BlueLinx Holdings Inc. — Form 10-Q Summary
Period: The filing covers the quarter ended October 3, 2015, and the first nine months of fiscal 2015. The request metadata says “2014 Q3,” but the filing itself is for 2015 Q3. Comparisons are with the quarter and nine-month period ended October 4, 2014, unless noted.
Business context
BlueLinx distributes building products through approximately 48 North American distribution centers. In the quarter, specialty products were about 61% of sales and structural products about 39%. Results are seasonal and exposed to construction activity, commodity prices, weather, and customer demand.
Financial performance
| Metric | Q3 2015 | Q3 2014 | First 9 months 2015 | First 9 months 2014 |
|---|---|---|---|---|
| Net sales | $517.8 million | $549.8 million | $1,488.4 million | $1,525.3 million |
| Gross profit | $60.8 million | $64.6 million | $171.0 million | $179.3 million |
| Gross margin | 11.75% | 11.75% | 11.49% | 11.75% |
| Operating income | $8.5 million | $6.0 million | $13.2 million | $14.1 million |
| Net income (loss) | $0.6 million | $(0.9) million | $(5.5) million | $(6.2) million |
| Adjusted EBITDA | $10.5 million | $11.1 million | $20.7 million | $22.7 million |
Quarterly sales declined 5.8%, primarily due to lower structural-product prices; management estimated the commodity-price impact at about $24 million. Unit volume fell 0.6%. Quarterly gross profit decreased with lower sales, while gross margin held steady. SG&A fell $6.2 million, including lower restructuring, payroll, and fuel costs. For the first nine months, lower commodity prices reduced sales by about $40 million, partly offset by higher structural unit sales.
Interest expense was $7.1 million in Q3 and $20.4 million year to date. Net cash used in operating activities was $28.3 million for the first nine months, versus $53.4 million in the prior-year period. Investing activities used $0.9 million, compared with $5.4 million provided a year earlier, when asset-sale proceeds included the Portland distribution center. Financing activities provided $31.5 million. Cash was $6.9 million at October 3, 2015.
At October 3, 2015, total assets were $598.8 million and total liabilities were $634.6 million; stockholders’ deficit was $35.8 million. Current liabilities included $203.0 million of current maturities of long-term debt. Total debt on the balance sheet was approximately $450.9 million. The company reported $283.7 million of borrowings and $64.2 million of excess availability under its revolving credit facilities, and said it was in compliance with their covenants.
Liquidity, outlook, risks, and unusual items
- Near-term maturities: The company had a $168.8 million mortgage, with approximately $166.7 million due July 1, 2016, and a required $35 million payment by May 1, 2016 under the U.S. revolving credit agreement. Management was pursuing refinancing or other means to address the maturities, but cautioned there was no assurance it could refinance, extend, or replace the mortgage. The U.S. revolver matures April 15, 2017. Management expected available revolver capacity and anticipated real-estate refinancing to support routine operations for at least 12 months.
- Subsequent event: On November 6, 2015, the Canadian lender approved extending the Canadian revolving facility’s maturity to the earlier of August 12, 2018, or the U.S. revolver’s maturity.
- Pension and taxes: Pension curtailment activity drove a $4.4 million year-to-date reclassification from accumulated other comprehensive loss and affected reported tax allocations. A full valuation allowance was recorded against the company’s tax benefit.
- Listing risk: NYSE notified the company that its average share price had been below $1.00 for 30 consecutive trading days. The company was considering actions, including a reverse stock split; it could not assure timely compliance. Delisting could reduce share liquidity and hinder capital raising.
- Contingency: The company disclosed litigation related to a third-quarter company-vehicle accident. It had recorded no accrual because it could not determine whether a loss was probable or reasonably possible, or estimate a potential loss.
- Outlook: No specific financial guidance was provided. Management noted typical seasonal strength in the second and third quarters and weaker first and fourth quarters. Key risks include building activity, commodity prices, product supply, customer credit, weather, fuel costs, competition, and access to capital.
Most important facts for investors to verify
- Progress and terms of refinancing the mortgage and meeting the $35 million payment requirement before the stated deadlines.
- Revolver availability, covenant compliance, and cash needs as seasonal working capital changes.
- Whether NYSE minimum-price compliance was achieved and whether any equity action was taken.
- Subsequent developments in the vehicle-accident litigation and any resulting estimate or accrual.
- Whether sales and margins stabilize as commodity prices and construction demand change.