Bluelinx Holdings Inc.

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2020 investor relations conference call. At this time, all participants line are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. Thank you. I would like to hand the conference over to your speaker today, Ms. Mary Moll. Please go ahead, ma'am.

Thank you, Annie, and good morning, everyone. We appreciate you joining us for the Blue Links 2020 First Quarter Earnings Conference Call. The earnings release is posted in the investor section of our website at www.bluelinksco.com. We will also be referring to a supplementary presentation as we go through the call. The presentation is available on our website as well. Joining us on the call today are Mitch Lewis, Chief Executive Officer, and Kelly Jansen, Chief Financial Officer. Before we get started, I'd like to remind you that this presentation includes forward-looking statements. These statements are subject to risk and uncertainties that could cause our actual results to differ materially from those reflected in the statements. Those risks and uncertainties are described in our earnings release and discussed in our filings with the SEC. Today's presentation also includes references to non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, the earnings release, and in the investor section of our website. With that, I'll turn the call over to Mitch.

Thanks, Mary, and good morning. I want to start today by first thanking our nation's healthcare professionals and first responders. They're taking risks every day to help minimize the devastating impact the COVID-19 pandemic has had on so many families. And our hearts go out to those who have lost loved ones during this terrible period. I also want to thank our Blue Links associates who have truly stepped up over the last six to eight weeks We are fortunate that our business has been deemed essential in every state that we operate and that our supply chain has remained intact. We have been able to continue our day-to-day operations during the COVID-19 pandemic through the dedication and commitment of our associates. Their safety and well-being have been and will remain our top priority as we continue to serve our customers and work with our trade partners to support our nation's housing infrastructure. In late February, we formed a cross-functional COVID-19 emergency preparedness team responsible for implementing new policies and procedures to protect our associates, their families, and our communities. Their primary mission is to prioritize employee health and safety with respect to all business decisions through the duration of the pandemic. Like many other companies, we immediately instituted sanitation and social distancing guidelines when recommended by health officials for our employees. We also instituted work-from-home policies, as well as implemented new procedures regarding visitors, deliveries, and business-critical services for locations where essential employees were required to be present. I am pleased to report that our core operations are functioning effectively as we uphold these new policies during this time, and thankfully, to date, we have no reported cases of COVID-19 among our 2,200 Blue Links associates. Our first quarter results demonstrate the momentum we were building this year through early March, during which we were successfully executing on our sales strategies and processes, realizing operational efficiencies, and enhancing our existing relationships with key customers and supplier partners. We've discussed in detail over the last several earnings calls the challenges that we faced in the first half of 2019 and our response to those events. We addressed those issues beginning in the second half of the year and exited the fourth quarter of 2019 ready to capitalize on the initiatives we undertook. Our first quarter results are a reflection of the significant progress we made during that time. And yet, we are acutely aware that our results in the first quarter of 2020 had little bearing on the business environment we are now facing as a result of the pandemic. We did move quickly and took several actions earlier in the first quarter that contributed to putting BlueLynx in a solid position for the business environment that we're currently facing. We continued executing on our strategy to monetize our own real estate to deliver our balance sheet. We have reduced our term loan by $78 million since the end of fiscal year 2019, primarily through the completion of sale-leaseback transactions earlier this year on an additional 14 properties. In connection with the pay down of the term loan, we were also able to amend its terms to eliminate the leverage covenant when the principal balance reaches $45 million, which we could now achieve by paying down an additional $24 million. Our remaining owned real estate, which consists of 13 properties, is valued at approximately $40 million and is still available for future monetization. While we recognize that the real estate market is currently in a state of disruption, The historical market value of these properties is still about 65 percent over the amount that would be needed to eliminate the term loans leverage covenant. We actually have several potential near and longer term sources for term loan repayment, including additional real estate monetization, generating operating cash flow through both our operating results as well as a constriction of our balance sheet and drawing on our ABL facility. In anticipation of the short-term challenges in our markets, we were also able to amend our term loan in late March to significantly increase our leverage covenant ratio to 8.75 for both the second and third quarters of 2020. And in addition to the work we did on our term loan, we also favorably renegotiated our ABL to provide additional liquidity as we navigate through a turbulent second quarter. We realized by early March that COVID-19 would likely have a disruptive impact to the overall U.S. economy and the building products industry. In addition to enhancing our term loan and ABL terms earlier in the year, we anticipated that curtailing our operating expenses would also be necessary. This realization, coupled with the economic impact that I anticipated would soon be felt by many on our Blue Links team, compelled me to inform our board that I would be reducing my base salary to $1 for six months. And I'm proud to be part of an executive management team that then voluntarily took their base salaries down by 10% for this same period, and a board that unanimously voted to take its cash compensation down by 20% for the next two quarters. In addition to these actions, we also initiated a hiring freeze. have delayed almost all capital expenditures, deferred certain benefits, and furloughed approximately 15 percent of our salaried workforce. The furlough of these salaried associates was heavily scrutinized to mitigate the impact to our customers and our revenue. We also were able to redeploy several associates to functional areas that require heightened attention during times of market disruption, such as daily detailed accounts receivable review and assessment, inventory analytics, centralized payment authorization, and forecasting. In light of a highly uncertain demand environment, we also implemented a rigorous daily variable cost analysis to react quickly to market changes across our geographical footprint. We will continue to monitor both our operating efficiency and our fixed costs so that we can react quickly if needed, given the potential for adverse market conditions in the days ahead. On a positive note, we were pleasantly surprised to see how our sales volume held up relatively well in April, despite seeing downward pressure towards the end of March. Our revenue during our fiscal April, which ended on May 1st, was down about 11% over the prior year period, and only down about 8% when you factor in lost sales from the discontinued siting product line that we've previously discussed. From a sequential perspective, and when excluding the siting impact, The first two weeks of April were down about 12 percent in revenue compared to the same period in 2019, while the remainder of the month was down around 6 percent. We believe our relatively modest decline in revenue is reflective of existing home building contracts that were completed during the month, and our volume may decline more significantly if single-family housing starts continue a rapid, steep decline or remain negatively impacted over a protracted period. Of course, the extent to which the U.S. economy and the housing market will be affected by the pandemic remains uncertain. What we do know today is that single-family housing starts declined dramatically in March compared to the February positive momentum that we were seeing. March was down about 17.5% from February levels on a seasonally adjusted basis, and we expect to see a further decline when the results come out for April. Another data point that we track is the Builder's Confidence Index, which experienced a 42-point decline from March to April. While certain areas of the country are slowly reopening their economies, it is still too early to tell when and at what rate we will see a reemergence of strong housing activity, especially considering the historic unemployment levels we now face. There is, however, a growing sentiment that while the pandemic will have a short-term negative impact on the single-family housing market, it may have a long-term positive effect if it drives potential homeowners, particularly millennials, away from living in apartments or multifamily complexes in large metropolitan markets to a safer environment in the suburbs. In this COVID-19 environment, we know that operational improvements have become more critical than ever, and we must remain nimble and adapt to rapidly changing market conditions. The current environment has compelled us to go even further in finding and driving efficiencies and improving processes, and we expect that once we are past this crisis, we will continue to reap the benefits of these improvements as we emerge an even stronger company. Our long-term strategies, which we have discussed at length in previous calls, remain intact. In the short term, we will navigate our liquidity and operations through this tumultuous business environment. We believe we are doing all the right things to drive the company to the next level and as a leader in our industry. We will continue to pursue profitable growth in sales and are doing everything in our power to position the company to successfully manage the coming weeks and months ahead and to be ready when the economy begins its recovery. We are joined today by our new Chief Financial Officer, Kelly Janzen. Kelly started with the company on April 13th. and has joined Blue Links during one of the most interesting and challenging times in our company's history. Kelly has jumped right in and joins Blue Links after holding financial leadership positions at major industrial companies, including more than a decade with General Electric. She was most recently Chief Accounting Officer for Westrock, an $18 billion corrugated and consumer packaging company, and prior to that for the oil field services company Baker Hughes. Kelly brings to Bluelinks a wealth of technical and financial expertise that will help us drive even greater process and operational efficiencies within our organization. The Bluelinks team is fortunate to have someone with Kelly's experience and background joining our company. And now, I'd like to turn it over to Kelly.