Bluelinx Holdings Inc (BXC) 2015 Q2 法說會逐字稿

Good morning. My name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the second-quarter earnings conference call. (Operator Instructions).

Ms. Caroline Lowden, you may begin your conference.

Thank you, Brandy, and good morning, everyone. Thank you for joining us for the BlueLinx second-quarter 2015 earnings conference call.

This call is being webcast on the Company's website at www.bluelinxco.com. The earnings release and presentation slides for this call can be found in the investor relations section of the Company's website.

Joining us today on the call are Mitch Lewis, Chief Executive Officer, and Susan O'Farrell, Chief Financial Officer.

Before I turn the call over to Mitch to discuss our current results, I want to remind you that this presentation may include forward-looking statements within the meaning the Private Securities Litigation Reform Act of 1995, including statements about our future operations and financial performance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those provided, including, but not limited to, those identified in our press release and discussed in our filings with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date of this presentation and we undertake no obligation to revise them in light of new information.

Today's presentation includes references to non-GAAP financial measures. The reconciliation of these measures to the comparable GAAP measure is included as an appendix and is posted on our website at bluelinxco.com.

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

Thanks, Caroline.

Our second quarter began slowly, due to the long winter and wet weather we experienced in certain areas of the country, but we picked up momentum in June and ended the quarter with $2.9 million of net income. Our revenue for the quarter was down modestly by about 3%, which was primarily attributable to two factors.

First, we had a reduction in our structural pricing by approximately 6.5% due to the continued softness in underlying commodity prices. In addition, our outdoor living sales declined as the vendor began to directly sell products to a large home center customer that were previously supplied by us. This disintermediation had a meaningful impact for the quarter, reducing our sales compared to last year by about 3%.

The good news is that the rest of the business helped to offset these declines and our operational and cost-saving initiatives are paying dividends, so we ended the quarter with adjusted EBITDA of $9.8 million and positive net income.

We continue to make good progress in our strategy to add stronger local market presence and autonomy to the organization. It remains very clear that the national lumberyard market we serve is actually many micro markets with distinct production techniques, product preferences, and brand awareness.

To help facilitate our ability to react quickly to our customers' needs in these local markets, in addition to the movement of most of our general managers into the markets we serve, we also recently flattened the organizational structure of the business. Our regional vice presidents responsible for all of the Company's sales and local financial performance now report directly to me.

This organizational change will facilitate driving profitable topline growth, in addition to enabling the organization to become more nimble in reacting to local market and customer needs.

We have also made solid progress in our operational initiatives over the last few months, as evidenced by our $4.3 million decline in SG&A costs compared to Q2 last year. We have instituted several lean and cost-saving projects, which have helped drive down our operating costs as we continue to run the business more efficiently. This includes closely monitoring our headcount, which at the end of June was approximately 4% less than our June 2014 levels.

And at the same time, we continue to invest in the business for our future. We purchased 20 new tractors in the second quarter and should have an additional 40 vehicles in place by the end of the year. These new tractors not only reduce the average lifecycle of our consolidated rolling stock, but also replace older and fuel-inefficient models.

In light of the relative softness in our revenues during the second quarter, we have challenged the leadership team to improve our operating performance through both cost-reduction and margin-enhancement activities. And we have now identified specific opportunities to drive improved performance in these areas in the second half of the year.

Examples of initiatives we have instituted include moving to a less expensive and yet more comprehensive HR platform; consolidating facility MRO spend; managing our fleet maintenance internally; and executing on audit recovery activities to strengthen gross margin.

Today, we still don't see robust market conditions, even with the 12% headline housing starts figure for the quarter. I suspect you have heard similar comments during the second-quarter earnings season from other suppliers participating in the single-family new construction market.

We are still looking into the disconnect between single-family housing starts and the lack of significant growth in our end markets, but at first blush we believe that the construction activity associated with our residential new construction products may have a delay cycle from initial starts as recorded by the Census Bureau.

We are looking forward to the housing start numbers ultimately correlating to a similar demand in our markets, and in the interim, we will keep our focus on improving our operations while we drive market-share growth by effectively serving our customers at the national and local level with the most knowledgeable wholesale distribution team in the building products industry.

With that said, I would like to turn it over to Susan, who will provide more color on our financial performance.

Thank you, Mitch, and good morning, everyone. It's a pleasure to speak to you today about our business, as well as our second-quarter results.

Moving on to the results for the quarter, as Mitch mentioned the second quarter got off to a slow start due to the wet weather in April and May in Texas and the Northeast and our results reflect the spring building season delay. We did see an improvement in June and are looking ahead to the remaining months to build upon this momentum.

Moving to slide 9, we will take a look at our revenues and profitability for the quarter and year to date. Revenue for the first quarter ended July 4, 2015, was $515.7 million, down $16 million, or approximately 3%, compared to second-quarter 2014 revenue of $531.5 million.

This decrease year over year was driven by structural price decreases of 6.5%, offset by structural volume increase of approximately 1%, primarily in our lumber category. While specialty product volumes decreased 1.3% year over year, customer demand for specialty lumber and our metal products were particularly strong, each with double-digit volume growth this quarter.

Our sales in siding and particle board categories are up in this quarter as well.

Gross profit for the first quarter was $60 million, compared to $62 million in the first quarter of 2014. Gross margin for the quarter was 11.63%, relatively flat compared to the second-quarter 2014 gross margin of 11.67%.

Structural product margins were impacted by low commodity prices, particularly plywood sheathing and sanded plywood. We're very pleased to see our strongest margin growth categories in categories such as outdoor living, OSB, rebar, and remesh. In June, we saw a margin pickup from earlier in the quarter, due largely to a balance in lumber pricing, specifically Southern Yellow Pine and OSB.

Keep in mind, however, that commodity pricing is still below last year's levels and we expect it to remain that way until the markets stabilize.

Net income was $2.9 million in the second quarter of 2015, compared to $3.2 million in the prior year. On a comparative basis, the second-quarter 2014 benefited from a gain of a sale of properties of $5 million.

Finally, adjusted EBITDA was $9.8 million, compared to $10.6 million in the second quarter of last year.

On slide 10, our selling, general, and administrative expenses were down $4.3 million or 7.7% in the quarter. This demonstrates our commitment to operational efficiency, as well as our disciplined approach to controlling costs within our control, particularly in a quarter that saw continued commodity pricing impacts, as well as extended cold and wet weather in some regions of the country.

Specifically, our logistics costs were down 1.6% in a quarter that saw our warehouse sales of 73% of total revenues, the highest percentage in our history. These were achieved through a wide variety of the key expense savings in the Company. Continued benefits from our lower fuel costs, in addition to lower overall fleet maintenance, also drove a large portion of the savings.

Additionally, we are anniversarying restructuring costs from last year. And finally, we had lower cost of sales related costs, as well as lower cost in other areas of the business, such as professional fees.

Moving on to a discussion of our debt structure on slide 11, I would like to provide an update on the status of our mortgage. We're actively evaluating refinancing options for our mortgage. As we move through this process, we must be thoughtful about the timing of any action as it relates to our prepayment penalty of our existing mortgage. This penalty is approximately $1 million per month through the end of December 2015.

We are focused on entering into an arrangement that both strengthens our business and allows us to minimize the prepayment penalty. As a reminder, we successfully extended our $467.5 million asset-based loan facility in February. The appraised value of our properties as of 2006 was approximately $320 million, while our outstanding mortgage balance as of July 4, 2015, was $165 million, net of the $4.2 million cash trap.

Finally, as of quarter-end, we have $65 million of excess availability, which is a $5 million increase from year-end.

Turning to cash flow on slide 12, our year-to-date operating cash usage improved by $22.1 million compared to year-to-date last year. The decrease in cash used primarily reflects the difference in inventory positions at the beginning of 2014 compared to 2015. We had more inventory on hand at the end of 2014 and purchased less in the first six months of 2015 than we did in the prior year.

In total, our working capital on a trailing 12-month basis was down $4 million versus the end of second-quarter 2014.

In closing, I want to thank the team of folks that we have in place here at BlueLinx. In a challenging quarter, our team has risen above to focus on our operational initiatives and continuous improvement. So my heartfelt thanks goes out to our customers, suppliers, and associates who work together to build a bright future.

That concludes my remarks. So with that, Brandy, we would like to open up the lines to any questions we might have.

(Operator Instructions). Mark Kaufman.

I just had a question, a reflection, on the move toward the regionalization of the decision-making on sales, and how you feel that has played out over the past year.

Yes, so we really began in earnest, Mark, in the fourth quarter -- beginning of the fourth quarter of last year, and so we have -- we have moved people and certainly as we hired new people put them locally in the marketplace. I would say it's a cultural shift for the organization, but I'm feeling really good about the momentum that we have.

Clearly, the leaders that we have, the sales teams that we have out in the field are involved in and enthused about the ability to make decisions locally and to see the organization moving at a much quicker pace as we react to what the demands of the customers and the markets are.

So when I personally talk to customers, without exception they say this is the right move that should have been -- should have taken place a long time ago and is beginning to show dividends for the Company.

Do you feel there are any other competitive pressures out there? I know your end markets are consolidating.

Yes, they are. Particularly if you look at the national dealers, there are consolidations that have taken place certainly this year. We view that actually as a short-term probably opportunity for the Company as those businesses will likely be very engaged in the consolidation of the businesses.

We have great relationships and sell a good bit of products to really all four of those that have consolidated or announced consolidations this year.

And what we continue to do and move forward with the Company is focusing on those areas that wholesale distribution adds value. And, of course, when you look at the consolidation of these pro dealers, they are not able to carry inventory for everything, nor do they want to. So we provide a valuable service of being able to lower their inventory levels, adjust the [type] of products for them to give them more access to products to their ultimate customer base.

So, I would say we clearly are watching it closely. We're working on strategies to have multi-tier connection points and touch points with the -- our customer base as they consolidate, but long term we strongly believe that there is a place for wholesale distribution and that that will continue for years to come.

Thank you. I will get back in the queue.

(Operator Instructions). Mark Kaufman.

Hi, again. I guess it's only me here. I have a question about the mortgage coming up. Is your ideas that do you refinance in six -- excuse me, six months -- four months from now and that frees up more availability under revolving credit facility or are you thinking about something potentially larger than that?

Mark, so the mortgage comes due July next year, and under our revolver and ABL, we have some timing where we want to pre-pay it. Certainly, we want to refinance it before then.

The pre-payment penalty expires, though, December 31, so there is a variety of different toll gates and time frames that we working through as we look at the refinancing, so December 31 is just one of a variety of time frames that we look at, but the mortgage is actually due July 2016, so that is one of the components we are looking at, as well as the prepayment penalty.

So as you might imagine, there is a variety of factors that we are looking at as we look at that, but certainly we believe there is value to unlock as we look at refinancing that and we want to make sure we are thoughtful as we do that so we create that value. But the intent is certainly to invest that back in the business and make it so we have more availability on the revolver to continue to grow the business and support that business.

So, it would -- going into the revolver is a key priority there.

If you could, can you give me any kind of range of where the mortgage rates are for distribution facilities these days?

No, I (multiple speakers)

Or cap rates?

I think it really varies on a variety of different structures that we could look at.

As you might imagine, we will look at different things as far as the principal that we want to get, as well as the flexibility on how we get out of it, and so all those different things have different rates that go along with it. So it depends on the combination of flexibility, proceeds, a variety of different things that go with that. So it would be premature for me to give you color on that yet, but glad to share that with you as soon as we have it.

Mark, the other thing, as you would imagine, just if you wanted to specifically try to evaluate cap rates, with the number of facilities we have across the country in different locations within specific areas, the value for each property is widely disparate, and so you really have to look at the business on a consolidated basis if you are looking specifically for a real estate type lending facility.

Thanks. If I can, since no one else is asking it, so how does the second -- excuse me, the third quarter look? The other distribution companies or lumber yards are saying they are seeing a pick-up here in July that is carrying forward from what was happening in June, and I was wondering if you were seeing any of that.

Mark, as you may -- I am sure you may be aware that we generally don't give forward guidance on what's happening in the marketplace.

I know. That's why I'm asking.

(multiple speakers). I had a feeling you might know, but, no, unfortunately, we are not -- we don't give forward guidance.

Fair enough. Thank you.

(Operator Instructions). There are no further questions at this time.

Okay. Thank you, Brandy, and I know we have a lot of folks listening in, so we appreciate your continued interest in BlueLinx and we look forward to sharing with you our progress in the months ahead. So, have a great end of the week.

This concludes today's conference call. You may now disconnect.