Natalie Poulos - IR Mitchell Lewis - CEO Susan O'Farrell - CFO.

Good morning. My name is Derick, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter Investor Relations 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. Ms.

Natalie Poulos, you may begin..

Thank you, Derick, and good morning everyone. We appreciate you joining us for the BlueLinx fourth quarter and fiscal 2015 earnings conference call. This call is being webcast on the company's website 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 on the call today are Mitch Lewis, Chief Executive Officer; and Susan O'Farrell, Chief Financial Officer.

I 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 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. And today's presentation includes references to non-GAAP financial measures. With that, I'll turn the call over to Susan..

Terrific. Thank you, Natalie, and good morning everyone. It's a pleasure for me to speak to you today and review the results of our business. I'll go over our capital structure and financial results and then Mitch will take you through current market conditions in our strategic initiatives.

So before we dodge into the numbers, I want to let you know what's going on with the timing of our earnings release and 10-K for 2015. We previously announced entering into a term sheet with our existing real estate mortgage lender to extend the term of the mortgage.

In addition, we've been in discussions with our existing ABL and franchise lenders to extend those loans as well. We are very close to closing all three of these loans and our intent was to coordinate our 10-K filings with the loan closing.

So we expect the extensions to be implemented very soon, but definitive documents have not all been signed, and of course there is always a risk that we're unable to close the extensions of the loan. The 10-K will describe our annual results as usual and the terms of these loan extensions in much more detail.

Since we have not yet filed our 10-K, the numbers we will discuss today are unaudited. We expect to file our 10-K in the very near future and of course in a timely fashion and the audited results will reflect the numbers presented today.

So without further ado on page 4, let's review some of our highlights before we get into some more detailed review of our results. As we work through establishing a strong foundational capital structure, refinancing our existing mortgage is a key part of that strategy.

The extension of our CMBS mortgage will be for three years, maturing on July 1, 2019 at our existing 6.35% interest rate. We anticipate that the extended mortgage will now be interest only and will require no further monthly cash collateral to be paid.

These changes will enable the company to enhance our liquidity by approximately $15 million per year compared to 2015.

Additionally, we expect that the extended mortgage will enable us to pay down the remaining principal over the course of the three years, slightly with the proceeds generated from planned real estate sales or sale leaseback transaction.

We also anticipate simultaneously closing with the mortgage, an extension of our ABL and Tranche A loans through July 15, 2017 while reducing the loan commitments from $467.5 million to $370 million.

Our existing facility side is an excess of the anticipated working capital needs of the company, so we're reducing the overall loan facility, as well as to right size the loan and to avoid unused line fees. As we look at our fourth quarter performance, we were also pleased with continued progress of our business result.

Our fourth quarter contributed to our continued records of success and momentum over the past year. We delivered more adjusted EBITDA in the fourth quarter of 2015 than we did in any fourth quarter since 2006. Adjusted EBITDA was $4.2 million, up 121% from a year ago period.

Furthermore we generated more adjusted EBITDA for the full year of fiscal 2015 than any full years since the housing down term began back in 2006. That was on 2015 fourth quarter revenues of $428.2 million with a gross margin rate of 12.02%, a rate increase of 105 basis points. All this far SG&A expenses were down by $2.8 million.

For fiscal 2015, we generated $39.9 million in cash. This is another game changer as it's the first year that we have generated cash from operation since 2009. We are focusing on improving our operations and our working capital and we're beginning to see those results.

I'd like to note that we had approximately $52.6 million of excess availability under our ABL revolvers as the quarter end. As we lower our working capital need, which is the ABL collateral, we expect the excess availability month to decrease every time yet remain enough for our business needs.

Moving to page 5, we'll take a look at our revenues and profitability for the quarter and the year. Revenue for the fiscal fourth quarter ended with $428.2 million. The decrease over the comparable fourth quarter was largely due to lower prices per structural product, specifically in the lumber category.

Sales for full year 2015 were down $62.8 million compared to prior year, predominantly driven by a decrease in structural pricing of approximately $67 million. Gross profit for the fiscal fourth quarter is up $1.7 to $51.5 million compared to $49.8 million in the fourth quarter of 2014.

Gross margin for the fiscal fourth quarter 2015 was 12.02%, up from 10.97% in the fiscal fourth quarter 2014. This increase of 105 basis points is largely driven by our margin enhancement activities and our structural and specialty product which were up 141 and 13 basis points, respectively for the quarter.

Gross margin remained relatively flat year-over-year at 11.6%. On page 6, our total selling general and administrative expenses were down $2.8 million for the fourth quarter and down $15.4 million for the full fiscal year.

This improvement is primarily due to significantly lower fuel cost and payroll related expenses including a headcount reduction of approximately 80 people. Turing to cash flow on page 7, our operating activities generated $39.9 million in cash during the year, improving our cash utilization by $52.2 million when compared to 2014.

This improvement primarily reflects our improvement in working capital component including a decrease in inventory of $15.9 million, a decrease in receivables of $6 million and an increase in accounts payable of $20.8 million.

Our cash cycle days for the fiscal fourth quarter ended 2015 totaled 64 days, a one day improvement and period ending working capital improved by $32.7 million from the end of fourth quarter 2014. With that summary of our financials, I'll turn the call over to Mitch..

Thanks, Susan. Good morning. As Susan discussed, our fourth quarter created some positive momentum for BlueLinx, and I'm pleased to inform you that we have seen this positive momentum continuing to the first two months of the year. Current market activity is stronger in 2015 levels.

The lumber market has improved and our continued emphasis on margin enhancement and cost containment is paying dividends. It's too early to determine whether the relatively mild winter has pulled forward some sales from the spring season, but we're happy to see this early year market momentum. Susan discussed our new financing in detail earlier.

In connection with this planned financing, we will be in a position to sell the company's real estate going forward. As we have discussed we had a desktop valuation in the fourth quarter of 2015 which valued our existing real estate portfolio with market rent in place in the $332 million to $352 million range.

This is well in excess of the current principal balance in our real estate mortgage of $159 million. Before we intend to extract this excess value of the real estate to pay down the mortgage quickly and delever BlueLinx.

Similarly, we are focused on evaluation our working capital particularly our inventory as another avenue to reduce the company's leverage. We've embarked on a detailed review of all our individual products views to assess the return on our inventory.

We anticipate that this exercise will lead to a significant reduction in inventory from the elimination of certain products, and that we will accomplish this without having a major impact on the service of products we provide to our customers.

We've previously announced that our board approved to reverse stock split with the attempt to comply New York Stock Exchange requirement that our shares trade above $1. We anticipated to vote on the reverse stock split during our annual meeting at May.

If approved by our shareholders, we will move to implement the reverse stock split promptly after the annual meeting in May. We also submitted a business plan to the New York Stock Exchange outlining the actions we are taking in order to regain compliance with the $50 million market capitalization listing standard.

There has been significant activity to improve the capital structure and performance of BlueLinx over the last few months.

We continue our focus on margin enhancement activities and recently created the role of sales excellent leader to facilitate increasing our market share while providing our customer base with a world-class customer service experience.

Similarly, we continue to make great progress in our logistics initiatives as we improve efficiencies associated with the delivery of our products through our customers. And as Susan discussed we're seeing positive results from these initiatives and our operating performance.

I want to personally thank our vendors and customers who continue to partner with our organization and have helped fuel the improvement we are seeing. And also I would like to thank the BlueLinx Team.

The collective effort of the BlueLinx associates over the last several months has been relentless and you are the reason BlueLinx continues to make progress in both our performance and culture. Now, Derick, we'd like to answer any questions that our listeners may have..

[Operator Instructions] There is a question from the line of Mark Kauffman..

Good morning, everyone. I want to just commend you all on addressing the asset issue, the return on assets basically by reducing the assets that you have on your balance sheet. I think that's a terrific idea.

I just had a couple of questions about the operating side of the business and what you're seeing on lumber pricing and also plywood pricing?.

Yes, generally the lumber market is firmed up certainly in the first couple of months of this year while the plywood market hasn't. So we're seeing a disconnect between the two. Clearly lumber is moving in a positive direction, and again the plywood panel market is not..

Okay. I understand that it seems that the plywood market is still being impacted by imports from Latin America, not on that note.

Just to shift gears a little bit, where do you see the strengths in your markets right now? And I think not just geographically but also from whether it's the retailers or the wholesalers?.

Yes, I would say generally we're seeing strength across the board with one exception being the industrial accounts have come out softer. Again when you look at comps certainly year-over-year we had a top winner. All right.

So any of our customer base that is primarily involved in for example, residential or even to certain extent commercial constructions are going up against some pretty favorable comps. But generally we're seeing really across the board strength early in the year other than as I mentioned the industrial accounts that we have..

Now, with the decline that you had in revenues due to deflation in the commodity products last year, would you anticipate we're going to see a turn in that because of the result so far at least in lumber?.

Yes. It's funny we always talk internally amongst ourselves that if we really do what was going to happen in the commodity market we're probably in the wrong profession. As it stands today certainly we're seeing an increase in the commodity prices which from our perspective is really important.

I mean it's stable to increasing commodity prices from wherever it started is beneficial for the business. And when you see deflation, it hurts.

So as we see improvement in the market and market is strengthening, it certainly gives us the ability to not only get some value from a lower cost product in our warehouse but generally you have more pricing pressure as it relates to some of the commodities..

Now back in 2012 when we had the rally in lumber prices then the old management, not just the old management but the entire industry got ahead of itself as far as ordering product.

Do you see anything like that happening now?.

Mark, I can assure that is not part of our strategy. Again it's sending us to the point that we talked about early on, certainly when I got here, which is that really a cool competence ways [ph] and the value we're bringing to our customers is not timing the market.

So as we talked about we're very focused on increasing the velocity of the inventory to maximize our return. And so we will continue to very closely watch all of our inventory in all our category..

Just on the question about the refinancing. If you're unable to get all the documents signed by month's end, do you have to come back for another extension with the SEC to get your 10-K out? I understand you have the extension now because of this shift in auditors..

So April 1 actually is our required filing timeframe, and so historically we certainly filed a little bit earlier this year as we described what's going on, we wanted the time, the closing of this documents with our 10-K, and obviously timing coordination across our variety of lenders and work because with that is a challenge.

So we're just working through that, but we're still on a comps basis and anticipate filing certainly before the filing deadline..

Okay.

And so what if you don't make the filing deadline?.

We anticipate that we will based on, I mean with the progress we've got, we're making really good progress towards it. We just don't have all of the definitive documents signed yet, and we just anticipate wrapping that up in short order and so therefore we still feel comfortable and anticipate on meeting our filing deadline..

Yes, our focus is on what we fully expect to happen at the moment and we hope that's a good news for you in the very near term. .

I appreciate the confidence you guys have and that you're reiterating it. I think investors will appreciate that as well. I'll get back in the queue. Thank you..

The next question comes from the line of Derick Tucker [ph], Golden..

Good morning, just -- congratulations on all the progress you created. It sounds like we'll have more new soon on your capital structure.

But in terms of the real estate portfolio, as we look forward and try to understand not just that you have time and that you'll be monetizing assets and that we have desktop valuation, but that you will be doing different things with different assets.

Can you give us some picture or some estimate as to what the portfolio looks like down the road? How many of your current facilities do you expect to continue to operate so we can at least we'll start with that?.

Yes.

So, we're evaluating closely now, every one of our facilities and the thought process is, is it in the right place, is there an opportunity to monetize it for example through a sale lease back? Should we for example just stay where we are? And it's good value for the cash flow that we have or for example is it a place that every last decade or so, the real estate in the area has depreciated so much that it makes sense maybe to move it a couple of miles down the road.

The intent is not to have a huge reshuffling of the footprint of the business. So we'll look at it where it makes sense, where our return on investment is not good or whether we have consolidation opportunities and act accordingly. So it's too early to say exactly what we're going to do. We're looking at every facility that we're in..

Okay.

If you don't expect the footprint to change materially does that mean you do not expect any significant opportunities in terms of working capital flavor?.

Yes. If I said I didn't expect it materially, I apologize. I mean, I just -- it's not going to be a fundamental dramatic just to the company. So we still intend strategically to be a full service supplier to the markets that we serve.

So the answer I guess fundamentally for the question you raise is yes we expect from our efforts to significantly reduce working capital of this business and we expect from our efforts to significantly extract a real property value both of which will be utilized to delever the company..

That's great. Okay. Well thanks again. Good luck..

Thank you..

Thank you, Tucker..

The next question comes from Jim Barrett [ph]..

Good morning everyone.

Mitch or Susan, this maybe a question for one of you; your specialty products, can you talk to us about what level of price inflation are you seeing from key vendors and your key categories and is the company, if there is price inflation is the company pre-buying or simply buying in line with in market demand?.

Yes. We're not seeing a lot of inflation from our supply base. I mean there are some modest deflation opportunities particularly associated with products that are growing base. But generally I wouldn't say there's a huge trend from an inflation area or a deflation area embodiment.

There has been a legacy in the industry of having winter buys or buying opportunities where you really load up on a ton of inventory that gives you somewhat of a discount and then you run the risk that if you're building up six months of inventory that the market moves on you to the downside which has certainly happened and obviously it's been a benefit to the offset.

We are now looking through the lens in everything we do of the investments that we have. As we think about deleveraging the company, we look very closely for example at if we're going to increase the inventory, what are the terms associated with that.

And so if we feel like as you would expect if we could do something that is cash accretive that doesn't risk the company we might do something like that. But it is not a major strategic initiative for us to load up on inventory with the anticipation that the cost of inventory has gone up..

That's helpful.

And then has the company established targets going forward of what you expect the average inventory turns to be year-after-year?.

Yes. We've actually established on various specific targets as it relates to some of these product review as Susan and I have talked about as well as facility operational efficiencies. So the answer to that question is yes. We're trying to resolve, give for guidance on that kind of information.

But it is as we have talked about is we view it to be significant for the company..

Okay.

And then finally if I strip out the pricing volatility in lumber and plywood, did your sales volume, can you talk about in which category your holding share versus gaining share versus losing share?.

Well certainly it's very fragmented market, so subtract share by segment. It's more of a challenge for us, but we are looking at where we're tracking to share and looking at single family housing start as a barometer, certainly looking at by region.

But what we've noticed also is we haven't necessarily seen single family housing start fully aligned with completion. So we're continuing to track if there is a lack or delay in some of the items there. But across the board we're monitoring those increases.

I would say specifically as we look at the quarter we've done particularly what we think in engineered lumber and so that's something we're pleased to see, the growth there, as well as growing in some other categories in our interior products. So we're pleased with those growths..

Well, thank you both. .

Sure. Thank you..

And there are no further questions..

Okay. Well thank you very much. Again we appreciate your support of BlueLinx and we are looking forward to announcing the completion of our refinancing, and certainly filling our first quarter results with you as well. Have a great day..

Thank you for your participation of today's conference call. You may now disconnect..