UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): April 29, 2020
 
FORTERRA, INC.
(Exact Name of Registrant as Specified in Charter)
 

Delaware
 
 001-37921
 
37-1830464  
(State or Other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)

511 East John Carpenter Freeway, 6th Floor
Irving, TX 75062
(Address of principal executive offices, including ZIP code)
 
(469) 458-7973
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.001 par value per share
 
FRTA
 
Nasdaq Global Select Market





Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

Item 2.02. Results of Operations and Financial Condition.
On April 29, 2020, Forterra, Inc. (the "Company") issued a press release announcing its financial results for its fiscal quarter ended March 31, 2020. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
The information included or incorporated by reference in this Item 2.02, including Exhibit 99.1, is being furnished to the Securities and Exchange Commission (the “SEC”) and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01. Regulation FD.
The Company intends to reference a slide deck (the “Presentation”) during the Company’s conference call to discuss its financial results for its fiscal quarter ended March 31, 2020. A copy of the Presentation can be accessed on the Company’s website – forterrabp.com – by following the links to “Investors”, “News and Events” and “Events and Presentations”.

The information included in this Item 7.01 is being furnished to the SEC and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.
(d)
Exhibits
 
 
Press Release issued by Forterra, Inc. on April 29, 2020.



    
    







SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
Forterra, Inc.
 
 
 
/s/ Lori M. Browne
 
Lori M. Browne
 
Executive Vice President, General Counsel and Secretary
Date: April 30, 2020



Exhibit
EXHIBIT 99.1

Forterra Announces First Quarter 2020 Results

Irving, TX - GLOBE NEWSWIRE - April 29, 2020 - Forterra, Inc. (“Forterra” or “the Company”) (NASDAQ: FRTA), a leading manufacturer of water and drainage infrastructure pipe and products in the United States and Eastern Canada, today announced results for the quarter ended March 31, 2020.

First Quarter 2020 Highlights
Increased net sales by 13.4% to $330.9 million as compared to $291.9 million in the prior year quarter
Increased gross profit by 40.5% to $58.7 million as compared to $41.8 million in the prior year quarter
Gross profit margin improved by 340 basis points year-over-year
Net loss decreased to $14.1 million compared to $25.0 million in the prior year quarter
Adjusted EBITDA1 increased to $35.5 million as compared to $19.9 million in the prior year quarter
Adjusted EBITDA margin1 improved by 390 basis points year-over-year
Improved operating cash flow by $24.8 million and free cash flow1 by $43.2 million year-over-year

Business Update related to COVID-19
Our businesses are essential under government “shelter in place” type orders, so all facilities are capable of operating
Management has implemented enhanced health and safety protocols to safeguard our employees and our operations
Management has proactively taken prudent and precautionary actions to enhance our financial flexibility, liquidity and cash flow, including, but not limited to:
Limiting capital spending to essential maintenance and short payback projects
Reducing cash compensation for executive management team and independent members of our board of directors
Freezing hiring, deferring annual employee compensation increases and minimizing overtime

1 A reconciliation of non-GAAP financial measures, including EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow, to comparable GAAP financial measures is provided in the reconciliation of Non-GAAP measures section of this press release.

 
1

EXHIBIT 99.1

Drawing down $180 million of cash under our revolving credit facility. As of March 31, 2020, we had total liquidity of $254.5 million, comprised of $182.4 million cash and $72.1 million of availability under our revolving credit facility

Forterra CEO Karl Watson, Jr. commented, “First quarter revenues, gross profit margins, and operating cash flow all improved versus the prior year period despite challenges associated with the COVID-19 pandemic and adverse weather conditions impacting our Texas operations. These results reflect our continued progress in our journey to earning a full and fair return on the products we produce and the capital we have deployed. Growth in topline revenue, driven by a combination of volumes and price increases, contributed to the significant earnings improvement year-over-year. We entered 2020 with clear plans for extending recent improvements in production efficiencies, commercial strategies, unit margin expansion, and returns on capital. This momentum will serve us well as we manage through this period of extreme uncertainty.”

"For the twelve months ended March 31, 2020, the business generated net earnings of $3.6 million and Adjusted EBITDA of $219.5 million. However, due to the COVID-19 pandemic and the resulting macroeconomic uncertainty, we are withdrawing our previously provided 2020 annual guidance of net income in the range of $2 million to $22 million and Adjusted EBITDA in the range of $210 million to $240 million."

Mr. Watson continued, “Looking ahead, we believe we are well prepared to navigate through this rapidly evolving pandemic. As an essential business, we are proud to continue supporting our customers with a paramount focus on health and safety. We will continue to take prudent and proactive actions to safely operate our business and maintain a strong liquidity position during this uncertain period with the goal of positioning our company to succeed when macroeconomic conditions improve. I want to thank all our employees, especially the wonderful people at our manufacturing facilities who come to work every day faithfully, for their resilience and determination to serve our customers. We could not continue to persevere without them.”

“We have extensive contingency plans in place if our product volumes begin to decline in the coming months. In preparation, as part of this contingency planning, we have taken steps to preserve cash such as deferring non-essential capital expenditures, instituting a hiring freeze, eliminating expenses that do not contribute to the short-term operation of our business, renegotiating contracts wherever possible, and voluntarily reducing the salaries of our executive team and compensation of our board members. We will continue to monitor the situation closely and adjust our plans as necessary. We believe that we are well-


2

EXHIBIT 99.1

positioned to manage expenses in the face of potential demand impacts from COVID-19 given that a majority of our cost of goods sold is variable in nature.”

Segment Results
Drainage Pipe & Products (“Drainage”) - Key Financial and Operational Statistics:

($ in millions)
 
Q1 2020
 
Q1 2019
 
 
 
 
 
 
 
 
 
Net Sales
 
$
170.2

 
$
163.7

 
Gross Profit
 
32.5

 
31.4

 
EBITDA
 
26.1

 
25.1

 
Adjusted EBITDA
 
28.1

 
26.5

 
Gross Profit Margin
19.1
%
 
19.2
%
 
Adjusted EBITDA Margin
16.5
%
 
16.2
%
 
Drainage net sales increased by 4% to $170.2 million, compared to $163.7 million in the prior year quarter. The increase in net sales was driven by higher average selling prices, partially offset by lower shipment volumes primarily due to less favorable weather conditions in Texas as compared to prior year. Drainage backlogs at the end of the quarter remained relatively stable compared to the same quarter last year.

Drainage gross profit and gross profit margin were $32.5 million and 19.1%, compared to $31.4 million and 19.2%, respectively, in the prior year quarter. Higher average selling prices and manufacturing efficiencies offset increased input costs, resulting in gross profit margin that was relatively flat year-over-year. As a result, Drainage EBITDA, Adjusted EBITDA and Adjusted EBITDA margin were $26.1 million, $28.1 million and 16.5%, respectively, each a slight improvement as compared to the prior year quarter of $25.1 million, $26.5 million and 16.2%, respectively.

Water Pipe & Products (“Water”) - Key Financial and Operational Statistics:
($ in millions)
 
Q1 2020
 
Q1 2019
 
 
 
 
 
 
 
 
 
Net Sales
 
$
160.6

 
$
128.1

 
Gross Profit
 
26.2

 
10.7

 
EBITDA
 
22.9

 
8.7

 
Adjusted EBITDA
 
23.6

 
8.7

 
Gross Profit Margin
16.3
%
 
8.4
%
 
Adjusted EBITDA Margin
14.7
%
 
6.8
%
 
Water net sales increased by 25.4% to $160.6 million, compared to $128.1 million in the prior year quarter. The increase in net sales was driven by both higher shipment volumes and higher average selling price.


3

EXHIBIT 99.1

Our customers returned to normal buying patterns as compared to their destocking in the first half of 2019. Water backlogs at the end of the quarter increased both in volume and pricing compared to the prior year quarter.

Water gross profit and gross profit margin increased to $26.2 million and 16.3%, respectively, compared to $10.7 million and 8.4%, respectively, in the prior year quarter. Water EBITDA, Adjusted EBITDA and Adjusted EBITDA margin increased to $22.9 million, $23.6 million and 14.7%, respectively, compared to $8.7 million, $8.7 million and 6.8%, respectively, in the prior year quarter. The improvements in gross profit, gross profit margin, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin were primarily driven by higher shipment volumes and average selling prices, as well as lower raw material costs.

Corporate and Other (“Corporate”) - First Quarter 2020 Results
Corporate EBITDA and Adjusted EBITDA loss were $19.7 million and $16.2 million, respectively, in the first quarter of 2020 compared to $17.1 million and $15.3 million, respectively, in the prior year quarter. The year-over-year increase was mainly due to costs associated with investments in our people, systems and processes.  We remain focused on further leveraging our corporate overhead structure.

Balance Sheet and Liquidity
As a precautionary measure, we have drawn down $180 million on our revolving credit facility during the first quarter. As of March 31, 2020, we had cash of $182.4 million with $72.1 million of additional availability under our revolving credit facility. Our $1.1 billion term loan does not mature until October of 2023. Importantly, we are in full compliance with all our debt covenants and do not expect this to change. We remain committed to our communicated plan to reduce our leverage to between 3.0x and 3.5x over the next several years.

Conference Call and Webcast Information
Forterra will host a conference call to review its first quarter 2020 results on April 30 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The dial-in number for the call is 574-990-1396 or toll free 844-498-0572. The participant passcode is 5337557. Please dial in at least five minutes prior to the call to register. The call may also be accessed via a webcast which is available on the Investors section of the Company’s website at http://forterrabp.com. A replay of the conference call and archive of the webcast will be available for 30 days under the Investor section of the Company's website.



4

EXHIBIT 99.1

About Forterra
Forterra is a leading manufacturer of water and drainage pipe and products in the U.S. and Eastern Canada for a variety of water-related infrastructure applications, including water transmission, distribution, drainage and stormwater systems. Based in Irving, Texas, Forterra’s product breadth and scale help make it a preferred supplier for water-related pipe and products, serving a wide variety of customers, including contractors, distributors and municipalities. For more information on Forterra, visit http://forterrabp.com.

Forward-Looking Statements
This press release 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.

Some of the risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements include risks and uncertainties relating to the impacts of the COVID-19 pandemic; the level of construction activity, particularly in the residential construction and non-residential construction markets; government funding of infrastructure and related construction activities; the highly competitive nature of our industry and our ability to effectively compete; the availability and price of the raw materials we use in our business; the ability to implement our growth strategy; our dependence on key customers and the absence of long-term agreements with these customers; the level of construction activity in Texas; energy costs; disruption at one or more of our manufacturing facilities or in our supply chain; construction project delays and our inventory management; our ability to successfully integrate acquisitions; labor disruptions and other union activity; a tightening of mortgage lending or mortgage financing requirements; our current dispute with HeidelbergCement related to the payment of an earnout; compliance with environmental laws and regulations; compliance with health and safety laws and regulations and other laws and regulations to which we and our products are subject to; our dependence


5

EXHIBIT 99.1

on key executives and key management personnel; our ability, or that of the customers with which we work, to retain and attract additional skilled and non-skilled technical or sales personnel; credit and non-payment risks of our customers; warranty and related claims; legal and regulatory claims; the seasonality of our business and its susceptibility to adverse weather; our contract backlog; our ability to maintain sufficient liquidity and ensure adequate financing or guarantees for large projects; delays or outages in our information technology systems and computer networks; security breaches in our information technology systems and other cybersecurity incidents and additional factors discussed in our filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and 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.



6

EXHIBIT 99.1

Condensed Consolidated Statements of Operations
(in thousands, except per share data)


 
 
Three months ended
 
 
March 31,
 
 
2020
2019
 
 
(unaudited)
Net sales
 
$
330,876

$
291,858

Cost of goods sold
 
272,134

250,053

Gross profit
 
58,742

41,805

Selling, general & administrative expenses
 
(54,240
)
(51,391
)
Impairment and exit charges
 
(824
)
(231
)
Other operating income, net
 
330

579

 
 
(54,734
)
(51,043
)
Income (loss) from operations
 
4,008

(9,238
)
 
 
 
 
Other income (expense)
 
 
 
Interest expense
 
(20,745
)
(24,665
)
Loss on extinguishment of debt
 
(50
)

Earnings from equity method investee
 
2,799

1,567

Loss before income taxes
 
(13,988
)
(32,336
)
Income tax (expense) benefit
 
(78
)
7,297

Net loss
 
$
(14,066
)
$
(25,039
)
 
 
 
 
Basic and diluted loss per share:
 
 
 
Net loss
 
$
(0.22
)
$
(0.39
)
 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic and diluted
 
64,804

64,004


7

EXHIBIT 99.1

Condensed Consolidated Balance Sheets
(in thousands)

 
March 31,
2020
 
December 31,
2019
ASSETS
(unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
182,411

 
$
34,800

Receivables, net
228,631

 
205,801

Inventories
259,273

 
238,483

Prepaid expenses
12,041

 
11,021

Other current assets
14,024

 
8,890

Total current assets
696,380

 
498,995

Non-current assets
 
 
 
Property, plant and equipment, net
464,165

 
475,575

Operating lease right-of-use assets
58,763

 
60,253

Goodwill
507,681

 
508,826

Intangible assets, net
132,252

 
142,674

Investment in equity method investee
51,232

 
50,034

Other long-term assets
2,147

 
3,701

Total assets
$
1,912,620

 
$
1,740,058

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Trade payables
$
125,321

 
$
102,426

Accrued liabilities
77,384

 
88,839

Deferred revenue
11,769

 
9,527

Current portion of long-term debt
12,510

 
12,510

Current portion of tax receivable agreement
13,145

 
13,145

Total current liabilities
240,129

 
226,447

Non-current liabilities
 
 
 
Long term debt
1,258,150

 
1,085,793

Long-term finance lease liabilities
137,261

 
137,365

Long-term operating lease liabilities
53,416

 
54,411

Deferred tax liabilities
34,899

 
28,929

Other long-term liabilities
21,334

 
21,906

Long-term tax receivable agreement
64,240

 
64,240

Total liabilities
1,809,429

 
1,619,091

Equity
 
 
 
Common stock, $0.001 par value, 190,000 shares authorized; 65,077 and 64,741 shares issued and outstanding
19

 
19

Additional paid-in-capital
247,042

 
244,372

Accumulated other comprehensive loss
(13,443
)
 
(7,063
)
Retained deficit
(130,427
)
 
(116,361
)
Total shareholders' equity
103,191

 
120,967

Total liabilities and shareholders' equity
$
1,912,620

 
$
1,740,058


8

EXHIBIT 99.1

Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 
Three months ended
 
 
March 31,
 
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES
 
(unaudited)
Net loss
 
$
(14,066
)
 
$
(25,039
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization expense
 
22,501

 
24,392

(Gain) / loss on disposal of property, plant and equipment
 
36

 
(53
)
Loss on extinguishment of debt
 
50

 

Amortization of debt discount and issuance costs
 
1,871

 
1,999

Stock-based compensation expense
 
2,864

 
1,529

Earnings from equity method investee
 
(2,799
)
 
(1,567
)
Distributions from equity method investee
 
1,600

 
1,500

Unrealized loss on derivative instruments, net
 
746

 
2,092

Unrealized foreign currency loss / (gain), net
 
335

 
(260
)
Provision (recoveries) for doubtful accounts
 
(132
)
 
487

Deferred taxes
 
5,970

 
(5,927
)
Other non-cash items
 
1,106

 
387

Change in assets and liabilities:
 
 
 
 
Receivables, net
 
(23,371
)
 
(8,145
)
Inventories
 
(21,842
)
 
(20,100
)
Other current assets
 
(6,572
)
 
(2,860
)
Accounts payable and accrued liabilities
 
11,406

 
(12,447
)
Other assets & liabilities
 
1,072

 
57

NET CASH USED IN OPERATING ACTIVITIES
 
(19,225
)
 
(43,955
)
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Purchase of property, plant and equipment, and intangible assets
 
(4,278
)
 
(22,949
)
Proceeds from sale of fixed assets
 

 
174

NET CASH USED IN INVESTING ACTIVITIES
 
(4,278
)
 
(22,775
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Payments on term loans
 
(8,071
)
 
(3,128
)
Proceeds from revolver
 
180,000

 
42,000

Other financing activities
 
(341
)
 
(183
)
NET CASH PROVIDED BY FINANCING ACTIVITIES
 
171,588

 
38,689

Effect of exchange rate changes on cash
 
(474
)
 
423

Net change in cash and cash equivalents
 
147,611

 
(27,618
)
Cash and cash equivalents, beginning of period
 
34,800

 
35,793

Cash and cash equivalents, end of period
 
$
182,411

 
$
8,175

 
 
 
 
 
SUPPLEMENTAL DISCLOSURES:
Cash interest paid
 
$
17,138

 
$
18,987

Income taxes paid (refunds received), net
 
(99
)
 
1,209


9

EXHIBIT 99.1

Non-GAAP Measures
(unaudited)

Reconciliation of Non-GAAP Measures
In addition to our results calculated under generally accepted accounting principles in the United States ("GAAP"), in this earnings release we also present Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures and have been presented in this earnings release as supplemental measures of financial performance that are not required by, or presented in accordance with GAAP. We calculate Adjusted EBITDA as the sum of net income (loss), before interest expense (including (gains) losses from extinguishment of debt), depreciation and amortization, income tax benefit (expense) and before (gains) losses on the sale of property, plant and equipment, impairment and exit charges and certain other non-recurring income and expenses, such as transaction costs, inventory step-up impacting margin, non-cash compensation expense and pro-rata share of Adjusted EBITDA from equity method investee, minus earnings from equity method investee. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net sales.

Adjusted EBITDA and Adjusted EBITDA margin are presented in this earnings release because they are important metrics used by management as one of the means by which it assesses our financial performance. Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA and Adjusted EBITDA margin as supplements to GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to allocate resources and to compare our performance relative to our peers. Adjusted EBITDA and Adjusted EBITDA margin are also important measures for assessing our 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 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.

Adjusted EBITDA and Adjusted EBITDA margin have certain limitations. Adjusted EBITDA should not be considered as an alternative to consolidated net income (loss), and in the case of our segment results, Adjusted EBITDA should not be considered an alternative to EBITDA, which the chief operating decision maker reviews for purposes of evaluating segment profit, or in the case of any of the non-GAAP measures, as a substitute for any other measure of financial performance calculated in accordance with GAAP. Similarly, Adjusted EBITDA margin should not be considered as an alternative to gross margin or any

10

EXHIBIT 99.1

other margin calculated in accordance with GAAP. These measures also should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items for which these non-GAAP measures make adjustments. Additionally, Adjusted EBITDA and Adjusted EBITDA margin 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 cash 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.

This release also includes free cash flow, a non-GAAP liquidity measure that represents cash flow from operating activities, less capital expenditure, net of proceeds from asset disposals. Management uses free cash flow, and ratios based on it, as one of the means by which it assesses available liquidity for strategic opportunities and other discretionary investment, and it is, therefore, useful to investors in evaluating our business using the same measures as management. Free cash flow is also useful to investors because it is often used by securities analysts and other interested parties in evaluating our operating results [and our ability to generate cash without incurring additional financing]. Free cash flow does, however, have certain limitations due to the fact that it does not represent the total increase or decrease in the cash, cash equivalents and investments balance for the period nor does it represent the residual cash flow available for discretionary expenditures. Therefore, free cash flow should not be considered as an alternative to, or in isolation from, net cash flows from operating activities or any other measure of cash flow calculated in accordance with GAAP.

Other companies, including other companies in our industry, may not use such measures or may calculate one or more of the measures differently than as presented in this earnings release, limiting their usefulness as a comparative measure. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments made in the calculations below and the presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to mean that our future results will be unaffected by such adjustments. Management compensates for these limitations by using Adjusted EBITDA and Adjusted EBITDA margin as supplemental financial metrics and in conjunction with results prepared in accordance with GAAP.





11

EXHIBIT 99.1


Reconciliation of net income (loss) to Adjusted EBITDA
(in thousands)


 
 
Three months ended March 31,
 
 
2020
 
2019
 
 
(unaudited)
Net loss
 
$
(14,066
)
 
$
(25,039
)
Interest expense
 
20,745

 
24,665

Depreciation and amortization
 
22,501

 
24,392

Income tax (benefit) expense
 
78

 
(7,297
)
EBITDA1
 
29,258

 
16,721

(Gain) loss on sale of property, plant & equipment, net
 
36

 
(53
)
Loss on extinguishment of debt
 
50

 

Impairment and exit charges2
 
824

 
231

Transaction costs3
 
1,458

 
420

Inventory step-up impacting margin4
 

 
93

Non-cash compensation5
 
2,864

 
1,529

Earnings from equity method investee6
 
(2,799
)
 
(1,567
)
Pro-rata share of Adjusted EBITDA from equity method investee7
 
3,772

 
2,536

Adjusted EBITDA
 
$
35,463

 
$
19,910

Adjusted EBITDA margin
 
10.7
%
 
6.8
%
Gross profit
 
$
58,742

 
$
41,805

Gross profit margin
 
17.8
%
 
14.3
%


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 
Impairment or abandonment of long-lived assets and other exit charges.
3 
Legal, valuation, accounting, advisory and other costs related to business combinations and other transactions.
4 
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.
5 
Non-cash equity compensation expense.
6 
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.
7 
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.














12

EXHIBIT 99.1


Reconciliation of segment EBITDA to segment Adjusted EBITDA
(in thousands)

Three months ended March 31, 2020
Drainage Pipe & Products
 
Water Pipe & Products
 
Corporate and Other
 
Total
EBITDA1
$
26,052

 
$
22,873

 
$
(19,667
)
 
$
29,258

(Gain) loss on sale of property, plant & equipment, net
(76
)
 
81

 
31

 
36

Loss on extinguishment of debt

 

 
50

 
50

Impairment and exit charges2

 
824

 

 
824

Transaction costs3

 

 
1,458

 
1,458

Inventory step-up impacting margin4

 

 

 

Non-cash compensation5
701

 
185

 
1,978

 
2,864

Other6
401

 
(401
)
 

 

Earnings from equity method investee7
(2,799
)
 

 

 
(2,799
)
Pro-rata share of Adjusted EBITDA from equity method investee 8
3,772

 

 

 
3,772

Adjusted EBITDA
$
28,051

 
$
23,562

 
$
(16,150
)
 
$
35,463

Adjusted EBITDA margin
16.5
%
 
14.7
%
 
NM

 
10.7
%
 
 
 
 
 
 
 
 
Net sales
$
170,234

 
$
160,642

 
$

 
$
330,876

Gross Profit
32,555

 
26,160

 
27

 
58,742


Three months ended March 31, 2019
Drainage Pipe & Products
 
Water Pipe & Products
 
Corporate and Other
 
Total
EBITDA1
$
25,066

 
$
8,741

 
$
(17,086
)
 
$
16,721

(Gain) loss on sale of property, plant & equipment, net
(140
)
 
87

 

 
(53
)
Loss on extinguishment of debt

 

 

 

Impairment and exit charges2
23

 
208

 

 
231

Transaction costs3

 

 
420

 
420

Inventory step-up impacting margin4
93

 

 

 
93

Non-cash compensation5
72

 
49

 
1,408

 
1,529

Other6
401

 
(401
)
 

 

Earnings from equity method investee7
(1,567
)
 

 

 
(1,567
)
Pro-rata share of Adjusted EBITDA from equity method investee 8
2,536

 

 

 
2,536

Adjusted EBITDA
$
26,484

 
$
8,684

 
$
(15,258
)
 
$
19,910

Adjusted EBITDA margin
16.2
%
 
6.8
%
 
NM

 
6.8
%
 
 
 
 
 
 
 
 
Net sales
$
163,734

 
$
128,124

 
$

 
$
291,858

Gross Profit
31,433

 
10,735

 
(363
)
 
41,805



NM
Not meaningful
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 
Impairment or abandonment of long-lived assets and other exit charges.
3 
Legal, valuation, accounting, advisory and other costs related to business combinations and other transactions.
4 
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.
5 
Non-cash equity compensation expense.

13

EXHIBIT 99.1

6 
Inter-segment charges that are eliminated upon consolidation.
7 
Net income from Forterra's 50% ownership in the CP&P joint venture accounted for under the equity method of accounting.
8 
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.


Reconciliation of Adjusted EBITDA for trailing 12 months
(in thousands)

 
Twelve months ended
 
March 31, 2019
 
June 30, 2019
 
September 30, 2019
 
December 31, 2019
 
March 31, 2020
Net (loss) income
$
(29,493
)
 
$
(33,534
)
 
$
(16,607
)
 
$
(7,331
)
 
$
3,642

Interest expense
89,694

 
97,732

 
99,064

 
94,970

 
91,050

Depreciation & amortization
102,404

 
100,757

 
99,007

 
97,258

 
95,367

Income tax (benefit) expense
(527
)
 
(6,889
)
 
(3,786
)
 
(3,279
)
 
4,097

EBITDA1
162,078

 
158,066

 
177,678

 
181,618

 
194,156

(Gain) loss on sale of property, plant & equipment, net
(4,373
)
 
(663
)
 
(268
)
 
2,045

 
2,134

Gain on extinguishment of debt

 

 
(374
)
 
(1,708
)
 
(1,658
)
Impairment & exit charges2
3,122

 
3,428

 
1,767

 
3,520

 
4,113

Transaction costs3
1,801

 
2,248

 
2,306

 
2,963

 
3,999

Inventory step-up impacting margin4
383

 
278

 
278

 
278

 
185

Non-cash compensation5
6,615

 
5,762

 
6,485

 
7,919

 
9,254

Other6
(712
)
 
3,628

 
3,328

 
3,328

 
3,328

Earnings from equity method investee7
(9,881
)
 
(9,611
)
 
(11,376
)
 
(10,466
)
 
(11,697
)
Pro-rate share of Adjusted EBITDA from equity method investee8
13,411

 
13,707

 
15,451

 
14,433

 
15,668

Adjusted EBITDA
$
172,444

 
$
176,843

 
$
195,275

 
$
203,930

 
$
219,482



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 
Impairment or abandonment of long-lived assets and other exit charges.
3 
Legal, valuation, accounting, advisory and other costs related to business combinations and other transactions.
4 
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.
5 
Non-cash equity compensation expense.
6 
Other includes one-time charges such as executive severance costs and gains on insurance proceeds related to the destruction property.
7 
Net income from Forterra's 50% ownership in the CP&P joint venture accounted for under the equity method of accounting.
8 
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.



14

EXHIBIT 99.1


Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flow 1 
(in thousands)

 
Three months ended
 
March 31,

2020
 
2019
Net cash used in operating activities - GAAP
$
(19,225
)
 
$
(43,955
)
Add/(Deduct):
 
 
 
Purchase of property, plant and equipment, and intangible assets
(4,278
)
 
(22,949
)
Proceeds from sale of fixed assets

 
174

Free cash flow (usage) - Non-GAAP
$
(23,503
)
 
$
(66,730
)

1 
The Company defines free cash flow as net cash flow from operations accounted for under GAAP, less capital expenditures and cash paid for intangible assets, plus proceeds from sale of fixed assets. Free cash flow is not a GAAP measurement and may not be comparable to free cash flow reported by other companies.
2 
Net cash used in investing activities were $4,278 and $22,775, respectively, for the three months ended March 31, 2020 and March 31, 2019; net cash provided by financing activities were $171,588 and $38,689, respectively, for the three months ended March 31, 2020 and March 31, 2019.



Source: Forterra, Inc.

Company Contact Information:
Charlie Brown
Executive Vice President and Chief Financial Officer
469-299-9113
IR@forterrabp.com


15