Builders FirstSource reports Q4 net income of US$4.5M, up from US$12.0M loss a year earlier, on sales up 28.3% to US$369.1M; higher sales volume, better customer pricing, were key drivers of margin improvement in competitive pricing environment, says CEO

Wendy Lisney

DALLAS , February 20, 2014 (press release) – 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, 2013.

Fourth quarter highlights include the following (see financial schedules for more information, including non-GAAP reconciliations):
• Fourth quarter 2013 sales of $369.1 million, an increase of 28.3 percent over the fourth quarter of 2012.
• Gross margin percentage improved 220 bps, to 22.4 percent, compared to 20.2 percent in the fourth quarter of 2012.
• Operating income was $13.3 million compared to $0.1 million in the fourth quarter of 2012.
• Net income improved to $4.5 million, up from a net loss of ($12.0) million for the fourth quarter of 2012.
• Adjusted EBITDA was $16.2 million for the current quarter compared to Adjusted EBITDA of $3.4 million for the fourth quarter of 2012.

Commenting on the company's results, Builders FirstSource Chief Executive Officer Floyd Sherman said, "We ended fiscal 2013 with sales of approximately $1.5 billion, a 39.2 percent increase over fiscal year 2012 sales. From a U.S. single-family housing starts perspective, 2013 ended with 618,400 actual starts, up 15.5 percent over 2012, but still well below the historical average of the past fifty years. When coupled with the ongoing recovery in U.S. housing, our market share gains of recent years have helped accelerate the pace of our sales growth. In turn, this enabled us to end fiscal 2013 with positive earnings before taxes, when excluding the effects of charges related to our May 2013 debt refinancing."

Continuing, Mr. Sherman added, "Our fiscal 2013 concluded with a strong fourth quarter. Our topline growth of 28.3 percent for the quarter once again exceeded the increase in residential construction activity, as actual single-family housing starts in the South Region (as defined by the U.S. Census Bureau, and which includes all of our markets) increased 14.2 percent and single-family units under construction increased 23.9 percent. In addition, our gross margin percentage increased to 22.4 percent for the current quarter, up from 20.2 percent for the fourth quarter of 2012. Higher sales volume and better customer pricing were the primary drivers of our overall margin improvement, in what is still a very competitive pricing environment."

Chad Crow, Builders FirstSource Senior Vice President and Chief Financial Officer added, "While we were increasing our sales and gross margin, we also continued to leverage our operating expenses. For the fourth quarter of 2013, our selling, general and administrative expense was 18.8 percent of sales compared to 20.1 percent for the fourth quarter of 2012. All of these factors helped drive the $16.6 million improvement in net income, resulting in net income of $0.05 per diluted share for the current quarter compared to a ($0.13) loss per diluted share for the fourth quarter of 2012. We were also cash flow positive during the quarter, despite making the first required semi-annual interest payment of $13.5 million related to our 2021 notes. We ended the year with liquidity of $211.8 million, consisting of $54.7 million of cash and $157.1 million in borrowing availability under our revolving credit facility. Our working capital as a percent of sales also improved, from 10.9 percent of sales for the fourth quarter of 2012 to 9.6 percent of sales for the current quarter."

Fourth Quarter 2013 Results Compared to Fourth Quarter 2012

(See accompanying financial schedules for full financial details and reconciliations of Non-GAAP financial measures to their GAAP equivalents.)
• Sales were $369.1 million compared to $287.6 million last year, an increase of $81.5 million or 28.3 percent. We estimate sales increased 26.5 percent due to increased volume and 1.8 percent due to price.

• Gross margin percentage was 22.4 percent, up from 20.2 percent last year, a 220 basis point improvement. Our gross margin percent increased largely due to improved customer pricing with the remainder due to leveraging fixed costs within cost of goods sold and improved sales mix.

• Selling, general and administrative ("SG&A") expenses increased $11.6 million, or 20.0 percent in the current quarter. As a percentage of sales, SG&A expense decreased to 18.8 percent in the fourth quarter of 2013 compared to 20.1 percent last year. Our salaries and benefits expense, excluding stock compensation expense, was $43.6 million, or 11.8 percent of sales, compared to $36.8 million, or 12.8 percent of sales last year. Delivery expense increased $2.1 million and other general administrative expense increased $2.5 million, primarily the result of increased sales volume.

• Interest expense was $8.6 million, a decrease of $2.4 million, which relates primarily to our refinancing in the second quarter of 2013. For the current year quarter, interest expense included $6.6 million related to our outstanding senior secured notes due 2021, a $0.9 million non-cash, fair value adjustment related to stock warrants issued in connection with our previous term loan, and $0.6 million of amortized deferred loan costs. Interest expense in the fourth quarter of 2012 included $5.0 million related to our term loan and $4.5 million related to our floating rate notes due 2016. In addition, interest expense in the fourth quarter of 2012 included a $0.6 million non-cash, fair value adjustment related to stock warrants issued in connection with the term loan, and $0.4 million of amortized debt discount. See supplemental schedule attached.

• We recorded $0.2 million of income tax expense in the fourth quarter of both 2013 and 2012. We recorded a reduction of the after-tax, non-cash valuation allowance of $2.6 million in the fourth quarter of 2013, which is exclusive of $0.6 million primarily related to our reversal of uncertain tax positions due to statute expirations that affected the NOL carry-forward and valuation allowance. We recorded an increase in the after-tax, non-cash valuation allowance of $ 3.6 million in the fourth quarter of 2012. Both were related to our net deferred tax assets. At the end of the current quarter, our gross federal income tax net operating loss available for carry-forward was approximately $268 million.

• Income from continuing operations was $4.6 million, or $0.05 per diluted share, compared to a loss from continuing operations of $11.0 million, or $0.12 loss per diluted share in the fourth quarter of 2012. Excluding facility closure costs, the fair value adjustment for stock warrants and the tax valuation allowance, our income from continuing operations was $3.0 million, or $0.03 per diluted share, for the current year quarter. Excluding facility closure costs, litigation settlement proceeds, the fair value adjustment for stock warrants and the tax valuation allowance, our loss from continuing operations was $7.2 million, or $0.08 loss per diluted share, for the fourth quarter of 2012. See reconciliation attached.

• Net income was $4.5 million, or $0.05 per diluted share, compared to a net loss of $12.0 million, or $0.13 loss per diluted share last year.

• Diluted weighted average shares outstanding were 99.5 million in the fourth quarter of 2013 compared to 95.6 million in the same quarter of 2012. Restricted stock shares were included in diluted weighted average shares outstanding for the fourth quarter of 2013 because the company generated net income, and were excluded in the fourth quarter of 2012 because the company reported a net loss. Incremental shares related to stock options and stock warrants were included in diluted weighted average shares outstanding for the fourth quarter of 2013, but were excluded in the fourth quarter of 2012 because their effect was anti-dilutive.

• Adjusted EBITDA was $16.2 million for the current quarter compared to $3.4 million last year. For fiscal year 2013, Adjusted EBITDA was $61.3 million, up $54.9 million over fiscal year 2012 Adjusted EBITDA of $6.4 million. See reconciliation attached.

Liquidity and Capital Resources
• Total liquidity at December 31, 2013 was approximately $211.8 million, and includes $54.7 million of cash and $157.1 million in borrowing availability under our revolver. We had no borrowings during the quarter under our revolver.

• Operating cash flow was $8.6 million for the fourth quarter of 2013, and working capital was flat during the quarter. Operating cash flow was ($18.0) million for the fourth quarter of 2012, and included a $12.2 million increase to working capital.

• Net capital expenditures were $4.8 million for the fourth quarter of 2013 compared to $1.2 million for the same quarter of 2012.

Outlook

Concluding, Mr. Sherman said, "We certainly closed 2013 on a strong note as indicated by our fourth quarter results. However, winter weather across our markets thus far in 2014 has caused disruptions and has delayed construction activity. Nevertheless, we still believe a growing demand for housing exists in our markets, and that once the weather abates increased construction activity will return."

Conference Call

Builders FirstSource will host a conference call Friday, February 21, 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: 800-730-9234 (U.S. and Canada) and 719-325-4787 (international). A replay of the call will be available at 3:00 p.m. CT through February 26th. To access the replay, please dial 888-203-1112 (U.S. and Canada) and 719-457-0820 (international) and refer to pass code 2570906. 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 53 distribution centers and 47 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.

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