Continental Building Products Reports Fourth Quarter and Full Year 2016 Results

HERNDON, Va.--()--Continental Building Products, Inc. (NYSE:CBPX) (the Company), a leading manufacturer of gypsum wallboard and complementary finishing products, announced today results for the fourth quarter and year ended December 31, 2016.

“We are pleased to wrap up 2016 with another strong quarter of financial performance and significant cash flow generation reflecting the strength of our highly efficient, low cost operations”

Highlights of Fourth Quarter 2016 as Compared to Fourth Quarter 2015

  • Net sales increased 7.1% to $118.2 million
  • Net income improved to $12.6 million compared to $10.6 million
  • Earnings per share increased 28.0% to $0.32
  • Adjusted EBITDA1 increased 1.9% to $33.8 million

Highlights of Full Year 2016 as Compared to Full Year 2015

  • Net sales increased 9.4% to $461.4 million
  • Net income improved to $44.0 million compared to $16.7 million
  • Earnings per share increased 176.9% to $1.08; Adjusted earnings per share1 increased 40.5% to $1.18
  • Adjusted EBITDA1 increased 6.8% to $133.8 million
  • Deployed $40.3 million to repurchase approximately 2.1 million shares of common stock
  • Extended debt maturity and reduced interest rate through successful refinancing
  • Cash flow from operations increased to $116.3 million, up 40.8%

“We are pleased to wrap up 2016 with another strong quarter of financial performance and significant cash flow generation reflecting the strength of our highly efficient, low cost operations,” stated Jay Bachmann, Continental’s President and Chief Executive Officer. “We delivered a 19% increase in net income and a 28% improvement in earnings per share in the fourth quarter 2016 compared to prior year."

Mr. Bachmann continued, “For the full year, as a result of our disciplined operations and efficient cost structure, we substantially increased net income and Adjusted EBITDA1 and improved cash flow from operations by 41% to $116.3 million. As we look forward to 2017, our strong balance sheet and cash flows provide us the opportunity to execute additional value-enhancing opportunities. This includes our expansion of the share repurchase authorization from $100 million to $200 million through 2018 and our plan to bolster our low cost operations by making high-return capital investments across our plant network in the range of $25 - $30 million over the next two years.”

The Company announced today that its Board of Directors has authorized an expansion of its stock repurchase program from up to $100 million to up to $200 million. The program has also been extended from the end of 2017 to the end of 2018. To date against the new program, the Company has repurchased $51.9 million of our common stock at an average price of $19.13 per share.

Subsequent to year-end, the Company successfully repriced its term loan which lowered its interest rate by 25 basis points to LIBOR plus 2.50%, reducing its estimated interest expense by approximately $0.8 million per annum. All other terms and conditions under the term loan remain the same.

Fourth Quarter 2016 Results vs. Fourth Quarter 2015

Wallboard volumes increased to 666 million square feet (MMSF) for the fourth quarter 2016, compared to 596 MMSF in the prior year quarter. Net sales were up 7.1% to $118.2 million on higher volumes, compared to $110.4 million in the prior year quarter, partially offset by lower average mill net price2 of $141.61, compared to $148.37 in the prior year quarter.

SG&A expense was $9.6 million compared to $8.1 million in the prior year quarter, or 8.1% as a percentage of net sales compared to 7.3% in the prior year quarter.

Operating income was $22.8 million, compared to $20.8 million in the prior year quarter.

Other expenses, net was $0.2 million compared to $0.1 million in the prior year quarter.

Interest expense decreased 20.0% to $3.1 million, compared to $3.9 million in the prior year quarter, reflecting our continued reduction of long-term debt throughout the past twelve months and our debt refinancing in August 2016.

Net income for the fourth quarter 2016 grew to $12.6 million, or $0.32 per share, compared to $10.6 million, or $0.25 per share, in the fourth quarter 2015. Adjusted EBITDA1 was $33.8 million for the fourth quarter 2016, compared to $33.1 million in the prior year quarter.

Full Year 2016 Results vs. Full Year 2015

Wallboard volumes increased to 2,560 MMSF for the year ended December 31, 2016, compared to 2,199 MMSF in the prior year. Net sales were up 9.4% to $461.4 million on higher volumes, compared to $421.7 million in the prior year, partially offset by lower average mill net price2 of $143.83, compared to $153.70 in the prior year.

SG&A expense was $37.9 million compared to $34.9 million in the prior year, or 8.2% as a percentage of net sales compared to 8.3% in the prior year.

Operating income was $87.1 million, compared to $44.0 million in the prior year, largely due to prior year including a long term incentive plan payout that was funded by our former private equity sponsor of $29.9 million.

Other expenses, net was $6.0 million for the full year 2016 compared to $0.8 million for the full year 2015. The $5.2 million increase was primarily the result of a $5.8 million expense incurred in the third quarter of 2016 related to refinancing of the long term debt.

Interest expense decreased 17.3% to $13.6 million, compared to $16.4 million in the prior year, reflecting our continued reduction of long-term debt throughout the year and lower interest costs from our debt refinancing in August 2016.

Net income for the full year 2016 grew to $44.0 million, or $1.08 per share, compared to $16.7 million, or $0.39 per share, for the full year 2015. Adjusted EBITDA1 was $133.8 million for the full year 2016, compared to $125.3 million in the prior year.

Balance Sheet and Cash Flow

In August, 2016, the Company refinanced its entire outstanding long term debt. The new borrowings consist of a $275.0 million senior secured term loan facility and a $75.0 million senior secured revolving credit facility. Borrowing under the new term loan bear interest at a floating rate based on LIBOR, with a 0.75% floor, plus 2.75% compared to the previous term loan which had a floating rate based on LIBOR, with a 1.00% floor, plus 3.00%. Additionally, the new term loan has a final maturity in 2023, compared to the prior term loan which was due in 2020. On February 21, 2017 the term loan was successfully repriced lowering the spread over LIBOR from 2.75% to 2.5%.

As of December 31, 2016, the Company had cash of $51.5 million and total outstanding borrowing under the credit agreement of $273.6 million. During the year ended December 31, 2016, the Company generated cash flows from operations of $116.3 million and incurred $12.1 million of capital expenditures and software development costs.

During the full year of 2016, the Company repurchased approximately 2.1 million shares of its common stock at an aggregate purchase price of $40.3 million as part of its share repurchase program, representing 5.0% of its outstanding shares as of December 31, 2015.

Forward Looking Guidance

For the full year 2017, guidance on certain expectations is as follows:

  • SG&A is expected to be in the range of $38 - $40 million.
  • We expect inflation on our cost of goods sold to be in the range of 5% - 7% and, excluding depreciation and amortization, to be roughly in the 6% - 8% range.
  • Total capital spending is expected to be in the range of $24 - $31 million.
    • Maintenance capital is expected to be in the range of $12 - $14 million.
    • High-return plant network capital is expected to be in the range of $12 - $17 million.
  • Depreciation and Amortization is expected to be in the range of $43 - $45 million.
  • Effective interest rate on our term loan is expected to be 4.05% while the cash interest rate is expected to be 3.6%
  • Effective tax rate is expected to be in the range of 33% - 35%

Investor Conference Webcast and Conference Call:

The Company will host a webcast and conference call on Thursday, February 23, 2017 at 5:00 p.m. Eastern time to review fourth quarter and full year 2016 financial results and discuss recent events and conduct a question-and-answer period. The live webcast will be available on the Investor Relations section of the Company’s website at www.continental-bp.com. To participate in the call, please dial 877-407-3982 (domestic) or 201-493-6780 (international). A replay of the conference call will be available through March 23, 2017, by dialing 877-870-5176 (domestic) or 858-384-5517 (international) and entering the passcode 13653248.

About Continental Building Products

Continental Building Products is a leading North American manufacturer of gypsum wallboard and complementary finishing products. The Company is headquartered in Herndon, Virginia with operations serving the residential, commercial and repair and remodel construction markets primarily in the eastern United States and eastern Canada. For additional information, visit www.continental-bp.com.

Forward-Looking Statements

This press release contains forward-looking statements. 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. Forward-looking 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 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   See the financial schedules at the end of this press release for a reconciliation of adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted earnings per share, which are non-GAAP financial measures, to relevant GAAP financial measures.
2 Mill net price represents average selling price per thousand square feet (MSF), net of freight and delivery costs.
 

Continental Building Products, Inc.

Consolidated Statements of Operations

 
  For the Three Months Ended   For the Twelve Months Ended

December 31,

 

December 31,

December 31,

 

December 31,

2016

2015

2016

2015

(in thousands, except share data and per share amounts)
(Unaudited) (Unaudited)
Net sales $ 118,217 $ 110,360 $ 461,375 $ 421,682
Costs, expenses and other income:
Cost of goods sold 85,862 81,498 336,317 312,840
Selling and administrative 9,554 8,092 37,918 34,891
Long Term Incentive Plan Funded by Lone Star       29,946  
Total costs and operating expenses 95,416   89,590   374,235   377,677  
Operating income 22,801 20,770 87,140 44,005
Other expense, net (223 ) (51 ) (5,963 ) (751 )
Interest expense, net (3,098 ) (3,873 ) (13,590 ) (16,432 )
Income before losses from equity method investment and provision for income tax 19,480 16,846 67,587 26,822
Losses from equity method investment (10 ) (220 ) (736 ) (750 )
Income before provision for income taxes 19,470 16,626 66,851 26,072
Provision for income taxes (6,879 ) (6,023 ) (22,827 ) (9,336 )
Net income $ 12,591   $ 10,603   $ 44,024   $ 16,736  
 
Net income per share:
Basic $ 0.32 $ 0.25 $ 1.08 $ 0.39
Diluted $ 0.31 $ 0.25 $ 1.08 $ 0.39
Weighted average shares outstanding:
Basic 39,918,867 42,025,549 40,605,464 43,172,528
Diluted 40,014,797 42,065,067 40,662,304 43,218,324
 

Continental Building Products, Inc.

Consolidated Balance Sheets

 
  As of December 31,
2016   2015
(in thousands)
Assets:
Cash and cash equivalents $ 51,536 $ 14,729
Receivables, net 32,473 35,812
Inventories, net 25,239 27,080
Prepaid and other current assets 7,485   6,448  
Total current assets 116,733 84,069
Property, plant and equipment, net 307,838 326,407
Customer relationships and other intangibles, net 81,555 94,835
Goodwill 119,945 119,945
Equity method investment 8,020 9,262
Debt issuance costs 658   450  
Total Assets $ 634,749   $ 634,968  
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable $ 27,411 $ 22,788
Accrued and other liabilities 12,321 12,334
Notes payable, current portion 1,742    
Total current liabilities 41,474 35,122
Deferred taxes and other long-term liabilities 19,643 12,537
Notes payable, non-current portion 264,620   286,543  
Total Liabilities 325,737   334,202  
Equity:
Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,191,370 and 44,145,080 shares issued, respectively; 39,691,715 and 41,750,031 shares outstanding, respectively 44 44
Additional paid-in capital 322,384 319,817
Less: Treasury stock (88,756 ) (48,479 )
Accumulated other comprehensive loss (3,409 ) (5,341 )
Accumulated earnings 78,749   34,725  
Total Equity 309,012   300,766  
Total Liabilities and Equity $ 634,749   $ 634,968  
 

Continental Building Products, Inc.

Consolidated Statements of Cash Flows

 
  For the Year Ended December 31,
2016   2015
(in thousands)
Cash flows from operating activities:
Net income $ 44,024 $ 16,736
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 46,646 51,308
Bad debt recovery (104 ) (166 )
Amortization of debt issuance costs and debt discount 1,947 2,315
Loss on disposal of property, plant and equipment 128 95
Losses from equity method investment 736 750
Loss on debt extinguishment 5,802
Stock-based compensation 2,288 801
Deferred taxes 6,504 3,407
Change in assets and liabilities:
Receivables 3,446 4,299
Inventories 1,921 2,116
Prepaid expenses and other current assets 767 749
Accounts payable 2,058 (1,323 )
Accrued and other current liabilities 360 1,682
Other long term liabilities (256 ) (191 )
Net cash provided by operating activities 116,267 82,578
Cash flows from investing activities:
Capital expenditures (11,733 ) (8,812 )
Software purchased or developed (414 ) (1,217 )
Capital contributions to equity method investment (349 ) (103 )
Distributions from equity method investment 855   1,010  
Net cash used in investing activities (11,641 ) (9,122 )
Cash flows from financing activities:
Capital contribution from Lone Star Funds 29,750
Proceeds from exercise of stock options 20 873
Proceeds from debt refinancing 275,000
Disbursements for debt refinancing (271,988 )
Payments of financing costs (4,424 )
Principal payments for First Lien Credit Agreement (26,375 ) (55,000 )
Payments to repurchase common stock (40,277 ) (48,479 )
Net cash used in financing activities (68,044 ) (72,856 )
Effect of foreign exchange rates on cash and cash equivalents 225   (1,498 )
Net change in cash and cash equivalents 36,807   (898 )
Cash, beginning of period 14,729   15,627  
Cash, end of period $ 51,536   $ 14,729  
 

Reconciliation of Non-GAAP Measures

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share have been presented in this press release as supplemental measures of financial performance that are not required by, or presented in accordance with, Generally Accepted Accounting Principles (GAAP). This release presents EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share, as supplemental performance measures because management believes that they facilitate a comparative assessment of the Company’s operating performance relative to its performance based on results under GAAP while isolating the effects of some items that vary from period to period without any correlation to core operating performance and eliminate certain charges that management believes do not reflect the Company’s operations and underlying operational performance. Furthermore, the Company's Board of Director compensation committee uses non-GAAP EBITDA to evaluate management's compensation. Management also believes that EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share are useful to investors because they allow investors to view the business through the eyes of management and the Board of Directors, facilitating comparison of results across historical periods.

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share may not be comparable to similarly titled measures of other companies because other companies may not calculate EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share in the same manner. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Earnings Per Share are not measurements of the Company’s financial performance under GAAP and should not be considered in isolation or as alternatives to net income or earnings per share determined in accordance with GAAP or any other financial statement data presented as indicators of financial performance or liquidity, each as calculated and presented in accordance with GAAP.

Reconciliation of GAAP Net Income to Non-GAAP EBITDA and Adjusted EBITDA
  For the Three Months Ended   For the Twelve Months Ended

December 31,

 

December 31,

December 31,

 

December 31,

2016

2015

2016

2015

(in thousands)
Net income $ 12,591 $ 10,603 $ 44,024 16,736

Adjustments:

Other expense, net 223 51 5,963 751
Interest expense, net 3,098 3,873 13,590 16,432
Losses from equity method investment 10 220 736 750
Provision for income taxes 6,879 6,023 22,827 9,336
Depreciation and amortization 10,990   12,377   46,646   51,308  
EBITDA—Non-GAAP Measure 33,791 33,147 133,786 95,313
Long Term Incentive Plan Funded by Lone Star (a)       29,946  
Adjusted EBITDA—Non-GAAP Measure $ 33,791   $ 33,147   $ 133,786   $ 125,259  
Adjusted EBITDA Margin - Adjusted EBITDA as a percentage of net sales - Non-GAAP Measure 28.6 % 30.0 % 29.0 % 29.7 %
(a)   Represents expense recognized pursuant to the Long Term Incentive Plan sponsored by an affiliate of Lone Star Funds. The amounts were funded by the affiliate of Lone Star Funds.
 
Reconciliation of GAAP Net Income and Earnings Per Share (EPS) to Non-GAAP Adjusted Net Income and Adjusted EPS
  For the Three Months Ended   For the Twelve Months Ended

December 31,

 

December 31,

December 31,

 

December 31,

2016

2015

2016

2015

(dollars in thousands, except per share amounts)
Net income - GAAP Measure $ 12,591 $ 10,603 $ 44,024 $

16,736

 

Expense of original issue discount and deferred financing fees for debt refinancing, after tax 3,821
Long Term Incentive Plan funded by Lone Star, after tax (a)       19,465  
Adjusted net income - non-GAAP measure $ 12,591   $ 10,603   $ 47,845   $ 36,201  
 
Earnings per share - GAAP measure $ 0.32 $ 0.25 $ 1.08 $ 0.39
Expense of original issue discount and deferred financing fees for debt refinancing, after tax 0.10
Long Term Incentive Plan funded by Lone Star, after tax       0.45  
Adjusted earnings per share - non-GAAP measure $ 0.32   $ 0.25   $ 1.18   $ 0.84  
(a)   Represents expense recognized pursuant to the LTIP. All amounts were funded by an affiliate of Lone Star Funds.
 
Other Financial and Operating Data:
  For the Three Months Ended   For the Twelve Months Ended

December 31,

 

December 31,

December 31,

 

December 31,

2016

2015

2016

2015

(dollars in thousands, except mill net)
Capital expenditures and software purchased or developed $ 6,964 $ 6,298 $ 12,147 $

10,029

 

Wallboard sales volume (million square feet) 666 596 2,560 2,199
Mill net sales price (a) $ 141.61 $ 148.37 $ 143.83 $ 153.70
(a)   Mill net sales price represents average selling price per thousand square feet net of freight and delivery costs.
 
Interim Volumes and Mill Net Prices (Unaudited)
  For the Three Months Ended

December 31,

 

March 31,

 

June 30,

 

September 30,

 

December 31,

2015

2016

2016

2016

2016

Volumes (million square feet) 596 617 643 634

666

 

Mill net Price per MSF - Total $ 148.37 $ 144.62 $ 144.86 $ 144.34 $ 141.61
Mill net Price per MSF - U.S. only $ 151.74 $ 147.54 $ 148.15 $ 147.96 $ 143.79

Contacts

Continental Building Products
Investor Relations:
703-480-3980
Investorrelations@continental-bp.com

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