EX-99.1 2 a123116fbmpressrelease.htm EXHIBIT 99.1 Exhibit

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Foundation Building Materials, Inc. Announces Fourth Quarter and Full Year Results for 2016

Growth strategy and operational execution drives record revenue
2016 Fourth Quarter Highlights
•
Record revenue of $462.2 million, an increase of 118.4% over 2015
•
Pro forma revenue of $469.6 million
•
Net loss of $8.8 million
•
Adjusted EBITDA1 of $24.7 million
•
Acquired United Drywall Supply, Inc. on November 30, 2016

2016 Full Year Highlights
•
Record revenue of $1.4 billion, an increase of 69.7% over 2015
•
Pro forma revenue of $1.9 billion
•
Net loss of $28.4 million
•
Adjusted EBITDA1 of $79.8 million
•
Five acquisitions in 2016 contributing revenue of $340.5 million
•
Winroc-SPI integration continues on schedule

Tustin, CA, March 27, 2017 (Business Wire) - Foundation Building Materials, Inc. (NYSE: FBM), the second largest specialty distributor of wallboard and suspended ceiling systems in the United States and Canada, today reported fourth quarter and full year results for 2016.
"We generated strong results in 2016 reflecting the execution of the growth strategy and the momentum in the business," said Ruben Mendoza, President and CEO of FBM. He continued, "We achieved record revenues for the quarter and the year, we completed five acquisitions for the year, and we improved our operational efficiencies. We anticipate another year of strong growth in 2017 given healthy market dynamics and further execution of our acquisition strategy. We remain focused on driving growth and delivering operational and financial improvement through our strategic initiatives in the years ahead."

2016 Fourth Quarter Results

Net sales were $462.2 million for the three months ended December 31, 2016. Our base business net sales (net sales from branches that were owned by us since January 1, 2015 and branches that were opened by us during such period) increased $13.6 million, or 10.3%, over the prior year period. Complementary products grew by 96.3% to $118.8 million for the three months ended December 31, 2016. 








(1) Adjusted EBITDA is a non-GAAP measure. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate this measure, why we believe it is important and a reconciliation thereof to the most directly comparable GAAP measure.

1




Gross profit was $132.3 million for the three months ended December 31, 2016, representing a gross margin of 28.6%. Gross margin was impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes.
 
Selling, general and administrative ("SG&A") expenses were $110.1 million for the three months ended December 31, 2016. SG&A expenses were impacted by warehousing and delivery costs driven by increased net sales and acquired branches. Payroll related and other expenses increased due to our continued investment in our infrastructure and support of our operations. We also incurred one-time expenses as a result of our initial public offering process and other transaction costs of $5.0 million. One-time system implementation costs were $0.5 million.

2016 Fourth Quarter Segment Results

Specialty Building Products (SBP). Net sales were $400.5 million for the three months ended December 31, 2016, which were driven by the overall market growth in both the commercial and residential construction markets and our increased market share. The Winroc-SPI acquisition, which occurred in August 2016, contributed $113.6 million to the SBP segment during the three months ended December 31, 2016. Wallboard, ceilings and accessories accounted for the majority of SBP sales for the period.

Gross profit was $115.0 million for the three months ended December 31, 2016, representing a gross margin of 28.7%. Gross margin was impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes and our strategic initiatives to increase the mix of higher margin products.

Mechanical Insulation (MI). Net sales were $61.7 million for the three months ended December 31, 2016. We entered the mechanical insulation market as a result of the Winroc-SPI acquisition in August 2016.

Gross profit was $17.3 million for the three months ended December 31, 2016, representing a gross margin of 28.0%.

2016 Full Year Results

Net sales were $1,392.5 million for the year ended December 31, 2016. Our base business net sales (net sales from branches that were owned by us since January 1, 2015 and branches that were opened by us during such period) increased $49.7 million, or 9.3%, year over year due to our continued organic growth initiatives. Complementary products grew by 66.6% to $369.8 million for the year ended December 31, 2016. 

Gross profit was $396.8 million for the year ended December 31, 2016, representing a gross margin of 28.5%. Gross margin was negatively impacted by inventory fair value adjustments of $6.5 million for the year ending December 31, 2016. Excluding these fair value adjustments, gross profit was $403.3 million and gross margin was 29.0% for the year ended December 31, 2016. Gross margin was also impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes.
 
SG&A expenses were $328.8 million for the year ended December 31, 2016. SG&A expenses were impacted by warehousing and delivery costs driven by increased net sales and acquired branches. Payroll related and other expenses increased due to our continued investment in our infrastructure and support of our operations. We also incurred one-time expenses as a result of our initial public offering and other transaction costs of $23.2 million. One-time system implementation costs for the year were $3.9 million.

2016 Full Year Segment Results

Specialty Building Products (SBP). Net sales were $1,293.5 million for the year ended December 31, 2016, which were driven by the overall market growth in both the commercial and residential construction markets and our increased market share. The Winroc-SPI acquisition, which occurred in August 2016, contributed $194.0 million to the SBP segment. Wallboard, ceilings and accessories accounted for the majority of SBP sales for the year ended December 31, 2016.


2

Gross profit was $369.4 million for the year ended December 31, 2016, representing a gross margin of 28.6%. Gross margin was impacted by favorable pricing terms with our suppliers as a result of increased purchase volumes. Gross margin was negatively impacted by inventory fair value adjustments of $6.5 million for the year ending December 31, 2016. Excluding these fair value adjustments, gross profit was $375.9 million and gross margin was 29.1% for the year ended December 31, 2016.

Mechanical Insulation. Net sales were $99.0 million for the year ended December 31, 2016. We entered the mechanical insulation market as a result of the Winroc-SPI acquisition in August 2016.

Gross profit was $27.4 million for the year ended December 31, 2016, representing a gross margin of 27.7%.

Acquisitions

2016 Fourth Quarter Activity. On November 30, 2016, we acquired United Drywall Supply, Inc. ("United Drywall") for $30.0 million, subject to post-closing adjustments. United Drywall supplies building materials to commercial and residential developers in the Atlanta, Georgia metropolitan area and expands FBM's presence in this market. For the period from October 1, 2016 to November 30, 2016, United Drywall had sales of $7.4 million, net loss of $0.6 million and EBITDA2 loss of $0.6 million. We expect to realize synergies in connection with the United Drywall acquisition and other 2016 acquisitions through cost savings related to the elimination of redundant overhead costs and the application of volume discounts under our supplier programs. We estimate that these efforts would have resulted in cost savings of $3.7 million during the period.

2016 Full Year Activity. During 2016 we completed five acquisitions for a total of $402.0 million, several of which remain subject to post-closing adjustments. From January 1, 2016 through the date of each company's respective acquisition date, the cumulative revenues were $532.6 million, net income was $9.7 million and EBITDA2 was $20.7 million. We realized synergies in connection with the 2016 acquisitions through cost savings related to the elimination of redundant overhead costs and the application of volume discounts under our supplier programs. We estimate that these efforts would have resulted in cost savings of $17.8 million during the period.

Conference Call Information

In conjunction with this release, Foundation Building Materials, Inc. will host a conference call today, Monday, March 27, 2017, at 5:00 pm Eastern Time. Ruben Mendoza, President and Chief Executive Officer and John Gorey, Chief Financial Officer will host the call.
 
Investors may dial into the call at (877) 407-9039 (U.S.) or (201) 689-8470 (international) five to ten minutes prior to the start time to allow for registration.
 
Investors may also listen to the live audio webcast via the Investor Relations page of the Foundation Building Materials, Inc. website, http://investors.fbmsales.com. Please allow 15 minutes prior to the call to download and install any necessary audio software.
 
An audio replay of the event will be archived on the Investor Relations page of the company's website, at
http://investors.fbmsales.com. The audio replay will also be available via telephone from Monday, March 27, 2017, at approximately 5:00 p.m. Pacific Time through Monday, April 3, 2017, at 9:00 p.m. Pacific Time. Dial (844) 512-2921 and enter the passcode 13656948. International callers should dial (412) 317-6671 and enter the same passcode number to access the audio replay. 




(2) EBITDA is a non-GAAP measure. See the supplementary schedules at the end of this press release for a discussion of how we define and calculate this measure, why we believe this is important and a reconciliation thereof to the most directly comparable GAAP measure.

3


About Foundation Building Materials

Foundation Building Materials is a specialty distributor of wallboard and suspended ceiling systems throughout the U.S. and Canada. Based in Tustin, California, the Company employs more than 3,400 people and operates more than 200 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 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 the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for additional information regarding the risks and uncertainties that may cause actual results to differ materially from those expressed in any forward-looking statement.

Contact Information:
Investor Relations:
Foundation Building Materials, Inc.
657-900-3200
Investors@fbmsales.com

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


- Financial Tables Follow -


4




LSF9 CYPRESS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

 
Successor
 
Predecessor
 
Three Months Ended December 31, 2016
 
October 9,
2015 to
December 31,
2015
 
October 1,
2015 to
October 8,
2015
 
(Unaudited)
 
 
(Audited)
 
 
 
(Unaudited)
 
Net sales
$
462,194

 
$
192,539

 
 
$
19,102

 
Cost of goods sold (exclusive of depreciation and amortization)
329,937
 
 
143,333
 
 
 
12,370
 
 
Gross profit
132,257
 
 
49,206
 
 
 
6,732
 
 
Operating expenses:
 
 
 
 
 
Selling, general and administrative expenses
110,089
 
 
47,660
 
 
 
32,571
 
 
Depreciation and amortization
17,773
 
 
7,170
 
 
 
490
 
 
Total operating expenses
127,862
 
 
54,830
 
 
 
33,061
 
 
Income (loss) from operations
4,395
 
 
(5,624
)
 
 
(26,329
)
 
Interest expense
(15,309
)
 
(7,044
)
 
 
(3,373
)
 
Other (expense) income, net
(7,265
)
 
9
 
 
 
—
 
 
Loss before income taxes
(18,179
)
 
(12,659
)
 
 
(29,702
)
 
Income tax (benefit) expense
(9,375
)
 
(4,733
)
 
 
31
 
 
Net loss
$
(8,804
)
 
$
(7,926
)
 
 
$
(29,733
)
 
Loss per share data:
 


 
 
 
 
 
 
 
 
Basic
$
(0.29
)
 
$
(0.26
)
 
 
 
 
Diluted
$
(0.29
)
 
$
(0.26
)
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
29,974,239
 
 
29,974,239
 
 
 
 
 
Diluted
29,974,239
 
 
29,974,239
 
 
 
 
 


5


LSF9 CYPRESS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (Audited)
(in thousands, except share and per share data)

 
Successor
Predecessor
 
Year
Ended
December 31,
2016
 
October 9,
2015 to
December 31,
2015
January 1,
2015 to
October 8,
2015
 
Year
Ended
December 31,
2014
Net sales
$
1,392,509

 
$
192,539

 
$
628,066

 
 
$
508,853

 
Cost of goods sold (exclusive of depreciation and amortization)
995,704
 
 
143,333
 
 
452,909
 
 
 
368,064
 
 
Gross profit
396,805
 
 
49,206
 
 
175,157
 
 
 
140,789
 
 
Operating expenses:
 
 
 
 
 
 
Selling, general and administrative expenses
328,847
 
 
47,660
 
 
171,215
 
 
 
120,145
 
 
Depreciation and amortization
51,378
 
 
7,170
 
 
15,615
 
 
 
11,729
 
 
Total operating expenses
380,225
 
 
54,830
 
 
186,830
 
 
 
131,874
 
 
Income (loss) from operations
16,580
 
 
(5,624
)
 
(11,673
)
 
 
8,915
 
 
Interest expense
(52,511
)
 
(7,044
)
 
(19,090
)
 
 
(9,980
)
 
Other (expense) income, net
(7,172
)
 
9
 
 
14
 
 
 
36
 
 
Loss before income taxes
(43,103
)
 
(12,659
)
 
(30,749
)
 
 
(1,029
)
 
Income tax (benefit) expense
(14,733
)
 
(4,733
)
 
(1,294
)
 
 
812
 
 
Net loss
$
(28,370
)
 
$
(7,926
)
 
$
(29,455
)
 
 
$
(1,841
)
 
Loss per share data:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
(0.95
)
 
$
(0.26
)
 
 
 
 
 
 
Diluted
$
(0.95
)
 
$
(0.26
)
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
29,974,239
 
 
29,974,239
 
 
 
 
 
 
 
Diluted
29,974,239
 
 
29,974,239
 
 
 
 
 
 
 


6


LSF9 CYPRESS HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS (Audited)
(in thousands)
 
 
Successor
 
 
December 31,
2016
 
December 31,
2015
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
28,552

 
 
$
10,662

 
Accounts receivables—net of allowance for doubtful accounts of 2016—$5,685 and 2015—$6,304
 
261,686
 
 
 
138,621
 
 
Other receivables
 
52,845
 
 
 
24,673
 
 
Inventories
 
157,991
 
 
 
71,876
 
 
Prepaid expenses and other current assets
 
12,516
 
 
 
4,666
 
 
Total current assets
 
513,590
 
 
 
250,498
 
 
Property and equipment, net
 
144,387
 
 
 
66,141
 
 
Intangibles assets, net
 
215,381
 
 
 
154,458
 
 
Goodwill
 
437,935
 
 
 
289,086
 
 
Other assets
 
9,692
 
 
 
3,204
 
 
Total assets
 
$
1,320,985

 
 
$
763,387

 
Liabilities and member’s equity
 
 
 
 
Current liabilities:
 
 
 
 
Asset-based credit facility
 
$
—

 
 
$
70,000

 
Accounts payable
 
119,788
 
 
 
59,193
 
 
Accrued payroll and employee benefits
 
26,956
 
 
 
10,942
 
 
Accrued taxes
 
9,151
 
 
 
5,765
 
 
Other current liabilities
 
49,613
 
 
 
9,501
 
 
Current portion of notes payable
 
—
 
 
 
1,492
 
 
Total current liabilities
 
205,508
 
 
 
156,893
 
 
Asset-based credit facility
 
208,469
 
 
 
—
 
 
Long-term portion of notes payable, net
 
525,487
 
 
 
300,315
 
 
Deferred income taxes, net
 
26,867
 
 
 
15,310
 
 
Other liabilities
 
26,138
 
 
 
118
 
 
Total liabilities
 
992,469
 
 
 
472,636
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Member's equity
 
364,815
 
 
 
298,677
 
 
Accumulated deficit
 
(36,296)
 
 
 
(7,926
)
 
Other comprehensive loss
 
(3)
 
 
 
—
 
 
Total member's equity
 
328,516
 
 
 
290,751
 
 
Total liabilities and member's equity
 
$
1,320,985

 
 
$
763,387

 


7


LSF9 CYPRESS HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Audited)
(in thousands)
 
Successor
 
Predecessor
 
Year
Ended
December 31,
2016
 
October 9,
2015 to
December 31,
2015
 
January 1,
2015 to
October 8,
2015
 
Year
Ended
December 31,
2014
Cash flows from operating activities:
 
 
 
 
 
 
 
Net loss
$
(28,370
)
 
$
(7,926
)
 
 
$
(29,455
)
 
 
$
(1,841
)
 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation
16,487

 
1,973
 
 
 
7,808
 
 
 
7,586
 
 
Amortization of intangible assets
34,891

 
5,197
 
 
 
7,807
 
 
 
4,143
 
 
Amortization and write-off of debt issuance costs and debt discount
5,950

 
787
 
 
 
3,078
 
 
 
411
 
 
Inventory fair value adjustment
6,469

 
7,453
 
 
 
1,606
 
 
 
—
 
 
Loss on extinguishment of debt
5,354

 
—
 
 
 
—
 
 
 
—
 
 
Provision for doubtful accounts
1,608

 
483
 
 
 
1,511
 
 
 
1,610
 
 
Unrealized loss on derivate instruments, net
6,952

 
—
 
 
 
—
 
 
 
—
 
 
Loss (gain) on disposal of property and equipment
1,791

 
(30
)
 
 
281
 
 
 
202
 
 
Paid-in-kind interest
—

 
—
 
 
 
250
 
 
 
322
 
 
Deferred income taxes
(17,669
)
 
6,521
 
 
 
(1,837
)
 
 
113
 
 
Change in assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
Accounts receivables
5,985

 
11,436
 
 
 
(24,859
)
 
 
(9,375
)
 
Other receivables
(13,220
)
 
(5,973
)
 
 
(2,806
)
 
 
(5,293
)
 
Inventories
(9,727
)
 
89
 
 
 
4,862
 
 
 
(6,267
)
 
Prepaid expenses and other current assets
(3,588
)
 
942
 
 
 
(1,252
)
 
 
787
 
 
Other assets
(800
)
 
10,110
 
 
 
(1,019
)
 
 
(651
)
 
Accounts payable
(21,622
)
 
(13,088
)
 
 
21,437
 
 
 
1,304
 
 
Accrued payroll and employee benefits
3,931

 
1,753
 
 
 
9,342
 
 
 
2,486
 
 
Accrued taxes
3,392

 
(1,399
)
 
 
4,019
 
 
 
1,147
 
 
Other liabilities
35,316

 
(718
)
 
 
18,403
 
 
 
(673
)
 
Net cash provided by (used in) operating activities
33,130

 
17,610
 
 
 
19,176
 
 
 
(3,989
)
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Capital expenditures
(30,473
)
 
(2,760
)
 
 
(9,776
)
 
 
(9,205
)
 
Proceeds from the disposal of fixed assets
587

 
—
 
 
 
—
 
 
 
—
 
 
Acquisitions, net of cash acquired
(401,919
)
 
(657,563
)
 
 
(87,490
)
 
 
(93,231
)
 
Net cash used in investing activities
(431,805
)
 
(660,323
)
 
 
(97,266
)
 
 
(102,436
)
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from asset-based credit facility
456,469

 
80,000
 
 
 
205,915
 
 
 
75,993
 
 
Repayments of asset-based credit facility
(318,000
)
 
(10,000
)
 
 
(199,299
)
 
 
(34,892
)
 
Principal borrowings on long-term debt
645,000

 
307,950
 
 
 
80,000
 
 
 
65,000
 
 
Principal payments on long-term debt
(397,369
)
 
—
 
 
 
—
 
 
 
(194
)
 
Debt issuance costs
(34,406
)
 
(8,172
)
 
 
(1,165
)
 
 
(904
)
 

8


Principal repayment of capital lease obligations
(1,175
)
 
—
 
 
 
—
 
 
 
—
 
 
Other financing activities
—

 
—
 
 
 
—
 
 
 
(856
)
 
Capital contributions
66,205

 
272,904
 
 
 
1,116
 
 
 
326
 
 
Capital distributions
(67
)
 
—
 
 
 
—
 
 
 
—
 
 
Net cash provided by financing activities
416,657

 
642,682
 
 
 
86,567
 
 
 
104,473
 
 
Effect of exchange rate changes on cash
(92
)
 
—
 
 
 
—
 
 
 
—
 
 
Net increase (decrease) in cash
17,890

 
(31
)
 
 
8,477
 
 
 
(1,952
)
 
Cash and cash equivalents at beginning of period
10,662

 
10,693
 
 
 
2,216
 
 
 
4,168
 
 
Cash and cash equivalents at end of period
$
28,552

 
$
10,662

 
 
$
10,693

 
 
$
2,216

 
Supplemental disclosures of cash flow information:
 
 
 
 
 
 
 
Cash paid during the period for income taxes
$
4,448

 
$
1

 
 
$
257

 
 
$
736

 
Cash paid during the period for interest
$
19,745

 
$
6,695

 
 
$
15,649

 
 
$
9,978

 
Cash paid during the period for early debt repayment penalty
$
1,600

 
$
—

 
 
$
—

 
 
$
—

 
Supplemental disclosures of non-cash investing and financing activities:
 
 
 
 
 
 
 
Change in fair value of derivatives, net of tax
$
1,461

 
$
—

 
 
$
—

 
 
$
—

 
Assets acquired under capital lease
$
3,196

 
$
—

 
 
$
—

 
 
$
—

 
Embedded derivative
$
6,200

 
$
—

 
 
$
—

 
 
$
—

 
Goodwill adjustment for purchase price allocation
$
1,210

 
$
—

 
 
$
—

 
 
$
—

 
Fair value of stock issued in acquisitions
$
—

 
$
—

 
 
$
—

 
 
$
800

 


9


Supplementary Schedules

LSF9 CYPRESS HOLDINGS, LLC
SALES BY PRODUCT CATEGORY
(in thousands)

 
Successor
 
Year Ended
December 31,
2016
Wallboard and accessories
$
640,122

Metal framing
218,810

Suspended ceiling systems
191,745

Other products
263,758

Commercial and industrial insulation
78,074

Net sales
$
1,392,509



10


Base Business Information
The table below shows the allocation of base business net sales and branches acquired and includes the impact of branches strategically consolidated or closed, for the three months ended December 31, 2016.
(in thousands)
 
Net sales for the three months ended December 31, 2015
$
211,641

Increase in net sales due to:
 
Base business net sales(1)
13,632

Branches consolidated/closed(2)
12,643

Branches acquired(3)
224,278

Net sales for the three months ended December 31, 2016
$
462,194


The table below shows the allocation of base business net sales and branches acquired and includes the impact of branches strategically consolidated or closed, for the year ended December 31, 2016.
(in thousands)
 
Net sales for the year ended December 31, 2015
$
820,605

Increase in net sales due to:
 
Base business net sales(1)    
49,673

Branches consolidated/closed(2)    
40,340

Branches acquired(3)    
481,891

Net sales for the year ended December 31, 2016   
$
1,392,509


(1)
Represents net sales from branches that were owned by us since January 1, 2015 and branches that were opened by us during such period.
(2)
Represents branches consolidated/closed after January 1, 2015, primarily as a result of our strategic consolidation of branches. This includes increases in net sales from branches that assumed operations of closed branches.
(3)
Represents branches acquired after January 1, 2015.




11


Non-GAAP (Generally Accepted Accounting Principles) Financial Measures

In addition to results under GAAP, this press release contains certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, which are provided as supplemental measures of financial performance. These measures are not required by, or presented in accordance with, GAAP. We calculate EBITDA as net income (loss) before interest expense, income tax benefit (expense), depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before certain non-recurring adjustments such as purchase accounting adjustments impacting margins, non-cash (gains) losses on the sale of property and equipment and derivative financial instruments and management fees paid to current and former private equity sponsors.

EBITDA and Adjusted EBITDA are presented because they are important metrics used by management as one of the means by which it assesses financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our 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 our company and its results of operations.

EBITDA and Adjusted EBITDA have certain limitations. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income, or as any other measures of financial performance derived 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, EBITDA and Adjusted EBITDA are not intended to be liquidity measures. Other companies, including other companies in our industry, may not use such measures or may calculate one or more of the measures differently than we do, limiting their usefulness as a comparative measure.



12


The following is a reconciliation of our EBITDA and Adjusted EBITDA to the nearest GAAP measure, net loss:

 
Successor 
 
 
Three Months Ended December 31, 2016
 
Year Ended December 31, 2016
(in thousands)
 
 
 
Net loss
$
(8,804
)
 
$
(28,370
)
Interest expense, net(a)   
15,303

 
52,487

Income tax benefit
(9,375
)
 
(14,733
)
Depreciation and amortization
17,773

 
51,378

EBITDA
$
14,897

 
$
60,762

 
 
 
 
Unrealized non-cash losses on derivative financial instruments(b)   
7,271

 
7,123

Non-cash, purchase accounting effects(c)    
96

 
6,469

Loss on disposal of property and equipment
1,548

 
1,791

Management fees(d)
903

 
3,622

Adjusted EBITDA
$
24,715

 
$
79,767

 
 
 
 
(a) Represents interest expense and interest income. In addition, included in interest expense, the Company incurred a loss of $7.0 million related to the refinancing of the 2015 Credit Facilities.
(b) Represents non-cash expense related to unrealized losses on derivative financial instruments.
(c) Adjusts for the 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 recent acquisitions.
(d) Represents fees paid to the Sponsor and former private equity sponsors for services provided pursuant to past and present management agreements. These fees are no longer being incurred subsequent to our initial public offering.


The table below summarizes total net sales, net loss and EBITDA of United Drywall for the portion of the three months ended December 31, 2016 occurring prior to the acquisition and total net sales, net income, EBITDA and Adjusted EBITDA for the 2016 acquisitions for the period from January 1, 2016 through the date of each company’s respective acquisition date:

 
Successor 
 
 
Three Months Ended December 31, 2016
 
Year Ended December 31, 2016
(in thousands)
 
 
 
Net sales
$
7,435

 
$
532,605

 
 
 
 
Net (loss) income
(636
)
 
9,657

   Interest, net
10

 
8,489

   Taxes
—

 
3,888

   Depreciation and amortization
66

 
4,714

EBITDA
$
(560
)
 
$
26,748

Gain on derivative from Winroc-SPI
—

 
(5,142
)
IFRS adjustment from Winroc-SPI
—

 
(947
)
Adjusted EBITDA
$
(560
)
 
$
20,659



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Pro Forma Net Sales

The following is a reconciliation of net sales to pro forma net sales:

 
Successor 
 
 
Three Months Ended December 31, 2016
 
Year Ended December 31, 2016
(in thousands)
 
 
 
Net sales
$
462,194

 
$
1,392,509

Ken Builders Supply, Inc.
—

 
23,644

Winroc-SPI
—

 
463,398

Unaudited 2016 acquisitions
7,435

 
45,508

Pro forma net sales(1)
$
469,629

 
$
1,925,059

(1) Fourth quarter pro forma sales include sales from United Drywall Supply, Inc. from October 1, 2016 through the date of the acquisition. Pro forma sales for 2016 include sales for Ken Builders Supply, Inc., Kent Gypsum Supply Inc., Mid America Drywall Supply, Inc., Winroc-SPI and United Drywall Supply, Inc. from January 1, 2016 through the respective dates of their acquisition.



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