CARY, NC, May 8, 2019 - NCI Building Systems, Inc. (NYSE: NCS) (“NCI” or the “Company”), the largest manufacturer of exterior building products in North America, today reported financial results for the quarter ended March 30, 2019. On April 11, 2019, the Company announced it will change its name to Cornerstone Building Brands, Inc. and trade under the ticker symbol “CNR” on the New York Stock Exchange, which is expected to become effective following shareholder approval at the Company’s annual shareholder meeting being held on May 23, 2019.
First Quarter Financial and Operational Highlights:
- Net sales of $1,064.8 million
- Gross profit of $185.9 million, or 17.5% of sales
- Net loss of $60.0 million and adjusted net loss of $35.2 million
- Adjusted EBITDA of $71.7 million, or 6.7% of net sales
“We are pleased to announce our first quarter results following the public release of our new name, Cornerstone Building Brands, which will become effective following the receipt of shareholder approval at the Company’s upcoming annual meeting,” said the Company’s Chairman and Chief Executive Officer James S. Metcalf. “During the first quarter, Cornerstone Building Brands made continued progress on our strategic and operational financial objectives despite fluctuations in both commercial and residential demand. While January and February sales volumes were negatively impacted by poor weather conditions across many of our key markets, demand improved meaningfully as we moved through March. We have also successfully taken pricing actions to offset higher raw material, freight and labor costs. Coupled with our ongoing cost savings initiatives, we expect to drive year-over-year margin improvement as we move into the second and third quarters of the year.”
Mr. Metcalf continued, “Our various cost saving initiatives, including our merger synergies, remain on track. At the same time, we continue to find new ways to take advantage of scale and purchasing power, while providing a broader product offering to our customers as demonstrated by our recent acquisition of Environmental StoneWorks. We are also taking steps to improve our working capital utilization, which we believe will further enhance our free cash flow generation helping us achieve our leverage targets and maximize the growth potential of the Company.”
First Quarter 2019 Results
In December 2018, the Company announced a change to its fiscal year end from a four-four-five week period ending in October to a calendar year end reporting structure. As a result, the financial results for the first quarter 2019 are not comparable to the first quarter of fiscal year 2018.
Consolidated net sales in the three months ended March 30, 2019 were $1,064.8 million, increasing approximately 152.7%, compared to $421.3 million in the three months ended January 28, 2018. The year-over-year improvement was primarily driven by the addition of Ply Gem’s sales.
Gross profit was $185.9 million in the three months ended March 30, 2019 compared to $91.9 million in the three months ended January 28, 2018. Gross profit margins were 17.5% in the three months ended March 30, 2019, compared to 21.8% in the three months ended January 28, 2018. The decrease in the gross profit percentage is largely attributed to $16.2 million of non-cash charges associated with purchase accounting for inventory related to the November 2018 merger of Ply Gem Parent, LLC (“Ply Gem Merger”) with and into the Company and the February 2019 acquisition of Environmental Materials, LLC (“Environmental StoneWorks” or “ESW”, such acquisition, the “ESW Acquisition”).
Selling, general and administrative (“SG&A”) expenses were $154.3 million in the three months ended March 30, 2019 compared to $74.8 million in the three months ended January 28, 2018. The increase year-over-year reflects the addition of Ply Gem’s SG&A expenses in the three months ended March 30, 2019. As a percentage of net sales, SG&A expenses were 14.5% in the three months ended March 30, 2019 compared to 17.7% in the three months ended January 28, 2018.
Operating loss in the three months ended March 30, 2019 was a loss of $27.4 million, compared to operating income of $12.9 million in the three months ended January 28, 2018. The operating loss in the 2019 period was due to $14.1 million in acquisition costs, the $16.2 million non-cash charge of purchase price allocated to inventories and $39.1 million in increased amortization expense associated with the intangibles from the Ply Gem Merger and ESW Acquisition. Adjusted Operating Income, a non-GAAP financial measure which excludes certain special items, was $7.4 million in three months ended March 30, 2019, compared to $19.3 million in the three months ended January 28, 2018.
Net loss applicable to common shares in the three months ended March 30, 2019 was $60.0 million, or $0.48 per diluted common share, compared to net income of $5.2 million, or $0.08 per diluted common share in the three months ended January 28, 2018. In addition to the acquisition and purchase accounting costs already mentioned, net loss was impacted by the following; $3.4 million in restructuring and impairment charges, partially offset by $8.7 million for the associated tax effect of these items.
Adjusted EBITDA, a non-GAAP measure, defined in accordance with the Company's credit agreement as earnings before interest, taxes, depreciation and amortization, and certain other cash and non-cash items, was $71.7 million in the three months ended March 30, 2019, compared to $32.4 million in the three months ended January 28, 2018. Please see the reconciliation of Adjusted Operating Income (Loss), Adjusted Net Income (Loss) and Adjusted EBITDA in the accompanying financial tables.
Cash and cash equivalents as of March 30, 2019 were $103.6 million, compared to $12.6 million as of January 28, 2018. As of March 30, 2019, the Company had $220.0 million drawn on its $611.0 million asset-based lending (“ABL”) facility.
First Quarter 2019 Segment Performance
Net sales in the Commercial segment were $425.0 million in the three months ended March 30, 2019 compared to $421.3 million in the three months ended January 28, 2018. The increase was primarily a result of commercial price discipline and the pass through of higher material costs. Gross profit was $90.4 million in the three months ended March 30, 2019, compared to $91.9 million in the three months ended January 28, 2018. As a percent of net sales, gross profit was 21.3%, a decrease of 50 basis points, compared to 21.8% in the three months ended January 28, 2018. The decrease was driven by lower tonnage volumes that resulted in lower leverage, partially offset by commercial discipline across all business lines and improved product mix. Operating income was $32.6 million during the three months ended March 30, 2019, compared to $37.8 million in the three months ended January 28, 2018.
The Siding segment generated $218.3 million in net sales during the three months ended March 30, 2019, which included $19.4 million for ESW. Gross profit in the three months ended March 30, 2019 was $33.2 million. Gross profit was negatively impacted by $16.2 million of non-cash charge of purchase price allocated to inventories associated with the Ply Gem Merger and ESW acquisition in the three months ended March 30, 2019. Excluding the impact of the inventory step-up, gross profit for the period would have been $49.4 million. Operating loss was $11.7 million in the three months ended March 30, 2019 due to higher intangible amortization and non-cash inventory charges.
Net sales in the Windows segment were $421.6 million during the three months ended March 30, 2019, which included $90.6 million and $81.9 million attributable to Silver Line and Atrium, respectively. Ply Gem’s acquisition of a portfolio of products sold under the Silver Line and American Craftsman brands, certain manufacturing plants and associated distribution and support services was completed on October 14, 2018 and the Atrium acquisition was completed on April 12, 2018. Excluding the Silver Line and Atrium entities, net sales would have been $249.1 million in the three months ended March 30, 2019. Gross profit in the three months ended March 30, 2019 was $62.3 million. As a percent of net sales, the Window segment’s gross profit was 14.8%. Operating loss was $4.3 million in the three months ended March 30, 2019 primarily due to higher intangible amortization associated with the Ply Gem merger.
Recent Developments
On February 20, 2019, NCI’s wholly-owned subsidiary, Ply Gem Industries, Inc. purchased 100% of the outstanding limited liability company interests of ESW for a total consideration of $182.6 million, subject to certain post-closing adjustments. The transaction was financed through borrowings under the Company’s asset-based revolving credit facility. During fiscal 2018, ESW generated $153.0 million in net sales.
Conference Call Information
The Company’s first quarter fiscal 2019 conference call is scheduled for Wednesday, May 8, 2019 at 9:00 a.m. ET (8:00 a.m. CT). Please dial 1-412-902-0003 or 1-877-407-0672 (toll-free) to participate in the call. To listen to a live broadcast of the call over the Internet or to review the archived call, please visit the Company's website at www.cornerstonebuildingbrands.com. To access the taped telephone replay, please dial 1-201-612-7415 or 1-877-660-6853 (toll-free) and the passcode 13690208# when prompted. The taped replay will be available two hours after the call through May 15, 2019. A replay of the webcast will be available on the Company’s website under the Event Calendar, Calls & Webcast section of the Investor Relations page of the website for approximately 90 days.
About Cornerstone Building Brands (NCI Building Systems, Inc. and Ply Gem Holdings, Inc.)
Cornerstone Building Brands is the largest manufacturer of exterior building products in North America. Headquartered in Cary, North Carolina, the organization serves residential and commercial customers across new construction and repair & remodel market. As the #1 manufacturer of windows, vinyl siding, insulated metal panels, metal roofing and wall systems and metal accessories, Cornerstone Building Brands combines a comprehensive portfolio of products with an expansive national footprint that includes more than 21,000 employees at manufacturing, distribution and office locations throughout North America. For more information, visit us at www.cornerstonebuildingbrands.com.
Contact:
K. Darcey Matthews
Vice President, Investor Relations
281-897-7785
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “anticipate," “guidance,” “plan,” “potential,” “expect,” “should,” “will,” “forecast” and similar expressions are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations, assumptions and/or beliefs concerning future events. As a result, these forward-looking statements rely on a number of assumptions, forecasts, and estimates and, therefore, these forward-looking statements are subject to a number of risks and uncertainties that may cause the Company's actual performance to differ materially from that projected in such statements. Such forward-looking statements may include, but are not limited to, statements concerning our market commentary and performance expectations. Among the factors that could cause actual results to differ materially include, but are not limited to, risks and uncertainties relating to industry cyclicality and seasonality and adverse weather conditions; challenging economic conditions affecting the nonresidential construction industry; downturns in the residential new construction and repair and remodeling end markets, or the economy or the availability of consumer credit; volatility in the United States (“U.S.”) economy and abroad, generally, and in the credit markets; inability to successfully develop new products or improve existing products; the effects of manufacturing or assembly realignments; changes in laws or regulations; the effects of certain external domestic or international factors that we may not be able to control, including war, civil conflict, terrorism, natural disasters and public health issues; our ability to obtain financing on acceptable terms; recognition of goodwill or asset impairment charges; commodity price volatility and/or limited availability of raw materials, including steel, PVC resin and aluminum; retention and replacement of key personnel; increases in union organizing activity and work stoppages at our facilities or the facilities of our suppliers; our ability to employ, train and retain qualified personnel at a competitive cost; enforcement and obsolescence of our intellectual property rights; changes in foreign currency exchange and interest rates; costs and liabilities related to compliance with environmental laws and environmental clean-ups; changes in building codes and standards; potential product liability claims, including class action claims and warranties, relating to products we manufacture; competitive activity and pricing pressure in our industry; the credit risk of our customers; the dependence on a core group of significant customers in our Windows and Siding segments; operational problems or disruptions at any of our facilities, including natural disasters; volatility of the Company’s stock price; our ability to make strategic acquisitions accretive to earnings; to fully realize expected cost savings and synergies, including those identified as a result of the Ply Gem Merger; significant changes in factors and assumptions used to measure certain of Ply Gem Parent LLC’s (“Ply Gem”) defined benefit plan obligations and the effect of actual investment returns on pension assets; volatility in transportation, energy and freight prices; the adoption of climate change legislation; limitations on our net operating losses and payments under the tax receivable agreement; breaches of our information system security measures; damage to our major information management systems; necessary maintenance or replacements to our enterprise resource planning technologies; potential personal injury, property damage or product liability claims or other types of litigation; compliance with certain laws related to our international business operations; the effect of tariffs on steel imports; the cost and difficulty associated with integrating and combining the businesses of NCI and Ply Gem; potential write-downs or write-offs, restructuring and impairment or other charges required in connection with the merger of Ply Gem with and into the Company with the Company continuing in its existence as a Delaware corporation; potential claims arising from the operations of our various businesses arising from periods prior to the dates they were acquired; substantial governance and other rights held by our sponsor investors; the effect on our common stock price caused by transactions engaged in by our sponsor investors, our directors or executives; our substantial indebtedness and our ability to incur substantially more indebtedness; limitations that our debt agreements place on our ability to engage in certain business and financial transactions; the effect of increased interest rates on our ability to service our debt; downgrades of our credit ratings and the results of the Company’s shareholder vote on May 23, 2019. See also the “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018, our Transition Report on Form 10-QT for the transition period from October 29, 2018 to December 31, 2018 and other risks described in documents subsequently filed by the Company from time to time with the SEC, which identify other important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements, whether as a result of new information, future events, or otherwise.