BlueLinx Holdings Inc 10-Q for FY2023 Q1
BlueLinx Holdings Inc. (BXC)
10-Q
2023-05-02
For: 2023-04-01
View Original
Added on
April 09, 2026
About this 10-Q
BlueLinx Holdings Inc filed this 10-Q on May 2, 2023, covering the quarter ended April 1, 2023 (FY2023 Q1).
Headline figures
Quarter ended April 1, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $797.9M
- down 38.7% from $1.3B a year earlier
- Net income
- $17.81M
- down 86.6% from net income of $133.41M a year earlier
- Diluted EPS
- $1.94
- down 85.3% from $13.19 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended April 1, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission file number: 001-32383
 | ||||||||
| (Exact name of registrant as specified in its charter) | ||||||||
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(770 ) 953-7000
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically (Section 232.405 of this chapter) every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | ☑ | Non-accelerated Filer | ☐ | Smaller Reporting Company | ||||||||||||||||||
| Emerging Growth Company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 28, 2023, there were 9,088,972 shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.
BLUELINX HOLDINGS INC.
Form 10-Q
For the Quarterly Period Ended April 1, 2023
INDEX
| PAGE | |||||
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| Net sales | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Operating expenses (income): | |||||||||||
| Selling, general, and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of deferred gains on real estate | ( | ( | |||||||||
| Other operating expenses | |||||||||||
| Total operating expenses | |||||||||||
| Operating income | |||||||||||
| Non-operating expenses: | |||||||||||
| Interest expense, net | |||||||||||
| Other expense, net | |||||||||||
| Income before provision for income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Basic income per share | $ | $ | |||||||||
| Diluted income per share | $ | $ | |||||||||
| Comprehensive income: | |||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income: | |||||||||||
| Amortization of unrecognized pension gain, net of tax | |||||||||||
| Other | ( | ||||||||||
| Total other comprehensive income | |||||||||||
| Comprehensive income | $ | $ | |||||||||
See accompanying Notes.
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BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| April 1, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, less allowances of $ | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, at cost | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued compensation | |||||||||||
| Finance lease liabilities - short-term | |||||||||||
| Operating lease liabilities - short-term | |||||||||||
| Real estate deferred gains - short-term | |||||||||||
| Pension benefit obligation - short-term | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Non-current liabilities: | |||||||||||
Long-term debt, net of debt issuance costs of $ | |||||||||||
| Finance lease liabilities - long-term | |||||||||||
| Operating lease liabilities - long-term | |||||||||||
| Real estate deferred gains - long-term | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies | |||||||||||
| STOCKHOLDERS’ EQUITY: | |||||||||||
Common Stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated stockholders’ equity | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying Notes.
2
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Equity | Stockholders’ Equity Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Impact of pension plan, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ( | — | — | ||||||||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Obligation for repurchase of shares to satisfy employee tax withholdings | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Other | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance, April 1, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Equity | Stockholders’ Equity Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Impact of pension plan, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Common stock repurchase and retirement | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Other | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, April 2, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
See accompanying Notes.
3
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to cash provided by operations: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Deferred income tax | ( | ||||||||||
| Amortization of deferred gains from real estate | ( | ( | |||||||||
| Share-based compensation | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Accounts payable | |||||||||||
| Taxes payable | |||||||||||
| Pension contributions | ( | ||||||||||
| Other current assets | ( | ||||||||||
| Other assets and liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sale of assets | |||||||||||
| Property and equipment investments | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Common stock repurchase and retirement | ( | ||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | ( | |||||||||
| Principal payments on finance lease liabilities | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Interest paid during the period | $ | $ | |||||||||
| Taxes paid during the period | $ | $ | |||||||||
| Non-cash transactions: | |||||||||||
| Obligation for repurchase of shares to satisfy employee tax withholdings | $ | $ | |||||||||
See accompanying Notes.
4
BLUELINX HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 1, 2023
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries (the “Company”). We derived the condensed consolidated balance sheet at April 1, 2023, from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Fiscal 2022 Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”) on February 21, 2023. In the opinion of our management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of operations and comprehensive income for the three months ended April 1, 2023 and April 2, 2022, our balance sheets at April 1, 2023 and December 31, 2022, our statements of stockholders’ equity for the three months ended April 1, 2023 and April 2, 2022, and our statements of cash flows for the three months ended April 1, 2023 and April 2, 2022.
We have condensed or omitted certain notes and other information from the interim condensed consolidated financial statements presented in this report. Therefore, these condensed consolidated interim financial statements should be read in conjunction with the Fiscal 2022 Form 10-K. The results for the three months ended April 1, 2023 are not necessarily indicative of results that may be expected for the full year ending December 30, 2023, or any other interim period.
We operate on a 5-4-4 fiscal calendar. Our fiscal year ends on the Saturday closest to December 31 of that fiscal year and may comprise 53 weeks in certain years. Our 2023 fiscal year contains 52 weeks and ends on December 30, 2023. Fiscal 2022 contained 52 weeks and ended on December 31, 2022.
Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions, which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position.
Reclassification of Prior Period Presentation
For the quarter ended April 2, 2022, we have reclassified certain items within the presentation of our statement of cash flows to align with our statement of cash flows presentation for the quarter ended April 1, 2023. Our reclassifications are limited to the operating activities section and include presenting pension contributions, which were previously presented within the change of other assets and liabilities, as an individual item within changes in operating assets and liabilities. These reclassifications, we believe, provide an enhanced level of transparency with regards to the presentation of our statement of cash flows.
Recently Adopted Accounting Standards
Credit Impairment Losses. In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” This ASU sets forth a current expected credit loss (“CECL”) model which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model, is applicable to the measurement of credit losses on financial assets measured at amortized cost, and applies to some off-balance sheet credit exposures. The standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. The Company adopted this standard on a modified retrospective basis in the first quarter of 2022 and the implementation did not have a material impact to the Company’s condensed consolidated financial statements.
Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The standard provides temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of the publication of
5
certain tenors of the London Inter-bank Offered Rate (“LIBOR”) on December 31, 2021, with complete elimination of the publication of the LIBOR by June 30, 2023. The amendments in this ASU are elective and apply to all entities that have contracts referencing the LIBOR.
The Company’s revolving credit agreement, as further discussed in Note 6, Long-Term Debt, to these condensed consolidated financial statements, currently references the LIBOR for determining interest payable on current and future borrowings and includes provisions for the use of alternative rates if the LIBOR is unavailable. The guidance in this ASU provides a practical expedient which simplifies accounting analyses under current U.S. GAAP for contract modifications if the change is directly related to a change from the LIBOR to a new interest rate index. The Company adopted this standard prospectively in the first quarter of 2022. The implementation did not have a material impact to the Company’s condensed consolidated financial statements or to any key terms of our revolving credit agreement other than the discontinuation of the LIBOR.
2. Business Combinations
On October 3, 2022, we acquired all the outstanding stock of Vandermeer Forest Products, Inc. (“Vandermeer”), a premier wholesale distributor of building products, for preliminary total consideration of $69.3 million. The acquisition has been accounted for as a business combination using the acquisition method. The assets acquired and liabilities assumed were recognized at their acquisition date fair values. The acquisition accounting, including fair value estimations, is subject to change as we finalize all assessments of the assets and liabilities that were acquired on the acquisition date. The primary area of the preliminary acquisition accounting that is not yet finalized relates to settlement of the holdback liability.
As of the date of the acquisition, the holdback liability was $6.3 million. During the quarter-ended April 1, 2023, $0.3 million of the holdback liability was returned to the Company for adjustments related to final cash and working capital balances, reducing preliminary total consideration from $69.3 million to $69.0 million. The remaining holdback liability of $6.0 million is scheduled to be settled approximately 18 months after the acquisition date.
3. Inventories
Our inventories consist almost entirely of finished goods inventory, with an immaterial amount of work-in-process inventory. The cost of all inventories is determined by the moving average cost method. We have included all material charges directly incurred in bringing inventory to its existing condition and location. We evaluate our inventory value at the end of each quarter to ensure that inventory, when viewed by category, is carried at the lower of cost or net realizable value, which also considers items that may be considered damaged, excess, and obsolete inventory.
As of April 1, 2023, we assessed the carrying value of our inventory and determined it was presented at the lower of cost or net realizable value and that a reserve was not necessary.
As of December 31, 2022, we recorded a lower of cost or net realizable value reserve of $2.6 million as a result of the decrease in the value of our structural lumber and panel inventory related to the decline in wood-based commodity prices as of the end of the period.
4. Goodwill and Other Intangible Assets
In connection with our past merger and acquisition activity, we acquired certain intangible assets. As of April 1, 2023, our intangible assets consist of goodwill and other intangible assets including customer relationships, noncompete agreements, and trade names.
Goodwill
Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including customer relationships, noncompete agreements, and trade names) acquired, and liabilities assumed, under acquisition accounting for business combinations. As of April 1, 2023, goodwill was $55.4 million.
Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount. We evaluate goodwill for impairment during the fourth quarter of each fiscal year. In addition, we will evaluate the carrying value for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our
6
market capitalization. No such indicators were present during the first quarter of fiscal 2023. Our one reporting unit has a fair value that exceeds its carrying value as of April 1, 2023.
The following table provides information related to the carrying amount of our goodwill:
| Total Carrying Amount | ||||||||
| (In thousands) | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Acquisitions | ||||||||
| Balance at April 1, 2023 | $ | |||||||
Definite-Lived Intangible Assets
The gross carrying amounts, accumulated amortization, and net carrying amounts of our definite-lived intangible assets at April 1, 2023 were as follows:
| Intangible Asset | Weighted Average Remaining Useful Lives (Years) | Gross Carrying Amounts | Accumulated Amortization(1) | Net Carrying Amounts | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | ||||||||||||||||||||||
| Noncompete agreements | ( | |||||||||||||||||||||||||
| Trade names | ( | |||||||||||||||||||||||||
| Total | $ | $ | ( | $ | ||||||||||||||||||||||
(1) Intangible assets except customer relationships are amortized on straight line basis. Certain of our customer relationships are amortized on a double declining balance method and certain others are amortized on a straight line basis.
Amortization Expense
Amortization expense for our definite-lived intangible assets was $1.1 million and $1.1 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively.
Estimated amortization expense for definite-lived intangible assets for the remaining portion of 2023 and the next five fiscal years is as follows:
| Fiscal Year | Estimated Amortization | |||||||
| (In thousands) | ||||||||
| 2023 | $ | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
5. Revenue Recognition
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Contracts with our customers are generally in the form of standard terms and conditions of sale. From time to time, we may enter into specific contracts, which may affect delivery terms. Performance obligations in our contracts generally consist solely of delivery of goods. For all sales channel types, consisting of warehouse, direct, and reload sales, we typically satisfy our performance obligations upon shipment. Our customer payment terms are typical for our industry, and may vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not deemed to be significant by us. For certain sales channels and/or products, our standard terms of payment may be as early as ten days.
In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss remain with us.
All revenues recognized are net of trade allowances (i.e., rebates), cash discounts, and sales returns. Cash discounts and sales returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for each of the reported periods. Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration.
The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues.
| Three Months Ended | |||||||||||
| Product type | April 1, 2023 | April 2, 2022 | |||||||||
| (In thousands) | |||||||||||
| Specialty products | $ | $ | |||||||||
| Structural products | |||||||||||
| Total net sales | $ | $ | |||||||||
The following table presents our revenues disaggregated by sales channel. Warehouse sales are delivered from our warehouses. Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third-parties, where we store owned products to enhance our operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical to service from our warehouses, and to distribute large volumes of imported products from port facilities. Direct sales are shipped from the manufacturer to the customer without our taking physical possession of the inventory and, as a result, typically generate lower margins than our warehouse and reload distribution channels. This distribution channel requires the lowest amount of committed capital and fixed costs. Sales and usage-based taxes are excluded from revenues.
| Three Months Ended | |||||||||||
| Sales channel | April 1, 2023 | April 2, 2022 | |||||||||
| (In thousands) | |||||||||||
| Warehouse and reload | $ | $ | |||||||||
| Direct | |||||||||||
| Customer discounts and rebates | ( | ( | |||||||||
| Total net sales | $ | $ | |||||||||
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6. Long-Term Debt
As of April 1, 2023 and December 31, 2022, long-term debt consisted of the following:
| April 1, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
Senior secured notes (1) | $ | $ | |||||||||
Revolving credit facility (2) | |||||||||||
Finance lease obligations (3) | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Unamortized bond discount costs | ( | ( | |||||||||
| Less: current maturities of long-term debt | |||||||||||
| Long-term debt, net of current maturities | $ | $ | |||||||||
(1)As of April 1, 2023 and December 31, 2022, our long-term debt was comprised of $300.0 292.8 million and $292.4 million at April 1, 2023 and December 31, 2022, respectively. This presentation is net of their discount of $3.4 million and $3.5 million and the combined carrying value of our debt issuance costs of $3.9 million and $4.1 million at April 1, 2023 and December 31, 2022, respectively. Our senior secured notes are presented in this table at their face value.
(2) The average effective interest rate for our revolving credit facility was zero percent
(3) Refer to Note 9, Leases, for interest rates associated with finance lease obligations.
Senior Secured Notes
In October 2021, we completed a private offering of $300.0 million of our six percent senior secured notes due 2029 (the “2029 Notes”), and in connection therewith we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent. The 2029 Notes were issued to investors at 98.625 percent of their principal amount and will mature on November 15, 2029. The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our revolving credit facility, as defined below.
As of April 1, 2023 and December 31, 2022, the fair value of our 2029 Notes was approximately $276.8 million and $283.6 million, respectively, which are designated as Level 2 in the fair value hierarchy. Our valuation technique is based primarily on observable market prices in less active markets.
Revolving Credit Facility
Our Revolving Credit Facility, entered into with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions party thereto, provides for a senior secured asset-based revolving loan and letter of credit facility of up to $350.0 million. Our obligations under the Revolving Credit Facility are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.
Borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the Agent’s base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.
Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023. Under the terms of the facility, LIBOR will be replaced with the Secured Overnight Financing Rate (“SOFR”) with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.
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Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the revolving credit agreement). The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. Our Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.
As of April 1, 2023, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $722.7 million under our Revolving Credit Facility. As of December 31, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $645.4 million under our Revolving Credit Facility. Available borrowing capacity under our Revolving Credit Facility was $346.5 zero percent
Our Revolving Credit Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants. We were in compliance with all covenants under our Revolving Credit Facility as of April 1, 2023.
Finance Lease Obligations
Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate, with the majority of those finance leases related to real estate. For more information on our finance lease obligations, refer to Note 9, Leases.
7. Net Periodic Pension Cost (Benefit)
The following table shows the components of our net periodic pension cost (benefit):
| Three Months Ended | |||||||||||
| Pension-related items | April 1, 2023 | April 2, 2022 | |||||||||
| (In thousands) | |||||||||||
Service cost (1) | $ | $ | |||||||||
| Interest cost on projected benefit obligation | |||||||||||
| Expected return on plan assets | ( | ( | |||||||||
| Amortization of unrecognized gain | |||||||||||
| Net periodic pension cost (benefit) | $ | $ | ( | ||||||||
(1) Service cost is not a part of our net periodic pension benefit as our pension plan is frozen for all participants.
The net periodic pension cost (benefit) is included in other expense, net in our condensed consolidated statement of operations and comprehensive income.
During the three months ended April 1, 2023, we continued our previously announced plan to terminate the BlueLinx Corporation Hourly Retirement Plan (the “plan”) and transfer the management and delivery of continuing benefits associated with the plan to a highly rated and qualified insurance company with pension termination experience. The process for terminating a pension plan involves several regulatory steps and approvals, and typically takes 12 to 18 months to complete. We estimate the plan termination will be completed during fiscal 2023.
8. Stock Compensation
During the three months ended April 1, 2023 and April 2, 2022, we incurred stock compensation expense of $4.6 million and $2.2 million, respectively. The increase in our stock compensation expense for the three-month period is primarily attributable to the acceleration of unrecognized compensation cost in conjunction with our announced leadership transition. Additionally, there was an increase in the number of awards granted, as well as the increase in the grant-date fair value, or the Company’s stock price, of awards currently vesting compared to the prior year.
As of April 1, 2023, we have accrued $1.3 million for tax withholding obligations of our employees upon vesting of restricted stock unit awards. This has been presented as a non-cash transaction in our condensed consolidated statement of cash flows.
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9. Leases
We have operating and finance leases for certain of our distribution facilities, office space, land, mobile fleet, and equipment. Many of our leases are non-cancelable and typically have a defined initial lease term, and some provide options to renew at our election for specified periods of time. The majority of our leases have remaining lease terms of to 15 one or more options to extend the leases for five years
We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or modification. Operating lease right-of use (“ROU”) assets and liabilities are presented separately on the condensed consolidated balance sheets. Finance lease ROU assets are included in property and equipment and the finance lease obligations are presented separately in the condensed consolidated balance sheets. When a lease does not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We have also made the accounting policy election to not separate lease components from non-lease components related to our mobile fleet asset class.
Finance Lease Liabilities
Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate. As noted in the table below, a majority of our finance leases, formally known as capital leases, relate to real estate.
The following table presents our assets and liabilities related to our leases as of April 1, 2023 and December 31, 2022:
| Lease assets and liabilities | April 1, 2023 | December 31, 2022 | ||||||||||||
| (In thousands) | ||||||||||||||
| Assets | Classification | |||||||||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | $ | $ | |||||||||||
Finance lease right-of-use assets (1) | ||||||||||||||
| Total lease right-of-use assets | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||
| Current portion | ||||||||||||||
| Operating lease liabilities | Operating lease liabilities - short term | $ | $ | |||||||||||
| Finance lease liabilities | Finance lease liabilities - short term | |||||||||||||
| Non-current portion | ||||||||||||||
| Operating lease liabilities | Operating lease liabilities - long term | |||||||||||||
| Finance lease liabilities | Finance lease liabilities - long term | |||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $88.9 million and $90.1 million as of April 1, 2023 and December 31, 2022, respectively.
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The components of lease expense were as follows:
| Three Months Ended | |||||||||||
| Components of lease expense | April 1, 2023 | April 2, 2022 | |||||||||
| (In thousands) | |||||||||||
| Operating lease cost: | |||||||||||
| Operating lease cost | $ | $ | |||||||||
| Sublease income | ( | ( | |||||||||
| Total operating lease costs | $ | $ | |||||||||
| Finance lease cost: | |||||||||||
| Amortization of right-of-use assets | $ | $ | |||||||||
| Interest on lease liabilities | |||||||||||
| Total finance lease costs | $ | $ | |||||||||
Supplemental cash flow information related to leases was as follows:
| Three Months Ended | |||||||||||
| Cash flow information | April 1, 2023 | April 2, 2022 | |||||||||
| (In thousands) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | |||||||||||
| Financing cash flows from finance leases | $ | $ | |||||||||
Non-cash supplemental cash flow information related to leases was as follows:
| Three Months Ended | |||||||||||
| Non-cash information | April 1, 2023 | April 2, 2022 | |||||||||
| (In thousands) | |||||||||||
| Right-of-use assets obtained in exchange for lease obligations | |||||||||||
| Operating leases | $ | $ | |||||||||
| Finance leases | $ | $ | |||||||||
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Supplemental balance sheet information related to leases was as follows:
| Balance sheet information | April 1, 2023 | December 31, 2022 | |||||||||
| (In thousands) | |||||||||||
| Finance leases | |||||||||||
| Property and equipment | $ | $ | |||||||||
| Accumulated depreciation | ( | ( | |||||||||
| $ | $ | ||||||||||
| Weighted Average Remaining Lease Term (in years) | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted Average Discount Rate | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
The major categories of our finance lease liabilities as of April 1, 2023 and December 31, 2022 are as follows:
| Category | April 1, 2023 | December 31, 2022 | |||||||||
| (In thousands) | |||||||||||
| Equipment and vehicles | $ | $ | |||||||||
| Real estate | |||||||||||
| Total finance leases | $ | $ | |||||||||
Under the short-term lease exception provided within ASC 842, we do not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of April 1, 2023. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheets, including options to extend lease terms that are reasonably certain of being exercised.
| Fiscal year | Operating leases | Finance leases | |||||||||
| (In thousands) | |||||||||||
| 2023 | $ | $ | |||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | $ | $ | |||||||||
| Less: imputed interest | ( | ( | |||||||||
| Total | $ | $ | |||||||||
10. Commitments and Contingencies
Environmental and Legal Matters
From time to time, we are involved in various proceedings incidental to our businesses, and we are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. Although the ultimate outcome of these proceedings cannot be determined with certainty, based on presently available information management
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believes that adequate reserves have been established for probable losses with respect thereto and receivables have been recorded for expected receipts from settlements. Management further believes that, while the ultimate outcome of one or more of these matters could be material to our operating results in any given quarter, it will not have a materially adverse effect on our consolidated financial condition, our results of operations, or our cash flows.
Collective Bargaining Agreements
As of April 1, 2023, we employed approximately 2,100 associates and less than one percent of our associates are employed on a part-time basis. Approximately 16 percent of our associates are represented by various local labor unions with terms and conditions of employment governed by Collective Bargaining Agreements (“CBAs”). Four CBAs covering approximately four percent of our associates are up for renewal in the remainder of fiscal 2023, which we expect to renegotiate by the end of fiscal 2023.
11. Accumulated Other Comprehensive Loss
Comprehensive income includes both net income and other comprehensive income. Other comprehensive income results from items deferred from recognition into our condensed consolidated statements of operations and comprehensive income. Accumulated other comprehensive loss is separately presented on our condensed consolidated balance sheets as part of stockholders’ equity.
The changes in balances for each component of accumulated other comprehensive loss for the three months ended April 1, 2023, were as follows:
| Defined benefit pension plan, net of tax | Other, net of tax | Total Accumulated Other Comprehensive Loss | |||||||||||||||
December 31, 2022, beginning balance | $ | ( | $ | $ | ( | ||||||||||||
| Other comprehensive income, net of tax | ( | ||||||||||||||||
April 1, 2023, ending balance, net of tax | $ | ( | $ | $ | ( | ||||||||||||
12. Income Taxes
Effective Tax Rate
Our effective tax rate for the three months ended April 1, 2023 and April 2, 2022 was 26.5 percent and 26.2 percent, respectively.
Our effective tax rates for the three months ended April 1, 2023 and April 2, 2022 were impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units, which occurred during each period. For additional information about our income taxes, see Note 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
13. Income Per Share
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The reconciliation of basic net income and diluted net income per common share for the three-month periods ended April 1, 2023 and April 2, 2022 were as follows:
| Three Months Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Net income | $ | $ | |||||||||
| Weighted-average shares outstanding - basic | |||||||||||
| Dilutive effect of share-based awards | |||||||||||
| Weighted-average shares outstanding - diluted | |||||||||||
| Basic income per share | $ | $ | |||||||||
| Diluted income per share | $ | $ | |||||||||
Approximately 78,000 and 3,000 weighted-average share-based awards were excluded from the computation of earnings per share assuming dilution during the three months ended April 1, 2023 and April 2, 2022, respectively, as the awards would have been anti-dilutive for the periods presented.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
About Our Business
BlueLinx is a leading wholesale distributor of residential and commercial building products in the United States. We are a “two-step” distributor. Two-step distributors purchase products from manufacturers and distribute those products to dealers and other suppliers in local markets, who then sell those products to end users. We carry a broad portfolio of both branded and private-label stock keeping units (“SKUs”) across two principal product categories: specialty products and structural products. Specialty products include items such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products. Structural products include items such as lumber, plywood, oriented strand board, rebar, and remesh. We also provide a wide range of value-added services and solutions aimed at relieving distribution and logistics challenges for our customers and suppliers, while enhancing their marketing and inventory management capabilities.
We sell products through three main distribution channels, consisting of warehouse sales, reload sales, and direct sales. Warehouse sales, which generate the majority of our sales, are delivered from our warehouses to our customers. Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third-parties, where we store owned products to enhance operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical to service from our warehouses, and to distribute large volumes of imported products from port facilities. Direct sales are shipped from the manufacturer to the customer without our taking physical possession of the inventory and, as a result, typically generate lower margins than our warehouse and reload distribution channels. This distribution channel, however, requires the lowest amount of committed capital and fixed costs.
We have a strong market position and a broad geographic coverage footprint servicing all 50 states, where we maintain locations that serve 75 percent of the highest growth metropolitan statistical areas as it relates to forecasted housing starts and repair and remodel spend. With the strength of a locally focused sales force, we distribute a comprehensive range of products from over 750 suppliers. Our suppliers include some of the leading manufacturers in the industry, such as Allura, Arauco, Fiberon, Georgia-Pacific, Huber Engineered Woods, Louisiana-Pacific, Oldcastle APG, Ply Gem, Roseburg, Royal and Weyerhaeuser. We supply products to a broad base of customers including national home centers, pro dealers, cooperatives, specialty distributors, regional and local dealers and industrial manufacturers. Many of our customers serve residential and commercial builders, contractors and remodelers in their respective geographic areas and local markets.
As a value-added partner in a complex and demanding building products supply chain, we play a critical role in enabling our customers to offer a broad range of products and brands, as most of our customers do not have the capability to purchase and warehouse products directly from manufacturers for such a large set of SKUs. The depth of our geographic footprint supports meaningful customer proximity across all the markets in which we operate, enabling faster and more efficient service. Similarly, we provide value to our supplier partners by enabling access to the large and fragmented network of lumber yards and dealers these suppliers could not adequately serve directly. Our position in this distribution model for building products provides easy access to the marketplace for our suppliers and a value proposition of rapid delivery on an as-needed basis to our customers from our network of warehouse facilities.
Industry Overview
Our products are available across large and attractive end markets, including residential repair and remodel and residential new construction, which together account for approximately 85 percent of the end market mix for our addressable building material market served via two-step distribution based on our estimates. We also estimate the remaining 15 percent is accounted for by commercial construction.
Certain developments have led to a more challenging macro-economic environment, such as broad-based inflation, the rapid rise in mortgage rates, and home price appreciation. These developments have impacted the U.S. housing market, including the residential repair and remodel and residential new construction end markets, and have contributed to a recent slowdown in the U.S. housing industry. However, we believe that several factors, including the current high levels of home equity, the fundamental undersupply of housing in the U.S., repair and remodel activity, and demographic shifts, among others, will support demand for our products.
Residential Repair and Remodel
We estimate that demand from the residential repair and remodel market (“R&R”) accounts for approximately 45 percent of our annual sales. Historically, R&R demand has tended to be less cyclical when compared to the residential new construction
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market, particularly for exterior products that are exposed to the elements and where maintenance is less likely to be deferred for long periods of time. We believe R&R demand is driven by a myriad of factors including, but not limited to: home prices and affordability; raw materials prices; the pace of new household formation; savings rates; employment conditions; and emerging trends, such as the increased popularity of home-based remote working environments. With mortgage rates having risen to multi-year highs, we believe many homeowners who secured a lower interest mortgage will be inclined to stay longer in existing homes, which could benefit R&R demand over the near-to-medium term.
According to the Joint Center For Housing Studies’ LIRA Index, R&R demand is expected to return to more normalized levels, following several consecutive years of elevated R&R activity fueled by pandemic-induced changes in housing and lifestyle decisions. However, the total market size of the U.S. R&R market remains significant, with total U.S. homeowner improvements and repairs spending expected to be approximately $484.0 billion by the end of 2023, up from $363.0 billion at the end of 2020.
Further, as the median age of U.S. housing stock increases over time, we anticipate U.S. R&R spending will also increase. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, the median age of a home in the U.S. increased from 23 years in 1985 to 39 years in 2019. Moreover, approximately 80 percent of the current housing stock was built prior to 1999. We believe the increasing average age of the nation’s approximate 142 million existing homes will continue to drive demand for repair and remodel projects.
Residential New Construction
We estimate that demand from the residential new construction market, including single-family and multi-family units, accounts for approximately 40 percent of our annual sales.
We believe demand for residential new construction is driven by a myriad of factors including, but not limited to: mortgage rates, which recently reached multi-year highs; lending standards; home affordability; employment conditions; savings rates; the rate of population growth and new household formation; builder activity levels; the level of existing home inventory on the market; and consumer sentiment.
According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, during the first quarter of fiscal 2023, single family housing starts in the United States, seasonally adjusted, were approximately 29 percent lower compared to the first quarter of fiscal 2022 and approximately 13 percent lower than that of the first quarter of fiscal 2020, prior to the COVID-19 pandemic, indicating a market slow down following two years of favorable market conditions. As of the end of the first quarter of fiscal 2023, the month’s supply of inventory of new homes was eight months, above the 20-year average of six months. For most of the last decade, housing production has lagged population growth and household formation.
We believe our scale, national footprint, strategic supplier relationships, key national customer relationships, and breadth of market leading products and brands position us to serve the residential new construction end market and navigate the challenges in the macro-economic environment.
Seasonality
We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry, such as weather conditions and other seasonal factors. The first and fourth quarters have historically been our lower volume quarters due to the impact of unfavorable weather on the residential repair and remodel and residential new home construction markets, among other factors. Our second and third quarters have historically been higher volume quarters compared to the first and fourth quarters, reflecting an increase in repair and remodel and residential new home construction activities due to more favorable seasonal conditions.
Our historical patterns of seasonality were impacted by the COVID-19 pandemic which caused supply and demand imbalances impacting our sales volumes. During the first quarter of 2023, we experienced some seasonal impacts to our sales volumes from weather conditions. While there is continued uncertainty surrounding certain macro-economic environment developments that may impact our seasonality trends, we expect to return to more normalized seasonality trends in the near term given recent easing supply constraints and increased manufacturing output.
Commodity Markets
Our operating results are sensitive to fluctuations in commodity markets, specifically commodity markets for wood-based commodities that we classify as structural products. When prices fluctuate in the commodity markets which impact us, we may immediately adjust the end price of our products to compensate for the changes in market prices, which is common for
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businesses with inventories impacted by commodity price fluctuations. When we change our prices in response to market fluctuations, we will often see immediate impacts in our operating results. When market prices increase, this impact can be beneficial. Conversely, when market prices decrease, the impact can be negative because we are adjusting the selling prices for inventory often purchased at higher market prices. See Note 3, Inventories, to the condensed consolidated financial statements and Results of Operations below for discussion of the impact of fluctuations in commodity markets on results for the periods presented.
Supply Constraints
Our operating results are impacted by the availability of the products we sell in the markets in which we do business. When our inventory supply is constrained, our operating results may be impacted by lower sales volumes. While supply constraints may negatively impact our sales volumes, they may also have a positive impact on our net sales and overall profitability. This is because supply constraints can cause prices to increase. Under these circumstances, we may sell less product by volume, but at a higher price which could have a positive impact on our levels of sales and profitability. Conversely, rapid changes in supply levels, such as the sudden increase in availability of a product where the supply was previously constrained, may have a negative impact on our operating results especially in situations where the demand does not also increase proportionally with supply increases.
Our Culture and Management Focus
We remain 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 our management team’s focus:
1.Foster a performance-driven culture committed to profitable growth. This includes 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.
2.Migrate sales mix toward higher-margin specialty product categories. The Company is pursuing a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products. Additionally, the Company is expanding its value-added service offerings designed to simplify complex customer sourcing requirements and provide enhanced service capabilities afforded by the Company’s national platform.
3.Maintain a disciplined capital structure and pursue high-return investments that increase the value of the Company. The Company is maintaining a disciplined capital structure while at the same time investing in its business to modernize its distribution facilities, as well as its tractor and trailer fleet, and to improve operational performance. The Company also continues to evaluate potential acquisition targets that complement its existing capabilities, grow its specialty products business, increase customer exposure, expand its geographic reach, or a combination thereof. We invested $9.0 million in our business during the first quarter of fiscal 2023 to improve operational performance and productivity.
Factors That Affect Operating Results
Our results of operations and financial performance are influenced by a variety of factors, including the following: pricing and product cost variability; volumes of product sold; competition; changes in the supply and/or demand for products that we distribute; the cyclical nature of the industry in which we operate; housing market conditions; consolidation among competitors, suppliers, and customers; disintermediation risk; loss of products or key suppliers and manufacturers; our dependence on international suppliers and manufacturers for certain products; potential acquisitions and the integration and completion of such acquisitions; business disruptions; effective inventory management relative to our sales volume or the prices of the products we produce; information technology security risks and business interruption risks; the ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs; exposure to product liability and other claims and legal proceedings related to our business and the products we distribute; natural disasters, catastrophes, fire, wars or other unexpected events; successful implementation of our strategy; wage increases or work stoppages by our union employees; costs imposed by federal, state, local, and other regulations; compliance costs associated with federal, state, and local environmental protection laws; global pandemics, such as COVID-19, and other widespread public health crises and their potential effects on our business; fluctuations in our operating results; our level of indebtedness and our ability to incur additional debt to fund future needs; the covenants of the instruments governing our indebtedness limiting the discretion of our management in operating the business; the potential to incur more debt; the fact that we have consummated certain sale leaseback transactions
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with resulting long-term non-cancelable leases, many of which are or will be finance leases; the fact that we lease many of our distribution centers, and we would still be obligated under these leases even if we close a leased distribution center; inability to raise funds necessary to finance a required repurchase of our senior secured notes; a lowering or withdrawal of debt ratings; changes in our product mix; increases in petroleum prices; changes in insurance-related deductible/retention reserves based on actual loss experience; the possibility that the value of our deferred tax assets could become impaired; changes in our expected annual effective tax rate could be volatile; changes in actuarial assumptions for our pension plan; the costs and liabilities related to our participation in multi-employer pension plans could increase; the risk that our cash flows and capital resources may be insufficient to service our existing or future indebtedness; variable interest rate risk under certain indebtedness; changes in, or interpretation of, accounting principles; significant stock price fluctuation; the possibility that we could be the subject of securities class action litigation due to stock price volatility; unfavorable securities or industry analyst publications; activities of activist shareholders; and indebtedness terms that limit our ability to pay dividends on common stock.
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Results of Operations
The following table sets forth our results of operations for the first quarter of fiscal 2023 and fiscal 2022:
| First Quarter of Fiscal 2023 | % of Net Sales | First Quarter of Fiscal 2022 | % of Net Sales | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Net sales | $ | 797,904 | 100.0% | $ | 1,302,305 | 100.0% | |||||||||||||||||
| Gross profit | 133,539 | 16.7% | 291,051 | 22.3% | |||||||||||||||||||
| Selling, general, and administrative | 91,174 | 11.4% | 91,289 | 7.0% | |||||||||||||||||||
| Depreciation and amortization | 7,718 | 1.0% | 6,746 | 0.5% | |||||||||||||||||||
| Amortization of deferred gains on real estate | (984) | (0.1)% | (984) | (0.1)% | |||||||||||||||||||
| Other operating expenses | 3,116 | 0.4% | 838 | 0.1% | |||||||||||||||||||
| Operating income | 32,515 | 4.1% | 193,162 | 14.8% | |||||||||||||||||||
| Interest expense, net | 7,687 | 1.0% | 11,293 | 0.9% | |||||||||||||||||||
| Other expense, net | 594 | 0.1% | 1,138 | 0.1% | |||||||||||||||||||
| Income before provision for income taxes | 24,234 | 3.0% | 180,731 | 13.9% | |||||||||||||||||||
| Provision for income taxes | 6,422 | 0.8% | 47,322 | 3.6% | |||||||||||||||||||
| Net income | $ | 17,812 | 2.2% | $ | 133,409 | 10.2% | |||||||||||||||||
The following table sets forth net sales by product category for the three-month periods ending April 1, 2023 and April 2, 2022:
| Three Months Ended | |||||||||||||||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||||||||||||||
| Net sales by product category | ($ in thousands) | ||||||||||||||||||||||
| Specialty products | $ | 567,838 | 71 | % | $ | 767,907 | 59 | % | |||||||||||||||
| Structural products | 230,066 | 29 | % | 534,398 | 41 | % | |||||||||||||||||
| Total net sales | $ | 797,904 | 100 | % | $ | 1,302,305 | 100 | % | |||||||||||||||
The following table sets forth gross profit and gross margin percentages by product category for the three-month periods of fiscal 2023 and 2022:
| Three Months Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| Gross profit by product category | ($ in thousands) | ||||||||||
| Specialty products | $ | 106,627 | $ | 184,099 | |||||||
| Structural products | 26,912 | 106,952 | |||||||||
| Total gross profit | $ | 133,539 | $ | 291,051 | |||||||
| Gross margin % by product category | |||||||||||
| Specialty products | 18.8 | % | 24.0 | % | |||||||
| Structural products | 11.7 | % | 20.0 | % | |||||||
| Total gross margin % | 16.7 | % | 22.3 | % | |||||||
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First Quarter of Fiscal 2023 Compared to First Quarter of Fiscal 2022
For the first quarter of fiscal 2023, we generated net sales of $797.9 million, a decrease of $504.4 million when compared to the first quarter of fiscal 2022 and the overall gross margin percentage decreased from 22.3 percent to 16.7 percent year over year. The decline in overall profitability compared to the prior year was primarily due to lower sales volume for our specialty products, particularly our engineered wood products, and year-over-year declines in the average composite prices of our structural products.
Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased $200.1 million to $567.8 million in the first quarter of fiscal 2023. The decline was due to lower sales volume, primarily related to engineered wood products. Specialty products gross profit decreased $77.5 million to $106.6 million, with a year-over-year decline of 520 basis points in specialty gross margin to 18.8 percent for the first quarter of fiscal 2023, compared to 24.0 percent in the first quarter of fiscal 2022. The decrease in specialty gross margin percentage over the prior-year period is attributable to lower sales volume, primarily related to engineered wood products, as well as modest declines in pricing for our specialty products given the change in market conditions.
Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $304.3 million to $230.1 million in the first quarter of fiscal 2023 due to the decline in the average composite price of framing lumber and structural panels, as well as lower structural panels volume. Our structural gross margin percentage for the first quarter of fiscal 2023 was 11.7 percent, down from 20.0 percent in the prior-year period, primarily attributable to year-over-year declines in the average composite price of framing lumber and structural panels.
Our selling, general, and administrative expenses, which includes approximately $2.0 million of incremental operating expenses related to our Vandermeer acquisition, remained relatively flat overall compared to the first quarter of fiscal 2022. Depreciation and amortization expense increased 14.4 percent, compared to the first quarter of fiscal 2022. The increase in depreciation and amortization is due to a higher base of amortizable and depreciable assets throughout the first quarter of fiscal 2023 when compared the prior-year period, resulting from our continued focus on capital investment and increased intangible assets related to our Vandermeer acquisition. Other operating expenses increased $2.3 million compared to the first quarter of fiscal 2022 primarily due to restructuring related costs, including severance, incurred in the first quarter of fiscal 2023 due to our leadership transition.
Interest expense, net, decreased by 31.9 percent, or $3.6 million, compared to the first quarter of fiscal 2022. The decrease is primarily due to the generation of higher interest income on our cash on hand.
Our effective tax rates were 26.5 percent and 26.2 percent for the first quarter of fiscal 2023 and 2022, respectively. Our effective tax rate for both periods was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units, which occurred during each period.
Our net income for the first quarter of fiscal 2023 was $17.8 million, or $1.94 per diluted share, versus $133.4 million, or $13.19 per diluted share, in the prior-year period due primarily to a decrease in gross profit driven by lower specialty sales volume, particularly for our engineered wood products, and declines in pricing related to our specialty and structural products, in conjunction with higher operating expenses. This was offset by lower interest expense and income tax expense.
Liquidity and Capital Resources
We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations and availability from our revolving credit facility, as needed. We expect that these sources will be sufficient to fund our ongoing cash requirements for at least the next 12 months and into the foreseeable future.
Senior Secured Notes
In October 2021, we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent, in connection with a private offering of $300 million of our six percent senior secured notes due 2029 (the “2029 Notes”). The 2029 Notes were issued to investors at 98.625 percent of their principal amount and will mature on November 15, 2029. The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our revolving credit facility.
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As of April 1, 2023 and December 31, 2022, the fair value of our 2029 Notes was approximately $276.8 million and $283.6 million, respectively, which are designated as Level 2 in the fair value hierarchy. Our valuation technique is based primarily on observable market prices in less active markets.
Revolving Credit Facility
Our Revolving Credit Facility, entered into with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions party thereto, provides for a senior secured asset-based revolving loan and letter of credit facility of up to $350.0 million. Our obligations under the Revolving Credit Facility are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.
Borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the Agent’s base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.
Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023. Under the terms of the facility, LIBOR will be replaced with the Secured Overnight Financing Rate (“SOFR”) with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.
Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the revolving credit agreement). The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. Our Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.
As of April 1, 2023, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $722.7 million under our Revolving Credit Facility. As of December 31, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $645.4 million under our Revolving Credit Facility. Available borrowing capacity under our Revolving Credit Facility was $346.5 million on April 1, 2023 and December 31, 2022. Our average effective interest rate under the facility was zero percent for the quarters ended April 1, 2023 and April 2, 2022.
Our Revolving Credit Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants. We were in compliance with all covenants under our Revolving Credit Facility as of April 1, 2023.
Finance Lease Commitments
Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we completed in recent years. Our total finance lease commitments totaled $270.8 million and $273.1 million as of April 1, 2023 and December 31, 2022, respectively. Of the $270.8 million of finance lease commitments as of April 1, 2023, $243.6 million related to real estate and $27.2 million related to equipment. Of the $273.1 million of finance lease commitments as of December 31, 2022, $243.8 million related to real estate and $29.3 million related to equipment.
Interest Rates
Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023. Under the terms of our Revolving Credit Facility, LIBOR will be replaced with SOFR with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023. There can be no assurances as to whether SOFR will be a more or less favorable reference rate than LIBOR, and the consequences of replacing LIBOR with SOFR cannot be entirely predicted. However, at this time, we do not believe that the replacement of LIBOR by SOFR as a reference rate in our revolving credit facility will have a material adverse effect on our financial position or materially affect our interest expense.
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Sources and Uses of Cash
Operating Activities
Net cash provided by operating activities for the first three months of fiscal 2023 was $89.0 million, compared to net cash provided by operating activities of $2.2 million in the first three months of fiscal 2022. The increase in cash provided by operating activities during the first three months of fiscal 2023 was primarily a result of higher cash generated from changes in working capital components, including the decrease in inventory and increase in accounts payable, offset by the increase in accounts receivable in the current-year period. This was partially offset by a decrease in net income for the current-year period compared to the prior-year period.
Investing Activities
Net cash used in investing activities for the first three months of fiscal 2023 was $9.0 million compared to net cash used in investing activities of $2.5 million in the first three months of fiscal 2022. The increase in net cash used in investing activities was primarily due to higher spend on property and equipment in the current year-period compared to the prior-year period.
Financing Activities
Net cash used in financing activities totaled $2.7 million for the first three months of fiscal 2023, compared to net cash used in financing activities of $10.5 million for the first three months of fiscal 2022. The decrease in net cash used in financing activities is primarily due to the repurchase our common stock under our announced share repurchase program during the first three months of fiscal 2022, with no such transactions completed in the first three months of fiscal 2023.
Stock Repurchase Program
As of April 1, 2023, we have a remaining authorization amount of $33.6 million under our $100.0 million share repurchase program.
With the remaining availability under the stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1.
Operating Working Capital
Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. Operating working capital is defined as the sum of receivables and inventory, less accounts payable. Management of working capital helps us monitor our progress in meeting our goals to enhance working capital assets.
| Selected financial information | |||||||||||||||||
| April 1, 2023 | December 31, 2022 | April 2, 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Receivables, less allowance for doubtful accounts | $ | 298,888 | $ | 251,555 | $ | 497,056 | |||||||||||
| Inventories, net | 409,324 | 484,313 | 562,555 | ||||||||||||||
| $ | 708,212 | $ | 735,868 | $ | 1,059,611 | ||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | 177,046 | $ | 151,626 | $ | 230,072 | |||||||||||
| $ | 177,046 | $ | 151,626 | $ | 230,072 | ||||||||||||
| Operating working capital | $ | 531,166 | $ | 584,242 | $ | 829,539 | |||||||||||
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Operating working capital of $531.2 million as of April 1, 2023, compared to $584.2 million as of December 31, 2022, decreased on a net basis by approximately $53.1 million. The decrease in operating working capital is primarily driven by the decrease in inventory, which reflects our strategic inventory management efforts, and the increase in accounts payable due to timing of cash disbursements. This was partially offset by the increase in accounts receivable from net sales.
Operating working capital of $531.2 million as of April 1, 2023, compared to $829.5 million as of April 2, 2022, decreased on a net basis by approximately $298.4 million. The decrease in operating working capital is primarily driven by the decrease in accounts receivable due to the decrease in net sales and improved collection efforts, as well as the decrease in inventory, which reflects our strategic inventory management efforts and a deflationary pricing environment. This was partially offset by the decrease in accounts payable due to the decrease in inventory and the timing of cash disbursements.
Investments in Property and Equipment
Our investments in capital assets consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure. The gross value of these assets are included in property and equipment, at cost on our condensed consolidated balance sheet. For the first quarter ended April 1, 2023, we invested $9.0 million in cash investments in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet.
Critical Accounting Policies
The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Forward-Looking Statements
This report contains forward-looking statements. Forward-looking statements include, without limitation, any statement that predicts, forecasts, indicates or implies future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “could,” “expect,” “estimate,” “intend,” “may,” “project,” “plan,” “should,” “will,” “will be,” “will likely continue,” “will likely result,” “would” or words or phrases of similar meaning. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. The forward-looking statements in this report include statements about anticipated effects of adopting certain accounting standards; estimated future annual amortization expense; potential changes to estimates made in connection with revenue recognition; the expected outcome of legal proceedings; industry conditions; seasonality; and liquidity and capital resources.
Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, and those discussed elsewhere in this report (including Item 1A of Part II of this report) and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Factors that may cause these differences include, among other things:
•we may experience pricing and product cost variability;
•our earnings are highly dependent on volumes;
•our industry is highly fragmented and competitive and if we are unable to compete effectively, our net sales and operating results may be reduced;
•our industry is highly cyclical, and prolonged periods of weak demand or excess supply may reduce our net sales and/or margins, which may cause us to incur losses or reduce our net income;
•adverse housing market conditions may negatively impact our business, liquidity, and results of operations, and increase the credit risk from our customers;
•consolidation among competitors, suppliers, and customers could negatively impact our business;
•we are subject to disintermediation risk;
•loss of key products or key suppliers and manufacturers could affect our financial health;
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•our dependence on international suppliers and manufacturers for certain products exposes us to risks that could affect our financial condition and expose us to certain additional risks;
•our strategy includes pursuing acquisitions, and we may be unsuccessful in making and integrating mergers, acquisitions and investments;
•we may incur business disruptions resulting from a variety of possible causes;
•we may be unable to effectively manage our inventory relative to our sales volume or as the prices of the products we distribute fluctuate, which could affect our business, financial condition, and operating results;
•we are subject to information technology security risks and business interruption risks and may incur increasing costs in an effort to minimize and/or respond to those risks;
•our success depends on our ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs;
•we are exposed to product liability and other claims and legal proceedings related to our business and the products we distribute, which may exceed the coverage of our insurance;
•our business operations could suffer significant losses from climate changes, natural disasters, catastrophes, fire, or other unexpected events;
•our operating results depend on the successful implementation of our strategy and we may not be able to implement our strategic initiatives successfully, on a timely basis, or at all;
•a significant percentage of our employees are unionized, and wage increases or work stoppages by our unionized employees may reduce our results of operations;
•federal, state, local, and other regulations could impose substantial costs and restrictions on our operations that would reduce our net income;
•we are subject to federal, state, and local environmental protection laws and may have to incur significant costs to comply with these laws and regulations in the future;
•the effect of global pandemics, such as COVID-19, and other widespread public health crises and governmental rules and regulations and our policies related to such may adversely affect our business and results from operations;
•our future operating results may fluctuate significantly, and our current operating results may not be a good indication of our future performance;
•fluctuations in our quarterly financial results could affect our stock price in the future;
•our level of indebtedness could limit our financial and operating activities and adversely affect our ability to incur additional debt to fund future needs;
•the instruments governing our indebtedness contain various covenants limiting the discretion of our management in operating our business, including requiring us to maintain a minimum level of excess liquidity;
•despite our current levels of debt, we may still incur more debt, which would increase the risks described in these risk factors relating to indebtedness;
•we have sold and leased back certain of our distribution centers under long-term non-cancelable leases, and we may enter into similar transactions in the future. All of these leases are (or will be) finance leases, and our debt and interest expense may increase as a result;
•many of our distribution centers are leased, and if we close a leased distribution center before expiration of the lease, we will still be obligated under the applicable lease, and we may be unable to renew the leases at the end of their terms;
•we may not have or be able to raise the funds necessary to finance a required repurchase of our senior secured notes;
•a lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital;
•a change in our product mix could adversely affect our results of operations;
•if the cost of fuel, third-party freight or other energy prices increase or availability of third-party freight providers is reduced, our results of operations could be adversely affected;
•we establish insurance-related deductible/retention reserves based on historical loss development factors, which could lead to adjustments in the future based on actual development experience;
•the value of our deferred tax assets could become impaired, which could materially and adversely affect our operating results;
•our expected annual effective tax rate could be volatile and materially change as a result of changes in mix of earnings and other factors;
•changes in actuarial assumptions for our pension plan could impact our financial results, and funding requirements are mandated by the Federal government;
•costs and liabilities related to our participation in multi-employer pension plans could increase;
•our cash flows and capital resources may be insufficient to make required payments on our indebtedness or future indebtedness;
•borrowings under our revolving credit facility bears interest at a variable rate, which subjects us to interest rate risk, which could cause our debt service obligations to increase significantly;
•changes in, or interpretation of, accounting principles could result in unfavorable accounting changes;
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•our stock price may fluctuate significantly;
•we could be the subject of securities class action litigation due to stock price volatility, which could divert management’s attention and adversely affect our results of operations;
•if securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline;
•the activities of activist stockholders could have a negative impact on our business and results of operations;
•the terms of our revolving credit facility and senior secured notes place restrictions on our ability to pay dividends on our common stock, so any returns to stockholders may be limited to the value of their stock.
Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks as part of our on-going business operations. Our exposure includes commodity price risk and interest rate risk.
Commodity Price Risk
Many of the building products that we distribute, including oriented strand board (“OSB”), plywood, lumber, and rebar, are commodities whose price is determined by the market’s supply and demand for such products. Prices of commodity products can also change as a result of national and international economic conditions, labor and freight costs, competition, market speculation, government regulation, and trade policies, as well as from periodic delays in the delivery of products. Short-term increases in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers, but our pricing quotation periods and pricing pressure from our competitors may limit our ability to pass on such price changes. We may also be limited in our ability to pass on increases in freight costs on our products. We may enter into derivative financial instruments to mitigate the potential impact of commodity price fluctuations on our results of operations or cash flows. As of April 1, 2023, we had no such derivative financial instruments in place.
Interest Rate Risk
We may experience changes in interest expense if changes in our debt occur. Changes in market interest rates could also affect our interest expense. We are exposed to interest rate risk arising from fluctuations in variable-rate LIBOR or other applicable benchmark rate, such as SOFR, when we have loan amounts outstanding on our revolving credit facility. We do not believe that a one percent increase in interest rates, for example, would have a material effect on our results of operations or cash flows. As of April 1, 2023, we had no outstanding borrowings on our revolving credit facility. Our senior secured notes bear interest at a fixed rate, therefore, our interest expense related to these notes would not be affected by an increase in market interest rates. We may enter into derivative financial instruments to mitigate the potential impact of interest rate risk on our results of operations or cash flows. As of April 1, 2023, we had no such derivative financial instruments in place.
ITEM 4. CONTROLS AND PROCEDURES
Our management performed an evaluation, as of the end of the period covered by this report on Form 10-Q, under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
During the period covered by this report, other than described below, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the first quarter of fiscal 2023, there were no material changes to our legal proceedings as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. Additionally, we are, and from time to time may be, a party to routine legal proceedings incidental to the operation of our business. The outcome of any pending or threatened proceedings is not expected to have a material adverse effect on our financial condition, operating results, or cash flows, based on our current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Part I, "Item 1A.Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents our share repurchase activity for each month of the quarter ended April 1, 2023:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||
| January 1 - February 4 | 6,102 | $ | 79.12 | — | $ | 33,572,690 | |||||||||||||||||
| February 5 - March 4 | — | $ | — | — | $ | 33,572,690 | |||||||||||||||||
| March 5 - April 1 | 20,824 | $ | 68.49 | — | $ | 33,572,690 | |||||||||||||||||
| Total | 26,926 | — | |||||||||||||||||||||
(1) Includes shares withheld by us in connection with tax withholding obligations of our employees upon vesting of such employees’ restricted stock unit awards.
(2) On May 3, 2022, our Board of Directors increased our share repurchase authorization to $100.0 million, and as of April 1, 2023, we had a remaining authorization amount of $33.6 million under the program. With the remaining availability under the stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| Exhibit Number | Description | |||||||
| * | ||||||||
| * | ||||||||
| * | ||||||||
| ** | ||||||||
| ** | ||||||||
| 101.Def | Definition Linkbase Document. | |||||||
| 101.Pre | Presentation Linkbase Document. | |||||||
| 101.Lab | Labels Linkbase Document. | |||||||
| 101.Cal | Calculation Linkbase Document. | |||||||
| 101.Sch | Schema Document. | |||||||
| 101.Ins | Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 104 | The cover page from this Quarterly Report on Form 10-Q for the quarter ended April 1, 2023, formatted in Inline XBRL. | |||||||
| * | Filed herewith. | |||||||
| ** | Exhibit is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended. | |||||||
| ± | Management contract or compensatory plan or arrangement. | |||||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BlueLinx Holdings Inc. | ||||||||
| (Registrant) | ||||||||
| Date: May 2, 2023 | By: | /s/ Kelly C. Janzen | ||||||
| Kelly C. Janzen | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
| Date: May 2, 2023 | By: | /s/ Adam K. Bowen | ||||||
| Adam K. Bowen | ||||||||
| Vice President and Chief Accounting Officer | ||||||||
| (Principal Accounting Officer) | ||||||||
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February 9, 2022 Mr. Kevin A. Henry 8534 Broxburn Lane Waxhaw, NC 28173 Dear Kevin, I am pleased to formally extend to you an offer of employment with BlueLinx Corporation (“BlueLinx” or “the Company”) as Chief People Officer reporting to me, with a start date of March 1, 2022 (the “Start Date”). Your initial annual base salary will be $530,000, less all applicable payroll withholding and other customary payroll deductions (the “Base Salary”). Your Base Salary will be paid in substantially equal installments in accordance with the Company’s standard payroll practices for the payment of base salary to executives. BlueLinx’s standard payroll delivery method is direct deposit. You will receive direct deposit enrollment information in your new hire packet. You will receive a relocation and signing bonus in the amount of $200,000, less all applicable payroll withholding and other customary payroll deductions on the first payroll date that is at least five days after your Start Date. You will be eligible to participate in the BlueLinx Short Term Incentive Plan (STIP) according to the terms of that plan with a target bonus amount of 80% of your Base Salary (the “Annual Bonus”). For calendar year 2022 only, your Annual Bonus will be no less than 50% of your 2022 annual bonus at target, and such amount shall be guaranteed regardless of actual performance if you remain employed through the date it is paid, which will be in calendar year 2023, no later than March 15, 2023. Subject to the approval of the Compensation Committee of the Board, you will receive an initial equity award of 10,000 restricted stock units (“RSUs”) under the BlueLinx Holdings Inc. 2021 Long-Term Incentive Plan (the "Plan") within 30 days of your Start Date (the “Initial Grant”). Your Initial Grant will vest ratably in annual installments over a three-year period beginning on the grant date of the Initial Grant. If you are terminated without Cause prior to the complete vesting of the Initial Grant, then any remaining unvested RSUs of the Initial Grant shall vest and become non-forfeitable, and will be settled in shares of BlueLinx stock within 74 calendar days following the date of your employment termination, provided that you satisfy the release requirement specified below, and the Company will use best efforts to settle the shares of BlueLinx stock within 10 business days after you satisfy the release requirement specified below. The terms of the Initial Grant will be set forth in a Restricted Stock Unit Award Agreement (“RSU
Agreement”) that is consistent with the Company’s standard form of RSU agreement except as specified in this paragraph. The Company shall have no obligation to make any of the payments, or deliver any of the benefits, described above and below unless you execute a form of release of claims agreement prepared by the Company that contains a general release of all asserted and unasserted claims arising from your employment with the Company (the “Release Agreement”) that becomes effective and irrevocable within the sixty (60) calendar days after the date of employment termination. You will receive another equity award in 2022 equal to 125% of your Base Salary, which award shall be made at the time and substantially in the form and substance as 2022 equity awards under the Plan are granted to other direct reports of the Chief Executive Officer. Thereafter, annual awards of equity and rights to receive equity or equity equivalents under the Plan shall be determined at the discretion of the CEO and the Compensation Committee of the Board of Directors and shall be governed by the terms of the Plan. In the event your employment terminates without Cause or you resign for Good Reason, the Company will pay you (i) a payment equal to one times your Base Salary in effect immediately prior to your employment termination date and (ii) a pro rata portion (based on your days of employment during the performance year) of your Annual Bonus at target achievement for the performance year in which your termination occurs. The payments in clauses (i) and (ii) of this paragraph shall be paid in cash, less applicable withholdings, within 74 calendar days following the date of your employment termination, provided you execute the Release Agreement. In the event your employment ends as a result of a Change in Control Termination, then the payment described in (i) of this paragraph shall be equal to two (2) times your annual Base Salary in effect immediately prior to your employment termination date. Your equity awards under the Plan will be subject to the Change in Control terms in your equity award agreements and the Plan, as applicable. You are entitled during your employment to participate, on the same basis as the Company’s other senior executives, in the Company’s Standard Executive Benefits Package. The Company’s “Standard Executive Benefits Package” means those benefits (including insurance, vacation and other benefits, but excluding any broad-based severance pay program or policy of the Company) for which similarly situated employees are from time to time generally eligible, as determined from time to time by the Board. You will be eligible for five weeks of annual Paid-Time Off (PTO) after completing the first 90 days of full-time employment. Your annual PTO benefit will remain at the five-week level until you have completed the normal full term required for the next level based on the applicable BlueLinx PTO policy. Additionally, BlueLinx currently recognizes eight paid holidays throughout the year. Eligibility for medical, dental and vision benefits begin on the first day of the month following your Start Date. All terms and conditions of coverage under the Company's health care plans are governed by the terms and conditions set forth in those plans. To the extent that anything in this offer contradicts or otherwise differs from the terms and
conditions of these plans, the plans will control. Accordingly, I urge you to review the Summary Plan Description, which will be provided to you in order to answer any questions you have about the Company's health care benefit plans. There are other benefits such as the Salaried Savings Plan in which you may participate as a BlueLinx employee. Your eligibility for coverage under and/or participation in these benefits is governed by the terms and conditions of the policies or the plans relating to those particular benefits and will not be specifically discussed in this offer. It is intended that the payments and benefits provided for in this letter agreement will either be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), or be provided in a manner that complies with Section 409A of the Code and the regulatory guidance thereunder (“Section 409A”) and to avoid the imposition of tax, interest and/or penalties upon you under Section 409A, and any ambiguity in this letter agreement shall be interpreted consistent with that intent. The right to a series of installment payments under this letter agreement shall be treated as a right to a series of separate payments for purposes of Section 409A. Each such payment that is made within 2½ months following the end of the year that contains the date of your employment termination (the “Termination Date”) is intended to be exempt from Section 409A as a short-term deferral, each such payment that is made later than 2½ months following the end of the year that contains the Termination Date is intended to be exempt from Section 409A under the two-times compensation exception up to the limitation on the availability of that exception, and each payment that is made after the two-times compensation exception ceases to be available shall be subject to delay, as necessary, as specified below. Notwithstanding anything contained herein to the contrary, to the extent necessary to comply with Section 409A, all payments and benefits which are payable upon your termination of employment hereunder shall be paid or provided only upon your “separation from service” with the Company within the meaning of Section 409A. To the extent necessary to comply with Section 409A, if you are a “specified employee” on the Termination Date (as such a term is defined under Section 409A and the regulations and guidance thereunder), any payments triggered by your termination of employment shall be delayed to the first business day that occurs six months following the Termination Date or, if earlier, the date of your death. To the extent necessary to comply with Section 409A, in no event may you, directly or indirectly, designate the taxable year of any payment under this letter agreement. In particular, to the extent necessary to comply with Section 409A, if the designated payment period for any payment under this letter agreement begins in one taxable year and ends in the next taxable year, the payment will be made in the later taxable year. This offer of employment is contingent upon the successful completion of the drug screen, background investigation, and verification of COVID-19 vaccination status or receipt of exemption request no later than the first day of employment. Please upload photos of your vaccination card to: https://www.lifesitevault.com/wellness/health-verification/. The instructions are included in the enclosed document. If you wish to be considered for a medical or religious exemption, please email accomodations@bluelinxco.com. Accommodation requests that are not approved may result in a withdrawal of this offer or termination of employment.
Additionally, as a condition of employment you will be required to sign and return the enclosed restrictive covenant agreement (the “Restrictive Covenant Agreement”). As you are no doubt aware, employment at BlueLinx, as with most employers, is "at will" and, thus, may be terminated at any time and for any reason not prohibited by law, either at the option of the employee or the option of the Company. Nothing in this offer or our discussions concerning your employment should be construed as contractually limiting that right or as guaranteeing your employment for any specified period of time. We are excited about you joining the BlueLinx team and look forward to your response to our offer. Please sign below to indicate your acceptance of the position and your understanding and acknowledgement of the terms of this Offer Letter. Sincerely, /s/ Dwight Gibson Dwight Gibson Chief Executive Officer cc: Shyam K. Reddy Chief Administrative Officer Enclosures and Attachment /s/ Kevin A. Henry 2/9/2022 Signature Date
Exhibit A Definitions “Affiliate” means any corporation, trade or business which is treated as a single employer with the Company under Sections 414(b) or 414(c) of the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder and any other entity designated by the Company as an “Affiliate”. “Board” shall mean the Board of Directors of BlueLinx Holdings Inc. “Cause” shall mean only: (i) a Material Breach of the duties and responsibilities of a Covered Employee; (ii) a Covered Employee’s (x) commission of a felony or (y) commission of any misdemeanor involving willful misconduct (other than minor violations such as traffic violations) if such misdemeanor causes material damage to the property, business or reputation of the Company or any of its Affiliates; (iii) acts of dishonesty by a Covered Employee resulting or intending to result in personal gain or enrichment at the expense of the Company or any of its Affiliates; (iv) a Material Breach of any provision contained in a written agreement between the Covered Employee and the Company or any of its Affiliates; (v) conduct by a Covered Employee in connection with his duties and responsibilities that is fraudulent, unlawful or willful and materially injurious to the Company or any of its Affiliates; (v) a Covered Employee’s failure to cooperate in all material respects, or failure to direct the persons subject to the Covered Employee’s management or direction to cooperate in all material respects with all corporate investigations or independent investigations by the Company or the Board, all governmental investigations of the Company or any of its Affiliates, and all orders involving the Covered Employee or the Company (or any of its Affiliates) entered by a court of competent jurisdiction; (vi) a Covered Employee’s material violation of the Company’s Code of Conduct (including as applicable to officers), or any successor codes, all as provided in writing to the Covered Employee; or (vii) a Covered Employee’s engagement in activities prohibited by his Restrictive Covenant Agreement with the Company. Notwithstanding the foregoing, no termination of a Covered Employee’s employment shall be for Cause until (a) there shall have been delivered to the Covered Employee a copy of a written notice setting forth the basis for such termination in reasonable detail, and (b) the Covered Employee shall have been provided an
opportunity to be heard in person by the Board (with the assistance of the Covered Employee’s counsel if the Covered Employee so desires). No act, or failure to act, on the Covered Employee’s part shall be considered “willful” unless the Covered Employee has acted or failed to act with a lack of good faith and with a lack of reasonable belief that the Covered Employee’s action or failure to act was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Covered Employee in good faith and in the best interests of the Company. Any termination of the Covered Employee’s employment by the Company shall be deemed to be a termination other than for Cause unless it meets all requirements of this Section. The Covered Employee shall have thirty (30) calendar days following receipt of notice given to the Covered Employee to address and “cure” any act or omission which might provide the basis for a termination for “Cause” if such act or omission is curable and, if cured within such 30- day period, such acts or omissions shall not provide the basis for a termination for “Cause”. “Change in Control” shall have the meaning set forth in the Plan. “Change in Control Termination” means termination of employee’s employment by the Company without Cause within (a) 24 months following a Change in Control or (b) prior to a Change in Control if employee’s termination was either a condition of the Change in Control or was at the request or insistence of a party (other than BlueLinx) related to the Change in Control. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder. “Covered Employee” means Kevin A. Henry. “Good Reason” shall mean only, without the consent of a Covered Employee: (i) the assignment to a Covered Employee of any duties inconsistent in any material adverse respect with the Covered Employee’s authority, duties or responsibilities, or any other action by the Company which results in a material diminution in the Covered Employee’s authority, duties or responsibilities; (ii) a material reduction by the Company of the Covered Employee’s Salary or target bonus opportunity under the Company’s annual bonus plan, in each case, other than pursuant to a reduction generally applicable to executives of the Company; or (iii) the Company requiring the Covered Employee to be based at any office or location which is outside a 50 mile radius of the Covered Employee’s principal location of employment. Notwithstanding the foregoing, “Good Reason” shall not be deemed to exist for purposes of (i) through (iii) unless (a) the Covered Employee shall have first given the Company written notice stating with reasonable specificity the act(s) on which such termination is premised within forty-five (45) calendar days after the Covered Employee first becomes aware of such act(s), (b) if such act(s) is curable, the Company has not cured or remedied the act(s) within thirty (30) calendar days after receipt of such notice, and (c) the Covered Employee terminates his or her employment within forty-five (45) calendar days after so notifying the Company. If such act(s) is curable and, if cured within such 30-day period, such act(s) shall not provide the basis for a termination for “Good Reason”.
“Material Breach” means an intentional act or omission by a Covered Employee which constitutes substantial non-performance of the Covered Employee’s obligations and causes material damage to the Company.
EXHIBIT 31.1
CERTIFICATION REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
I, Shyam K. Reddy, certify that:
(1)I have reviewed this quarterly report on Form 10-Q of BlueLinx Holdings Inc.;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| May 2, 2023 | /s/ Shyam K. Reddy | ||||
| Shyam K. Reddy | |||||
| President and Chief Executive Officer | |||||
EXHIBIT 31.2
CERTIFICATION REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
I, Kelly C. Janzen, certify that:
(1)I have reviewed this quarterly report on Form 10-Q of BlueLinx Holdings Inc.;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| May 2, 2023 | /s/ Kelly C. Janzen | ||||
| Kelly C. Janzen | |||||
| Senior Vice President and Chief Financial Officer | |||||
EXHIBIT 32.1
BLUELINX HOLDINGS INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of BlueLinx Holdings Inc. (the “Company”) on Form 10-Q for the period ending April 1, 2023, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Shyam K. Reddy, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| May 2, 2023 | /s/ Shyam K. Reddy | ||||
| Shyam K. Reddy | |||||
| President and Chief Executive Officer | |||||
EXHIBIT 32.2
BLUELINX HOLDINGS INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of BlueLinx Holdings Inc. (the “Company”) on Form 10-Q for the period ending April 1, 2023, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Kelly C. Janzen, Senior Vice President and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| May 2, 2023 | /s/ Kelly C. Janzen | ||||
| Kelly C. Janzen | |||||
| Senior Vice President and Chief Financial Officer | |||||