Continental Building Products Earnings 2019-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

As filed with the Securities and Exchange Commission on November 12, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number: 001-36293

CONTINENTAL BUILDING PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

Delaware

61-1718923

(State or other jurisdiction of incorporation)

(I.R.S Employer Identification No.)

12950 Worldgate Drive

Suite 700

Herndon

20170

(Address of principal executive offices)

(Zip Code)

(703)

480-3800

(Registrant's telephone number, including the area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol (s)

Name of Exchange on Which Registered

Common Stock, $0.001 par value per share

CBPX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 10, 2019, the registrant had outstanding 34,688,206 shares of the registrant’s common stock, which amount excludes 9,851,553 shares of common stock held by the registrant as treasury shares.

Table of Contents

Table of Contents to Third Quarter 2019 Form 10-Q


Part I - Financial Information			4
Item 1.	Financial Statements	4
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Balance Sheets	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statement of Equity	8
	Notes to the Unaudited Consolidated Financial Statements	10
	1. Background and Nature of Operations	10
	2. Significant Accounting Policies	10
	3. Trade Receivables, Net	11
	4. Inventories, Net	12
	5. Property, Plant and Equipment, Net	12
	6. Customer Relationships and Other Intangibles, Net	12
	7. Investment in Seven Hills	13
	8. Accrued and Other Liabilities	13
	9. Debt	14
	10. Derivative Instruments	15
	11. Leases	16
	12. Treasury Stock	17
	13. Share-Based Compensation	18
	14. Accumulated Other Comprehensive Loss	18
	15. Income Taxes	18
	16. Earnings Per Share	18
	17. Commitments and Contingencies	19
	18. Segment Reporting	20
	19. Fair Value Disclosures	21
	20. Buchanan Plant Outage	23
	21. Subsequent Event	25
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Overview	24
	Results of Operations	26
	Liquidity and Capital Resources	28
	Critical Accounting Policies and Estimates	29
	Forward-Looking Statements	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II - Other Information			31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signatures	33

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Continental Building Products, Inc.

Consolidated Statements of Operations

(unaudited)


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands, except share data and per share amounts)
Net sales	$	127,439	$	131,234	$	373,677	$	387,304
Cost of goods sold	99,532		94,306		286,288		279,185
Gross profit	27,907		36,928		87,389		108,119
Selling and administrative expense	9,626		9,957		28,397		29,826
Loss on intangible asset impairment	—		—		2,911		—
Gain from insurance recoveries, net	—		—		1,513		—
Gain from business interruption insurance	1,623		—		4,861		—
Operating income	19,904		26,971		62,455		78,293
Other expense, net	(66)		(29)		(168)		(256)
Interest expense, net	(2,220)		(2,549)		(7,107)		(7,963)
Income before losses from equity method investment and provision for income taxes	17,618		24,393		55,180		70,074
Losses from equity method investment	(191)		(393)		(603)		(1,148)
Income before provision for income taxes	17,427		24,000		54,577		68,926
Provision for income taxes	(3,979)		(5,436)		(12,355)		(14,821)
Net income	$	13,448	$	18,564	$	42,222	$	54,105

Net income per share:
Basic	$	0.39	$	0.51	$	1.21	$	1.46
Diluted	$	0.39	$	0.50	$	1.21	$	1.46
Weighted average shares outstanding:
Basic	34,688,206		36,732,746		34,911,640		37,012,536
Diluted	34,775,451		36,918,904		34,996,694		37,181,387

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands)
Net income	$	13,448	$	18,564	$	42,222	$	54,105
Foreign currency translation adjustment	(179)		298		450		(496)
Derivative instrument adjustments, net of taxes	(7)		(8)		(2,047)		1,489
Other comprehensive (loss)/income	(186)		290		(1,597)		993
Comprehensive income	$	13,262	$	18,854	$	40,625	$	55,098

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Balance Sheets


	September 30, 2019		December 31, 2018
	(unaudited)
	(in thousands)
Assets:
Cash and cash equivalents	$	126,433	$	102,633
Trade receivables, net	43,098		38,454
Inventories, net	35,486		32,225
Prepaid and other current assets	7,275		19,805
Total current assets	212,292		193,117
Property, plant and equipment, net	281,802		288,368
Customer relationships and other intangibles, net	54,450		62,680
Goodwill	119,945		119,945
Equity method investment	7,216		7,975
Operating lease - right of use assets	760		—
Debt issuance costs	160		296
Total Assets	$	676,625	$	672,381
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable	$	31,037	$	48,060
Accrued and other liabilities	13,165		12,815
Debt, current portion	1,695		1,669
Operating lease liabilities, current portion	633		—
Total current liabilities	46,530		62,544
Deferred taxes and other long-term liabilities	19,173		20,204
Debt, non-current portion	260,617		261,886
Operating lease liabilities, non-current portion	690		—
Total Liabilities	327,010		344,634
Shareholders' Equity:
Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,539,759 and 44,472,214 shares issued and 34,688,206 and 35,401,868 shares outstanding as of September 30, 2019 and December 31, 2018, respectively	44		44
Additional paid-in capital	328,781		327,515
Less: Treasury stock	(229,073)		(209,050)
Accumulated other comprehensive loss	(4,988)		(3,391)
Accumulated earnings	254,851		212,629
Total Shareholders' Equity	349,615		327,747
Total Liabilities and Shareholders' Equity	$	676,625	$	672,381

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Cash Flows

(unaudited)


	For the Nine Months Ended
	September 30, 2019		September 30, 2018
	(in thousands)
Cash flows from operating activities:
Net income	$	42,222	$	54,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	32,234		32,966
Amortization of debt issuance costs and debt discount	930		931
Gain from insurance recoveries, net	(1,513)		—
Loss on intangible asset impairment	2,911		—
Losses from equity method investment	603		1,148
Amortization of deferred gain on terminated swaps	(873)		(632)
Share-based compensation	1,706		2,459
Deferred taxes	—		(457)
Change in assets and liabilities:
Trade receivables	(4,678)		(914)
Inventories	(3,190)		(7,627)
Prepaid expenses and other current assets	12,453		1,264
Accounts payable	(16,451)		(52)
Accrued and other current liabilities	(433)		1,089
Other long-term liabilities	(176)		(226)
Net cash provided by operating activities	65,745		84,054
Cash flows from investing activities:
Payments for property, plant and equipment	(19,287)		(19,761)
Payments for intangible assets	(1,551)		(1,359)
Proceeds from insurance recoveries	1,589		125
Capital contributions to equity method investment	(407)		(548)
Distributions from equity method investment	564		468
Net cash used in investing activities	(19,092)		(21,075)
Cash flows from financing activities:
Proceeds from exercise of stock options	118		145
Tax withholdings on share-based compensation	(1,165)		(547)
Principal payments for debt	(2,037)		(2,037)
Payments to repurchase common stock	(20,023)		(27,425)
Net cash used in financing activities	(23,107)		(29,864)
Effect of foreign exchange rates on cash and cash equivalents	254		(184)
Net change in cash and cash equivalents	23,800		32,931
Cash, beginning of period	102,633		72,521
Cash, end of period	$	126,433	$	105,452

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)


								Accumulated Other Comprehensive Loss
	Common Stock					Additional Paid-In Capital				Treasury Stock					Accumulated Earnings	Total Equity
	Shares	Amount
	(in thousands, except share data)
Balance as of December 31, 2017	37,532,959	$	44	$	325,391	$	(143,357)	$	(2,649)		$	138,597	$	318,026
Net income	—	—		—		—		—			13,646		13,646
Other comprehensive income, net of tax	—	—		—		—		564			—		564
Purchase of treasury shares	(530,600)	—		—		(14,550)		—			—		(14,550)
Stock option exercise	781	—		11		—		—			—		11
Stock-based compensation	85,838	—		213		—		—			—		213
Balance as of March 31, 2018	37,088,978	$	44	$	325,615	$	(157,907)	$	(2,085)		$	152,243	$	317,910
Net income	—	—		—		—		—			21,895		21,895
Other comprehensive income, net of tax	—	—		—		—		139			—		139
Purchase of treasury shares	(344,908)	—		—		(10,012)		—			—		(10,012)
Stock option exercise	2,706	—		—		—		—			—		—
Stock-based compensation	2,103	—		979		—		—			—		979
Balance as of June 30, 2018	36,748,879	$	44	$	326,594	$	(167,919)	$	(1,946)		$	174,138	$	330,911
Net income	—	—		—		—		—			18,564		18,564
Other comprehensive income, net of tax	—	—		—		—		290			—		290
Purchase of treasury shares	(76,600)	—		—		(2,863)		—			—		(2,863)
Stock option exercise	9,600	—		199		—		—			—		199
Stock-based compensation	—	—		850		—		—			—		850
Balance as of September 30, 2018	36,681,879	$	44	$	327,643	$	(170,782)	$	(1,656)		$	192,702	$	347,951

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Changes in Shareholders' Equity - continued

(unaudited)


								Accumulated Other Comprehensive Loss
	Common Stock					Additional Paid-In Capital				Treasury Stock					Accumulated Earnings	Total Equity
	Shares	Amount
	(in thousands, except share data)
Balance as of December 31, 2018	35,401,868	$	44	$	327,515	$	(209,050)	$	(3,391)		$	212,629	$	327,747
Net income	—	—		—		—		—			15,926		15,926
Other comprehensive loss, net of tax	—	—		—		—		(54)			—		(54)
Purchase of treasury shares	(191,907)	—		—		(5,005)		—			—		(5,005)
Stock option exercise	6,500	—		118		—		—			—		118
Stock-based compensation	58,571	—		35		—		—			—		35
Balance as of March 31, 2019	35,275,032	$	44	$	327,668	$	(214,055)	$	(3,445)		$	228,555	$	338,767
Net income	—	—		—		—		—			12,848		12,848
Other comprehensive loss, net of tax	—	—		—		—		(1,357)			—		(1,357)
Purchase of treasury shares	(589,300)	—		—		(15,018)		—			—		(15,018)
Stock-based compensation	2,474	—		548		—		—			—		548
Balance as of June 30, 2019	34,688,206	$	44	$	328,216	$	(229,073)	$	(4,802)		$	241,403	$	335,788
Net income	—	—		—		—		—			13,448		13,448
Other comprehensive loss, net of tax	—	—		—		—		(186)			—		(186)
Stock-based compensation	—	—		565		—		—			—		565
Balance as of September 30, 2019	34,688,206	$	44	$	328,781	$	(229,073)	$	(4,988)		$	254,851	$	349,615

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Notes to the Unaudited Consolidated Financial Statements

1. BACKGROUND AND NATURE OF OPERATIONS

Description of Business

Continental Building Products, Inc. (the "Company") is a Delaware corporation. The Company manufactures gypsum wallboard related products for commercial and residential buildings and houses. The Company operates a network of three highly efficient wallboard facilities, all located in the eastern United States, and produces joint compound at one plant in the United States and at another plant in Canada.

2. SIGNIFICANT ACCOUNTING POLICIES

(a)Basis of Presentation

The accompanying consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.

(b)Basis of Presentation for Interim Periods

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company and the results of operations and cash flows for the periods presented.

The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Seasonal changes and other conditions can affect the sales volumes of the Company's products. Therefore, the financial results for any interim period do not necessarily indicate the expected results for the year.

The financial statements should be read in conjunction with Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company's Annual Report on Form 10-K for the fiscal year then ended (the "2018 10-K"). The Company has continued to follow the accounting policies set forth in those financial statements.

(c)Supplemental Cash Flow Disclosure


Table 2.1: Certain Cash Transactions and Other Activity
	For the Nine Months Ended
	September 30, 2019		September 30, 2018
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash outflows	$	464	$	451
Other activity:
Acquisition of property, plant and equipment included in liabilities	$	2,486	$	3,432

(d) Recent Accounting Pronouncements

Accounting Standards Recently Adopted

The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-02, "Leases," as of January 1, 2019. The Company elected the transition package of practical expedients permitted within ASU 2016-02, which among other things, allowed the Company to carryforward the historical lease classification. In addition, the Company elected the comparative period practical expedient, which allowed the Company to implement the guidance as of the effective date without having to adjust the comparative financial statements. Instead, under this expedient, companies recognize the cumulative effect adjustment in equity. The Company also made an accounting policy election that leases with an initial term of 12 months or less will not be recorded on the balance sheet and will result in the recognition of those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. The adoption of the standard resulted in recognition of approximately $1.0 million in right of use assets and $1.7 million in lease liabilities for

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operating leases on the Company's Consolidated Balance Sheet, with no impact to its retained earnings, Consolidated Statement of Operations and Consolidated Statement of Cash Flows.

The Company adopted ASU 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities," as of January 1, 2019. This ASU expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." This ASU requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company early adopted this ASU. The adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments." This ASU is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is in the process of evaluating the impact of adoption, which is not expected to have a material impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurements (Topic 820), Changes to the Disclosure Requirements for Fair Value Measurement." This ASU eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is in the process of evaluating the impact of adoption, which is not expected to have a material impact on the Company's Consolidated Financial Statements.

(e) Reclassifications

Certain reclassifications of prior year information were made to conform to the 2019 presentation. These reclassifications had no material impact on the Company's Consolidated Financial Statements.

3. TRADE RECEIVABLES, NET


Table 3: Details of Trade Receivables, Net
	September 30, 2019		December 31, 2018
	(in thousands)
Trade receivables, gross	$	44,042	$	39,426
Allowance for cash discounts and doubtful accounts	(944)		(972)
Trade receivables, net	$	43,098	$	38,454

Trade receivables are recorded net of credit memos issued during the normal course of business.

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4. INVENTORIES, NET

Table 4: Details of Inventories, Net

September 30, 2019

December 31, 2018

(in thousands)

Price	27.40	EPS	2
Shares	35	P/E	15
MCap	959	P/FCF	15
Net Debt	140	EBIT	80
TEV	1,099	TEV/EBIT	14
TTM 2019-09-30, in MM, except price, ratios

10-Q	2019-09-30	Filed 2019-11-12
10-Q	2019-06-30	Filed 2019-08-02
10-Q	2019-03-31	Filed 2019-05-03
10-K	2018-12-31	Filed 2019-02-22
10-Q	2018-09-30	Filed 2018-11-09
10-Q	2018-06-30	Filed 2018-08-03
10-Q	2018-03-31	Filed 2018-05-04
10-K	2017-12-31	Filed 2018-02-23
10-Q	2017-09-30	Filed 2017-11-09
10-Q	2017-06-30	Filed 2017-08-04
10-Q	2017-03-31	Filed 2017-05-05
10-K	2016-12-31	Filed 2017-02-24
10-Q	2016-09-30	Filed 2016-11-08
10-Q	2016-06-30	Filed 2016-08-04
10-Q	2016-03-31	Filed 2016-05-10
10-K	2015-12-31	Filed 2016-02-23
10-Q	2015-09-30	Filed 2015-11-05
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-06
10-K	2014-12-31	Filed 2015-02-25
10-Q	2014-09-30	Filed 2014-11-03
10-Q	2014-06-30	Filed 2014-08-12
10-Q	2014-03-31	Filed 2014-05-13
10-K	2013-12-31	Filed 2014-03-27

8-K	2020-02-03	Leave Agreement, M&A, Off-BS Arrangement, Shareholder Rights, Control, Officers, Amend Bylaw, Exhibits
8-K	2020-01-29	Shareholder Vote, Regulation FD
8-K	2020-01-16	Other Events
8-K	2019-12-03	Officers
8-K	2019-11-12	Enter Agreement, Exhibits
8-K	2019-11-12	Earnings, Other Events, Exhibits
8-K	2019-08-01	Earnings, Exhibits
8-K	2019-05-20	Regulation FD
8-K	2019-05-02	Earnings, Exhibits
8-K	2019-05-01	Amend Bylaw, Shareholder Vote, Exhibits
8-K	2019-02-21	Earnings, Exhibits
8-K	2018-11-08	Earnings, Exhibits
8-K	2018-08-02	Earnings, Exhibits
8-K	2018-05-03	Earnings, Exhibits
8-K	2018-05-02	Shareholder Vote
8-K	2018-02-22	Earnings, Other Events, Exhibits
8-K	2018-02-21	Amend Bylaw, Exhibits

EX-31.1	exhibit3112019q310q.htm
EX-31.2	exhibit3122019q310q.htm
EX-32.1	exhibit3212019q310q.htm

CBPX 10Q Quarterly Report

Continental Building Products Earnings 2019-09-30