Bluelinx Holdings Inc (BXC) 2015 Q4 法說會逐字稿

Good morning. My name is Derek and I will be your conference operator today. At this time I would like to welcome everyone to the fourth-quarter investor relations call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

Ms. Natalie Poulos, you may begin.

Thank you, Derek, and good morning everyone. We appreciate you joining us for the BlueLinx fourth quarter and fiscal 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.

I will also remind you that this presentation includes 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 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 and today's presentation includes references to non-GAAP financial measures.

With that I will turn the call over to Susan.

Terrific. Thank you, Natalie, and good morning everyone. It is a pleasure for me to speak to you today and review the results of our business. I will go over our capital structure, financial results and then Mitch will take you through current market conditions and our strategic initiatives.

But before we dive into the numbers, I want to let you know what is going on with the timing of our earnings release and 10-K for 2015.

We previously announced entering into a term sheet with our existing real estate mortgage lender to extend the term of the mortgage. In addition, we have been in discussions with our existing ABL and Tranche A lenders to extend those loans as well. We are very close to closing all three of these loans and our intent was to coordinate our 10-K filings with the loan closings. Though we expect extensions to be implemented very soon, the definitive documents have not all been signed and of course there is always a risk that we will be unable to close the extensions of the loans.

The 10-K will describe our annual results as usual and the terms of these loan extensions in much more detail. Since we have not yet filed our 10-K, the numbers we will discuss today are unaudited. We expect to file our 10-K in the very near future and of course in a timely fashion and the audited results will reflect the numbers presented today.

So without further ado on page 4, let's review some of our highlights before we get into the more detailed review of our results.

As we have worked through establishing a strong foundational capital structure, refinancing our existing mortgage is a key part of that strategy. The extension of our CMBS mortgage will be for three years maturing on July 1, 2019, at our existing 6.35% interest rate.

We anticipate that the extended mortgage will now be interest-only and will require no further monthly cash collateral to be paid. These changes will enable the Company to enhance our liquidity by approximately $15 million per year compared to 2015. Additionally, we expect that the extended mortgage will enable us to pay down the remaining principal over the course of the three years, likely with the proceeds generated from planned real estate sales or sale-leaseback transactions.

We also anticipate simultaneously closing with the mortgage an extension of our ABL -- existing ABL and Tranche A loans through July 15, 2017 while reducing the loan commitments from $467.5 million to $370 million. Our existing facility size is in excess of the anticipated working capital needs of the Company so we are reducing the overall loan facility as well as to right size the loan and to avoid unused line fees.

As we look at our fourth-quarter performance, we were also pleased with the continued progress of our business results. Our fourth-quarter contributed to our continued records of success and momentum over the past year. We delivered more adjusted EBITDA in the fourth quarter of 2015 than we did in any fourth quarter since 2006.

Adjusted EBITDA was $4.2 million, up 121% from the year-ago period. Furthermore we generated more adjusted EBITDA for the full year of fiscal 2015 than any full year since the housing downturn began back in 2006. That was on 2015 fourth-quarter revenues of $428.2 million with a gross margin rate of 12.02%, a rate increase of 105 basis points. All of this while our SG&A expenses were down by $2.8 million.

For fiscal 2015, we generated $39.9 million in cash. This is another game changer as it is the first year that we have generated cash from operations since 2009. We are focusing on improving our operations and our working capital and we are beginning to see those results.

I would like to note that we had approximately $52.6 million of excess availability under our ABL revolvers as of quarter end. As we lower our working capital needs which is the ABL collateral, we expect the excess availability not to decrease over time yet remain enough for our business needs.

Moving to page five, we will take a look at our revenues and profitability for the quarter and the year. Revenue for the fiscal fourth quarter ended with $428.2 million. The decrease over the comparable fourth quarter was largely due to lower prices for structural products specifically in the lumber category. Sales for full-year 2015 were down $62.8 million compared to prior year predominantly driven by a decrease in structural pricing of approximately $67 million.

Gross profit for the fiscal fourth quarter was up $1.7 million to $51.5 million compared to $49.8 million in the fourth quarter of 2014.

Gross margin for the fiscal fourth quarter 2015 was 12.02%, up from 10.97% in the fiscal fourth quarter 2014. This increase of 105 basis points is largely driven by our margin enhancement activities and our structural and specialty products which were up 141 and 13 basis points respectively for the quarter. Gross margin remained relatively flat year-over-year at 11.6%.

On page six, our total selling, general and administrative expenses were down $2.8 million for the fourth quarter and down $15.4 million for the full fiscal year. This improvement is primary due to significantly lower fuel costs and payroll related expenses including a headcount reduction of approximately 80 people.

Turning to cash flow on page seven, our operating activities generated $39.9 million in cash during the year improving our cash utilization by $52.2 million when compared to 2014. This improvement primarily reflects our improvements in working capital components including a decrease in inventory of $15.9 million, a decrease in receivables of $6 million and an increase in accounts payable of $20.8 million. Our cash cycle days for the fiscal fourth quarter ended 2015 totaled 64 days, a one-day improvement and period ending working capital improved by $32.7 million from the end of fourth quarter 2014.

With that summary of our financials, I will turn the call over to Mitch.

Thank you, Susan. Good morning. As Susan discussed, our fourth-quarter created some positive momentum for BlueLinx and I am pleased to inform you that we have seen this positive momentum continue into the first two months of the year. Our end market activity is stronger than 2015 levels, the lumber market has improved and our continued emphasis on margin enhancement and cost containment is paying dividends.

It is too early to determine whether the relatively mild winter has pulled forward some sales from the spring season but we are happy to see this early year market momentum.

Susan discussed our new financing in detail earlier. In connection with this planned financing, we will be in a position to sell the Company's real estate going forward. As we have discussed, we had desktop valuation in the fourth quarter of 2015 which valued our existing real estate portfolio with market rent in place in the $332 million to $352 million range. This is well in excess of the current principal balance on the real estate mortgage of $159 million.

We fully intend to extract this excess value of the real estate to pay down the mortgage quickly and delever BlueLinx.

Similarly, we are focused on evaluating our working capital particularly our inventory as another avenue to reduce the Company's leverage. We have embarked on a detailed review of all our individual product SKUs to assess the return on our inventory. We anticipate that this exercise will lead to a significant reduction in inventory from the elimination of certain products and that we will accomplish this without having a major impact on the service or products we provide to our customers.

We have previously announced that our Board approved a reverse stock split with the intent to comply with the New York Stock Exchange requirement that our shares trade above $1. We anticipate a vote on the reverse stock split during our annual meeting in May. If approved by our shareholders, we will move to implement the reverse stock split promptly after the annual meeting in May.

We also submitted a business plan to the New York Stock Exchange outlining the actions we are taking in order to regain compliance with the $50 million market capitalization listing standard.

There has been significant activity to improve the capital structure and performance of BlueLinx over the last few months. We continue our focus on margin enhancement activities and recently created the role of sales excellence leader to facilitate increasing our market share while providing our customer base with a world-class customer service experience.

Similarly we continue to make great progress in our logistics initiatives as we improve efficiencies associated with the delivery of our products to our customers. And as Susan discussed, we are seeing positive results from these initiatives in our operating performance.

I want to personally thank our vendors and customers who continue to partner with our organization and have helped fuel the improvement we are seeing and also would like to thank the BlueLinx team. The collective effort of the BlueLinx Associates over the last several months has been relentless and you are the reason BlueLinx continues to make progress in both our performance and culture.

Now, Derek, we would like to answer any questions that our listeners may have.

(Operator Instructions). Mark Kaufman.

Good morning, everyone. I want to just commend you all on addressing the assets issue, the return on assets basically by reducing the assets you actually have on your balance sheet. I think that is a terrific idea. I just had a couple of questions about the operating side of the business and what you are seeing on lumber pricing and also plywood pricing?

Yes, so generally, the lumber market has firmed up certainly in the first couple of months of this year while the plywood market hasn't. So we are seeing a disconnect between the two. Clearly lumber is moving in a positive direction and again the plywood panel market is not.

Okay. I understand that the plywood market is still being impacted by imports from Latin America. And not on that note just to shift gears a little bit, where do you see the strength in your markets right now? And I think not just geographically but also from whether it is the wholesalers -- excuse me -- the retailers or the wholesalers?

Yes, I would say generally we are seeing strength across the board with the one exception being the industrial accounts have come out softer. Again when you look at comps certainly year-over-year, we had a tough winter so any of our customer base that is primarily involved in for example residential or even to a certain extent commercial constructions are going up against some pretty favorable comps.

But generally we are seeing really across the board strength early in the year other than as I mentioned the industrial council we had.

Now with the decline that you had in revenues due to the deflation in the commodity products last year, would you anticipate we are going to see a turn in that because of the results so far at least in lumber?

Yes, it is funny. We always talk internally amongst ourselves that if we really knew what was going to happen on the commodity market we are probably in the wrong profession. As it stands today, certainly we are seeing an increase in the commodity prices which from our perspective is really important. I mean it is stable to increasing commodity prices from wherever it started is beneficial to the business and when you see deflation, it hurt. So as we see improvement in the market, the end markets are strengthening, it certainly gives us the ability not only to get some value from lower-cost product in our warehouse but generally you have more pricing pressure as it relates to some of the commodities.

Now back in 2012 when we had the rally in lumber prices then the old management and not just the old management but the entire industry got ahead of itself as far as ordering product. Do you see anything like that happening now?

Mark, I can assure you that it is not part of our strategy. Again it is getting us to the point that we talked about early on certainly when I got here which is really a full competency of (technical difficulty) rates and the value of bringing it to our customers is not timing in the market. So as we talked about, we are very focused on introducing the velocity of the inventory to maximize our return and so we will continue to very closely watch all of our inventory in all of our categories.

Just on the question about the refinancing, if you are unable to get all the documents signed by month end, are you going to be coming -- do you have to come back for another extension with the SEC to get your 10-K out? I understand you have the extension now because of the shift in auditors.

So April 1 actually is our required filing timeframe and so historically we have certainly filed a little bit earlier. This year as we described what is going on, we wanted to time the closing of these documents which our 10-K and obviously timing coordination across a variety of lenders and work that goes with that is a challenge. So we are just working through that but we are still on timely basis and anticipate filing certainly before the filing deadline.

Okay. But what if you don't make the filing deadline?

We anticipate that we will base on -- so the progress we have got, we are making really good progress toward it. We just don't have all of the definitive documents signed yet and we just anticipate wrapping that up in short order and so therefore we still feel comfortable and anticipate meeting our filing deadline.

Yes, our focus is on what we fully expect to happen at the moment and we hope to have good news for you in the very near term.

I appreciate the confidence you guys have and that you are reiterating it. I think that investors will appreciate that as well. I will get back in the queue. Thank you.

Tucker Golden.

Good morning. Just echo congratulations on all the progress you have made and it sounds like we will have more news soon on your capital structure. But in terms of the real estate portfolio as we look forward and try to understand not just that you have time and that you will be monetizing assets that we have at this type of evaluation but that you will be doing different things with different assets. Can you give us some picture, some guesstimate as to what portfolio looks like down the road, how many of your current facilities do you expect to continue to operate? And I guess I will start with that?

So we are evaluating closely now every one of our facilities and the thought process is is it in the right place, is there an opportunity to monetize it for example through a sale leaseback? Should we for example just stay where we are and it is good value for the cash flow that we have or for example is it a place that over the last decade or so the real estate in the area has appreciated it so much that it makes sense to maybe move it a couple of miles down the road.

The intent is not to have a -- what I would call a huge reshuffling of the footprint of the business. So we will look at it where it makes sense, where our return on investment is not good or where we have consolidation opportunities and act accordingly. So it is too early to say exactly what we are going to do but we are looking at every facility that we own.

If you don't expect the footprint to change materially does that mean you do not expect any significant opportunities in terms of working capital, labor?

Yes, if I said I didn't expect it materially, I apologize. I mean it is not going to be a fundamental dramatic shift to the Company. So we still intend strategically to be a full-service supplier to the markets that we serve. So the answer I guess fundamentally to the question you raise is yes, we expect from our efforts to significantly reduce the working capital of this business and we expect from our efforts to significantly extract real property value both of which will be utilized to delever the Company.

That is great. Okay. Thanks again. Good luck.

Jim Barrett.

Good morning, everyone. Mitch or Susan, this may be a question for one of you. Your specialty products, can you talk to us about what level of price inflation are you seeing from your key vendors and your key categories? And is the Company -- if there is price inflation, is the Company pre-buying or simply buying in line with end market demand?

Yes, we are not seeing a lot of inflation from our supply base. There are some modest deflation opportunities particularly associated with products that are growing base. But generally I wouldn't say there is a huge trend from an inflationary or a deflationary environment.

There has been a legacy in the industry of having winter buys or buying opportunities where you really load up on a ton of inventory that gives you somewhat of a discount and then you run the risk that if you are building up six months of inventory that the market moves on you to the downside which has certainly happened and obviously it has been a benefit to the upside.

We are now looking through the lens in everything we do of the investment that we have. As we think about deleveraging the Company, we look very closely for example at if we are going to increase the inventory, what are the terms associated with that. So if we feel like as you would expect if we could do something that is cash accretive, that doesn't risk the Company, we might do something like that but it is not a major strategic initiative for us to load up on inventory with the anticipation that the cost of that inventory is going up.

That is helpful. And then has the Company established targets going forward of what you expect average inventory turns to be year after year?

Yes we have. We have actually established some very specific targets as it relates to some of this product review that Susan and I both talked about as well as facility operational efficiencies. So the answer to that question is yes. We generally don't give forward guidance on that kind of information but it is as we both talked about, we view it to be significant for the Company.

And then finally if I strip out the pricing volatility of lumber and plywood, did your sales volume -- can you talk about in which categories you are holding share versus gaining share versus losing share?

Certainly it is a very fragmented market so to track share by segment is more of a challenge for us but we are looking at where we are expecting to share and looking at single family housing starts as a barometer certainly looking at it by region. But what we have noticed also is we haven't necessarily seen single-family housing starts fully align with completions. So we are continuing to track to see if there is a lag or delay in some of the items there. But across the board we are monitoring those increases.

I would say specifically as we look at the quarter, we have done particularly well we think in engineered lumber and so that is something we are pleased to see the growth there as well as growing in some other categories in our interior products. So we are pleased with those growth.

Thank you both.

And there are no further questions.

Thank you very much. Again we appreciate your support of BlueLinx and we are looking forward to announcing the completion of our refinancing and certainly sharing our first-quarter results with you as well. Have a great day.

Thank you for your participation in today's conference call. You may now disconnect.