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Executives

Maryon Davis – Director, Finance and IR

George Judd – President and CEO

Douglas Goforth – CFO, SVP and Treasurer

Analysts

Steve Chercover – D. A. Davidson

BlueLinx Holdings Inc. (BXC) Q1 2011 Earnings Call May 5, 2011 10:00 AM ET

Operator

Good morning. My name is Carly and I’ll 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 call is being recorded, today, May 05, 2011. Thank you.

I’d now like to introduce Ms. Maryon Davis, you may begin your call.

Maryon Davis

Thank you, Carly, and welcome ladies and gentlemen to the BlueLinx first quarter 2011 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. A copy of the release is available in the Investor Relations section of the company’s website at 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 meaning 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 use 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 Chief Executive Officer, George Judd.

George Judd

Thanks, Maryon. Good morning, thank you for joining us today. Before beginning our remarks regarding the first quarter 2011 results, I would like comment on our press release issued April 26, 2011 announcing a $60 million planned rights offering. We filed the registration statement with the Securities and Exchange Commission which contains a preliminary prospectus as the rights offering across these proceeds will not have comments or take any questions regarding the offering.

We will take questions at the conclusion of this call regarding our first quarter results. Thank you for your understanding of this matter and with I will turn the call over to Douglas Goforth, Chief Financial Officer to review the first quarter.

Douglas Goforth

Thanks George and good morning everyone. I’ll start with an overview of the quarterly results and George will provide an operations review of the quarter and close with final perspective. For those of you following along with the slides posted on the Investor Relations section in the BlueLinx website, I will begin with slide 5.

Overall, sales for the first quarter ended April 2, totaled $390.6 million, down 9.4% or approximately $40.4 million from the first quarter of 2010, which benefited from the first time homebuyer tax credit. Specialty sales increased slightly year-over-year, reflecting a 1% increase in product selling prices offset by a small decline in volumes.

Structural product sales decreased 20.8% from the same period last year. This decrease was driven by 25.2% decrease in units sold and reflects a 4.4% year-over-year increase in product selling prices as demand for these products softened during the quarter.

Specialty products comprised 59% of total sales up from 53% in the first quarter of 2010 as we continued to focus on value added products and services. Overall, unit volume declined a 11.8% compared to the year ago period.

Housing continues to underperform, actual total US housing starts decline 9.9% for the first quarter of 2011, compared to the same period last year with single-family starts, which our business is closely tied to down 21.3%.

The environment for home building and home remodeling continues to face substantial headwinds with an overhand of inventory, low consumer confidence and high unemployment. These conditions combined with the loss of the first homebuyer tax credit, an extreme win a weather condition negatively impacted our first quarter financial results.

Turning to slide 6, BlueLinx generated approximately $46 million in gross profit for the quarter. Overall, gross margin was 11.8%, which is down 0.3% from prior year quarter. Structural margins were flat with the prior year quarter at 10.7%, and improve 1.2% from the fourth quarter due our emphasis on price discipline and margin improvement. We consider 10.7% a strong structural margin performance considering the price and demand challenges that we face in our market.

Specialty gross margin for the quarter was 13.8% compared with 14.4% in the year ago quarter. The specialty margin decline is largely result of a shift to the lower margin channel for certain specialty products in a highly competitive pricing environment.

Total operating expenses decreased to $51.4 million from $60.3 million a year ago and included $7.2 million in real estate gains. We have been managing our costs diligently and will continue to manage our cost structure relative to business conditions as we move forward in 2011.

The company reported an operating loss for the first quarter of $5.1 million compared to an operating loss of $8 million in the prior year period reflecting a $6 million decrease in gross profit and an $8.9 million decrease in offering expense.

EBITDA improved $2.3 million over the prior year period and reflects the real estate gains for quarter during the quarter and our ongoing commitment to cost management and operational efficiency.

Our first quarter net loss of $12.3 million or $0.40 per diluted share compares with the net loss of $14.7 million or $0.48 per diluted share in the first quarter of 2010. Our reported net loss for the period is after interest expense of $7.3 million, which includes $1.8 million in pretax non-cash interest income related to our interest rate swap compared to interest expense of $6.5 million in the prior year period, which included a $0.8 million in pretax non-cash interest income associated with our interest rate swap. The current year net loss is after a tax benefit of a $114,000 compared to an immaterial tax provision in the year ago quarter.

Turning to cash flow on slide 7, during the quarter, we used approximately $63 million in cash from operating activities, primarily reflecting seasonal increases in accounts receivable and inventories of $50.7 million and $32.1 million respectively, which were partially offset by corresponding increase in accounts payable and other current items. This compares with net cash used by operations of $46.6 million in the first quarter of 2010, which benefited from a $20.2 million tax refund.

Cash provided by investing activities was approximately $5.1 million and included $8.8 million in proceeds from the sale of certain surplus property and a $3.7 million from investment and property plant and equipments which includes our new facility in Tennessee.

Cash provided by financing activities was $49.6 million for the quarter, driven by a $43.3 million increase in outstanding borrowings under our revolving credit facility. A $12.6 million increase in bank overdrafts and a $6.2 million increase in restricted cash related to the mortgage. The resulting cash balance at April 2 was $6.2 million compared with $13.4 million a year ago.

Moving to slide 8, we had approximately $119 million of excess availability under our revolving credit facility as of quarter end. The combined debt balance of our mortgage in revolving credit agreement was $426.1, an increase of approximately $43 million from fourth quarter 2010. Net debt at the end of the first quarter was $383 million compared to $338 million in January 1st and was up approximately $53 million from a year ago.

Turning to slide 9, cash cycle days for the first quarter totaled 55. That compares with 52 days for the fourth quarter of 2010 and 49 days compared to the same period a year ago. The increase in cash cycle days is a result of strategic inventory investments and support of national program business. We continue to balance inventory levels with the weakening demand environment but also continuing to support new products and vendors as part of our focus on specialty product growth.

That concludes my prepared remarks. Now, let me turn the call back over to George.

George Judd

Thanks, Doug. BlueLinx’s first quarter operational performance was impacted by the continued difficult conditions of the housing and construction markets. Discontinuation of the first time homebuyer tax credit which benefited the prior year quarter and extreme winter weather conditions. In the first three months 2011, unadjusted starts totaled just a 121,000 which were 13,300 starts below last year, decline of 9.9%.

Single family starts totaled just 89,900 units compared to a 114,300 last year, a decline of 21.3%. Both double starts and single family starts for March are up over February but still we are below March 2010. March 2011, was the second slowest March on record, only March 2009 with a space of 520,000 starts was lower in terms of residential construction.

First time homebuyer tax credit are official stimulated home buying and renovation in the first quarter 2010. The first quarter of 2011 started very slowly and significantly impacted by the severe winter weather. Well, we often face challenging weather conditions in the first quarter, this year, the weather was more severe and affected us in markets where it’s usually not an issue. Against this backdrop, our structural business unit volume declined 25.2%, our lower margin OSP business declined more than our other wood based structural business as we focused our selling efforts on more profitable product lines.

Our same number of volumes were down more than we expected as we are overly aggressive and managing for positive contribution dollars. We sacrificed the volume for margins during the quarter to achieve 10.7% overall structural margins, consistent with prior year quarter when prices were increasing and margins were expanding.

In our specialty business, we saw unit volume growth in the product lines, we have strategic growth initiatives, we grew our outdoor living product category which includes decking and railing products, our metal business installation, and starting a trim business is also expanded during the quarter.

Gross margins for specialty products were pressured during the quarter as a result of channel mix and a highly competitive market, gross margins of 13.8% were down over the prior year quarter by 60 basis points.

Looking at our operating expenses, on a quarter-over-quarter comparative basis, we again demonstrated our ability to control cost as total operating expenses were down excluding the impact of real estate gains. As we move forward in 2011, we remain focused on providing dependable high quality service to our customers as the home construction industry will situate back to a normalized level. We expect our business rise in new home construction remain challenging for much of 2011, as housing slowly recovers. We continue to aggressively pursue our long term strategic objectives to profitably grow specialty product revenues to effectively manage our structural business and to possibly outgrow the market over the long term.

While the industry works its way through this historic housing correction, we’re encouraged by certain economic forecasters who point to a favorable longer term outlook for household creation and new home construction. Strategically, our shift to specialty products remains our number one strategic initiatives as we move forward during 2011. We intend to proceed as the market leader operating at national, nationwide business platform that we believe is unique and compelling.

With that I would like to open the call to questions. Operator, will you please instruct everyone on how to ask questions?

Questions-and-Answers Session

Operator

(Operator Instructions) Our first question comes from Steve Chercover with D.A. Davidson.

Steve Chercover – D. A. Davidson

Good morning, everyone. I have just three quick questions please. I can’t ask the questions that everyone ask. So, with your revenues down 9% versus single family homes, which were down 21%, do you believe you are gaining any share towards?

Douglas Goforth

Yeah, first of all good morning, Steve and thanks for understanding on the questions that you really want to ask, but yeah, I mean, it’s small share growth and its regional so there is market that are – that we were performing better, you know, and it’s one part to tell the story, so 21%, revenues down 9%, does that mean we grew 12% market share, I wouldn’t be so bold to say that, but it means that we are expanding our share.

Steve Chercover – D. A. Davidson

Well, could tell us which markets were performing really well and which has disappointed you?

George Judd

Well, we are performing stronger in the North East, in north kind of Pittsburg, Ohio those kind of markets, we are outgrowing the market substantially there, we are outgrowing the market in the Carolinas, I explained that California continues to be a struggle for us and in Pacific North West. No, recently we have made inroads during certainly January and February we have been gaining the share.

Steve Chercover – D. A. Davidson

Great. And then are there any specialty products lines that particularly excite you for the long term?

George Judd

Yeah, in our global source product, so we have a focus on growing products that have shifted their production from North America to Asia and South America and we’ve invested a lot of time and money for the last two years on expanding our abilities to source those products and move them across the oceans and to the ports and across our distribution network and we’re starting to see great results from those products like that would be in a real high end specialty products like railing components and kits and our metal business is expanding, a lot of our exterior trims and citing products, so as products have migrated offshore wishing our growth accelerate.

Steve Chercover – D. A. Davidson

Okay, and finally you indicated at one stage that you thought you could leverage your distribution network and your fleet of trucks to service, I guess, external businesses, but they were similar and need the same kind of logistic services, any progressive report on that front?

George Judd

Yeah, when we’ve got in some businesses that are starting to show some traction and a lot of those are changing space to us and really our strategy as we have this, you know, the business that were in, the products that were in, and the customers that we serve and then to grow our, spend our growth time in growing our share and those products intend to grow in tangent customers and in tangent space. So, example of tangent space of product would be outdoor living. We use to do decking, wood decking and some railings and things, but we really expanded that product line and now we are doing things like fire pits and the metal that goes inside the fire pits and the stone and that used to build fire pits, things like to go along with an expanding outdoor living strategy, that we used to not sell, when we get into that business it get us into tangent customers because we didn’t use to sell the landscape kind of supply yards. Now, we are opening up landscape supply yards. So, the two strategy is both to expand customers and product lines, end up connecting back together again and we are seeing some good traction there.

And another area to focus on for us has been, what we call specialty distributors, there are folks that supply roofing contractors or sighting contractors and there are group of customers that are different and traditionally, you know, back in 2005 our core customer for Love (ph) yards. So, we spend a lot of time and resources on developing relationships and product offerings that allow us to penetrate that specialty distributor class customer and we have made great progress there and that gets us into some new product lines and they will say, you are coming to us, can you do this? And a lot of that trimming, expanding sighting offerings and we are seeing some good growth there.

Steve Chercover – D. A. Davidson

Very good. Well, I guess, I wish you good luck in both your financing and to your Boston Brunch.

George Judd

There you go, how about that – last year.

Steve Chercover – D. A. Davidson

Yeah, let’s hope. Thanks.

George Judd

Thank you.

Douglas Goforth

Thanks, Dave.

Operator

At this time there are no further questions. I would like to turn the call back over to Mr. George for any closing remarks.

George Judd

Thank you all for joining us this morning and we look forward to speaking with you next quarter.

Operator

This does conclude today’s conference call. You may now disconnect.

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