Builders FirstSource Inc (BLDR) 2009 Q2 法說會逐字稿

Good morning and welcome to the Builders FirstSource second quarter 2009 earnings conference call. Your host for today's call is Mr. Charles Horn, Chief Financial Officer.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and introductions will follow at that time. Any reproduction of this call, whole or in part, is not permitted without prior written authorization of Builders FirstSource. And as a reminder this, conference is being recorded today, July 24, 2009.

The Company issued a press release after the market closed yesterday. If you do not have a copy, you can find it our website at bldr.com.

Before we begin, I would like to remind you that during the course this conference call, management may make statement concerning the Company's future prospects, business strategies, and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties, which could cause actual results to differ materially from expectations. Please refer to our most recent Form 10-K, filed with the Securities Securities and Exchange Commission, and other reports filed with the SEC for more information on those risks.

The Company undertakes no obligation to publicly update or revise any forward-looking statements. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release, and detailed explanations of non-GAAP financial measures in our Form 8-K, filed yesterday, both of which are available on our website. At this time, I will turn the call over to Charles Horn.

Good morning, everyone. Welcome to our second-quarter 2009 earnings call. Floyd Sherman will not be joining me today, as he is away tending to a personal emergency. I will start with a recap of the second quarter, and then I will discuss our second-quarter financial results in more detail. After my closing comments regarding our outlook, we will take your questions.

The second quarter of 2009 saw a continuation of extremely challenging conditions facing the housing industry. National single-family housing starts were 123,700, down 36.2% from the second quarter of 2008. On a seasonally adjusted annual rate, national single-family starts were 470,000 at the end of the second quarter, down 28.2% from an annual rate of 655,000 one year ago, and down 74.2% from the peak of 1.823 million in the first quarter of 2006.

The severity and prolonged nature of the housing downturn has forced substantial capacity reduction within our industry. Several of our larger competitors filed for bankruptcy protection during the quarter, and we were forced to make difficult decisions to discontinue our Ohio operations. This decision was not taken light,y but was made to protect the overall financial health of the Company in our remaining 78 locations.

We felt the impact of these difficult conditions on our second-quarter results, although we were partially able to mitigate the overall impact through our action plan of conserving cash, growing market share, reducing fiscal capacity, adjusting staffing levels, and implementing cost containment programs, and lastly, prudently managing credit. Our net cash used during the quarter was only $2.2 million, down from net cash used in the second quarter of 2008 of $6.6 million, and was achieved on $106.8 million less sales.

We ended the quarter with over $112 million in cash. We estimate that market share gains reduced our sales decline quarter over quarter by approximately 9%. We were able to achieve these gains by largely holding share with our Builder 100 customers and penetrating further into the Multifamily and Light Commercial segments.

From a capacity standpoint, we closed three locations during the quarter, all related to our Ohio operations. As a result of these closures and other staffing reductions, our average full-time equivalent headcount for the second quarter dropped to 3,090 people, down 40.5% from the second quarter of 2008. The reductions in payroll costs, coupled with other cost reductions allowed us to reduce our selling, general, and administrative expenses by $24 million or 32.3% from the second quarter of 2008. This reduction in SG&A was approximately 98% and variable with our sales volume decline of 33%.

Excluding facility closure costs, asset impairment, and our tax valuation allowance, our adjusted loss from continuing operations per diluted share was $0.31, compared to a loss of $0.34 per diluted share for the second quarter of 2008. Again, this was all achieved on $106.8 million less in sales. We feel our action plan has been successful and continues to be of the correct course of action to ensure both the short term and long-term health of our Company.

I will now discuss our second-quarter results in more detail. Looking at our second-quarter results we reported sales of $175.5 million, compared to $282.3 million a year ago, a decline of $106.8 million or 37.8%. Our sales volume dropped an estimated 33%, compared to an estimated 42% decline in housing starts in our markets, indicating a contribution from market share gains of approximately 9%.

We sacrificed some market share growth to achieve improvement in gross margins by passing on certain lower gross margin business, especially in the Lumber and Lumber Sheet Goods product category. Recent bankruptcies and closures in the industry have combined to create excess inventory levels, which in general are depressing market prices.

Breaking down our sales by product category, Pre-fabricated Components declined $18.8 million or 34.9% from the second quarter of 2008. Windows and Doors were down 38.8%. Lumber and Lumber Sheet Goods had the largest decline this quarter, dropping 43.3%. Mill Work declined 37.6%, and finally our Other Building Products and Services decreased 33%.

Our sales mix was fairly consistent between years, with the exception of Lumber and Lumber Sheet Goods, which decreased from 24.7% of total sales last year to 22.5% this year. Our Other Building Products and Services, which increased from 20.6% of total sales to 22.3%, from 20.6%. The mix of Lumber and Lumber Sheet Goods fell due to the previously mentioned gross margin improvement initiative. Our Other Building Products and Services category continues to grow, due to the expansion of our Installation Services into the Multifamily and Light Commercial segments.

Our gross margin percentage improved to 22.3% for the second quarter of 2009, up from 21.7%, a 60 basis point improvement, quarter over quarter. Specifically, our gross margin percentage increased 180 basis points due to price, but decreased 90 basis points due to volume, which is attributable to fixed costs within cost of goods sold, and 30 basis points due a shift toward Installed Products sales, which carry a lower gross margin than Distributed Sales.

Our selling and general administrative expenses decreased $24 million or 32.3% to $50.3 million. As a percentage of sales, SG&A expense increased from 26.3% in the second quarter of 2008 to 28.7% in the second quarter of 2009, which is reflective of fixed cost items becoming the larger percentage of our SG&A.

Within SG&A, salaries and benefits expense, including stock-based compensation, declined $13.5 million or 32% from second quarter of 2008. This decline was net 97% variable with our sales volume decline of 33%. Office G&A expense decreased $3 million or 38% from the second quarter of 2008.

Occupancy expenses were down about $800,000, but up from 2.1% of sales a year ago to 2.9% of sales in the current quarter, again reflective of the fixed nature of these costs. Delivery expenses decreased $4.5 million to $9.9 million during the quarter. This 31.1% decline is primarily due to a $3 million decrease in fuel costs, and a $1.4 million decrease in fleet lease and maintenance expenses.

Our bad debt expense was $600,000 or 0.4% of sales, compared to $1.7 million or 0.6% of sales in the second quarter of 2008. An asset impairment charge of $0.5 million on lands held for sale was recorded in the current quarter. Impairment charges of $10.1 million in the second quarter of 2008 related to goodwill, customer relationship intangibles, and long-lived assets. We recorded a $0.7 million facility closure cost during the quarter, primarily related to the loss of a sub-tenant in one of our closed facilities, and a payment made to terminate a remaining lease obligation at another facility.

In recent weeks, we've been successful in negotiating lease buyouts with several of our landlords. These buyouts have reduced the Company's future obligations under these leases by over $9 million, net of the buyout payments. The majority of thee leases relates to our discontinued operations in New Jersey and Ohio.

Interest expense was $6.1 million, a decrease of $0.2 million year over year, primarily due to lower interest rates during the quarter. We recorded tax expense of $100,000 or 1.0% tax rate during the quarter, compared to expense of $12.9 million or 43.5% tax rate in the second quarter of last year.

Our benefit for the quarter was reduced by an after-tax, non-cash valuation allowance of $6.6 million or $0.19 per diluted share, related to our net deferred tax assets. Absent this valuation allowance, our tax benefit rate would have been 35.2%.

Loss from continuing operations for the quarter was $18.6 million, or a $0.52 lost per diluted share, compared to $42.6 million or $1.19 loss per diluted share in the same period last year. Excluding the valuation allowance, facility closure costs, and asset impairments, our adjusted loss from continuing operations were $0.31 per diluted share for the current quarter, compared to a loss of $0.34 in the second quarter of 2008. Adjusted EBITDA for the quarter was a loss of $5.6 million, compared to a loss of $6.3 million in the second quarter of 2008.

Discontinued operations, which include our former Ohio and New Jersey operations, represented a loss of $4 million or $0.11 per diluted share for the second quarter of 2009, compared to a loss of $3.3 million or a $0.10 loss per diluted share for the second quarter of 2008. We were successful at selling a significant portion of the assets associated with our Ohio operations, thus limiting the losses associated with the closing.

Net cash used during the quarter was only $2.2 million, and we ended the quarter with $112.4 million in available liquidity, up from $83.5 million in the first quarter of 2009. Our asset efficiency also improved during the quarter. Our working capital percentage, excluding cash and income tax receivables, improved to 9.6% down from 11.3% in the second quarter of 2008.

Accounts receivable days decreased to 39.1 days for the quarter, from 41.5 days last year. Inventory turns for the quarter improved 9.2 times from 8.9 times last year. Partially offsetting these improvement, account payables base fell to 38.8 from 33.6 days last year, due to a shift in sales mix toward Installed Products sales. Our cash conversion days improved from 48 days last year to 47 days this quarter.

We believe our action plan of implementing cost containment programs, prudently managing credit, rationalizing fiscal capacity and staffing levels, and growing markets share and conserving cash has been successful in limiting the impact of the difficult conditions on our results. During the quarter, we saw, one, an improvement in gross margins. Two, nearly a 100% flex in our SG&A expenses with our sales volume declines.

Three, improved asset efficiency and lower cash conversion days. Four, a cash use of only $2.2 million, and five, a $30 million improvement in our liquidity compared to Q1, 2009. They are all indicators that our plan is working.

We are optimistic that through the consistent execution of this action plan, coupled with over $112 million in cash, we will have adequate liquidity to withstand these challenging industry conditions and that we will be a stronger, more efficient Company, when the housing market begins its recoveries. Since the housing correction began over three years ago, we have asked an enormous amount from our employees.

We appreciate all the sacrifices they have made in recent years, and remain proud of their loyalty and dedication to Builders FirstSource. Without their willingness to do whatever it takes, we would not have been able to weather this severe downturn as well as we have. And for that, we thank them. With that, I'll turn the call over to the Operator for Q and A.

Thank you. (Operator Instructions) We'll take our first question question from Jack Kasprzak from BB&T capital market.

Thanks, good morning, Charles.

Good morning, Jack.

Wanted to ask first about your comment regarding excess inventories in the industry and depressing prices. Could you elaborate on that? Is that just a sort of general statement across the board other or - - ?

Yes, I think it's more pronounced this quarter for several reasons. One, we've had two very large companies file bankruptcy. What tends to happen in that situation is they then rationalize capacity, close locations, and they then shift the inventory from those other markets into the markets that they're going to remain open. They produce a glut of inventory, their yards are full, so they have a lot of impetus to try to push it out and clear the excess inventory.

And we definitely saw that happen during the quarter, and we definitely felt the impact with our smaller customer base, who basically took advantage of it, because they tend to buy job by job and tend to price more at market prices. So we definitely felt an impact with our smaller customer base.

Now we do believe over time that as this excess inventory clears, that the market will get a little bit more stable in terms of the market pricing, but we did see an impact in Q2, but it's a little bit unusual to have two big suppliers file bankruptcy in the same quarter.

Current production rates for the industry, any thoughts on how long it might take to right-size the channel?

I truly don't have a good feel for it, Jack. I would expect that at least for the remainder of this year, we would feel that downward pressure on pricing.

Okay. Second question is recent macro data on housing, I guess it's fair to say is somewhat mixed, in terms of there are at least some indicators that point to some stabilization, housing starts may be flattening out, pending home sales index may be ticking up, while there's still excess inventory out there. Mindful of your comments about a difficult industry condition into 2010, are you guys seeing any signs of stabilization or hint of light at the end of the tunnel?

Jack, it does seem that we're seeing some indications; it does appear that there's more optimism with many of our customers, but we're still a little guarded. We still feel that the second half this year will probably approximate the first half. So we do expect it to not - - it may be stable, but it's not going to increase very much.

So in terms of managing the Company, we'll prepare for the second half somewhat equivalent to the first half, in terms of overall housing activity. I think our feel is that we still believe that 2010 will see a little bit of moderate growth, but really 2011 is when we'll see a more pronounced increase in housing activity.

Is that just from a view of where we still stand with housing inventories and stress on the consumer? I guess those are pretty obvious things everybody looks at. But is that really what you base that off of?

There's real two things, if you look at the new home inventory, it's actually quite moderate and low in many of the markets we serve. Unfortunately, existing inventory is still high, and foreclosures go not be abating per se. So with the foreclosures continuing to put pressure on existing home sales and the existing inventory, I think that that will pressure.

Now I do think there will be markets that start to experience an upturn before others. I think that the whole DC, Maryland area is going to recover quickly. In fact, we're seeing some pretty good strength and activity there. But I think overall the foreclosures will continue to weigh down overall activity, but once we clear the issue, we do know that new home inventory is low, and that that could create a somewhat rapid increase in building activity if we can work through those issues.

Great. Thanks very much.

We'll take our next question from Ivan Holman from RBC Capital Markets.

Hi, good morning. Thank you for taking my question. I'm sitting in for Scott today.

Good morning.

I was just hoping that you could maybe offer a little bit of additional color on the shutdown of the Ohio operations. Could you kind of give us an idea of why in particular that market, were there any characteristics of Ohio that made it a candidate? Was it a cost side; was it really just a collapsing in demand? Can you help us understand what the rationale really was for exiting that particular space?

If you look at Ohio, it's been a tough market for several years, and we were very dependent upon one or two major customers. There wasn't a very large breadth of customers to draw from. So we had trouble. We couldn't get it to profitability, so we looked at the next step, can we get it to where it makes a positive cash contribution toward fixed costs.

When we were unable to get there, we started looking at it from a macro standpoint, saying long term, does it justify the investment we have in the market, and do we think housing will get back to a level in Ohio to really support the size of operations we had. Based upon that, we looked at it and we decided we're better off monetizing the investment we have in the market, leaving, because long term it probably wasn't going to be an overly dynamic market.

And the opposite would be someone like Florida. With Florida, we have several locations not doing great, but we know long term Florida will respond and be where we need to be. We didn't feel the same way about Ohio. And so, while it was a very, very tough decision, it was one we felt we needed to make.

Okay, that's good. That's very helpful actually. Thank you. And are there any other markets that kind of display these same characteristics that you might consider, we're not asking really to show your hand I guess, any other markets you might consider kind of leading just in terms of right sizing the operation?

It kind of feels that, given the current market, this is a bit who can hold their breath the longest competition, in terms of maintaining their costs as low as possible, and you did mention some other bankruptcies. Are there other markets that display similar characteristics to the market that you exited that maybe we should be aware of, keep an eye on?

I would say at this point no. We're very comfortable with our existing footprint, and we think that this footprint will serve us well in the future. And so we're not looking or inclined to shut any further locations down at this point.

Great. And if I might slide in a last final question. You guys have done some very good work in terms of containing your costs, and SG&A was a little higher on a percentage, but on the dollar basis it was definitely better. How sustainable do you think there is, and how much more do you think you can squeeze out of costs? This kind of refers back to the comment about who can hold their breath the longest. Do you think that you can continue to squeeze some cost savings going forward if sales don't right size, and if the end-market demand kind of bottoms out even though seems to be stabilizing a little bit? Thank you.

We believe we can. If you look at the job we've done in terms of managing payroll, our field operations have really bought into it. They've done a very good job improving and driving efficiencies. We've used our ERP system to help them drive efficiencies, developing reports to help them manage day to day. So I feel good that we'll continue to flex payroll costs consistent with what's happening to our top line.

We've been very aggressive in attacking the G&A costs. We've actually been reducing that greater percentage than what we have ourselves declined, and we feel that we can do more there. We can definitely do some more, just take down some fixed costs associated with some of the rent costs associated with debt facilities. We continue to be very active on it.

So I do believe that we'll continue to be able to adjust it downward, based upon sales. It may not be the same percentage we had this quarter, but we do think that there are more things we can do, and there are more ways we can be efficient.

Great. Thank you very much. That's very useful. I [yield] back. Thanks for the time.

Thank you.

We'll take our next question from Walter Branson from Regiment Capital.

Thanks. Hi, Charles.

Good morning, Walter.

Good morning. A couple of things, you mentioned the bankruptcies, I assume one was stock. Could you mention what the other one was, and also what the impact of those were in terms of competitive locations that have been closed?

The other is BMHC, a public company on the west - -

Of course, right.

With stock building supply we overlap in a number of markets. We have seen, through the bankruptcy process, that they're consolidating a number of facilities, leaving a few of our markets, but they're still going to be in a number of markets and we'll be competing with them.

It's still too early to figure out exactly what that will do to the competitive dynamic. But I do think that it could give us some ability to pick up share. With BMHC we truly only overlap in one market, Texas. And again, it's premature to know what impact that will have, but it could help us gain a little bit of share. But only time will tell.

Okay. And on the tax bill for the quarter, obviously working capital aside from the tax refund was a significant source of cash during the quarter. But it's difficult to see the components because you moved Ohio into discontinued. Do you have that information as to what the change was in dollars during the quarter in the key components of working capital? And also could you comment on the sustainability of that, would you expect working capital to be a source or use of cash in the second half of the year, or roughly neutral?

The first thing is you're right, we moved some down to our proceeds from sales of assets of discontinued ops. Had we not, it would have actually showed a little bit higher operating activity, so a little bit higher inflow from working capital. Going forward to your question, is t's going to depend on what our sales volumes do.

We feel we were asset efficient during the quarter, working capital percentage below 10%. It's going to be hard for us to get that as a percentage much lower. So if we see sales decline during the second half of the year, then that could produce some working capital inflow, but if we see a little bit of stabilization and increase in sales, that would probably produce some working capital outflow, as we build inventory and build our AR.

So it's really going to be determined upon what we see in the second half. Overall I believe that the second half will be somewhat consistent with the first half, so I would expect our working capital in-flow to be basically flat.

Okay. And then the last thing is you quote sales volume dropping less than your total sales in dollars for the quarter. Is the difference there solely pricing on Lumber and Sheet Goods?

That's correct.

So in terms of overall pricing, your gross margin was actually up because of pricing improvement. So when you look at all of your products that you sell, was overall pricing actually improved during the quarter?

No. I would say primarily it was in the Lumber and Lumber Sheet Goods category where we picked up the margins. And that's the category where we most passed on business that didn't meet a certain internal return requirement. In terms our other categories, they were basically, I would say, flat year over year in terms of gross margin.

I see. So Lumber and Sheet Goods pricing was down because of the commodity being down, but you actually picked up margin there?

That's correct.

Okay. Great. Thanks very much.

We'll go next to Keith Hughes from SunTrust.

Thank you. Kind of building on the last caller, on the accounts receivable, could you give us an idea of what accounts receivable would be without the discontinuation in Ohio?

It would probably be about a $400,000 difference, Keith.

So it's only a modest amount?

That's correct.

So it was down substantially year over year. What was driving that number beside the sales decline?

I think there's two thing. One, we did collect some old money for the quarter. We collected over $1.5 million of greater than 90 money. We have a very good credit department that stays very diligent in doing that.

The second part of it is we're pretty tight on our credit policies. During the quarter, we were probably more apt to hold credit limits or to basically freeze shipping if accounts got past due more than 30 days on some of the smaller accounts.

So I would say that we were very active and diligent on the AR side. We don't want to make a sale if we're not going to get paid, so we're very prudent in the way we're managing credit. So I think that's part of what you saw in the improvement to the overall currency of the portfolio, and in the improvement in our bad debt expense.

Is some of this sort of one time in nature? In other words, should we expect significant sequential declines in AR? (inaudible - multiple speakers) roughly the same, right?

I would agree. Keith, I think it's going to fluctuate between that 39 and 41 days.

Okay. That's all for me. Thank you.

Thanks, Keith.

We'll go next to Jay McCannless from FTN Equity.

Good morning, Charles.

Good morning Jay.

Wanted to ask you the same question I asked last quarter on the break-even points. Wanted to see if the Ohio closures are going to change those. I think had laid out $960 million to $1 billion in annual sales, or 480,000 to 500,000 single family starts. Have those changed with the Ohio closure?

It does help. Clearly Ohio was a money loser, so when we shut it down, that does help. The improvement in gross margin helps. If you look at June and look at where the macro was in June, we were very close to getting to an EBITDA break even. So I think that clearly has helped if we can maintain margins, we can probably get to an EBITDA break even in the 450 single-family starts, probably a sales volume around $70 million per month.

$70 million a month and about 450 on starts, okay. And then, ow much did you have borrowed against the credit facility at the end of 2Q?

$20 million. We paid down $20 million of debt during the quarter.

$20 million. And then still $275 million on the flooding rates?

That's correct.

Okay. And then I saw the lumber prices in June did pop up on the random links numbers. Has that continued into July, or is it moving back down?

It's starting to move back down some. They did have a little bit of an increase toward the last three weeks of the quarter, but we have seen them start to retreat back some on us.

Did the pop in June help your pricing going into 3Q at all?

Not really.

Okay. And then another question, I've seen more and more Builders FirstSource signs in front of renovation jobs on single family residential. Is that a new area of business for you all, or just an extension of the Installed Sales push that you talked about in the release?

I'd say it's more of an extension. We are obviously trying to reach out, pick up business where we can, especially if we can do it profitably. We do have a very good infrastructure now for Installed Product sales, and so it's something that we can leverage and grow into the future. And so you probably will see us moving more into it.

If you look at our Installed Products sales, we were about 22% of total sales for the quarter. So it has been a growing area. It does put a little bit of a negative pressure on our gross margin because of the labor component, but overall can produce us a very good return. So we do hope to grow that.

Do you have a target for where you want Installed to be as a percentage of total revenues?

No, not really.

Okay. Great. Thank you.

We'll go next to Nishu Sood with Deutsche Bank.

Thanks. Charles, I wanted to ask you first about opportunities amidst all this distress, because you have seen some of that in the last few months. I mean, Stock, for example, has reemerged already from its pre-packaged bankruptcy, poised for opportunities as they say. They talk about their balance sheet. You've seen other players as well that are in a stronger financial position picking up yards or operations from other folks that might have exited, planning for future growth now.

You guys have obviously been focused very much internally, but your rate of cash burn has lessened a lot. You've got this major cash tax refund. You've obviously paid down your line; you're sitting on $112 million of cash. So at what stage do you folks begin to shift from the internal cash generation, cleaning up the operations, set type of focus, more towards a forward looking, picking up on opportunities in this distressed environment type of stance?

Well, Nishu, I think we look at both now. We look at what the opportunities are, and we do believe that there are going to be a great deal of opportunities in the near future. So it's a case where, if we are positioned correctly from a cost structure, a capital structure, we do want to try to grow and to try to take advantage of some consolidation within the space. Is it anything that we'll do eminently? Unlikely.

But it is something we consider. We evaluate and will definitely will be a key part of our strategy in the future. So, you're right, we've been very intra-focused. We've been wanting to make sure that we've paired cost, corrected our own balance sheet, and then we do anticipate that we'll be more active in trying to take advantage of these opportunities.

Right. I know a number of other people have asked this in different forms, but do you feel like you're pretty much done with the inward focus in terms of the cost reduction? I know someone else already asked about cost cuts, and especially given some signs that we may soon reach a bottom in housing. So I mean, how do you see yourselves sitting, are you in the sixth to seventh inning here internally, or where exactly are you?

I'd say that's correct. We're not going to look to shut down any further operations at this point. We feel very good about our footprint.

There's always more we can do on the cost side, and we'll continue to focus on that. But you're right, we're getting late, seventh, eighth inning, in terms where we've structured and where we want to be.

Okay. Great. And one other question if I could. You've talked about a preference for more Installed sales, and shifting your mix of business to the more value-added products, where you can have a better advantage competitively.

I wanted to ask how the change in the housing landscape, though, has affected what sorts of product - - your product mix basically. And builders have obviously [de-specked] houses a lot. They've reduced floor plan sizes. So everyone thinks that the first-time buyer is going to be the first to recover. How are all of those changes out in the field likely to affect your product mix going forward?

You're correct in the fact that they're downsizing, so the opportunity per house will be slightly less if it's a smaller home and if it's a first-time home. So what we respond by doing is trying to offer a broader breadth of products to make up for that differential and opportunity for house.

So we see that going on, we see the major builders value engineering their homes, making them smaller, fewer windows, trying to get the first-time buyer, which is basically where sales are taking place right how. And we'll respond to that by trying to add on; Install Products services is a great way of trying to fill the gap of the lost opportunity. But it will make it to where we're chasing theoretically fewer dollars per start than where we've been before.

Got it. Okay, great. Thanks a lot.

Thank you.

We'll take our next question from Kyle O'Meara with Robert W. Baird.

Hi, good morning, Charles.

Good morning.

On the share gain side, could you help me break down the gains between what was in Single Family and maybe on the Light Commercial and Multifamily side.

I would break it down probably by 7% from the Single Family and about 2% from the Multifamily, Light Commercial.

Okay. Thanks. Then on the Light Commercial, Multifamily, I think you said historically it's about 10% of your business. Overall, what percentage of the mix could that be, is that something you're targeting?

And then as a follow-on to that, what's the margin profile in that versus your traditional Single Family?

I wouldn't say that we're targeting per se, it's just been a very good opportunity. When Single Family starts are down so far you chase where it can be, and when Single Family starts are down so far you chase where it can be. Conversely, I wouldn't say we have a specific target for Multifamily.

We do expect that the financing crisis that's out there will impair it, further Multifamily starts and Light Commercial starts. So we know that that's about to be hit, to some degree equivalent to what the Single Family starts have been. So, we're just trying to go where the opportunity is. In terms of profitability, Multifamily tends to carry a little bit lower gross margin, but conversely you have lower SG&A, so you generate still a positive EBIT and a positive return on equity. It's just a little bit more of a different geography on the P&L.

Alright, great. And then, finally on the Ohio and New Jersey markets, is it fair to say that the size of though markets in the first half of 2008 is similar to the size in the second half of 2008? I'm just trying to get a relative size of the business, and I assume there's more seasonality there, as well.

We removed it obviously from both periods in terms of our presentation, but what I would assume is just use the same sales decline to interpolate what last year's sales were for Ohio And New Jersey.

Great. Thank you.

Next to Brian Taddeo with Broadpoint Capital.

Good morning. A couple of follow ups from some of the other questions. Given your run-up in the stock price here lately and your comments on the M&A ,or opportunity side, any discussion at this point, of looking to take advantage of the run-up here and raise some additional liquidity to have your back pocket sort of extend the runway, or any opportunities presenting themselves during the short term?

It's definitely consideration, something we always evaluate. We've seen our major customers out being very active in the debt markets, issuing new debt. And it is something we definitely consider, and if we see the opportunity [you'd be] correct, we would love to take advantage of that, as well.

Are you thinking more on the debt side or more potentially on the equity side?

It would likely be more on the equity side.

And then just also on the comment before, the break-even EBITDA, from a break-even EBITDA standpoint, the housing starts, how about looking at it from a cash flow perspective. Do you have to get north of 500 in order to be break even from a cash flow basis, or even higher than that?

It's a good question. It adds about 75,000 single-family starts to the break-even equation.

Sorry, it adds 70,000?

Yes.

Okay. Perfect. Thank you very much.

Thank you.

We'll go next to Jim Wilson from JMP Securities.

Thanks, good morning, guys.

Good morning, Jim.

Maybe more specific to the bankruptcy opportunity, or the ability to expand, is there anything in the process so far out of stock and re-emerging or that you can see out of BMHC where divisions of regions might be for sale, or anything in particular that you could speak of, maybe comment on, any interest in it?

You know, truly with BMHC, I don't have any insight into it. With stock building supplies, primarily what I've seen or heard in the bankruptcy filings that they may be looking to sell off a few operations. Or I've seen that they may be trying to look to sell back some old locations to previous owners. I think there could be some opportunities there. We just haven't evaluated it very far at this point.

Okay. And then my other question is besides the Lumber, but on the General Product side, from a purchasing standpoint, are you, particularly even given the condition of some of your competitors, are you finding any further cost or pricing advantage with product suppliers that's material, just that you could comment on?

No, I can't say I'm seeing a cost advantage, but they definitely work very well with us in terms of payment terms. They do feel comfortable with our liquidity, and so they've been very good at working with us and giving us extended payment terms. I would say that's probably the one advantage we've had. We'll have to see what they do now with a couple of these companies coming out of bankruptcy, as to whether they go back and give them the same payment terms as before, will they be equivalent to ours, we don't really know. But we definitely have had an advantage on payable days.

Okay. All right. Very good. Thanks.

Thank you.

(Operator Instructions) We'll go next to Jake Mercer with [Whitefox] Advisors.

Hi, good morning. Just a followup on the earlier question. So you are willing to issue equity to either buy back, I'm assuming, bonds or for M&A opportunities that are out there?

It is something we would consider, absolutely. I mean clearly, that would take a Board decision, but it's something we evaluate, and it may be something we look to do in the future. Basically we know it's an opportunity to be had, should we choose to pursue it.

Okay. Does your current credit facility allow, I haven't read the docs fully, does that allow you to buy back bonds or do you need a waiver on that?

It does give us the capability to do so. It doesn't give us cart blanch. We have to meet certain requirements within the agreement, but it would allow us to buy back some debt.

Okay. Then just can you run through how you view M&A versus buying back debt, I mean the debt is obviously trading at a deep discounts. It's close to two and a half years to maturity. What your thought process is.

It's a good question. To your point, I think we are more focused on our capital structure than what wer are necessarily taking that next step for growth and acquisitions. So your point is correct. We will look at our balance sheet and determine do we feel comfortable where it is based upon our outlook, or do we feel we need to make changes to it.

Okay. Have you, I know that a number of companies have contemplated or done transactions as far as debt for equity swaps. Is that anything you've considered?

It's something we consider, absolutely the case. Obviously this conversation is a little premature in where we are. I mean these are just more conceptual things we've talked about. We have not implemented any plan to get to to consumate them.

Right. Right. No, just curious if you had thought about those idea.

It definitely would be a consideration for us, yes.

Okay, thanks.

And with no further questions in the queue, I'd like to turn the call back over to Charles Horn with any additional or closing remarks.

Thank you for joining us today. If you have any questions, feel free to contact me. Thank you.

That does conclude today's conference. We thank you for your participation.