Builders FirstSource Inc (BLDR) 2009 Q4 法說會逐字稿

Good morning, and welcome to the Builders FirstSource fourth-quarter and fiscal year 2009 earnings conference call. Your host for today's call is Mr. Floyd Sherman, Chief Executive Officer. (Operator Instructions). Any reproduction of this call in the whole or in part is not permitted without prior written authorization of Builders FirstSource.

As a reminder, this conference call is being recorded today, February 19, 2010. The Company issued a press release after the market closed yesterday. If you don't have a copy, you can find it at our website BLTR.com.

Before we begin I would like to remind you that during the course of this conference call management may make statements 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 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 non-GAAP financial measures to their GAAP equivalents on our earnings press release, and detailed explanations of our non-GAAP financial measures in our Form 8-K filed yesterday, both of which are available on our website.

At this time I would like to turn the call over to Floyd Sherman. Please go ahead.

Thank you and good morning. Welcome to our fourth-quarter and fiscal year 2009 earnings call. Joining me from our management team is Chad Crow, Senior VP and Chief Financial Officer.

I'll start with a recap of 2009, and then I will turn the call over to Chad who will discuss our fourth-quarter financial results in more detail. After our closing comments regarding our outlook we will take your questions.

We saw an improving trend in housing starts towards the end of 2009, as the national seasonally adjusted rate for single-family starts increased from 393,000 at the end of 2008 to 477,000 at the end of 2009. However, for the year actual single-family starts dropped 28.4% from 622,000 units at 2008 to 445,200 in 2009.

Quarter-over-quarter national single-family starts were relatively flat, but multifamily starts continued to decline, dropping 62% quarter-over-quarter. Although we have seen some recent stabilization in single-family housing starts, national single-family units under construction increased almost 28% in the current quarter as compared to the fourth quarter of 2008.

Historically units under construction have declined at a similar and oftentimes slower rate than starts. However, this trend changed in June 2009, and since that time single-family units under construction have fallen 32%, while single-family starts have fallen only 12% compared to the same period of 2008.

For reasons that are unclear the industry is experiencing delays in housing starts moving to units under construction. To clarify, a start is triggered once the dirt work begins. Once the foundation has been established the start becomes a unit under construction, at which time our potential for revenue begins.

The continued decline in the number of homes in the construction pipeline has negatively impacted our revenue. This same trend held true for building activity in the South Region, as defined by the U.S. Census Bureau, which encompasses our entire geographical footprint.

While our 2009 sales and gross margins were down $314.1 million and $73.1 million, respectively from 2008, our adjusted EBITDA decreased only $2.7 million. This was accomplished through our continued focus on reducing operating expenses by managing headcount and rationalizing capacity in order to become a more efficient company.

I will now walk you through our 2009 results. Sales were $677.9 million, a decline of $314.1 million, or 31.7%. Commodity deflation in 2009 decreased sales by an estimated 3%, indicating a drop in sales volume of approximately 29%.

During 2009 single-family starts in the South Region were down 28.3%, but single-family units under construction fell 37.7%. Historically we have measured our market share gains and losses based upon starts in our specific markets, which have generally shown a strong correlation to units under construction. However, the current disparate trend between starts and units under construction have produced uncertain results from these calculations. For the year our sales per unit under construction increased by 9.7% during the year, indicating we may have gained marketshare.

Our gross margin percentage fell 70 basis points to 21%. Specifically our gross margin percentage decreased by 60 basis points due to volume and 30 basis points due to a shift in sales mix towards installed product sales, which carry a lower gross margin percentage than distributed sales. Our margins increased by 20 basis points due to price.

Our SG&A expenses decreased $78.6 million, or 28.1%. As a percentage of sales, however, SG&A increased from 28.2% in 2008 to 29.7% in 2009, as our fixed cost items became a larger percentage of our overall SG&A.

Average full-time equivalent employees, excluding discontinued operations, where 33% lower for 2009. Our salaries and benefits expense, excluding stock compensation expense, fell $45.1 million or 28.8%, adjusting close to 100% variable with our sales volume decline of 29%.

In addition, delivery expense fell $13.9 million, stock compensation fell $5.6 million, and occupancy expenses fell $3.7 million, and our office G&A expenses fell $9 million for the year.

For the current year we recorded asset impairment charges of $0.5 million related to land we have held for sale. This is compared to $46.9 million in asset impairment charges we recorded in 2008, primarily related to goodwill impairment of our Florida business unit.

Our facility closure costs were $1.2 million in both 2009 and 2008, the majority of which relate to future lease obligations on our closed facilities.

Our interest expense for 2009 was $27 million or an increase of $1.4 million, which is primarily due to the write-off of $1.2 million in debt issued cost related to reduction of our revolving credit facility from $350 million to $250 million during the first quarter of 2009.

We recorded an income tax benefit of $30.8 million during 2009 compared to a tax benefit of $17.7 million during 2008. Our benefit was reduced by an after-tax non-cash valuation allowance of $3.9 million in 2009 and $31.6 million in 2008. Absent the valuation allowance and impact of changes in the tax law for 2009, as well as the nondeductible portion of goodwill impairment for 2008, our effective tax rate would have been 37.2% for 2009 and 38% for 2008.

Loss from continuing operations in 2009 was $56.9 million compared to $120.6 million in 2008. Loss from discontinued operations, which includes the results of our discontinued Ohio and New Jersey operation, was $5 million for 2009 compared to $18.9 million in 2008.

Adjusted EBITDA for 2009 was a loss of $35.1 million compared to the 2008 loss of $32.4 million.

I will now turn the call over to Chad, who will review the fourth-quarter financial results in more detail.

Thank you, Floyd. Good morning everyone. In reviewing our fourth-quarter results we reported sales of $154 million compared to $192.9 million for the fourth quarter of 2008, a year-over-year decline of $38.9 million or 20.2%. Commodity inflation in the current quarter increased sales by an estimated 2%, indicating a sales volume decline of 22%.

Single-family starts in the South Region were up 9.3% quarter-over-quarter, but single-family units under construction were down over 28% during the same time frame. For the quarter our sales per unit under construction increased 11.3%, indicating we may have gained marketshare.

Breaking down our sales by product category, prefabricated components declined $7 million or 19.4% from the fourth quarter of 2008. Windows and doors were down 26.4%. Our lumber and lumber sheet goods category declined 9% for the quarter. Our millwork category was down 12.8%. Finally, other building products and services decreased 28.2%.

From a sales mix perspective lumber and lumber sheet goods were up from 22.6% of sales to 25.7% of sales, partially due to lumber inflation seen in the fourth quarter.

Our other building products and services category was down from 23% of sales to 20.7% of sales due to several large projects completed in the fourth quarter of 2008 for which the labor revenue was recorded in this category. All other categories remain relatively unchanged quarter-over-quarter.

Our gross margin was 19.7%, down from 21.5% in the fourth quarter of 2008. The majority of this decline, 140 basis points, was due to price. Continued pricing pressure, combined with lower sales volume, negatively impacted our gross margins. We were, however, able to limit the cash flow impact of the sales and gross margin decline by reducing our operating expenses.

SG&A expenses decreased $13.4 million or 21.2% for the fourth quarter of 2009. As a percentage of sales, SG&A expense decreased from 32.7% in 2008 to 32.3% in 2009 on $38.9 million less sales.

Our average full-time equivalent employees, excluding our discontinued operations, for the fourth quarter of 2009 were 2,800, down 25.4% from the fourth-quarter 2008 average. Salaries and benefits expense, excluding stock compensation expense, fell $7.3 million or 21.9%. This decline was nearly 100% variable with our sales volume decline of 22%.

In addition, delivery expenses fell $1.8 million, stock comp expense fell $1.8 million, and office G&A expenses fell $1.7 million on a quarter-over-quarter basis.

In the fourth quarter of 2008 we recorded a pretax asset impairment charge of $36.8 million. We recorded a goodwill impairment charge of $36.4 million related to our Florida business unit and an asset impairment charge of $400,000 related to land we have held for sale. We had no asset impairment charges in the fourth quarter of 2009.

Interest expense was $7.5 million in the current quarter, a $700,000 increase from the fourth quarter of 2008.

We recorded an income tax benefit of $33.2 million during the current quarter compared to a benefit of $17.3 million in the fourth quarter of 2008. Our benefit was increased in the current quarter by a reduction of the after-tax non-cash valuation allowance of $21.1 million, primarily due to recently enacted tax legislation that allowed for an extended carryback of net operating losses generated in 2009.

For the fourth quarter of 2008 we recorded an after-tax non-cash valuation allowance of $4.3 million related to our net deferred tax assets. Absent the valuation allowance and impacts of changes in tax laws, our tax benefit rate would have been 36.9% for the fourth quarter of 2009. Absent the valuation allowance and nondeductible portion of goodwill impairment for the fourth quarter of 2008, our tax benefit rate would have been 37.5%.

For the current quarter we had $6.2 million of income or 0.16 per diluted share from continuing operations, compared to a loss of $48.2 million or $1.24 loss per diluted share in the same quarter last year.

Income from discontinued operations, which includes the results of our discontinued Ohio and New Jersey operations, represents $300,000 or a $0.01 per diluted share for the fourth quarter of 2009 compared to a loss of $10.7 million or a $0.27 loss per diluted share for the fourth quarter of 2008.

Adjusted EBITDA was a loss of $12.2 million for the current quarter compared to a loss of $11.3 million for the same quarter last year. Although our sales were down almost $40 million quarter-over-quarter, our adjusted EBITDA dropped only $900,000, representing a negative flow-through of approximately 2%.

As of December 31, 2009, our available liquidity was $68.4 million, and outstanding borrowings under our revolving credit facility where $20 million. Our borrowing availability at December 31, 2009 was zero, as approximately $15.7 million of our $84.1 million cash balance at year-end supported a shortfall in the $35 million minimum liquidity covenant under our revolving credit facility.

Net cash used for the quarter -- for the fourth quarter of 2009 was $5.8 million, excluding $4.7 million of payments related to our recapitalization transaction and a $1.7 million payment to settle one of our interest rate swaps. For the year net cash used was $28.1 million excluding the same items, as well as revolving credit activity and our federal income tax refund.

Reductions in working capital contributed approximately $9.5 million in cash during the quarter and $34.4 million for the year. We do not expect the monetization of working capital to be a significant source of cash in 2010.

Our asset utilization continued to improve as our working capital, expressed as a percentage of sales, was 9.4%, excluding cash and income tax receivables, down from 13.3% in the fourth quarter of last year. Accounts receivable days decreased to 37.8 days for the quarter from 45.8 days last year, as we were successful in collecting older accounted and reducing our overall delinquency rate.

Our inventory turns for the quarter improved to 9.9 turns from 7.7 turns last year. Partially offsetting these improvements, accounts payable days fell to 28.5 days from 30.2 days last year.

Our focus on working capital management resulted in cash conversion days dropping to 46.1 days for the quarter, a 17.1 day improvement over the fourth quarter of 2008.

Subsequent to year-end we announced the completion of our rights offering and debt exchange. The closing of these transactions reduced our long-term debt by $130 million. It also extended the maturity of $139.7 million of our remaining $169.2 million of debt until 2016.

The rights offering also provided $65 million in net proceeds to the Company, resulting in an estimated cash position at closing of $142 million. We also expect to receive a $32 million to $34 million income tax refund in the second quarter of 2010.

Lastly, this being my first time to co-host a call with Floyd, I want to take a quick second to express my appreciation for everyone's interest in Builders. I especially wanted to thank everyone for dialing us up this morning. I know you all had to choose between our earnings call and the Tiger Woods press conference, and I appreciate you sticking with us.

Now here is Floyd with his closing comments.

Thank you, Chad. The Company cannot predict the duration of the current market condition or the strength of future recovery in the housing market. We believe housing starts will stabilize and may improve slightly in certain markets in 2010. The extension of the federal tax credit for first-time homebuyers is expected to contribute somewhat to this improvement.

Increased competitive pressures arising from the current conditions may continue to have a negative impact on our sales, gross margins and operating results. And may be a limiting factor in our ability to grow marketshare.

The successful closing of our rights offering and debt exchange in early 2010 allowed us to reduce our outstanding debt by $130 million, and extend the maturity of most of our remaining debt until 2016. These transactions, along with an income tax refund of $32 million to $34 million that we expect to receive in the second quarter of 2010, will certainly improve our liquidity position and provide us with a substantial amount of additional cash to help fund our operation during this difficult housing environment, and potentially take advantage of acquisition opportunities.

Although these challenging industry conditions persist, we believe that continued execution of our action plan to generate new business, conserve liquidity, contain cost, and prudently manage credit will help us to be a stronger, more efficient company when the housing market begins its recovery.

I will now turn the call over to the operator for Q&A.

(Operator Instructions). Nishu Sood, Deutsche Bank.

I want to say I am 100% focused on this conference call today.

Absolutely.

I knew you would be.

Hey listen, just starting out in terms of my questions, Floyd, it is a very, very interesting observation you are making in terms of the difference between the starts trend and the units under construction trend.

I know you didn't want to make any generalizations about it, but I just wanted to dig into that. I am sure you have some anecdotes from what your branch managers are seeing in terms of behavior from their counterparts. It kind of seems counterintuitive that they would be delaying the laying the further groundwork after the start, because with the tax credit in place, obviously people have wanted to accelerate their construction cycles as much as possible to meet the certain deadlines. Buyers out there seem to want homes that they can move into more quickly.

So I was just wondering, it seems counterintuitive given those trends. What kind of anecdotes have you been hearing from your branch managers that might help us understand that a little bit better?

Weather is always something everybody likes to blame. It is true the South and all the way up through the Atlantic Coast, even out here in Texas, we have had record-breaking rain. In fact, we are now out of drought conditions, I saw in the paper today. I am sure weather is partly responsible.

I think though from what I gather, and from what I am hearing and just thinking about it, I think a lot of this has to do with the difficulty people are having getting mortgages and getting the financing approved. Builders, I think, are reluctant to put a home under construction with the fear that the financing might not go through. And the last thing they want is additional inventory.

In the past if somebody didn't -- wasn't approved for financing it didn't make any difference, because there was another buyer lined up behind him. I think that has had a decided effect.

I think another potential reason -- I was in the Charleston, South Carolina market, and I saw literally thousands of lot that were sitting, developments that were started. It was like build and the people will come, except they didn't come.

What are you are starting to see is builders are suddenly putting a jobs trailer out. They are starting a little bit of work in some of these subdivisions, I think, to maybe give people the impression that action is going on in hopes that they can maybe revitalize some of these subdivisions. At least that was the feeling of a lot of our people. In fact, we even saw where they were starting to do some curb work, doing some entry work and so forth to make it more attractive.

I think that very definitely is an indication that the builders want to show people that they are ready to start, but they don't want to start putting inventory on the ground.

I think those are the main reasons that we can account for this delay. And you see it move all the way through, even homes completed are off almost on the same percentage as what you are seeing in homes under construction. And that homes under construction is when our potential for a sale starts. So we are really starting to look at this hard and really trying to figure out what it is.

My personal feeling is, I think this is the first good indication that if I can paraphrase what somebody said to me. They said, Floyd, is this the beginning of the water really building up behind the dam, and the dam is getting ready to open up?

I think there are buyers out there. I think that the buyers want to come off the sideline. But I think that homebuilding, I am still very, very positive on the future of homebuilding. I think the demand is there. I think that there are -- we are maybe getting ready to really see an improvement in business.

We started seeing a little bit of it in January. It was definitely better than where we were in January of 2009, no question. I mean, we are buried in snow or rain in virtually all of our markets. So February, it is really -- you can't really say -- make any valid comparisons. But my feeling is that the demand is getting ready to start moving forward. How much of it has been induced by the government program, the tax program, how much of it is that we are going to -- we are taking sales from a future period, I can't answer that and I don't think anybody else can. But I really think that we are going to begin seeing this condition correct over the next several months.

Got it. Thanks. That is very helpful. So on a separate topic, many investors, and this includes investors I speak to about you folks, are interested in looking at what conditions look like in a recovery to normalize. And I am sure you get this question all the time.

And the biggest variable that folks have in -- difficulty in terms of modeling is what your EBITDA margins are going to return to. Obviously, in terms of your history and your published financials there is the 3% to 4% range that you were in in the early 2000s, obviously peeking at 7% to 8%.

Obviously, there were changes going on along the way as well in terms of the backend integration and execution of your strategy. So how should folks be modeling that? Is it somewhere in between? Are we getting back to where we were in 2005 or was that simply a function of credit and housing market bubble induced margins that we will never see again?

I think as we get back to more normalized housing conditions, and I don't think it -- when I talk normalized, I am not talking to 2 plus million. I think we can have a very healthy housing economy in the 1.5 million to 1.7 million unit range.

I think as we get -- and as we move out of what is now just a brutal, brutal pricing in the -- I have been in the business now for close to 50 years. I have never seen competitive pricing that we are seeing going on.

There is still far too much capacity for the size, because we are almost at depression level in housing. It is really bad out there, and I think you all realize that. But as that begins to abate, and I think there will be additional capacity continuing to fall out over the next 6 to 12 months, I think that more normalized times will come back. I think with the internal efficiencies and improvements that we have made in our business, I believe on a like number of housing starts that we will generate a better result than we have in the past.

Our efficiencies are not going to go away as the business increases. I think we have learned a lot of better ways to conduct our business, to manage our business, to control our cost than we ever did in the past. So those efficiencies are going to stay with us.

So I think that as business -- as the conditions improve, our relatent operating performances will also show a better improvement. I think we leverage very well as the market improves.

Got it. So just to rephrase, the efficiencies -- the efficiency gains would offset maybe any loss of margin due to the fact that there is no bubble for us. So you are actually saying you could actually go even higher than the peaks you have seen in the past, the 7% to 8%?

Yes.

Okay, great. Thanks a lot.

Now I will also point out something, Nishu, that if you remember, when you looked at -- when we were giving you the breakdown of what has taken place in the gross margins, most of our gross margin erosion is coming from the lack of absorption of the fixed expense side of our business. We have really held our margin on the sale of our distributed products very close to what we used to have. We have managed, and really our people have worked exceptionally hard in doing that. We felt that that was very important to the future of our business to be able to do it.

The deflation that has occurred in the commodities, that is not going to -- I mean, the industry can't survive at the price levels that we have seen. Those things are going to improve, and then our margins at the dollars is flowing directly through.

So how we have managed this business, we managed it so that we would survive and be able to enjoy the recovery that would take place, and that will take place in housing. At the same time, making ourselves better and holding up our price points so that we can enjoy improved results in the future.

That is what I am saying. When I say the improvements we made aren't just going away. And beneath the surface, I think there are some really positive things that we can point to, that will say we can -- our margins can come back to the more normal levels that we have seen in the past.

Great, thanks. I appreciate the color.

David Manthey, Robert W. Baird.

Floyd, you have discussed in the past a level of housing starts, where you believe you would be EBITDAR breakeven. Could you talk about where that might be today?

I think as we look at the numbers -- I am sure you have seen it. The home size has definitely been downsized. The comparators for the third quarter of 2009 as compared to the third quarter in 2006, which was the high point, square footage -- the median square footage of homes sold is down 9%. That obviously affects then the package we have that goes into the homes.

I think that number we are now looking at on a single-family basis is 600,000 to 650,000 units. And to breakeven on a cash basis is higher than that, probably around 750,000.

Then my guess is that right now the share equivalents are anti-dilutive and probably will be for a long time. But what diluted share count would you see right now if you had a positive net income number?

Chad? I would just say we will have to get back to --

Yes, let me get back to you on that one. I don't have that in front of me.

Jack Kasprzak, BB&T Capital Markets.

I did have the press conference on, but rest assured it was on mute while --. You guys -- according to the press release, cash burn in the fourth quarter was $5.8 million. Starts, as you point out, have ticked up a bit recently, at least through the first half of 2010. Is that still though more or less the cash burn level you think you'd be at in the -- per quarter?

Excluding the one-time items we discussed in the earnings release, I think that is a pretty good indicator. But you also need to make sure you take into account that working capital contributed over $9 million to that number, and I don't think we are going to have that luxury in 2010.

$9 million for the year? Oh, no, in the quarter?

In the quarter, right.

Got it. And just for modeling purposes, and I guess it is pretty straightforward, but since I have you on the phone, what interest expense level would you say you would be at in 2010?

I think we are going to be up slightly in 2010 over 2009 after the recapitalization. I am guessing we may be $1 million to $1.2 million higher. That is cash interest. That is ignoring amortization of financing costs.

Floyd, you mentioned commodity prices, which obviously over the last few years are down tremendously, I suppose more recently wood prices are up. Do you think you'll see any flow-through benefit on your -- on the commodity side of your business over the next couple of quarters from that?

We will in future quarters. But the speed at which the commodity moved up, definitely it is hard to cover when you are running 60 and 90 day forward pricing, and you're trying to turn your inventories, as we were doing. So you're not going to get any benefit from it initially. But as it levels out and as it stabilizes, very definitely we will see an improved flow-through.

Just a longer turn -- longer realization of that, I suppose?

Yes, yes.

On the -- when sales improve, what do you think your incremental margins are?

We have never -- we have always stayed away from projecting and giving those margin numbers. We will be more than happy to work with you on your models and so forth, but I really don't want to start the trend of projecting margins.

Fair enough. How about just any update on the breakdown between fixed and variable?

Because of the balance that we pulled it down, we have lowered the fixed costs in our business. As you can see, we were -- our SG&A, we flexed it almost 100% variable to sales. But I think we are still going to run at that somewhere close to 60% mix.

Probably. That is probably a good number to use in the near term.

Right. Okay, very good. Thanks a lot.

Bob Robotti, Robotti & Company.

One of the questions was the cash burn in the fourth quarter. And the $5.8 million was after working capital of $9 million. And as you clearly pointed out, working capital won't be a positive contributor on a go forward basis. But that fourth-quarter number is probably not a good annualized number, because, like fourth quarter is not necessarily indicative of an annualizing number.

So if you annualize the numbers, what do you think the cash burn -- youi know, at the current level of activity what would be the cash burn for the year? You have probably have done that modeling?

I think what we are projecting for 2010, we are probably going to average out the year somewhere close to using $15 million or so a quarter cash burn.

Could you go through that? That is kind of interesting. $15 million a quarter, so that is $60 million a year. Last quarter or quarter before, you were talking about potentially cash burn on a forward 12 month basis of $50 million. So I would have thought over time, given that you are now out of New Jersey and Ohio, you have lowered the footprint, you continued to -- I imagine reduced costs. So the expectation of a higher cash burn than kind of you were talking about previously is interesting.

Then even the breakeven numbers. The last time, I think, the number was out there was 450,000 breakeven -- 450,000 new home starts would get to EBITDA break even. Now you're saying 600,000 to 650,000. What are the dynamics that have changed from those times to now to -- those are substantive adjustments, I would think.

The first part of your question on the cash burn, we obviously have to keep in mind that we had over $34 million in working capital reductions contribute to our cash in 2009. We are not expecting that -- in fact, it may go the other way a little bit, if sales start ramping up, working capital is probably going to soak up some of our cash.

Your other question on the breakeven, a lot of dynamics we have been trying to take into account recently, the lower commodity prices, the delay in units started becoming units under construction. And then I think the biggest reason is the intense pricing pressure we have seen in the latter half of 2009. Like Floyd said, it is just unprecedented, and that has really caused us to rethink some of our numbers.

Also, the downsizing of the home and the stripping out all of the higher-end, more value products that we can drive a better margin off of.

There is some upside to that. If margin prices -- or lumber prices do keep going up and stay up, long-term that is going to be good for us. And if the water is indeed building behind the dam, all those can certainly result in that number coming down as far as breakeven starts.

Then of course, we are talking an aggregate basis, but there is a couple of different components of the business. The window manufacturing business in Texas probably has little different dynamic than locations you have. I would imagine there is still submarkets.

On the submarket issue -- so you're out of New Jersey, you are out of Ohio, is the geographic footprint, the one you have today, that you anticipate is the one is going to stay in place for the foreseeable future?

Yes.

And in that geographic footprint, is a place like Florida still some place that probably has pretty strong negative contributions, but given the longer-term opportunity you're going to continue to stay there?

So I would imagine there are sections and the segments of the country that are -- some are maybe at EBITDA or even positive today and others are losing money.

That's correct.

Could you speak to the manufacturing part, like the windows business. Is that a positive number, a breakeven number on a standalone basis?

On the windows right now on a standalone basis, with the flow through of what we get out of our DC units, I will just say it is about a breakeven.

Then the synthetic millwork business, is that also really somewhat different also? And what is that looking like in terms of the contribution or its strength?

I think that operation and a lot of our millwork, or are synthetic millwork, is up in the Northeast, that is one of the areas that is actually performing better than others right out. So that is one of our more favorable operations at the moment.

To go back to your earlier question on breakeven, back when we gave the forecast of breakeven, we weren't seeing the deterioration we are seeing in multifamily now either. And that is -- although not a large piece of our business, that is certainly not helping things either.

On the multifamily and commercial -- light commercial, I guess that is an area that you have addressed more over the last year or two. And you had some success with it. I guess that is what you are really saying is the success you have had is now being dampened by the fact that those markets are also turning down too. Is that right? So you had success. You moved into those markets, you are probably going to be doing more longer-term there, but that is not really helping much right now.

It is not fair to say it is not helping us.

Sure.

Go back a few years, our multifamily light commercial business was somewhere around 5% of sales. It is now up to a little over 16% of our sales. But we grew from nothing. So even on a declining market, if you sell anything, you have got an improvement.

But it is -- we are making substantial progress in this area. We are pleased with the results that we are getting in this area. It is one of those things that came out. We didn't -- in the past there was plenty of other business. And it is a very difficult side of the business. But we have really gotten pretty good at it. We've got people who are really performing well in this area. And we see this as a growing part of our business.

Even though the prospects don't look good for that side of the market for the next couple of years, we still see ourselves growing our position in it. And a lot of it is done by reputation, and how well you performed on your last projects. We are doing projects that are ranging anywhere from $2 million to $6.5 million. We are getting repeat business from the people who are still doing that business.

So it is going to be a part of our business that we are going to continue growing. And we think it will also give us a kicker as to overall conditions of housing come back.

One of the things you pointed out was that the sales per house in your markets have gone up, I guess, was 9% for the year and was at 11% or 13% for the fourth quarter? And do you think that is indicative of the fact that you gained marketshare?

Is the downsizing of a home a relevant number? Because if you downsize the size of a home 9%, and yet you pick up contribution per home by 10%, that would clearly imply that the marketshare gains might even be larger, because every home is going to be smaller sized and less sales associated with it?

I would agree with what you just said. Yes, I think that is indicative that we are doing maybe better than what just the plain calculation shows.

On a competitive basis I would have thought some of the competitive factors have worked their way through. Obviously, Stock Building Supply and others have gone through a lot of problems last year. And I imagine when they were in bankruptcy or right out of bankruptcy, there was a lot of competitive things going on with people like that where they discounted product to move inventory to work it out.

And it seems like -- is there a bigger percentage of the industry today, kind of in a better financial footing, and with a smaller footprint? Then, therefore given all of those factors, are the competitive forces starting to abate some, or now there is still plenty of other guys that I don't see that are out there, who are having plenty of problems who haven't gone out of way, haven't gone restructured -- then restructured and therefore sold, still putting a lot of pressure on trying to move out inventories and reducing sales and such?

That is a far ranging subject, but if you are saying, do I think that ultimately we will be seeing a less competitive marketplace because of the reduction in the capacity that have been taken out, yes. But most of what Stock did was not even in our trade area.

But the biggest effect that we felt with some of the closures was the dumping of inventory at just very, very low prices. And that started to set a floor and an expectation in the end-user's mind as to what he could buy materials for. It really started -- helped start put this industry in an almost what I will say is a death spiral as far as pricing.

It was handled very poorly. I really question the sanity of -- and we have competitors who are on the phone listening -- but I just question the sanity of some of the decisions that were being made. But that is enough said on that. So hopefully we are through that and we will begin to see a more -- a better situation in the marketplace.

So, of course, until it happens, you never know what is really going to happen, but you think you have seen signs that would say that kind of wholesale inventory dumping and aggressiveness might have worked its way through?

Yes.

Then on the acquisition front, obviously the recapitalization puts you in a position to be able to capitalize on that opportunity. Could you tell us anything about what the landscape looks like and what you think the opportunities might be?

Are you -- do you need improvement in the business before you would feel comfortable doing something in that regard, or give us some --?

We would have to see improvement in the business before we really do something. And whatever we do, we are not going to risk our liquidity position to just chase things. We have managed to avoid the problems that some of our competitors have had. I really don't want to do anything foolish.

Obviously we are going to look at any opportunity that may come to us, that make sense. And they will be evaluated, but I can tell you that we are going to protect our liquidity and make sure that it is a good value add for our shareholders down the road.

Could you talk about the geographic -- is there a geographic focus when you do start to make acquisitions, where it will be on the end market acquisitions? Are they extending markets? What is the more likely strategy that makes more sense for you?

I think obviously you always like to look at your -- within your footprint to strengthen your position there. But if something if something were to come to our attention that would increase the size of our footprint, and that makes financial sense, and that will give us added pluses, especially with the national builders, we are going to look hard at that.

I really -- Bob, we've got a number of other people who --.

Yes, thanks a lot.

Thank you. And we will be more than happy -- you know, give us a call. We will spend whatever time -- but I would like to get these other individuals before they --.

Thank you. No problem.

Brad Bryan, Imperial Capital.

Many of my questions have been answered. I have one brief housekeeping item at this point. Can you just give us an update in terms of your current cash and your revolver availability?

The revolver availability hasn't really changed much since year-end, nor has our current cash balance. But I think, if you are referring to our intentions on the revolver, I think our present plan is to keep that debt outstanding right now. I am not sure exactly what you're asking.

Okay, that's great. Thank you very much. I will let you move on.

Jim Wilson, JMP Securities.

I think basically all my questions got answered earlier. But maybe just one other thing as far as -- I know this competitive pressure seems to be there in total, but is there anywhere that it is a little easier for you and less competitive, maybe even your home market of Texas, or is it really just as competitive and just as much price pressure anywhere you operate?

We think that there -- as some of our competitors, and we think that there will be more dropping out. There are continued rumors of competitors both on a local, regional basis that we are hearing financial difficulties in this environment. It is going to be very tough for them to continue. So as capacity is removed, I definitely believe we will see a healthier pricing environment. It will still be a very tough environment, but it will be not as one-sided as it is now.

One of my concerns is that the financial institutions have been very reluctant to support businesses as needed, but they seem to really rally to the cause to support businesses that enter bankruptcy. And instead of letting this capacity drop out, they are allowing it to continue. Which I really don't understand, and a bad business before becomes another bad business down the road.

So you've got the same people making the same decisions, so what makes it better? Maybe somebody someday will be able to help me on that. And I'm sorry, you have given me a soap box and I am taking advantage of it.

Thanks. I appreciate that. Thanks for the detail.

(Operator Instructions). Dax Vlassis, Gates Capital Management.

I have two questions. The $15 million cash burn you were talking about per quarter, that excludes like any changes in working capital? So that assumes like zero working capital changes?

That is correct.

Does that also exclude -- I think you are expecting a tax refund of about 30 something odd million, $33 million?

Yes, it excludes that as well.

It excludes that as well. Okay. Then this is a little more theoretical. At the current level of working capital that you have right now, getting back to breakeven EBITDA, how much additional working capital would you need to put in the business, because it looks like it is significantly drained from a year ago, 18 months ago? But how much do you have to build that back up to get to breakeven EBITDA? Is that another $50 million to $100 million investment?

I think that's a pretty good estimate you're using.

Is it closer to $100 million or closer to $50 million?

I would probably lean towards the high side. But that could be two years down the road. It is hard to say. Obviously that is a good problem to have though.

I understand. Okay, thank you very much.

At this time there appear to be no more questions. Mr. Sherman, I will turn the call back over to you for closing remarks.

We really appreciate your getting -- listening in and the questions you have asked. Anything we can do to -- any further discussion that you might want, don't hesitate to give Chad a call. And we certainly will make ourselves available to try to answer any questions that you might have. Thank you for joining us today, and have a good day.

This concludes the Builders FirstSource conference call. You may now disconnect.