Forterra (FRTA) 1 May 202020 Q1 Earnings call transcript

Good morning and welcome to Forterra’s First Quarter 2020 Earnings Conference Call. Today’s call is hosted by Karl Watson, Jr., the company’s Chief Executive Officer and Charlie Brown, the Chief Financial Officer.

Thank you and good morning to everyone. Welcome to Forterra’s first quarter 2020 Earnings conference call. Today’s call is a little different given that Karl and I are in separate locations and obviously we’ve had some technical difficulties getting started. during for able difficulties and to that may advance hopefully continue, any in we be we’ll straighten encounter apologize any that technical that background We call. the this out

of our Litigation to earnings and like release filed in the Forterra are comments take and Please provision last out I of the that Reform XXXX would today Harbor – which point Safe differ Securities risks the remember forward-looking such Act statements. may intends we that indicated to advantage subject Reform Private noted include of results to those or uncertainties by may actual statements from night. materially implied as

annual most Some and detail are XX-K the Form report our important quarterly in report our filed described on risks of last night. on Form company’s the in XX-Q including SEC filings,

duty undertake such The any statements. does to company update not forward-looking

during margin, and Additionally, financial non-GAAP we including measures flow. EBITDA margin call, refer adjusted EBITDA to will free EBITDA, the EBITDA, cash certain adjusted

You including release. the information, most in useful earnings can GAAP investors financial measures why related comparable other of to reconciliation to measure and discussion consider find these directly of our we measures non-GAAP a these a

Now, call Karl. over I’ll turn to the

through us appreciate challenges on you managing Good delay. morning, everyone. created We we the today call by apologize hope you the being well and are are and with that and COVID-XX. I the for your families

a to I to Before though, take all moment of further like I’d Forterra go thank our teammates. any

impressed well have working work. on daily are into remote facilities going who how a people who we are been I’ve our have home from to people and We transitioned basis. manufacturing by

eliminating many processes and beat, this are taking have more time by to become missed of improve We to effective. fact, not in our waste a

results a have and In have is to announced our improvements teams earliest we testament made. is administrative recent the our ever fact, this

certification in continued internal salespeople time well process complete our our level before initiatives have despite place. commercial in expectations. improvement to commercial their taken this have excellence first Our sheltering Many of

resilience commercial facilities improvement our for them. The to a who to serve We for to customers focus have manufacturing remained are improve their in with wonderful, connected on thank that continuing today. in initiatives you committed customers to day wonderful our operational people safely come disciplines being the every work reflected to and and determination the our and to are unit continue would We deserve without persevere plant-level special needed not margins. results

the about operational forward. the the think has I some we and Although COVID-XX our responses. am for my business by going effects will to you comments focus majority have the of results had our numbers within country, across factors of progress with first, quarter, to quarter and the some the given consider our I’m Charlie the as pleased made, company-specific on results then as discuss first, as well impacts key going our our of

last year’s strong free We XX% These and revenue quarter internal during expectations compared quarter. adjusted cash our for first entered XX% momentum exceeded the and quarter. is flow the in to reflected with growth EBITDA tremendous XXXX XX% improvement this and growth, first in results the demand

related but to We’re our we intend seeing believe opportunity despite still We demand have focus on from improvement and pillars of the ahead stay committed throughout our to uncertainty. solid progress five the us further real organization. course have COVID-XX traction

and of health of demand negative have our see in will and on provide potential the impact actions of respond plan an must employees our significant results a updates we take did a this we anticipation weakness. moments to quarter. taken potential business first effects negative for to not few I pandemic. we Being to business, essential to-date and during the safety Still,

safety, been always our people. Our has number one priority and health of welfare

promoted guidelines our and recommendations health the to provide customers. adhered continuity where to CDC operate by and the business continuing departments to while community local strictly we have We

location many, cleaning working factories. safeguards, distancing include suspended accommodations, amongst social implemented in processes, Newly restrictions group remote practices our enhanced and activities, enhanced travel

are to interactions and technology where possible customer further contact. reduce facilitate direct other using orders also We to

activities are We our within factories fortunate, encourage the normal distancing. social

productivity our been enhanced affected materially with put have So the not in protocols place. has we

Our needed. management practices, health action basis connected on top a monitor been swift team safety daily has best implement as to and employee bottom and and promote

in demand a did our not a standpoint, From shipments way. impact first the pandemic quarter noticeable

is to our the was strong year in give the of demand pandemic, with we else are time These nature second this stages than everyone water in later the half as confidence back backlogs stronger as at impact year. the last us nearly and to is even backlog, uncertain drainage it strong business. uncer evolving the Our we as the the as our of of are pandemic, business this in due of short-term but – quarter

for environment demand Due the product be products our stimulus, unscathed. are of to hoping fiscal the we relatively nature current essential and will our the of

However, plans not hope potential a levels and we declining is of created address demand. various have strategy to

this to fixed to potential than changes we the our our in extent of costs XX% ability at addressing issues. to any we have of goods structure coronavirus which gives demand us and any operations, the point to variable also quickly closed in semi-variable possible. are are More our time to or sold not Transitioning cost respond facilities either due

the ability normal. taking being With things highly responsible to when without near-term return unpredictable, to significantly our rebound preemptive are inhibiting actions we

reducing board renegotiating merit contracts contribute We conserve that possible. wherever the do our flow our operations short-term expenses executive have not increases, minimizing actions and business implementing freeze, eliminating precautionary including cash reduce to to operational inferring of a hiring compensation, taken costs various and voluntarily and overtime, annual

all for of facilities necessary the customers’ our ability produce inventories to over We’re and ensure to satisfy inventory savings. don’t look tracking across have that needs also we daily cost our to have

put non-essential spending. have capital we on Lastly, halt a all

our to taken begin contingency so we we product had far, In addition actions decline extensive the in have if – were to meaningfully months. in in the the addition volumes place to the actions coming taken also to plans

this period Fortunately, turbulent extreme economic the of first of uncertainty not will our time. this been is had us leadership the past during and a serve this experience well members time team

week, last heightened reviews exercise each sense of And completed Just this management in-depth can team confidence businesses. we our may week-long our way of any belief we our in situation with encounter. successfully of unless a navigate quarterly our and we through

Charlie. With that, it to turn over I’ll

provide spend times. for like Thank you, these a context discussing liquidity some to we Karl. Forterra’s are how and positioned I’d uncertain for minutes few first

a are we’ve on our quarter, commitment to improve pillars. and during a company our target generation capability by year’s year, the adjusted core cash past again, over past of the And times X.X We by demonstrated improving focusing the to X.X we, as having highly confidence our X leverage delivered; well levered reducing from period, prior leverage our the times, EBITDA. but to publish ratio leverage as

prepayment of well continued our voluntary XXXX. as our had fourth and stared the quarter loan first we we Our both under in and term quarters third

and progressed, his the cash Karl shifted spending focused our capital including activities stance however, As conservation initiated pandemic in comments. we as described

by Out cash, on draw quarter million prior more. the caution, $XXX ended than quarter, drew As retaining of over $XX XX of an our million our a period. million of result, of in free cash down the we more abundance with $XXX year over million revolver the or flow ABL the the and improved flexibility

term our and is bulk our loan, our October due of loan, not leverage which until As represents of the XXXX. term

leverage – on we included rat liquidity information presentation have know night ball in have cash does We our regarding raise concerns stakeholders. pandemic. our our shared we leverage, business, with the believe not position do to uses have and that some We the of but our We understand our people of X. way and last through this and crystal sources tools Page we our navigate a

decline. we volume As be if already actions Karl of plans have taken mentioned, designed to contingency extensive begin and product number implemented our a to meaningfully

outline those focused and demand, and quarters evolving demand, end implemented, but year. times. stress sold for we that possess. assume prediction our as in on year example, total illustrative remaining of of a this as XX% demand will purposes the remainder that and to of business, with If these want represents reflect decline scenario rapidly scenario would highlight does XX% much during of we residential demand goods a as decline our XX% today, the XX% a of in a which non-residential been lever yet actions currently still in the as have the municipal giving infrastructure we cost to and us can both to I well only, powerful I approximately are expect management’s we XX% liquidity Incorporating a XXXX. for taken decline not of variable For our

reasonably we believe issues. cash challenges different and weather versions liquidity under ability analysis, the this circumstances actions zero various we and have and our of assuming run based with have foreseeable the ample We year most and to on different resources model, remaining

me as margin spring product now winter geographic always on remained performance relatively Let impact volumes and my year-over-year I’ll volumes well lower flat. season while for a margin. time first With explaining focus volatile of increased has our comments the mix early how higher lower gross quarter the drainage, drainage our late The and accentuate by and segment can been revenue with as resulting starting review prices with briefly operating slightly drainage. as

portion of also resulted is of While poor but inflation this lower of was weather, favorable, as this result as products sold approximately priced average in due shipments selling prices a XX% prices factor margins. mix. Texas, mix higher the impact quarter and a higher mix for Product geographic were but this cost in lower accounts to price we’ve the

the mix mix higher given Texas opaque, product operate. regions, margins states for year. of is mix less to Texas about our business. previous net attractive is Achieving we volume in me opportunity margins, this compared relatively flat margins. the margins typically a pricing product The highlights in the less geographic efficient and the in Let both less and due other within yields the more are and quarter to operations, for which to Texas both result in geographic strength thus both other By, than average the flat

in our to business as to year. demonstrated significant last improvements segment, adjusted gross revenue, margin over compared EBITDA Switching water and that

While our their normal buying we realize patterns to XXXX. prices, as customers higher the half were first higher compared shipment return of of the year-over-year also volumes destocking in as benefit to

benefited also lower quarter from addition, the we scrap In year-over-year. costs the during

of more year. to all result a EBITDA quarter current of than factors, water the these doubled As in compared last adjusted

quarter. adjusted our the internal reflected loss line our in was systems. people, primarily with plan EBITDA and corporate Our for The increase processes year-over-year in investment our

reflect capabilities, effectiveness. are Forterra’s safety, of efficiency five plant results commercial execution operational capital administrative level our QX pillars working expense discipline, and and Our improvement enhanced which general

while preparing on we’re earlier, cautiously discussed execute for improvement Karl pillars. ourselves As our headwinds continuing to

light of our the in uncertainty Although target we have remain to we XXXX years. generated pandemic, for of committed the by economic mid-term next to few in our withdrawn X.X guidance times deleveraging times of remainder COVID the X

Operator, you This concludes prepared line for questions? please remarks. open the our will

And Instructions] question from Seth first your [Operator with Rohit is SunTrust.

morning on time. Buckley and good for during well This yourselves your are Hey, this is families guys. Seth. during Tom Hope

the guys like of price how increases you’ve good Hello, there? and sticking really the remind us some and the moving through second of you increases Can are have price it guys implemented results earnings. and You half they are the in water the the to sustainable you looks are forward year? business flowing what

mute. Yes, on that is Karl it appears

difficulties. technical headline. be I’m to going sorry, Tom, the Yeah, that’s

come good low in want those X% very a a increase July, very Technology. large but a X% EBITDA relatively very that business a results in structure. bit, of a good July turns. increase a little historically And business sticking increase go market bad had low in but to asset had had in of. this – we XX% hole The margins those for both has we big to of conference XX% Forterra, I We’ve are in had a and has October; call. a October. increase and that both are operates out back

would certainly we to not business bidding So in myself not committed our would president they they stick to are the commercial suggest to that Vik, see stick, our that sticking, going there’s absolutely of that they’re think us and continue no activity nothing teams to that path. are reason and for and, that

Do had or – to for Great, seen they think pass on of a lower think steel your margin more a settled costs. of the at low you time you to sold scrap guys be due tailwind we’ve to as savings that’s really there’s moving have helpful. cost goods through there And then some kind level here? you do

largest steel increase scrap its market The volatile. It is so has after largest decline. its

up So, it and down. will be

levels, if where we months. cost decouple point make quartile the we’ll is below scrap for it in to capital. a prices from return If is money, get our our above good prices though to of goes a few when – it to upper our strategy to falls long-term the Our we struggle we’ll pricing that pretty scrap that that need

So, scrap down. does highly has of come come bottom going come it’s right prices think historically down. have sort variable well We in trade its is to the that hit correlate now. is and scrap very as largely continued but unknown it’s oil has coming to it months oil largely Where time. But maybe not an it’s ordinary prices down, this – to

supply at inventories country but are country a low scrap So, sort low low the demand scrap the is very level. across so equalizing across of demand and are

we lot So see don’t decline… a of

it. Thank you, appreciate guys,

pricing. scrap In

it. much. so you thank Great, Appreciate

Tom. Thanks,

next from Sachs. Jerry Your is Goldman with Revich question

to realization I’m pricing folks What nice could first to about the quarter [indiscernible] the you here? given flow level announcements of cadence in of you and if look to of talk flowing have see business. when everyone commitments terms the we increases length results work through results do in hear well. morning good wondering price recently doing hi, do you what the enough and the bid in two Karl, the have the the through are and relative like Yes, does

portion I see flowing this increase a quarter. through and April. the in increase wake We for a July good say in Well, of October October. in small in from announced part was you’re I through the seeing prudent pandemic we’ll of very thought just this think a this would you the of that re-evaluate customer had We that quarter. to do rescinded standpoint. increase an We flowing

from to our we activity have But and what and we increases and have flow place, current in winning July through. the with still and two quarters that still think we at, October still that work what at are bidding bidding multiple

we a that the along April, a one, the on in things to product put price add-ons that the we of in price increase When not we two the April, and go increase of One announced a other just there’s raw material; Two, did the we in the two. product. announced we we did but shortened, three, and tail. shorten rescinded those we the things base in we increase base lot an with rescinded price prices processes increase, just

that we on get send increase April in shortening by So, go future make our will faster facto at we should a de out and the accessories increases tail a the that through rate.

quarters we flow But, do have Jerry, don’t pricing of will anything we multiple else, think if that still through. equipment we

quite in Okay, and still you your last sounds comp April, bid from level volumes based thank like, remain and the water of the you. your activity it And comments, the in terms of favorable think have shipping on business easy I year. the destock

bid prepared and what in April remarks. cadence the pipeline been So, to on year? it about sounds on your me just been fact check last have that compared shipments in like based Can pretty talk April good you has

Charlie. add would water, it we’ve that volumes out were, XX-Q. put in just is year. line for that our We April is prior this that I in with were did the through seen Jerry, Yeah, yesterday

activity April. as we’re had a XX% I’ll through past in we’re little impactful. but lower most drainage, than comment that down indicated, So, that bidding And be Karl solid. months seeing, that very you might seen would the of the still three about recently obviously, on XXXX bit what the be let we’ve

not drop-off, looking pandemic, slight Not obviously for, I not or on something we hyper-focused meaningful. a there – notice for slowing – it, mean, if you even but bidding decline is even it’s in not down. may sign has this robust. everybody’s been but water sort be bidding may our activity any fairly a Our – meaningful not of of

e that it’s So typical typical in – could nothing doesn’t be, normal be a appear flows ebbs or and environment. to

business, of lot widely builders residential In a the new bit a putting our little of portion home development. it’s off publically the drainage lot acknowledged are drainage our business, same is but there that construction that a

on weren’t saw mid-March they on out residential They So, of of go but in didn’t they go hold. canceled, probably backlog lot our subdivisions did hold. a we come

what our hardest release we’re no, of in actually going and in recently Houston, said, just we’ve was they market, with a took those subdivisions had However, probably, few could now hit be a ahead pause potentially to go they these. but

planning bad Now, that potentially those are for. I as were does internally glimmer abut think anecdotal a not be we show as it hope may residential of what

would bidding I overall, say, Jerry, So, activity relatively still that is robust.

Okay, description. you. the appreciate I Thank

with Capital. question is Berenberg Daniel Your next Wang from

Hey guys, for question. my thanks taking

had water in segment. year-over-year. mentioned in on shipments flat the you in that changes know roughly Just I Have the are suppose pandemic? seen distributor question the wake of you any a April quick I activity

to into take have I mean, stock would cash activity a that when only stock I say too added bit of inventory orders. have sort been we in flat. been bit so lessened than little to flat. they’re And trying have that order change is say shipments may that the stuff so into typically and the relatively normal conserve bringing volumes we better we if are we consideration would a has there,

that thing we’ve So, meaningfully is have the only seen, that I that that different. seen, is

million. one suppose, I I the notably year. on guidance QX from And $XX was last was CapEx, for initial Perfect. the to know point just down other $XX million

that Just I for maintenance million are how $XX much, to is in $XX much and how XXXX? suppose, budgeting million of you

by million be able the of and advantage we take CapEx coming the that upside $XX could to to million think of out this. to spending We damage $XX business our reduce not still

questions. my taking thank the perfect. right, All for Thank for you – you

is next question Capital from RBC Your Ryan Markets. Frank,

this Ryan follow-up first on and Texas congrats a much on to the for I you just is kind for quarter want to of questions volumes Dahl. a on difference versus my How geographic that this Thanks Mike demand? drainage end-market kind a before strong in April. or all guys, started. Frank an attribute of of would Hey taking of

as That’s question, of was seen and strong so and there’s in the some this. Texas. some that be a between due backlog recent wasn’t going some Still very Florida. really broadly also a of of to small more great two weakness I’m but half weakness Florida backlogs Probably in in to been to those, much majority There we’ve delays was would market than range that It times. it. delay but weather the in

one I little of they corporate focus side. been know know, can some, my big you’re have And dollar on the Okay. Thank you do the just if year-over-year, think bit flat be can you. you for is, a then With this action, expenses quantification point all quantify, of corporate second cost-cutting you you help kind a down year. wise guys

is for This believe have that for can his extra were sooner. this. of systems, to Karl some didn’t some lot mentioned noted more Obviously Charlie. had on a time planning realize this we this that of books we and expect and and much focus we the be we this during comments, we And the expense that close on lots this a to call benefits. now than XXXX we that be to faster so At to time we have flat incentive have spend process have needs mid and Sure, quarter prepared have, this the pandemic now we we We that able same ever pandemic. though, corporate costs for more and been spend I with move.

grow, out be are on that as things continued during hopefully that to to certainly systems, as that while we’ll better in those see we’ll And down. show we’re taking there focused well. and cost costs this will pandemic very put be start is we to able come All so benefit beginning

systems, focus So costs. we long for costs a flat of know to efficient be good – and on not of that Ryan, you pillars run I struggle, to you as I and slightly we definitely would there. would some as progress to just we It corporate we need as know as that still those our take improved are synchronized But other making had would out systems think look is multiple it multiple to are these activities like. are part

Awesome, thank very you much. guys

Barclays. is question Matthew Bouley with next Your from

know size I the you taking perhaps everyone’s oil. in in exposure Hey, your I there? light bit called Hope queue impact good ask doing question. in there out to thanks Can that to a for Texas the was, of wanted of morning, QX. markets just about already there and complex with the energy the perhaps energy what’s little Houston, well? you in happening

thinking or forward? project kind are how the guys So, there you. impacts of going you about exposure, Thank indirect whether know, direct you

suffers coin and Well, coin to Houston, that when there’s large construction is, less side in two suffer The bad sides like was XXXX. a residential the of in we it construction a have Houston will is marginally fairly layoffs, the us. oil of that and with for be business is and going XXXX sector bit in

think However, we Houston it certainly in that but XXXX, saw in affected Houston had on oil-dependent going business the oil bad and in is in as will – we people as our wasn’t XXXX, XXXX be what’s markets. by will completely as expected not

depressed, of a once back, correlation markets relatively operating oil normal very if highly There’s for still a that environment scrap scrap prices is other side oil coming scrap starts time. The the remain coin metal takes and the and amount extended oil economy period prices very will a large direct gas stay the segment where to that of of though correlated an are pricing. in down

So, would be penny you this. actually to for through if us had because net/net, outcome we’ll take that better that suffer a

net/net, see a happen to the our in to things results. things effect Houston, scrap not pricing bad goods happening on demand are but us this there’s in with oil huge So we

really pressure, so if guys the bit margins, side. little And an decremental more estimate was of on volumes know, little wondering give secondly, under you that’s of Karl, are then I you if perhaps bit helpful. drainage like Okay, sounded could a a

extent when the to of you you on you sort about flex fixed know, think decremetnal know, here, you You that variable can you. and structure what what’s cost what’s but, side? the I resulting volume on hear SG&A Thank know, you

exposure, I’d that that of season. typically the to in on say are variable the construction so just first anyway that have up the quarter know, You start issue, because one, volumes we Matthew, due

capability so can So know, there’s you to do we you you seasonal an only built just on our much in issue. a organization pretty being focused but, flex able know SG&A a it’s when

side So, we a when of on scenarios, that continued exposure is and regardless and to focus, continue know, on the we as pillars can something we I – our think how were we’ve is we SG&A made about that’s the you that time, have to we to working how talk to now it. one on lot focus something have can that, we improve our good progress of spend more but more

talked when that of we geographic was and So, talk about, impact the a that first quarter really mixed the about mix. – the more I product

know, see confident expect I So, that am those. we regions able decline other the progress much lot in actually more showing, like that up would the and to concern, Texas, I said, significantly you we’ve put to don’t are and time beginning energy really show, to the be actually, I of feel given actually into the with investment in a stepped

that have a be our So, where but highest That’s on low volume we going. was volumes region being to to fact have considering the – speaks margin able pricing did and substantial decrement period. we’re up despite to volume the flat not margin that down a

lot helpful. guys. Okay, a Thanks

with you Sachs. do from Revich follow-up a [Operator Jerry Goldman question have And Instructions]

obvious of and Yes, if expect you think things we to about XQ? hi, on on the of many thanks that you Karl, expand you so to effort will, rolling are of your as exiting travel. the do improvement inning, the manufacturing wondering the track can strategy be just XXXX taking lack pillar given for of excellence initiative what out timeline should if that How follow-up. I’m into back ability

question. very Jerry, that’s a insightful

no being trained rapid take making our liens work are and progress implement initiatives this local that at of facilities. empowered, improvements. larger we’re making has especially the I about, [indiscernible] operation guess people doing lack the really and human – based some hampered. who that turned and could – improvement continued to based on that interaction, hampered lot It does that mean level, does I around, doubt And the are Our with human a events travel, slow. also with not and around mean not of of there’s a our about been

the able We to to delay us make motivate, being continuing going three feel, progress. to of on push, is site, probably are But, touch, lack be months. guide, train, about

barn it in site question. Not no but has but the of stops it efforts the horses you insightful at intensity back being very of also But, at and… it a direction our bit the a nor last days more it on these way made XX are in over have who much chomping lot difficult the to get

hands traveling plants We’ve we of but our that and we’ve it events I and less direction. are Zoom you moving that think, so again, is, the that know, a with are but, we’ve ties done desire to to sure make operations extensively on safe and keep our you in care despite out mean our we you a take lot like other strong – do isolated know, in restrain we possible. to management It to to talked more about had how them on, frontline activity think, the I right from and does people right as his is, for Karl, believe the Karl to internally, coming restrain, had be activity. it have do there people and We’ve thing as said,

between thinking volume difference what margin facilities know, that levers and where folks outside in an work the Texas apples gap of and most fourth sort in the Texas, big your that that efficient need is you gap facilities quartile about? addressable, And more how margin you that is if raised plants, we you basis if do will, are you apple just to can of

multiple Well, ton. per dollars

been I’ve to have been where seen of detail that of intensely productivity the our we’ve focusing plants. of XX% on very few a that we’ve in – We calls, on probably our we’ve this some plants? XX% said improvements of maybe level and

A of we to go. So, to Jerry. a go lot room have room still, lot of

average want want but I to have unfortunately, just at I time because wouldn’t We and if that’s plant, lean – improvements through. on significant run that And the and to think the of are comments Texas definitely progress wouldn’t some be a my going outside it’s I do plants do – still Texas that well to is training – to, to it have those lower opportunity that’s takes roll for we I somehow even made. undermine

of So, next upside value least, get noticeable years, across extract the over value or continue at probably the lots forward. great to group to – going to two

Nice in a environment. tough Thank everyone. performance you,

Thank, Jerry.

showing queue. time, the management like turn this no any questions back to remarks. I’m the you. I closing conference Thank for to would over in At additional

– and on your you are safe Thank families time. Thank for you to I doing we well your pray our we talking to and call. look you forward and you. next

in This and for Ladies thank program. gentlemen, the today’s concludes conference. you participating

wonderful have You disconnect. may day. Everyone, a now