Cornerstone Building Brands Announces First-Quarter 2020 Results

Cornerstone Building Brands, Inc. (NYSE: CNR) (the “Company”), a leading provider of exterior building products, today reported first-quarter 2020 net sales of $1,113.8 million, up 4.6 percent from the same period a year ago. Adjusted for acquisitions, first-quarter 2020 pro forma net sales1 were $1,122.2 million as compared to pro forma net sales1 of $1,088.7 million for first-quarter 2019. The increase was primarily driven by positive price/mix and higher volume.

In the first quarter of 2020, the Company recorded a net loss of $542.1 million, including a non-cash pre-tax goodwill impairment accounting adjustment of $503.2 million related to the COVID-19 pandemic. Excluding the accounting adjustment, first-quarter 2020 net loss was $38.9 million, a 35.2 percent improvement from the net loss of $60.0 million during first-quarter 2019.

Pro forma Adjusted EBITDA1 was $98.1 million or 8.7 percent of pro forma net sales1, an improvement of 210 basis points from the same pro forma period a year ago. The improvement was primarily driven by favorable price/mix, net of inflation partially offset by higher direct labor and other compensation and benefits costs.

"Our team’s focus on executing our strategy delivered profitability that exceeded our guidance expectations for the first quarter," said James S. Metcalf, Chairman and Chief Executive Officer. "Price leadership and continuous improvement are core competencies of our business model that have driven margin expansion in all segments for three consecutive quarters.”

“Now, as we navigate the uncertainty of the COVID-19 pandemic, we have been focused on taking decisive actions to protect the health and safety of our employees and customers, and the ongoing strength of our Company. Our extensive operating footprint provides us with the flexibility to manage production schedules to ensure that our customers continue to receive quality products without disruption. We have also taken necessary actions to safeguard our solid financial position, strengthen liquidity, and improve cash generation. While it remains unclear how long this pandemic and the related economic challenges will last, I believe in the resiliency of Cornerstone Building Brands, and I am confident that the actions we are taking will help us emerge even stronger than before,” Metcalf concluded.

Segment Results

During the first-quarter of 2020, there were four additional ship days contributing to the favorable year-over-year variance:

• Windows segment net sales increased 6.4 percent and gross profit as a percent of net sales improved 170 basis points primarily from favorable price/mix, net of inflation, within the U.S. Windows business and achieved cost savings in manufacturing.
• Siding segment net sales increased 10.4 percent and gross profit as a percent of net sales improved 930 basis points. Adjusted for acquisition impacts, Siding segment net sales increased 3.0 percent and gross margin expanded 230 basis points primarily from favorable price/mix, net of inflation.
• Commercial segment net sales were about flat and gross profit as a percent of net sales improved 180 basis points primarily from favorable price/mix, net of inflation, partially offset by higher manufacturing expenses.

COVID-19 Response and Update

The health and safety of our employees, customers, and communities is our number one priority. Throughout this pandemic, Cornerstone Building Brands has been adhering to mandates and other guidance from local governments and health authorities, including the World Health Organization and the Centers for Disease Control and Prevention. The Company has taken extraordinary measures and invested in practices to protect employees and reduce the risk of spreading the virus, while continuing to operate where permitted and to the extent possible. These actions include additional cleaning of our facilities, staggering crews, incorporating visual cues to reinforce social distancing, providing face coverings and gloves, as well as implementing daily health validation at our manufacturing and office facilities.

Across all of our businesses, our teams are in constant communication with customers, along with suppliers and government officials, to maintain business continuity without disruption. The Company has continued operations as an ‘essential’ business, delivering quality products to our customers. Cornerstone Building Brands has remained flexible, effectively managing production schedules in response to short-term shutdowns for extensive cleaning, and changes in demand due to the pandemic.

Additionally, the Company has been taking prudent and precautionary actions to maintain financial flexibility and enhance liquidity by:

• Rationalizing facility and organizational structures
• Reducing discretionary and non-essential expenses
• Lowering 2020 capital expenditures
• Effectively managing working capital
• Drawing on its asset-based revolving credit facility and cash flow revolver

Balance Sheet and Liquidity

Cornerstone Building Brands has sufficient liquidity to meet its needs with $475.7 million of unrestricted cash and cash equivalents on the balance sheet as of April 4, 2020, no near-term debt maturities and a covenant-lite structure. Additionally, the Company had excess availability of $118.0 million on its asset-based revolving credit facility as of April 4, 2020.

Outlook

Given the continued uncertainty surrounding COVID-19, the Company has suspended its practice of providing segment sales and earnings guidance. Cornerstone Building Brands is anticipating net sales for second-quarter 2020 to be in line with, or better than, April 2020 net sales, which were 25 percent lower than pro forma net sales for the same period last year. The Company expects to maintain financial flexibility and enhance liquidity from the following significant cash generating actions:

• Structural cost reduction initiatives totaling $80 million to $100 million
• Near-term expense management actions totaling $40 million to $60 million in savings
• Capital expenditure reduction of approximately $30 million
• Effective working capital management of $100 million to $120 million

The Company plans to reinstate quarterly financial guidance at the earliest reasonable opportunity.

(1) Adjusted financial metrics used in this release are non-GAAP measures and refer to the results for 2020 and 2019. Pro forma financial metrics used in this release for results in 2020 and 2019 are also non-GAAP measures and adjust for other items affecting comparability. See reconciliations of GAAP results to adjusted results and pro forma results in the accompanying tables.

Conference Call Information

The Company will host a conference call at 9:00 a.m. EST on Wednesday, May 13 to discuss its financial performance with investors and securities analysts. The call will be webcast on the Company’s website, www.cornerstonebuildingbrands.com, in the Events & Presentations section of the Investors Page. The dial-in number for the conference call is 1-833-380-0405. After the live webcast, a telephonic replay of the call will be available until May 27, 2020. The replay dial-in number is 1-800-585-8367 and the replay code is 1196945. Additionally, the slide presentation to be used in connection with the Company’s webcast and conference call is available in the Investor Relations section of the Company’s website at www.cornerstonebuildingbrands.com.

About Cornerstone Building Brands

Cornerstone Building Brands is a leading manufacturer of exterior building products in North America. Headquartered in Cary, North Carolina, the Company serves residential and commercial customers across new construction and the repair & remodel markets. As the #1 manufacturer of windows, vinyl siding, insulated metal panels, metal roofing and wall systems and metal accessories, Cornerstone Building Brands combines a comprehensive portfolio of products with an expansive national footprint that includes approximately 20,000 employees at manufacturing, distribution and office locations throughout North America. For more information, visit us at www.cornerstonebuildingbrands.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “anticipate," “guidance,” “plan,” “potential,” “expect,” “should,” “will,” “forecast,” “target” and similar expressions are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations, assumptions and/or beliefs concerning future events. As a result, these forward-looking statements rely on a number of assumptions, forecasts, and estimates and, therefore, these forward-looking statements are subject to a number of risks and uncertainties that may cause the Company's actual performance to differ materially from that projected in such statements. Such forward-looking statements may include, but are not limited to, statements concerning our market commentary and performance expectations. Among the factors that could cause actual results to differ materially include, but are not limited to, industry cyclicality and seasonality and adverse weather conditions; challenging economic conditions affecting the nonresidential construction industry; downturns in the residential new construction and repair and remodeling end markets, or the economy or the availability of consumer credit; volatility in the United States (“U.S.”) economy and abroad, generally, and in the credit markets; the outbreak of a health epidemic or pandemic, including the coronavirus disease 2019 (“COVID-19”) pandemic; precautions taken due to the recent COVID-19 pandemic that could harm our business; impairment of goodwill and/or intangible assets; our ability to successfully develop new products or improve existing products; the effects of manufacturing or assembly realignments; seasonality of the business and other external factors beyond our control; commodity price volatility and/or limited availability of raw materials, including steel, PVC resin, glass and aluminum; our ability to identify and develop relationships with a sufficient number of qualified suppliers and to avoid a significant interruption in our supply chains; retention and replacement of key personnel; enforcement and obsolescence of our intellectual property rights; costs related to compliance with, violations of or liabilities under environmental, health and safety laws; changes in building codes and standards; competitive activity and pricing pressure in our industry; our ability to make strategic acquisitions accretive to earnings; our ability to carry out our restructuring plans and to fully realize the expected cost savings; global climate change, including legal, regulatory or market responses thereto; breaches of our information system security measures; damage to our computer infrastructure and software systems; necessary maintenance or replacements to our enterprise resource planning technologies; potential personal injury, property damage or product liability claims or other types of litigation; compliance with certain laws related to our international business operations; increases in labor costs, potential labor disputes, union organizing activity and work stoppages at our facilities or the facilities of our suppliers; significant changes in factors and assumptions used to measure certain of our defined benefit plan obligations and the effect of actual investment returns on pension assets; the cost and difficulty associated with integrating and combining acquired businesses; volatility of the Company’s stock price; substantial governance and other rights held by the Investors; the effect on our common stock price caused by transactions engaged in by the Investors, our directors or executives; our substantial indebtedness and our ability to incur substantially more indebtedness; limitations that our debt agreements place on our ability to engage in certain business and financial transactions; our ability to obtain financing on acceptable terms; downgrades of our credit ratings; and the effect of increased interest rates on our ability to service our debt. See also the “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and other risks described in documents subsequently filed by the Company from time to time with the SEC, which identify other important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements, whether as a result of new information, future events, or otherwise.

Non-GAAP Financial Measures

This press release includes certain “non-GAAP financial measures” as defined under the Securities Exchange Act of 1934 and in accordance with Regulation G. Management believes the use of such non-GAAP financial measures assists investors in understanding the ongoing operating performance of the Company by presenting the financial results between periods on a more comparable basis. Such non-GAAP financial measures should not be construed as an alternative to reported results determined in accordance with U.S. GAAP. We have included reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and provided in accordance with U.S. GAAP at the end of this release.

Certain amounts in this release have been subject to rounding adjustments. Accordingly, amounts shown as totals may not be the arithmetic aggregation of the individual amounts that comprise or precede them.

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