Nci Building Systems Reports

The following excerpt is from the company's SEC filing.

First Quarter 2017 Results

HOUSTON, March 7, 2017 – NCI Building Systems, Inc. (NYSE: NCS)

(“NCI” or the “Company”) today reported financial results for the first fiscal quarter ended January 29, 2017.

First Quarter 2017 Financial and Operational Highlights:

Sales rose 5.9% to $391.7 million, compared to $370.0 million in last year’s first quarter, driven by an improvement in underlying tonnage volumes and increased pricing

Gross profit for the quarter was $84.0 million or 21.4% of revenues compared to $89.7 million or 24.2% of revenues in the prior year’s first quarter

N et income decreased to $2.0 million from $5.9 million in last year’s first quarter

Net income per diluted common share was $0.03 compared to $0.08 in the prior year first quarter. Adjusted Net Income was $0.05 per diluted common share compared to $0.07 in last year’s first quarter

Adjusted EBITDA was $26.2 million or 6.7% of revenue for the period compared to the prior year’s first quarter Adjusted EBITDA of $29.1 million or 7.9% of revenue

Total consolidated backlog increased to $527.1 million, up 10.3% year-over-year

Norman C. Chambers, Chairman and Chief Executive Officer, commented, “We are pleased with our first quarter results, which were higher than the guidance we provided due to stronger demand in our Coaters and Components businesses, as well as commercial discipline in an environment of increasing input costs. We continue to be encouraged by the strength of our internal economic indicators, steel pricing trends and, most importantly, the year-over-year growth in our bookings and backlog, both of which are being driven by increased demand for our legacy and insulated metal panel products. Looking ahead, we anticipate that the growth in all our businesses during the second quarter will strengthen the first half of the year and allow us to achieve our top and bottom line financial targets for 2017.”

First Quarter 2017 Results

First quarter 2017 sales increased to $391.7 million, or 5.9%, from $370.0 million in last year's first quarter, due to an increase in tonnage volumes, most notably in the Coaters and Components segments, as well as continued commercial discipline in passing through rising steel prices.

Gross profit decreased 6.4% to $84.0 million from $89.7 million in the first quarter of 2016 and gross profit margin contracted 280 basis points to 21.4%, compared to 24.2% in the prior year period. The decline in margin was driven primarily by a combination of rapidly rising steel input costs (versus rapidly declining input costs in the prior year period) combined with a less favorable product mix in the Components segment, where cold storage represented the largest part of the insulated metal panels (IMP) sales for the period and an IMP manufacturing facility was off line for scheduled improvements. Additionally in the first quarter of 2016 as previously reported, NCI recorded a $0.7 million gain on the sale of an asset. Steel input costs, which can impact any given quarter due to the timing of steel cost changes, historically do not impact gross margins when viewed from a broader full year perspective. The Company passes on steel cost increases.

Engineering, selling, general and administrative (ESG&A) expenses decreased to $69.0 million from $69.9 million in the first quarter of 2016 as a result of lower year-over-year incentive compensation and cost reduction initiatives. As a percentage of revenues, ESG&A expenses decreased approximately 130 basis points to 17.6% in the 2017 first quarter compared to 18.9% in the prior year’s period.

Operating income decreased to $9.9 million compared to $15.3 million in the prior year’s first quarter. Adjusted operating income, a non-GAAP measure which excludes identified special items, decreased to $12.5 million in the current quarter from $16.7 million in the first quarter of 2016.

First quarter 2017 net income applicable to common shares was $2.0 million, or $0.03 per diluted common share compared to the prior year’s $5.8 million, or $0.08 per diluted common share. Net income was impacted by the following special items: $2.3 million of restructuring and impairment charges; and $0.4 million of strategic development and acquisition integration costs which were offset by $1.0 million from the related tax effect. Excluding the impact of these special items, the Company reported adjusted net income applicable to common shares, a non-GAAP measure, of $3.6 million, or $0.05 per diluted common share, compared to $4.9 million, or $0.07 per diluted common share, in the first quarter of 2016.

Adjusted EBITDA, a non-GAAP measure, defined in accordance with the Company's Credit Agreement as earnings before interest, taxes, depreciation and amortization, and cash and other non-cash items, was $26.2 million, down 10.1% from $29.1 million in the prior year’s first quarter.

Please see the reconciliation of Adjusted Operating Income, Adjusted Net Income and Adjusted EBITDA in the accompanying financial tables.

Cash and cash equivalents at quarter’s end was $15.8 million compared to $73.8 million in the comparable period in fiscal 2016 and declined sequentially from $65.4 million at the end of the fourth quarter of fiscal 2016 as a result of a substantial investment in inventory ahead of rising steel costs. The Company paid down an additional $10 million under its term loan in the first quarter of fiscal 2017, the ninth consecutive quarter of debt repayment. Additionally, the Company utilized $3.5 million to repurchase 0.2 million shares during the quarter at an average purchase price of $14.18 per share. NCI’s net debt leverage ratio at the end of the first fiscal quarter was 2.3x compared to 2.0x at the end of the fourth quarter of 2016. In addition, the Company’s $150.0 million ABL facility remained undrawn as of January 29, 2017.

First Quarter 2017 Segment Performance

Third party sales in the Buildings group decreased 0.6% to $145.0 million in the first quarter from $146.0 million in the prior year quarter, primarily as a result of the slowdown in business activity prior to the November election. Operating income was $6.5 million for the quarter compared to $12.5 million in the first quarter of 2016. Adjusted operating income decreased to $8.4 million in the current quarter, compared to $12.2 million in the first quarter of fiscal 2016. The decrease in the segment’s operating margins relates primarily to steep increases in steel prices for the period compared to the first quarter of 2016 where steel prices were in a steeply declining market.

The Components group generated $219.0 million in third-party sales during the quarter, an increase of 7.9% from $202.9 million in the first quarter of fiscal 2016, led by growth in the IMP product lines, as well as continued strength in the legacy metal component products. Operating income was $16.0 million for the quarter compared to $16.1 million in the first quarter of 2016. Adjusted operating income decreased to $16.3 million from $16.8 million in the same quarter last fiscal year. The Components segment’s profitability benefited from good volume growth and commercial discipline during the period, offset by a predominance of cold storage in the product mix for IMP and an IMP plant being off line for planned improvements.

Third party sales in the Coatings group were $27.7 million, a 31.0% increase from $21.2 million in last year’s first quarter. Operating income increased 8.8% to $5.2 million in the first quarter of fiscal 2017, compared to $4.8 million reported in the same period last year. Operating margins in the Coatings group were lower than the prior year primarily due to the intercompany product mix and the insourcing of intercompany processing activities that were incremental, but at lower margins.

Market Commentary

The leading indicators that NCI follows and that typically have the most meaningful correlation to nonresidential low-rise construction starts are the American Institute of Architects’ (“AIA”) Architecture Mixed Use Index, Dodge Residential single family starts and the Conference Board Leading Economic Index (“LEI”). Historically, there has been a very high correlation to the Dodge low-rise nonresidential starts when the three leading indicators are combined and then seasonally adjusted. The combined forward projection of these metrics, based on a 9 to 14-month historical lag for each metric, indicates an expected positive growth of 3.0% - 6.0% for low-rise new construction starts in fiscal 2017, with the majority of that growth occurring in the second half of the Company’s fiscal year.

Current market data from internal bookings shows improvements in a majority of NCI’s primary markets, including agriculture, commercial, industrial and institutional. In particular, commercial and manufacturing warehousing, office and banks, hangars, residential and governmental buildings have shown year-over-year positive growth. Overall, a majority of NCI’s geographic markets demonstrated year-over-year growth with South Atlantic and East North Central being particularly strong during the quarter.

Outlook and Guidance

For the full year, NCI continues to expect 2017 to be a better year than 2016 in terms of revenues and Adjusted EBITDA, driven primarily by the Company’s ability to leverage expected market growth, its ongoing cost savings initiatives and opportunities to expand the IMP product lines. The Company’s two on-going cost savings initiatives in manufacturing consolidation and ESG&A

are expected to generate $30 to $40 million in cost savings by the end of 2018. During fiscal 2017, these two initiatives are anticipated to generate an incremental $10.0 million in cost savings.

Similar to past years’ seasonal trends, the Company expects the second half performance in 2017 to be stronger than the first half. For the second quarter of fiscal 2017, NCI expects revenues to be in the range of $400 to $425 million and gross profit margins to be in the range of 22.5% to 24.5%. For the full year fiscal 2017, the Company continues to expect revenues to be in the range of $1.75 to $1.85 billion and Adjusted EBITDA to be in the range of $175.0 to $205.0 million.

The Company has provided additional detailed financial guidance in the quarterly supplemental presentation at www.ncibuildingsystems.com under the “Investors” section.

Conference Call Information

The NCI Building Systems, Inc. first quarter 2017 conference call is scheduled for Wednesday, March 8, 2017, 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.ncibuildingsystems.com. To access the taped telephone replay, please dial 1-201-612-7415 or 1-877-660-6853 (toll-free) and the passcode 13654040# when prompted. The taped replay will be available two hours after the call through March 22, 2017. 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 NCI website for approximately 90 days.

About NCI Building Systems

NCI Building Systems, Inc. is one of North America's largest integrated manufacturers of metal products for the nonresidential building industry. NCI is comprised of a family of companies operating manufacturing facilities across the United States, Canada, Mexico and China with additional sales and distribution offices throughout the United States and Canada. For more information visit www.ncibuildingsystems.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 include, but are not limited to, the Company’s belief that the growth in all its businesses during the second quarter will strengthen the first half of the year and allow the Company to achieve its top and bottom line financial targets for 2017, the Company’s expectation of a 3.0% - 6.0% year-over-year increase in low-rise nonresidential new construction starts in fiscal 2017, with the majority of that growth occurring in the second half of the Company’s fiscal year, the Company’s expectation of year-over-year improvement in revenue and Adjusted EBITDA, the Company’s belief that its two key cost initiatives in manufacturing consolidation and ESG&A are expected to generate $10 million in cost savings in fiscal 2017, and between $30 to $40 million in cost savings by the end of fiscal 2018, the Company’s expectation that the second half performance in fiscal 2017 will be stronger than the first half, the Company’s expectation that for second quarter fiscal 2017, NCI expects revenues to be in the range of $400 to $425 million and gross profit margins to be in the range of 22.5% to 24.5%, and the Company’s expectation that for the full year fiscal 2017, the Company expects revenues to be in the range of $1.75 to $1.85 billion and Adjusted EBITDA to be in the range of $175 to $205 million. Among the factors that could cause actual results to differ materially include, but are not limited to, industry cyclicality and seasonality and adverse weather conditions; challenging economic conditions affecting the nonresidential construction industry; volatility in the U.S. economy and abroad, generally, and in the credit markets; substantial indebtedness and our ability to incur substantially more indebtedness; our ability to generate significant cash flow required to service or refinance our existing debt, including the 8.25% senior notes due 2023, and obtain future financing; our ability to comply with the financial tests and covenants in our existing and future debt obligations; operational limitations or restrictions in connection with our debt; increases in interest rates; recognition of asset impairment charges; commodity price increases and/or limited availability of raw materials, including steel; our ability to make strategic acquisitions accretive to earnings; retention and replacement of key personnel; our ability to carry out our restructuring plans and to fully realize the expected cost savings, enforcement and obsolescence of intellectual property rights; fluctuations in customer demand; costs related to environmental clean-ups and liabilities; competitive activity and pricing pressure; increases in energy prices; volatility of the Company's stock price; dilutive effect on the Company's common stockholders of

potential future sales of the Company's common stock held by our sponsor; substantial governance and other rights held by our sponsor; breaches of our information system security measures and damage to our major information management systems; hazards that may cause personal injury or property damage, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance; changes in laws or regulations, including the Dodd-Frank Act; the timing and amount of our stock repurchases; and costs and other effects of legal and administrative proceedings, settlements, investigations, claims and other matters. See also the “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended October 30, 2016, which identifies 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.

NCI BUILDING SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Fiscal Three Months Ended

January 29,

January 31,

391,703

370,014

Cost of sales

307,752

281,023

Gain on sale of assets and asset recovery

83,951

89,716

Engineering, selling, general and administrative expenses

69,039

69,850

Intangible asset amortization

Strategic development and acquisition related costs

Restructuring and impairment charges

Income from operations

15,259

Gain from bargain purchase

Interest income

Interest expense

(6,886

(7,869

Foreign exchange loss

Other income (expense), net

Income before income taxes

Provision for income taxes

Net income allocated to participating securities

Net income applicable to common shares

Income per common share:

Diluted

Weighted average number of common shares outstanding:

70,875

73,261

71,088

73,771

Increase in sales

Engineering, selling, general and administrative expenses percentage

CONSOLIDATED BALANCE SHEETS

(In thousands)

October 30,

ASSETS

15,789

65,403

Restricted cash

Accounts receivable, net

161,492

182,258

Inventories, net

191,756

186,824

Income taxes receivable

Deferred income taxes

25,987

29,104

Investments in debt and equity securities, at market

Prepaid expenses and other

27,007

29,971

Assets held for sale

Total current assets

440,153

504,856

Property, plant and equipment, net

238,581

242,212

Goodwill

154,291

154,271

Intangible assets, net

144,363

146,769

Other assets, net

Total assets

979,410

1,050,200

LIABILITIES AND STOCKHOLDERS’ EQUITY

Note payable

Accounts payable

112,714

142,913

Accrued compensation and benefits

54,004

72,612

Accrued interest

Other accrued expenses

93,392

103,384

Total current liabilities

261,435

326,534

Long-term debt, net of deferred financing costs of $7,719 and $8,096

386,428

396,051

26,970

24,804

Other long-term liabilities

21,481

21,494

Total long-term liabilities

434,879

442,349

Common stock

Additional paid-in capital

595,794

603,120

Accumulated deficit

(300,667

(302,706

Accumulated other comprehensive loss, net

(10,467

(10,553

Treasury stock, at cost

(2,276

(9,259

Total stockholders’ equity

283,096

281,317

Total liabilities and stockholders’ equity

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

10,315

10,747

Amortization of deferred financing costs

Share-based compensation expense

(Gains) losses on assets, net

(2,589

Provision for doubtful accounts

Provision for deferred income taxes

Excess tax (benefits) shortfalls from share-based compensation arrangements

(1,515

Changes in operating assets and liabilities, net of effect of acquisitions:

19,181

23,669

(4,932

(6,777

(30,199

(35,619

Accrued expenses

(27,240

(22,100

Other, net

Net cash used in operating activities

(31,878

(4,200

Cash flows from investing activities:

Acquisitions, net of cash acquired

(3,071

Capital expenditures

(4,120

(5,772

Proceeds from sale of property, plant and equipment

Net cash used in investing activities

(5,777

Cash flows from financing activities:

Refund (deposit) of restricted cash

Proceeds from stock options exercised

Excess tax benefits (shortfalls) from share-based compensation arrangements

Proceeds from Amended ABL facility

30,000

Payments on Amended ABL facility

(30,000

Payments on term loan

(10,000

Payments on note payable

Purchases of treasury stock

(5,922

(4,627

Net cash used in financing activities

(13,702

(15,495

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

(49,614

(25,813

Cash and cash equivalents at beginning of period

99,662

Cash and cash equivalents at end of period

73,849

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

ADJUSTED NET INCOME PER DILUTED COMMON SHARE AND

NET INCOME COMPARISON

Net income per diluted common share, GAAP basis

(Gain) on sale of assets and asset recovery

(Gain) from bargain purchase

Tax effect of applicable non-GAAP adjustments

Adjusted net income per diluted common share

Strategic development and acquisition related costs

(1,864

(1,022

Adjusted net income applicable to common shares

The Company discloses a tabular comparison of Adjusted net income per diluted common share and Adjusted net income applicable to common shares, which are non-GAAP measures, because they are referred to in the text of our press releases and are instrumental in comparing the results from period to period. Adjusted net income per diluted common share and Adjusted net income applicable to common shares should not be considered in isolation or as a substitute for net income per diluted common share and net income applicable to common shares as reported on the face of our consolidated statements of operations.

The Company calculated the tax effect of non-GAAP adjustments by applying the applicable statutory tax rate for the period to each applicable non-GAAP item.

Business Segments

January 31, 2016

Inc/(Dec)

Sales:

Engineered building systems

151,263

148,975

Metal components

245,300

230,456

14,844

Metal coil coating

64,202

51,206

12,996

Total sales

460,765

430,637

30,128

Less: Intersegment sales

69,062

60,623

Total net sales

21,689

Operating income (loss):

12,462

(5,959

16,030

16,104

Corporate

(17,891

(18,126

Total operating income

(% of sales)

(5,373

Adjusted operating income (loss)

12,237

(3,824

16,335

16,755

(17,485

(17,086

Total adjusted operating income

12,507

16,725

(4,218

The Company discloses a tabular comparison of Adjusted operating income (loss), which is a non-GAAP measure, because it is instrumental in comparing the results from period to period. Adjusted operating income (loss) should not be considered in isolation or as a substitute for operating income (loss) as reported on the face of our statements of operations. See the reconciliation of Adjusted operating income (loss) to operating income (loss) on the following page.

BUSINESS SEGMENTS

RECONCILIATION OF OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME (LOSS) EXCLUDING SPECIAL CHARGES

FISCAL THREE MONTHS ENDED JANUARY 29, 2017 AND JANUARY 31, 2016

Three Months Ended January 29, 2017

Engineered Building Systems

Metal Components

Metal Coil Coating

Consolidated

Operating income (loss), GAAP basis

Three Months Ended January 31, 2016

COMPUTATION OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION,

AMORTIZATION AND OTHER ITEMS (ADJUSTED EBITDA)

2nd Quarter

May 1,

3rd Quarter 

July 31,

4th Quarter 

1st Quarter 

Trailing 

12 Months 

January 29, 

23,715

19,001

47,175

10,765

10,595

41,492

Consolidated interest expense, net

29,906

11,627

12,649

26,760

11,352

(Gain) loss on sale of assets and asset recovery

25,455

57,828

53,663

26,173

163,119

2nd Quarter 

May 3,

August 2,

November 1,

Net income (loss)

(7,489

18,407

24,030

13,766

14,541

13,354

52,408

32,255

Provision (benefit) for income taxes

(4,087

10,029

11,915

11,339

(Gain) on legal settlements

(3,765

Fair value adjustments of acquired inventory

15,788

38,189

56,449

29,123

139,549

The Company's Credit Agreement defines Adjusted EBITDA. Adjusted EBITDA excludes non-cash charges for goodwill and other asset impairments and stock compensation as well as certain special charges. As such, the historical information is presented in accordance with the definition above. Concurrent with the amendment and restatement of the Term Loan facility, the Company entered into an Asset-Based Lending facility which has substantially the same definition of Adjusted EBITDA except that the ABL facility caps certain special charges. The Company is disclosing Adjusted EBITDA, which is a non-GAAP measure, because it is used by management and provided to investors to provide comparability of underlying operational results.

Reconciliation of Segment Sales to Third Party Segment Sales

1st Qtr 2017

1st Qtr 2016

Total Sales

Third Party Sales

145,021

145,950

26,341

27,555

(1,214

218,959

202,901

16,058

36,479

30,043

27,723

21,163

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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