Natalie Poulos - IR Mitchell B. Lewis - President and CEO Susan O'Farrell - SVP, CFO, Treasurer, and Principal Accounting Officer.

Unidentified Analyst - Unidentified Analyst -.

Good morning. My name is Teresa, and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx First Quarter Financial Results 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 your conference..

Thank you, Teresa and good morning everyone. We appreciate you joining us for the BlueLinx first quarter 2016 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 will 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 within 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..

Thank you Natalie and good morning everyone. It is a pleasure for me to speak to you today and to review our first quarter business results. I will go over our financial results first and then Mitch will take you through the current market conditions and our strategic initiatives.

So on page 4, let's review some of our highlights before we get into a more detailed review of our results. In March we successfully refinanced our existing mortgage and extended our ABL.

We continued to remain focused on de-levering the company through our strategic product divestment, security optimization, and real estate monetization which are all key parts of our strategy.

We anticipate that the closure of the four distribution facilities previously announced on April 21st will de-lever our balance sheet and reduce our long-term debt so that we continue to invest in the areas of the business consistent with our long-term strategic goals.

As we look at our first quarter performance we are pleased with the sound start to 2016. We delivered more adjusted EBITDA in the first quarter of 2016 than we did in any first quarter since 2007. Adjusted EBITDA was $7 million, up $6.6 million from the same period a year ago.

First quarter revenues were $474.3 million with a gross margin rate of 12.14, a rate increase of 110 basis points. Unit volumes were also up 10% in the first quarter. Our SG&A expenses were up by $4.8 million and it is primarily attributable to the refinancing charges incurred in the first quarter.

Excluding the refinancing charges, SG&A was relatively flat to last year even with the sales volume increase of 10%. Moving to page 5, we will take a look at our revenues and profitability for the quarter. Revenues for the first fiscal quarter ended was $474.3 million, an increase of $19.4 million or 4.3%.

The increase over the first quarter was largely due to higher unit volumes in both our structural and specialty product categories. Sales for our specialty product category were up $18 million with a 9.5 increase in sales volumes.

And even as structural volume increased by 10.8%, which was led by an increase in our structural wood product categories of 16%, our structural sales remained flat from the quarter a year ago due to lower selling prices in light of lower raw material cost.

Gross profit for the first quarter was up $7.4 million to $57.6 million compared to $60.2 million in the first quarter of 2015. Gross margin for the fiscal first quarter 2016 was 12.14%, up from 11.04% in fiscal first quarter 2015.

This increase by 110 basis points is driven by our margin enhancement activities, coupled with improved commodity market prices in our structural and specialty products which were up 190 and 60 basis points respectively for the quarter.

It is important to note that when excluding the facilities we closed in 2015 and anticipate closing this year, our revenue would have actually increased by a total of $25.3 million or 6.2% on a pro forma basis when compared to the first quarter 2015. Furthermore our gross profit was increased an additional 15 basis points.

On page 6, our total selling, general, and administrative expenses were up $4.8 million for the first quarter primarily in refinancing related expenses, another sales related incentive. We are pleased to see SG&A efficiencies when compared to the prior first quarter.

We have reduced our payroll for leaner back office properties, reduced healthcare cost, and increased our fleet base. Additionally we experienced a reduction in professional fees and cost from implementation of new HR software.

Turning to page 7, our trailing three months cash cycle days for the fiscal first quarter 2016 to over 59 days a 7 day improvement compared to the first quarter 2015. And we will look back just two years ago, we have now improved our first quarter cash cycle days by a total of 10 days.

We have been working hard on improving our inventory processes and we are seeing some of the benefits. Additionally period ending working capital improved $21.2 million when compared to first quarter 2015.

This improvement primarily reflects our improvement in working capital components including a decrease in inventory of $28.6 million, an increase of receivables of $3.9 million, and an increase of accounts payable of $3.7 million. With that summary of our financials I’ll turn the call over to Mitch..

Thanks Susan, good morning. As you would likely expect we were pleased to see the positive momentum we enjoyed in the fourth quarter of 2015 continue into the first quarter of this year. Our first quarter was a significant improvement over last year’s first quarter performance in virtually every respect.

Susan discussed our sales increase in both revenue and volume. The good news is that we were able to increase sales while simultaneously reducing our inventory levels by $28.6 million. Gross margins improved by 110 basis points helping fuel the EBITDA improvement we realized of approximately $6.6 million.

Finally our net debt declined $13.7 million from March 2015, even after considering the refinancing expenses we incurred during the quarter.

The $7 million in adjusted EBITDA was our best first quarter performance since 2007, almost a decade ago and reflects not only the improvement in the underlying market conditions but also our continuing efforts to closely manage our expense levels while working to improve our margins.

During our last call in March we discussed the imminent financing amendment and extensions that materialized just a few days later. While these refinancing charges negatively impacted our net income during the quarter by $3.6 million, of course that given our organization the run rates now focus on our strategic imperative to de-lever BlueLinx.

We’ve taken a three pronged approach to reducing our overall debt; a strategic product assessment, facility optimization, and monetizing the excess equity value in our real estate. First our local and corporate teams have identified underperforming skews in our product portfolio that we anticipate reducing or eliminating from a product offering.

Our approach is being consistent with a local market strategy we embraced late in 2014. Our local managers are assessing specific product items that they believe are not required to serve our customers and are comfortable reducing them from their local product lines.

We anticipate these activities will equate to a reduction in inventory in excess of $20 million by the end of the third quarter. In addition after an extensive review of our existing footprint, we recently announced that we are exiting four geographic territories and earlier this year we began the closure of our sales center in Vancouver.

We assessed all of our locations on several criteria including each facilities return on invested capital and its long-term strategic fit at BlueLinx. Through this process we identified four locations that we anticipate closing in the next several months.

We expect that we will generate a reduction in networking capital of approximately $17 million in connection with these closures. Finally, we are aggressively pursuing the potential sale of certain properties.

As we have previously discussed, the real estate we earn has an estimated value in the $332 million to $352 million and we intend to extract a significant portion of this value to lower our existing debt.

We anticipate that we will sell outright the facilities we have closed and are looking at potential alternative capital transactions including sale on lease back opportunities for our additional properties.

We have begun meaningful negotiations on several properties in our real estate portfolio and look forward to sharing with you definitive sales activity as it materializes. We of course also remain focused on our core business. It was great to see that we’re able to capitalize on the improvement in our overall markets during the first quarter.

Our service levels remain high even as we continue our emphasis on operational efficiency. We then source roughly maintenance management over the last several months which would save us approximately $1 million annually in fleet maintenance cost.

We also continue to aggressively analyze our fleet optimization activities to drive efficient route delivery schedules to reduce our variable cost structure and we remain committed to invest in our sales associates through increased communication and training.

We will continue to leverage the most knowledgeable and experienced team in the markets in which we compete to provide excellent customer service as we garner market share in our end markets. The first quarter was good but we're just getting started.

I’d like to thank the entire BlueLinx team for their hard work and continued dedication which are increasingly becoming apparent through our operating results. And now Teresa we’d like to open it up for any questions we may have at this time. .

[Operator Instructions]. And your first question comes from the line of Mark Kauffman [ph]..

Good morning everyone, nice job, just had a couple of questions.

With the exiting of certain markets and the sale of the other warehouses, is it really a total exit or is there an opportunity where you expand, drop shipping to certain customers or larger customers, and also was some of the strategy, the result of the consolidation of some of your customers?.

Yes, so the answer is it’s mixed. So in some areas we're fully exiting the markets, examples would be Canada, Southern California to the greatest extent. Others, we expect to continue to service the market and as you know we have very large footprint and we feel like we can provide terrific customer service in other areas as well.

So I’d say it’s a mixed bag as it relates to that. Really, the decision that we've made is all about deleveraging BlueLinx. It’s really – it was not predicated on some of the consolidation that we're seeing in the industry. It’s not a result of for example anticipated loss of market share as a result of that at all.

Just a fraction of looking at the footprint that we have, looking at our return on invested capital and moving forward to the mission that we have from a strategic standpoint which is to delever this company..

Thanks..

Sure. .

And your next question comes from the line of Mitchell Scott [ph]..

Morning, guys. .

Good morning. .

Looks like good progress there in Q1, looks like the margin and the cost savings are starting to pay off, particular it’s coming through the volumes so good work in the quarter..

Thank you..

Question as for me are a little bit longer-term in nature I guess, but just thinking about the four DC sales that you guys have already highlighted, just maybe to simplify it, if we think about the trailing 12 months EBITDA, adjusted EBITDA of about $31 million, do you guys have a sense for how much you may or may not lose with those four DC sales on that base?.

The answer is absolutely we do know. We have a very good sense, as you would imagine, we really did a very detailed analysis of all of our facilities not only from a true financial perspective but also from a strategic perspective. So to answer that question is we do have a really good sense on it.

As you might expect, we're not intending to give out specific information as it relates to that. I would say the way to think about it is from -– is we don’t expect it to be material as you look at the overall business.

As you would expect, those facilities that we looked at and made decisions on may not likely be in the highest returning facilities that we have. So you would expect therefore that it wouldn’t impact the business that much. .

Okay, it’s helpful.

And as we think about the progress towards the $60 million principle payment for next year, do you know about how much these four may contribute towards that?.

I hate to give you the same answer but as you would expect if we're -– which we are, I mean we're in negotiations already with some of these properties. So we’d be a little bit reluctant to talk about the total value.

I would -– maybe I will answer the question this way, Mitchell is that we fully expect to meet the obligations that we have under our mortgage and we're working hard to make that timing well in advance of the obligation.

And so the facilities that we're closing -– and don’t forget we had other properties that we have closed, that were not for sale as well so we’re in very active negotiations with five or six of these facilities. We are marketing at the moment incremental resources [ph] in. Many of these are closer to the ones that we are talking about closing.

So the expectation will be certainly if you can imagine doing either capital transactions or outright sales with that many facilities that will be in good shape as it relates to the allegations we have under the mortgage. .

Sure, okay that makes sense.

You know I guess maybe sort of bigger picture, can you guys give us a sense for the thought process, the -– how are you guys are looking at these sales, what are perhaps kind of the key governing metrics that you guys are using as you evaluate sort of how to reshape the network going forward?.

Sure, so we looked at in three ways. One was the general overall footprint assessment that we did and to look at that face on the financial metrics we talked about as well as a strategic good in the business.

For the remaining facilities that we’re looking at, one of the things -- the most obvious criteria is what is the return on the investment that we had there, right and so to the extent we have a very high value property.

Even if it is in the good location we’ll have to look at either doing a sales lease back transaction or something of that -- something like that, an alternative capital transaction. Alternatively perhaps the facility in finding a less expensive location that we can lease which will be our intent, 20 miles to 30 miles down the road or so.

So that’s clearly the way that we’re evaluating and then when we have properties that we had great returns and the real estate for example maybe not that valuable. We can either look at monetizing that cash flow through a sale lease back or alternatively basically doing nothing.

So generally the criteria is what is the return on the investment that we have in these facilities to look at what the alternatives are as it relates to selling the properties. .

Okay, alright, well that makes sense to me.

I guess last one from me and I’ll hop off but just sort of kind of a base case and thinking about the value that’s there, if we use just kind of want to check my math with you guys if I use the midpoint of the recent appraisal of that 342 million on the 90 million share count, I come up with adjusted book value calculation north of $2, does that sound right to you guys?.

Yes, I think your math is tracking correctly. Certainly we give you the information in our filings that you could go along and do the math there. And we see the value that you see there too. So it was about 90 million shares, 89.5 million shares I think your math is correct but again we provide these details in our financials. .

Okay, great. Thanks. .

Thank you. .

[Operator Instructions]. And your next question comes from the line of Mark Kauffman. .

Hi, well no one has asked it yet, that usually have to, in the first quarter with the change in the weather do you think that it was a positive impact and also what are you seeing in the current quarter if you could?.

Yes, great question, the answer was yes. There was no doubt when we look at the year-over-year performance that the first quarter of this year, the weather conditions help compared to last year.

So as we have talked about even if you go back two years ago when it was more comparable we were happy with the performance of the first quarter compared to 2014 levels. That we continue to see very solid market and the question always happens in the product space is if you have a really nice first quarter, have you pulled forward sales.

We feel good about how we are coming out into the second quarter so far and I would say that our customers continue to be very optimistic, there is a lot of activity going on, there is a lot of growth in this and so as we sit today it feels pretty..

I’d been hearing from your customers answer similar question thinking that the first quarter certainly the better weather actually not pull forward but caught up for more bad weather that you had in 2015?.

I think it is probably the way to think about that. .

Okay thank you. I’ll get back in the queue see if anyone else has a question thanks. .

[Operator Instructions]. .

Mark is back in the queue..

And we do have a question from Mitchell Scott..

Hey, it’s me again.

I guess it wouldn’t be a call out of question on lumber pricing, but can you kind of break out what the impact was in the quarter and how you might expect it to impact you going forward?.

Yes, so I think as we have talked about in the past Mitchell, as far as prospective prognostication as it relates to any of our raw material costs we try to stay away from that.

In fact that’s -- our teams are very knowledgeable as it relates to what the anticipated future costs are going to be but certainly for the last couple of years or so we've had to venture that we need to part our value to our customer base needs to be not timing the market right but the services that we provide.

So generally there have been some things in the recent days that have positively influenced some of the pricing if you look at things like rebar. It’s really shot up over the last three months or so but candidly we don’t -– I can’t really opine on the future of what these prices are going to do.

Susan, you want to touch on the historical?.

Yes, I mean historically we've certainly had some price or pressure for the quarter specifically. But as Mitch shared, I think one of the things we have done a better job of is minimizing our exposure to that price risk by having shorter durations of the inventory we hold but certainly plenty for customer demand. So to us it’s just really important.

We have enough to have for our customers, but try not to time the market per say as not many folks can time that market well.

So historically though I mean there's still room for price increases when we look at this over the course of time, but I think if I could forecast lumber prices and commodity wood prices would be on our private island in the Caribbean somewhere.

So we don’t know where it’s going to go but what we can say is we have changed our prophecies internally on inventory management to make sure that we can capitalize on the sales but not be as exposed to the down side. .

And if you look at the – I’d add, if you look at the slides where we have the gross margin improvement, year-over-year, you’ll see for example on the specialty products which are not commodity based that we're able to drive that up 60 bips as well.

And within the structural policies we've talked about in the past and we really focused the organization on variable contribution margin and making sure that we're making good decisions as it relates.

And to what we're selling it can be – it’s probably impacted, I mean it has impacted the top line in the business as we've elected not to participate in sales that don’t make the company any money.

So there's an element for example when you see the jump in structural products is also an element of thoughtful selling by our team that is impacting that, not just commodity price changes. .

Okay, makes sense to me. Thanks..

And your next question comes from the line of Mark Kauffman [ph]..

One more question.

On real estate transactions, are you planning on announcing them as they occur or putting them all together in a quarterly statement?.

It’s a good question. I think it was just to be guided by the FSE [ph] regulations, maybe the real activity will certainly be -- I think we’ll just wait until we have the earnings release. .

Okay, thanks. .

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

Okay, well, great. Well, thanks for everyone’s continued interest. It is of course much better to have these calls as coming off of some positive results and rest assured we'll continue to work very hard to continue to have calls like this. So thanks so much, appreciate it, have a great day. .

Thank you, ladies and gentlemen for your participation. You may now disconnect..