continues to monitor the current environment and anticipates its future financial performance will be adversely impacted due to the effects of the COVID-19 Pandemic.

Second Quarter Earnings Release and Conference Call

In conjunction with this release, Foundation Building Materials, Inc. will host a conference call tomorrow, Tuesday, August 4, 2020, at 8:30 AM Eastern Time. Ruben Mendoza, President and Chief Executive Officer, John Gorey, Chief Financial Officer, Pete Welly, Chief Operating Officer, 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:

  • Through the Company’s website: www.fbmsales.com under the “Events and Presentations” tab in the “Investors” section of the 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
  • Using audio replay: A replay of the call will be available beginning at 11:30 AM Eastern Time on Tuesday, August 4, 2020, and ending at 11:59 PM Eastern Time on Tuesday, August 11, 2020. The dial-in number for U.S.-based participants to listen to the audio replay is (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 a Conference ID of 13707041.

About Foundation Building Materials

Foundation Building Materials, Inc. is a specialty building products distributor of wallboard, suspended ceiling systems, metal framing, and complementary and other products throughout North America. Based in Santa Ana, California, the Company employs more than 3,400 employees and operates more than 170 branches across the United States and Canada. Learn more at www.fbmsales.com or follow us on LinkedIn, Twitter, Instagram, or Facebook.

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 impact of the COVID-19 Pandemic on the Company’s business and financial performance, the effect of certain strategic actions and cost-saving initiatives taken by the Company, and the Company’s ability to create long-term value. The impacts and disruptions caused by the COVID-19 Pandemic are highly uncertain, cannot be accurately predicted, and will depend upon future developments outside the control of the Company, including the scope and duration of the outbreak, as well as the scope and impact of any government orders and restrictions designed to limit the further spread of COVID-19. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental, public health 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 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.

(1) Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS and net debt leverage ratio are non-GAAP financial measures. See the supplementary schedules at the end of this press release, as well as the information provided under the heading “Non-GAAP Financial Measures” 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. For a calculation of our net debt leverage ratio as of June 30, 2020, see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q for the three months ended June 30, 2020.

– Financial Tables Follow –

FOUNDATION BUILDING MATERIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except share and per share data)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Net sales

$

486,090

 

 

$

559,911

 

 

$

1,010,348

 

 

$

1,074,783

 

Cost of goods sold

340,435

 

 

388,374

 

 

702,535

 

 

750,286

 

Gross profit

145,655

 

 

171,537

 

 

307,813

 

 

324,497

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

106,257

 

 

122,735

 

 

229,354

 

 

239,965

 

Depreciation and amortization

19,288

 

 

20,351

 

 

38,507

 

 

40,693

 

Total operating expenses

125,545

 

 

143,086

 

 

267,861

 

 

280,658

 

Income from operations

20,110

 

 

28,451

 

 

39,952

 

 

43,839

 

Interest expense

(7,153

)

 

(8,341

)

 

(14,886

)

 

(16,897

)

Gain on legal settlement

 

 

 

 

8,556

 

 

 

Other income (expense), net

547

 

 

44

 

 

(475

)

 

85

 

Income before income taxes

13,504

 

 

20,154

 

 

33,147

 

 

27,027

 

Income tax expense

3,647

 

 

5,433

 

 

8,914

 

 

7,478

 

Income from continuing operations

9,857

 

 

14,721

 

 

24,233

 

 

19,549

 

Loss on sale from discontinued operations, net of tax

 

 

(44

)

 

 

 

(1,390

)

Net income

$

9,857

 

 

$

14,677

 

 

$

24,233

 

 

$

18,159

 

 

 

 

 

 

 

 

 

Earnings per share data:

 

 

 

 

 

 

 

Earnings from continuing operations per share – basic

0.23

 

 

0.34

 

 

0.56

 

 

0.45

 

Earnings from continuing operations per share – diluted

0.23

 

 

0.34

 

 

0.56

 

 

0.45

 

 

 

 

 

 

 

 

 

Loss from discontinued operations per share – basic

 

 

 

 

 

 

(0.03

)

Loss from discontinued operations per share – diluted

 

 

 

 

 

 

(0.03

)

 

 

 

 

 

 

 

 

Earnings per share – basic

0.23

 

 

0.34

 

 

0.56

 

 

0.42

 

Earnings per share – diluted

0.23

 

 

0.34

 

 

0.56

 

 

0.42

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

43,203,894

 

 

42,987,915

 

 

43,124,793

 

 

42,960,124

 

Diluted

43,332,225

 

 

43,245,353

 

 

43,440,723

 

 

43,064,496

 

FOUNDATION BUILDING MATERIALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

 

 

June 30, 2020

 

December 31, 2019

Current assets:

 

 

 

Cash and cash equivalents

$

31,122

 

 

$

17,766

 

Accounts receivable—net of allowance for expected credit losses of $2,896 and $3,169, respectively

263,340

 

 

262,757

 

Other receivables

35,003

 

 

59,104

 

Inventories

159,615

 

 

178,624

 

Prepaid expenses and other current assets

9,386

 

 

7,965

 

Total current assets

498,466

 

 

526,216

 

Property and equipment, net

149,195

 

 

150,188

 

Right-of-use assets, net

126,290

 

 

120,562

 

Intangible assets, net

89,776

 

 

113,861

 

Goodwill

494,159

 

 

495,724

 

Other assets

6,607

 

 

5,206

 

Total assets

$

1,364,493

 

 

$

1,411,757

 

Liabilities and stockholders’ equity:

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

145,267

 

 

$

145,226

 

Accrued payroll and employee benefits

25,458

 

 

31,410

 

Accrued taxes

9,594

 

 

8,780

 

Current portion of tax receivable agreement

8,537

 

 

27,850

 

Current portion of term loan

4,500

 

 

4,500

 

Current portion of lease liabilities

31,508

 

 

30,307

 

Other current liabilities

19,336

 

 

18,557

 

Total current liabilities

244,200

 

 

266,630

 

Asset-based revolving credit facility

40,000

 

 

89,000

 

Long-term portion of term loan, net

432,950

 

 

434,633

 

Tax receivable agreement

80,996

 

 

89,533

 

Deferred income taxes, net

21,670

 

 

18,972

 

Long-term portion of lease liabilities

100,867

 

 

97,145

 

Other liabilities

14,388

 

 

7,679

 

Total liabilities

935,071

 

 

1,003,592

 

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; 43,205,678 and 42,991,016 shares issued, respectively

13

 

 

13

 

Additional paid-in capital

338,820

 

 

336,362

 

Retained earnings

98,487

 

 

74,254

 

Accumulated other comprehensive loss

(7,898

)

 

(2,464

)

Total stockholders’ equity

429,422

 

 

408,165

 

Total liabilities and stockholders’ equity

$

1,364,493

 

 

$

1,411,757

 

FOUNDATION BUILDING MATERIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

Six Months Ended June 30,

 

2020

 

2019

Cash flows from operating activities:

 

 

 

Net income

$

24,233

 

 

$

18,159

 

Less: loss on sale of discontinued operations

 

 

(1,390

)

Net income from continuing operations

24,233

 

 

19,549

 

Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:

 

 

 

Depreciation

14,598

 

 

17,558

 

Amortization of intangible assets

23,909

 

 

23,135

 

Amortization of debt issuance costs and debt discount

1,080

 

 

992

 

Inventory fair value purchase accounting adjustment

 

 

234

 

Provision for expected credit losses

1,366

 

 

1,525

 

Stock-based compensation

2,828

 

 

1,939

 

Loss (gain) on disposal or sale of assets

708

 

 

(67

)

Right-of-use assets non-cash expense

15,057

 

 

13,601

 

Deferred income taxes

3,334

 

 

271

 

Change in assets and liabilities, net of effects of acquisitions:

 

 

 

Accounts receivable

208

 

 

(43,441

)

Other receivables

23,435

 

 

13,581

 

Inventories

20,053

 

 

(1,291

)

Prepaid expenses and other current assets

(1,472

)

 

(3,123

)

Other assets

(6

)

 

(121

)

Accounts payable

1,333

 

 

23,429

 

Accrued payroll and employee benefits

(5,802

)

 

(3,057

)

Accrued taxes

827

 

 

(2,291

)

Operating lease liabilities

(14,752

)

 

(13,345

)

Other liabilities

4,365

 

 

4,126

 

Net cash provided by operating activities from continuing operations

115,302

 

 

53,204

 

Cash flows from investing activities from continuing operations:

 

 

 

Purchases of property and equipment

(13,263

)

 

(15,052

)

Proceeds from termination of net investment hedge

 

 

3,313

 

Net (payments of) proceeds from net working capital adjustments related to acquisitions

(34

)

 

470

 

Proceeds from disposal or sale of assets

980

 

 

2,376

 

Acquisitions, net of cash acquired

(8,638

)

 

(21,923

)

Net cash used in investing activities from continuing operations

(20,955

)

 

(30,816

)

Cash flows from financing activities from continuing operations:

 

 

 

Proceeds from asset-based revolving credit facility

322,500

 

 

281,620

 

Repayments of asset-based revolving credit facility

(371,500

)

 

(291,371

)

Principal payments for term loan

(2,250

)

 

(2,250

)

Payment related to tax receivable agreement

(27,850

)

 

(16,667

)

Tax withholding payment related to net settlement of equity awards

(370

)

 

(138

)

Principal repayment of finance lease liabilities

(1,355

)

 

(1,319

)

Net cash used in financing activities from continuing operations

(80,825

)

 

(30,125

)

Net cash used in investing activities from discontinued operations

 

 

(1,390

)

Net cash used in discontinued operations

 

 

(1,390

)

Effect of exchange rate changes on cash

(166

)

 

282

 

Net increase (decrease) in cash

13,356

 

 

(8,845

)

Cash and cash equivalents at beginning of period

17,766

 

 

15,299

 

Cash and cash equivalents at end of period

$

31,122

 

 

$

6,454

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

Cash paid for income taxes

$

190

 

 

$

5,091

 

Cash paid for interest

$

14,186

 

 

$

16,477

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

Decrease in fair value of derivatives, net of tax

$

1,525

 

 

$

6,012

 

Net goodwill increase for purchase price allocation

$

47

 

 

$

57

 

FOUNDATION BUILDING MATERIALS, INC.

NET SALES BY MAJOR PRODUCT LINE, GROSS PROFIT AND GROSS MARGIN

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED)

(dollars in thousands)

 

 

Three Months Ended June 30,

 

Change

 

2020

 

2019

 

$

 

%

Wallboard

$

188,588

 

 

38.8

%

 

$

214,059

 

 

38.2

%

 

$

(25,471

)

 

(11.9

)%

Suspended ceiling systems

 

91,508

 

 

18.8

%

 

 

106,176

 

 

19.0

%

 

 

(14,668

)

 

(13.8

)%

Metal framing

 

82,188

 

 

16.9

%

 

 

102,425

 

 

18.3

%

 

 

(20,237

)

 

(19.8

)%

Complementary and other products

 

123,806

 

 

25.5

%

 

 

137,251

 

 

24.5

%

 

 

(13,445

)

 

(9.8

)%

Total net sales

$

486,090

 

 

100.0

%

 

$

559,911

 

 

100.0

%

 

$

(73,821

)

 

(13.2

)%

Total gross profit

$

145,655

 

 

 

 

$

171,537

 

 

 

 

$

(25,882

)

 

(15.1

)%

Total gross margin

 

30.0

%

 

 

 

 

30.6

%

 

 

 

 

(0.6

)%

 

 

 
 

 

Six Months Ended June 30,

 

Change

 

2020

 

2019

 

$

 

%

Wallboard

$

390,856

 

 

38.7

%

 

$

416,973

 

 

38.8

%

 

$

(26,117

)

 

(6.3

)%

Suspended ceiling systems

 

190,014

 

 

18.8

%

 

 

195,172

 

 

18.2

%

 

 

(5,158

)

 

(2.6

)%

Metal framing

 

175,522

 

 

17.4

%

 

 

201,676

 

 

18.8

%

 

 

(26,154

)

 

(13.0

)%

Complementary and other products

 

253,956

 

 

25.1

%

 

 

260,962

 

 

24.2

%

 

 

(7,006

)

 

(2.7

)%

Total net sales

$

1,010,348

 

 

100.0

%

 

$

1,074,783

 

 

100.0

%

 

$

(64,435

)

 

(6.0

)%

Total gross profit

$

307,813

 

 

 

 

$

324,497

 

 

 

 

$

(16,684

)

 

(5.1

)%

Total gross margin

 

30.5

%

 

 

 

 

30.2

%

 

 

 

 

0.3

%

 

 

 

 

 

FOUNDATION BUILDING MATERIALS, INC.

BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED)

(dollars in thousands)

 

 

Three Months Ended June 30,

 

Change

 

2020

 

2019

 

$

 

%

Base business (1)

$

457,811

 

 

$

535,185

 

 

$

(77,374

)

 

(14.5

)%

Acquired and combined (2)

28,279

 

 

24,726

 

 

3,553

 

 

14.4

%

Net sales

$

486,090

 

 

$

559,911

 

 

$

(73,821

)

 

(13.2

)%

(1) Represents net sales from branches that were owned by us since January 1, 2019, and branches that were opened by us during such period.

(2) Represents branches acquired and combined after January 1, 2019, primarily as a result of our strategic combination of branches.

Six Months Ended June 30,

 

Change

 

2020

 

2019

 

$

 

%

Base business (1)

$

951,189

 

 

$

1,030,103

 

 

$

(78,914

)

 

(7.7

)%

Acquired and combined (2)

59,159

 

 

44,680

 

 

14,479

 

 

32.4

%

Net sales

$

1,010,348

 

 

$

1,074,783

 

 

$

(64,435

)

 

(6.0

)%

(1) Represents net sales from branches that were owned by us since January 1, 2019, and branches that were opened by us during such period.

(2) Represents branches acquired and combined after January 1, 2019, primarily as a result of our strategic combination of branches.

FOUNDATION BUILDING MATERIALS, INC.

BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES BY MAJOR PRODUCT LINE

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED)

(dollars in thousands)

 

 

Three

Months

Ended June

30, 2019

 

Base

Business

Net Sales

Change

 

Acquired

and

Combined

Net Sales

Change

 

Three

Months

Ended June

30, 2020

 

Total Net

Sales %

Change

Base

Business

Net Sales %

Change(1)

 

Acquired

and

Combined

Net Sales

%

Change(2)

Wallboard

$

214,059

 

 

$

(27,410

)

 

$

1,939

 

 

$

188,588

 

 

(11.9

)%

(13.3

)%

 

23.4

%

Suspended ceiling systems

106,176

 

 

(15,112

)

 

444

 

 

91,508

 

 

(13.8

)%

(15.0

)%

 

8.2

%

Metal framing

102,425

 

 

(20,272

)

 

35

 

 

82,188

 

 

(19.8

)%

(20.6

)%

 

0.9

%

Complementary and other products

137,251

 

 

(14,580

)

 

1,135

 

 

123,806

 

 

(9.8

)%

(11.2

)%

 

16.1

%

Net sales

$

559,911

 

 

$

(77,374

)

 

$

3,553

 

 

$

486,090

 

 

(13.2

)%

(14.5

)%

 

14.4

%

Average daily net sales(3)

$

8,749

 

 

$

(1,209

)

 

$

55

 

 

$

7,595

 

 

(13.2

)%

(14.5

)%

 

14.4

%

(1) Represents base business net sales change as a percentage of base business net sales for the three months ended June 30, 2019.

(2) Represents acquired and combined net sales change as a percentage of acquired and combined net sales for the three months ended June 30, 2019.

(3) The number of business days for the three months ended June 30, 2020 and 2019 was 64 for both periods.

Six Months

Ended June

30, 2019

 

Base

Business

Net Sales

Change

 

Acquired

and

Combined

Net Sales

Change

 

Six Months

Ended June

30, 2020

 

Total Net

Sales %

Change

Base

Business

Net Sales %

Change(1)

 

Acquired

and

Combined

Net Sales

%

Change(2)

Wallboard

$

416,973

 

 

$

(30,383

)

 

$

4,266

 

 

$

390,856

 

 

(6.3

)%

(7.6

)%

 

26.7

%

Suspended ceiling systems

195,172

 

 

(10,995

)

 

5,837

 

 

190,014

 

 

(2.6

)%

(5.9

)%

 

73.1

%

Metal framing

201,676

 

 

(26,888

)

 

734

 

 

175,522

 

 

(13.0

)%

(13.9

)%

 

9.4

%

Complementary and other products

260,962

 

 

(10,648

)

 

3,642

 

 

253,956

 

 

(2.7

)%

(4.3

)%

 

28.2

%

Net sales

$

1,074,783

 

 

$

(78,914

)

 

$

14,479

 

 

$

1,010,348

 

 

(6.0

)%

(7.7

)%

 

32.4

%

Average daily net sales(3)

$

8,463

 

 

$

(680

)

 

$

110

 

 

$

7,893

 

 

(6.7

)%

(8.4

)%

 

31.4

%

(1) Represents base business net sales change as a percentage of base business net sales for the six months ended June 30, 2019.

(2) Represents acquired and combined net sales change as a percentage of acquired and combined net sales for the six months ended June 30, 2019.

(3) The numbers of business days for the six months ended June 30, 2020 and 2019 were 128 and 127, respectively.

Non-GAAP Financial Measures

In addition to presenting financial results prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), this press release contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, net debt leverage ratio and adjusted earnings per share, 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 income from continuing operations before interest expense, net, income tax expense, depreciation and amortization, stock-based compensation, and other non-recurring adjustments such as loss (gain) on disposal or sale of assets, gain on legal settlement and transaction costs. The Company calculates adjusted EBITDA margin as adjusted EBITDA divided by net sales. The Company calculates adjusted net income as net income from continuing operations before stock-based compensation, and other non-recurring adjustments such as loss (gain) on disposal or sale of assets, gain on legal settlement and transaction costs. The Company calculates adjusted earnings per share as adjusted net income on a per weighted average share outstanding basis. For a calculation of net debt leverage ratio, see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q for the three months ended June 30, 2020.

These non-GAAP financial measures are presented because they are important metrics used by management as a means by which it assesses financial performance. We believe these measures are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry. These measures, when used in conjunction with the most directly comparable 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, which are discussed in greater detail in the Company’s filings with the Securities and Exchange Commission. These measures should not be considered as alternatives to measures of financial performance prepared 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 considered liquidity measures. Other companies, including other companies in the Company’s industry, may not use these measures or may calculate one or more of these measures differently than the Company does, limiting their usefulness as comparative measures.

The following is a reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net income from continuing operations (unaudited):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

(dollars in thousands)

 

 

 

 

 

 

 

Net income from continuing operations

 

9,857

 

 

$

14,721

 

 

24,233

 

 

19,549

 

Interest expense, net

 

7,127

 

 

 

8,402

 

 

14,818

 

 

16,987

 

Income tax expense

 

3,647

 

 

 

5,433

 

 

8,914

 

 

7,478

 

Depreciation and amortization

 

19,288

 

 

 

20,351

 

 

38,507

 

 

40,693

 

Stock-based compensation

 

1,435

 

 

 

1,110

 

 

2,828

 

 

1,939

 

Loss (gain) on disposal or sale of assets

 

657

 

 

 

(258

)

 

708

 

 

(67

)

Gain on legal settlement

 

 

 

 

 

 

(8,556

)

 

 

Transaction costs(a)

 

245

 

 

 

582

 

 

1,084

 

 

1,227

 

Adjusted EBITDA

$

42,256

 

 

 

50,341

 

 

82,536

 

 

87,806

 

Adjusted EBITDA margin(b)

 

8.7

%

 

 

9.0

%

 

8.2

%

 

8.2

%

 

(a)

 

Represents costs related to our transactions, including fees to financial advisors, accountants, attorneys, and other professionals, as well as certain internal corporate development costs. The costs also include non-cash purchase accounting effects to adjust for the effect of the purchase accounting step-up in the value of inventory to fair value recognized as a result of acquisitions.

(b)

 

Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.

The following is a reconciliation of adjusted net income to the most directly comparable GAAP measure, net income from continuing operations (unaudited):

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

(in thousands, except share and per share data)

 

 

 

 

 

 

 

Net income from continuing operations

$

9,857

 

 

$

14,721

 

 

$

24,233

 

 

$

19,549

 

Stock-based compensation

1,435

 

 

1,110

 

 

2,828

 

 

1,939

 

Loss (gain) on disposal or sale of assets

657

 

 

(258

)

 

708

 

 

(67

)

Gain on legal settlement

 

 

 

 

(8,556

)

 

 

Transaction costs(a)

245

 

 

582

 

 

1,084

 

 

1,227

 

Tax effects(b)

(602

)

 

(366

)

 

1,014

 

 

(792

)

Adjusted net income

$

11,592

 

 

$

15,789

 

 

$

21,311

 

 

$

21,856

 

 

 

 

 

 

 

 

 

Earnings per share data as reported:

 

 

 

 

 

 

 

Basic

$

0.23

 

 

$

0.34

 

 

$

0.56

 

 

$

0.45

 

Diluted

$

0.23

 

 

$

0.34

 

 

$

0.56

 

 

$

0.45

 

Earnings per share data as adjusted:

 

 

 

 

 

 

 

Basic

$

0.27

 

 

$

0.37

 

 

$

0.49

 

 

$

0.51

 

Diluted

$

0.27

 

 

$

0.37

 

 

$

0.49

 

 

$

0.51

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

43,203,894

 

 

42,987,915

 

 

43,124,793

 

 

42,960,124

 

Diluted

43,332,225

 

 

43,245,353

 

 

43,440,723

 

 

43,064,496

 

(a)

 

Represents costs related to our transactions, including fees to financial advisors, accountants, attorneys, and other professionals, as well as certain internal corporate development costs. The costs also include non-cash purchase accounting effects to adjust 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 the impact of corporate income taxes.