Foundation Building Materials Announces Third Quarter 2018 Results and Provides Full Year 2018 and 2019 Guidance

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2018 Third Quarter Highlights

  • Record net sales of $542.3 million from continuing operations, an increase of 15.9% compared to the prior year period
  • Base business net sales of $472.1 million from continuing operations, an increase of 12.5% compared to the prior year period
  • Entered into definitive agreement to sell the Mechanical Insulation segment for $122.5 million, expected net proceeds of $116.0 million will be used to pay down debt
  • Completed refinance of Senior Secured Notes; expected to save $12.0 million to $15.0 million per year in cash interest
  • Net loss of $37.6 million from continuing operations; loss per share of $0.88; net loss primarily due to loss of $58.5 million related to refinancing of debt
  • Adjusted net income(1) of $8.2 million and adjusted earnings per share(1) of $0.19
  • Adjusted EBITDA(1) of $43.7 million from continuing operations, an increase of 20.3% compared to the prior year period; Adjusted EBITDA margin(1) of 8.1% compared to 7.8% in the prior year period

Foundation Building Materials, Inc. (the "Company") FBM, one of the largest specialty building product distributors of wallboard, suspended ceiling systems and metal framing in North America, today reported third quarter 2018 financial results and provided updated full year 2018 and full year 2019 financial guidance.

"We delivered strong third-quarter results highlighted by year-over-year net sales growth of 15.9% and base business growth of 12.5%," said Ruben Mendoza, President and CEO. "Our record results demonstrate the on-going strength of our non-residential construction and commercial repair and remodel markets."

On September 26, 2018, the Company entered into a definitive agreement to sell its mechanical insulation business. The previously reported amounts for the mechanical insulation segment have now been reclassified as discontinued operations. Our continuing operations now consist of what was previously reported as the Specialty Building Products segment. The transaction is expected to close during the fourth quarter of 2018.

The discussion below represents our continuing operations, unless otherwise noted.

2018 Third Quarter Results

Net sales for the three months ended September 30, 2018, were $542.3 million compared to $467.9 million for the three months ended September 30, 2017, representing an increase of $74.4 million, or 15.9%. Net sales from base business branches contributed $52.3 million, or 12.5%, of the increase which was driven by strong commercial activity, price increases and product expansion into new geographic markets. Net sales from acquired branches and existing branches that were strategically combined contributed $22.1 million of the increase.

Gross profit for the three months ended September 30, 2018, was $154.0 million compared to $135.9 million for the three months ended September 30, 2017, representing an increase of $18.2 million, or 13.4%. The increase in gross profit was primarily due to the increase in net sales. Gross margin for the three months ended September 30, 2018, was 28.4% compared to 29.0% for the three months ended September 30, 2017. The decrease in gross margin was primarily due to higher product costs.

Selling, general and administrative, or SG&A, expenses for the three months ended September 30, 2018, were $113.3 million compared to $102.3 million for the three months ended September 30, 2017, representing an increase of $11.0 million, or 10.8%. As a percentage of net sales, SG&A expenses were 20.9% for the three months ended September 30, 2018, compared to 21.9% for the three months ended September 30, 2017. Excluding non-recurring adjustments of $3.0 million and $2.5 million for the three months ended September 30, 2018 and 2017, respectively, SG&A expenses as a percentage of net sales for the three months ended September 30, 2018, were 20.3% compared to 21.3% for the three months ended September 30, 2017. The decrease in SG&A expenses as a percentage of net sales was due to our continued focus on operating efficiencies, cost reduction initiatives and leveraging costs with the increase in net sales.

In August 2018, the Company completed the refinancing of its $575 million Senior Secured Notes. The refinancing resulted in a loss of $58.5 million consisting primarily of a write off of deferred financing costs and original issuance discounts and a prepayment premium. The Company expects to save $12.0 million to $15.0 million in cash interest on an annual basis.

Net loss for the three months ended September 30, 2018, was $37.6 million, or $0.88 per share, compared to net income of $0.1 million, or $0.00 per share for the three months ended September 30, 2017. Adjusted net income(1) for the three months ended September 30, 2018, was $8.2 million, or $0.19 per share, an increase of $6.4 million compared to an Adjusted net income(1) of $1.9 million, or $0.04 per share, for the three months ended September 30, 2017.

Adjusted EBITDA(1) was $43.7 million and Adjusted EBITDA margin(1) was 8.1% for the three months ended September 30, 2018, compared to Adjusted EBITDA(1) of $36.4 million and Adjusted EBITDA margin(1) of 7.8% for the three months ended September 30, 2017.

2018 Year-To-Date Results

Net sales for the nine months ended September 30, 2018, were $1,528.2 million compared to $1,346.4 million for the nine months ended September 30, 2017, representing an increase of $181.7 million, or 13.5%. Net sales from base business branches contributed $95.1 million, or 7.6%, of the increase which was driven by strong commercial activity, price increases and product expansion into new geographic markets. Net sales from acquired branches and existing branches that were strategically combined contributed $86.6 million of the increase.

Gross profit for the nine months ended September 30, 2018, was $434.7 million compared to $389.0 million for the nine months ended September 30, 2017, representing an increase of $45.7 million, or 11.7%. The increase in gross profit was primarily due to the increase in net sales. Gross margin for the nine months ended September 30, 2018, was 28.4% compared to 28.9% for the nine months ended September 30, 2017. The decrease in gross margin was primarily due to higher product costs.

SG&A expenses for the nine months ended September 30, 2018, were $328.1 million compared to $299.3 million for the nine months ended September 30, 2017, representing an increase of $28.8 million, or 9.6%. As a percentage of net sales, SG&A expenses were 21.5% for the nine months ended September 30, 2018 compared to 22.2% for the nine months ended September 30, 2017. Excluding non-recurring adjustments of $6.9 million and $11.1 million, respectively, SG&A expenses as a percentage of net sales for the nine months ended September 30, 2018 were 21.0% compared to 21.4% for the nine months ended September 30, 2017. The decrease in SG&A expenses as a percentage of net sales was due to our continued focus on operating efficiencies, cost reduction initiatives and leveraging costs with the increase in net sales.

Net loss for the nine months ended September 30, 2018, was $38.3 million, or $0.89 per share, compared to net income of $3.1 million, or $0.08 per share for the nine months ended September 30, 2017. Adjusted net income(1) for the nine months ended September 30, 2018, was $10.6 million, or $0.25 per share, an increase of $8.1 million compared to an Adjusted net income(1) of $2.5 million, or $0.06 per share, for the nine months ended September 30, 2017.

Adjusted EBITDA(1) was $114.0 million and Adjusted EBITDA margin(1) was 7.5% for the nine months ended September 30, 2018, compared to Adjusted EBITDA(1) of $102.0 million and Adjusted EBITDA margin(1) of 7.6% for the nine months ended September 30, 2017.

Acquisitions and Greenfield Branches

On October 1, 2018, the Company completed the acquisition of Agan Drywall Supply and its related companies ("Agan"), adding three additional branches serving the South Dakota and Iowa markets. For the fourth quarter of 2018, Agan is expected to contribute $5.0 million to $7.0 million to net sales. Through November 1, 2018, the Company has completed four acquisitions totaling 16 branches with combined annualized net sales in excess of $130.0 million. The Company expects to continue to supplement organic growth with strategic acquisitions.

As of September 30, 2018, the Company has opened four specialty building products greenfield branches and expects to open one to two more branches by the end of 2018, for a total of five to six branches. These greenfield branches are projected to yield high returns on invested capital within the first few years of startup. They also serve to further leverage the Company's national scale, increase the Company's market share, generate economies of scale and support the Company's organic growth.

2018 and 2019 Outlook for Continuing Operations

For 2018, the Company expects full year net sales to be in the range of $2.0 billion to $2.06 billion. The Company expects Adjusted EBITDA margin(2) for full year 2018 to be between 7.3% and 7.5%, with expected full year 2018 Adjusted EBITDA(2) of $146.0 million to $150.0 million. These expected results include anticipated contributions from acquisitions and greenfield branches.

For 2019, the Company expects full year net sales to be in the range of $2.10 billion to $2.25 billion. The Company expects Adjusted EBITDA margin(2) for full year 2019 to be between 7.6% and 8.0%, with expected full year 2019 Adjusted EBITDA(2) of $160.0 million to $180.0 million. These expected results include anticipated contributions from acquisitions and greenfield branches.

Third Quarter Earnings Release and Conference Call

In conjunction with this release, the Company will host a conference call today, Thursday, November 1, 2018, at 8:30 AM Eastern Time. Ruben Mendoza, President and Chief Executive Officer, John Gorey, Chief Financial Officer, and John Moten, Vice President Investor Relations, will host the call.

The call can be accessed three ways:

  • At the FBM website: www.fbmsales.com in the Investors section of the Company's 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 telephone dial-in number in the U.S. is (855) 327-6837. For participation outside the U.S., the dial-in number is (631) 891-4304; and
  • Audio Replay: A replay of the call will be available beginning at 11:30 AM Eastern Time on Thursday, November 1, 2018, and ending 11:59 PM Eastern Time November 8, 2018. Dial-in numbers for U.S. based participants are (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 the Conference ID of 10005665

About Foundation Building Materials

Foundation Building Materials, Inc. is a specialty building products distributor of wallboard, suspended ceiling systems, and metal framing throughout North America. Based in Tustin, California, the Company employs more than 3,400 people and operates more than 170, branches across the U.S. and Canada.

Forward-Looking Statements

This press release contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words such as "believe," "anticipate," "expect," "estimate," "intend," "project," "plan," or words or phrases with similar meaning. Forward-looking statements contained in this press release relate to, among other things, the Company's projected financial performance, including cash interest savings, and operating results, including net sales, Adjusted EBITDA and Adjusted EBITDA margin, and the Company's strategic plans and objectives including acquisitions and greenfields. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on our management's current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of the Company's control, that may cause the Company's business, strategy or actual results to differ materially from the forward-looking statements. The Company does not intend, and undertakes no obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law. Investors are referred to the Company's filings with the Securities and Exchange Commission, including its Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q for additional information regarding the risks and uncertainties that may cause actual results to differ materially from those expressed in any forward-looking statement.

(1) Adjusted net income, Adjusted earnings per share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See "Non-GAAP (Generally Accepted Accounting Principles) Financial Measures" section below for a discussion of how the Company defines and calculates this measure, why the Company believes it is important, and a reconciliation thereof to the most directly comparable GAAP measure.

(2) Adjusted net income, Adjusted earnings per share, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See "Non-GAAP (Generally Accepted Accounting Principles) Financial Measures" section below for a discussion of how the Company defines and calculates this measure and why the Company believes it is important.

- Financial Tables Follow -

   
FOUNDATION BUILDING MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(in thousands, except share and per share data)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2018   2017 2018   2017
Net sales $ 542,273 $ 467,891 $ 1,528,153 $ 1,346,441
Cost of goods sold   388,236   332,008   1,093,412   957,404
Gross profit 154,037 135,883 434,741 389,037
Operating expenses:
Selling, general and administrative 113,279 102,259 328,088 299,298
Depreciation and amortization   19,771   18,234   56,922   52,662
Total operating expenses   133,050   120,493   385,010   351,960
Income from operations 20,987 15,390 49,731 37,077
Loss on extinguishment of debt (58,475 ) - (58,475 ) -
Interest expense (12,576 ) (15,054 ) (43,028 ) (45,147 )
Other (expense) income, net   (8 )   25   126   13,424
(Loss) income before income taxes (50,072 ) 361 (51,646 ) 5,354
Income tax (benefit) expense   (12,519 )   239   (13,299 )   2,205
(Loss) income from continuing operations (37,553 ) 122 (38,347 ) 3,149
Income from discontinued operations, net of tax   2,772   1,277   7,913   3,439
Net (loss) income $ (34,781 ) $ 1,399 $ (30,434 ) $ 6,588
 
(Loss) earnings per share data:
(Loss) earnings from continuing operations per share - basic $ (0.88 ) $ 0.00 $ (0.89 ) $ 0.08
(Loss) earnings from continuing operations per share - diluted $ (0.88 ) $ 0.00 $ (0.89 ) $ 0.08
 
Earnings from discontinued operations per share - basic $ 0.07 $ 0.03 $ 0.18 $ 0.08
Earnings from discontinued operations per share - diluted $ 0.07 $ 0.03 $ 0.18 $ 0.08
 
(Loss) earnings per share - basic $ (0.81 ) $ 0.03 $ (0.71 ) $ 0.16
(Loss) earnings per share - diluted $ (0.81 ) $ 0.03 $ (0.71 ) $ 0.16
 
Weighted average shares outstanding:
Basic 42,894,474 42,865,407 42,889,430 41,021,808
Diluted 42,917,230 42,870,391 42,905,273 41,023,935
 
Comprehensive (loss) income:
Net (loss) income $ (34,781 ) $ 1,399 $ (30,434 ) $ 6,588
Foreign currency translation adjustment 1,481 3,037 (2,724 ) 5,695

Unrealized (loss) gain on derivative, net of taxes of $0.5 million and $1.0 million, respectively and $0.5 million and $1.9 million, respectively

  (1,420 )   (1,647 )   839   (3,047 )
Total other comprehensive income (loss)   61   1,390   (1,885 )   2,648
Total comprehensive (loss) income $ (34,720 ) $ 2,789 $ (32,319 ) $ 9,236
 
     
FOUNDATION BUILDING MATERIALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
 
September 30, December 31,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 10,560 $ 12,101

Accounts receivable-net of allowance for doubtful accounts of $3,297 and $3,494,

respectively

316,290 238,091
Other receivables 50,808 55,487
Inventories 158,766 148,246
Prepaid expenses and other current assets 12,304 11,785
Current assets held for sale   128,188   82,948
Total current assets 676,916 548,658
Property and equipment, net 153,386 144,524
Intangible assets, net 145,379 164,536
Goodwill 481,260 452,728
Other assets 6,928 5,604
Noncurrent assets held for sale   -   38,220
Total assets $ 1,463,869 $ 1,354,270
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 130,169 $ 134,460
Accrued payroll and employee benefits 25,777 17,920
Accrued taxes 11,775 7,003
Tax receivable agreement 15,892 15,892
Current portion of term loan 3,375 -
Other current liabilities 22,995 37,270
Current liabilities held for sale   26,599   29,733
Total current liabilities 236,582 242,278
Asset-based revolving credit facility 305,704 47,486
Long-term debt, net 438,841 534,379
Tax receivable agreement 119,912 119,912
Deferred income taxes, net 5,200 17,912
Other liabilities 9,545 12,657
Noncurrent liabilities held for sale   -   982
Total liabilities 1,115,784 975,606
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; 42,894,965 and

42,865,407 shares issued, respectively

13 13
Additional paid-in capital 331,667 330,113
Retained earnings 15,936 46,184
Accumulated other comprehensive income   469   2,354
Total stockholders' equity   348,085   378,664
Total liabilities and stockholders' equity $ 1,463,869 $ 1,354,270
 
   
FOUNDATION BUILDING MATERIALS, INC.
NET SALES BY PRODUCT LINE, GROSS PROFIT AND GROSS MARGIN
(UNAUDITED)
 
Three Months Ended September 30, Change
2018   2017 $   %
(dollars in thousands)          
Wallboard (1) $ 203,991 37.6 % $ 179,362 38.3 % $ 24,629 13.7 %
Suspended ceiling systems 104,422 19.3 % 91,933 19.6 % 12,489 13.6 %
Metal framing 98,576 18.2 % 71,420 15.3 % 27,156 38.0 %
Complementary and other products   135,284   24.9 %   125,176   26.8 %   10,108 8.1 %
Total net sales $ 542,273   100.0 % $ 467,891   100.0 % $ 74,382 15.9 %
Total gross profit $ 154,037 $ 135,883 $ 18,154 13.4 %
Total gross margin 28.4 % 29.0 % (0.6 )%
 

(1) For the three months ended September 30, 2017, wallboard accessories have been reclassified from "Wallboard" to "Complementary and other products" to conform to the current year presentation.

  Nine Months Ended September 30,   Change
2018   2017 $   %
(dollars in thousands)          
Wallboard (1) $ 583,242 38.2 % $ 528,556 39.3 % $ 54,686 10.3 %
Suspended ceiling systems 288,356 18.9 % 247,921 18.4 % $ 40,435 16.3 %
Metal framing 264,019 17.3 % 212,486 15.8 % $ 51,533 24.3 %
Complementary and other products   392,536   25.7 %   357,478   26.5 % $ 35,058 9.8 %
Total net sales $ 1,528,153   100.0 % $ 1,346,441   100.0 % $ 181,712 13.5 %
Total gross profit 434,741 389,037 $ 45,704 11.7 %
Total gross margin 28.4 % 28.9 % (0.5 )%
 

(1) For the nine months ended September 30, 2017, wallboard accessories have been reclassified from "Wallboard" to "Complementary and other products" to conform to the current year presentation.

     
FOUNDATION BUILDING MATERIALS, INC.
BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES (UNAUDITED)
 
Three Months Ended September 30, Change
2018     2017 $     %
(dollars in thousands)  
Base business (1) $ 472,116 $ 419,823 $ 52,293 12.5 %
Acquired and combined (2)   70,157   48,068   22,089   46.0 %
Net sales $ 542,273 $ 467,891 $ 74,382   15.9 %
 

(1) Represents net sales from branches that were owned by us since January 1, 2017 and branches that were opened by us during such period.

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(2) Represents branches acquired and existing branches combined with acquired branches after January 1, 2017.

     
Nine Months Ended
September 30, Change
2018     2017 $     %
(dollars in thousands)  
Base business (1) $ 1,339,918 $ 1,244,778 $ 95,140 7.6 %
Acquired and combined (2)   188,235   101,663   86,572   85.2 %
Net sales $ 1,528,153 $ 1,346,441 $ 181,712   13.5 %
 

(1) Represents net sales from branches that were owned by us since January 1, 2017 and branches that were opened by us during such period.

(2) Represents branches acquired and existing branches combined with acquired branches after January 1, 2017.

                       

FOUNDATION BUILDING MATERIALS, INC.

BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES BY PRODUCT
(UNAUDITED)

Three Months

Ended
September 30, 2017

Base
Business
Net Sales
Change

Acquired and
Combined
Net Sales
Change

Three Months
Ended
September 30, 2018

Total Net
Sales %
Change

Base
Business
Net Sales

% Change (1)

Acquired and
Combined
Net Sales

% Change (2)

 
 
 
(dollars in thousands)      
Wallboard (3) $ 179,362 $ 13,766 $ 10,863 $ 203,991 13.7 % 8.5 % 61.3 %
Suspended ceiling systems 91,933 7,168 5,321 104,422 13.6 % 8.7 % 55.1 %
Metal framing 71,420 21,938 5,218 98,576 38.0 % 33.8 % 79.6 %
Complementary and other products   125,176   9,421   687   135,284   8.1 %   8.5 %   4.9 %
Total net sales $ 467,891 $ 52,293 $ 22,089 $ 542,273   15.9 %   12.5 %   46.0 %
Average daily net sales $ 7,547 $ 830 $ 351 $ 8,608 14.1 % 12.3 % 45.2 %
 

(1) Represents base business net sales increase as a percentage of base business net sales for the three months ended September 30, 2017.

(2) Represents acquired and combined net sales increase as a percentage of acquired and combined net sales for the three months ended September 30, 2017.

(3) For the three months ended September 30, 2017, wallboard accessories have been reclassified from "Wallboard" to "Complementary and other products" to conform to the current year presentation.

                       

Base Business

Net Sales Change

Acquired and

Combined Net Sales Change

Acquired and Combined

Net Sales

% Change (2)

Base Business

Net Sales

% Change (1)

Nine Months Ended

September 30, 2017

Nine Months Ended

September 30, 2018

Total Net

Sales % Change

 
 
(dollars in thousands)      
Wallboard (3) $ 528,556 $ 18,836 $ 35,850 $ 583,242 10.3 % 3.8 % 94.4 %
Suspended ceiling

systems

247,921 20,276 20,159 288,356 16.3 % 8.8 % 113.1 %
Metal framing 212,486 38,750 12,783 264,019 24.3 % 19.4 % 96.7 %
Complementary and

other products

  357,478   17,277   17,781   392,536   9.8 %   5.3 %   54.5 %
Total net sales $ 1,346,441 $ 95,139 $ 86,573 $ 1,528,153   13.5 %   7.6 %   85.2 %
Average daily net

sales

$ 7,087 $ 498 $ 453 $ 8,001 12.9 % 7.6 % 84.7 %
 

(1) Represents base business net sales increase as a percentage of base business net sales for the nine months ended September 30, 2017.

(2) Represents acquired and combined net sales increase as a percentage of acquired and combined net sales for the nine months ended September 30, 2017.

(3) For the nine months ended September 30, 2017, wallboard accessories have been reclassified from "Wallboard" to "Complementary and other products" to conform to the current year presentation.

Non-GAAP (Generally Accepted Accounting Principles) Financial Measures

In addition to results under GAAP, this press release contains certain non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income (loss) and Adjusted earnings per share ("EPS"), 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 (loss) income before interest expense net, loss on extinguishment of debt, income tax (benefit) expense, depreciation and amortization, unrealized losses on derivative financial instruments, IPO and public company readiness expenses, stock-based compensation, and other non-recurring adjustments such as non-cash purchase accounting effects, losses on the disposal of property and equipment, transaction costs, management fees and hurricane related costs. The Company calculates Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. The Company calculates Adjusted net income as net income before unrealized losses (gains) on derivative financial instruments, IPO and public company readiness expenses, stock-based compensation, and other non-recurring adjustments such as non-cash purchase accounting adjustments, losses on the disposal of property and equipment, transaction costs, management fees and hurricane related costs. The Company calculates Adjusted EPS as Adjusted net income on a per weighted average share outstanding basis.

These non-GAAP financial measures are presented because they are important metrics used by management as a means by which it assesses financial performance. These measures may also be used by analysts, investors and other interested parties to evaluate companies in the Company's industry. These measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework that may be useful in assessing the Company's financial condition and results of operations.

These non-GAAP financial measures have certain limitations. These measures should not be considered as alternatives to measures of financial performance derived 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 liquidity measures. Other companies, including other companies in the Company's industry, may not use these measures or may calculate these measures differently than the Company does, limiting their usefulness as comparative measures.

The following is a reconciliation of Adjusted EBITDA to the nearest GAAP measure, net (loss) income (unaudited):

 
Three Months Ended September 30, Three Months Ended September 30,
2018 2017
    Reconciliation    
Reconciliation Reconciliation To Net Reconciliation
To Net Loss To Net Income To Net
From Income From From Income From Reconciliation
Continuing Discontinued Reconciliation Continuing Discontinued To Net
Operations

Operations (e)

To Net Loss Operations

Operations (e)

Income
(in thousands)
Net (loss) income $ (37,553 ) $ 2,772 $ (34,781 ) $ 122 $ 1,277 $ 1,399
Interest expense, net 12,544 11 12,555 15,028 15 15,043
Loss on extinguishment

of debt

58,475 - 58,475 - - -
Income tax (benefit)

expense

(12,519 ) 991 (11,528 ) 239 973 1,212
Depreciation and

amortization

19,771 1,561 21,332 18,234 1,495 19,729
Unrealized losses on

derivative financial

instruments

78 - 78 111 - 111
IPO and public company

readiness expenses

- - - 519 - 519
Stock-based compensation 633 44 677 203 10 213
Non-cash purchase

accounting effects (a)

6 - 6 166 112 278
Loss on disposal of

property and equipment

339 8 347 53 (23 ) 30
Hurricane related costs (b) (241 ) - (241 ) 376 54 430
Transaction costs (c)   2,208   386   2,594   1,315   1   1,316
Adjusted EBITDA $ 43,741 $ 5,773 $ 49,514 $ 36,366 $ 3,914 $ 40,280
Adjusted EBITDA

margin (d)

8.1 % 7.0 % 7.9 % 7.8 % 5.8 % 7.5 %
 

(a) Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of acquisitions.

(b) Represents insurance proceeds for hurricane related costs for the three months ended September 30, 2018; represents costs related to payroll and inventory resulting from Hurricanes Harvey and Irma for the three months ended September 30, 2017.

(c) Represents one-time costs related to our transactions, including fees to financial advisors, accountants, attorneys, other professionals and certain internal corporate development costs.

(d) Adjusted EBITDA margin represents Adjusted EBITDA divided by net sales.

(e) The operating results reflected above do not fully represent the mechanical insulation's segment historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the mechanical insulation segment.

   
Nine Months Ended September 30, Nine Months Ended September 30,
2018 2017
Reconciliation   Reconciliation   Reconciliation   Reconciliation  
To Net Loss To Net To Net To Net
From Income From Income From Income From Reconciliation
Continuing Discontinued Reconciliation Continuing Discontinued To Net
Operations

Operations (f)

To Net Loss Operations

Operations (f)

Income
(in thousands)
Net (loss) income $ (38,347 ) $ 7,913 $ (30,434 ) $ 3,149 $ 3,439 $ 6,588
Interest expense, net 42,957 36 42,993 45,058 47 45,105
Loss on extinguishment

of debt

58,475 - 58,475 - - -
Income tax (benefit)

expense

(13,299 ) 3,169 (10,130 ) 2,205 2,433 4,638
Depreciation and

amortization

56,922 4,637 61,559 52,662 4,490 57,152
Unrealized gains on

derivative financial

instruments

(56 ) - (56 ) (13,045 ) - (13,045 )
IPO and public company

readiness expenses

89 - 89 4,929 - 4,929
Stock-based compensation 1,512 103 1,615 1,667 287 1,954
Non-cash purchase

accounting effects (a)

413 - 413 830 112 942
Loss on disposal of property

and equipment

614 42 656 171 31 202
Hurricane related costs (b) (83 ) - (83 ) 376 54 430
Transaction costs (c) 4,753 958 5,711 3,635 251 3,886
Management fees (d)   -  

-

  -   353  

-

  353
Adjusted EBITDA $ 113,950 $ 16,858 $ 130,808 $ 101,990 $ 11,144 $ 113,134
Adjusted EBITDA

margin (e)

7.5 % 7.1 % 7.4 % 7.6 % 5.6 % 7.3 %
 

(a) Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of acquisitions.

(b) Represents insurance proceeds for hurricane related costs for the nine months ended September 30, 2018; represents costs related to payroll and inventory resulting from Hurricanes Harvey and Irma for the nine months ended September 30, 2017.

(c) Represents one-time costs related to our transactions, including fees to financial advisors, accountants, attorneys, other professionals and certain internal corporate development costs.

(d) Represents fees paid to our former private equity sponsor for services provided pursuant to past management agreements. These fees are no longer being incurred.

(e) Adjusted EBITDA margin represents Adjusted EBITDA divided by net sales.

(f) The operating results reflected above do not fully represent the mechanical insulation's segment historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the mechanical insulation segment.

The following is a reconciliation of Adjusted net income to the nearest GAAP measure, net (loss) income (unaudited):

     
Three Months Ended September 30, 2018 Three Months Ended September 30, 2017
Reconciliation   Reconciliation   Reconciliation   Reconciliation  
To Net Loss to Net Income To Net to Net Income
From From Income From From Reconciliation
Continuing Discontinued Reconciliation Continuing Discontinued To Net
Operations

Operations(e)

To Net Loss Operations

Operations(e)

Income
(in thousands, except share and per share data)
Net (loss) income $ (37,553 ) $ 2,772 $ (34,781 ) $ 122 $ 1,277 $ 1,399
Loss on extinguishment of debt 58,475

-

58,475

-

-

-

Unrealized (gains) losses on derivative financial instruments 78

-

78 111

-

111
IPO and public company readiness expenses

-

-

-

519

-

519
Stock-based compensation 633 44 677 203 10 213
Non-cash purchase accounting effects (a) 6

-

6 166 112 278
Loss on disposal of property and equipment 339 8 347 53 (23 ) 30
Hurricane related costs (b) (241 )

-

(241 ) 376 54 430
Transaction costs (c) 2,208 386 2,594 1,315 1 1,316
Tax effect of adjustments (d)   (15,719 )   (112 )   (15,831 )   (1,001 )   (56 )   (1,057 )
Adjusted net income $ 8,226 $ 3,098 $ 11,324 $ 1,864 $ 1,375 $ 3,239
 
Earnings per share (as reported):
Basic $ (0.88 ) $ 0.07 $ (0.81 ) $

-

$ 0.03 $ 0.03
Diluted $ (0.88 ) $ 0.07 $ (0.81 ) $

-

$ 0.03 $ 0.03
Adjusted earnings per share:
Basic $ 0.19 $ 0.07 $ 0.26 $ 0.04 $ 0.03 $ 0.08
Diluted $ 0.19 $ 0.07 $ 0.26 $ 0.04 $ 0.03 $ 0.08
 
Weighted average shares outstanding:
Basic 42,894,474 42,894,474 42,894,474 42,865,407 42,865,407 42,865,407
Diluted 42,917,230 42,917,230 42,917,230 42,870,391 42,870,391 42,870,391
 

(a) Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of acquisitions.

(b) Represents insurance proceeds for hurricane related costs for the three months ended September 30, 2018; represents costs related to payroll and inventory resulting from Hurricanes Harvey and Irma for the three months ended September 30, 2017.

(c) Represents one-time costs related to transactions, including fees to financial advisors, accountants, attorneys, other professionals and certain internal corporate development costs.

(d) Represents the tax effect of the adjustments to reflect corporate income taxes at the statutory rates of 25.5% and 36.5% for the three months ended September 30, 2018 and 2017, respectively.

(e) The operating results reflected above do not fully represent the mechanical insulation's segment historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the mechanical insulation segment.

     
Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017
Reconciliation   Reconciliation   Reconciliation   Reconciliation  
To Net Loss to Net Income To Net Income to Net Income
From From From From Reconciliation
Continuing Discontinued Reconciliation Continuing Discontinued To Net
Operations

Operations(f)

To Net Loss Operations

Operations(f)

Income
(in thousands, except share and per share data)
Net (loss) income $ (38,347 ) $ 7,913 $ (30,434 ) $ 3,149 $ 3,439 $ 6,588
Loss on extinguishment of debt 58,475

-

58,475

-

-

-

Unrealized (gains) losses on derivative financial instruments (56 )

-

(56 ) (13,045 )

-

(13,045 )
IPO and public company readiness expenses 89

-

89 4,929

-

4,929
Stock-based compensation 1,512 103 1,615 1,667 287 1,954
Non-cash purchase accounting effects (a) 413

-

413 830 112 942
Loss on disposal of property and equipment 614 42 656 171 31 202
Hurricane related costs (b) (83 )

-

(83 ) 376 54 430
Transaction costs (c) 4,753 958 5,711 3,635 251 3,886
Management fees (d)

-

-

-

353

-

353
Tax effect of adjustments (e)   (16,797 )   (282 )   (17,079 )   395   (268 )   127
Adjusted net income $ 10,573 $ 8,734 $ 19,307 $ 2,460 $ 3,906 $ 6,366
 
Earnings per share (as reported):
Basic $ (0.89 ) $ 0.18 $ (0.71 ) $ 0.08 $ 0.08 $ 0.16
Diluted $ (0.89 ) $ 0.18 $ (0.71 ) $ 0.08 $ 0.08 $ 0.16
Adjusted earnings per share:
Basic $ 0.25 $ 0.20 $ 0.45 $ 0.06 $ 0.10 $ 0.16
Diluted $ 0.25 $ 0.20 $ 0.45 $ 0.06 $ 0.10 $ 0.16
 
Weighted average shares outstanding:
Basic 42,889,430 42,889,430 42,889,430 41,021,808 41,021,808 41,021,808
Diluted 42,905,273 42,905,273 42,905,273 41,023,935 41,023,935 41,023,935
 

(a) Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of acquisitions.

(b) Represents insurance proceeds for hurricane related costs for the three months ended September 30, 2018; represents costs related to payroll and inventory resulting from Hurricanes Harvey and Irma for the three months ended September 30, 2017.

(c) Represents one-time costs related to transactions, including fees to financial advisors, accountants, attorneys, other professionals and certain internal corporate development costs.

(d) Represents fees paid to our former private equity sponsor for services provided pursuant to past management agreements. These fees are no longer being incurred subsequent to our initial public offering.

(e) Represents the tax effect of the adjustments to reflect corporate income taxes at the statutory rates of 25.5% and 36.5% for the three months ended September 30, 2018 and 2017, respectively.

(f) The operating results reflected above do not fully represent the mechanical insulation's segment historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the mechanical insulation segment.

   
FOUNDATION BUILDING MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS (UNAUDITED)
(MECHANICAL INSULATION BUSINESS)
(in thousands)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2018   2017 2018   2017
Net sales $ 82,533 $ 67,555 $ 237,923 $ 197,692
Cost of goods sold   60,125   48,655   172,682   142,503
Gross profit 22,408 18,900 65,241 55,189
Operating expenses:
Selling, general and administrative 17,078 15,150 49,481 44,775
Depreciation and amortization   1,561   1,495   4,637   4,490
Total operating expenses   18,639   16,645   54,118   49,265
Income from operations 3,769 2,255 11,123 5,924
Interest expense (11 ) (15 ) (36 ) (47 )
Other income (expense), net   5   10   (5 )   (5 )
Income from discontinued operations before income taxes 3,763 2,250 11,082 5,872
Income tax expense   991   973   3,169   2,433
Net income from discontinued operations, net of tax $ 2,772 $ 1,277 $ 7,913 $ 3,439

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