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Edited Transcript of FBM.N earnings conference call or presentation 5-Nov-19 1:30pm GMT

Q3 2019 Foundation Building Materials Inc Earnings Call

TUSTIN Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Foundation Building Materials Inc earnings conference call or presentation Tuesday, November 5, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan Kirby Thompson

Foundation Building Materials, Inc. - SVP of Sales & Marketing

* John Gorey

Foundation Building Materials, Inc. - CFO

* John C. Moten

Foundation Building Materials, Inc. - VP of IR

* Ruben D. Mendoza

Foundation Building Materials, Inc. - President, CEO & Director

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Conference Call Participants

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* Christina Chiu

Barclays Bank PLC, Research Division - Research Associate

* James A. Morrish

Evercore ISI Institutional Equities, Research Division - Analyst

* John Lovallo

BofA Merrill Lynch, Research Division - VP

* Keith Brian Hughes

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Michael Glaser Dahl

RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products

* Noah Christopher Merkousko

Stephens Inc., Research Division - Research Associate

* Ryan James Merkel

William Blair & Company L.L.C., Research Division - Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to Foundation Building Materials Third Quarter Conference Call. (Operator Instructions)

It is now my pleasure to introduce your host, John Moten, Vice President of Investor Relations for Foundation Building Materials.

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John C. Moten, Foundation Building Materials, Inc. - VP of IR [2]

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Good morning, and thank you for joining us today for our third quarter 2019 conference call. Joining me today are Ruben Mendoza, our President and CEO; John Gorey, our Chief Financial Officer; and Kirby Thompson, Senior Vice President of Sales and Marketing.

Last night, we issued our third quarter earnings release and slide presentation for today's call, and we have posted these materials on the Investor Relations section of our website, at fbmsales.com, under Events & Presentations section.

Our prepared remarks and answers to your questions this morning 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, which may cause actual results to differ from those discussed today. Example of forward-looking statements include remarks about future expectations, beliefs, estimates, plans and forecasts as well as other statements that are not historical in nature.

Forward-looking statements discussed today relate to our acquisition strategy and integration, our M&A pipeline, our greenfield expansion strategy and performance, our ability to gain leverage in our business and our ability to increase market share and expand it to new markets.

In addition, forward-looking statements also relate to our 2019 financial guidance, including projected net sales, gross margin, adjusted EBITDA, adjusted EBITDA margin, net debt leverage ratio and adjusted earnings per share.

As a reminder, forward-looking statements represent management's current estimates. We assume no obligation to update any forward-looking statements in the future, unless otherwise required by law or the listing rules of the New York Stock Exchange. Listeners are encouraged to review the more detailed discussions included in our filings with the SEC regarding the various risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by these forward-looking statements.

Additionally, during today's call, we will discuss non-GAAP financial measures, which we believe could be useful in evaluating our financial performance. Other companies may calculate these measures differently, and our presentation of these non-GAAP measures should not be considered in isolation or as a substitute for measures prepared in accordance with generally accepted accounting principles, or GAAP.

A discussion of how we calculate these non-GAAP financial measures, which include adjusted EBITDA, adjusted net income, adjusted earnings per share, net debt leverage ratio and free cash flow as well as a reconciliation of each of these measures to the most directly comparable GAAP measures can be found in our earnings release, which has been furnished to the SEC and is available on our website.

With that, I will turn the call over to Ruben.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [3]

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Thanks, John. Good morning, and thank you for joining us for a review of our third quarter results as well as a discussion of the recent developments in our business.

On our call today, I will discuss some operational highlights from our third quarter results as well as our recent acquisitions and greenfield expansion plans. John Gorey will provide details on our financial results and financial guidance for 2019, and I will conclude with some summary comments.

As a reminder, the numbers discussed on this call will focus on continuing operations as we sold our Mechanical Insulation segment in the fourth quarter of last year. After our prepared remarks, we will open the call for your questions.

Before discussing our financial results, I would like to call your attention to the recent sale of shares by our largest stockholder. On September 19, 2019, we announced the pricing of an underwritten secondary offering of 4.75 million shares of common stock of the company by an affiliate of Lone Star Funds at a price of $17 per share. In addition, the underwriters exercised their option to purchase an additional 712,500 shares of common stock. The company did not receive any of the proceeds from the secondary offering. Additional information about the offering is contained in our filings with the SEC.

Now turning to our third quarter results. Foundation Building Materials recorded a solid quarter of operational and financial performance, with net sales up 4% year-over-year to $565 million and base business growth of 1%. In the third quarter, our net sales were modestly impacted by continued softness in the Canadian market and adverse weather in the U.S.

Our strong underlying profitability highlighted our third quarter results with a gross margin over 30%, adjusted EBITDA margin of 8.9% and adjusted EPS of $0.33. Given the strong underlying profitability in the quarter, we are raising our 2019 adjusted EPS guidance range, which John Gorey will discuss in a moment.

Now turning to acquisitions. On October 1, we closed the acquisition of Wallboard Supply and The Supply Guy. Wallboard Supply was an independent distributor of drywall and drywall accessories. The acquisition of Wallboard Supply expands our geographic footprint into the Colorado Springs market, serving both residential and nonresidential customers.

Our acquisition of the Supply Guy strengthens our regional presence in the Pacific Northwest and adds a strong base of complementary products for our customers. We have a solid pipeline for future acquisitions, and we continue to selectively acquire businesses that meet our strategic priorities and enhance our North American presence.

In addition, we continue to open greenfield branch locations across the country. In the third quarter, we opened a greenfield branch in Bakersfield, California, further strengthening our market position in California. In 2019, we have opened 3 greenfield branches, and we currently plan to open another 1 to 2 greenfield branches in the fourth quarter.

Our greenfield branch investments yield high returns on invested capital in the first few years of startup, leverage our national scale, increase our market share and support our long-term organic growth.

As we enter the fourth quarter, we are on target to meet our financial objectives for the year, and we are currently forecasting low single-digit organic growth for 2020. We continue to see solid demand in our core nonresidential construction markets, with over 40% of our net sales tied to the new nonresidential construction market and over 30% to the commercial repair and remodel market. We see continued building activity in tenant improvements, airports, health care facilities, data rooms, offices, schools and stadiums that are supported by our customers' backlog that extends into 2020.

For the balance of the year, we will continue to capitalize on the opportunities in front of us by executing our strategy and driving operational efficiencies throughout the company to deliver long-term value to our customers and shareholders.

Now I will turn the call over to John for more details on the third quarter results.

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John Gorey, Foundation Building Materials, Inc. - CFO [4]

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Thank you, Ruben. I would also like to welcome everyone on today's call.

As a reminder, our discussion today excludes the MI segment, which was sold in November 2018 and is reported as discontinued operations in our SEC filings.

As Ruben highlighted, we reported solid third quarter results, with net sales of $564.9 million, up 4.2%, and base business net sales of $500.8 million, up 1.1% over the prior year period.

Net income for the third quarter was $12.7 million compared to a net loss of $37.6 million in the prior year period. Adjusted EBITDA for the third quarter was $50 million, up 14.4% compared to the prior year period, with an adjusted EBITDA margin of 8.9%.

Now turning to our product line results. Third quarter wallboard net sales were $207.3 million compared to $204 million, up 1.6% compared to the prior year. Wallboard base business net sales declined 2%, with 1.1% lower unit volume and a 90 basis point decline in price. Decline in wallboard base business net sales is primarily due to slower construction activity in Canada and adverse weather in the quarter, which impacted deliveries to our customers.

Suspended ceilings net sales were $118.9 million compared to $104.4 million, up 13.8% compared to the prior year period. Base business growth for suspended ceiling was 11% compared to the prior year period, primarily driven by higher average selling prices for our ceiling products and increased sales initiatives to our customers.

Metal framing net sales were $98.8 million compared to $98.6 million, essentially flat with the prior year period. Base business net sales for metal framing decreased by 3.3%, primarily due to lower product prices as compared to the tariff-driven price increases in the prior year period.

Complementary and other products net sales were $139.9 million compared to $135.3 million, up 3.4% compared with the prior year period. Base business net sales for complementary and other products increased by 2% compared to the prior year. The increase in complementary and other product net sales was primarily due to our ongoing initiatives to expand the range of products we offer to our customers, partially offset by weakness in the Canadian market.

Gross profit for the third quarter was $171.8 million compared to $154 million in the prior year period, an increase of $17.8 million or 11.5%. Gross margin for the third quarter was 30.4% compared to 28.4%, up 200 basis points compared to the prior year period. The increase in our gross margin was primarily driven by the continued development of our pricing and purchasing initiatives and continued stabilization of our product cost.

Selling, general and administrative, or SG&A, expenses for the third quarter were $123.9 million compared to $113.3 million in the prior year period. SG&A expenses as a percentage of net sales were 21.9% compared to 20.9% in the prior year period. The increase in SG&A as a percentage of net sales was primarily due to our continued investment in company-wide initiatives.

Now turning to the balance sheet and cash flow. We finished the quarter with cash of $22.7 million and $240.7 million available on our ABL credit facility, providing ample liquidity to pursue our growth initiatives. At the end of the third quarter, our debt leverage ratio was approximately 3.1x compared to 4.4x in the prior year period.

We expect to generate $60 million to $80 million in free cash flow for 2019, which has been used primarily for debt reduction.

Now turning to our full year 2019 financial guidance. For net sales, we continue to expect full year net sales to be between $2.1 billion and $2.25 billion. We continue to expect our full year gross margin to be between 29.7% and 30.2%.

For adjusted EBITDA, we continue to expect the full year to be between $165 million to $185 million, with an adjusted EBITDA margin in the range of 7.8% to 8.2%. For adjusted earnings per share, we are raising our full year 2019 guidance from $0.80 to $1 to a new range of $0.95 to $1.05 per share. And finally, we estimate our debt leverage ratio for 2019 to be in the range of 2.9x to 3.2x.

Now I'd like to turn the call to Ruben for some closing remarks.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [5]

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Thanks, John. We are pleased with our third quarter results. Our underlying profitability was very strong, with improved gross and adjusted EBITDA margins compared to the prior year, resulting in an increase to our full year 2019 adjusted earnings per share guidance range.

For the balance of the year, we will continue to focus on our 4 strategic priorities. First, we plan to strengthen our balance sheet by reducing our debt leverage ratio from 3.1x currently to between 2.5 and 2.8 by the end of 2020.

Second, we continue to focus on driving organic growth by opening greenfield branches, growing our market share and expanding the products we offer to our customers. In 2019, we have opened 3 greenfields and plan to open another 1 to 2 by year-end. Our greenfield branch investments drive long-term growth and profitability and yield high returns on invested capital.

Third, we will continue to focus on profit margin expansion across our business by leveraging our economies of scale and executing on our cost-out initiatives to improve our full year adjusted EBITDA margin.

And finally, we plan to make strategic acquisitions while being mindful of our debt reduction targets. Our company is well positioned to withstand market changes with a highly variable cost structure that allows us to scale cost with revenues and changing economic environments. We have also undertaken several strategic actions since our initial public offering nearly 3 years ago to drive long-term growth and profitability and to position us well for the future.

Since our IPO, we have made 17 strategic and accretive acquisitions and opened 11 greenfield branch locations that have expanded our geographic footprint in North America and enhanced our long-term organic growth. We have optimized our capital structure by refinancing our high-interest notes and reducing overall debt, which has provided over $20 million in annual cash interest savings, and we have paid down over $100 million in debt, which has reduced our debt leverage ratio from over 5x at the time of IPO to 3.1x currently.

In closing, we believe there is a large runway of growth ahead of us as our industry remains highly fragmented and we see opportunities to expand our geographic footprint through acquisitions and greenfield branch investments, which will drive long-term growth.

We will continue to focus on improving our profitability to make us a much better company as we build our business for the future. We believe these actions will drive long-term value for our shareholders.

That concludes our remarks, and now we'll be happy to take your 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 Michael Dahl with RBC Capital Markets.

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Michael Glaser Dahl, RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products [2]

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Nice results. Ruben, John, I wanted to start on the margins. You guys have done a great job year-to-date with gross margins, in particular, and I think they're tracking above the high end of the reiterated full year guidance. As far as we can tell, there's nothing that's really shifting against you in terms of the underlying commodity cost environment. But the 4Q implied guidance is for a sequential step-down in margin just to keep the full year in line.

I guess I'm wondering what's really pushing that fourth quarter margin? Or is it perhaps just still some conservatism there?

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John Gorey, Foundation Building Materials, Inc. - CFO [3]

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Mike, it's really the conservatism in our guidance. We feel we were going to be at the very high range, if not a little over that range on the gross margins for the full year.

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Michael Glaser Dahl, RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products [4]

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Okay. And that's good to hear. And along the same lines, when you're looking out to those initial comments around 2020 in the low single-digit organic growth, maybe you could give us a little more color on how you're thinking about volume versus price mix in that?

And then given the strength in margins, just how we should be thinking about both gross margins and SG&A, if you could give any initial color there?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [5]

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Yes. Thanks, Mike. So for 2020, we think 2% to 3% organic growth, very little price in there, but there is some price, and these are preliminary budgeting that we're doing. We'll give full guidance in our next fourth quarter full year earnings call. But a little bit of price and mostly organic volume growth.

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Michael Glaser Dahl, RBC Capital Markets, Research Division - MD of U.S. Homebuilders & Building Products [6]

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Okay. And I guess just given that environment and if pricing and the underlying commodity pricing environment is relatively benign, is the -- should we think about the high end of the fiscal '19 guide on gross margins? Is that a good number to think of as something that's more normal for you? Is there room for expansion from there? And if so, just remind us what the drivers are in your internal planning around getting the margins up from here?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [7]

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Well, I think like John said, we're -- we've been conservative in our guidance on gross margin. And I think -- we think the high end of our guidance, it should be good for 2019. And we think that our initiatives, there's some runway possibility for us in the future as well on gross margins.

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Operator [8]

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Our next question comes from the line of James Morrish with Evercore ISI.

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James A. Morrish, Evercore ISI Institutional Equities, Research Division - Analyst [9]

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Ruben and John, appreciate the time and good quarter as well. I wanted to talk about the SG&A. It looks like you're -- if you kind of back out the onetime charges and adjustments, that your SG&A increased on a dollar amount by like $12 million or so. And just wondering if you could help us think about how much of that $12 million increase was related to the investments that you've been putting in versus what's just some general cost creep versus what's being added from the -- from your acquisitions that you're doing? So just really trying to dimensionalize how your SG&A is rising and how those buckets are moving?

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John Gorey, Foundation Building Materials, Inc. - CFO [10]

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Yes. From the company-wide initiatives, we're estimating that $5 million range of that $12 million. And then some of the other costs were creeping in where some of the payroll costs as we move forward. And then, like you said, a small piece on the acquisition, we didn't do any large acquisitions in 2019, relatively small.

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James A. Morrish, Evercore ISI Institutional Equities, Research Division - Analyst [11]

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Okay. And how should we think about those investments going forward? Because $5 million seems like a pretty big chunk, and I understand you're going to be getting some good things out of that. But how should we think about that going forward? Is that $5 million a good run rate to think about for the next several quarters? Or is this just a quarter of significant investments for you all?

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John Gorey, Foundation Building Materials, Inc. - CFO [12]

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They'll be tapering down as we move forward through 2020, but there'll still be some maintenance cost on the IT side that will continue for the next couple of years.

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James A. Morrish, Evercore ISI Institutional Equities, Research Division - Analyst [13]

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Okay. And then just thinking about your footprint expansion and you've continued to make some tack-on acquisitions too, earlier this -- in October and through 3 greenfields year-to-date, another 1 to 2 this year. How should we think about your footprint expansion in 2020 with a mix of both M&A and greenfields?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [14]

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Thanks, Trey. Good question. We continue to look at greenfields where we have whitespace on the map. I think we've mentioned in previous quarters, getting the right piece of real estate for us has taken a little longer than we wanted to in some cases. And then acquisition-wise, there's plenty to do in the pipeline. We've been disciplined, as we've said in the last few quarters, this year. And as we move forward, we'll execute a little bit probably more on our acquisition pipeline.

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James A. Morrish, Evercore ISI Institutional Equities, Research Division - Analyst [15]

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Okay. And then just lastly from a housekeeping perspective. How much revenues did acquisitions that you've made this year contribute in the quarter?

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John Gorey, Foundation Building Materials, Inc. - CFO [16]

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In the quarter, it was about $5 million to $7 million.

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Operator [17]

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Our next question comes from the line of John Lovallo with Bank of America.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [18]

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The first one, maybe just following up on Trey's question in terms of SG&A. If we think about just a quarterly run rate over the next couple of quarters, I mean is that kind of $120 million to $122 million seem about right?

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John Gorey, Foundation Building Materials, Inc. - CFO [19]

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Yes, that would be about the range we were looking at.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [20]

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Okay, that's helpful. And then just getting back to the EPS outlook change. Given that the other components of the outlook really didn't change, including revenue and EBITDA, and interest expense and taxes were actually a little bit higher than we were looking for, was this really just some conservatism that you guys had in that EPS outlook before? Or are there other components that we're missing?

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John Gorey, Foundation Building Materials, Inc. - CFO [21]

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No, it was really just a little conservatism. We see now that we're going to -- should be at the higher target that we set, and a lot of it's driven by our gross margins and our EBITDA margins.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [22]

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And also, John -- John, in the second quarter, we raised our EBITDA, we lowered our leverage targets, we raised our gross margin target. So we did adjust in our last call. We just are adjusting again in our EPS, part of it.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [23]

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Got it. And then in terms of free cash flow, the $60 million to $80 million, does that still feel about right for 2019?

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John Gorey, Foundation Building Materials, Inc. - CFO [24]

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Yes, it does.

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Operator [25]

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

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [26]

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Going back to the rough year for sales in 2020, how -- from your planning right now, how would your residential versus your commercial business breakout? And the low single-digit estimate?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [27]

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It's close to where we are as a company, 75%, usually commercial and commercial R&R, and about 25% resi, Keith. But as we've said in the past, a couple of calls and on some of our calls with you guys, in the analyst calls, that we've taken some efforts to gain some share in the residential business, and we see that happening in the fourth quarter and in 2020 as well.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [28]

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So in 2020, what's kind of your view of the relative growth rates of residential versus commercial in that low single-digit view?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [29]

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It's probably about the same as what we thought -- what we just said.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [30]

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So I mean you're expecting both to be around low single digits or one to substantially outperform the other?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [31]

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Yes, low single digits...

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John Gorey, Foundation Building Materials, Inc. - CFO [32]

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For both.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [33]

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For both.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [34]

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For both, okay. And then just a quick question on acquisitions you have in the slide how many you've done this year. As you look to 2020, particularly given your debt reduction goal, would we see a similar level of activity in terms of transactions to allow you to hit that goal?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [35]

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Similar to a little higher. There's a possibility of us getting one more done this year. That's relatively small, just like the rest of the ones we've done this year. And that would get us closer to our -- what we've said in the past, $100 million of annualized revenue.

So that's what we're looking for in the future. We're not going to budget or guide that way. We're going to guide just organic growth, but we still see right around the $100 million, and that still gets us to where we want to be with those leverage reduction targets.

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Operator [36]

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Our next question comes from the line of Trey Grooms with Stephens.

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Noah Christopher Merkousko, Stephens Inc., Research Division - Research Associate [37]

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This is actually Noah Merkousko on for Trey. So looks like wallboard pricing was down just a bit. I mean it was down 1% year-over-year, kind of looks like a deceleration from what we see. Could you guys talk about how that's trending sequentially? And maybe how much did mix play a role there?

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Alan Kirby Thompson, Foundation Building Materials, Inc. - SVP of Sales & Marketing [38]

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Yes. Thanks, Noah. This is Kirby. Mix really played a big part in that. We saw that our half-inch business increased a little bit in the third quarter, and that does have an impact on our average selling price.

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Noah Christopher Merkousko, Stephens Inc., Research Division - Research Associate [39]

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Got you. That's helpful. And then switching over to the wallboard volume, you guys kind of had a tougher comp there but maybe a little bit softer than we thought. I know you guys called out continued weakness in the Canadian market and maybe some weather. But is there anything else going on there? Again, maybe some mix impact?

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Alan Kirby Thompson, Foundation Building Materials, Inc. - SVP of Sales & Marketing [40]

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Well, really not mix impact. There are some headwinds regionally. We see it specifically in Canada, as mentioned, California and the Pacific Northwest, while the other regions remain pretty steady.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [41]

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And that's residentially for us as far as the wallboard goes.

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Noah Christopher Merkousko, Stephens Inc., Research Division - Research Associate [42]

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Okay. And then one quick follow-up. The Canadian resi market's been weak for a while now. Are you guys seeing maybe any -- some light at the end of the tunnel? Or sort of what's your expectation there for the Canadian market?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [43]

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We are. We hit our budget in October, which was like awesome. Haven't done that in a while. So yes, we are.

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Operator [44]

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Our next question comes from the line of Ryan Merkel with William Blair.

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Ryan James Merkel, William Blair & Company L.L.C., Research Division - Research Analyst [45]

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A couple of questions for me. So I want to go back to the outlook for 2020 for just a second. Are you assuming that the market is sort of flattish? And then you're taking market share to be up low single digits? And I'm just trying to get to -- trying to understand if your outlook for next year is just a little bit below what we've seen, just given what the ABI has shown us and what Dodge is showing us?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [46]

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So I think what Dodge has shown us, unless it's changed, is relatively negative for -- it was for '19 and it is for '20, Ryan. And what we're looking at most is we do a bottoms-up 9-region budget. And we have all of our salespeople and our managers in, we pull our customers, we look at backlogs, we look at the Dodge and John Burns and ABI. We look at all that stuff. And then we also talk to our vendors about what they are seeing. And that's kind of how we came up with our outlook for organic growth.

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Ryan James Merkel, William Blair & Company L.L.C., Research Division - Research Analyst [47]

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Okay. So is it a fair characterization that the market is going to be a little softer next year but it's still going to grow.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [48]

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I think it's a fair characterization. I think we're seeing some uptick in the housing from '19 to '20. It seems like the outlook for that looks decent with all the traffic that has been reported in some of the homebuilding things in that. So I could see a decent possible single-digit outlook uptick for housing, for resi.

And our commercial backlog looks good. I was mentioning in a call yesterday, for the first half of 2020, the 3 quarters into 2020 looks good for us, I mean as far as commercial goes.

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Ryan James Merkel, William Blair & Company L.L.C., Research Division - Research Analyst [49]

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Okay. Yes. Just the reason I'm asking is there some debate about what non-res looks like in 2020. So the extra color is helpful. Moving to the metal framing business. How much were prices down? And then is there any other color that you can share what's driving this beyond the anniversary of the tariff price increases?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [50]

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Yes. So prices really weren't -- so the third quarter of 2018, there was about 3 price increases hitting from tariffs on metal framing. And so our metal framing price quarter-over-quarter was 5% down. Our volume grew 2%. So we had a negative 3% year-over-year decrease in metal framing, but our volume grew.

Our business in metal framing is doing well. Our business in, obviously, ceilings is doing well. Pricing really wasn't down. It's just stabilized at a pretty high number. I mean there was a bunch of price increases going in, especially in the third quarter of 2018.

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Operator [51]

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

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Christina Chiu, Barclays Bank PLC, Research Division - Research Associate [52]

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This is actually Christina Chiu on for Matt. How are you thinking about the announced manufacturer pricing increases in January 2020? And are you expecting any prebuy in the fourth quarter?

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Alan Kirby Thompson, Foundation Building Materials, Inc. - SVP of Sales & Marketing [53]

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Thanks, Christina, this is Kirby. We'll follow our typical strategy with our inventory leading into an increase. It's still a little too early to tell just how sticky that announced increase by the Gypsum manufacturers are going to be. As we get a little closer to the end of the year, that will become a little clear, and we'll adjust our inventories accordingly.

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Christina Chiu, Barclays Bank PLC, Research Division - Research Associate [54]

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Got it. And then you had called out in your September prospectus just some weather impact due to the hurricane, and you talked about continued softness in Canada. Is there any way that you can quantify how these items might have impacted margins?

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [55]

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Well, gross margins or EBITDA? What kind of margin? Which -- SG&A margins?

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Christina Chiu, Barclays Bank PLC, Research Division - Research Associate [56]

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Just overall.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [57]

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So half of our consensus revenue is with Canada. Another $2 million to $3 million was -- Hurricane Dorian was coming on to Florida, Georgia, Virginia, Carolinas. We shut down all of our locations, which is probably about 14 or 15, 2 days before because we thought it was going to hit land. And then 2 days after or so, it takes a while to get going.

And then the floods in Houston affected us for several days in Houston. So that was the weather. And so half in Canada, that was part of the weather for us. So that's what I'm going to say about that. I don't really know how much it affected. If we had that much more revenue, our SG&A might have been a little bit lower. We would have leveraged a little bit better. So I think that's what we meant when we made that disclosure.

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Operator [58]

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As there are no further questions left in the queue, I would like to turn the floor back over to management for any closing remarks.

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Ruben D. Mendoza, Foundation Building Materials, Inc. - President, CEO & Director [59]

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Yes. This is Ruben. So thanks very much for your participation. And I'd like to thank all of our 3,700 employees for the work that they do. It's very, very much appreciated and makes a difference. Thank you.

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Operator [60]

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This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.