Bluelinx Holdings Inc (BXC) 2009 Q1 法說會逐字稿

Good morning. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx First Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. (OPERATOR INSTRUCTIONS) As a reminder, ladies and gentlemen this conference is being recorded today, Wednesday, May 6th, 2009. Thank you.

I would now like to introduce Mr. Russ Zukowski with Investor Relations. Mr. Zukowski, you may begin your conference.

Thank you operator and welcome everyone to the BlueLinx first quarter 2009 conference call. With us this morning are George Judd, Chief Executive Officer, and Doug Goforth, Chief Financial Officer.

Our press release was issued earlier this morning. For those of you who do not have a copy, it is available on the Investor Relations section of the Company's website, www.bluelinxco.com.

Before starting the call, I need to refer you to our Safe Harbor statement. I would like to remind everyone that on today's call management may make forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, including all statements concerning future or unexpected events or results. Actual results could differ materially from those projected in the Company's forward-looking statements due to known and unknown risks and uncertainties.

A discussion of factors that may affect future results is provided in the Company's filings with the Securities and Exchange Commission. BlueLinx undertakes no obligation to publicly update or revise any forward-looking statements contained in these presentations based on new information or otherwise, except as required by law.

With that requirement completed, I'd like to remind our listeners that we have posted slides on our website. We will be referring to these slides during this call, and we encourage you to view them during our remarks. Additionally, the slide package contains an appendix of supplementary tables available for your review.

Now let me turn the call over to our CEO, George Judd.

Thank you Russ. And thank you everyone for joining us this morning for the BlueLinx first quarter earnings conference call.

Our first quarter results reflected the extremely difficult business environment and weak demand for housing and industrial products across the country. The market continued to deteriorate throughout the quarter. BlueLinx stayed focused on managing our costs and providing our customers top-quality service to help them through this extremely difficult time.

For the first quarter, we reported a net loss of $1.95 per diluted share which includes $1.44 of predominantly non-recurring, non-cash charges. These charges include a non-cash deferred tax valuation allowance and interest and restructuring charges that Doug will detail later on the call.

Our operating results for the first quarter reflected the continued weakening demand environment with housing starts declining by 51% from the prior year. Gross margins remained unchanged at 10.9% in spite of declining structural prices, a result of our focus on price discipline and margin improvement.

We continued to tightly manage all costs, resulting in a reduction in operating expenses of $22.9 million. We reduced our debt by $60 million and ended the first quarter with a cash balance of $60 million. At quarter end, our net debt was $313 million. We had approximately $180 million in excess availability at the end of the quarter.

We continued to remain focused on building long-term business relationships with our customers and suppliers. We are working with many strategic customers to expand our product penetration, provide reliable, just-in-time service, and to develop new and additional ways to enhance our services.

We also continued to invest in and utilize technology to improve our services to our customers and vendors. We recently launched an improved website that will allow us to better serve our vendors and our customers. This improved website will have many more customer functions in the near future. That'll allow us to provide new and improved customer service while also reducing costs.

Another exciting event during the quarter was our virtual show. This event had over 2,000 attendees and provided a venue for vendors and customers to learn about products, to learn about BlueLinx and about the growing green influence within our industry.

Subsequent to quarter end, we announced that we reached an agreement with Georgia-Pacific to terminate our formal supply agreement one year earlier than the expiration date. Under the terms of this agreement, Georgia-Pacific will pay BlueLinx approximately $19 million in cash.

The formal supply agreement was written in a very different business environment that did not predict the historical low demand or prices that we are currently experiencing. The cancellation of the agreement allows both companies the ability to better manage to each of our respective operating strategies.

Georgia-Pacific will continue to be an important supplier of a full-range of products for BlueLinx. The previously announced three-year extension of our engineered lumber program continues.

Even in difficult markets, there are many opportunities to grow our share. BlueLinx is focused on doing just that during 2009. We remain focused on maintaining our reduced operating costs as business rebounds with the expected economic recovery. And I'm confident that we'll emerge from this downturn in a much stronger competitive position.

I'd like to turn the call over to Doug Goforth, our Chief Financial Officer, who will walk you through our financial results for the quarter. Doug?

Thank you George. Good morning everyone. As George mentioned earlier and as noted in our press release this morning, our results included the following special items; valuation allowance on US deferred taxed assets of $40.2 million or $1.29 per diluted share. At the end of the first quarter, BlueLinx provided a valuation allowance for 100% of its US deferred taxed assets resulting in a non-cash charge of $40.2 million.

As a result, the Company's tax provisions in future periods will consist of income taxes on earnings of its Canadian operations and certain state income taxes but generally will not include any income tax benefit relating to its US operations. The Company may still utilize available tax loss carry forwards to offset future taxable income generated in the US.

A non-cash interest charge of $2.9 million or $0.10 per diluted share associated with the Company reducing its outstanding borrowings under its revolving credit facility resulting in an after-tax charge of approximately $2.9 million related to the ineffective portion of its interest rate swap. A non-cash interest charge of $900,000 or $0.03 per diluted share for the write-off of a portion of our debt issuance costs related to the Company reducing the ceiling on its revolving credit facility from $800 million to $500 million, resulting in a $900,000 charge. Under the current operating environment, we believed it was prudent to reduce the ceiling by $300 million, which will provide annualized savings of approximately $750,000 in interest expense.

The Company also incurred restructuring and severance expense of $700,000 or $0.02 per diluted share associated with our ongoing actions to lower the Company's cost structure.

Turning to Slide 7, overall sales for the first quarter ended April 4th, totaled $407 million, down 43% or $310 million from first quarter 2008. Specialty sales declined 34% from the same period last year, the majority of the decline coming from lower unit volume. Structural product sales declined 51% compared to a 46% reduction in unit volumes. Specialty products comprised 56% of total sales, up from 49% in the first quarter of 2008.

BlueLinx generated approximately $44 million in gross profit for the quarter. Gross margins remained unchanged at 10.9% in spite of declining structural prices.

Operating expenses for the quarter totaled $62.7 million, a decrease of $22.9 million or 26.8% from a year ago. The decline in operating expenses primarily reflects decreases in payroll costs related to lower headcount and approximately $3 million in lower fuel costs.

The Company's operating loss for the first quarter totaled $18.4 million compared to an operating loss of $7.8 million in the prior year period, reflecting the $33.5 million decline in gross profit, which was partially offset by the $22.9 million decline in operating expense.

We reported a first quarter net loss of $60.7 million or $1.95 per diluted share compared with a net loss of $10.6 million or $0.34 per diluted share in the first quarter of 2008. The net loss includes $44.6 million of special items discussed earlier and is after interest expense of $8.1 million, which decreased by $1.2 million from the prior year.

Turning to cash flow on Slide 8, during the quarter we used approximately $21 million in cash for operating activities. While we generated substantially fewer gross margin dollars than the year ago period through our focused efforts on cost, working capital management, we matched the $21 million use of cash from the prior year period. Cash used in financing activities was $69 million for the quarter, driven by a $60 million decrease in outstanding borrowings under our revolving credit facility and an approximate $8.5 million reduction in bank overdrafts. The resulting cash balance at April 4 was $60 million compared with the $17 million a year ago.

Moving to Slide 9, we had $180 million of excess availability under our revolving credit facility as of the quarter end. The combined debt balance on our mortgage and revolving credit agreement was $385 million, a decrease of $60 million from January 3rd and down $120 million from a year ago. Net debt at the end of the first quarter was $313 million compared to $285 million at January 3rd and was down $175 million from a year ago.

As I noted earlier in my remarks, at our request, we lowered the ceiling on our revolving debt facility from $800 million to $500 million and expect to realize annualized interest savings of approximately $750,000.

Turning to Slide 10, cash cycle days for the first quarter totaled 50 that compares with 50 days for the first quarter of 2008 and 53 days for the same period a year ago. We continue to focus on tightly managing our AR portfolio and our credit approvals to ensure we are selling to customers who pay us in a timely manner.

Inventory days improved as we continue to actively manage inventory levels across the Company while increasing the mix of specialty products versus structural products and inventory over the prior year period.

In summary, we are highly focused on cash management through tightly managing inventory, accounts receivable, operating expenses and capital spending. We remain focused on improving gross margin. We ended the quarter with $60 million in cash and cash equivalents up from $17 million a year ago. And our liquidity includes $180 million of excess availability at quarter end.

Now let me turn the call back over to George from some additional remarks.

Thanks Doug. While we continue to operate in a weak economy and it is the worst housing market on record, where the last period-over-period increase in housing was in March of 2006. Our primary focus remains on diligently managing cash and working capital and working with our customers and suppliers to ensure we are the supply chain choice for all of them.

We have continued to take action since the downturn began to right size our cost structure and believe our financial position and liquidity are a competitive advantage. I feel we're in a trough-- in the trough year for the housing correction. And although a quick and strong rebound is not predicted, I do feel the worst is behind us. I believe our efforts will position BlueLinx to participate in that rebound as the leading building products distributor in the United States.

With that, we'd like to open the call to questions.

(OPERATOR INSTRUCTIONS) Our first question comes from Steve Chercover with D.A. Davidson.

Morning. Didn't think my fingers were that fast.

(inaudible)

My first question, can you maybe elaborate or discuss the competitive landscape? How are things changing amongst the distributors? Cause most of them are not publics. We don't really know what's going on.

Yes, you know you don't really know what's going on and quite frankly we don't know either, because our visibility is not quite as clear. I think I shared a few calls ago the biggest surprise that I've had is the fortitude of many distributors to survive if not prosper in this economic period.

But it's tough. It's tough for everybody. There's been lots of locations closed. They continue to close. There's been rationalizations of inventories and exiting of specific business by market. And you know we continue to evaluate each one of those situations and changes as an opportunity and adjust our strategy by market accordingly.

But it's tough out there for everybody. And then on the customer front, there's been over 500 customer locations that have closed or consolidated since the peak. And you got to remember the peak is now over 39 months ago.

Sure. Well I mean you guys are clearly surviving, but I don't think anyone would say you're prospering. How do you think some of the guys, if I heard you right, are prospering in this environment?

Well you know it's regional specialty business and that's just speculation. I also said our visibility into their performance is subject to the same visibility that many of you have. So we have lost some business in some particular markets. And I'd view that as them prospering. But we've managed our margins. And we've shared with you two years ago that we were going to manage our business profitably. We're going to walk from some unprofitable business. And if it's profitable for our competitor that we don't have visibility into that's just pure speculation on my part.

Got you. And also could you please elaborate on GP's decision to pay you more than $18 million? Are they just trying to be in a position where if they wanted to close a mill, they could do so and you wouldn't be able to say, well you owe us panels at this location?

It's a complex agreement and arrangement. And you know as I said in the prepared comments, it was written back when things were very, very different. So you know there's some-- their commitment to supply us with product and our inability to buy from others. And they decided that it was a good time to try to change that. And we began negotiations to do that. We've been working for 2.5 years to try to come up with something that works. And the environment kept on progressively getting worse. So this was the option that we chose. And we chose it together. And we're still a key customer of theirs. And they're a key supplier of ours. And I expect that relationship to continue.

Sounds like a pretty good deal from your end, having your cake and eating it too. And I guess my last question would be for Doug, just to make sure I understand on the loss carry forwards. Do you have really any profits that you could have gone back to claim from tax perspective, maybe prior to the IPO?

We have-- for 2004 and 2005, we have approximately $89 million of taxable income. If anything is done on a 5-year carry back, we would be able to benefit from that. In addition to that, we will be carrying back-- our 2008 losses we have carry back available for-- from 2006 and 2007. So we will be getting a tax refund probably in the second quarter of this year of between federal and state probably approximately $12 million. Does that clarify for you Steve?

Pretty much, yes. So going forward, it's just you got to start making money to crystallize those tax benefits?

Unless Congress passes the 5-year carry back.

Great. Thanks, I'll get back in the queue.

Our next question comes from Alex [Alvarez] with Goldman Sachs.

Good morning. Thanks for taking my question. My first question is around geographic demand trends, whether or not you're seeing any packets of weakness across the different regions of the US that you're currently selling into?

Pockets of more severe weakness?

More severe, yes, exactly.

There's weakness everywhere. Yes, you know the Florida market remains very, very weak. Phoenix and Las Vegas continue to be very, very weak and parts of California are very, very weak. That being said, probably the only market where there's been new housing activity that's measurably improved is kind of the northern, Mid-Atlantic around Washington. And that was one of the more severely declining markets a couple years back. So we have seen--

Okay.

Rebound just in that market and the most severely affected markets were the ones that grew the highest.

That's interesting. And just wanted to get a sense of how should we be thinking about the impact of volumes as a result of the termination of the GP agreement, especially from a near-term point of view?

Yes well you know we have arranged-- we had arrangements with Georgia-Pacific that they would supply us basically structural products, plywood and OSB. And that's really what the supply agreement had evolved to, since we had carved out engineered lumber separately, announced a few months back. With those structural products, there are many other producers. And we're optimistic that we will have the ability to maintain and if not grow our structural business not only with Georgia-Pacific but with other producers.

Okay. And then from a seasonal perspective, we tend to see a pick up in building activity as well as with products prices here in the spring and in the summer months. Have you started to see any of that here through the first part of the spring? Is there an anticipation that you will see any of that this year, given the weakness in the overall market?

In the markets that have winter, you know the severe winter markets, there's always going to be a slight seasonal uptick. And we have experienced some of that. But it's not what we would traditionally see in a normalized housing market.

And lastly on working capital, the Company did a great job of reducing working capital and it being a source of cash for them in 2008. How are you thinking about your working capital changes here in 2009? Do you anticipate it to be a source of cash for you in 2009 as well? Thanks.

Our working capital levels, particularly at the end of the first quarter, are at extremely low levels on inventory, although the guys, the operations surprise me almost every week in how well that they're doing and controlling our inventory. But so we're close to the bone. So I wouldn't see that as a significant opportunity for us in 2009.

Thank you.

(inaudible)

(OPERATOR INSTRUCTIONS) And there are no further questions. I will now turn the conference over to BlueLinx for any closing remarks.

Okay, thank you operator. Thanks everybody for joining our call. We look forward to talking to you again next quarter.

This concludes today's BlueLinx first quarter earnings release conference call. You may now disconnect.