Caroline Lowden - Investor Relations Mitch Lewis - President and Chief Executive Officer Susan O'Farrell - Chief Financial Officer.

Tristan Thomas - Sidoti & Company Mark Kaufman - LPS Partners Alan Weber - Robotti & Co. Joe Jolson - Harvest Capital.

Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx First Quarter 2015 Earnings 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 session.

[Operator Instructions] Thank you. I will now turn the call over to Ms. Caroline Lowden..

Thank you, Christy, and good morning everyone. Thank you for joining us for the BlueLinx first quarter 2015 earnings conference call. This call is being webcast on the company's web site 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 web site.

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 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 includes references to non-GAAP financial measures. A reconciliation of these to the most comparable GAAP measure is included as an appendix and is posted on our web site at bluelinxco.com. With that, I'll turn the call over to Mitch..

Thanks Caroline, and good morning. I would like to talk briefly about the highlights of our first quarter and what we are currently seeing in our markets and then I will turn it over to Susan, who will walk you through our financials in more detail.

As you are likely aware, the first quarter is typically a challenging quarter for BlueLinx in light of the seasonality of our business. This year, we got off to a great start in January and then saw the market momentum decline in February and March.

Our volume correlated closely to single-family housing starts, which were up in January, basically flat in February and down about 4% in March. We ended up the quarter with our unit volume increasing 2.9% compared to the first quarter in 2014, which was pretty much in line with the modest increase in single-family housing starts.

We believe the volume increase we experienced bodes well for future market share gain as we remain focused on closely evaluating the contribution margin for our products and markets, which, of course, means that we are no longer chasing business that is not incrementally profitable for BlueLinx.

Our adjusted EBITDA in Q1 of $400,000 was actually not a bad start to the year.

Due to our market seasonality, this modest performance was still only just the second time in the last eight years that we’ve enjoyed positive adjusted EBITDA in the first quarter, and the start could've been much better without the decline in many of our commodity prices during the quarter led by lumber.

The composite lumber index fell by around 10% from December's levels. This steady decline in our commodity products in the first quarter appears to have impacted the gross margins in our structural segment by 1% from 2014 levels. This equates to approximately $1.9 million in additional EBITDA.

The good news is the BlueLinx team expertly managed both our structural inventory and margins as we continue to enjoy incremental profitability in these products during the first quarter. Our specialty segment continued its solid performance as well as we increased our volumes while maintaining our gross margin levels.

Our gross profit and specialty products was up $1.3 million compared to 2014, several product categories within our specialty segment performed very well in the first quarter. This reflects the emphasis we now have on driving share gain in our local markets. One product category that did struggle for the quarter was in the roofing market.

As many of you may have heard in the last few weeks from several roofing manufacturers, they had a tough start to the year. We were no exception to that trend as roofing products impacted specialty sales by over 1% and our specialty gross margins by 1.3%.

The good news is that even with the roofing headwinds, our specialty gross profits still improved during the quarter by 4% from 2014 levels. We previously discussed that we made the decision in the second half of 2014 to move our sales and management leaders closer to our local markets.

We remain confident that embedding our leaders close to the markets we serve will add more value to both our customer and supplier base as we identify and quickly react to local market requirements.

In fact, we ran some analytics on our first quarter results to reconfirm this assumption and found that those facilities whose general managers were focused on one geographical territory and in the local market typically outperformed our other facilities. So we continue to rapidly move forward with this initiative.

By the end of the summer, we should have only five of our general managers for our 48 distribution facilities located at our headquarters in Atlanta. This has been a large transformational shift for BlueLinx and we are confident it will pay dividends in the months ahead. We also continue to invest in the future of BlueLinx.

We have invested $2.4 million in capital over the last three months for new tractors, the new tablet-based sales information platform for outside sales representatives, and the successful rollout of the new phone system that provides comprehensive analytics on sales calls, as well as the network backup for each BlueLinx location.

These investments continue to support our current operating environment while creating flexibility to offer increasing levels of products and service as we grow our business in the months ahead.

Susan will discuss in more detail our capital market activities as well as our cash flow initiatives, but rest assured we remain focused on managing our working capital to improve the liquidity of the business.

We brought in a sales, operational and inventory planning leader to help drive our improvement in inventory management, and we continue to explore alternatives for realizing the significant untapped value we have in our real estate portfolio to provide sufficient liquidity for our business growth in the years ahead.

Before I turn it over to Susan, I would like to briefly discuss what we are currently seeing in our markets. As I mentioned previously, the single-family housing market did not get off to a robust start in 2015. A 4.4% gain is not bad, but remain significantly below the estimates most market experts continue to project for our industry.

Single-family housing starts would have to increase from 2014 levels by approximately 42% to reach the lowest average decade since the Census Bureau began publishing data in the late 1950s.

42% growth to only hit the average for the worst decade in the past half-century is tremendous upside, and it's one of the many reasons we remain optimistic about the future of BlueLinx. And our customers share this optimism.

The muted growth the industry experienced in the first quarter has not diminished our customers' enthusiasm for a strong second half of 2015. The general sentiment is that the inclement weather we saw in February and March across many areas of the country has merely pushed back the building season.

It also appears that increased inventory levels at many of our customers in the first quarter are now diminishing as well. So, as you would expect, we have recently seen momentum in our volumes compared to first quarter levels. And yet our team understands that the opportunity of BlueLinx is not reliant on our end markets.

We have the scale, resources and talent to take advantage of the fragmentation among our competitors and grow our market share in the building products wholesale distribution industry. And that's exactly what we we're going to do. And now, I would like to turn it over to Susan who will discuss our financial performance with you in more detail..

Thank you, Mitch, and good morning, everyone. It's a pleasure to speak to you today about our business as well as our first quarter results. As Mitch already highlighted, inclement weather along with the following commodity market put pressure on our business. We were pleased to see revenues grow across the business, even with this tough weather.

While single-family housing starts compared to last year decelerated at the end of the first quarter, we still saw growth of 2.5% overall. We are encouraged with these results when compared to the prior period and want to thank our associates for their continued dedication to outstanding customer service.

Moving to slide 10, we will take a look at our revenues and profitability for the quarter. Revenue for the first quarter ended April 04, 2015 was $454.9 million, up $11 million or approximately 2.5% compared to the first quarter 2014 revenue of $443.9 million.

The increase year-over-year was driven by increased sales volumes in both specialty and structural product categories. Our structural products had increased volumes in lumber and OSB, partially offset by selling prices in the falling commodity market over the quarter. Further, specialty product volumes increased year-over-year.

Customer demand for exterior siding and trim was especially strong, along with engineered lumber products. We were also up in specialty lumber led by our decking products, and metal products also are a notable mention. Gross product for the first quarter was $50.2 million compared to $53.7 million in the first quarter of 2014.

Gross margin for the quarter was 11% and was impacted primarily by two major product categories. Mitch discussed earlier the impact of falling commodity prices which account for about 75% of the gross profit decline.

In addition, there were no typical winter buys this year in categories such as roofing that contributed to the remainder of the change year-over-year. We are very encouraged that our specialty products maintained their margin level even in the face of challenging end markets.

Our net loss was $8.9 million for the first quarter 2015 compared to $8.6 million in the prior year. On a comparison basis, the first quarter 2014 benefited from a gain from the sale of properties of $200,000. Finally, adjusted EBITDA was $400,000 compared to $1 million in the first quarter of 2014.

On slide 11, our operating expenses in the first quarter were $52.3 million compared to $54.3 million for the same period a year ago. The decrease of $2 million or 3.7% is primarily related to decreases in selling, general and administrative expenses.

Overall, logistics costs were down approximately 3.6%, a nice improvement since our sales and unit volumes were up this quarter. Within logistics expenses, fuel costs were down by $1.4 million, which is primarily achieved through lower fuel prices.

We continue to focus on expense control with headcount efficiencies achieved particularly in our back-office support function. Moving on to discuss our debt structure on slide 12, as you recall, we successfully extended our $467.5 million asset-based loan facility in February.

As of quarter end, we have $78.4 million of excess availability, which is a $19 million increase from year end. As we look ahead, the refinancing of our existing mortgage is an important next step. The value of our real estate as appraised in 2006 was approximately $322 million.

Over the past nine years, as we've sold properties, we have found the appraisals to hold up well. As a matter of fact, the cumulative sale prices were about 15% above the previous appraised value.

We are confident that the mortgage balance of $169 million, including our prepaid principal as of April 4, 2015 represents a significant amount of value still available to unlock.

We are currently assessing alternatives for the replacement of our real estate financing with the intent of reducing our ABL balance to provide an increased capacity to grow our markets as the markets recover in the months ahead. We look forward to sharing more with you on the status of our mortgage in the near future.

Turning to cash flow on slide 13, our cash usage improved by $8.6 million compared to last quarter. The decrease in cash used was mainly driven by improvements in accounts receivable, and we maintain a high quality of receivables too with strong currency and low write-offs.

Even still we have been able to increase our inventory position for the spring season. We are ready for anticipated strong customer demand. In total, our working capital is down $6 million versus the end of the first quarter 2014. As we wrap up our prepared comments on this call, I reflect back on the past year.

As of this month, I have now been with BlueLinx for almost a full year. I'm proud to be part of such an energetic and professional team. I am pleased with the improvements we've been able to make in our business, yet know we have so much more work ahead of us. We are working on the building blocks for our future and are encouraged for what lies ahead.

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

[Operator Instructions] Your first question comes from the line of Tristan Thomas, Sidoti & Company..

Hi, Lewis..

Good morning ,Tristan..

A couple of questions.

When you mentioned the $2.4 million, how much additional do think you're going to spend in 2015, or is that enough for now?.

So, Tristan, as we are looking at that, we continue to invest in our tractor replacement program as we look at capital leases there. What we found is in the past, we didn’t think necessarily it’s the right thing to do, but actually what we find is over time these are actually more fuel-efficient.

So we actually go from, let’s say, six miles a gallon to – we get an additional mile per gallon better mileage. So we actually go cash flow neutral to positive as we look at replacing the tractors. So we will be replacing tractors periodically throughout the year. So we'll continue that program..

Yes. I wouldn’t expect to see significant increases in capital from what we've experienced in the past..

Okay. But then internally with things such as the phone and tablet, that's effectively you have enough, I guess, technology in everyone's hands to kind of – now the next step is kind of maximizing its use.

Is that accurate?.

Yes, exactly. We don’t have anticipate any expensive IT information system computer capital expenditures like we've had..

Okay.

Can you just maybe when you mentioned the GMs that are in local markets on focus or outperforming, those are the ones that aren't, is there any way you can maybe quantify that?.

No, the answer to that question is, no. I could. It is a lot of detail and I saw, in fact, a scatter chart just recently that demonstrated that clearly, but I don't have the absolute dollars. But we basically looked at performance quarter-over-quarter and saw clear statistical correlation to that.

But I don't have the exact numbers I can give you for that..

Okay. But many benefits add response time. I'm just curious if you're seeing increased share, maybe you're just maintaining....

Yes, exactly. It enables us to focus on the right products in the particular market. It enables us to grow share as we are in front of the customers, our leaders are in front of the customers. It enables them to be nimble, making decisions so we can react quickly from a trend standpoint and so all of those are values.

And, of course, when you think about it, we had roughly half of our GMs in Atlanta just a couple years ago. When you think about how much time that takes just being in the corporate office and all the questions that are there and the meetings and so forth, we have people out in the field now focused on our customers..

Okay. Can you maybe just reiterate when you said the housing market would have to grow 42% over the next nine months of 2015. That would be to reach the lowest average in decade or – I'm sorry [indiscernible] that..

Yes, that’s exactly right. And to be clear, if I in any way tried to indicate that we think that's going to happen, that is not the case..

Okay..

We don't think it's [indiscernible] over the next nine months.

The point was simply when you look at the statistics and why the economists and industry experts continue to think that there's so much opportunity for BlueLinx in the industry, because, as you know, we are highly correlated to single-family housing starts, is just the historical relationship between where we are today and where we were.

And that statistic, again, is going back and looking at any decade period. So the decade I believe was 1960s, 1960 to 1969 and you took the average, right and that was the lowest decade that we've had. And we would have to grow from 2014 levels by 42% to get back to the average of the 1960s, which was the lowest since 1950s..

Got you.

But you did say that in April you began to see basically some kind of delayed demand from February to March, customers were a little more proactive in terms of buying than maybe they were in 2014, so it's accurate?.

Yes, we are seeing momentum. No doubt about that. And just my experience with being in front of many customers over the last 30 days I mean everybody – not everybody – but it is a very consistent theme that the expectations for the rest of the year are very positive.

And our customer base talks about the fact that they got a little bit caught off guard with a decline in March, generally, which impacted their inventories, which actually have to flow through the system before we can see the benefit of that. But the sentiment from our customer base is very optimistic. It remains very optimistic..

Okay.

Can you maybe provide just a little commentary on what in their eyes they are kind of expecting in terms of commodity pricing, what you're looking for the rest of the year? Do you think maybe we're going to decline more?.

I challenged our teams, because, as you probably know, we have 40 to 50 commodity experts throughout the organization. And I would say if they know where commodities are going or doing their job, they have got to leverage everything they have and go be a billionaire in an island somewhere.

So I'm reluctant to tell you where I think it's going to go just because I know enough to know that I don't know. Generally, what the experts internally are saying is they feel like it's flattening out.

And there is some – there obviously is a lot – it's a macro supply and demand issue, but there's a lot of belief internally that the strength of the dollar might be impacting this, as well as you are driving imports into the marketplace. Historical export opportunities from domestic manufacturers don't have the same opportunity that they have.

So you're not moving internal U.S. demand outside the country, and because of the strength of the dollar and we are seeing this, suppliers who weren't interested in the U.S. markets are not going to make phone calls to us, and I'm sure to other people in the industry, to try to get products in.

So the strength of the dollar is definitely having an impact, we believe it's having an impact..

Yes. Just one final question regarding mortgage, I mean you’ve been talking about it for a while.

What kind of I guess the moving parts involved is something where you're looking to refinance that unlocked value and effectively transition into an addition to either ABL or another credit facility?.

Yes. So the intent of – and we have some alternatives on the real estate, in what we ultimately do is to take any excess principle that we get and pay down the ABL. And the intent of that is to fund the working capital for the growth that we expect to see in the company. So that – as you know, we extended the ABL first quarter.

So that obviously gives us significant latitude, and we certainly appreciate the continued support from our lending group to do that. And so the intent here is just to give us more flexibility going forward, and that's what we are looking at..

Yes, great. Thank you guys..

Sure..

And your next comes from the line of Mark Kaufman, LPS Partners..

Good morning. I have a question, more broader question. Builders FirstSource buying ProBuild or merging with ProBuild and their argument about the cost savings that they will be able to pull into the business, it's not clear whether they're going to be reinvesting it in margin or just trying to bring it to the bottom line.

But it brings up a question that I've heard on other calls of other competitors, thinking about the business is really a regional business, and I think in past calls you've made that point as well.

So I just wonder if you could comment on the industry, are there really those types, or do you see those types of aggregate opportunities versus keeping that focus on the regionality of the business?.

Yes. So, for one, you should know of course that ProBuild and BFS are two large customers of ours. They clearly are going to challenge to integrate the businesses together, and that will be a significant focus of what they try to do.

The opportunities as far as my view as far as they may have on a national basis is continued alignment with the national builders, and it will force more of a centralization with the national builders than may have existed historically.

So there will have to be a continued shift to try to induce the national builders to force their regions to act on a centralized platform. So the two I think have to go hand-in-hand. As far as taking costs out of the channel, from our perspective, we actually view this as a very good thing for the market and a good thing for BlueLinx.

For one with what will likely be a tumultuous situation for two to three years, we think we add more value in the process, and as you know, manufacturers typically have a lot more incremental margin than wholesale distributors, we’re squeezing for every margin dollar.

So the cost savings and I'll certainly defer to their expertise and what they are planning to do from a cost savings standpoint. But we view that it is generally a good thing for BlueLinx, and what will likely happen with the synergies that they're going to have is they are going to close down facilities that will displace people in the marketplace.

There has been some dialogue about whether it actually will create some independent lumber yards as well..

Interesting. And on that perspective or the idea that their – you call it the centralization, I was thinking about the regionalization of the business, how obviously the weather affected things in the first quarter, looking at some other competitors where the results were slightly better, but they had a different footprint than yours.

I was wondering if you could just give us a little more granularity on where the weakness lied for you. I imagine certainly more in the Northeast than in the Southeast and West..

Yes. As you look at the first quarter of single-unit housing starts from the census, the West actually was up 9% and the Northeast was down 13%. If you look at BlueLinx, our strength is certainly more in the Northeast than the West. As you know, we exited some facilities in 2013.

And so just that, if you had shifted those 2 percentages, it would have made a significant difference to the performance of BlueLinx in the first quarter.

The regional aspect of the business certainly impacts us and as you would expect we are looking closely at how we are performing in individual facilities and regions relative to what the market is doing..

If you raise additional dollars from a new ABL or new mortgage or whatever the case may be, or financing for the real estate, would you consider using the cash, you say growth not just a high revolver leveraging your existing footprint, but taking the opportunity to make additions to the footprint?.

Yes. It’s not high on our radar right now. Our market share, as we talked about before, and one thing that has surprised me the most about this business is just how fragmented it is. So our market share remains – we estimate very low. It's well under 10% market share across the country, and generally that's the case in the facilities that we have.

So we are really trying to focus on opportunities that are local and relatively easy. It's a lot easier to do a better job from an operational standpoint, from a sales standpoint where you already have a footprint and a presence to go invest in new capital and try to expand the footprint.

So we have so much potential of running our business better the way it is currently constructed to take our eye off the ball I think would be a mistake..

Thanks very much..

Sure..

Your next question comes from the line of Alan Weber, Robotti & Co..

Good morning.

Just kind of as a follow-up, as the ProBuild, that merger takes place, can you talk – not just in short term, these integration issues, but longer-term can you talk about from your perspective where the two-step distributor fit into that model and what risk you see from that kind of consolidation?.

Yes, sure. I would start and say that, as I mentioned, there are a large customer of ours. So you got a 5 billion-ish company and 2 billion-ish company that we still sell a lot too, right. And so what happens is they generally tend to focus big product categories with big builders, and it's what they're very good at.

So a wholesale distributor has tremendous opportunity as we realize now with these great customers of ours in selling products that they aren't focused on a national basis, and probably won’t be focused on a national basis because of regional differences for those product categories.

So whereas we are not necessarily going to be a high percentage of the commodity business and currently aren’t for these customers. We still offer tremendous opportunity to JIT products for them that are not material on a – not necessarily material relative to the other big movers on a consolidated basis.

So that’s the space, that’s the opportunity, that’s what we do now and we do it effectively..

Okay. And then the other general question, you talk a lot about kind of – over the last year or so kind of decentralizing the company, and you talked about the general managers being in the field.

Can you talk about in general, how far along in that process you are, and how much more there is to go? Like that?.

Yes. I would – it’s a baseball game and we are not going to extra innings, we are maybe in the bottom of the second inning. We’ve made a lot of changes with people by putting them in particular territories. So if you look from a year ago, there are definitely some changes in folks. So some of those people are starting to just get their legs under them.

We continue to elevate the training that we have. One of the things, for example, prior to last year, we didn't even have our general managers I think it was like five or six years come together, at least once a year, to have discussions, to have training, to share best practices. So those kind of things are happening.

So this past January, for example, we brought in our key supply base and offered them the opportunity to sit down with the general managers. At a local level, we actually had a Round Robin full-day session where they got to pick and choose who they were with and spent time to help facilitate the strength of that relationship from a supply standpoint.

So we have pretty much the structure I feel is getting close to being in place. The real opportunity and the benefit that we’re going to see I think is just beginning, is just starting..

Okay.

When you show the SG&A is lower, is it lower because you're taking costs out or lower because you are more focused on more profitable business that has less expense against it?.

We are certainly looking at total variable contribution margin, which is a key focus that we've been looking at. So I would say there is a component to that. Additionally, though, certainly in back-office functions, we are trying to make sure we are more efficient. We went through a restructuring a while back.

We have maintained to keep this cost out of the business, but additionally we are looking at all costs as you might imagine and making sure we stayed lean and actually we’ve been able to reduce headcount throughout the organization, but specifically in back-office functions, you want to make sure we are customer facing, that we are taking care of those positions and supporting those positions.

But through enablement on ways to ways to have more efficient processes in the back office. So that's a key focus too, but certainly looking at variable contribution margin as an important component to that..

It’s tough to bifurcate the two, right.

If you're making a decision, for example, with GPS phone that is very lightweight that has high gross margins but you are driving at 200 miles, the decision to stop driving it was the low gross margin on that, a low relative contribution margin on that truck is both a margin dialogue as well as an operational dialogue.

So by stopping doing that or changing doing that or influencing your pricing, it ultimately will impact both..

Okay, great. Thank you very much..

Your next question comes from the line of Joe Jolson with Harvest Capital..

Actually a much better first quarter result than I was fearing given all the closure days in some of your markets. So congratulations on that..

Thank you..

Most of my questions were asked and answered, but I noticed a body language difference in your prepared remarks on just the real estate situation and the refinance of the mortgage debt, which is good to hear. But since that debt becomes short-term, I think it becomes a current debt pretty soon.

Is there some thought that there could be a positive announcement there by, say, early summer? Is that kind of the timeframe?.

Joe, I would answer that, but we are not going to give guidance on that. I think as we’ve talked about before, we still like we have alternatives. We are confident obviously with the performance of the business going forward and we have significant value in real estate.

The timing is something we just have to look at closely, because of the potential cost – higher cost by putting something in place before the end of the year. So we are weighing our options, we will continue to weigh our options and we will announce it to the public just as quickly as we can..

Was this – since you are active looking at it, I assume you have some sense of kind of the interest rate within 25 basis points or 50 basis points compared to what you're paying right now.

What does that look like?.

Actually until we would have any kind of contractual agreement with any potential vendor, we really can comment to that and we are not at that position today..

Okay. Anyway, congrats on the good first quarter and look forward to hearing how the builder seasonal quarter looks coming up in a few months. Thank you..

Thank you, Joe..

[Operator Instructions] Okay, there are no questions from the phone lines at this time..

Okay. Thanks, Christy. Thanks for your time today and of course your continued interest in BlueLinx. And we look forward to sharing our progress with you in the months ahead. Have a great day..

Thank you for participating in today’s call. You may now disconnect..