Forterra Investor Presentation. November 2018

Transcription

1 1 Forterra Investor Presentation November 2018

2 Disclaimer 2 Forward Looking Statements This presentation contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.forward looking statements may be identified by the use of words such as "anticipate", "believe", "expect", "estimate", "plan", "outlook", and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Forward looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward looking statements are based on historical information available at the time the statements are made and are based on management's reasonable belief or expectations with respect to future events, and are subject to risks and uncertainties, many of which are beyond the Company's control, that could cause actual performance or results to differ materially from the belief or expectations expressed in or suggested by the forward looking statements. Forwardlooking statements speak only as of the date on which they are made and the Company undertakes no obligation to update any forward looking statement to reflect future events, developments or otherwise, except as may be required by applicable law. Investors are referred to the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10 K, as updated by any quarterly reporting 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 forwardlooking statement. Industry Data We use market data and industry forecasts throughout this presentation. Unless otherwise indicated, statements in this presentation concerning our industries and the markets in which we operate, including our general expectations, competitive position, business opportunity and market size, growth and share, are based on publicly available information, periodic industry publications and surveys, government surveys and reports, and reports by market research firms. We have not independently verified market data and industry forecasts provided by any of these third party sources, although we believe such market data and industry forecasts included in this presentation are reliable. This information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in surveys of market size. Management estimates are derived from the information and data referred to above, as well as our internal research, calculations and assumptions made by us based on our analysis of such information and data and our knowledge of our industries and markets, which we believe to be reasonable, although they have not been independently verified. While we believe that the market position information included in this presentation is generally reliable, such information is inherently imprecise. Assumptions, expectations and estimates of our future performance and the future performance of the industries and markets in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in our filings with the Securities and Exchange Commission. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

3 Company Overview 3 A leading pure play water infrastructure manufacturer 2017 Net Sales by Business Segment Two complementary businesses: Drainage Pipe & Products and Water Pipe & Products Production facilities strategically located to serve the U.S. and Eastern Canadian markets Diversified exposure across products and end markets Significant product breadth and innovation serving broad end market and customer needs 53% Drainage Pipe & Products 47% Water Pipe & Products 2017 Net Sales by End Market 35% 40% 25% Drainage Pipe & Products Water Pipe & Products Residential Infrastructure Non-residential

4 Industry Leading Position in Both Business Segments 4 Drainage Pipe & Products 2017 Net Sales by End Market Water Pipe & Products 2017 Net Sales by End Market 47% 33% Residential Non-residential 23% 47% Residential Non-residential 20% Infrastructure 30% Infrastructure Largest producer of concrete drainage pipe and precast products in the U.S. and Eastern Canada based on sales Primarily used for stormwater and wastewater systems Key Drivers: Highway infrastructure construction Stormwater and wastewater infrastructure Residential housing starts Largest producer of ductile iron pipe ( DIP ) in the U.S. based on sales Primarily used to transport potable water Key Drivers: Residential housing starts Water supply construction spend Municipal infrastructure spending

5 Market Fundamentals Support Organic Growth 5 INFRASTRUCTURE RESIDENTIAL COMMERCIAL (Non-Residential) U.S. infrastructure spending as a percentage of GDP has declined steadily since 2009 and remains near a 35 year low Anticipate accelerating pace of Fixing America s Surface Transportation Act 4 ( FAST Act ) and potential for further municipal infrastructure growth State funding initiatives put in place over the last two years, such as Texas Proposition 7 and California Senate Bill 1, support expectations of growth in infrastructure spending Annual U.S. housing starts remain below the peak of past cycles - in spite of a relatively long economic recovery Expectations for continued growth in housing starts in 2018 and 2019 supported by a healthy U.S. labor market, benefit of U.S. tax reform and pent-up demand across much of the U.S. Certain areas of non-residential construction are expected to see continued growth in 2018 and 2019, including warehouse construction that is supported by e-commerce activity and office construction supported by broad downtown market development in many larger cities Anticipated benefit of U.S. tax reform on investments in U.S. operations (1) Sources: U.S. Census Bureau and Dodge 2018 Construction Outlook 4

6 Drainage Pipe & Products Platform is a One-Stop Shop 6 Bio Clean Stormwater bio filtration systems provide a wide range of customized solutions to address municipal stormwater separation and filtration needs Highly engineered and designed to meet a wide range of applications Bridge products Precast concrete bridges used for roadways, pedestrian walkways, small tunnels and crossings Highly engineered, custom designed and manufactured for each location Inlet structures Provides inlet into a storm drain pipeline Box culverts Primarily used for high stormwater applications Rectangular pipe allows for shallow cover and easy paving Utility structures Used by utility companies for access and inspection points, as well as installation of critical equipment Each utility company typically has its own design Manholes Used as access / inspection points and to change direction in pipelines Stormwater drainage and sanitary sewer applications End treatments Finishes and secures the ends of drainage pipe, box culverts and bridge sections Designed to function together with conduit to provide a sound, functional and permanent structure Concrete pipe High volume product used primarily for stormwater drainage Standardized engineering designs used for various installation depths and traffic loads

7 Water Pipe & Products 7

8 Unrivaled Product Breadth 8 Unrivaled breadth of product offering, combined with a broad geographic reach, serving the needs of both contractors and distributors across both the drainage and water pipe business segments Drainage Pipe and Products Water Pipe & Products 1 Drainage Pipe Stormwater Precast Structures Ductile Iron Pipe Fabrication / Fittings Other Regional Players Limited scale, product offering and geographic reach Source: Company websites. 1 Products listed, and associated key competitors, reflect Forterra s primary product offerings in its Water Pipe & Products segment and exclude other alternative products, and associated competitors, such as PVC pipe and larger diameter concrete and steel pipe used in potable water and wastewater applications.

9 Commitment to Our Employees 9 Our commitment to delivering shareholder value starts with our commitment to our employees, our customers, the environment and the communities in which we operate Forterra leads with safety with a relentless focus on continuous improvement in our processes and our training our recordable and lost time injury rates are less than half of the industry average 1 Corporate culture centered upon integrity, trust and mutual respect we are committed to diversity, and our code of conduct is supported by a formalized and continuous training program 1 Based on 2015, 2016 and 2017 recordable and lost time injury rates as compared to relevant industry metrics as tracked by the Bureau of Labor Statistics

10 Commitment to the Environment and our Customers 10 Our commitment to delivering shareholder value starts with our commitment to our employees, our customers, the environment and the communities in which we operate Our focus on sustainability starts with using natural and recycled materials in our precast concrete and ductile iron pipe products We work closely with our customers to support their LEED project credits through our products that minimize site disturbance during installation and provide environmentally friendly and long-lasting service Our Bio Clean stormwater management products provide a wide range of environmental benefits to our customers and our communities including stormwater filtration, water retention and clean ground-water recharge

11 Commitment to Community Our commitment to delivering shareholder value starts with our commitment to our employees, our customers, the environment and the communities in which we operate Forterra is committed to supporting our communities through the contribution of our time, our products and other financial resources to support their longterm health and sustainability 11

12 Focus on Innovation 12 Enhancing Value through Focus on Innovation PRODUCTION Driving increased operational efficiency through lean manufacturing initiatives COST Investing in efficiency projects, leveraging procurement and standardizing processes INNOVATION CUSTOMERS Delivering products and solutions that best meet the evolving needs of our customers PORTFOLIO MANAGEMENT Building well structured markets where Forterra can flourish

13 Key Financial Metrics Third Quarter and Year to Date Period Ended September 30, ($ in millions) DRAINAGE PIPE & PRODUCTS WATER PIPE & PRODUCTS CORPORATE TOTAL FORTERRA Q Q Q Q Q Q Q Q Net Sales $ $ $ $ $ $ $ $ Gross Profit (0.3) (0.6) EBITDA (4.1) (14.9) (18.4) Adjusted EBITDA 2 $ 55.6 $ 49.2 $ 19.0 $ 28.4 (13.1) (15.6) $ 61.6 $ 61.9 Gross Profit Margin 23.6% 20.9% 10.4% 15.8% n/a n/a 17.7% 18.5% Adjusted EBITDA Margin 22.9% 19.8% 9.9% 14.5% n/a n/a 14.2% 13.9% YTD 2018 YTD 2017 YTD 2018 YTD 2017 YTD 2018 YTD 2017 YTD 2018 YTD 2017 Net Sales $ $ $ $ $ $ $ 1,140.6 $ 1,219.2 Gross Profit (0.5) (1.9) EBITDA (40.5) (66.7) Adjusted EBITDA 2 $ $ $ 51.0 $ 75.8 (41.1) (58.0) $ $ Gross Profit Margin 21.5% 17.8% 10.3% 14.7% n/a n/a 16.4% 16.1% Adjusted EBITDA Margin 20.3% 16.6% 9.8% 12.9% n/a n/a 11.9% 10.0% Key Factors Influencing Year over Year EBITDA and Adjusted EBITDA: DRAINAGE 4 Higher average sales prices Benefit of cost controls from the operational excellence and procurement initiatives More efficient management structure WATER $10 million adjusted EBITDA impact from downtime at Bessemer facility in Q associated with a significant upgrade Higher cost of scrap, labor and freight not yet offset by an increase in the average selling price for ductile iron pipe CORPORATE Lower professional fee expenses and cost controls 1 For purposes of evaluating segment profit, the Company s chief operating decision maker reviews EBITDA as a basis for making the decisions to allocate resources and assess performance 2 Adjusted EBITDA is a non-gaap measure. See the appendix for a reconciliation thereof to net income, the most directly comparable GAAP measure. 4

14 Outlook and Expectations 14 Q GUIDANCE Expect Adjusted EBITDA to be in the range of $30 to $35 million 1 as compared to Q Adjusted EBITDA of $29.3 million 2 DRAINAGE Results will be impacted by significant shipment delays already realized in October 2018 due to record rainfall in Texas, Hurricane Michael in Florida and the carry-over effect of Hurricane Florence on Forterra s CP&P joint venture WATER Results in Water are expected to be in line with the prior year quarter Adjusted EBITDA of $18 million CORPORATE Corporate Adjusted EBITDA losses are expected to be approximately $15 million Full Year 2018 GUIDANCE 4 Expect Adjusted EBITDA to be in the range of $166 to $171 million 1 as compared to full year 2017 Adjusted EBITDA of $151.8 million 1 For purposes of evaluating segment profit, the Company s chief operating decision maker reviews EBITDA as a basis for making the decisions to allocate resources and assess performance 2 Adjusted EBITDA is a non-gaap measure. See the appendix for a reconciliation thereof to net income, the most directly comparable GAAP measure. 4

15 Appendix 15

16 Non GAAP Financial Measures 16 In addition to our results calculated under generally accepted accounting principles in the United States ("GAAP"), in this presentation we also present consolidated EBITDA, adjusted EBITDA, consolidated EBITDA margin and adjusted EBITDA margin, each of which is a non-gaap financial measure presented as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. The Company calculates (i) consolidated EBITDA as net income/(loss) after adjusting for (earnings)/loss from discontinued operations and before interest expense, income tax benefit (expense), and depreciation and amortization; (ii) adjusted EBITDA as EBITDA before impairment and exit charges, (gains)/losses on the sale of property, plant and equipment, impairment & restructuring charges, transaction costs, inventory step-up impacting margin, and other income and expenses as outlined and described in detail in the adjusted EBITDA reconciliation slide; (iii) consolidated EBITDA margin represents consolidated EBITDA as a percentage of net sales; and (iv) adjusted EBITDA margin represents adjusted EBITDA as a percentage of net sales. Consolidated EBITDA, adjusted EBITDA, consolidated EBITDA margin and adjusted EBITDA margin are presented in this presentation because they are important metrics used by management as one of the means by which it assesses the Company s financial performance. There non-gaap financial measures are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company s industry. The Company uses these non-gaap financial measures as supplements to GAAP measures of performance to evaluate the effectiveness of its business strategies, to make budgeting decisions, to allocate resources and to compare its performance relative to its peers. These non-gaap financial measures are also important for assessing the Company s operating results and evaluating each operating segment s performance on a consistent basis, by excluding the impacts of depreciation, amortization, income tax expense, interest expense and other items not indicative of ongoing operating performance. Additionally, these non-gaap financial measures, when used in conjunction with related GAAP financial measures, provide investors with additional financial analytical framework which management uses, in addition to historical operating results, as the basis for financial, operational and planning decisions and present measurements that third parties have indicated are useful in assessing the Company and its results of operations. However, these non-gaap financial measures have certain limitations. Consolidated EBITDA and adjusted EBITDA should not be considered as alternatives to net income and consolidated EBITDA margin and adjusted EBITDA margin should not be considered as an alternative to gross margin, or in the case of any of the non-gaap measures, as measures of financial performance or any other performance measure derived in accordance with GAAP. Additionally, these non-gaap financial measures are not intended to be liquidity measures because of certain limitations such as: (i) they do not reflect our cash outlays for capital expenditures or future contractual commitments; (ii) they do not reflect changes in, or cash requirements for, working capital; (iii) they do not reflect interest expense, or the cash requirements necessary to service interest, or principal payments, on indebtedness; (iv) they do not reflect income tax expense or the tax necessary to pay income taxes; and (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these non-gaap measures do not reflect cash requirements for such replacements. Other companies, including other companies in the Company s industry, may not use these non-gaap financial measures, or may calculate one or more of the measures differently than as presented in this presentation, limiting their usefulness as a comparative measure. In evaluating any non-gaap financial measure, you should be aware that in the future the Company will incur expenses that are the same as or similar to some of the adjustments made in the calculations below and the presentation of these non-gaap financial measures should not be construed to mean that the Company s future results will be unaffected by such adjustments. Management compensates for these limitations by using these non-gaap measures as supplemental financial metrics and in conjunction with results prepared in accordance with GAAP.

17 Adjusted EBITDA Reconciliation Three Months and Nine Months Ended September 30, 2018 and September 30, ($ in thousands) Q Q YTD 2018 YTD 2017 Net income / (loss) $5,503 ($11,502) ($7,413) ($45,218) Interest expense 21,940 15,582 52,993 46,202 Depreciation & amortization 25,922 29,158 79,370 87,463 Income tax benefit 2,793 (8,454) 6,351 (25,448) EBITDA 1 56,158 24, ,301 62,999 (Gain) loss on sale of property, plant & equipment, net (2,447) 1,749 Impairment & exit charges 3 2,170 1,193 3,891 13,004 Transaction costs ,553 2,243 6,291 Inventory step-up impacting margin ,151 Loss on divestitures 6 31,606 31,606 Non-cash compensation 7 1,450 1,444 4,588 2,688 Other (gains) expenses 8 (679) (6,688) (1,217) Earnings from equity method investee 9 (2,224) (2,936) (7,745) (9,449) Pro-rata share of Adjusted EBITDA from equity method investee 10 3,221 4,026 10,198 12,671 Adjusted EBITDA $61,574 $61,940 $135,805 $122,493 % margin 14.2% 13.9% 11.9% 10.0% Gross Profit $77,136 $82,107 $186,814 $196,670 % margin 17.8% 18.5% 16.4% 16.1% Note Description (1) For purposes of evaluating segment profit, the Company s chief operating decision maker reviews EBITDA as a basis for making the decisions to allocate resources and assess performance (2) (Gain) loss on sale of property, plant and equipment, primarily related to the disposition of manufacturing equipment (3) Impairment or abandonment of long-lived assets and other exit charges (4) Legal, valuation, accounting, advisory and other costs related to business combinations and other transactions (5) Effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of business combinations and other transactions (6) Loss on divestiture of U.S. concrete and steel pressure pipe business and other disposed sites for the periods presented, net of specific items for which adjustments are separately made elsewhere in the calculation of adjusted EBITDA presented herein (7) Non-cash equity based compensation expense (8) Other (gains) losses, including the non-cash again on a divestiture completed in January 2018 and gains on insurance proceeds related to the destruction of property (9) Net income from Forterra s 50% ownership in the Concrete Pipe & Precast LLC ( CP&P ) joint venture accounted for under the equity method of accounting (10) Adjusted EBITDA from Forterra s 50% ownership in the CP&P joint venture. Calculated as CP&P net income adjusted primarily to add back Forterra s pro-rata portion of CP&P s depreciation and amortization and interest expense.

18 Segment Adjusted EBITDA Reconciliation Three and Nine Months Ended September 30, 2018 and September 30, (Dollars in thousands) Drainage Pipe & Products Water Pipe & Products Q Q Corporate and Other Total Drainage Pipe & Products Water Pipe & Products Corporate and Other EBITDA 1 $53,271 $17,818 ($14,931) $56,158 $47,342 ($4,144) ($18,414) $24,784 (Gain) loss on sale of property, plant & equipment, net 2 (14) (75) 680 (50) 555 Impairment & exit charges ,599 2, ,193 Transaction costs ,553 1,553 Inventory step-up impacting margin Loss on divestitures 6 31,606 31,606 Non-cash compensation (157) 1,197 1, ,444 Other (gains) expenses (401) - (404) (275) (679) Earnings from equity method investee 9 (2,224) (2,224) (2,936) (2,936) Pro-rata share of Adjusted EBITDA from equity method investee 10 3,221 3,221 4,026 4,026 Adjusted EBITDA $55,636 $18,997 ($13,059) $61,574 $49,156 $28,400 ($15,616) $61,940 YTD 2018 YTD 2017 (Dollars in thousands) Drainage Pipe & Products Water Pipe & Products Corporate and Other Total Drainage Pipe & Products Water Pipe & Products Corporate and Other EBITDA 1 $122,841 $48,923 ($40,463) $131,301 $98,832 $30,881 ($66,714) $62,999 (Gain) loss on sale of property, plant & equipment, net 2 (3,419) 972 (2,447) (4) 1,753 1,749 Impairment & exit charges 3 1,733 2,166 (8) 3,891 (14) 12, ,004 Transaction costs 4 2,243 2,243 6,291 6,291 Inventory step-up impacting margin ,151 2,151 Loss on divestitures 6 31,606 31,606 Non-cash compensation 7 1, ,097 4, ,889 2,688 Other (gains) expenses (1,270) (5,937) (6,688) (942) (275) (1,217) Earnings from equity method investee 9 (7,745) (7,745) (9,449) (9,449) Pro-rata share of Adjusted EBITDA from equity method investee 10 10,198 10,198 12,671 12,671 Adjusted EBITDA $125,876 $50,997 ($41,068) $135,805 $104,641 $75,822 ($57,970) $122,493 Total Total Note Description (1) For purposes of evaluating segment profit, the Company s chief operating decision maker reviews EBITDA as a basis for making the decisions to allocate resources and assess performance (2) (Gain) loss on sale of property, plant and equipment, primarily related to the disposition of manufacturing equipment (3) Impairment or abandonment of long-lived assets and other exit charges (4) Legal, valuation, accounting, advisory and other costs related to business combinations and other transactions (5) Effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of business combinations and other transactions (6) Loss on divestiture of U.S. concrete and steel pressure pipe business and other disposed sites for the periods presented, net of specific items for which adjustments are separately made elsewhere in the calculation of adjusted EBITDA presented herein (7) Non-cash equity based compensation expense (8) Other (gains) losses, including the non-cash again on a divestiture completed in January 2018 and gains on insurance proceeds related to the destruction of property (9) Net income from Forterra s 50% ownership in the Concrete Pipe & Precast LLC ( CP&P ) joint venture accounted for under the equity method of accounting (10) Adjusted EBITDA from Forterra s 50% ownership in the CP&P joint venture. Calculated as CP&P net income adjusted primarily to add back Forterra s pro-rata portion of CP&P s depreciation and amortization and interest expense.

19 Reconciliation of Net Income to Adjusted EBITDA Guidance for Q and Full Year ($ in millions) Q Guidance Full Year 2018 Guidance Low High Low High Net Income ($18.0) ($15.0) ($25.4) ($22.4) Interest expense Income tax expense (3.0) (1.0) Depreciation and amortization Other EBITDA adjustments Adjusted EBITDA $30.0 $35.0 $165.8 $170.8

20 Reconciliation of Net Income to Adjusted EBITDA Guidance for Q and Full Year ($ in millions) Q Full Year 2017 Net income / (loss) $43.2 ($2.1) Interest expense Depreciation & amortization Income tax benefit (15.2) (40.7) EBITDA Loss on sale of property, plant & equipment, net Impairment & exit charges Transaction costs Inventory step-up impacting margin Loss on divestitures Non-cash compensation Change in tax receivable agreement liability 8 (45.4) (46.2) Other (gains) expenses (0.1) Earnings from equity method investee 10 (2.9) (12.4) Pro-rata share of Adjusted EBITDA from equity method investee Adjusted EBITDA $29.3 $151.8 Note Description (1) For purposes of evaluating segment profit, the Company s chief operating decision maker reviews EBITDA as a basis for making the decisions to allocate resources and assess performance (2) (Gain) loss on sale of property, plant and equipment, primarily related to the disposition of manufacturing equipment (3) Impairment or abandonment of long-lived assets and other exit charges (4) Legal, valuation, accounting, advisory and other costs related to business combinations and other transactions (5) Effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of business combinations and other transactions (6) Loss on divestiture of U.S. concrete and steel pressure pipe business and other disposed sites for the periods presented, net of specific items for which adjustments are separately made elsewhere in the calculation of adjusted EBITDA presented herein (7) Non-cash equity based compensation expense (8) Adjustments to the estimated value of the tax receivable agreement due primarily to the December 2017 Tax Cuts and Jobs Act (9) Other (gains) losses, including the non-cash again on a divestiture completed in January 2018 and gains on insurance proceeds related to the destruction of property (10) Net income from Forterra s 50% ownership in the Concrete Pipe & Precast LLC ( CP&P ) joint venture accounted for under the equity method of accounting (11) Adjusted EBITDA from Forterra s 50% ownership in the CP&P joint venture. Calculated as CP&P net income adjusted primarily to add back Forterra s pro-rata portion of CP&P s depreciation and amortization and interest expense.