Builders FirstSource Reports Second Quarter 2014 Results

Net Income Totals $10.6 Million as Second Quarter Sales Top $426 Million

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| Source: Builders FirstSource, Inc.

DALLAS, July 24, 2014 (GLOBE NEWSWIRE) -- Builders FirstSource, Inc. (Nasdaq:BLDR), a leading supplier and manufacturer of structural and related building products for residential new construction in the United States, today reported its results for the second quarter ended June 30, 2014.

Second quarter highlights include the following (see financial schedules for more information, including non-GAAP reconciliations):

  • Second quarter 2014 sales increased 7.1 percent to $426.5 million, when compared to the second quarter of 2013.
     
  • Gross margin percentage improved to 22.0 percent, up from 20.7 percent in the second quarter of 2013.
     
  • Adjusted EBITDA was $20.4 million, up $3.6 million over the second quarter of 2013.
     
  • Completed the acquisition of Slone Lumber Company on June 30th, increasing the company's presence in the greater Houston market.

Commenting on the company's results, Floyd Sherman, Builders FirstSource Chief Executive Officer, stated, "We achieved our highest quarterly sales since 2006, as we ended the second quarter of 2014 with sales of $426.5 million. We were able to achieve this high level of sales even though sales were reduced by commodity deflation this quarter, as market prices for lumber and lumber sheet goods were, on average, 8.8 percent lower when compared to the second quarter of 2013. In addition, the U.S. Census Bureau reported actual single-family housing starts in the South Region, which encompasses all of our markets, increased just 0.6 percent compared to the second quarter of 2013. Our results are a prime example of how our market share gains of recent years, and the tremendous efforts of our employees, continue to have a positive impact."

Mr. Sherman added, "Our recent acquisition of Slone Lumber was another positive event during the quarter, and one that affords us the opportunity to expand our presence in the Houston market, which is currently the #1 homebuilding market in the country. Evaluating attractive acquisition opportunities such as Slone will continue to be a key strategy of the company." 

Commenting on the second quarter results, Chad Crow, Builders FirstSource Senior Vice President and Chief Financial Officer added, "Our gross margin percentage of 22.0 percent was a 130 basis point improvement over the same quarter last year. On a sequential quarter basis, our second quarter gross margin percentage was up 30 basis points. Improved customer pricing drove our overall margin increase, though we still face a very competitive pricing environment. Our selling, general and administrative expense, expressed as a percentage of sales, increased 60 basis points compared to the second quarter of 2013 primarily due to the impact of commodity lumber price deflation on our sales. Based on our growth in sales volume, absent the negative impact of price deflation, our growth in operating expense was in line with our expectations."

Second Quarter 2014 Results Compared to Second Quarter 2013

(See accompanying financial schedules for full financial details and reconciliations of Non-GAAP financial measures to their GAAP equivalents.)

  • Sales were $426.5 million, an increase of $28.4 million or 7.1 percent. The increase was due to a 12.9 percent increase in volume, reduced by lower market prices for commodity lumber products which were, on average, 8.8 percent lower compared to the same period last year.
     
  • Gross margin percentage was 22.0 percent, up from 20.7 percent last year. Our gross margin percentage increased primarily due to improved customer pricing versus the second quarter of 2013.
     
  • Selling, general and administrative ("SG&A") expenses increased $7.4 million, or 10.7 percent. As a percentage of sales, SG&A expense increased to 17.9 percent compared to 17.3 percent.
     
  • Interest expense was $6.5 million, a decrease of $54.6 million. The decrease relates primarily to our second quarter 2013 refinancing, which included $4.2 million of interest expense on our then outstanding term loan, the write-off of $6.8 million in unamortized debt discount and $2.1 million of debt issuance costs, and a $39.5 million prepayment premium related to the early termination of the term loan. See supplemental schedule attached.
     
  • We recorded $0.2 million of income tax expense compared to $0.4 million. We recorded a reduction of the after-tax, non-cash valuation allowance on our net deferred tax assets of $4.1 million in the second quarter of 2014, and an increase in the after-tax, non-cash valuation allowance of $17.0 million in the second quarter of 2013. Absent the valuation allowance, the effective tax rate would have been 39.5 percent and 34.6 percent in the second quarters of 2014 and 2013, respectively. As of June 30, 2014, our gross federal income tax net operating loss available for carry-forward was approximately $258 million. 
     
  • Income from continuing operations was $10.6 million, or $0.09 per diluted share, compared to a loss of $48.3 million, or $0.50 loss per diluted share. Adjusted income from continuing operations was $5.4 million, or $0.05 per diluted share, compared to $0.5 million, or $0.01 per diluted share, for the second quarter of 2013. See reconciliation attached.
     
  • Adjusted EBITDA was $20.4 million, or 4.8 percent of sales, compared to $16.7 million, or 4.2 percent of sales. See reconciliation attached.

Liquidity and Capital Resources

  • Total liquidity at June 30, 2014 was approximately $194 million, and includes $34.5 million of cash and $159.4 million in borrowing availability under our revolver. We had no borrowings during the quarter under our revolver.
     
  • Operating cash flow was negative $13.1 million for the second quarter of 2014, compared to negative $60.7 million for the same period last year. The difference was primarily due to our second quarter 2013 refinancing.
     
  • During the second quarter of 2014, we used approximately $8.7 million of cash on hand to acquire Slone Lumber Company, based in Houston, Texas.
     
  • Capital expenditures were $6.8 million for the second quarter of 2014, compared to $3.6 million for the same quarter of 2013. 

Outlook

Concluding, Mr. Sherman added, "Though the growth in housing starts this year has not been what most people expected, we still have been able to drive improved year-over-year results due to our market share gains and operating efficiencies. We will continue leveraging those strengths and also look for ways to expand our footprint and market share through acquisitions, as we did with our recent acquisition in the Houston, Texas market."

Conference Call

Builders FirstSource will host a conference call Friday, July 25, 2014 at 10:00 a.m. Central Time (CT) and will simultaneously broadcast it live over the Internet. To participate in the teleconference, please dial into the call a few minutes before the start time: 888-205-6458 (U.S. and Canada) and 913-312-0949 (international). A replay of the call will be available at 3:00 p.m. CT through July 30th. To access the replay, please dial 888-203-1112 (U.S. and Canada) and 719-457-0820 (international) and refer to pass code 3736693. The live webcast and archived replay can also be accessed on the company's website at www.bldr.com under the "Investors" section. The online archive of the webcast will be available for approximately 90 days.

About Builders FirstSource

Headquartered in Dallas, Texas, Builders FirstSource is a leading supplier and manufacturer of structural and related building products for residential new construction. The company operates 54 distribution centers and 48 manufacturing facilities in 9 states, principally in the southern and eastern United States. Manufacturing facilities include plants that manufacture roof and floor trusses, wall panels, stairs, aluminum and vinyl windows, custom millwork and pre-hung doors. Builders FirstSource also distributes windows, interior and exterior doors, dimensional lumber and lumber sheet goods, millwork and other building products. For more information about Builders FirstSource, visit the company's website at www.bldr.com.

Cautionary Notice

Statements in this news release and the schedules hereto that are not purely historical facts or that necessarily depend upon future events, including statements about expected market share gains, plans to reduce costs, forecasted financial performance or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to Builders FirstSource, Inc. on the date this release was submitted. Builders FirstSource, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to the Company's growth strategies, including gaining market share, or the Company's revenues and operating results being highly dependent on, among other things, the homebuilding industry, lumber prices and the economy.  Builders FirstSource, Inc. may not succeed in addressing these and other risks. Further information regarding factors that could affect our financial and other results can be found in the risk factors section of Builders FirstSource, Inc.'s most recent annual report on Form 10-K filed with the Securities and Exchange Commission.  Consequently, all forward-looking statements in this release are qualified by the factors, risks and uncertainties contained therein.

Financial Schedules to Follow

 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES 
 Condensed Consolidated Statements of Operations 
 (unaudited) 
         
  Three months ended
June 30,
Six months ended
June 30,
   2014   2013   2014   2013 
   (in thousands, except per share amounts) 
         
         
Sales   $ 426,543  $ 398,148  $ 772,452  $ 717,850
Cost of sales   332,744  315,916  603,738  573,271
Gross margin   93,799  82,232  168,714  144,579
         
Selling, general and administrative expenses (includes stock-based compensation expense of $926 and $984 for the three months ended in 2014 and 2013, respectively, and $1,908 and $2,319 for the six months ended in 2014 and 2013, respectively.)   76,417  69,011  145,735  130,089
Facility closure costs   28  52  191  111
Income from operations   17,354  13,169  22,788  14,379
Interest expense, net   6,504  61,058  15,332  73,558
Income (loss) from continuing operations before income taxes   10,850  (47,889)  7,456  (59,179)
Income tax expense   230  400  148  715
Income (loss) from continuing operations   10,620  (48,289)  7,308  (59,894)
Income (loss) from discontinued operations (net of income tax expense of $0 in 2014 and 2013, respectively)   (11)  83  (83)  (120)
Net Income (loss)   $ 10,609  $ (48,206)  $ 7,225  $ (60,014)
         
Basic net income (loss) per share:         
Income (loss) from continuing operations   $ 0.11  $ (0.50)  $ 0.07  $ (0.62)
Income (loss) from discontinued operations   (0.00)  0.00  (0.00)  (0.00)
Net income (loss)   $ 0.11  $ (0.50)  $ 0.07  $ (0.62)
         
Diluted net income (loss) per share:         
Income (loss) from continuing operations   $ 0.09  $ (0.50)  $ 0.07  $ (0.62)
Income (loss) from discontinued operations   (0.00)  0.00  (0.00)  (0.00)
Net income (loss)   $ 0.09  $ (0.50)  $ 0.07  $ (0.62)
         
Weighted average common shares:         
Basic   98,032  96,349  97,963  96,170
Diluted   100,759  96,349  100,766  96,170
 
 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES 
 Sales by Product Category 
 (unaudited) 
         
   Three months ended June 30, 
   2014   2013 
   (in thousands) 
         
 Prefabricated components   $ 91,022 21.3%  $ 78,206 19.7%
 Windows & doors   90,843 21.3%  77,790 19.5%
 Lumber & lumber sheet goods   143,925 33.8%  149,282 37.5%
 Millwork   40,075 9.4%  35,185 8.8%
 Other building products & services   60,678 14.2%  57,685 14.5%
 Total sales   $ 426,543 100.0%  $ 398,148 100.0%
         
   Six months ended June 30, 
   2014   2013 
   (in thousands) 
         
 Prefabricated components   $ 161,512 20.9%  $ 139,026 19.4%
 Windows & doors   167,118 21.6%  141,395 19.7%
 Lumber & lumber sheet goods   259,440 33.6%  266,079 37.1%
 Millwork   73,543 9.5%  64,238 8.9%
 Other building products & services   110,839 14.4%  107,112 14.9%
 Total sales   $ 772,452 100.0%  $ 717,850 100.0%
 
 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES 
 Condensed Consolidated Balance Sheets 
 (unaudited) 
     
  June 30, 
2014 
December 31, 
2013 
   (in thousands, except per share amounts) 
     
 ASSETS     
 Current assets:     
 Cash and cash equivalents   $ 34,539  $ 54,696
 Accounts receivable, less allowance of $3,348 and $3,605 at June 30, 2014 and December 31, 2013, respectively   166,789  143,036
 Inventories   140,736  123,636
 Other current assets   8,038  9,793
 Total current assets   350,102  331,161
 Property, plant and equipment, net   59,062  49,392
 Goodwill   115,323  111,193
 Other assets, net   21,987  24,093
 Total assets   $ 546,474  $ 515,839
     
 LIABILITIES AND STOCKHOLDERS' EQUITY     
 Current liabilities:     
 Accounts payable   $ 100,709  $ 81,046
 Accrued liabilities   47,189  45,310
 Current maturities of long-term debt   71  67
 Total current liabilities   147,969  126,423
 Long-term debt, net of current maturities   353,868  353,904
 Other long-term liabilities   20,087  20,144
 Total liabilities   521,924  500,471
 Commitments and contingencies     
 Stockholders' equity:     
 Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding   --  --
 Common stock, $0.01 par value, 200,000 shares authorized; 98,084 and 97,905 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively   980  973
 Additional paid-in capital   375,368  373,418
 Accumulated deficit   (351,798)  (359,023)
 Total stockholders' equity   24,550  15,368
 Total liabilities and stockholders' equity   $ 546,474  $ 515,839
 
 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES 
 Condensed Consolidated Statements of Cash Flows 
 (unaudited) 
     
   Six months ended June 30, 
   2014   2013 
   (in thousands) 
Cash flows from operating activities:    
Net income (loss)  $ 7,225  $ (60,014)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Depreciation and amortization  4,022  5,308
Amortization and write-off of deferred loan costs  1,200  2,833
Amortization and write-off of debt discount  --   7,794
Fair value adjustment of stock warrants  19  755
Deferred income taxes  80  429
Bad debt expense  (336)  649
Net non-cash income from discontinued operations  --   (195)
Stock compensation expense  1,908  2,319
Net gain on sale of assets  (15)  (24)
Changes in assets and liabilities:    
Receivables  (21,823)  (41,121)
Inventories  (15,438)  (20,173)
Other current assets  1,728  (2,641)
Other assets and liabilities  (114)  562
Accounts payable  19,663  11,178
Accrued liabilities  2,573  6,473
Net cash provided by (used in) operating activities  692  (85,868)
     
Cash flows from investing activities:    
Purchases of property, plant and equipment  (12,121)  (4,595)
Proceeds from sale of property, plant and equipment  16  617
Cash used for acquisitions, net  (8,726)  -- 
Decrease in restricted cash  --   13,030
Net cash provided by (used in) investing activities  (20,831)  9,052
     
Cash flows from financing activities:    
Borrowings under revolving credit facility  --   30,000
Payments under revolving credit facility  --   (30,000)
Proceeds from issuance of long term debt  --   350,000
Payments of long-term debt and other loans  (33)  (364,746)
Payments of deferred loan costs  (34)  (14,301)
Payment of recapitalization costs  --   (37)
Exercise of stock options  1,355  1,015
Repurchase of common stock  (1,306)  (1,036)
Net cash used in financing activities  (18)  (29,105)
     
Net change in cash and cash equivalents  (20,157)  (105,921)
Cash and cash equivalents at beginning of period  54,696  131,432
Cash and cash equivalents at end of period  $ 34,539  $ 25,511
 
 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES 
 Supplemental Interest Expense Information 
 (unaudited) 
         
  Three months ended 
June 30,
Six months ended 
June 30,
   2014   2013   2014   2013 
   (in thousands) 
         
 Detail of Interest Expense:         
 Term loan   $ --  $ 4,169  $ --  $ 10,638
 Prepayment Penalty - Term Loan   --  39,475  --  39,475
 2021 notes   6,672  2,407  13,344  2,407
 2016 notes   --  4,566  --  9,083
 Credit facility   203  171  404  185
 Change in fair value of stock warrants (1)   (1,178)  329  19  755
 Amortization of debt discount (1) (2)   --  7,206  --  7,794
 Amortization of deferred loan costs (1) (3)   615  2,538  1,200  2,833
 Other   192  197  365  388
 Interest expense, net   $ 6,504  $ 61,058  $ 15,332  $ 73,558
         
         
 (1) Non-cash item         
 (2) Includes $6,797 write-off of term loan discount for the three and six months ended June 30, 2013       
 (3) Includes $2,150 write-off of debt issuance costs related to term loan & 2016 notes for the three and six months ended June 30, 2013   
 
 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES 
 Reconciliation of Non-GAAP Financial Measures to their GAAP Equivalents 
 (unaudited - in thousands, except per share amounts) 
         
 Note: The company provided detailed explanations of these non-GAAP financial measures in its Form 8-K filed with the Securities and Exchange Commission on July 24, 2014. 
         
  Three months ended
June 30,
   
   2014   2013     
         
 Reconciliation to Adjusted EBITDA:         
 Net income (loss)   $ 10,609  $ (48,206)    
 Reconciling items:         
 Depreciation and amortization expense   2,040  2,534    
 Interest expense, net   6,504  61,058    
 Income tax expense   230  400    
 Stock compensation expense   926  984    
 Other   49  (33)    
 Adjusted EBITDA   $ 20,358  $ 16,737    
         
   Three months ended
June 30, 
  2014 2013
   Pre-Tax   Net of Tax   Pre-Tax   Net of Tax 
         
 Reconciliation to Adjusted income from continuing operations:         
 Income (loss) from continuing operations     $ 10,620    $ (48,289)
 Reconciling items:         
 Prepayment premium     -- 39,475  25,658
 Debt issuance cost write-offs     -- 2,150  1,398
 Debt discount write-offs     -- 6,797  4,418
 Warrant fair value adjustment     (1,178)    329
 Tax valuation allowance     (4,055)    16,968
 Adjusted income from continuing operations     $ 5,387    $ 482
         
 Weighted average diluted shares outstanding     100,759    96,349
         
 Adjusted income from continuing operations per diluted share     $ 0.05    $ 0.01
Chad Crow
Senior Vice President and Chief Financial Officer
Builders FirstSource, Inc.
(214) 880-3585

Marcie Hyder
Vice President and Corporate Controller
Builders FirstSource, Inc.
(214) 880-3551