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Edited Transcript of CBPX earnings conference call or presentation 21-Feb-19 10:00pm GMT

Q4 2018 Continental Building Products Inc Earnings Call

Reston Feb 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Continental Building Products Inc earnings conference call or presentation Thursday, February 21, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dennis Charles Schemm

Continental Building Products, Inc. - Senior VP & CFO

* James Bachmann

Continental Building Products, Inc. - President, CEO & Director

* Rodny Nacier

ICR, LLC - SVP

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Conference Call Participants

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* Christina Chiu

Barclays Bank PLC, Research Division - Research Analyst

* Garik Simha Shmois

Longbow Research LLC - Senior Research Analyst

* Joshua Kenneth Wilson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Joshua Timothy Large

SunTrust Robinson Humphrey, Inc., Research Division - Former Associate

* Marius Cornel Morar

Deutsche Bank AG, Research Division - Research Associate

* Michael Glaser Dahl

RBC Capital Markets, LLC, Research Division - Analyst

* Philip H. Ng

Jefferies LLC, Research Division - Equity Analyst

* Reuben Garner

Seaport Global Securities LLC, Research Division - Associate Analyst

* Scott Evan Schrier

Citigroup Inc, Research Division - Senior Associate

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Presentation

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Operator [1]

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Greetings, and welcome to the Continental Building Products Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) It is now my pleasure to introduce your host, Rodny Nacier, Investor Relations. Thank you. Please begin.

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Rodny Nacier, ICR, LLC - SVP [2]

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Thank you for joining us for Continental Building Products fourth quarter and full year 2018 earnings conference call. I'm joined by Chief Executive Officer, Jay Bachmann; and Chief Financial Officer, Dennis Schemm.

Before we begin, I'd like to remind you, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include statements regarding our industry, business strategy and expected performance such as expectations with respect to revenue, gross margin, operating income, and cash flow as well as non-GAAP financial measures such as adjusted EBITDA.

These statements, which may occur during our prepared remarks or during the question-and-answer session may be identified by words such as expect, should, anticipates, intends, estimates, believes or similar expressions that are used in connection with any discussion of future financial and operating performance. Forward-looking statements represent management's current estimates in light of currently available information and the company assumes no obligation to update any forward-looking statements in the future. Forward-looking statements are subject to uncertainty and we encourage you to review the company's past and future filings with the SEC, including, without limitation, the company's Form 10-K and 10-Qs, which identify the specific risk factors that may cause actual results or events to differ in a material way from those described in these forward-looking statements. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U.S. generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe these non-GAAP financial measures assist management and investors in evaluating our performance and preparing period-to-period results of operations in a more meaningful and consistent manner as discussed in greater detail in our earnings release. Our earnings release also includes a reconciliation of these measures. I will now turn the call over to Jay.

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [3]

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Thank you Rodny. Good afternoon, everyone, and thank you for joining us today for our fourth quarter and full year 2018 earnings call.

Today, I will discuss our strategy, operating highlights and business activity. Dennis will then discuss additional details on our financial results, balance sheet and outlook. After our prepared remarks, we will open up the call for your questions.

Over the last 5 years, we have worked very diligently on our culture of continuous improvement and doing things the Bison Way with a focus on 3 main core competencies: safety, customer service, and operational discipline.

I'm proud of our people, the results that we have delivered and the platform we built to generate tremendous value in our company. Not only have our fundamental values guided us to a successful track record over the last 5 years, but they provided the roadmap to deliver another year of strong results for the full year 2018, in which we produce record full year net sales of $528 million, delivered substantial improvement in net income, increasing 24% to $74 million. And we generated significant operating cash flow surpassing the $100 million mark for the third year in a row.

This strong cash flow from operations allowed for additional repurchases of shares and investment in high return capital projects. For the full year, we repurchased 2.3 million shares for approximately $66 million. The benefit to our shareholders was evident in the additional accretion to earnings, which rose by 52% to a record $2.02 for the full year, outpacing growth in net income during that same period.

During the year, we continued to invest cash back into the business through high return capital spending. Through December 2018, we have delivered $4 million in cost improvements. Our focused spending on high return projects coupled with our Bison Way continuous improvement efforts is a key part of our strategy to manage cost and continue to strengthen our low-cost advantage.

Turning to operating metrics. In 2018, our full year volume was up 3% year-over-year and the fourth quarter shipments were flat versus last year. Our strongest market continued to be the Southeast, propelled by new residential construction. While there is uncertainty in the construction end markets, we agree with our customers that commercial construction continues to advance and that an underlying need for new housing remains, particularly at the more affordable entry levels.

For 2019, we believe that new housing starts along with R&R and commercial will support industry wallboard volume growth to be up in the low single digits for the full year 2019. In response to an environment where inflation continues to climb, we've announced to our customers a price increase effective March 1. We look forward to discussing this price increase with you in more detail after the release of our first quarter 2019 financial results.

I would like to give an update on our Buchanan facility. As previously announced, in January, our Buchanan plant experienced a significant equipment malfunction, resulting in outage at the plant. No injuries occurred from this event, and I want to thank our associates for keeping safety as a top priority, both at the time of the incident and now during the course of repairs. Although Buchanan plant is down, we've increased production at our other plants and readjust the logistics to lessen the impact on customers from the lost production. Now that the suddenness of this event has passed, we've made a more refined estimate assessment of the time and resources needed to perform the repairs and expect startup of the plant by mid-March.

To our customers, I apologize for the disruption, and I thank you for your support and understanding during this time.

In summary, while I feel proud of our past and what we've been able to accomplish over the last 5 years, I am even more positive about our future and how we're positioned to provide tremendous value to our customers, employees, and stakeholders. Because of the investments we have made in our people, and our focus on doing things the Bison Way, our business is well positioned to generate significant cash flows, fortify our low-cost position, and deliver tremendous value enhancing results including stock buybacks, and high return capital investments.

I will now turn the call over to Dennis to provide additional details on our financial results, balance sheet and outlook.

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [4]

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Thank you, Jay, and good afternoon, to everyone on the line. I'll first detail results for the quarter then provide some comments on the balance sheet and liquidity and then I will conclude it by providing some additional perspective for the full year of 2019.

2018 delivered another year of earnings growth and balance sheet improvement. We had good momentum into the fourth quarter with net sales increasing by 7% to $141 million on the strength of mill net price. Mill net price saw a 6.5% increase to $154.20.

On a sequential basis, average mill net price was essentially flat when compared to the third quarter of 2018. Gross margin in the quarter was flat at 28.1% as compared to the prior year quarter, as higher price offset inflation on our cost of goods sold.

For the full year, gross margin was 28% compared to 26%, primarily due to higher volumes in pricing, partially offset by higher freight, raw material inflation, and labor cost. Inflation for the quarter was roughly 6% and for the full year, overall cost of goods sold inflation was approximately 3%.

Looking forward, we expect to experience additional cost of goods sold inflation from 4.5% and 6.5% as freight, raw materials and labor all move higher. In order to combat the rising inflationary headwinds, we will continue to seek cost reductions through our Bison Way continuous improvement actions and through deploying capital to high return capital investments, to not only reduce existing cost but to avoid future inflationary pressures.

SG&A as a percentage of sales improved to 7.5% compared to 7.9% in the prior year quarter. For the full year, SG&A improved to 7.6% of net sales compared to 7.7% in the prior year, with both the quarter and full year benefiting from disciplined control of overhead cost.

In an effort to further reduce interest expense and improve cash flows, in December 2018, we swapped a portion of our term debt with lower costing industrial launch associated with our high return capital spending. These swaps are expected to result in $200,000 to $300,000 in savings annually.

For the fourth quarter, interest expense decreased 18.3% to $2.3 million compared to $2.8 million in the prior year quarter. For the full year, interest expense decreased 12.9% to $10.3 million compared to $11.8 million in the prior year. Improvement in both periods is due to the additional interest income, capitalized interest and lower spreads related to debt pricing. This decrease in interest expense in the quarter and year was partially offset by a rise in LIBOR. 2018 effective tax rate was 21.7% compared to 21.7% for 2017.

Moving on to the balance sheet and liquidity metrics. On December 31, 2018, we have cash on hand of $102.6 million. Total debt of $268.9 million and $73.6 million of availability on the credit facility. During the quarter, we generated $46.8 million in cash flow from operations due to strict working capital discipline and invested $9.6 million in capital assets.

For the full year 2018, net cash provided by operating activities totaled $131 million, and capital investments a total of $31 million, up $9 million from the prior year which is in line with our expectations. During 2018, we returned a significant portion of operating cash flow to shareholders through stock repurchases.

During the fourth quarter, we repurchased approximately 1.3 million shares of common stock with an aggregate value of $38.3 million. For 2018, aggregate repurchase activity totaled 2.3 million shares with an aggregate value of $65.7 million.

Additionally, we've repurchased 192,000 shares with an aggregate value of $5 million in Q1 2019. As we move forward, our $300 million repurchase program provides us with approximately $126 million of remaining availability, after accounting for the $174 million already repurchased since the inception of our buyback program.

At year-end, our net leverage ratio stood at a low of 1.1x providing us with a very flexible balance sheet to accomplish our value-add objectives.

We're very pleased with this operational and financial progress, a solid improvement is a direct reflection of the company's effective operating strategy, reliable execution, low-cost efficient assets and dedication to excellence. I will now provide some select insight regarding expectations for the full year of 2019. SG&A is expected to be in the range of $40 million to $42 million.

Costs of goods sold inflation per unit is expected to be at 4.5% to 6.5%. We expect to partly offset this inflation by approximately $3 million of savings from high return capital investments. Total capital expenditures are expected to be in the range of $28 million to $32 million.

Maintenance CapEx is expected to be approximately $14 million to $16 million. High return capital spending is expected to be in the range of $14 million to $16 million.

Depreciation and amortization is expected to be in the range of $43 million to $45 million and the effective tax rate is expected to be in the range of 21% to 22%.

We expect industry wallboard growth in the low single digits for the full year of 2019. For Continental, we expect volume growth in line with the industry, less the lost volumes in February and March associated with the Buchanan Plant outage. Keep in mind that these lost volumes will be addressed through our business interruption claim.

Now I would like to provide some perspective on the financial impact on the Buchanan Plant being off-line. The company has property damage coverage and business interruption coverage under our insurance policy for the plant with a $250,000 deductible.

Relative to our coverage, we expect to be reimbursed for costs associated with the repairs of the Buchanan facility and for the loss of sales associated with this event. Based on this, we do not foresee this event having any material adverse impact on our cash flows or earnings for the full year 2019, however, we do expect timing differences in the period between when we receive insurance funds versus when the losses were incurred. We expect the impact of business interruption and the cost of repairs will mostly be incurred in the first quarter of 2019.

Given the time needed for processing the insurance claim, we anticipate that the insurance proceeds will extend beyond the first quarter.

In summary, we executed our strategy during 2018. We look forward to getting our Buchanan Plant up and running, maximizing our service to customers and accomplishing our 2019 objectives. I thank the entire Continental team for their hard work and efforts to deliver results that support our long-term growth initiatives and value to shareholders. Thank you again for joining us today.

Operator, we're now ready to take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Phil Ng with Jefferies.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [2]

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We saw a pretty heavy prebuy ahead of the January increase last year. Can you just give us sense how it started off this year? And how it's tracking? And are you expecting to see little more activity given your Buchanan plant down for a few months?

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [3]

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So when I take a look at prebuy, there definitely has been some prebuy as we go into the March 1 price increase. At this point, it's hard to give a number, I would say is to what that amount is. From an impact for us, there's not a lot of prebuy that normally takes place in the Northeast just given the size of those warehouses. So really what we're seeing is there will be more in the Southeast North Central where that impact would be had.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [4]

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Got it. And maybe from a inflation standpoint, you're forecasting -- still pretty noticeable full step-up year-over-year. Could you kind of partial what are some of the big buckets? Whether it's [Cin-gyp] , energy. And then -- in conjunction with that some of the freight [volume] actually called up out last year. Has that started to level off?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [5]

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Phil, this is Dennis, thanks for your question. We're seeing inflation affecting us similar to that which we saw in Q4 2018. So we saw about 6% in Q4 2018. For 2019, we're expecting inflation in the range of 4.5% to 6.5%. As you know, we like to give the bucket of COGS inflation to make it more efficient and simple. But the bottom line is, yes, we're seeing inflation in higher freight both inbound and outbound. We're seeing higher raw material cost and we are seeing high fixed cost as well.

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Operator [6]

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Our next question comes from the line of Keith Hughes with SunTrust.

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Joshua Timothy Large, SunTrust Robinson Humphrey, Inc., Research Division - Former Associate [7]

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This is Josh Large on for Keith Hughes. So just kind of [thought] for that, 4Q you guys had really very good volume. And were you guys impacted at the -- did you have any prebuy in 4Q that may have happened? Because you outperformed the industry by quite a bit.

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [8]

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So when you look at fourth quarter, I mean, what I have to do is per se that I give a lot credit to our teams and what we've been doing from a servicing side with our customers. So I give them a lot of the credit with the relationships they created. When I look at market share, frankly, (inaudible) of action always move up or down within a percentage point which is what we're seeing here. So you do have fluctuations in the quarters. For me, I look at it where we -- we're able to have flat volumes and gained mill net pricing increasing by about 6.5% from the same quarter last year. To me, all that together meant was a nice success for the quarter.

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Joshua Timothy Large, SunTrust Robinson Humphrey, Inc., Research Division - Former Associate [9]

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Okay, great. And then, kind of, on channel inventory. Understanding that Northeast is more same day and stuff like that, but in terms of inventory and the channel, what are you guys seeing there?

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [10]

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When you say inventory and the channel, you're talking about what is in the distributor warehouses?

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Joshua Timothy Large, SunTrust Robinson Humphrey, Inc., Research Division - Former Associate [11]

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Yes.

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [12]

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So, yes, you're looking into towards the -- it is -- the footprint of these warehouses is very small, so cheer point there's just not a whole lot of days inventory they can hold in there. And that's why that's one of the areas too where you'll sometimes the job sites being served directly just because it's an area of the country that is very difficult to go ahead and have warehousing use as a base.

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Operator [13]

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Our next question comes from the line of Garik Shmois with Longbow Research.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [14]

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Just wondering in your end market assumptions for 2019 and your outlook for volumes staying up low single digits. Can you just talk about what you're expecting for residential, commercial and repair and remodel?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [15]

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Yes, I mean we're expecting to see growth across all of those segments, right? So in new resi, it's going to be up low single digits there, new commercial, looping at low single digits and we feel good again about repair and remodel given where we are in this housing cycle. There still seems to be a nice increase in pricing for homes and, therefore, the repair and remodel work continues. So we're expecting to see growth low single digits across all 3 of those segments.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [16]

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Okay. And as far as the high-return projects that you're outlining to $3 million, is that whole $3 million hitting right away in the beginning of the year? Or is that going to be feathered in as the year progresses?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [17]

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Yes, that's a great question, Garik. So that will be feathered in during the year. You'll see that come in -- we'll provide you with even more guidance and color on that as we start to go through the year. Bottom line is some of that will be dependent upon the timing and off the commissioning of some of these projects, but we feel very good about the $3 million and that's why we wanted to come out with that.

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Operator [18]

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Our next question comes from line of Matthew Bouley with Barclays.

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Christina Chiu, Barclays Bank PLC, Research Division - Research Analyst [19]

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This is Christina Chiu on for Matt. My first question is on your outlook for volumes in the first quarter. Outside of the prebuy and given the slowdown in new residential in late 2018. How are you think about volume growth specifically in the first quarter?

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [20]

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When we go ahead and look overall, I'd say, we give guidance for the year, we don't get it down to that level on a quarter basis. To your point, you get some slowdown in housing that occurred in the second half and a lot of what I'm seeing now is homebuilders switching over to some of the more affordable entry-level houses and that's starting to take hold. So I would say globally for the year, we're still looking at that low single-digit growth on the wallboard side in the industry. How it breakdown by quarter? We'll see, how it handle -- how it plays out, the other -- the only other point would be, first quarter is a small quarter for us, just given the winter months and the level of construction.

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [21]

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And final point I'd like to make on that is, well it is -- with the Buchanan facility being down, clearly, we're going to be down some volume there associated with that event. So I just want to make sure you take that into consideration as well.

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Christina Chiu, Barclays Bank PLC, Research Division - Research Analyst [22]

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Okay. And then actually on the Buchanan Plant closure. From a market perspective, what do you think the implications will be on price in the overall market? And for Continental, how should we think about mix and your overall average selling price?

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [23]

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Sure. So when you take a look at Buchanan. I would say that, with it being down even though it's significant for us, relative to the market, I mean, the plant itself is not huge relative to the market. So our focus overall is on the March 1, increase for where we serve to get that into place.

In terms of the mix side, really when I take a look at mix, there is not a whole lot of impact that we have. The 1 caution, I would say, is that in the Northeast we do have a higher [five-ace] product mix, which is normally about a $20 spread over the half-inch mix which is a more dominate in our other locations. So that could have a little bit of mix impact on us in the first quarter.

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Operator [24]

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Our next question comes for the line of Nishu Sood with Deutsche Bank.

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Marius Cornel Morar, Deutsche Bank AG, Research Division - Research Associate [25]

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This is Marius for Nishu. Could you give us some insight into the some of the capital spending projects that you're planning for 2019?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [26]

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Oh, sure. So very consistent with what we have lined out in prior discussions relative to the high return CapEx. I mean we're really looking at ways in which to improve our raw material cost, improve distribution cost and then also look at energy savings as well. And so you're going to see spend allocated to do those things for us, right? Also, automation would be another piece where we can improve our cost structure.

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Marius Cornel Morar, Deutsche Bank AG, Research Division - Research Associate [27]

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And then how much of the Buchanan capacity were you able to meet from the other 2 plants so far? If you could give us some insights there just in terms of -- so are we talking like 10%, 20%, just an estimate.

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [28]

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Sure, sure. So if you -- just to give you kind of sense of scale. You take a look in 2018, Buchanan was producing and selling approximately 10 million square feet per week, just to give you a baseline. The reality is, obviously, we're not at those levels as we try to serve that market from our other 2 plants. I can't give you a percentage at this point only because we're going through that process now and we'll be working with our insurance carrier as we submit the claim. And so through that process, we'll be able to give you some better guidance come the end of the first quarter, hopefully.

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Operator [29]

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Our next question comes from the line of Michael Dahl with RBC Capital Markets.

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Michael Glaser Dahl, RBC Capital Markets, LLC, Research Division - Analyst [30]

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Just a follow-up question on that. I guess In your market assumptions and your assumption specifically then for CBPX volumes to be in line with industry for the full year less in this temporary loss business. Can you give us a sense of whether it's your expectations that as the plant comes back online, you'll immediately go back to your typical market share? Or do you anticipate that there could be some longer-lasting share implications in the affected region? Just given kind of the time of year and people contracting out jobs?

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [31]

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Sure. So I would say that the short answer is, we don't expect to lose share because of this. That said, we don't take our customers for granted. So a lot of the work we're doing now from a logistics side and serving side as to do everything we can to work with them in including and planning for future jobs that they are doing. So I would say with the relationships we have, we should maintain our share.

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Michael Glaser Dahl, RBC Capital Markets, LLC, Research Division - Analyst [32]

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Got it. Okay. And then a related question, talked about the focus on the March 1 pricing and, I think, some of the questions we've done have been whether capacity coming down is helpful for pricing? You kind of addressed that a little bit earlier. But I guess I want to ask you in a different way and given you're experiencing some service disruptions to your customers, does that actually have an effect of -- as you look at pricing specifically to the Northeast, are you going to go ahead with the full price increase? Or do you think there's going to have to be some level of negotiation given the service disruptions?

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [33]

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So I would say, when I look at the March 1 increase, we're going to go forward with the March 1 increase. And then obviously, as we go through that process we'll be happy to give you a further update at the quarter end as we put that in place. With the disruptions that are there, given that we're only now talking a couple of weeks in the March, frankly, I don't see that being a big impact.

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Michael Glaser Dahl, RBC Capital Markets, LLC, Research Division - Analyst [34]

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Okay. And if I could sneak one last one in from a modeling standpoint. You mentioned that timing differential between the upfront expenses and the proceeds, is there anything you can help us in terms of quantification for what's been thinking about from a modeling standpoint for 1Q? And then recovery in, kind of, 2Q, 3Q?

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [35]

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Yes, at this point, Mike, it's really difficult to do that. I prefer not to get into those details. Similar to litigation, it's not in our best interest to offer up more information on volume, pricing, timing impacts. I think the key message is that I want you to walk away with is we have insurance, we have it for property damage, we have it for business interruption, we don't expect to see any significant adverse impact to EBITDA for the full year. We do expect there will be timing differences in the periods between when costs are incurred and reimbursements received. And I'm sure we will have more clarity around this when we release Q1 earnings.

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Operator [36]

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(Operator Instructions) Our next question comes from line of Matt McCall with Seaport Global Securities.

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Reuben Garner, Seaport Global Securities LLC, Research Division - Associate Analyst [37]

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It's Reuben on for Matt. I got kicked off the line for a second so if I repeat any questions, apologies. So you said low single-digit wallboard industry growth this year, did you or can you parsed out your, kind of, end markets, whether its commercial, new residential, R&R and even the thoughts on Canada for us?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [38]

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You bet, Ruben. So this is Dennis. And so we expect to see growth across all 3 of the end markets, right? So on a new residential side, shaping up well, low single-digit growth there and we're seeing low single-digit growth in the commercial -- new commercial sector. And then across the R&R spectrum of both residential and commercial, we're seeing good low single-digit growth there as well.

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Reuben Garner, Seaport Global Securities LLC, Research Division - Associate Analyst [39]

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Okay. And then 2 very quick clarification questions. One, did you see -- I think you said residential paused in the fourth quarter, did you see a similar pause in commercial spending as well?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [40]

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We really didn't hit, it was more of a slowdown. Yes, and it was, kind of, small in the residential side, not on the commercial side.

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Reuben Garner, Seaport Global Securities LLC, Research Division - Associate Analyst [41]

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Okay. And then, Dennis, sorry sneaking one in. Just the cost of goods inflation, 4.5% to 6.5%, you said on a per unit basis, is that a change in the way you guys have talked about in the past? Or is that the same thing, I just don't recall you saying, per unit in the past?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [42]

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Yes, we -- that is very, very consistent with how we've been explaining it the past as well, Ruben. So, I apologize if maybe 1 quarter we slipped, but, yes, we've been trying to remain really disciplined on that.

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Reuben Garner, Seaport Global Securities LLC, Research Division - Associate Analyst [43]

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No, no, no. I just wanted to be clear. I appreciate it.

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Operator [44]

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And our next question comes from the line of Scott Schrier with Citi.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [45]

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I wanted to ask a little bit about the quarter. So it looks like, as you said, volumes came in a bit better than what, I think, folks were expecting, you were able to hold price. So it looks like the revenue was higher than what consensus expectations were, but EBITDA was a little bit below. So is that -- was there anything unexpected or maybe a ramp-up in some costs that happened earlier than you had anticipated in the quarter? Anything we should consider there that impacted the results?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [46]

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Yes, it's a great question. So the real issue was I was calling $4 million, $5 million in savings for high return in CapEx. We came in at $4 million in savings and the bottom line reason for that was tariffs associated with some of our raw materials and proprietary blends. And so that ended up hurting us and that was the main driver.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [47]

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Got it. And then for my follow-up. More on the cost side, it seems that we've been hearing a little bit about certain cost pressures abating as of late which might suggest little less than any inflation that you were talking about. So is there any implication there on the [Cin-gyp] side that maybe -- I know in past you've talked about having to go further out to secondary and then tertiary sources. Is there anything to read into that supply of [Cin-gyp?] It's not that it's scarce, but you're just continuing to have to go further out to get it?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [48]

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Real consistent again. We've been down the story of higher gypsum cost because we're -- as we produce more, then we're going out to secondary sources more. The secondary sources are further away. So that's a higher freight impact and they're a little bit more expensive than our primary sources. That cost of inflation will continue. And our estimates remain pretty much the same as what we were saying last year. And then you continue to see inflation across those buckets of cost of goods that we've been preparing for you for an efficiency standpoint. So other raw materials, we continue to see inflation there. Fixed cost, we continue to see inflation there as well.

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Operator [49]

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Our next question comes from the line of Josh Wilson with Raymond James.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [50]

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Couple for me here. First, you talked about regional differences and volume with the Southeast being stronger. Any differences in price regionally?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [51]

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There is some differences in price and a lot of this is -- that deals with the product mix involved. So again, what we find in the Northeast, which is a heavier [five-ace] market just because of the commercial code requirements there, you normally see the five-ace being used because of that, about a $20 spread higher for that product relative to the half inch that would be more predominant, say, in the Southeast.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [52]

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Sorry, I didn't phrase that well. So outside of mix on a like-for-like basis of the 6.5%, what is it sort of [somewhere] better regions than others?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [53]

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There -- you do have some of that. But frankly, we don't get into that level of detail for competitive reasons.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [54]

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Okay. And then you did a good job giving us some color on the channel inventory dynamics in the Northeast. Can you give us any similar color on the other regions?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [55]

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Sure. So if you look at North Central Southeast because of some of the larger warehouses they have here, that's where you can see some inventory build that they will do in advance of the price increase. At this stage, I can't pin down the amount. Normally, it takes some time just to figure out that -- what that is, as that burn takes place after March 1. But certainly, those are the locations that have some of the larger facilities.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [56]

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If I could just sneak in a housekeeping one with Dennis, the jump in accounts payable, what was the story there year-on-year?

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Dennis Charles Schemm, Continental Building Products, Inc. - Senior VP & CFO [57]

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So it's really just fine-tuning for management of our working capital. So not only DSO, we pay a lot of attention there, looking at paying our payables on time, just really honing in on what we can do to manage working cap.

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Operator [58]

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We have reached the end of our Q&A session. Allow me to hand the floor back over to management for closing remarks.

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James Bachmann, Continental Building Products, Inc. - President, CEO & Director [59]

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Well, we appreciate everybody joining us tonight for our conference call and look forward to speaking with you again at the end of the first quarter.

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Operator [60]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.