BlueLinx issued the following announcement on Nov. 2.
BlueLinx Holdings Inc. (NYSE: BXC), a leading U.S. wholesale distributor of building products, today reported financial results for the three months ended October 2, 2021.
THIRD QUARTER 2021 HIGHLIGHTS
(All comparisons versus the prior-year period unless otherwise noted)
- Net sales of $971 million, an increase of 11%
- Net income of $47 million, a decrease of 14%
- Adjusted EBITDA of $79 million, a decrease of 2%
- Strong cash flow from operations of $104 million, up 70%
- Net leverage ratio reduced for the sixth consecutive quarter to 1.3x
- Completed $300 million 6.0% senior secured notes offering in October 2021
“Our excellent third quarter performance was highlighted by continued growth in specialty product sales and robust cash flow generation,” continued Gibson. “We delivered specialty product gross margins well above historical averages as we continue to capitalize on supplier-led price increases and our value-added services. In contrast, our structural product gross margins were significantly impacted by the historical decline of over 60% in commodity wood prices that began at the end of the second quarter. Despite that, we managed inventory and pricing exceptionally well, quickly absorbing the impact and finishing the quarter with strong structural gross margins.
“Looking ahead, our focus remains on developing world class employee engagement and customer service to drive growth within higher-gross margin product and service categories,” continued Gibson. “The demand outlook for construction materials remains strong, with expectations for continued growth in domestic new home construction and renovation activity over a multi-year period.”
“We generated strong cash flow from operations of $104 million in the third quarter, an increase of approximately $43 million versus the prior-year period. In addition, we continued to reduce our net leverage for the sixth consecutive quarter,” stated Kelly Janzen, CFO of BlueLinx. “In October, we issued $300 million of 6.0% senior secured notes due 2029, increasing our access to long-term capital at an attractive fixed rate. This offering had no impact to our net leverage profile, as a majority of the proceeds from the offering were used to reduce the outstanding balance on our existing revolving credit facility. Following this transaction and our strong cash flow generation in the third quarter, we now have $433 million of available liquidity from cash on hand and excess availability under our revolving credit facility to support the continued growth of the business.”
THIRD QUARTER FINANCIAL PERFORMANCE
For the three months ended October 2, 2021, BlueLinx generated net sales of $971 million, an increase of $100 million, or 11%, when compared to the prior-year period. BlueLinx reported third quarter net income of $47 million, or $4.74 per diluted share, versus $55 million, or $5.72 per diluted share, in the prior-year period. The year over year decrease in net income is due primarily to the significant decline in the market value of higher-cost commodity wood product inventory sold during the third quarter and to a lesser extent, an approximately $8 million, non-recurring gain on the sale of property recorded in Q3 2020.
Net sales of specialty products, which includes engineered wood, industrial products, cedar, moulding, siding, metal products and insulation, increased $145 million year over year, or 29%, to $641 million in the third quarter. Specialty products gross profit increased $62 million year over year to $148 million, resulting in a gross margin of 23.0%, up 560 basis points. These increases in both net sales and gross profit were primarily driven by price increases reflective of both continued robust demand and ongoing supply constraints. Specialty products experienced a low double-digit sales volume decline year-over-year due to widespread supply chain disruptions. Notably, however, sales volume increased year over year in some key, high-value categories, including industrial products, moulding and siding.
Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, declined $45 million year over year, or 12%, to $330 million in the third quarter due to significant price deflation for commodity wood products. This price deflation adversely impacted the market value of higher cost commodity wood product inventory sold through the first two months of the period. For the quarter, gross profit was 1.7% of net sales with gross profit improving to 7.0% in September.
Adjusted EBITDA was $79 million in the third quarter, compared to $81 million in the prior-year period. The Company generated cash flow from operations of $104 million and free cash flow of $102 million in the third quarter 2021, up 70% and 66%, respectively, from the prior-year period. Free cash flow is net of $2.5 million of capital expenditures in the period as the Company continued to increase investments in its trailer fleet and distribution facilities to drive efficiency and scalability.
DEBT AND LIQUIDITY
As of October 2, 2021, total debt and net debt were $500 million, which included the balance on our revolving credit facility and $271 million of long-term finance lease obligations. Our net leverage ratio, which we calculate as the ratio of net debt to trailing twelve month Adjusted EBITDA was 1.3x, down from 4.1x in the prior year period.
On October 18, 2021, the Company completed an offering of $300 million aggregate principal amount of its 6.0% Senior Secured Notes due 2029. In conjunction with this transaction, the capacity under the Company’s revolving credit facility was reduced to $350 million, down from $600 million. A majority of the proceeds of the offering were used to pay down all outstanding borrowings under the Company’s revolving credit facility.
Following these actions, as of October 29, 2021, available liquidity was $433 million, including $87 million of cash on hand and approximately $346 million of available capacity on our revolving credit facility. Total debt was at $577 million and net debt was $490 million. Our net leverage ratio remained at approximately 1.3x.
BUSINESS UPDATE
BlueLinx remains committed to driving a culture of profitable growth within new and existing product lines and geographies, while positioning the company for long-term value creation. The following initiatives represent key areas of management focus:
- Foster a performance-driven culture committed to profitable growth. BlueLinx is currently focused on enhancing the customer experience; accelerating organic growth within specific product and solutions offerings where the Company is uniquely advantaged; and deploying capital to drive sustained margin expansion, grow cash flow and maintain continued profitable growth.
- Migrate revenue mix toward higher-margin specialty product categories. BlueLinx expects to pursue a revenue mix increasingly weighted toward higher-margin, in-demand specialty product categories. Management also intends to expand on value-added service offerings designed to simplify complex customer sourcing requirements, together with marketing, inventory and pricing services afforded by the Company’s national platform.
- Maintain a disciplined capital structure and pursue high-return investments that support growth. On a trailing twelve-month basis, BlueLinx has significantly transformed its balance sheet, underscored by a material reduction in its net leverage and improved access to liquidity. Given this, the Company expects to accelerate capital investments designed to improve the efficiency and reliability of existing assets, including distribution centers and fleet assets. In the fourth quarter, the Company expects to invest up to $10 million in its trailer fleet and distribution facilities to improve operational performance and productivity. The Company also continues to evaluate potential acquisition targets that complement its existing capabilities, customer exposure, geographic reach, or a combination thereof.
- Domestic residential construction activity remained elevated, contributing to sustained demand for construction materials across the Company’s end-markets.
- Specialty products gross margin in October remained consistent with the third quarter given continued robust demand and favorable pricing dynamics across key product categories.
- Structural products gross margin for October was in the low double digits, up sharply versus third quarter. The Company continues to prudently manage structural product inventories, mitigating spot market price exposure.
BlueLinx will host a conference call on November 3, 2021, at 10:00 a.m. Eastern Time, accompanied by a supporting slide presentation.
A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of the BlueLinx website at http://bluelinxco.com/webcast-presentations, and a replay of the webcast will be available at the same site shortly after the webcast is complete.
To participate in the live teleconference:
| Domestic Live: | 1-877-407-4018 |
| Passcode: | 13723645 |
| Domestic Replay: | 1-844-512-2921 |
| Passcode: | 13723645 |
The Company reports its financial results in accordance with GAAP. The Company also believes that presentation of certain non-GAAP measures may be useful to investors and may provide a more complete understanding of the factors and trends affecting the business than using reported GAAP results alone. Any non-GAAP measures used herein are reconciled to their most directly comparable GAAP measures herein or in the financial tables accompanying this news release. The Company cautions that non-GAAP measures should be considered in addition to, but not as a substitute for, the Company’s reported GAAP results.
Adjusted EBITDA . BlueLinx defines Adjusted EBITDA as an amount equal to net income plus interest expense and all interest expense related items, income taxes, depreciation and amortization, and further adjusted for certain non-cash items and other special items, including compensation expense from share-based compensation, one-time charges associated with the legal and professional fees and integration costs related to the Cedar Creek acquisition, and gains on sales of properties including amortization of deferred gains.
The Company presents Adjusted EBITDA because it is a primary measure used by management to evaluate operating performance. Management believes this metric helps to enhance investors’ overall understanding of the financial performance and cash flows of the business. Management also believes Adjusted EBITDA is helpful in highlighting operating trends. Adjusted EBITDA is frequently used by securities analysts, investors, and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results. However, Adjusted EBITDA is not a presentation made in accordance with GAAP and is not intended to present a superior measure of our financial condition from those measures determined under GAAP. Adjusted EBITDA, as used herein, is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. This non-GAAP measure is reconciled in the “Reconciliation of Non-GAAP Measurements” table later in this release.
Free Cash Flow . BlueLinx defines free cash flow as net cash provided by operating activities less total capital expenditures. Free cash flow is a measure used by management to assess our financial performance, and we believe it is useful for investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures that can be used for, among other things, investment in our business, strengthening our balance sheet, and repayment of our debt obligations. Free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other nondiscretionary expenditures that are not deducted from the measure. Free cash flow is not a presentation made in accordance with GAAP and is not intended to present a superior measure of financial condition from those determined under GAAP. Free cash flow, as used herein, is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. This non-GAAP measure is reconciled in the “Reconciliation of Non-GAAP Measurements” table later in this release.
Net Debt and Net Leverage Ratio . BlueLinx calculates net debt as its total short- and long-term debt, including outstanding balances under our term loan and revolving credit facility and the total amount of its obligations under financing leases, less cash and cash equivalents. We believe that net debt is useful to investors because our management reviews our net debt as part of its management of overall liquidity, financial flexibility, capital structure and leverage, and creditors and credit analysts monitor our net debt as part of their assessments of our business.
We determine our overall net leverage ratio by dividing our net debt by trailing twelve-month Adjusted EBITDA. We believe that this ratio is useful to investors because it is an indicator of our ability to meet our future financial obligations. In addition, the ratio is a measure that is frequently used by investors and creditors.
Our net debt and overall net leverage ratio are not presentations made in accordance with GAAP and are not intended to present a superior measure of our financial condition from measures and ratios determined under GAAP. In addition, our net debt and overall net leverage ratio, as used herein, are not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. This non-GAAP measure is reconciled in the “Reconciliation of Non-GAAP Measurements” table later in this release.
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