Bluelinx Holdings Inc (BXC) 2017 Q1 法說會逐字稿

Good morning. My name is Rochelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx First Quarter 2017 Investor Relations Call. (Operator Instructions) Thank you.

Ms. Poulos, you may begin your conference.

Thank you, Rochelle, and good morning, everyone. We appreciate you joining us for our first quarter 2017 earnings call. The earnings release and presentation slides for this call can be found in the Investor Relations section of the company's website at www.bluelinxco.com.

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

I'll 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 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 within 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 also includes references to non-GAAP financial measures.

With that, I'll turn the call over to Mitch.

Thank you, Natalie, and good morning. We're happy to be able to report another good quarter at BlueLinx. We had $600,000 of net income for the first quarter. This is the first time, we've been able to report positive net income in the first quarter, since 2006. The good news is that it could have been even more. Our net income in the first quarter was negatively impacted by approximately $4.5 million, through what was a very positive development for BlueLinx. We were able to work with our union in one of our facilities to agree to withdraw from a multiemployer pension plan. This agreement should enable BlueLinx to operate competitively in the local market, while mitigating the risk of increased liability to the company from a multiemployer defined benefit plan. We anticipate that the annual pension-related cash cost for BlueLinx should be relatively the same as it is today, while we have alleviated a contingent liability to the company.

During the quarter, we also continued to make progress in our efforts to reduce the company's debt. We delivered on our previous commitment to pay our $60 million mortgage obligation early, which was due in July. Susan will discuss the details, but we are pleased with the progress we have made in reducing both our ABL and mortgage, which collectively or approximately $111 million less than they were a year ago.

Our adjusted EBITDA for the first quarter also reflected our continued progress, as we modestly improved from the first quarter of 2016. We made $7.3 million in adjusted EBITDA, a $300,000 improvement from 2016 levels. We continue to move forward at BlueLinx as the first quarter of 2017 was our sixth consecutive quarter with year-over-year improvement in adjusted EBITDA.

Our 2017 first quarter adjusted EBITDA performance was actually much better compared to the first quarter of 2016, when you consider the closures of our facilities as well as the product category reductions that took place late in the second quarter and into the third quarter of 2016. Those activities represented approximately $1.1 million in adjusted EBITDA in the first quarter of 2016. So on a comparable basis, we actually improved our adjusted EBITDA by $1.4 million.

In the first quarter, we also continued our efforts to enhance our sales and marketing performance. We have talked previously about our commitment to elevate our sales teams, and the additional resources we have invested to augment our sales performance. In the first quarter, in addition to initiating a compressive training program for each BlueLinx sales associate, we also added a Senior Vice President, John Tisera, to lead our sales teams across the company. John has an extensive marketing and sales background in distribution and building products. Having worked for GE, Stanley Works, HD Supply and most recently, Anixter, where John was the President of this $1.9 billion distribution business.

John hit the ground running and brings the high level of process improvement and professionalism to help our teams enhance our partnership with our customers, as we work to maximize their sales and profitability.

I did want to spend a moment discussing the Canadian softwood lumber tariff that was put in place last week. As many of you know, the tariff averaged in the 20% range for products shipped into the United States from any Canadian mills. It appears that the U.S. market may have anticipated a tariff in this range as there has not been an immediate increase in prices in the U.S. lumber market since the announcement. Over the last few days, it appears that some of the Canadian mills are moving product to Asia, which ultimately could impact supply in the United States market. However, we continue to see an increase in lumber from Europe, and this increasing supply source maybe helping to mitigate potential increases in the market. It remains early, but for now, we have not seen any significant movement in market pricing.

The first quarter of 2017 continues the positive trend we have enjoyed now from almost 2 years. And yet, the BlueLinx team remains motivated by the tremendous opportunities that lie ahead for our organization. We're improving, but we have a long way to go. I'd like to thank our customers and suppliers for their support as well as the entire BlueLinx team for their continued effort and positive results.

I'd now like to turn it over to Susan, who will walk you through our financial performance for the first quarter in greater detail.

Thanks, Mitch, and good morning, everyone. It's a pleasure for me to speak with you today, and to review our first quarter business results.

On Page 7, let's review some of our highlights before we get into the more detailed review of our financial results. As Mitch just mentioned, our primary focus over the past year has been on our strategic initiatives to delever the business, and we're very pleased with the successful results we experienced to date. Last year, we've rationalized our local inventory assortments, closed 5 underperforming facilities and began monetizing select real estate properties, which we collectively refer to as our operational efficiency initiative. As part of these initiatives during the first quarter, we sold 2 previously closed facilities and entered into 3 sale leaseback transactions. Our advancement against these initiatives resulted in a strong finish to 2016, and even stronger beginning to 2017. Since announcing the deleveraging plan last year, we have reduced our debt principal balance by $111.3 million, and met our July 2017 mortgage obligation of $60 million 3 months ahead of schedule.

Net sales were $428.6 million for the quarter. Revenue for the quarter was negatively impacted by adverse weather in the New England area relative to the mild winter they enjoyed in 2016. Even with the impact of this wintery weather in a relatively strong area of the country for BlueLinx, and the drag on our revenues due to operational efficiency initiatives, our total same-center net sales were up $9 million or 2.1% from this time a year ago.

During the first quarter, same-center sales of our Engineered Wood Products were up double digits, and sales of our wood-based commodities were up over 9%, led by both price and unit volumes. When we look at our first quarter performance, gross margin increased 60 basis points to 12.7%. This is our highest gross margin on record for any quarter at BlueLinx. This record gross margin is driven by our margin enhancement activities, offset by the strong market conditions within structural products, which impacted our product mix this quarter.

Structural products grew from 40% to 45% of our business, which had a 40 basis point headwind on our overall gross margin rate. Even with the shift in our product mix to our traditionally more commodity type items, we still had record gross margin results for the quarter.

In selling, general and administrative costs, we reduced our costs year-over-year, especially in our general maintenance, fuel costs and personnel-related costs. Mitch discussed the withdrawal from the multiemployer pension plan, which resulted in a one-time charge to SG&A of $4.5 million. We expect to continue making withdrawal pension payments similar to our current pension payments in the next 20 years. When excluding the effect of this de-risking initiative, our SG&A costs were down $6.8 million versus $2.3 million as reported, favorably increasing our bottom line.

Net income as reported for the quarter was $0.6 million, and when considering the $4.5 million one-time charge, net income would have been $5.1 million. Our adjusted EBITDA was $7.3 million for the quarter, up $0.3 million or 4.4% from this period a year ago. Again, another highlight for BlueLinx, as this is our best first quarter adjusted EBITDA since 2007. When excluding our operational efficiency initiatives, adjusted EBITDA on a same-center basis was up $1.4 million or 23.5% from the first quarter 2016. We are delighted to see the year-over-year improvements in our first quarter results.

Our trailing 3 months cash cycle days also reflected improvements. For the first quarter 2017, our cash cycle days totaled 55 days, a 4-day improvement compared to the first quarter of 2016 and an 11-day improvement for the first quarter of 2015. Operating working capital also improved by $56.1 million. This improvement primarily reflects our improvements in working capital components, including; a decrease in inventory of $31.8 million, a decrease in receivables of $21.4 million. We continue to work hard on improving our working capital processes, and are pleased with the progress we've made. All the while staying focused on our inventory stock and ensuring we have just-in-time inventories for our customer's need.

With the working capital efficiencies we've gained to date, we are pleased to share that we've had over $73 million in excess availability under our revolver, which is up over $12 million from prior year, based on the qualifying inventory and receivable levels at year-end. This lower working capital on our revolver and an interest-only mortgage, we also encouraged $2 million less interest expense during the quarter versus the same time a year ago.

Our debt principal balance is down $111.3 million from the first quarter 2016. As mentioned earlier, this is significant progress on our deleveraging initiatives. Also on the balance sheet, you'll notice the impact of our 3 sale leaseback transactions as well as the pension withdrawal. In the other noncurrent liability section, there is a $23.5 million increase from $14.5 million at year-end and $38 million at the end of the first quarter. This was driven by $11.7 million for deferred gains on the sale leaseback transactions as well as $7.9 million for the capital leases, and finally, $4.5 million for the pension withdrawal liability, offset by a few small other changes.

As we move to Slide 8, our mortgage principal was down $60 million, and our ABL debt balance is down $51.3 million from this time a year ago, mainly driven by our working capital efficiencies and successful execution against our real estate monetization plan. With the sale of 5 facilities during the quarter, we were able to fully satisfy our July 2017 mortgage obligation on April 1, 2017. As the strength of the company continues to improve, we have more and more options available to us to unlock the value of our real estate. Our real estate continues to prove to be a valuable and attractive asset and our previous debt appraisals are substantiated by the sales that we have experienced over the past 10 months. With our outstanding mortgage balance of $99.4 million, we are exploring additional sale and leaseback transactions as well as alternative mortgage refinancing options to continue to improve the company's capital structure and to delever the company.

In conclusion, I'd like to thank our BlueLinx team for their hard work efforts. Your contributions have resulted in a record results we were able to share today. And of course, special thanks go out to our customers and suppliers for their continued partnership.

And now Rochelle, I'd like to open it up for any questions we might have at this time.

(Operator Instructions) And your first question is from the line of Alan Weber with Robotti Advisors.

So could you talk about -- you mentioned, when you gave -- you kind of adjusted the revenues and the gross profit for facilities that you closed and products that you discontinued. Can you do the same for regarding the operating expenses or SG&A?

When we have our Q that we're filing this afternoon, it gives you a little bit more color on that. One thing just to think about, Alan, as you look at that some of the cost to serve of what we delivered from gross margin last year moved into operating expense from a year ago. So we have that information. It was about -- as we look at it just over $4 million for the closed center or $4 million for closed centers, and the exited items about $800,000.

So like -- say that over, again, $4 million of expenses...

On operating expense last year for the closed centers, $3.8 million and another about $880,000 for the items that we exited. I would just say and I'll walk you through offline. But there is -- the way that we account for that, there is some cost reserve as you look at that. So the presentation on the P&L, I'd want to walk you through if you want to get closer along with that.

Okay. And I guess, my other question was, the gross profit as a percent. Is there a seasonality to that? Because I think you talked about structural products. Just want to -- because the gross profit as you kind of -- would be just -- the gross profit that you show was higher than last year's gross profit. And just trying to understand, again, is there something seasonal that's just going to be -- from the improvements that you're making?

Overall, when we've looked historically, it's not seasonal per se, if you think about summer versus winter. From that point of seasonality, there is seasonality market cycles that we go through. But from a seasonality, I wouldn't see it from that point of view.

So the improvement we believe is, certainly has a lot to do with the efforts that we've been talking about for the last year, really focusing the organization on enhancing the gross margin and focusing on looking at the variable contribution margin.

Okay. And, I guess, my last question is, you talked about -- Mitch you talked about the hiring of a -- I wasn't quite clear of it, is it a national salesperson or I kind of missed that?

Yes. On the person we hired -- we hired John Tisera, who is coming to -- to basically take over responsibility of all sales and marketing for the organization. So our regional Vice President report directly to him, the national sales. Vice President reports directly to him. The Head of the Sales excellence reports directly to him. So he basically has generally P&L responsibility for the organization with particular emphasis on the sales and marketing of the business.

And having that kind of factoring with -- when you've talked in the past about the more decentralized operations?

Yes. So it clearly is a balance. And John is here to lead not to micro manage. So he's come in basically to help with processes, best practices across the company, pricing discipline, training, strategy, all of those activities. He's not in at all to micro manage. So as we talked about in the past, 3 years ago we had 22, 23 of our general managers located in Atlanta or Denver. Now we have 2 GM's across the country that are out local market. So we're clearly putting our general managers responsible for the P&L in the local markets and giving them the autonomy and the authority and the accountability to drive their business. And John is just here to help lead and augment that activity.

(Operator Instructions) And your next question is from the line of (inaudible)

Just a quick question on top line growth. Historically, the company has trended -- trended fairly closely with single-family home starts. Now I was wondering as you look over the next year or 2, as you sort of normalize on home starts, if you started to see good growth on how you see top line growth trend versus historical norm?

You're not going to like my answer, but we don't give guidance, future guidance as it relates to sales. I mean, I can give you some color on the history, which we expect the future to be different in that. As we came into this business, the new management or executive team couple of years ago, the emphasis was riding the ship, changing from a cultural standpoint of focus not on top line, but on a return on invested capital, which we've done. And we still have a primary and specific business to delever. Part of the investment that we've talked about we started making in a big way, and truly John coming in as well was another investment is all focused around enhancing our market share in the business, elevating the teams that we have. So we would certainly expect when you look at the business historically versus going forward, that we would perform better certainly relative to what's going on in the underlying market.

Okay. And I guess, the other question I have is, if you look at the sequential growth. The top line growth was actually fairly strong sequentially after a good Q4. And I was wondering was that an anomaly from your standpoint? Or is there something going on within the business since Q1 tends to be lower than Q4 historically, I believe?

So I don't think there was anomaly in what happened in Q4 at all. I mean there were a couple of things going on in the first quarter this year while the winter across the country obviously was generally mild. For us, we have a good strong presence, for example, New England in the Buffalo market in that area of the country, which relatively a very mild 2015 was worse. We're starting to see significantly improved performance relative to the first quarter in those areas of the country. So that was impacting it. The other point, I would make is that, we are always looking closely now at where we want to participate from a return perspective and sometimes that will impact the business as well. But, no, nothing was going on specifically in the fourth quarter.

(Operator Instructions) And there are no other questions at this time.

Okay. Thank you, Rochelle. And thanks again for your continued interest in BlueLinx. And we look forward to sharing our second quarter results with you in the months ahead. Have a great day.

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