FBM - Earnings call transcript Q3 2018 | Foundation Building Materials, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings, and welcome to the Foundation Building Materials Third Quarter Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, John Moten, Vice President of Investor Relations for Foundation Building Materials.

John Moten

Good morning and thank you for joining us today for our third quarter 2018 conference call. I'm joined by Ruben Mendoza, our President and CEO; and John Gorey, our Chief Financial Officer.

In addition to the third quarter press release issued this morning, we have posted a presentation to supplement this call, which can be obtained in the Investor Relations section of our website at fbmsales.com.

answers as questions Securities defined of and contain morning Litigation remarks XXXX. statements forward-looking in prepared to this your may Act Our the Private

which subject address as those from other as not expectations, Examples include are risks that beliefs, statements statements today. actual historical are statements forward-looking about Forward-looking and to that matters discussed uncertainties, in well remarks may of differ estimates cause results forecasts to nature. future and

our business, will acquisition expansion share that Forward-looking to markets be XXXX new our to relate to and increase into and discussed greenfield guidance. strategy statements strategy, gain today pipeline, leverage our market ability our expand our in and our ability

detailed Exchange to indicated update forward cause with to in discussions by reminder, otherwise by that filings encouraged could materially future, Stock included actual statements our the forward required review looking forward these and any unless statements the implied factors uncertainties are those Listeners a from York regarding or the to the current risks, differ Commission more other in New looking of and or obligation the estimates. results Exchange. rules Securities law management's looking statements. the various As no represent We assume

Securities a to GAAP measures generally to share that, Exchange income release, Commission is With these over be of A net as will differently, in accordance in measures we on the non-GAAP call in has our calculate to of as which adjusted Other or available and most measures a prepared EBITDA, well accounted adjusted and during useful turn today's and adjusted the Additionally, our call, principles GAAP. substitute we the not could Ruben. measures non-GAAP website. believe comparable furnished calculate earnings been will we in performance. which our these may found I and earnings discuss should can considered companies now directly be financial per with reconciliation isolation as discussion how measures, for evaluating financial presentation be our or

Ruben Mendoza

Good quarter September, John. to discussion entered results joining for segment announced you in In definitive into or business. that for MI Insulation segment. our a third of a of we sell our Thanks, thank a recent our morning we review developments and and us Mechanical our agreement

a discontinued operations. reported numbers result, Building this will as on operations on Specialty business. the As discussed continuing this financial statements our results the Products segment reflect focus of call or The

we net to discontinued earnings third Adjusted the operations per $XXX including line $XXX year-over-year For quarter, share per sales net would both continuing $X.XX up share, sales per with recorded adjusted million, double-digit strong base share. million $X.XX. up XX% business been of to growth top earnings have and and XX%

resulted suspended in prior implemented In fourth quarter, has second gross pricing the as improvement margin and expect traction of an we compared margin year higher we to gross response product product in resulted to a the product cost, market. in increases XXXX. the decrease gross across quarter, wallboard, the which higher gain costs During continued and quarter our third quarter. in price compared our the in quarter, lines margin in to in metal In initiatives improvement framing ceilings to our the third

growth to price. year of prior sales turning higher due and to net quarter Now Base the X.X% wallboard. compared X.X% a increased business X.X% volume to

wallboard improvement our fourth third expected, end the residential demand increased continued quarter. our and sales and we year-over-year from to of expect in quarter the in wallboard strength As markets, due commercial

solid increases quarter demand specialty the and repair grid suspended market. the and products and for due to ceiling product X.X% Our our line for to ceilings base recorded remodel compared for growth architectural nonresidential year of price business prior

continue a to sales quarter new results to geographic we distributors increases strong due leading third business and the growth. base as reported drive grow of digit expand share gains market one framing quarter net the double-digit As see volume suspended Metal we increasing high into XX.X% North opportunities America, markets. of in the and in single to also price with prior compared year to ceilings

to continue demand will gross the products our initiated for metal end the non-residential balance We framing margin solid year. support market. of increases earlier the believe the in for for in And we improvement see year the price provide

increasing and with base which and the network. fasteners, through our products, complementary compared quarter. posted continue Our products the of insulation prior products, contributor products wallboard important company an also sales tools we are X.X% the we as to to business other results expand Complementary range branch includes solid net year accessories, to offer

typically product products our we generate additional our other believe growth for an profit expand complementary margins is there than and we offerings, geographic higher opportunity an Our footprint. as

the of We recently Agan Turning Supply. completed quarter Ciesco in announced acquisition to of acquisitions. Drywall the the acquisition third and

leading the insulation a distributor of in states. is drywall, we products, have total, Plains Mid-Atlantic. five stucco, year-to-date Ciesco we metal the announced drywall, acquisition complementary sales annualized In net serving four announced, and ceiling with completed a and framing, $XXX million. Great Supply, of and Northeast EIFS the products, Drywall in Agan early October, the over also states acquisitions markets serving three distributor of previously independent In As

strategic acquirer product our acquisitions pipeline we for grow are solid strong, have the footprint, of and remained pipeline and our our and a that we share to to believe will offerings We to market acquisitions. customers. geographic provide expand acquisition future make choice, Our continue we greater

our organic addition, open that continue to In we locations greenfield branch supplement growth.

locations greenfield we Vegas, Braunfels, Texas. XXXX, and Florida; open New X Boynton two Las Beach, end Rochester, the to And year. in we another one by plan to the in opened far Nevada; So branch Minnesota; of have locations

also we to and expect million, our Insulation our focus share on Our to sharpen segment a our and agreement segment long-term the In the greenfield definitive suspended we help branch September, sale of of increase expansion our improve close our entered will fourth XXXX. Mechanical late ceilings, market sale on strategy divestiture product for organic to to is lines. wallboard, designed complementary national framing support quarter and the leverage the will segment metal growth. scale, The into Insulation sell of Mechanical $XXX.X profitability. MI The

Additionally, to ABL $XXX of pay down we use will approximately proceeds will facility, million our our the which credit net reduce debt.

As pricing we our to the continued profitability expect improvement across for increase margin we gross year our in finish the year, the of in due balance initiatives portfolio. with

to more over call the quarter. turn the I'll for details on John Now

John Gorey

I everyone on like welcome today's Thank also you, Ruben. would to call.

is Insulation a As today which segment, reported operations. discontinued our reminder, Mechanical excludes as discussion

across our operations sales XX.X% net As base period; XX.X%; EBITDA prior Ruben were our over adjusted of million, highlighted, X.X% up million; the business $XXX.X $XXX.X net with $XX.X third and margin. EBITDA of quarter business of continuing adjusted up strong and from million, results year sales

in As million since a margin $XXX of due to that administrative, us XX.X%. was net sales $XXX.X reminder, percentage us compared to were January and leverage general year was $XXX.X in or Selling, XX.X% was SG&A the XX.X% an prior that million, SG&A, XXX define branches the expense prior as Gross in million owned Gross to to we date. in since third compared by The improved prior the million was compared $XX.X sales basis compared XXXX, SG&A net our The primarily of primarily higher increase as or ongoing XX% million costs. due and XX.X% year quarter. decrease to base product by and gross higher quarter. expense cost-reduction improvement is margin opened our initiatives. the profit greenfield $XXX.X business year branches points the quarter that quarter. X, FBM in to were for quarter by a for to

economies shared reducing branch-related goal been services the overhead of year, SG&A our annual in expense adjusted of consolidating Over scale, EBITDA costs last with and we reducing achieving improvement leveraging through margin. our have our the

debt with XXX third XXXX. ended cash our by $XXX.X our million secured operations facility. The balance of facility the of our cash statement we XXXX, In reported savings which upon of million an we points. due drawn turning refinancing XXXX, and that refinancing $XX.X interest note, We on $XX onetime completed of approximately million note, Now the a consolidated fourth ABL our and $XX is rate the sheet. Beginning results credit charge debt to basis senior the in of the equivalents refinancing credit to the of ABL quarter expect the million million cash notes. of of reduced $XX.X the to quarter on August the interest in quarter extinguishment of in on annual the

the Now full financial for guidance turning year XXXX. to of

$X.XX expect between be net $X billion. sales We billion to and

and sales adjusted to in million of full on current providing preliminary between adjusted We $X.XX Based $XXX million to million. guidance $XXX be expect are conditions, billion $XXX $X.X to we for EBITDA. market billion and net XXXX year XXXX million EBITDA $XXX

over call closing I'd Ruben Now the like to for turn some to remarks.

Ruben Mendoza

We very net double-digit base product strength We're markets. pleased in third John. the Thanks, balanced and with and quarter business mix end delivered commercial our growth, reflecting results. our sales

XX% end Our with in a business net our balanced and nonresidential over end see FBM and of and new our categories sales. remains we markets. product to repair of portfolio strong, and solid each has representing continue business activity remodel across commercial markets

continue see well and sector schools and offices, XXXX. to health data rooms, We the activity building care improvement, into tenant

me conclude strategic our As let prepared we key priorities. reiterate remarks, our

In branches, fourth number and growing of we drive locations, will share opening our in we customers. to locations four we more First, products the one XXXX, we've to two open quarter. opened by greenfield plan offer organic branch greenfield and growth our expanding market the

and our goal cost business our improvement focus Second, by margin. we profit to our expansion in continue will economies adjusted with on scale margin out executing across our of leveraging achieving initiatives of EBITDA on the

flow Third, we optimize our will reduction. debt through cash

$XX quarter. million savings refinanced the our beginning $XX million in cash interest and discussed, As debt have we fourth previously expect to of annual recently

debt addition, being continue to net XXXX. down to total of to In Fourth, targets. will the we plan make by strategic is mindful while reduction end of acquisitions reduce leverage the our to pay our debt debt our mid-Xs

annualized $XXX For our XXXX, That actions be net to to And drive in questions. We happy your now to take these remarks. growth, we'll deliver acquire will concludes sales. improve long-term and value believe expect we shareholders. million profitability

Operator

Instructions] is [Operator question from first Please with Our go you. Hughes Thank Keith ahead. SunTrust.

Keith Hughes

you your obviously you the give see you the how Could around a kind There's in us end quarter end controversy, towards you. user business macro end trends. lot into and this space and of as of just October Thank of markets, an overview different XXXX? trending of

Ruben Mendoza

-- $XX.X was million. million, million. consensus and operations couple going and during I Yes. a a for want I'm sure that to I before I Keith. your second. your through pause answer on question question. I There's of time things get that million EBITDA overall want that Thanks, business $XXX was make $XXX to our consensus was with our in $XX.X the sales, discontinued to EBITDA was

nothing just Insulation So sure just these LTM sales discontinued over over $XXX on $XX and basis, were was little want on clear discontinued our million I want operations. an to basis. LTM make I Mechanical confused gets million a that operations. EBITDA sure everybody's an make to with on

let get So your... me to

John Gorey

didn't taken what consensus had I we on to. it referring said had out The Yes. out you're it deck is and take

Ruben Mendoza

And it wanted That was I were consolidated, sure, those is when just -- make before correct. to numbers. the

because guys of to models. Now sure that. But I changing changing you make it’s call, I this want that your mention are on kind

business that not our business is I XX% the a markets, there's our overall -- That's So is case. note business residential. is saw of end our -- of XX% residential.

we've our California is decline I there’s been, our markets. has Our And of few probably there business XX% residential business There’s so our is R&R XX% but California strong. of obviously, XX% big is not know a a residential. where spots in business commercial, about residential mix, And a seen to been. much

R&R overall, our metal business so is remained -- business, business, And ceilings framing strong. our

are one October a in digits, quarter. there is XXXX, we've more on just -- double but in our sales expanding. And in XXXX like improvement, basis October now Our margin up mentioned there’s was gross day sales our like than third October October, same-day in

over in quarter. our basis October We’re up third points XX margin gross in XX to

and – XX% of we're markets of for still seeing care, R&R. we is said, commercial business Like institutional. still a We us. centers, see business. health into for that good And strong lot our data of nonresidential XX% I XXXX. through So in see is strong it

Keith Hughes

prior if you margin, referring is do the versus you or third. – the the – the – to quarter think how this prior margin year, at why And anticipating in look guidance you’re you gross It what discussed in down number? get gross is were versus fourth the to can we year you close

John Gorey

year. a the -- be long going It’s these quarter. taking this we’ve get higher different price and similar to increases And the just costs last going product to this very year to be it’s with really third all had separation due through It’s to us to year. between still primarily

remain between So it’s to XX to year. XX going last points, XX XX, and still year base basis -- XX, this sorry, difference

Keith Hughes

margin of the was last fourth excluding in year, What Mechanical gross the quarter Insulation?

John Gorey

It was XX%. to at XX% right

Keith Hughes

question. guess final And I

You increase most And did that -- saw in in nice all the quarter a of pricing, the on you anticipate -- the wallboard, do really, all level what the fourth third? same you the products.

Ruben Mendoza

Yes.

your initial up in had on six actually X.X%. Keith, point up was So that percent, our that our wallboard note something you pricing volume. was It

Our in expect for wallboard. similar in do that the up We range pricing price X.X%. stay was to X%

Keith Hughes

Thank right. you. All Okay.

Ruben Mendoza

Thank you.

Operator

go Our ahead. from Bank. next with Deutsche question is Nishu Please Sood

Nishu Sood

the and look. fairly appreciate I ask you’ve concern, well. Thank XXXX I wanted that addressed lot Obviously, out. think that to the about a There’s of you. you’ve numbers forward put

to numbers. The you to that, with margin the like pricing into just to sales that of just is if please. the at understand thinking in into about that was that gross to in the implied XX now little wanted So And want talked XX about you'd midpoint yes, pressures XX I bit, you’re from Just specifically prior XXXX growth years greenfield come bps of you because that it that. SG&A? a that’s dig the EBITDA Is of just what could going as branches? numbers versus drivers convey wondering most expansion, bps then the how margin volume X% the dig trying in are versus

Ruben Mendoza

we that So going on before reported discontinued to clear the sold And being quarter decent ops. the provided sure, and it's John wanted were XXXX wanted reasons we we fourth at is XX% of our of a numbers, gets sure of looking business one exactly I, that were especially and as to forward. we make into what amount business, make we our

are XXXX. And fourth so one that's of providing and this that the we quarter reasons

As far let as on go the John that. numbers go, I'll

John Gorey

well of as we’re XXXX, and $XXX as X% We’ve So acquired And there's volume four far about X% are some at about a revenue in a million as at mentioned greenfields. XXXX as revenue acquisition approximately looking there. overall our we approximately about looking price to increase. sx then increase for

Ruben Mendoza

And is margin look X.XX% for The the XXXX midpoint there. Nishu, for next we so about, that basis first get that Like our the XX for year. still EBITDA do to XX if And basis X.X%, after XXXX, I points believe, in guidance next it roughly about you extended to at half right points you X.X%. asked year. our said, that's expect line by with first the of of we is half we

in still feel we that. it's with like line So

well. and and Some gains, will share of it as of market will and SG&A be volume some it gross profit be

Nishu Sood

been I well. wallboard environment Got and the margin materials expansion obviously, it. coming and has Got clearly, it. pricing cost margin principal gross competitive more new And drag mean, helpful. on the increases related No, drag thinking on environment, about that’s as then the -- the the and the trends pricing

stabilization prices to you is in some of some I how But this current pass a of being So I get there, that on looks to in prices we've inflection little over as continue. guess, guess, couple a now we would XXXX to boost? had we one But taking expecting you is that, but it you I guidance, say pass -- long in look that that in environment? on? it prices, would main little a a this year new lead it you're if on a taking the how maybe had environment your for long questions though, as margin or back to gross price And environment,

Ruben Mendoza

really good So, question.

increase over X you mentioned framing, those This in a increase framing ceilings been XXXX, from have over year, usually years was knew price increases price metal if other there USG, grid And last and X second price at had there may so in before; unexpected, of two and or the increases our increases a Armstrong been there price in have unexpected. price in one And or have prior, look we price advance. in in drywall, and them increase, were one or everybody so had and was as in then increases. about on grid the drywall four drywall, four metal price and and call four increases couple price

So longer this to channel. taken definitely year, get the it’s through

taken As we quote you longer probably just advance, know, work our a so lot that XXXX. in is it's work, its quoted jobs of in

on So, part stabilization, your some improvement, definitely. second have definitely some stabilization the gross will question, we our when of in profit is there

Nishu Sood

Got it. it. Got

details. Okay, for the great. Thanks

Ruben Mendoza

you. Thank

Operator

Capital question next RBC is from ahead. Our with go Please Mike Dahl Markets.

Mike Eisen

is for on Mike This Eisen morning. Mike Dahl. Good

following XX-day Just inventory. the price a of looking on XX takes you past pricing lag guys quick quarter, in about in at comments, and up until question the hold talked the you’ve for those trends prior to really because

where was inventories tell I this if channel at was as quarter think point? look you the So you exited in wondering how the and could you pricing us

John Gorey

a sequentially, fourth we’re forward We XX% and quarter. going in saw about point XX somewhere that in basis to XX% the improvement seeing

seeing we're quarter. it of So third a still end trend the in positive as the did

Ruben Mendoza

And inventory?

John Gorey

inventory our now our are normal at And levels. levels

margin we improvement should continued some move And as forward. we so see gross

Mike Eisen

then that year market the disruptions in any competition; And the following the earlier the have inventory today? some the normalized of up across guys' of due on change landscape theme seen in here And sense just levels is competitive to you industry? that are in your

Ruben Mendoza

competitive any that. price have in increases stabilization have So landscape, have and most them passing on comments And but comments -- competitive I comments seen we the about the -- through. made we and made past We think situations. been some don.t of on in we our

we yes, So have.

Mike Eisen

Appreciate help. Understood. the

Ruben Mendoza

you. Thank

Operator

Ryan Please from is William go ahead. question with Merkel next Blair. Our

Ryan Merkel

Hey, thanks.

Ruben, progress just first made cost you just on pick just question. with June? want again. that So to me to since conversation price tell. Maybe have hard for the I start It’s

Ruben Mendoza

We have.

-- for of At on So, XX% XX.X%. margin. the October, June, about end and at the question. we the that. possibly we see Ryan improvement We end of June, at And just point reported a basis in thanks XX were a

So we a we is And on of on sales progress had business, slower had had lot that. a $XXX making are great want, a are And progress. we but we I we’ve in quarter. basis. -- It million total than making

fourth through So quarter. we’re the seeing inventories in down and go our come

up improvement trend. margins We’re seeing the seeing margins, we’re in come an and our definitely product so quarter, the in fourth

Ryan Merkel

what this bit do wanted just that. I I Okay. I guess, But rising. covering thought. that confirm harder costs? when the don't to might That’s think XXXX? keep a rising costs longer? And then, And would then Could start take it the this question. is first we quarter that Is you assume

So maybe still Are at this you you seeing raising that. letters comment suppliers send on point? prices

Ruben Mendoza

no the we've increases of So the that in announcement our price price major at And out XXXX, for February. product first we’ve in any least quarter increase not is categories. seen fourth that seen, until

So little previous put years. a January the that will in of the bit a difference of

caught I first so of see XXXX some of we that quarter when do get And it in should believe will up. up? catch

Ryan Merkel

Okay. just hit And again. to then you but the this, new just back I know lastly, on resi

that fully recovered? a your Or not housing don’t markets it you Or any is think that that fully California your pause? we’ve like recovered? the seen are view? slowdown view is think coast more where there is the or that So of are has the markets You

Ruben Mendoza

combing over No, it’s like over John I mean, recessionary. I'm Burns. trading Dodge. is in view I'm we're combing really -- a -- my

trading is business market. Our recessionary, a seems, it in

I to resi flat And the I'm going it in X% And XXXX, in see be X% combing biggest quarter And like did over to best down it's our XXXX business just our through. so a looks could I the and is numbers us. good mention, so California, a it’s residential, XX% business And of residential. in than less we’re footprint, California. for it’s might

and our And again, our specifically so see the Our well not asked once great quite California you resi. guys is California. as business our and but but of we gals business much job very strong, about here do rest business, a in -- commercial, as

to I if starts a housing low But do on multi-family know know little the don't that off your answered million X.X a and is there pause us with I I be million, question may averages X.X X.X about -- I needing so or a do I XX-year million. basis bit. getting of see total And probably not, number,

Ryan Merkel

fair. Yes. And I think that’s

you. Thank Okay.

Ruben Mendoza

Thanks Ryan.

Operator

ahead. question go with from Trey next Please is Morrish ISI. Evercore Our

Chris Shook

This for on is Trey. actually Chris Shook,

you is adjustments. you out your to Do increase way following hurricane So there called see in any expect any demand quantify that? in And cost to storms? the

John Gorey

a don’t These hurricane. No. presence are not in market material have storms movement from our the see current any so don’t there, of lot area. we really We

Chris Shook

possible right. out it then All that organic between sales break is overall And and volume? for to XX% your pricing growth,

Ruben Mendoza

price. grid was we AWI's, that like price. with business. do specialties metal We in – In fiber X.X% much were was X.X% in line the we single in up in We the in pretty We Well, was we We of about We mentioned tough. X% digits, part and XX.X% that increase. high had ceilings, was ceilings pounds, our the what gypsum, break of it’s price. In and mineral up. and architectural it a measure in rest Armstrong, out: a pounds. of framing, flat, results gain was volume, was our lot were about about were feel that

Chris Shook

very Excellent. you much. Thank All right.

Ruben Mendoza

go you. question [Operator Bouley with Matt Thank Instructions] Barclays. from ahead. Our comes next Please

Marshall Mentz

on Mentz, for Thanks Marshall actually Matt. taking my question. is This for

how about And to your where the just volume Just think maybe better different is to underlying you’ve one competition drive anything doing organic there maybe were Could strategically, that posted that talk just around prior during compares on you're markets wanted number quarter? volumes, performance? that the you X.X% to you specifically go to numbers a of and the least in better question back obviously, your at wallboard year.

Ruben Mendoza

a Marshall. question. great Thanks, That's

the fourth year. of third third perfectly this share gained lost quarter in quarter. We year gained we candid being of and and the quarter the last quarter last share you, just in And with possibly third quarter. of in So we first share believe year the we

we quarter, a I amount share. fair approach decent we had gained that little a disciplined was We it last to we back at share, good did third strategy can margins but we were continuing In that our with gaining get margins level, gained some to like continue believe where We and share we feel like of our and -- we share. lost. back us. kept quarter, they for definitely and the our year, the Second we a some gained feel

Marshall Mentz

then up good to But deals what And -- keep you're that that for in you on competitive at had tied M&A, looking number the with terms MI does balancing of them last That’s the Great. look maybe and the similarly, landscape least pretty deal. hear. on to available at side obviously, month greenfields? or with how so and of you’re how

Ruben Mendoza

question. good So

like -- team our that on on have a lot working our is good on. pipeline prepared remarks, mentioned the have strong. of call And a discussions we going on the So I and

said that, $XXX revenue. prepared about having million Now we annualized -- remarks of our we in acquisition talked also,

revenues. this acquisitions did $XXX so year to far, $XXX of that’s been annualized we million so and million four And

we're be we’re So believe pipeline choice. remains the that as going of do some landscape the as still but and to acquirer we selective and selective of going down, -- we it our definitely is also But our forward. in prepared said we firmly will strong, debt will disciplined and And remarks. acquisitions the be we competitive we pay

competitive a that are that deals we're We in have the advantage And we’re we there. like -- we seeing doing. feel

Marshall Mentz

helpful. Really you. all. Thank That’s

Ruben Mendoza

you. Thank

Operator

concludes the this I Thank to There for This question-and-answer are the registered questions back management would like remarks. turn any closing over time. no you. session. Instructions] [Operator the further to conference at

Ruben Mendoza

joining just time. to I thank it, for you our and call next and like everybody appreciate see

Operator

today’s call. This concludes conference

a and day. your pleasant participating, lines. you for disconnect may You Thank have

Foundation Building Materials (FBM) 3 Nov 182018 Q3 Earnings call transcript