BlueLinx Holdings Inc. — Form 10-Q Summary
Period and filing date: Quarter ended September 30, 2017; filed November 2, 2017. The request metadata says 2016 Q3, but the filing itself reports 2017 Q3 and compares results with the quarter ended October 1, 2016.
Business and results
BlueLinx distributes structural and specialty building products in the U.S. Structural products were approximately 46% and specialty products approximately 54% of year-to-date 2017 sales. Results are seasonal and cyclical, with activity typically strongest in the second and third fiscal quarters.
| Metric | Q3 2017 | Q3 2016 | First nine months 2017 | First nine months 2016 |
|---|---|---|---|---|
| Net sales | $479.3 million | $476.0 million | $1,381.9 million | $1,459.4 million |
| Gross profit / margin | $60.5 million / 12.6% | $60.1 million / 12.6% | $175.5 million / 12.7% | $175.0 million / 12.0% |
| Operating income | $11.5 million | $22.6 million | $26.6 million | $25.6 million |
| Net income | $5.7 million | $15.0 million | $9.5 million | $5.7 million |
| Diluted EPS | $0.62 | $1.68 | $1.04 | $0.64 |
| Operating cash flow | Not presented separately | Not presented separately | $(38.3) million | $(0.2) million |
Q3 sales increased 0.7%; management reported adjusted same-center sales growth of 3.3%. Nine-month reported sales fell 5.3%, while adjusted same-center sales rose 3.6%, reflecting prior-year distribution-center closures and SKU rationalization. Q3 net income declined substantially in part because Q3 2016 included a $13.9 million property-sale gain; 2017 had no property-sale gain in the quarter. For the first nine months of 2017, property-sale gains were $6.7 million versus $14.7 million in 2016.
Q3 gross margin was flat year over year; nine-month gross margin improved 70 basis points. Management attributed margin improvement to stronger margins in both product categories. Structural and specialty sales for Q3 were approximately $228 million and $254 million, respectively; nine-month sales were approximately $633 million and $757 million.
Financial position, debt and liquidity
At September 30, 2017, cash was $5.6 million, current assets $407.2 million, and current liabilities $197.3 million. Total debt was approximately $313.3 million, comprising $54.5 million of current maturities and $258.8 million of long-term debt. Stockholders’ deficit was $19.1 million. Operating cash use of $38.3 million included a $47.9 million increase in receivables and a $15.5 million increase in inventory, which management attributed largely to seasonal activity and sales timing. Investing activities provided $27.2 million, principally from asset sales; financing activities provided $11.1 million.
The mortgage balance was $97.8 million, with a $55.0 million principal payment due by July 1, 2018 and the remaining balance due by July 1, 2019. The company said it planned to use real-estate monetization, including sale-leasebacks, to meet the payment. At quarter-end, borrowings under the prior revolving facilities were $217.7 million, with $82.7 million of excess availability.
On October 10, 2017, the company replaced the prior facilities with a senior secured revolving credit and letter-of-credit facility of up to $335 million, maturing October 10, 2022, with an uncommitted accordion of up to $75 million subject to conditions and lender consent. Borrowings are asset-based; pricing varies with availability. A fixed-charge coverage test applies if availability falls below specified thresholds. The company reported compliance with its credit covenants as of September 30.
Outlook, risks and unusual items
- Management said normal operating cash flows and available revolving-credit capacity should fund routine operations and working-capital needs for at least the next 12 months. This assessment depends in part on meeting the scheduled mortgage payment through real-estate monetization.
- In the first quarter of 2017, the company entered into three sale-leaseback transactions. It recognized a total deferred gain of $13.7 million and capital-lease obligations initially totaling $8.0 million for two properties; the third transaction was classified as an operating lease.
- The company recorded estimated multi-employer pension withdrawal liability of $4.5 million in Q1 and increased the estimate by $1.0 million in Q2. Management reported $5.5 million of pension expense associated with the withdrawal for the first nine months, compared with $3.3 million of refinancing-related costs in the prior-year period.
- Management identified housing and construction demand, commodity prices, product mix, inventory and working-capital needs, supplier availability, customer credit, fuel, competition, pension obligations, and substantial indebtedness as material risks. The filing also describes risks to completing property sales and meeting mortgage principal payments.
- A Cerberus resale offering closed October 23, 2017 and triggered an ownership-change limitation that could restrict use of the company’s approximately $163.7 million of tax-loss carryforwards if anticipated real-estate sales are not realized.
- The company planned to adopt the new revenue-recognition standard in Q1 2018 using a cumulative adjustment; management did not anticipate a material financial-statement impact, apart from expanded disclosures and possible control changes.
- No material change to previously disclosed legal proceedings was reported. The filing provides no formal earnings or revenue guidance.
Most important facts for investors to verify
- Whether BlueLinx can complete planned real-estate transactions and fund the $55 million mortgage payment due by July 1, 2018.
- Current borrowing-base availability and compliance with the new facility’s availability and fixed-charge coverage requirements.
- Whether operating cash flow improves as seasonal receivables and inventory convert to cash.
- The effect of the October 2017 ownership change on use of tax-loss carryforwards and the potential tax cost if planned property sales are not completed.
- Actual pension withdrawal liabilities and contribution requirements, including exposure to underfunded multi-employer plans.