Maryon Davis - Director Finance & IR
Doug Goforth - SVP, CFO & Treasurer
George Judd - CEO & President
BlueLinx Holdings, Inc. (BXC) Q2 2012 Earnings Conference Call August 2, 2012 10:00 AM ET
Good morning. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx’s second 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 conference is being recorded, today, Thursday August 2, 2012. Thank you.
I would now like to introduce Maryon Davis with BlueLinx’s. Ms. Davis, you may begin your conference.
Thank you, welcome everyone to the BlueLinx’s second quarter 2012 conference call. Our speakers this morning are George Judd, Chief Executive Officer and Doug Goforth, Chief Financial Officer. Doug will begin today's presentations with a review of the quarterly results. Then George will provide an operations review of the quarter and add a final perspective before opening the call to your questions. 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 result 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 view them during our remarks. Additionally, the slide package contains an appendix of supplementary tables available for your review.
Now, I would like to turn the call over to our Chief Financial Officer, Doug Goforth.
Thanks, Maryon. Good morning everyone and thank you for joining us today. I will start our review in our some the highlights for the quarter followed by a more in-depth review of the financial statements.
Today, we reported a GAAP net loss of $3.7 million or $0.06 per diluted share on revenue of $517 million. That compares to a GAAP net loss of $9.8 million or $0.31 per diluted share on revenue of $500.8 million in the second quarter of last year.
As a reminder, we successfully completed a $60 million rights offerings which resulted in the issuance of approximately 28.6 million additional shares in the third quarter of 2011. Total diluted weighted average number of common shares outstanding at the end of the second quarter of 2012 was $60.1 million compared to $31.1 million diluted weighted average common shares in the year-ago period.
During the quarter we used approximately $22 million in cash for operations as second quarter working capital requirements increased approximately $31 million consistent with our cyclical business and the improving sales environment. We had approximately $105 million in excess availability at the end of the quarter with a cash balance of $5.2 million. Our net debt was $427 million, down approximately $3 million from a year ago. Now, for a closer look at the quarterly financial results. For those of you following along with the slides posted on the Investor Relation section of the BlueLinx website, I will begin with slide 5.
Overall sales for the second quarter ended June 30 totaled $517 million up 3.2% or $16.2 million from the second quarter of 2011. The increase reflects a 0.7% decrease in specialty product sales and a 12% increase in structural product sales from the year-ago period. Second quarter sales mix was impacted by increased structural product pricing compared to the year-ago period , the structural sales accounting for 41% and specialty sales accounting for 59% of total revenue during the quarter. The increase in total revenue is attributable to increased underlying product prices primarily in the structural product category.
Overall unit volume fell 1.3% compared to the same period a year ago and specialty unit volume decreased 2.3% and structural unit volume increased slightly during the quarter. New residential construction indicators continue to trend positively for the quarter. Actual total U.S. housing stocks increased 28.9% for the second quarter 2012 compared to the same period last year with single family stocks which represent our largest share, up 23.3%.
BlueLinx generated approximately 63 million in gross profit for the quarter, up 9.6% from approximately 58 million in the year-ago periods. Overall gross margin was 12.2% for the quarter, up from last year’s 11.5% due to our continued focus on margin expansions, rising product prices for many other products we distribute including key grades of wood based products, and growth in our other warehouse business.
Total operating expenses of $59.3 million for the second quarter were flat compared to the same period a year ago and included $0.5 million gains from property insurance settlement received in 2012. Excluding the insurance gain, operating expense increased approximately $0.4 million compared to the same period a year ago, even though unit volume through the warehouse channel increased 8.4% and accounted for 100% of the overall revenue increase. Our performance in this area demonstrates our ability to manage operating expenses as our business grows.
The company reported operating income for the second quarter of $3.9 million compared to an operating loss of $1.8 million in the prior year period reflecting a $5.5 million increase in gross profit. EBITDA profit of $6 million improved from $0.7 million profit in the second quarter of 2011 and reflects our ongoing commitment to margin expansion, cost management and operational efficiency. Our second quarter net loss of $3.7 million or $0.06 per diluted share compares with a net loss of $9.8 million or $0.31 per diluted share in the second quarter of 2011.
Our reported net loss for the period is after interest expense of $7.3 million compared to interest expense of $7.7 million in the prior year period. The current year net loss is after a tax provision of approximately 200,000 compared to a similar tax provision in the prior year period. Looking at year-to-date results from slide 6, sales for the six months ending June 30 totaled $970.7 million, up 8.9% from the same period last year.
Gross margin of 12.1% increased from 11.7% in the year-ago period. Year-to date reported operating expenses of approximately $118 million increased approximately $7 million from $111 million a year ago and included approximately $1 million in real estate, in insurance settlement gains in 2012 and approximately $7 million in real estate gains in 2011. The resulting operating loss of $0.2 million was largely driven by the improving but still historically low levels of housing demand. EBITDA increased $5.7 million over the prior year period due to the increase in gross profit, partially offset by real estate gains and operating expense increases. Including the impact of real estate gains in 2012 and 2011. EBITDA improved by $11.9 million. Year-to-date reported net loss of $14.7 million or $0.25 a share compares with a net loss of $22.1 million or $0.71 a year ago.
Turning to cash flow on slide 7, during the quarter we used approximately $22 million in cash from operating activities primarily reflecting seasonal increases and accounts receivable of 4.2 million inventory brief decreases to $14.9 million and net decreases and accounts payable and other items of $33 million. This compares with net cash use by operations of approximately $38 million in the second quarter of 2011. Cash provided by financing activities was approximately $21 million for the quarter driven by a $29.1 million increase in outstanding borrowings under our revolving credit facility. A $4.3 million decrease in bank overdrafts and a $2.7 million increase in restricted cash related to the mortgage, up $6 million principal repayment of the mortgage and $0.2 million usage from other items.
The resulting cash balance of June 30 was $5.2 million compared with a $6.1 million a year ago. For the first half of 2012 we used approximately $110 million of cash for operating activities compared to approximately $101 million in cash during the year ago period, primarily reflecting growth in our working capital investment.
Cash provided by financing activities during the first half of 2012 was $110.6 million, driven by $112.3 million increase in outstanding borrowings under our revolving debt facility, a $7.7 million mortgage principle repayment and $8.3 increase in bank overdrafts. This compares to approximately $89 million in cash provided by financing activities driven by a $91.7 million increase in borrowings, a $5.7 million increase in bank overdrafts and a $7.8 million increase in restricted cash related to the mortgage for the similar year ago period.
Moving to slide eight, excess availability increased approximately $11 million ending the quarter of approximately $105 million compared to $94 million a year ago. This is approximately $60 million above our minimum availability requirements as of June 30. Consistent with prior years, excess availability will likely tighten through the year end while our industry and our company continue to recover from this historic downturn. But we believe that the amounts available from our revolving credit facilities and other sources will be sufficient to fund our operations and capital requirements for the next 12 months. The combined debt balance on our mortgage and revolving credit agreements was $442.2 million, an increase of $28.4 million from the first quarter of 2012. Net debt at the end of the second quarter was $427 million compared to approximately $401 million at March 31, and was down approximately 3 million from a year ago.
Turning to slide nine, cash cycle days for the second quarter totaled 59. That compares with 57 days for the first quarter of 2011 and 58 days for the same period a year ago. Our performance in this area reflects our ability to manage our working capital risk by selling to the most profitable customers, keeping the right product on hand and paying our suppliers in a timely manner.
Let me wrap up our financial review by highlighting that. We narrowed our net loss for the quarter to $3.7 million by executing on our strategy to profitably grow our business as the residential construction market continues to gradually recover. This represents our best quarterly performance in two years. We remain focused on gross margin evidence by our ability to increase margins to 12.2% from 11.5% for the year ago period, well above historical levels. We managed cost very well as volumes increased to the warehouse channel holding flat to prior year levels. We generated an EBITDA profit of 6 million for the quarter, up $5.3 million from the year ago period. And finally we ended the quarter with approximately $105 million in excess liquidity under our revolving credit facilities. That concludes my remarks. Now let me turn the call over to George.
Thanks Doug. Good morning. BlueLinx’s second quarter results improved compared to a year ago and as the construction markets continue to recover and as we execute our plans return BlueLinx to profitability. I outlined on previous calls our plan to increase BlueLinx’s share with recovery market by executing targeted growth initiatives that focus on to specific markets, specific customers and value added products.
I have talked about our plan to grow these products while maintaining our price discipline, maintaining or growing our gross margin percentage and continuing our disciplined cost controls while optimizing our investment and working capital and providing our customers with premium service.
In the second quarter 2012, as we executed our strategy of controlled profitable growth we selectively managed topline revenue growth for profitability. We aggressively pursued targeted business opportunities that met our profitability goals during the quarter resulting in year-over-year growth in structural and specialty value added products.
We are disciplined with our revenue growth as we manage margins, inventories and credit risk in a recovering but still fragile housing market. We delivered strong margins in both product categories while keeping operating expenses flat compared to a year ago. As discussed on previous earnings calls in general we expect our structural business to strengthen earlier in the housing market recovery. Our customers rely on BlueLinx to support their inventory as the structural business expands. Our job is to manage this growth with a disciplined margin and inventory plan. We did a good job at this point of quarter. Structural sales grew by 12% and represented 41% of the total revenue. Structural gross margin was 9.5% for the quarter up from 8.1% a year ago. The revenue growth and margin improvement was driven by year-over-year firming trend and average benchmark wood based structural product prices which increased to approximately 27% compared to the second quarter of 2011 and a slight increase in unit volume. Certain strategic specialty products also grew during the quarter as we continued our focus on the value added products within the specialty product category. We face difficult year-over-year comparisons in our specialty business (inaudible) related demand experienced in the year ago quarter.
In addition, it is now apparent that the mild winter accelerated sales into the first quarter of 2012. Our strategy is to pursue revenue growth while expanding gross margin percentage. The quarter began with a strong sales pace, but slowed in May and early June and then started to rebound in the last two weeks of the quarter. Our customers controlled purchases as many product prices appeared to be near the top of the cycle as both our customers and BlueLinx managed to expose this price risk.
Our direct channel business slowed considerably during the quarter which had a particular impact on our structural business as our customers reduced order quantities and reduced larger direct purchases to manage risks as the market settles. I am pleased with the strong margin performance in the quarter and with the successful execution of our margin expansion strategy. We remained focused on achieving gross margins above historical levels through our ongoing management of product pricing and sales discipline.
Our second quarter gross margin percentage increased both across both product categories. I would have liked to have seen higher sales increases at our improved margin rate and we will work to deliver that improvement in the coming quarters. We continue to do a good job managing our expenses during the quarter as we have throughout this housing downturn. Even though, we shipped more products through the warehouse channel, logistics expenses were flat for the quarter compared to the same period last year and we continue to drive productivity improvements, to our focus on delivery expense while continuing to maintain our focus on all costs.
We generated $3.9 million on operating profit during the quarter compared to an operating loss of 1.8 million a year ago. This is the first operating profit since the second quarter of 2010. Our strategy of controlled growth and expenses with improved margin will continue to produce improved earnings for BlueLinx. I spent time over the last 3 months travelling with some of our outside field representative as I often do, talking and meeting with our customers and gaining an understanding of the local business conditions. Business is improving in almost all markets for our customers and for BlueLinx. There is renewed optimism, many of our markets is housing and residential construction leading indicators continue to trend positively. While we are still significantly below what I consider a healthy or normal market, we believe the combination of success execution of our strategy and the continued recovery of the housing instruction in construction markets. We will return BlueLinx profitability. I remain cautiously optimistic that the housing recovery is real and will continue to accelerate. With that I will open the call to questions, operator.
(Operator Instructions) There are no questions from the phone line.
Okay, we thank you all for joining us this quarter and look forward to talking to you next week.
This concludes today’s conference, you may now disconnect.