Press Release

Foundation Building Materials, Inc. Announces Fourth Quarter and Full Year 2018 Results

Company Release - 2/25/2019 4:20 PM ET

2018 Fourth Quarter Highlights

  • Net sales of $516.2 million, an increase of 16.3% compared to the prior year period
  • Base business net sales of $439.1 million, an increase of 10.6% compared to the prior year period
  • Reduced net debt leverage ratio from 4.3x at September 30, 2018 to 3.6x at December 31, 2018
  • Net income of $1.9 million and adjusted net income(1) of $7.0 million from continuing operations; earnings per share of $0.04 and adjusted earnings per share(1) of $0.16
  • Adjusted EBITDA(1) of $41.2 million, an increase of 23.9% compared to the prior year period; adjusted EBITDA margin(1) of 8.0% compared to 7.5% in the prior year period
  • Closed the sale of the Mechanical Insulation segment for approximately $122.5 million

2018 Full Year Highlights

  • Record net sales of $2.0 billion, an increase of 14.2% compared to the prior year
  • Base business net sales of $1.8 billion, an increase of 8.4% compared to the prior year
  • Net loss of $36.4 million and adjusted net income(1) of $17.5 million from continuing operations; loss per share of $0.85 and adjusted earnings per share(1) of $0.41
  • Adjusted EBITDA(1) of $155.2 million, an increase of 14.7% compared to the prior year period; adjusted EBITDA margin(1) of 7.6%, the same as the prior year period
  • Completed four acquisitions adding 16 branches across the U.S. and opened five greenfield branches

TUSTIN, Calif.--(BUSINESS WIRE)-- Foundation Building Materials, Inc. (NYSE: FBM), one of the largest specialty building product distributors of wallboard, suspended ceiling systems and metal framing in North America, today reported fourth quarter and full year 2018 financial results.

“We are very pleased with our fourth quarter and full year results. We delivered double-digit net sales and strong base business growth reflecting our balanced product mix and our ongoing strategies to drive organic growth,” said Ruben Mendoza, President and CEO. “For 2019, our strategic priorities are to reduce debt, execute our business model to drive organic growth and expand profit margin to deliver long-term value to our shareholders.”

2018 Fourth Quarter Results

Net sales for the three months ended December 31, 2018 were $516.2 million compared to $443.7 million for the three months ended December 31, 2017, representing an increase of $72.5 million, or 16.3%. Net sales from base business branches contributed $439.1 million of the increase which was driven by strong commercial activity, price increases and product expansion into new geographic markets.

Gross profit for the three months ended December 31, 2018 was $155.6 million compared to $133.2 million for the three months ended December 31, 2017, representing an increase of $22.5 million, or 16.9%. The increase in gross profit was primarily due to the increase in net sales. Gross margin for the three months ended December 31, 2018 was 30.1% compared to 30.0% for the three months ended December 31, 2017.

Selling, general, and administrative ("SG&A"), expenses for the three months ended December 31, 2018, were $116.4 million compared to $100.6 million for the three months ended December 31, 2017, representing an increase of $15.9 million. As a percentage of net sales, SG&A expenses were 22.6% for the three months ended December 31, 2018, compared to 22.7% for the three months ended December 31, 2017. Excluding non-recurring adjustments of $2.3 million and $0.8 million for the three months ended December 31, 2018 and 2017, respectively, SG&A expenses as a percentage of net sales for the three months ended December 31, 2018 were 22.1% compared to 22.5% for the three months ended December 31, 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 income from continuing operations for the three months ended December 31, 2018 was $1.9 million, or $0.04 per share, compared to net income from continuing operations of $74.8 million, or $1.74 per share for the three months ended December 31, 2017. Adjusted net income(1) for the three months ended December 31, 2018 was $7.0 million, or $0.16 per share, a decrease of $0.1 million compared to an adjusted net income(1) of $7.1 million, or $0.17 per share, for the three months ended December 31, 2017.

Adjusted EBITDA(1) was $41.2 million and adjusted EBITDA margin(1) was 8.0% for the three months ended December 31, 2018, compared to adjusted EBITDA(1) of $33.3 million and adjusted EBITDA margin(1) of 7.5% for the three months ended December 31, 2017.

2018 Full Year Results

Net sales for the year ended December 31, 2018 were $2.0 billion compared to $1.8 billion for the year ended December 31, 2017, representing an increase of $254.2 million, or 14.2%. Net sales from base business branches contributed $137.1 million, or 8.4%, of the increase, which was driven by strong commercial activity, price increases and product expansion into new geographic markets.

Gross profit for the year ended December 31, 2018 was $590.4 million compared to $522.2 million for the year ended December 31, 2017, representing an increase of $68.2 million, or 13.1%. The increase in gross profit was primarily due to the increase in net sales. Gross margin for the year ended December 31, 2018 was 28.9% compared to 29.2% for the year ended December 31, 2017. The decrease in gross margin was primarily due to higher product costs.

SG&A expenses for the year ended December 31, 2018 were $444.5 million compared to $399.9 million for the year ended December 31, 2017, representing an increase of $44.7 million, or 11.2%. As a percentage of net sales, SG&A expenses were 21.7% for the year ended December 31, 2018 compared to 22.3% for the year ended December 31, 2017. Excluding non-recurring adjustments of $9.2 million and $11.9 million for the years ended December 31, 2018 and 2017, respectively, SG&A expenses as a percentage of net sales for the year ended December 31, 2018 were 21.3% compared to 21.7% for the year ended December 31, 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 from continuing operations for the year ended December 31, 2018, was $36.4 million, or $0.85 per share, compared to net income from continuing operations of $77.9 million, or $1.88 per share for the year ended December 31, 2017. Adjusted net income(1) for the year ended December 31, 2018, was $17.5 million, or $0.41 per share, an increase of $7.9 million compared to adjusted net income(1) of $9.6 million, or $0.23 per share, for the year ended December 31, 2017.

Adjusted EBITDA(1) was $155.2 million and adjusted EBITDA margin(1) was 7.6% for the year ended December 31, 2018, compared to adjusted EBITDA(1) of $135.3 million and adjusted EBITDA margin(1) of 7.6% for the year ended December 31, 2017.

Acquisitions and Greenfield Branches

In 2018, the Company completed four acquisitions adding 16 branches with combined annualized net sales in excess of $130.0 million. During 2018 the Company opened five specialty building products greenfield branches and expects to open four to six more branches by the end of 2019. 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.

2019 Guidance(1)

      2018 Results     2019 Guidance
Net sales (in billions) $2.04 $2.10 to $2.25
Gross margin 28.9% 29.1% to 29.3%
Adjusted EBITDA (in millions) $155 $160 to $180
Adjusted EBITDA margin 7.6% 7.6% to 8.0%
Adjusted EPS $0.41 $0.70 to $0.90
Net debt leverage(2) 3.6x 3.2x to 3.5x
 
(1) Adjusted EBITDA, adjusted net income and adjusted earnings per share are non-GAAP measures. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate these measures, why we believe they are important and a reconciliation thereof to the most directly comparable GAAP measures. Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.

(2) For a calculation of net debt leverage, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.

Fourth Quarter Earnings Release and Conference Call

In conjunction with this release, Foundation Building Materials, Inc. will host a conference call tomorrow, Tuesday, February 26, 2019, at 8:30 AM Eastern Time. Ruben Mendoza, President and Chief Executive Officer, John Gorey, Chief Financial Officer, Pete Welly, Chief Operating Office, Kirby Thompson, Senior Vice President of Sales and Marketing and John Moten, Vice President Investor Relations will host the call.

The call can be accessed in 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 dial-in telephone number in the U.S. is (877) 407-9039. For participation outside the U.S., the dial-in number is (201) 689-8470; and
  • Audio Replay: A replay of the call will be available beginning at 12:00 PM Eastern Time on Tuesday, February 26, 2019, and ending 11:59 PM Eastern Time on March 6, 2019. 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 13686920.

About Foundation Building Materials

Foundation Building Materials 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 175 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 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 contained in this press release relate to, among other things, the Company's projected financial performance and operating results including projected net sales, gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, leverage for 2019, as well as statements regarding the Company's progress towards achieving its strategic objectives, including the performance of current greenfield branches, the opening of additional greenfield branches, and the successful integration and performance of the Company's acquisitions. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. We do not intend and undertake 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 our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K and our 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.

- Financial Tables Follow -

FOUNDATION BUILDING MATERIALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

   

Three Months Ended
December 31, (Unaudited)

Year Ended December 31,
2018   2017 2018   2017
Net sales $ 516,159 $ 443,674 $ 2,044,312 $ 1,790,114
Cost of goods sold 360,541   310,523   1,453,953   1,267,925  
Gross profit 155,618 133,151 590,359 522,189
Operating expenses:
Selling, general and administrative expenses 116,438 100,563 444,527 399,864
Depreciation and amortization 20,500   18,199   77,419   70,861  
Total operating expenses 136,938   118,762   521,946   470,725  
Income from operations 18,680 14,389 68,413 51,464
Loss on extinguishment of debt (58,475 )
Interest expense (10,255 ) (15,864 ) (53,283 ) (61,011 )

Other income, net

1,171   68,064   1,298   81,488  
Income (loss) before income taxes 9,596 66,589 (42,047 ) 71,941
Income tax expense (benefit) 7,671   (8,170 ) (5,628 ) (5,965 )
Income (loss) from continuing operations 1,925 74,759 (36,419 ) 77,906
Income from discontinued operations, net of tax 2,613 1,133 10,523 4,574
Gain on sale of discontinued operations, net of tax 13,712     13,713    

Net income (loss)

$ 18,250   $ 75,892   $ (12,183 ) $ 82,480  
 
Earnings (loss) per share data:
Earnings (loss) from continuing operations per share - basic $ 0.04 $ 1.74 $ (0.85 ) $ 1.88
Earnings (loss) from continuing operations per share - diluted $ 0.04 $ 1.74 $ (0.85 ) $ 1.88
 
Earnings from discontinued operations per share - basic $ 0.39 $ 0.03 $ 0.57 $ 0.11
Earnings from discontinued operations per share - diluted $ 0.39 $ 0.03 $ 0.57 $ 0.11
 

Earnings (loss) per share - basic

$ 0.43 $ 1.77 $ (0.28 ) $ 1.99

Earnings (loss) per share - diluted

$ 0.43 $ 1.77 $ (0.28 ) $ 1.99
 
Weighted average shares outstanding:
Basic 42,903,161 42,865,407 42,892,879 41,486,496
Diluted 42,912,707 42,890,114 42,915,028 41,490,653

FOUNDATION BUILDING MATERIALS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

   
December 31, 2018   December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 15,299 $ 12,101

Accounts receivable—net of allowance for doubtful accounts of
$3,239 and $3,885, respectively

276,043 238,091
Other receivables 57,472 55,487
Inventories 165,989 148,246
Prepaid expenses and other current assets 9,053 11,785
Current assets held for sale   82,948
Total current assets 523,856 548,658
Property and equipment, net 151,641 144,524
Intangible assets, net 145,876 164,536
Goodwill 484,941 452,728
Other assets 10,393 5,604
Noncurrent assets held for sale   38,220
Total assets $ 1,316,707   $ 1,354,270
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 137,773 $ 134,460
Accrued payroll and employee benefits 28,830 17,920
Accrued taxes 11,867 7,003
Tax receivable agreement 16,667 15,892
Current portion of term loan, net 4,500
Other current liabilities 19,979 37,270
Current liabilities held for sale   29,733
Total current liabilities 219,616 242,278
Asset-based revolving credit facility 146,000 47,486
Long-term portion of term loan, net 437,999
Long-term portion of notes payable, net 534,379
Tax receivable agreement 117,948 119,912
Deferred income taxes, net 20,678 17,912
Other liabilities 8,117 12,657
Noncurrent liabilities held for sale   982
Total liabilities 950,358 975,606
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;
42,907,326 and 42,865,407 shares issued, respectively

13 13
Additional paid-in capital 332,330 330,113
Retained earnings 34,187 46,184
Accumulated other comprehensive (loss) income (181 ) 2,354
Total stockholders' equity 366,349   378,664
Total liabilities and stockholders' equity $ 1,316,707   $ 1,354,270

FOUNDATION BUILDING MATERIALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
Year Ended December 31,
2018   2017
Cash flows from operating activities:  
Net (loss) income $ (12,183 ) $ 82,480
Less: gain on sale of business 13,713
Less: net income from discontinued operations 10,523   4,574  
Net (loss) income from continuing operations (36,419 ) 77,906
Adjustments to reconcile net (loss) income to net cash provided by operating activities of continuing operations:
Depreciation 33,437 29,404
Amortization of intangible assets 43,982 41,456
Amortization of debt issuance costs and debt discount 7,370 9,910
Inventory fair value purchase accounting adjustment 1,057 720
Loss on extinguishment of debt 58,475
Provision for doubtful accounts 1,810 1,721
Stock-based compensation 2,175 1,902
Reduction in tax receivable agreement (1,189 ) (68,033 )
Unrealized gain on derivative instruments, net (265 ) (13,059 )
Loss on disposal of property and equipment 552 200
Deferred income taxes 221 (6,263 )
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable (23,326 ) 4,602
Other receivables (1,721 ) (3,610 )
Inventories (8,834 ) (10,449 )
Prepaid expenses and other current assets 2,708 378
Other assets (1,320 ) 2,970
Accounts payable (1,951 ) 19,362
Accrued payroll and employee benefits 11,105 (5,351 )
Accrued taxes 4,893 (1,528 )
Other liabilities (16,911 ) (12,186 )
Net cash provided by operating activities from continuing operations 75,849 70,052
Cash flows from investing activities from continuing operations:
Purchases of property and equipment (34,892 ) (28,249 )
Payment of net working capital adjustments related to acquisitions (40 ) (405 )
Proceeds from net working capital adjustments related to acquisitions 154 8,602
Proceeds from the disposal of fixed assets 2,315 2,586
Acquisitions, net of cash acquired (93,477 ) (73,038 )
Net cash used in investing activities from continuing operations (125,940 ) (90,504 )
Cash flows from financing activities from continuing operations:
Proceeds from asset-based revolving credit facility 897,911 400,239
Repayments of asset-based revolving credit facility (799,272 ) (561,509 )
Term loan proceeds 450,000
Principal payments on long-term debt (575,000 )
Prepayment premium on bond (23,872 )
Debt issuance costs and deferred finance costs (7,935 )
Tax withholding payment related to net settlement of equity awards (61 )
Principal repayment of capital lease obligations (2,771 ) (2,582 )
Issuance of common stock 163,952
Capital contributions   2,997  
Net cash (used in) provided by financing activities from continuing operations (61,000 ) 3,097
Net cash (used in) provided by operating activities from discontinued operations (6,614 ) 7,209
Net cash provided by (used in) investing activities from discontinued operations 121,568 (6,434 )
Net cash used in financing activities of discontinued operations (162 ) (255 )
Net cash provided by discontinued operations 114,792 520
Effect of exchange rate changes on cash (503 ) 384  
Net increase (decrease) increase in cash 3,198 (16,451 )
Cash and cash equivalents at beginning of period 12,101   28,552  
Cash and cash equivalents at end of period $ 15,299   $ 12,101  
 
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 2,507 $ 4,129
Cash paid for interest $ 61,199 $ 50,866
Supplemental disclosures of non-cash investing and financing activities:
Change in fair value of derivatives, net of tax $ 4,616 $ 2,970
Assets acquired under capital lease $ $ 670
Goodwill adjustment for purchase price allocation $ 202 $ 519
Tax receivable agreement $ $ 203,837
Notes received for disposals of equipment $ $ 134

FOUNDATION BUILDING MATERIALS, INC.

NET SALES BY MAJOR PRODUCT LINE, GROSS PROFIT AND GROSS MARGIN

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited)

(in thousands)

   
Three Months Ended December 31, Change
2018   2017 $   %
Wallboard $ 198,014 38.4 % $ 172,910 39.0 % $ 25,104 14.5 %
Suspended ceiling systems 91,453 17.7 % 80,895 18.2 % 10,558 13.1 %
Metal framing 97,474 18.9 % 67,925 15.3 % 29,549 43.5 %
Complementary and other products 129,218   25.0 % 121,944   27.5 % 7,274   6.0 %
Total net sales $ 516,159   100.0 % $ 443,674   100.0 % $ 72,485   16.3 %
Total gross profit $ 155,618 $ 133,151 $ 22,467 16.9 %
Total gross margin 30.1 % 30.0 % 0.1 %

FOUNDATION BUILDING MATERIALS, INC.

NET SALES BY MAJOR PRODUCT LINE, GROSS PROFIT AND GROSS MARGIN

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(in thousands)

   
Year Ended December 31, Change
2018   2017 $   %
Wallboard $ 781,257   38.2 % $ 701,467   39.2 % $ 79,790 11.4 %
Suspended ceiling systems 379,809 18.6 % 328,815 18.4 % 50,994 15.5 %
Metal framing 361,493 17.7 % 280,410 15.7 % 81,083 28.9 %
Complementary and other products 521,753   25.5 % 479,422   26.8 % 42,331   8.8 %
Total net sales $ 2,044,312   100.0 % $ 1,790,114   100.0 % $ 254,198   14.2 %
Total gross profit $ 590,359 $ 522,189 $ 68,170 13.1 %
Total gross margin 28.9 % 29.2 % (0.3 )%

FOUNDATION BUILDING MATERIALS, INC.

BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited) AND

YEARS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited)

(in thousands)

 

Three Months Ended
December 31,

Change
2018 2017 $   %
Base business (1) $ 439,118 $ 397,133 $ 41,985 10.6 %
Acquired and combined (2) 77,041   46,541   30,500   65.5 %
Net sales $ 516,159   $ 443,674   $ 72,485     16.3 %
 

(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 combined after January 1, 2017, primarily as a result of our strategic combination of branches.

 
Year Ended December 31, Change
2018 2017 $ %
Base business (1) $ 1,779,036 $ 1,641,911 $ 137,125 8.4 %
Acquired and combined (2) 265,276   148,203   117,073   79.0 %
Net sales $ 2,044,312   $ 1,790,114   $ 254,198   14.2 %
 

(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 combined after January 1, 2017, primarily as a result of our strategic combination of branches.

FOUNDATION BUILDING MATERIALS, INC.

BASE BUSINESS AND ACQUIRED AND COMBINED NET SALES BY MAJOR PRODUCT LINE

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited) AND

YEARS ENDED DECEMBER 31, 2018 AND 2017 (Unaudited)

(in thousands)

       

Three Months
Ended
December 31,
2017

Base
Business
Net Sales
Change

Acquired
and
Combined
Net Sales
Change

Three Months
Ended
December 31,
2018

Total Net
Sales %
Change

Base
Business
Net Sales
%
Change(1)

Acquired
and
Combined
Net Sales
%
Change(2)

Wallboard $ 172,910 $ 9,536 $ 15,568 $ 198,014 14.5% 6.1% 88.7%
Suspended ceiling systems 80,895 4,928 5,630 91,453 13.1% 6.8% 70.6%
Metal framing 67,925 21,785 7,764 97,474 43.5% 35.2% 129.4%
Complementary and other products 121,944   5,736   1,538   129,218   6.0% 5.4% 10.3%
Net sales 443,674 41,985 30,500 516,159 16.3% 10.6% 65.5%
Average daily net sales $ 7,156 $ 677 $ 492 $ 8,325 16.3% 10.6% 65.5%
(1) Represents base business net sales change as a percentage of base business net sales for the three months ended December 31, 2017.
(2) Represents acquired and combined as a percentage of acquired and combined net sales for the three months ended December 31, 2017.
 
 

Year Ended
December 31,
2017

Base
Business
Net Sales
Change

Acquired
and
Combined
Net Sales
Change

 

Year Ended
December 31,
2018

Total Net
Sales %
Change

Base
Business
Net Sales
%
Change(1)

Acquired
and
Combined
Net Sales
%
Change(2)

Wallboard $ 701,467 $ 28,372 $ 51,418 $ 781,257 11.4% 4.4% 92.6%
Suspended ceiling systems 328,815 25,205 25,789 379,809 15.5% 8.3% 100.0%
Metal framing 280,410 60,535 20,548 361,493 28.9% 23.2% 106.9%
Complementary and other products 479,422   23,013   19,318   521,753   8.8% 5.3% 40.5%
Net sales 1,790,114 137,125 117,073 2,044,312 14.2% 8.4% 79.0%
Average daily net sales $ 7,104 $ 542 $ 463 $ 8,080 13.7% 8.3% 78.7%
(1) Represents base business net sales change as a percentage of base business net sales for the year ended December 31, 2017.
(2) Represents acquired and combined as a percentage of acquired and combined net sales for the year ended December 31, 2017.

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, net debt leverage 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 gain 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, (gains) losses on the disposal of property and equipment, hurricane-related costs, transaction costs, management fees and the decrease in the tax receivable agreement liability, or TRA. The Company calculates adjusted EBITDA margin as adjusted EBITDA divided by net sales. The Company calculates adjusted net income as net income (loss) before loss on extinguishment of debt, 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, (gains) losses on the disposal of property and equipment, hurricane-related costs, transaction costs, management fees and the decrease in the TRA liability. The Company calculates adjusted EPS as adjusted net income on a per weighted average share outstanding basis. For a calculation of net debt leverage, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.

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 income (loss) (unaudited):

 

Three Months Ended
December 31,

 

Year Ended
December 31,

2018   2017 2018   2017
(in thousands)
Net income (loss) from continuing operations $ 1,925 $ 74,759 $ (36,419 ) $ 77,906
Interest expense, net 10,244 15,838 53,201 60,924
Loss on extinguishment of debt 58,475
Income tax expense (benefit) 7,671 (8,170 ) (5,628 ) (5,965 )
Depreciation and amortization 20,500 18,199 77,419 70,861
Unrealized gain on derivative financial instruments (209 ) (14 ) (265 ) (13,059 )
IPO and public company readiness expenses 157 89 5,085
Stock-based compensation 788 210 2,299 1,901
Non-cash purchase accounting effects(a) (127 ) 413 703
(Gain) loss on disposal of property and equipment (61 ) 48 552 199
Hurricane-related costs(b) (20 ) (83 ) 376
Transaction costs(c) 1,553 411 6,306 4,047
Management fees(d) 353
Decrease in TRA liability(e) (1,189 ) (68,033 ) (1,189 ) (68,033 )
Adjusted EBITDA $ 41,222   $ 33,258   $ 155,170   $ 135,298  
Adjusted EBITDA margin(f) 8.0 % 7.5 % 7.6 % 7.6 %
     
(a)   Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized as a result of acquisitions.
(b) Represents costs incurred and insurance proceeds resulting from Hurricanes Harvey and Irma.
(c) Represents 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) Related to adjustment in liability related to the Tax Cut and Jobs Act of 2017. See Note 20, Tax Receivable Agreement, in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
(f) Adjusted EBITDA margin represents adjusted EBITDA divided by net sales.

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

 

Three Months Ended
December 31,

  Year Ended December 31,

2018

  2017 2018   2017
(in thousands, except share and per share data)
Net income (loss) $ 1,925 $ 74,759 $ (36,419 ) $ 77,906
Loss on extinguishment of debt 58,475
Unrealized gain on derivative financial instruments (209 ) (14 ) (265 ) (13,059 )
IPO and public company readiness expenses 157 89 5,085
Stock-based compensation 788 210 2,299 1,901
Non-cash purchase accounting effects(a) (127 ) 413 703
(Gain) loss on disposal of property and equipment (61 ) 48 552 199
Hurricane-related costs(b) (20 ) (83 ) 376
Transaction costs(c) 1,553 411 6,306 4,047
Management fees(d) 353
Decrease in TRA liability(e) (1,189 ) (68,033 ) (1,189 ) (68,033 )
Tax effects(f) 4,162   (257 ) (12,635 ) 152  
Adjusted net income $ 6,969   $ 7,134   $ 17,543   $ 9,630  
 
Earnings (loss) per share data as reported:
Basic $ 0.04 $ 1.74 $ (0.85 ) $ 1.88
Diluted $ 0.04 $ 1.74 $ (0.85 ) $ 1.88
Earnings per share data as adjusted:
Basic $ 0.16 $ 0.17 $ 0.41 $ 0.23
Diluted $ 0.16 $ 0.17 $ 0.41 $ 0.23
 
Weighted average shares outstanding:
Basic 42,903,161 42,865,407 42,892,879 41,486,496
Diluted 42,912,707 42,890,114 42,915,028 41,490,653
(a)   Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized as a result of acquisitions.
(b) Represents costs incurred and insurance proceeds resulting from Hurricanes Harvey and Irma.
(c) Represents 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 former private equity sponsors for services provided pursuant to past management agreements. These fees are no longer being incurred.
(e) Related to adjustment in liability related to the Tax Cut and Jobs Act of 2017. See Note 20, Tax Receivable Agreement, in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
(f) Represents the tax effect and one-time, non-recurring tax items.

Investor Relations:
John Moten, IRC
Foundation Building Materials, Inc.
657-900-3200
Investors@fbmsales.com

Media Relations:
Joele Frank, Wilkinson Brimmer Katcher
Jed Repko or Ed Trissel
212-355-4449

Source: Foundation Building Materials, Inc.