Growth in Structural Component Drives BMC Stock Q1 Sales

Originally published by the following source: BMC Stock Holdings, Inc.May 5, 2016

The following article was produced and published by the source linked to above, who is solely responsible for its content. SBC Magazine is publishing this story to raise awareness of information publicly available online and does not verify the accuracy of the author’s claims. As a consequence, SBC cannot vouch for the validity of any facts, claims or opinions made in the article.

BMC Stock Holdings, Inc. “BMC Stock” or the “Company”, a diversified lumber and building materials distributor and solutions provider that sells primarily to new construction and remodeling contractors, today reported its financial results for the first quarter ended March 31, 2016.

First Quarter 2016 Financial Highlights and Merger Integration Update
On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS”) completed its merger transaction (the “Merger”) with Building Material Holdings Corporation (“BMC”).  As a result of the Merger, current year results reported pursuant to U.S. generally accepted accounting principles (“GAAP”) are not comparable to prior year periods.  For a more detailed explanation, see the “First Quarter 2016 Financial Results - Basis of Presentation” section of this press release.

During the first quarter of 2016, the Company generated significant improvements in its operating results while vigorously executing its integration plan.

  • Net sales increased 148.4% to $727.4 million, compared to the first quarter of 2015, and increased  23.2%, compared to Adjusted net sales of $590.4 million in the first quarter of 2015
  • Net loss of $6.8 million, or $(0.10) per diluted share, including Merger and integration costs of $2.8 million and integration-related impairment charges of $11.9 million, compared to a net loss of $3.6 million, or $(0.09) per diluted share in the first quarter of 2015
  • Adjusted EBITDA increased $18.1 million to $33.7 million, compared to $15.6 million in the first quarter of 2015
  • Adjusted net income of $5.4 million, or $0.08 per diluted share, compared to Adjusted net loss of $(0.3) million, or $0.00 per diluted share in the first quarter of 2015
  • Net cash provided by operating activities increased $30.8 million, to $13.6 million, compared to net cash used in operating activities of $17.2 million in the first quarter of 2015
  • Since closing the Merger, the Company implemented cost synergy initiatives totaling $17 million in future annual run rate savings, and remains on track to achieve annual run rate synergies of $40 to $50 million by the end of 2017

Commenting on first quarter 2016 results, Peter Alexander, President and Chief Executive Officer of BMC Stock, stated “Calendar year 2016 is off to a great start, as outsized growth rates in our structural components and millwork, doors and windows product groups, along with favorable weather conditions, helped drive a 23.2% increase in net sales, including 13.5% organic volume improvement per sales day, compared to Adjusted net sales in the first quarter of 2015.  More importantly, we successfully leveraged our strong sales growth profitably, as Adjusted EBITDA margin improved 200 basis points to 4.6%, compared to the first quarter of 2015.”

“Employees across our Company continue to identify and share operational best practices while staying sharply focused on our number one priority - providing best in class customer service and solutions,” added Mr. Alexander.  “In numerous locations across our footprint, teams are reorganizing our distribution, structural component and millwork operations in order to reduce cost, maximize capacity utilization, prepare for the introduction of our Ready-Frame product offering in eight new markets, and promote cross-selling opportunities across the entire sales force.  Furthermore, we are moving quickly to integrate our operations on a single information technology platform, which will solidify the foundation for further development of our customer-centric eBusiness offerings.”

Jim Major, Executive Vice President and Chief Financial Officer of BMC Stock, commented,  “We are pleased with our first quarter 2016 financial performance and the continued progress being made on maximizing Merger-related cost synergies and the identification of potential revenue synergies.   Driven by a combination of profitable sales growth and focused operating expense management, our sales and services teams delivered Adjusted EBITDA pull-through of 13.2% of incremental Adjusted net sales dollars for the first quarter of 2016.  This solid performance contributed to a significant improvement in operating cash flow, while Adjusted net debt declined to $422.4 million as of March 31, 2016, which is equivalent to 2.9 times our Adjusted EBITDA for the twelve months ended March 31, 2016.”

First Quarter 2016 Financial Results - Basis of Presentation
The Merger was accounted for as a “reverse acquisition” under the acquisition method of accounting, with SBS treated as the legal acquirer and BMC treated as the acquirer for accounting purposes.  As such, the Company has accounted for the Merger by using BMC historical information and accounting policies and adding the assets and liabilities of SBS as of the completion date of the Merger at their estimated fair values.  As a result, current year results reported pursuant to U.S. GAAP are not comparable to prior year periods.

For informational purposes only, the Company has furnished Adjusted financial information for the three months ended March 31, 2016 and the three months ended March 31, 2015.  The prior year Adjusted financial information combines the historical results of BMC for the first quarter of 2015 with the historical results of SBS for the first quarter of 2015.  The Adjusted financial information has not been prepared in accordance with GAAP, and is based upon information and assumptions deemed appropriate by the Company’s management.  This Adjusted financial information is not necessarily indicative of what the Company’s results actually would have been had the Merger been completed as of January 1, 2015.  In addition, this Adjusted financial information is not indicative of future results or current financial conditions and does not reflect any anticipated synergies, operating efficiencies, cost savings or integration costs that have or may result in the future from the Merger.  All Adjusted financial information should be read in conjunction with separate historical financial statements and accompanying notes filed with the Securities and Exchange Commission (“SEC”).  A reconciliation of Adjusted financial measures to GAAP financial measures is provided in the “Reconciliation of GAAP to Non-GAAP Measures” section of the press release.

First Quarter 2016 Financial Results Compared to Prior Year Period
Net sales in the first quarter of 2016 increased 148.4% to $727.4 million, compared to the first quarter of 2015, primarily as a result of the Merger and the acquisitions of VNS Corporation (“VNS”) and Robert Bowden, Inc. (“RBI”).  Net sales in the first quarter of 2016 increased 23.2% to $727.4 million, compared to Adjusted net sales in the first quarter of 2015.  The Company estimates net sales increased 10.8% as a result of acquisitions completed in 2015 (excluding the Merger), 13.5% from other volume growth per sales day and 1.6% from one additional sales day compared to the prior year period, and decreased 2.7% as a result of lumber and sheet goods commodity deflation.

Gross profit in the first quarter of 2016 increased 149.8% to $166.6 million, compared to the first quarter of 2015, primarily driven by the Merger and the acquisitions of VNS and RBI.  First quarter 2016 Adjusted gross profit grew 22.8%, to $169.5 million, compared to Adjusted gross profit in the first quarter of 2015, primarily as a result of increased sales volume.

First quarter 2016 selling, general and administrative expenses increased 125.5% to $141.8 million, compared to the first quarter of 2015, primarily as a result of the Merger and the acquisitions of VNS and RBI.

Depreciation expense in the first quarter of 2016, including the portion reported within cost of sales, increased to $11.4 million, compared to $4.6 million in the first quarter of 2015.  The increase was primarily driven by fixed assets acquired through the Merger and the acquisitions of VNS and RBI, as well as replacements and additions of delivery fleet, material handling equipment and operating equipment.

Amortization expense in the first quarter of 2016 was $5.2 million, compared to $0.0 million in the first quarter of 2015.  The amortization expense recognized for the three months ended March 31, 2016 relates to intangible assets acquired through the Merger and the acquisitions of VNS and RBI.

Interest expense in the first quarter of 2016 was $8.2 million, including $0.9 million of non-cash amortized debt issuance costs, compared to $6.7 million in the first quarter of 2015.  This increase was primarily the result of borrowings assumed in the Merger.

For the first quarter of 2016, the Company reported an operating loss of $3.9 million, compared to operating income of $0.4 million in the first quarter of 2015, and a net loss of $6.8 million, or $(0.10) per diluted share, compared to a net loss of $3.6 million, or $(0.09) per diluted share in the first quarter of 2015.  First quarter 2016 results included approximately $2.8 million in Merger and integration costs and $11.9 million of integration-related impairment charges associated with an Enterprise Resource Planning system which had been under development prior to the Merger.

Adjusted net income in the first quarter of 2016 was $5.4 million, or $0.08 per diluted share, compared to Adjusted net loss of $(0.3) million, or $0.00 per diluted share, in the first quarter of 2015.  Adjusted EBITDA in the first quarter of 2016 was $33.7 million, compared to $15.6 million in the first quarter of 2015.

A reconciliation of non-GAAP financial measures to comparable GAAP financial measures is provided in the “Reconciliation of GAAP to Non-GAAP Measures” section of this press release.

Liquidity and Capital Resources
Total liquidity as of March 31, 2016 was approximately $159.1 million, which includes cash and cash equivalents of $4.4 million and $154.7 million of borrowing availability under our asset-backed revolver.  Capital expenditures during the first quarter of 2016 totaled $5.5 million, primarily to fund purchases of vehicles and equipment to support increased sales volume and replace aged assets, and facility and technology investments to support our operations.  In addition, the Company acquired approximately $2.7 million of assets, consisting primarily of material handling equipment, under capital lease arrangements.

Outlook
“Looking forward in 2016, we believe that macro-economic trends will continue to support steady growth across the residential construction market and our business is well positioned to thrive in the current environment,” stated Mr. Alexander.  “We remain focused on expeditiously integrating the BMC and SBS businesses, investing in sales and service capabilities that differentiate us from our local competitors, and optimizing profitable growth opportunities by creating solutions focused on critical industry needs.”

 

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

 

 

 

 

 

Three Months Ended March 31,

(in thousands, except per share amounts)

 

2016

 

2015

Net sales

 

 

 

 

Building products

 

$

553,379

 

 

$

213,874

 

Construction services

 

174,039

 

 

78,952

 

 

 

727,418

 

 

292,826

 

Cost of sales

 

 

 

 

Building products

 

420,531

 

 

160,813

 

Construction services

 

140,270

 

 

65,316

 

 

 

560,801

 

 

226,129

 

Gross profit

 

166,617

 

 

66,697

 

 

 

 

 

 

Selling, general and administrative expenses

 

141,781

 

 

62,861

 

Depreciation expense

 

8,792

 

 

3,444

 

Amortization expense

 

5,245

 

 

 

Impairment of assets

 

11,883

 

 

 

Merger and integration costs

 

2,836

 

 

 

 

 

170,537

 

 

66,305

 

(Loss) income from operations

 

(3,920

)

 

392

 

Other income (expense)

 

 

 

 

Interest expense

 

(8,231

)

 

(6,730

)

Other income, net

 

1,455

 

 

669

 

Loss before income taxes

 

(10,696

)

 

(5,669

)

Income tax benefit

 

(3,940

)

 

(2,108

)

Net loss

 

$

(6,756

)

 

$

(3,561

)

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

65,338

 

 

38,984

 

Net loss per common share, basic and diluted

 

$

(0.10

)

 

$

(0.09

)

 

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except per share amounts)

 

March 31,
 2016

 

December 31,
 2015

Assets

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

4,364

 

 

$

1,089

 

Accounts receivable, net of allowances

 

329,096

 

 

303,176

 

Inventories, net

 

254,118

 

 

243,960

 

Costs in excess of billings on uncompleted contracts

 

24,122

 

 

22,528

 

Income taxes receivable

 

10,297

 

 

11,390

 

Prepaid expenses and other current assets

 

29,830

 

 

31,817

 

Total current assets

 

651,827

 

 

613,960

 

Property and equipment, net of accumulated depreciation

 

280,819

 

 

295,978

 

Deferred income taxes

 

2,500

 

 

 

Customer relationship intangible assets, net of accumulated amortization

 

173,834

 

 

177,036

 

Other intangible assets, net of accumulated amortization

 

8,857

 

 

10,900

 

Goodwill

 

254,616

 

 

254,664

 

Other long-term assets

 

18,253

 

 

18,601

 

Total assets

 

$

1,390,706

 

 

$

1,371,139

 

Liabilities and Stockholders' Equity

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable

 

$

177,961

 

 

$

135,632

 

Accrued expenses and other liabilities

 

83,077

 

 

91,888

 

Billings in excess of costs on uncompleted contracts

 

16,021

 

 

15,888

 

Interest payable

 

1,384

 

 

6,882

 

Current portion:

 

 

 

 

Long-term debt and capital lease obligations

 

9,415

 

 

10,129

 

Insurance deductible reserves

 

18,566

 

 

17,888

 

Total current liabilities

 

306,424

 

 

278,307

 

Insurance deductible reserves

 

38,130

 

 

37,334

 

Long-term debt

 

399,082

 

 

400,216

 

Long-term portion of capital lease obligations

 

16,874

 

 

16,495

 

Deferred income taxes

 

 

 

3,021

 

Other long-term liabilities

 

6,171

 

 

6,834

 

Total liabilities

 

766,681

 

 

742,207

 

Commitments and contingencies

 

 

 

 

Stockholders' equity

 

 

 

 

Common stock, $0.01 par value, 300.0 million shares authorized, 65.4 million and 65.4 million shares issued, and 65.4 million and 65.3 million outstanding at March 31, 2016 and December 31, 2015, respectively

 

654

 

 

654

 

Additional paid-in capital

 

628,774

 

 

626,402

 

Retained (deficit) earnings

 

(4,454

)

 

2,302

 

Treasury stock, at cost, 0.1 million and less than 0.1 million shares at March 31, 2016 and December 31, 2015, respectively

 

(949

)

 

(426

)

Total stockholders' equity

 

624,025

 

 

628,932

 

Total liabilities and stockholders' equity

 

$

1,390,706

 

 

$

1,371,139

 

 

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Three Months Ended March 31,

(in thousands)

 

2016

 

2015

Cash flows from operating activities

 

 

 

 

Net loss

 

$

(6,756

)

 

$

(3,561

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

Depreciation expense

 

11,437

 

 

4,628

 

Amortization of intangible assets

 

5,245

 

 

 

Amortization of debt issuance costs

 

915

 

 

569

 

Amortization of original issue discount

 

62

 

 

61

 

Amortization of inventory step-up charges

 

2,884

 

 

 

Deferred income taxes

 

(5,521

)

 

 

Non-cash stock compensation expense

 

1,889

 

 

848

 

Impairment of assets

 

11,883

 

 

 

Loss (gain) on sale of property, equipment and real estate

 

18

 

 

(537

)

Gain on insurance proceeds

 

(1,003

)

 

 

Change in assets and liabilities

 

 

 

 

Accounts receivable, net of allowances

 

(25,920

)

 

984

 

Inventories, net

 

(13,042

)

 

(2,660

)

Accounts payable

 

43,425

 

 

1,451

 

Other assets and liabilities

 

(11,887

)

 

(18,980

)

Net cash provided by (used in) operating activities

 

13,629

 

 

(17,197

)

Cash flows from investing activities

 

 

 

 

Change in restricted assets

 

 

 

21,017

 

Purchases of property, equipment and real estate

 

(5,471

)

 

(6,758

)

Proceeds from sale of property, equipment and real estate

 

217

 

 

1,065

 

Insurance proceeds

 

1,003

 

 

 

Other investing activities

 

 

 

101

 

Net cash (used in) provided by investing activities

 

(4,251

)

 

15,425

 

Cash flows from financing activities

 

 

 

 

Proceeds from revolving line of credit

 

364,270

 

 

 

Repayments of proceeds from revolving line of credit

 

(364,978

)

 

 

Borrowings under other notes

 

 

 

1,138

 

Principal payments on other notes

 

(2,043

)

 

(1,411

)

Payments on capital lease obligations

 

(1,933

)

 

(1,087

)

Other financing activities

 

(1,419

)

 

(404

)

Net cash used in financing activities

 

(6,103

)

 

(1,764

)

Net increase (decrease) in cash and cash equivalents

 

3,275

 

 

(3,536

)

Cash and cash equivalents

 

 

 

 

Beginning of period

 

1,089

 

 

63,262

 

End of period

 

$

4,364

 

 

$

59,726

 

 

BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES

Net Sales by Product Category

(unaudited)

 

 

 

 

 

 

 

Three Months Ended
 March 31, 2016

 

Three Months Ended
 March 31, 2015

 

 

(in thousands)

Net Sales

 

% of Sales

 

Net Sales

 

% of Sales

 

% Change

Structural components

$

110,381

 

 

15.2

%

 

$

45,432

 

 

15.5

%

 

143.0

%

Lumber & lumber sheet goods

209,302

 

 

28.8

%

 

91,100

 

 

31.1

%

 

129.7

%

Millwork, doors & windows

217,899

 

 

30.0

%

 

82,135

 

 

28.0

%

 

165.3

%

Other building products & services

189,836

 

 

26.0

%

 

74,159

 

 

25.4

%

 

156.0

%

Total net sales

$

727,418

 

 

100.0

%

 

$

292,826

 

 

100.0

%

 

148.4

%