FBM - Earnings call transcript Q3 2019 | Foundation Building Materials, Inc.

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Operator

Greetings, and welcome to Foundation Building Materials Third Quarter Conference Call. All participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

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 2019 conference call.

Ruben Financial President Senior Officer; of and are Gorey, CEO; Vice today Sales Chief our and Marketing. me Mendoza, and our John President Joining Kirby Thompson,

slide third posted have materials Presentations at on section earnings our fbmsales.com, and Relations these issued Investor our we today's call, night, release Last section. and of presentation the under for we & quarter website, Events

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

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

our business today ability to performance, our and acquisition and discussed expansion our our integration, our increase pipeline, new share statements expand relate in our and greenfield leverage strategy it M&A Forward-looking to and markets. strategy market ability to gain to

In XXXX net financial net earnings relate share. leverage EBITDA, adjusted ratio guidance, to EBITDA debt adjusted per our addition, gross margin, projected and sales, including adjusted also forward-looking statements margin,

forward-looking any otherwise or assume estimates. management's represent obligation to rules of future, no listing the Stock update reminder, current required York a forward-looking As Exchange. the statements in law statements We unless by New the

the actual by from discussions various those in included forward-looking or detailed our results these review indicated materially the could more and risks, uncertainties the implied statements. encouraged SEC other with to to regarding Listeners factors are filings that differ cause

or in may our measures GAAP. a accordance of these substitute accepted measures we performance. with in measures, companies measures differently, believe generally isolation be will non-GAAP for principles, as we call, evaluating Additionally, calculate during today's accounting financial non-GAAP these not in Other or which could financial useful prepared considered our should and presentation be discuss

net of adjusted measures adjusted can be the to as per website. net financial furnished each a these most is free has of earnings income, directly debt measures, share, been these which the to and reconciliation of measures leverage well EBITDA, how non-GAAP our on found calculate we as available discussion our which ratio adjusted release, A SEC in include earnings flow comparable and GAAP cash

With will that, the to turn over I call Ruben.

Ruben Mendoza

and our business. Thanks, as our third of for well Good the John. a of for review morning discussion thank a quarter us results you developments as recent joining in

our John acquisitions some highlights as with On our expansion greenfield third quarter plans. call and I today, and operational some I discuss Gorey our for and our as provide from will details conclude will recent results will financial well on guidance comments. XXXX, results summary financial

fourth focus As prepared segment the will our questions. for of the a your numbers operations we remarks, Mechanical continuing discussed quarter call on on in After our Insulation sold we reminder, open year. last will as this call the

million an per our share. discussing the by underwritten of X.XX shares XXXX, attention stock Lone call company financial of results, recent largest Before XX, Star our I affiliate pricing to stockholder. September price we like secondary a offering of the shares to your announced an of of Funds On sale of common $XX at the by of would

shares the proceeds of In of the additional any addition, did to exercised an The offering. underwriters option the purchase company receive their XXX,XXX stock. not from common secondary

SEC. offering filings with the is in the about information contained Additional our

million to Foundation growth solid Materials operational Now quarter Building up X% of recorded X%. with and quarter our year-over-year financial results. $XXX performance, to net business base third sales of and turning a

weather Canadian the In the U.S. in market and our continued third by softness impacted the quarter, modestly were net adverse sales in

gross results quarter of of margin X.X% EBITDA EPS third our margin highlighted profitability over and adjusted adjusted underlying strong with $X.XX. Our a XX%,

adjusted EPS which XXXX in profitability underlying in John moment. raising will discuss Gorey the we guidance Given a strong range, the quarter, our are

Now Wallboard and serving the independent Guy. expands Springs The was the acquisition closed both distributor our Supply an X, into residential Wallboard Supply market, non-residential turning Wallboard acquisition we geographic Colorado to drywall Supply accessories. customers. footprint of On Supply The of of acquisitions. October drywall and and

of our presence and strong the acquisition Northwest for of adds the in Our Pacific Supply a strengthens Guy base customers. products complementary regional our

continue North acquisitions, a for have businesses future American enhance our priorities presence. pipeline that meet acquire We solid and we and to strategic our selectively

the continue In greenfield addition, country. we across branch open to locations

plan a one the market currently the in California, greenfield In Bakersfield, greenfield branches, strengthening quarter. further open and fourth three opened California. greenfield position branch in two XXXX, another to have opened third we our in to In we quarter, we branches

investments greenfield of in startup, high increase leverage our market few the returns long-term branch growth. years invested share scale, national capital and first Our organic our support yield our on

the we and meet year, are the financial enter we fourth As on we XXXX. target quarter, for forecasting to for are objectives low single-digit growth our organic currently

our demand and market. our construction markets, of the over repair in solid with sales remodel to over XX% continue market tied nonresidential net construction to new see nonresidential commercial We the core and to XX%

tenant We and supported customers’ backlog our are data XXXX. airports, see by extends that in facilities, that activity improvements, healthcare stadiums continued building into schools rooms, offices,

front our company year, the our to strategy long-term efficiencies For operational shareholders. to driving and of to customers the capitalize deliver of value throughout will on us balance by the the continue and in we opportunities executing

call quarter over will third I to the results. John turn for more details the Now on

John Gorey

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

sold discussion the reported today excludes SEC As in our discontinued reminder, as XXXX a was MI November operations in is and which segment, our filings.

million, sales net of over the quarter up business X.X% million, third we $XXX.X As sales prior results, Ruben period. year base net highlighted, $XXX.X reported and with up X.X%, of solid

net year the for loss quarter period, $XX $XX.X with was prior for was X.X%. million an to the the a of EBITDA of quarter XX.X% million year Net to EBITDA compared third third the income million, Adjusted prior up adjusted $XX.X compared in period. margin

line turning results. Now to product our

to business X%, declined lower sales point basis with price. Wallboard XX million $XXX.X were compared sales net to the year. X.X% up compared X.X% and wallboard $XXX a unit net base in million, quarter prior decline volume Third

slower due activity to and quarter, customers. net to wallboard weather is in our deliveries Canada sales the construction Decline impacted in which base primarily in business adverse

Suspended suspended ceilings growth XX.X% increased for compared business $XXX.X net was year by up prices XX% our compared initiatives and primarily prior ceiling higher to for to $XXX.X period. the million, products year Base to compared million driven sales average customers. were sales selling period, the our ceiling to prior

decreased $XX.X compared in to $XX.X million framing lower prior Metal increases product Base the price X.X%, primarily with prior sales flat net framing the period. were year tariff-driven business year to million, essentially metal the compared sales by due for as to prices period. net

Complementary sales million, and compared products period. million with complementary up net the compared X% business net sales other by $XXX.X increased products compared year other the and Base for were to prior to prior $XXX.X year. X.X%

expand sales offer The initiatives customers, primarily net market. in our the to by products increase in we product to other due range to our Canadian was and ongoing the of complementary partially offset weakness

third year to basis for was the million points or the XX.X% $XXX.X increase the compared profit third prior for period. prior million XX.X%, Gross $XXX to year million quarter in compared XX.X%. up Gross was margin the an XXX compared of quarter to period, $XX.X

pricing continued The increase and of driven the by stabilization our in of was cost. our purchasing development our continued and initiatives margin primarily gross product

SG&A primarily to expenses prior was prior of $XXX.X as to percentage million increase percentage sales of as period. were the net the sales $XXX.X million XX.X% compared in in were or third due initiatives. SG&A, Selling, general for XX.X% period. a investment the The in in year administrative, compared our a continued expenses net and year company-wide SG&A to quarter

balance the growth available our initiatives. pursue the and facility, cash sheet to and cash of credit ample liquidity providing We finished $XX.X on our quarter with turning Now $XXX.X flow. million to million ABL

end third was ratio the to quarter, leverage year the compared the At of prior X.Xx period. approximately X.Xx debt in our

free $XX cash primarily generate been $XX which for debt expect flow has to for We used million XXXX, to in reduction. million

turning to full-year Now financial XXXX guidance. our

For we $X.X to expect and net net sales $X.XX billion billion. full-year sales, be to continue between

our continue margin full-year expect gross XX.X%. between and to We be to XX.X%

to For adjusted million, the we to of $XXX adjusted EBITDA continue expect range in an with margin million $XXX X.X% X.X%. be full-year the to to EBITDA, between

raising of a $X our $X.XX For estimate finally, XXXX our leverage per be in X.Xx. And share. adjusted for full-year X.Xx to we per debt XXXX range $X.XX ratio to share, we to to are to the earnings of new $X.XX guidance from range

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

Ruben Mendoza

Thanks, John.

pleased our are We with third quarter results.

full-year underlying prior increase gross to Our improved and earnings range. in to was adjusted very per an XXXX with adjusted profitability share compared strong, our year, margins EBITDA resulting the guidance

to For year, the the we on four focus balance will priorities. of continue strategic our

X.X plan to to leverage debt by end between of XXXX. sheet we strengthen our our ratio currently X.Xx from and balance reducing the by X.X First,

to products and to have growth by organic and we focus XXXX, growing customers. our continue market we by In the plan another greenfield to driving two offer share greenfields three expanding our on to year Second, end. opening one branches, we open opened

greenfield returns Our growth and profitability invested and drive high investments on yield long-term branch capital.

our our will our cost-out our we economies margin. on Third, by profit across and to business margin expansion improve scale on executing to continue leveraging of EBITDA focus full-year initiatives adjusted

mindful And debt finally, reduction acquisitions make while being we our of targets. strategic to plan

positioned environments. cost that structure well us highly to revenues economic allows withstand with is and company scale changes cost changing variable market Our to with a

well growth nearly three and future. the for and since public drive also strategic us offering several have to We actions undertaken our position initial long-term ago profitability to years

our that strategic in expanded accretive long-term IPO, growth. greenfield and made footprint have enhanced and XX our locations our Since and acquisitions XX we America have geographic branch opened North organic

debt, our X.Xx provided $XXX and ratio over paid the structure by of down reduced overall IPO time in We have our in debt which debt, million our interest and have capital cash has high-interest over $XX which leverage we over has from at reducing notes to optimized million refinancing currently. Xx savings, annual

expand us branch geographic believe is see of we fragmented remains we industry as growth. closing, and runway large through ahead acquisitions opportunities investments, greenfield long-term our which and to of In there footprint our growth drive highly will a

to improving We drive will actions company shareholders. make believe focus value we profitability a for better long-term build our the on as will us our future. for We much to continue these our business

concludes we'll to remarks, take and your happy That questions. our now be

Operator

your this a of Mike comes you. Dahl [Operator RBC line Markets. with Our question from proceed Please we time, conducting At Thank the will first question-and-answer Instructions] be Capital question. with session.

Michael Dahl

nice and for and results. questions my good Hi, thanks morning, taking

Ruben Mendoza

Thanks Mike.

Michael Dahl

wanted I John, to on margins. the Ruben, start

have in end the done You of year-to-date full-year with tracking they're job reiterated particular, guidance. a the guys think margins, and gross I above high great

conservatism that's as there? in what's far line. really nothing some the there's is shifting I pushing just margin underlying the guidance commodity perhaps implied keep cost full-year just in to it for But can is XQ we that terms step-down wondering against or margin As fourth a I'm you sequential in tell, really the guess environment. of quarter still

John Gorey

the really the in it's feel a to very high that at on range be were full-year. guidance. We if Mike, going margins the over conservatism range, the our not we for little gross

Michael Dahl

about you're give good out along color more initial XXXX how you margins, could you low strength to us color same volume And any give on you're both And in initial looking the hear. that's then Okay. thinking lines, the be how little and comments should single-digit And about to given around mix organic thinking just in maybe growth, there? if versus when gross the in a those margins we price could that? SG&A,

Ruben Mendoza

Mike. Thanks Yes.

in quarter there, X% budgeting a X% mostly guidance and to little for very bit volume that price, price there organic price we're organic is we preliminary give and fourth in call. some think our But So growth. of little doing. earnings are growth, full full-year We'll these next XXXX, but

Michael Dahl

guess end think from think relatively so commodity as is we the margins? environment around about is if you? to Is remind and the that drivers what getting just underlying up guide the from more benign, Is expansion should room there? And for are in us your normal a that's number high that on margins something environment good for of planning if there the pricing internal given And of here? Okay. the just XXXX fiscal pricing I the and – gross

Ruben Mendoza

in margin. gross be Well, good I we've And in margins. as high-end it our on should well there's we said, conservative on future for gross possibility runway been the think us we some initiatives, – our of think And XXXX. our think guidance that for like the John guidance

Michael Dahl

Okay, great. Thank you.

Operator

Morrish shoot ISI. line comes next question. of your Our Evercore from Jim with the Please question

James Morrish

or you're time good Hey, the the wanted about on so? SG&A of well. thanks, looks million Appreciate out and I like SG&A. and like Ruben talk you adjustments quarter one-time kind to John. charges the that if and as your back dollar a by $XX It amount – increased

about your just think how could And then of if help investments you're much SG&A and that from doing? being trying – cost what's really buckets So just acquisitions been that from creep to versus in just increase you've versus is moving? your dimensionalize the some added those general you rising million related putting what's are how wondering was to us $XX that the how

John Gorey

we're million. the forward. large $XX that said, the estimating creeping like million And of costs move piece And other of payroll then the we then of XXXX, $X some as we relatively company-wide you acquisition, didn't the initiatives, from Yes, some do that where on costs small. range a small in in any acquisitions were

James Morrish

several how chunk, be should Okay. forward, going rate about getting good going or pretty think think how significant we this investments you're good out is about next forward? seems a I just that a because about going investments the $X some things And for a all? run million like think But million of to to quarter big for we those you $X of should quarters that. and Is understand that

John Gorey

tapering we as be the of XXXX, They'll next move there IT continue down maintenance will cost the will be couple on still that for but side some through years. forward

James Morrish

in your XXXX should then year-to-date, make and to and – we with one your year. both continued footprint And you've October two about M&A thinking tack-on a too, to earlier think some greenfields just this How of Okay. in three footprint acquisitions another and about mix expansion greenfields? through expansion this

Ruben Mendoza

Thanks. question. Good

whitespace greenfields We continue where to map. have the at we look on

in piece in getting previous than little of there's this the on as acquisition-wise, pipeline. move we we'll do said to cases. has longer And we've pipeline. plenty quarters, estate real acquisition We've in us for the been more we've right our quarters, a wanted a mentioned And taken some probably few think as disciplined year. forward, the little to then in execute last bit we I

James Morrish

acquisitions Okay, contribute from then housekeeping you've quarter? that And this thank lastly did you. made just perspective, year how the a much revenues in

John Gorey

In million the about $X to $X it quarter, was million.

James Morrish

Okay. it. Thank guys. much I appreciate you very

John Gorey

Thanks.

Operator

John Our with of Lovallo question. America. Bank next question comes from of line shoot your the Please

John Lovallo

guys. Hey, you well. as taking for my Thank questions

seem a next one, terms just is just we $XXX kind quarters, on think of right? million first SG&A, about question maybe quarterly up if I the $XXX of about of rate that following [Trey's] in couple mean run The over million to

John Gorey

the about were looking Yes, at. that would be we range

John Lovallo

given bit we really back interest was helpful. just didn't you little the were And Okay, a that's that conservatism before higher components to getting guys other missing? that really and EBITDA, the then components than just revenue change, for, outlook other in we're of there are some that change, this outlook expense EPS or including the outlook had that actually were and and looking EPS taxes

John Gorey

lot we're and And really No, conservatism. we we and it margins. to going driven was a target higher should see EBITDA that a gross – set, now just at be the margins our our of little by that it's

Ruben Mendoza

lowered we quarter, second the in raised John we raised our – margin our our targets, gross John target. also leverage And EBITDA, we

adjust call. adjusting in We are last again in part our EPS, our of we did it. just So

John Lovallo

And free cash $XX million, Got to in about does for feel that XXXX? $XX the then terms still it. flow, of right million

John Gorey

Yes, it does.

John Lovallo

Thanks guys. Okay.

Ruben Mendoza

Thank you.

Operator

Our next SunTrust. the your Keith line from of Hughes comes question. question Please with shoot

Keith Hughes

Thank you.

And now, estimate? the Going for breakout? year XXXX, business residential the versus to low From sales your right your commercial rough your would planning how back in single-digit

Ruben Mendoza

residential usually our where and about commercial Keith. some quarter to in XX% It's analyst and calls efforts in some and a a of calls, business, we've XXXX as well. the commercial we've that taken said are in we fourth on close past, to happening guys, couple and with that the But Company, the see as resi, you and we as the in in of XX%, gain R&R, share calls some

Keith Hughes

versus So in view commercial single-digit of low relative residential view? XXXX, that your growth the what's of kind in rates of

Ruben Mendoza

It's the we probably – as thought we said. same about what what just

Keith Hughes

outperform or mean you're low one single-digits to the I substantially around So other? both be to expecting

Ruben Mendoza

Yes, single digits... low

John Gorey

both. For

Ruben Mendoza

both. For

Keith Hughes

for this you then how the on a many acquisitions question year. done both, have Yes, slide in quick And okay. you've just

we similar As reduction of that terms XXXX, a given of to hit allow particularly activity you would goal? level you to debt transactions goal, to see your look in

Ruben Mendoza

a one more the closer us the little relatively to ones there's a the year. get million to That's possibility would this we've $XXX past, this done rest of small, Similar annualized higher, like us that done getting just what year. of our – we've in said And revenue. of

way. we us or future. $XXX million, budget We're not that with to right So We're where that's looking and to the around for just gets going be reduction targets. guide guide still we're want leverage those but to organic that what the still in we growth, see to going

Keith Hughes

Okay. Thank you.

Operator

next comes Our Trey shoot the with of question your Grooms line question. Please from Stephens.

Noah Merkousko

This morning, actually is Merkousko Good guys. for Trey. Noah on

Ruben Mendoza

Good morning.

Noah Merkousko

I a wallboard X% we a it maybe role that's guys see. bit. looks was was pricing trending deceleration did there? So talk of just much what how kind mix a year-over-year, down sequentially down and how like about like mean looks play Could you from

Kirby Thompson

This played little big business Yes. an saw have impact that average a bit half-inch does in increased Thanks, Noah. Mix is in We that. price. the third Kirby. on quarter, that selling our a really part our and

Noah Merkousko

know to some going maybe the there? the than but you Canadian maybe that's else tougher kind little Gotcha, there maybe out on of bit comp market is guys called a mix And you but weather, then there, weakness had wallboard switching guys a volume, we some helpful. and impact? continued over thought. softer Again, in I anything

Kirby Thompson

mentioned, specifically mix Canada, Northwest, other not steady. Well, headwinds regions the while as remain and Pacific impact. We it see in the regionally. really pretty There are California some

Noah Merkousko

Okay.

Ruben Mendoza

wallboard the goes. as us for residentially far that's And as

Noah Merkousko

end market's now. for for maybe what's of your market? some seeing then Are guys and – the sort Canadian there one the Okay any the Canadian tunnel? expectation a The quick light while Or at you of weak resi been follow-up.

Ruben Mendoza

Haven't are. hit budget like that We a in We our was which October, while. done awesome. in

are. we yes, So

Noah Merkousko

Good from That’s to hear. me. it All right.

Ruben Mendoza

Thanks.

Operator

line comes Merkel Our the Ryan shoot Blair. your from of question. Please question next with William

Ryan Merkel

Hey, thanks. A couple questions of me. for

I back market that the for to market digits? share And And be and showing – second. seen, I'm single to a outlook is we've up is what just low taking what get if your you're what to assuming understand to Dodge So for us next has go the outlook is trying of ABI to just just year a to little Are below shown you XXXX want bit flattish? the sort given for then just us? trying

Ruben Mendoza

pull shown think a changed, relatively negative talk came look look I kind that's And Burns growth. Dodge stuff. vendors and and And that So we what our we organic it XX, for our at for Dodge has all backlogs, also XXXX at and to it's then for at unless customers, do salespeople us, we X-region budget. how bottoms-up managers seeing. And look of all for up We most outlook and we we're what are our we our is they it have about with And the is we – our at what is looking John was in, Ryan. ABI. of we

Ryan Merkel

Okay.

that still to is be it little a a but fair going it's So grow. going year, next market is characterization to the softer

Ruben Mendoza

fair characterization. I it's think a

the reported housing the in that. like has been It to think uptick the I we're some with in homebuilding for some all things looks in of from traffic decent XXXX. that the seems that outlook seeing XXXX

commercial resi. three I mean commercial good for the see our outlook XXXX as the And looks I of I for was uptick as us, half decent call housing, XXXX, backlog yesterday, good. into a possible first for looks So quarters a goes. for far mentioning in could single-digit

Ryan Merkel

Yes. Okay.

like asking in reason is what Just there debate I'm some looks about XXXX. the non-res

the color So helpful. is extra

any tariff you much the down? increases? were prices this how to anniversary that there is price business, metal the And share Moving can other then driving beyond the what's color framing of

Ruben Mendoza

Yes.

there and framing prices quarter-over-quarter price weren't from metal so was So – metal was quarter XXXX, tariffs increases price so three framing, our really the of down. third hitting on X% about

Our volume grew X%.

decrease X% grew. year-over-year volume had in our framing, So a metal negative but we

is Our in business well. metal framing doing

high Pricing a of going third really in Our bunch stabilized number. ceilings wasn't just in, is of well. especially It's was I at doing there a down. mean the XXXX. increases price in pretty business quarter

Ryan Merkel

pass Okay. on. Again it I'll

Ruben Mendoza

Thanks.

Operator

Bouley line the question. Our comes next question Please Matthew of shoot Barclays. with from your

Christina Chiu

Christina thinking Hi. Chiu fourth you This quarter? increases How prebuy is manufacturer you January about are for Matt. are the pricing on the any expecting XXXX? in actually in announced And

Kirby Thompson

tell this be. Thanks, little are our just leading by our with that sticky Kirby. to manufacturers increase the Gypsum going inventory follow too a We'll is increase. into strategy to still Christina, It's an typical announced how early

that As and a end to become accordingly. closer a little adjust year, clear, get will we'll the the little our of inventories we

Christina Chiu

just any can called hurricane, softness Got there in it. margins? some your September And out about that impact impacted due Is these to prospectus weather the quantify you then have might continued way you talked how items in had and Canada. you

Ruben Mendoza

or Well, SG&A EBITDA? gross What of – margins…? kind margins which margin,

Christina Chiu

Just overall.

Ruben Mendoza

our consensus of revenue half So is with Canada.

Another on takes million about $X to $X Hurricane And to because was was of Carolinas. going. it days days or get going we it thought while which after land. all our We to probably was locations, hit so, is Virginia, then before two Georgia, XX Dorian Florida, coming XX, shut a X million to or down –

several Houston in Houston. us And then affected in the for days floods

was that the weather. So

us. part was that Canada, in half so of for the weather And

little I'm we better. that affected. really more much how been know going bit revenue, SG&A So If We bit say I would what have to might that's don't leveraged much that. our little a a about have lower. had it

what I made So think that that's when we meant we disclosure.

Christina Chiu

Thanks. it. Got

Ruben Mendoza

You bet.

Operator

remarks. I left to further queue, closing there to are any for like back As management turn questions over floor the would no in the

Ruben Mendoza

Yes. This Ruben. is

the work makes So and thanks very, very participation. you. employees appreciated our they very And to like that all much difference. a much thank It's your Thank for do. for X,XXX I'd of

Operator

This concludes today's teleconference.

Thank day. for lines this You have you a your at and wonderful your participation, may now time. disconnect

Foundation Building Materials (FBM) 9 Nov 192019 Q3 Earnings call transcript