Bluelinx Holdings Inc (BXC) 2015 Q3 法說會逐字稿

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

Thank you. Ms. Lowden, you may begin.

Thank you, Angel, and good morning, everyone. Thank you for joining us for the BlueLinx third-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 on the call today 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 of 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 Security 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 most 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. We are pleased to announce today our second consecutive quarter of positive net income, as we reported adjusted EBITDA of $10.5 million. This is the first time since 2007 that we have had back-to-back quarters with positive net income. And while we are pleased with the progress, we realize that a great deal of opportunity and hard work remains.

Our emphasis on focusing on customers and markets with higher contribution margin, coupled with our expense reduction activities, enabled us to perform relatively well in the third quarter. While our revenue for the quarter was down 5.8%, 75% of this decline was directly attributable to the deflationary cost environment we experienced in our structural market segment during the quarter. In fact, unit volumes for our structural wood products for the quarter are actually increased by 2.6%.

In addition, our specialty sales increased by around 2% during the quarter when adjusting for the outdoor product disintermediation we experienced at the beginning of the year.

Our emphasis on margin enhancement continues unabated. We now have dedicated resources driving margin improvement through analytics, information system enhancements, and sales and management training. And we were pleased to see that this investment is paying off, as our specialty product margins increased 24 basis points compared to the third quarter in 2014.

We have also made solid progress in our operational initiatives over the last few months. Our $6.2 million reduction in SG&A costs compared to Q3 last year is evidence of our progress on these initiatives. We are executing on several lean and cost-saving projects, which have helped drive down our operating costs as we continue to run the business more efficiently.

We also continue to closely monitor our headcount, which is currently 3% below levels a year ago. In addition, our emphasis on contribution margin by products, customers, and markets has made a meaningful impact by reducing nonprofitable operational activity.

Our focus on efficiency has not detracted us from our investment in people as well as products to grow our business. We are adding additional resources to our industrial market teams across the country as we have identified this market as a high potential growth area for BlueLinx.

In addition, we have streamlined and increased our structural sales teams to take advantage of our collective expertise, garner economies of scale in select purchasing SKUs, and react quickly to our markets and customer demands. BlueLinx has made great progress over the last several months on contribution margin assessment, expense management, and operational improvements. Now, we have our sights clearly set on profitably growing our business.

We are introducing new incentive programs for the sales teams, enhancing their capabilities with technology, realigning our organizational structure to focus on key markets, increasing the number of our sales associates, and structuring the business for sustained growth in the months ahead. We also continue to invest in value-added equipment as well as products that are wholesale distribution-friendly. We are on our way and we look forward to sharing our progress with you in the months ahead.

And now I will turn it over to Susan, who will discuss our financial performance in more detail.

Thanks, Mitch. And good morning, everyone. It is my pleasure to speak to you today about our business as well as our third-quarter results.

As we move on to the results for the quarter, we were encouraged by our performance, as Mitch mentioned. With positive net income for the second quarter since 2007, we are demonstrating our ability to perform in the areas of our business that are within our control, such as driving specialty gross margin up while driving operating expenses down. And that is a terrific combination.

Revenue for the third quarter ended October 3, 2015, was $517.8 million, down $32 million or approximately $5.8 million compared to third-quarter 2014 revenue of $549.8 million. The decrease year over year was primarily driven by the structural price decrease of 11.9% or $24 million.

While structural and specialty product volumes were relatively flat overall for the quarter, demand for our structural wood products was up 2.6% for this quarter, particularly in our lumber and OSB categories. Within our specialty products, demand for specialty lumber, sanded plywood, and structural siding was particularly strong, each with double-digit volume growth this quarter.

In the Atlantic and Midwest, our specialty lumber and sanded plywood categories did particularly well. The benefit we saw in both specialty lumber and sanded plywood demonstrates the value-add programs we have in place for these distribution-friendly product categories.

Gross profit for the first quarter was $60.8 million compared to $64.6 million in the third quarter 2014. Overall gross margin for the quarter was 11.75%. We are pleased to see specialty gross margins up 24 basis points year over year, with the strongest margin growth in outdoor decking, roofing, vinyl siding, and molding categories.

These improvements are attributed to our category management, sourcing, and pricing teams as they work with both our supplier partners and local markets to ensure cost and pricing optimization.

Net income was $561,000 in the third quarter 2015 compared to a net loss of $860,000 in the prior year. This represents, again, the second consecutive quarter of positive net income. We strive to control what is within our power and our positive net income over the last two quarters demonstrates our ability to focus on running a more efficient business. Our adjusted EBITDA of $10.5 million compared to $11.1 million in the second quarter of last year.

On slide 9, our selling, general, and administrative expenses were down $6.2 million or 11.1% in the quarter. We have a core value of continuous improvement and as a result, we have been able to develop a leaner, more agile corporate support function. We strive to deliver improvements like this in all facets of our business.

With warehouse sales as a percentage of our total revenue at its highest point in our history, we were really pleased to see our logistics costs were actually down 3% this quarter. These were achieved through a wide variety of key expense savings in the Company. We are anniversarying restructuring costs from last year and continue to recognize benefits from our lower fuel costs as well.

As we have brought in 40 new tractors over the course of the year, we see better miles per gallon from this younger, more efficient fleet. Other areas of savings were lower sales-related costs as well as lower costs in categories such as professional fees.

Our net debt has continued to decline over the past year, down $5.3 million from the year-ago period. Our declining mortgage balance is a key component of that reduction in debt. Our outstanding mortgage balance as of October 3, 2015, was $162.9 million, net of the $5.9 million cash trap.

As you are aware, we are exploring our options for refinancing of our mortgage. We have evaluated a variety of alternatives with lenders who are actively engaged in discussions with their credit teams. As we continue to move through the refinancing process, we are well positioned to avoid costly prepayment penalties, which are approximately $1 million per month through the end of December 2015.

We have shared with you our historical appraised value of our properties, which as of 2006 was approximately $320 million. In connection with our refinancing efforts, we recently received a desktop valuation of our real estate from a large nationally recognized firm. They indicated a fair market value estimate with market rent in place in the $332 million to $352 million range.

We anticipate that this more recent and higher valuation will serve us well as we continue our financing. Finally, as of quarter end, we have $64.2 million of excess availability, which is a $4.2 million increase from year end.

Turning to cash flow, on slide 11, our year-to-date operating cash usage improved by $24.8 million, or 46%, compared to year-to -date last year. This 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 9 months of 2015 than we did in the prior year.

Our improved processes around demand planning and supply chain are benefiting us in this area. In total, our working capital on a trailing 12-month basis was down $4 million versus the end of the third quarter 2014.

Thanks once again to our BlueLinx associates who strive to be the reason customers choose us. Our associates focus on continuous improvement, delivering on operational excellence and certainly on customer service that is above the rest. With the Thanksgiving holidays ahead of us and on behalf of our entire team, our sincere thanks go out to all of our customers and suppliers for their continued support.

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

(Operator Instructions) Alan Weber.

I guess a quick question. You talked about -- you went through it pretty quickly, but you talked about I guess now there is more of a focus on increasing profitable sales and hiring salespeople. Can you just kind of explain where that actually stands? Have you hired people? And when does that really start to show up? Or when do you expect that to show up in the results?

Yes, sure. So what we have done over the last 90 to 120 days or so is closely evaluate, as we have talked about, our -- where we are making our money. And one of the areas I mentioned is in the industrial market.

And there are other markets that we deem from a product standpoint are very wholesale distribution-friendly, as we call it. Areas where we feel like we can make good margins and not suffer a risk of disintermediation in the future.

So we are, as we speak, reorganizing the team so that we have and are bringing on leaders. For example, by region, for those industrial markets, coordinating a restructuring of the organization so that we have the sales teams in those markets reporting directly to those folks. And as we speak, are hiring those people. So we have a plan to go out over the next three to four months to hire several new sales associates to help augment that.

As a practical matter, we are clearly focused on higher value-added sales. So not the traditional bid-ask product offering that we have seen in the past. And so, Alan, that takes a little bit more time. So I think we will start seeing these opportunities manifest themselves on the top line beginning -- the way to think about it is in the first quarter, towards the end of the first quarter, and certainly into next year.

Okay. And I guess you are comfortable at this point that you have the right people in place to even train and hire the right salespeople?

That is a great question. Yes, we have really augmented our HR team, which is -- and included things, for example, now like psychological testing of new sales reps that we really didn't have the sophistication to do historically. We are in the process of bringing on a sales excellence leader for the organization to help not only assess existing team members, but also certainly people that come in.

We have a robust process for onboarding that we are developing for the new sales reps to make sure when we bring them in the door that they are capable to hit the ground running when we actually deploy them out in the field.

So that is a long-winded answer, Alan, but the real answer to the question is yes. We feel really good about where we are driving the organization with the team that we have to enable us to bring in talented people and have them effectively improve the performance -- the top-line performance of the business.

Okay. And then just on the debt side, when do you hope to have that in place to have more permanent financing?

We have, again, talked consistently -- and Susan mentioned it just again today -- on this prepayment penalty that we have tried to navigate through. I think we also indicated that we have, in the last few months, engaged Estill to help us do this.

So we are in the midst of it. Unfortunately, we can't report anything today, but we are certainly aware of the timeline. And we sure don't want to get close to the termination of the existing real estate loan. So we are aggressively pursuing it and hopeful we can be able to report something publicly in the near future.

There are no further questions.

Okay. Well, thank you. I know we have a lot of folks listening in today. And appreciate it, Angel, and we look forward to updating you as usual on our progress in the first quarter. Have a great week. Thank you.

And this does conclude the conference. You may all disconnect.