Builders FirstSource Reports Fourth Quarter and Fiscal Year 2009 Results

DALLAS, Feb. 18, 2010 (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 fourth quarter and fiscal year ended December 31, 2009.

"We saw an improving trend in housing starts towards the end of 2009, as the national seasonally adjusted annual rate for single-family starts increased from 393,000 at the end of 2008, to 477,000 at the end of 2009," said Floyd Sherman, Builders FirstSource Chief Executive Officer. "However, actual single-family starts dropped 28.4 percent from 622,000 starts in 2008, to 445,200 starts in 2009. Quarter-over-quarter, national single-family starts were relatively flat, but multi-family starts continued to decline, dropping 62 percent quarter-over-quarter. While our 2009 sales and gross margin were down $314.1 million and $73.1 million, respectively, from 2008, our adjusted EBITDA decreased only $2.7 million. This was accomplished through our continued focus on reducing operating expenses by managing headcount and rationalizing capacity in order to become a more efficient company."

Mr. Sherman continued, "Although we have seen some recent stabilization in single-family housing starts, single-family units under construction decreased almost 28 percent in the current quarter as compared to the fourth quarter of 2008.  Historically, units under construction have declined at a similar, and often times slower, rate than starts. However, this trend changed in June 2009, and since that time single-family units under construction have fallen 32 percent, while single-family starts have fallen only 12 percent, compared to the same period of 2008. For reasons that are unclear, the industry is experiencing delays in housing starts moving to units under construction. A start is triggered once the dirt work begins. Once the foundation has been established, the start becomes a unit under construction, at which time our potential for revenue begins. The continued decline in the number of homes in the construction pipeline has negatively impacted our revenue. This same trend held true for building activity in the south region, as defined by the U.S. Census Bureau ("South Region"), which encompasses our entire current geographical footprint."

Commenting on fourth quarter results, Chad Crow, Builders FirstSource Senior Vice President and Chief Financial Officer, added, "Our sales were $154 million, down $38.9 million, or 20.2 percent, from the fourth quarter of 2008. While single-family starts in the South Region were up 9.3 percent quarter-over- quarter, single-family units under construction were down over 28 percent.   Gross margin was 19.7 percent in the current quarter, down from 21.5 percent in the fourth quarter of 2008. Continued pricing pressure combined with lower sales volume negatively impacted gross margins. We were, however, able to limit the cash flow impact of the sales and gross margin decline by reducing our operating expenses. Adjusted EBITDA was negative $12.2 million in the current quarter, down only $0.9 million from the fourth quarter of 2008 on $38.9 million less sales."

Mr. Crow continued, "We ended the quarter with available liquidity of $68.4 million, which consisted of cash of $84.1 million less $15.7 million on deposit supporting a shortfall in our $35 million minimum liquidity covenant. These amounts do not reflect our rights offering and debt exchange, which closed in January 2010. Net cash used for the fourth quarter of 2009 was $5.8 million, excluding $4.7 million of payments related to the recapitalization transaction and a $1.7 million payment to settle one of our interest rate swaps. Net cash used for the year was only $28.1 million, excluding these same costs as well as revolving credit activity and federal income tax refunds. Reductions in working capital contributed approximately $9.5 million in cash during the quarter and $34.4 million for the year. We do not expect the monetization of working capital to be a significant source of cash in 2010. Our asset utilization continued to improve as our working capital expressed as a percentage of sales was 9.4 percent, excluding cash and income tax receivables, down from 13.3 percent in the fourth quarter of last year. Accounts receivable days decreased to 37.8 days for the quarter from 45.8 days last year as we were successful in collecting older accounts and reducing our overall delinquency rate. Our inventory turns for the quarter improved to 9.9x from 7.7x last year. Partially offsetting these improvements, accounts payable days fell to 28.5 days from 30.2 days last year. Our focus on working capital management resulted in cash conversion days dropping to 46.1 days for the quarter, a 17.1 day improvement over the fourth quarter of 2008."

Fourth Quarter 2009 Results Compared to Fourth Quarter 2008

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

• Sales were $154.0 million compared to $192.9 million last year, a decline of $38.9 million or 20.2 percent.  Commodity inflation in the current quarter increased sales by an estimated 2 percent, indicating a drop in sales volume of approximately 22 percent. During the current quarter, single-family starts in the South Region were up 9.3 percent, but single-family units under construction fell over 28 percent. Historically, we have measured our market share gains and losses based upon starts in our specific markets, which have generally shown a strong correlation to units under construction. However, the current disparate trend between starts and units under construction has produced uncertain results from these calculations; though our sales per unit under construction increased 11.3 percent during the quarter, indicating we may have gained market share.   
• Gross margin percentage was 19.7 percent, down from 21.5 percent, a 1.8 percentage point decrease. Specifically, our gross margin percentage decreased 1.4 percentage points due to price, 0.3 percentage points due to volume (a result of fixed costs within costs of goods sold) and 0.1 percentage points due to a shift in sales mix.
• SG&A expenses decreased $13.4 million, or 21.2 percent. As a percentage of sales, SG&A expense decreased from 32.7 percent in 2008 to 32.3 percent in 2009, on $38.9 million less sales. Average full-time equivalent employees, excluding discontinued operations, for the fourth quarter 2009 were 2,800, down 25.4 percent from the fourth quarter 2008 average. Our salaries and benefits expense, excluding stock compensation expense, fell $7.3 million, or 21.9 percent. This decline was near 100 percent variable with our sales volume decline of 22 percent. Delivery expenses fell $1.8 million, or 16.0 percent, stock compensation expense fell $1.8 million, or 82.4 percent, and Office G&A expenses fell $1.7 million, or 17.5 percent.
• There were no asset impairment charges in the fourth quarter of 2009. In the fourth quarter of 2008, we recorded asset impairment charges of $36.8 million before tax, or $0.66 per share net of tax. We recorded a goodwill impairment charge of $36.4 million related to our Florida business unit and an asset impairment charge of $0.4 million related to land we have held for sale. 
• Interest expense was $7.5 million in the current quarter, an increase of $0.7 million from the fourth quarter of 2008.
• Loss from continuing operations before income taxes was $27.0 million, or a loss of $0.68 per diluted share, compared to $65.5 million, or a loss of $1.68 per diluted share, in the fourth quarter of 2008.
• We recorded an income tax benefit of $33.2 million during the quarter compared to $17.3 million in the fourth quarter of 2008. Our benefit was increased during the current quarter by a reduction of the after-tax, non-cash valuation allowance of $21.1 million, or $0.53 per share, primarily due to recently enacted tax legislation that allowed for an extended carryback of net operating losses generated in 2009. We recorded an after-tax, non-cash valuation allowance of $4.3 million, or $0.11 per share, related to our net deferred tax assets in the fourth quarter of 2008.  Absent the valuation allowance and impacts of changes in tax law, our tax benefit rate would have been 36.9 percent for the fourth quarter of 2009. Absent the valuation allowance and the non-deductible portion of the goodwill impairment for the fourth quarter of 2008, our tax benefit rate would have been 37.5 percent.
• Income (loss) from continuing operations was $6.2 million, or $0.16 per diluted share, compared to a loss of $48.2 million, or $1.24 loss per diluted share, in the same quarter last year. Excluding the valuation allowance, our loss from continuing operations per diluted share was $0.37 for the current quarter compared to a loss of $0.47 for the fourth quarter of 2008, excluding the valuation allowance and asset impairment.
• Income (loss) from discontinued operations, which includes the results of our discontinued Ohio and New Jersey operations, represented income of $0.3 million, or $0.01 per diluted share, for the fourth quarter of 2009, compared to a loss of $10.7 million, or $0.27 loss per diluted share, for the fourth quarter of 2008. 
• Net income was $6.6 million, or $0.17 per diluted share, compared to net loss of $58.9 million, or $1.51 loss per diluted share, in the fourth quarter of 2008. 
• Diluted weighted average shares outstanding were 39.9 million compared to 38.9 million.
• Adjusted EBITDA was a loss of $12.2 million compared to a loss of $11.3 million last year. See reconciliation attached.

Fiscal Year 2009 Financial Results Compared to Fiscal Year 2008   

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

• Sales were $677.9 million compared to $992.0 million, a decline of $314.1 million or 31.7 percent. Commodity deflation in 2009 decreased sales by an estimated 3 percent, indicating a drop in sales volume of approximately 29 percent. During 2009, single-family starts in the South Region were down 28.3 percent but single-family units under construction fell 37.7 percent. Historically, we have measured our market share gains and losses based upon starts in our specific markets, which have generally shown a strong correlation to units under construction. However, the current disparate trend between starts and units under construction has produced uncertain results from these calculations; though our sales per unit under construction increased 9.7 percent during 2009, indicating we may have gained market share.
• Gross margin percentage was 21.0 percent, down from 21.7 percent, a 0.7 percentage point decline from last year. Specifically, our gross margin percentage decreased by 0.6 percentage points due to volume (fixed costs in costs of goods sold) and 0.3 percentage points due to a shift in sales mix toward installed product sales, which carry a lower gross margin percentage than distributed sales. Our gross margin percentage increased by 0.2 percentage points due to price.
• Selling, general and administrative expenses decreased $78.6 million, or 28.1 percent. As a percentage of sales, however, SG&A expense increased from 28.2 percent in 2008 to 29.7 percent in 2009 which is reflective of fixed cost items becoming a larger percentage of our SG&A. Average full time equivalent employees, excluding discontinued operations, for 2009 were 33.0 percent lower than 2008, while our salaries and benefits expense, excluding stock compensation expense, fell $45.1 million, or 28.8 percent, adjusting close to 100 percent variable with our sales volume decline of 29 percent. Delivery expenses fell $13.9 million, or 26.2 percent, stock compensation expense fell $5.6 million, or 65.0 percent, occupancy expenses fell $3.7 million, or 15.9 percent, and Office G&A expenses fell $9.0 million, or 27.5 percent.
• We recorded an asset impairment charge of $0.5 million, or $0.00 per diluted share net of tax, related to land we have held for sale. In the prior year, we recorded asset impairment charges of $46.9 million before tax, or $0.82 per diluted share net of tax.  We recorded goodwill impairment charges of $39.9 million related to our Florida business unit. Additionally, we recorded asset impairment charges of $7.0 million which consisted of $4.4 million of other intangible assets, $2.2 million of fixed assets, and $0.4 million related to land held for sale.
• We recorded facility closure costs of $1.2 million in both 2009 and 2008. The majority of the facility closure costs relate to future lease obligations on our closed facilities. 
• Interest expense was $27.0 million in 2009, an increase of $1.4 million over 2008 primarily due to the write-off of $1.2 million in debt issue costs related to the reduction of our revolving credit facility from $350 million to $250 million in the first quarter of 2009.
• We recorded an income tax benefit of $30.8 million during 2009 compared to a tax benefit of $17.7 million during 2008. Our benefit was reduced by an after tax, non-cash valuation allowance of $3.9 million, or $0.10 per share, and $31.6 million, or $0.81 per share, related to our net deferred tax assets for 2009 and 2008, respectively. Absent the valuation allowance and impacts of changes in tax law for 2009, as well as the non-deductible portion of the goodwill impairment for 2008, our effective tax rate would have been 37.2 percent and 38.0 percent, for 2009 and 2008, respectively. 
• Loss from continuing operations was $56.9 million, or $1.45 loss per diluted share, compared to $120.6 million, or $3.10 loss per diluted share.
• Loss from discontinued operations, which includes the results of our discontinued Ohio and New Jersey operations, was $5.0 million, or $0.13 per diluted share, for 2009, compared to $18.9 million, or $0.49 loss per diluted share, for 2008. 
• Net loss was $61.9 million, or $1.58 loss per diluted share, in 2009 compared to $139.5 million, or $3.59 loss per diluted share, in 2008.
• Diluted weighted average shares outstanding were 39.2 million compared to 38.8 million.
• Adjusted EBITDA was a loss of $35.1 million compared to a loss of $32.4 million for 2008. See attached reconciliation.

Liquidity and Capital Resources

• Our available liquidity was $68.4 million at December 31, 2009, and outstanding borrowings under our revolving credit facility were $20 million. Borrowing availability at December 31, 2009, was $0, as approximately $15.7 million of our $84.1 million cash balance at year-end supported a shortfall in the $35.0 million minimum liquidity covenant under our revolving credit facility. 
• Operating cash flow was $(2.7) million in the current year compared to $(28.9) million in 2008. 
• Capital expenditures were $2.1 million in 2009 as compared to $8.2 million in 2008.

Rights Offering and Debt Exchange

On January 22, 2010, we announced the completion of our rights offering and debt exchange. The closing of these transactions reduced our long-term debt by $130 million and extended the maturity of $139.7 million of our remaining debt of $169.2 million to 2016. The rights offering also provided $65 million in net proceeds to the company, resulting in an estimated cash position at closing of $142 million. We also expect to receive a $32-$34 million income tax refund in the second quarter of 2010.

Outlook

The company cannot predict the duration of the current market conditions or the strength of future recovery in the housing market. We believe housing starts will stabilize and may improve slightly in certain markets in 2010. The extension of the federal tax credit for first-time homebuyers is expected to contribute somewhat to this improvement. Increased competitive pressure arising from the current conditions may continue to have a negative impact on our sales, gross margins and operating results and may be a limiting factor in our ability to grow market share.

Mr. Sherman concluded, "The successful closing of our rights offering and debt exchange in early 2010 allowed us to reduce our outstanding debt by $130 million and extend the maturity of most of our remaining debt until 2016. These transactions along with an income tax refund of $32-$34 million that we expect to receive in the second quarter of 2010 will certainly improve our liquidity position and provide us with a substantial amount of additional cash to help fund our operations during this difficult housing environment, and potentially take advantage of acquisition opportunities. Although these challenging industry conditions persist, we believe that continued execution of our action plan to generate new business, conserve liquidity, contain costs, and prudently manage credit will help us to be a stronger, more efficient company when the housing market begins its recovery."

Conference Call

To participate in the teleconference, please dial into the call a few minutes before the start time: 888-819-8038 (U.S. and Canada) and 913-312-1302 (international.) A replay of the call will be available at 3:00 p.m. Central Time through February 24th. To access the replay, please dial 888-203-1112 (U.S. and Canada) and 719-457-0820 (international) and refer to pass code 6439008. The live webcast and archived replay can also be accessed on the company's Web site at www.bldr.com. 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 in 9 states, principally in the southern and eastern United States, and has 55 distribution centers and 51 manufacturing facilities, many of which are located on the same premises as our distribution facilities. 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 Web site 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 the impact of 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.