Caroline Lowden - IR Mitch Lewis - CEO Susan O'Farrell - CFO.

Mark Kaufman - LPS Partners.

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter Earnings Conference Call. [Operator Instructions]. Thank you. Ms. Caroline Lowden. You may begin your conference..

Thank you, Christy, and good morning everyone. Thank you for joining us for the BlueLinx second 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 website.

Joining us today on the call 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. Our second quarter began slowly due to the long winter and wet weather we experienced in certain areas of the country but we picked up momentum in June and ended the quarter with $2.9 million of net income.

Our revenue for the quarter was down modestly by 3% which was primarily attributable to two factors, first we had a reduction in structural pricing by approximately 6.5% due to the continued softness in underlying commodity prices.

In addition our outdoor living sales declined as the vendor began to directly sell products to the large home center [ph] customer that were previously supplied us. This intermediation had a meaningful impact for the quarter reducing our sales compared to last year by about 3%.

[Indiscernible] that the rest of the business helped to offset these costs and our operational and cost savings initiatives are paying dividends. So we ended the quarter with adjusted EBITDA of $9.8 million and positive net income.

We continue to make good progress in our strategy to add stronger local market presence and autonomy to the organization, it remains very clear that the national lumber yard market we serve is actually many micro markets with the same production techniques, product preferences and brand awareness.

To help facilitate our ability to react quickly to our customers' needs in these local markets in addition to the movement of most of our general -- to the markets we serve we also recently flattened the organizational structure of the business.

Our Regional Vice President is responsible for all of the company sales and local financial performance now report directly to me. This organizational change will facilitate driving profitable top line growth in addition to enabling the organizations to become more nimble in reacting to local market and customer needs.

We also have had solid progress in our operational initiatives over the last few months, as evidenced by our $4.3 million decline in SG&A cost compared to Q2 last year. We have instituted several lean and cost saving projects which have helped drive our operating cost as we continue to run the business more efficiently.

This includes closely monitoring our headcount which at the end of June was approximately 4% less than our 2014 levels. And at the same we continue to invest in the business for our future repurchase, 20 new tractors in the second quarter and should have an additional 40 vehicles in place by the end of the year.

These new tractors not only reduced the average life cycle of our consolidated rolling stock but also replaced over and fuel inefficient models.

In light of the relevant softness in our revenues during the second quarter we have challenged leadership team to improve our operating performance through the cost reduction and margin enhancement activities. And we have now identified specific opportunities to drive improved performance in these areas in the second half of the year.

Examples of initiatives we have instituted include moving to a less expensive and yet more comprehensive HR platform, consolidating facility MRO spend, managing our fleet maintenance internally and executing on recovery activities disrupting gross margin.

Today we still don’t see robust market conditions even with the 12% headline [indiscernible] starts figure for the quarter. I suspect you’ve heard similar comments during the second quarter earnings season from other suppliers participating in single family new construction market.

We’re still looking into the disconnect between single family housing starts and the lack of significant growth in our end markets but at first look we believe that the construction activity associated with our residential new construction products may have a delay cycle from initial starts as recorded by the Census Bureau.

We’re looking forward to the housing start numbers ultimately correlating to a similar demand in our markets and in the interim we will keep our focus on improving our operations as we drive market share growth by effectively serving our customers at the national and local level [indiscernible] for wholesale distribution team and the building products industry.

With that said, I would like to turn it over to Susan O'Farrell, who will provide more color on our financial performance..

Thank you, Mitch. Good morning everyone. It's a pleasure to speak to you today about our business as well as our second quarter results.

Moving on to results for the quarter, as Mitch mentioned second quarter got off to a slow start due to the wet weather in April and May in Texas and the North East and our results were due to Spring Building season delay. We did see an improvement in June and are looking ahead to the remaining months to build upon this momentum.

Moving to slide 9, we will take a look at our revenues and profitability for the quarter and year-to-date. Revenue for the first quarter ended July 4, 2015 was $515.7 million down $16 million or approximately 3% compared to the second quarter of 2014 revenue was $531.5 million.

This decrease year-over-year was driven by structural produce decreases of 6.5% offset by structural volume decrease of approximately 1% primarily in our lumber category.

While specialty product volumes decreased 1.3% year-over-year, customer demand for specialty lumber and our metal products were particularly strong, each was double digit volume growth this quarter. Our sales [indiscernible] category is up this quarter as well.

Gross profit for the first quarter is $60 million as compared to $62 million in the first quarter of 2014. Gross margin for the quarter was 11.63% relatively flat compared to the second quarter of 2014 gross margin of 11.67%.

Structural product margins were impacted by low commodity prices particularly [indiscernible], we’re very pleased to see a strongest margin growth category in category such as outdoor living, OSB, [indiscernible]. In June we saw margin pick up early in the quarter due largely for balance in lumber pricing specifically southern yellow pine and OSB.

Keep in mind however that commodity pricing is still below last year's level and we expect to remain it that way until the market is stabilized. Net income is $2.9 million in the second quarter of 2015 compared to $3.2 million in the prior year. That comparative basis for the second quarter 2014 benefited from a gain of sales probably to $5 million.

Finally adjusted EBITDA was $9.8 million compared to $10.6 million in the second quarter of last year. On slide 10, selling, general and administrative expenses were down $4.3 million or 7.7% in the quarter.

This demonstrates our commitment to operational efficiency as well as our disciplined approach to withdrawing profits within our control particularly in a quarter that continues commodity pricing impact as well as the extended cold and wet weather in some regions of the country.

Specifically our logistics comps were down 1.6% in the quarter that saw a upsales of 73% of total revenue, the highest percentage in our history.

These were achieved of wide variety of key expense savings in the company, continued benefits from our lower fuel cost and addition to the lower overall fleet maintenance also drove a large portion of the savings.

Additional we are anniversarying restructuring cost from last year and finally as lower cost of sales related cost as of lower cost of other areas of business such as professional fees. Moving on to discussion of our debt structure on slide 11, I would like to provide an update on the status of our mortgage.

We’re actively evaluating refinancing options for our mortgage as we move this process we must be thoughtful about the timing of any action as it relates to our fixed penalty our existing mortgage. This penalty is approximately $1 million from the month of end of December 2015.

We’re focused on entering into an arrangement that both strengthens our business and allows us to minimize the prepayment penalty. As a reminder we successfully extended our 467.5 million asset based loan facility in February.

The appraised value of our property as of 2006 was approximately $320 million while our outstanding mortgage balance as of July 4, 2015 were $165 million or $4.2 million cash trend. Finally as of quarter end we have $65 million of excess availability which is a $5 million increase from year-end.

Turning to cash flow on slide 12, our year-to-date operating cash usage improved by $22.1 million compared to year-to-date last year. The decrease in cash used primarily reflected the different inventory positions as of the beginning of 2014 compared to 2015.

We had more inventory on hand at the end of 2014 and purchased less in the first six months of 2015 than we did in prior year. In total our working capital on a trailing 12 month basis was down 4 million versus the second quarter of 2014.

In closing, I want to thank the team and folks that we have in place here at BlueLinx, in a challenging quarter our team has focused on our operational initiatives and continuous improvement. So my heartfelt thanks to our customers, suppliers and associates who work together to build a bright future. That concludes my remarks.

And with that Brandy we would like to open the line to any questions that we might have..

[Operator Instructions]. Your first question comes from the line of Mark Kaufman..

I just had a question a reflection on the move toward the regionalization of decision making on sales and how you feel that has played out over the last year?.

Yes, so we really began in earnest Mark in the beginning of the fourth quarter of last year, and so we have -- we move people and certainly hire people put them locally in the marketplace.

About the cultural shift for the organization but I'm feel really good about the momentum that we have, clearly, the leaders that we have, the sales team that we have out in the field are involved and enthused about the ability to make decisions locally and to see the organization to get it to more places as we react to what the demand of the customers and markets are.

So when I personally talk to customers without exception they said this is the right move that should have taken place long time ago and beginning to showcase the company..

Do you feel there are any other competitive pressures out there? I know your end markets are consolidating..

Yes they are particularly if you look at the national dealers there is consolidation that has taken place certainly this year. Maybe that actually short term probably opportunity for the company as those businesses will likely be very engaged in the consolidation of the businesses.

We have great relationships and so given products really all four of those that have consolidations this year.

So what we continue to do and before with the company is focusing on those relationships that wholesale distribution adds value and of course when you look at the consolidation for these dealers they are not able to carry inventory for everyone, I don’t know if they want but we provide the value of service available to lower inventory levels [Technical Difficulty] to give them more access to the products to the whole customer base.

I think we’re clearly watching it closely, we’re working strategies to have multi-tier connection points and touch points with our customer base as they consolidate but long term we strongly believe that there is a place for wholesale distribution and that that will continue for years to go..

[Operator Instructions]. Your next question is a follow-up from the line of Mark Kaufman..

I’ve a question about the mortgage coming up.

Is your idea that the refinance six months, four months from now and that frees up more availability under the revolving credit facility or are you thinking about something potentially larger demand?.

Mark, the mortgage is due July next year and under our revolver and we have sometimes when we want to prepay it certainly we want to refinance it before then. The prepayment penalty expires December 31, so there is a variety of different toll-gates and tax frames that we’re working through as we look at the refinancing.

So December 31, is just one of the variety of timeframe if you look at but the mortgage is actually due July, 2016. So that’s one of the components that we’re looking at as well as the prepayment penalty. So you might actually see there are a variety of factors that we’re looking at it as we look at that.

But certainly we believe there is value to unlock as we look at refinancing that and we want to make sure we’re responsible as we do that so we create that value, but the intent is certainly to invest that back in the business and make it so we have more availability under the revolver to continue to grow the business and support that business.

So it would be going into the revolver in the [indiscernible]..

If you could, can you give me any kind of range where the mortgage rates are or distribution facilities these days? Or cap rates?.

I think it really varies on a variety of different structures. If you look at you might imagine we will look at different things as far as the principle that we want to get as well as the flexibility on how we get it out of it and so all those different things have different rights to go along with it.

So it depends on the combination of flexibility proceeds, a variety of things to go with that. So it will be premature to give you color on that yet but will be glad to share that with you as soon as we have it..

Mark, as you would imagine I mean if you want just specifically we try to evaluate the cap rate.

With the number of facilities we have across the country and different locations now within specific areas you know the value for each property is widely dispersed and so you really have to look at the business on a consolidated basis if you look at specifically at 4A real estate type lending facility..

And if I can since no one else is asking it, so how does the third quarter look the other distribution companies or lumber yards are saying that they are seeing a pick up here in July, that carrying forward from what was happening in June and I was wondering if you were seeing any of that?.

I'm sure you may be aware that we generally don’t give forward guidance on what's happening in the marketplace. I had a feeling you might have, but unfortunately we don’t give forward guidance..

[Operator Instructions]. There are no further questions at this time..

Okay. Thank you, Brandy and I know we have a lot of folks listening in so we appreciate your continued interest in BlueLinx and we look forward to sharing with you our progress in the months ahead. So have a great end of the week..

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