BlueLinx Holdings Inc. — Form 10-Q Summary
Period clarification: The filing provided is for the quarter ended March 28, 2020 (fiscal Q1 2020), not Q1 2019. Comparative results are for the quarter ended March 30, 2019. Financial statement amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
BlueLinx distributes building and industrial products through a U.S. network of distribution centers. Its products are classified as structural and specialty. The first quarter is typically a lower-volume period, but management cautioned that COVID-19 could disrupt usual 2020 seasonality. The interim financial statements are unaudited.
Financial results and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net sales | $662.1 | $638.7 |
| Gross profit / gross margin | $93.2 / 14.1% | $86.0 / 13.5% |
| Operating income | $8.3 | $4.3 |
| Interest expense, net | $14.4 | $13.4 |
| Net loss | $0.8 | $6.7 |
| Basic and diluted loss per share | $0.08 | $0.72 |
| Cash used in operating activities | $59.2 | $58.3 |
Structural sales were $240.8 million, up from $196.8 million; specialty sales were $421.3 million, down from $441.9 million. Structural and specialty gross margins were 10.1% and 16.4%, respectively, versus 9.5% and 15.2% a year earlier.
At March 28, 2020, cash was $12.6 million, current assets were $665.6 million, and current liabilities were $199.6 million. Operating working capital was $476.7 million, up from $418.0 million at fiscal year-end. Total assets were $1.061 billion, total liabilities were $1.087 billion, and stockholders’ deficit was $25.7 million.
Revolving-credit borrowings were $381.6 million, with $96.8 million of excess availability and a 3.2% weighted average interest rate. Term-loan borrowings were $77.4 million at 8.6%. The company reported compliance with both facilities’ covenants at quarter-end. The balance sheet reported current maturities of long-term debt of $2.2 million and long-term debt, net, of $444.9 million. Finance lease liabilities totaled $151.4 million; real estate financing obligations were $123.8 million.
Changes versus the prior comparable period
- Sales increased 3.7%, while gross profit rose 8.3% and gross margin improved by 0.6 percentage points.
- Management attributed sales growth to higher volumes and commodity-price inflation, partly offset by the prior-year loss of $31.9 million in sales from a discontinued siding program.
- Operating income improved by $4.0 million. Net loss narrowed by $5.9 million, reflecting higher sales and margins and lower Cedar Creek integration costs; the tax benefit also materially affected the reported loss.
- Operating cash outflow remained elevated and increased slightly, which management attributed primarily to working capital. Receivables and inventories increased during the quarter.
- Term-loan principal declined from $146.7 million at December 28, 2019, following application of real-estate transaction proceeds. Revolver borrowings increased from $326.5 million at year-end.
Outlook, risks, and unusual items
- COVID-19: The company said the pandemic had not significantly affected Q1 results, but demand declines began in several locations near quarter-end. Management expected a negative impact on 2020 sales and could not predict its extent or duration. The business remained designated essential in its operating states, and no significant supply-chain disruption had been experienced as of the filing.
- Response and liquidity: Actions included limiting hiring and discretionary spending, reducing variable costs, furloughing about 15% of salaried employees initially for 60 days, and temporary voluntary salary reductions for executives and vice presidents. Management believed liquidity would cover routine needs for at least 12 months if operations were not significantly affected by a prolonged pandemic.
- Tax item: The Q1 2020 tax benefit was $5.0 million, including a discrete $3.9 million benefit from releasing a valuation allowance after CARES Act changes to the IRC Section 163(j) interest deduction limitation. The effective tax rate was 86.5%; it was affected by this discrete item and other tax factors.
- Real-estate financing: Fourteen warehouse transactions generated $78.3 million gross proceeds. They did not qualify as sales for accounting purposes and were recorded as financing obligations; the properties remained on the books and were leased under long-term arrangements. Proceeds supported term-loan repayment.
- Debt amendments: An April 1, 2020 amendment modified term-loan leverage covenant levels for Q2 and Q3 2020. The company also amended its revolving facility’s seasonal period in January to improve borrowing-base availability.
- NYSE listing risk: The NYSE notified the company on April 22, 2020 that it failed a continued-listing standard because market capitalization and stockholders’ equity were each below $50 million. BlueLinx submitted a compliance plan on April 28, targeting compliance by January 1, 2022; acceptance and successful completion were not assured.
- Management reported no material changes to legal proceedings and stated that adequate reserves had been established for probable losses. Certain collective bargaining agreements were due for renewal in 2020.
Important facts for investors to verify
- Whether the NYSE accepted the compliance plan and whether BlueLinx subsequently regained listing-standard compliance.
- Subsequent quarterly trends in sales, margins, receivables, inventory, operating cash flow, and revolver availability as COVID-19 effects developed.
- Compliance with amended term-loan covenants and the pace and cost of debt repayment, including interest expense and real-estate financing obligations.
- The amount and duration of CARES Act tax benefits and any later changes to deferred-tax assets or valuation allowances.
- Whether pandemic-related demand, customer credit quality, supply-chain conditions, and liquidity differed materially from management’s expectations.