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Stock Building Supply Hldg Inc : Stock Building Supply Announces Third Quarter 2013 Results

10/30/2013 | 06:24am US/Eastern
Adjusted EBITDA of $10.4 Million on Net Sales Increase of 28.4%

RALEIGH, N.C., Oct. 30, 2013 (GLOBE NEWSWIRE) -- Stock Building Supply Holdings, Inc. (Nasdaq:STCK), a large, diversified lumber and building materials distributor and solutions provider that sells primarily to new construction and repair and remodel contractors, today reported its financial results for the third quarter ended September 30, 2013.

Third Quarter Financial Highlights

  • Net sales of $328.5 million, up 28.4%, compared to $255.8 million in the prior year period
  • Adjusted EBITDA of $10.4 million, compared to $4.3 million in the prior year period
  • Net loss of $5.5 million, including $9.3 million of initial public offering ("IPO") transaction-related costs, compared to net income of $0.04 million in the prior year period
  • Completed its IPO on August 14, 2013, yielding approximately $46.8 million of proceeds that were used to repay borrowings under the Company's revolver
  • Cash provided by operating activities of $4.2 million, including the payment of $9.3 million of IPO transaction-related costs, compared to cash used in operating activities of $5.4 million in the prior year period
  • Improved liquidity to approximately $92.0 million

"In the third quarter, our business performance continued its positive trend of strong revenue growth and increases in Adjusted EBITDA. Additionally we completed our transition to a public company with a successful IPO on August 14th which helped improve our liquidity and strengthen our balance sheet," stated Jeff Rea, Chief Executive Officer of Stock Building Supply. "We believe our growth rate continues to outperform our industry benchmarks as revenues from new single-family construction increased approximately 31%, while repair and remodel revenues increased 28% compared to third quarter 2012."

Commenting on the third quarter results, Jim Major, Executive Vice President and Chief Financial Officer, added, "Our third quarter performance reflects significant improvements in our operating results and capital structure. We once again leveraged our cost structure to reduce selling, general and administrative expenses as a percentage of net sales to 20.4% in the third quarter of 2013, compared to 21.9% in the third quarter of 2012. The completion of our IPO in August combined with effective working capital management resulted in total debt, net of cash and cash equivalents, at September 30, 2013 of $57.2 million as compared to $116.6 million at the beginning of the quarter. We believe our current capital structure will allow us to make the required investments in our business to support our anticipated future growth."

Third Quarter 2013 Financial Results Compared to Prior Year Period

Net sales for the third quarter of 2013 totaled $328.5 million, up $72.7 million, or 28.4%, compared to $255.8 million in the third quarter of 2012. We estimate our net sales increased 23.4% related to increased volume and 5.0% due to increased selling prices. The increase in sales volume was primarily driven by increased single-family housing starts and increased demand arising from higher repair and remodel activity.

Gross profit in the third quarter of 2013 was $75.4 million, up $16.9 million, or 28.8%, compared to $58.5 million in the third quarter of 2012, primarily as a result of increased sales volumes. The gross margin percentage of 22.9% was unchanged compared to the prior year period.

Selling, general and administrative ("SG&A") expenses during the third quarter of 2013 were $66.9 million, up $10.9 million, or 19.6%, from $56.0 million in the third quarter of 2012. This increase was primarily driven by variable costs to serve higher sales volumes, such as sales commissions, shipping and handling costs and other variable compensation, which increased by $5.8 million. Other increases in SG&A related to incremental expenses from acquired operations and other strategic investments to better serve our customers and support the growth of our business.

Operating loss in the third quarter of 2013 was $2.9 million, compared to operating income of $0.2 million in the third quarter of 2012. Net loss during the quarter totaled $5.5 million, or ($0.30) per diluted share, compared to net income of $0.04 million, or ($0.08) per diluted share, in the third quarter of 2012. During the three months ended September 30, 2013, the Company's operating loss and net loss were impacted by $9.3 million of IPO transaction-related costs, which included a $9.0 million fee for terminating our management services agreement with The Gores Group, LLC ("Gores"). Approximately $9.2 million of the IPO transaction-related costs were not deductible for tax purposes and this was one of the factors that resulted in an effective tax rate from continuing operations of (55.0)% for the third quarter of 2013.

Adjusted EBITDA in the third quarter of 2013 totaled $10.4 million, up $6.1 million, compared to $4.3 million in the third quarter of 2012. Adjusted income from continuing operations for the third quarter of 2013 increased $3.8 million to $4.2 million, compared to $0.4 million in the third quarter of 2012. A reconciliation of non-GAAP (adjusted) financial measures to comparable GAAP financial measures is provided as an appendix to this release.

Total liquidity as of September 30, 2013 was approximately $92.0 million, which includes cash and cash equivalents of $10.5 million and $81.5 million of borrowing availability under our existing revolver. Borrowings under the revolver decreased during the third quarter of 2013, primarily related to $46.8 million in IPO proceeds used to pay down the existing balance.

Outlook

Concluding, Mr. Rea said, "While we expect the normal seasonal and weather related slow-down in our business as we enter the winter months, we believe macroeconomic trends remain favorable for year-over-year improvement in our core markets. With the short- and mid-term objective of accelerating both our revenue growth and profitability, we plan to continue to invest in our strategic initiatives to better serve our core customers, expand our capacity and increase our operating capabilities."

Conference Call

Stock Building Supply will host a conference call on Wednesday, October 30, 2013 at 8:30 a.m. Eastern Time and will simultaneously broadcast it live over the Internet. To participate in the teleconference, please dial into the call a few minutes before the start time: 877-407-0784 (U.S.) and 201-689-8560 (international). A replay of the call will be available through November 5th. To access the replay, please dial 877-870-5176 (U.S.) and 858-384-5517 (international) and refer to pass code 10000618. The live webcast and archived replay can also be accessed on the Company's investor relations website at ir.stocksupply.com. The online archive of the webcast will be available for approximately 90 days.

About Stock Building Supply

Stock Building Supply operates in 20 metropolitan areas in 13 states primarily in the South and West regions of the United States (as defined by the U.S. Census Bureau). Today, we serve our customers from 66 strategically located facilities. We offer over 39,000 products including lumber and lumber sheet goods, millwork, doors, flooring, windows, structural components, engineered wood products, trusses, wall panels and other exterior products. Our customer base includes production homebuilders, custom homebuilders and repair and remodel contractors.

Non-GAAP Financial Measures

This press release presents Adjusted EBITDA and Adjusted income (loss) from continuing operations, which are non-GAAP financial measures within the meaning of applicable Securities and Exchange Commission rules and regulations. For a reconciliation of Adjusted EBITDA and Adjusted income (loss) from continuing operations under generally accepted accounting principles and for a discussion of the reasons why the Company believes that these non-GAAP financial measures provide information that is useful to investors, see the tables below under "Reconciliation of GAAP to Non-GAAP Measures."

Forward-Looking Statements

This press release contains forward-looking statements, which are subject to substantial risks, uncertainties and assumptions. You should not place reliance on these statements. These statements often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "seek," "will," "may" or similar expressions. These risks include, but are not limited to, the following: (i) the state of the homebuilding industry and repair and remodel activity; (ii) seasonality and cyclicality of the building products supply and services industry; (iii) competitive industry pressures and competitive pricing pressure from our customers; (iv) inflation or deflation of commodity prices; (v) litigation or warranty claims relating to our products and services; (vi) our ability to maintain profitability; (vii) our ability to attract and retain key employees and (vii) product shortages and relationships with key suppliers. Further information regarding factors that could impact our financial and other results can be found in the Risk Factors section of our Prospectus dated August 8, 2013 filed with the Securities and Exchange Commission. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of expected future developments and other factors we believe are appropriate in these circumstances. As you read and consider this press release, you should understand that these statements are not guarantees of performance or results. Many factors could affect our actual performance and results and could cause actual results to differ materially from those expressed in the forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended September 30, Nine months ended September 30,
(in thousands of dollars, except share and per share amounts) 2013 2012 2013 2012
Net sales $328,468 $255,833 $891,847 $690,264
Cost of goods sold 253,087 197,317 691,166 533,263
Gross profit 75,381 58,516 200,681 157,001
Selling, general and administrative expenses 66,931 55,962 188,458 163,567
Depreciation expense 1,456 1,803 4,716 5,902
Amortization expense 563 364 1,672 1,093
IPO transaction-related costs 9,322 - 10,008 -
Restructuring expense 31 145 130 166
78,303 58,274 204,984 170,728
Income (loss) from operations (2,922) 242 (4,303) (13,727)
Other income, net
Interest expense (892) (1,022) (3,150) (3,070)
Other income, net 200 137 596 36
Loss from continuing operations before income taxes (3,614) (643) (6,857) (16,761)
Income tax benefit (expense) (1,989) 394 (1,076) 5,950
Loss from continuing operations (5,603) (249) (7,933) (10,811)
Income from discontinued operations, net of tax provision of ($54), ($168), ($237) and ($25), respectively 90 289 341 48
Net income (loss) (5,513) 40 (7,592) (10,763)
Redeemable Class B Senior Preferred stock deemed dividend (363) (1,144) (1,836) (3,366)
Accretion of beneficial conversion feature on Convertible Class C Preferred stock - - - (5,000)
Loss attributable to common stockholders $(5,876) $(1,104) $(9,428) $(19,129)
Weighted average common shares outstanding, basic and diluted 19,813,209 13,361,512 15,718,667 13,079,851
Basic and diluted income (loss) per share
Loss from continuing operations $(0.30) $(0.10) $(0.62) $(1.46)
Income from discontinued operations - 0.02 0.02 -
Net loss per share $(0.30) $(0.08) $(0.60) $(1.46)
STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
September 30, December 31,
2013 2012
(in thousands of dollars, except share and per share amounts) (as restated)
Assets
Current assets
Cash and cash equivalents $10,526 $2,691
Restricted assets 567 3,821
Accounts receivable, net 125,413 90,297
Inventories, net 95,043 73,918
Costs in excess of billings on uncompleted contracts 9,059 5,176
Assets held for sale 2,795 6,198
Prepaid expenses and other current assets 8,902 8,682
Deferred income taxes 5,952 3,562
Total current assets 258,257 194,345
Property and equipment, net of accumulated depreciation 52,880 55,076
Intangible assets, net of accumulated amortization 25,353 25,865
Goodwill 7,186 6,511
Restricted assets 2,233 2,202
Other assets 2,160 2,013
Total assets $348,069 $286,012
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $87,954 $74,231
Accrued expenses and other liabilities 34,459 25,277
Revolving line of credit - 72,218
Income taxes payable 6,100 2,939
Current portion of restructuring reserve 1,572 1,513
Current portion of capital lease obligation 1,343 1,329
Billings in excess of costs on uncompleted contracts 2,877 1,239
Total current liabilities 134,305 178,746
Revolving line of credit 60,073 -
Long-term portion of capital lease obligation 6,265 5,635
Deferred income taxes 15,650 16,983
Other long-term liabilities 7,528 9,007
Total liabilities 223,821 210,371
Commitments and contingencies
Redeemable Class A Junior Preferred stock, $.01 par value, 10,000 shares authorized and issued, 0 and 5,100 shares outstanding at September 30, 2013 and December 31, 2012, respectively - -
Redeemable Class B Senior Preferred stock, $.01 par value, 500,000 shares authorized, 75,000 shares issued, 0 and 36,388 shares outstanding at September 30, 2013 and December 31, 2012, respectively - 36,477
Convertible Class C Preferred stock, $.01 par value, 5,000 shares authorized and issued, 0 and 5,000 shares outstanding at September 30, 2013 and December 31, 2012, respectively - 5,000
Stockholders' equity
Class A common stock, $.01 par value, 22,725,500 shares authorized and issued, 0 and 11,590,005 shares outstanding at September 30, 2013 and December 31, 2012, respectively - 116
Class B common stock, $.01 par value, 3,246,500 shares authorized, 2,870,712 shares issued, 0 and 2,870,712 shares outstanding at September 30, 2013 and December 31, 2012, respectively - 29
Common stock, $.01 par value, 300,000,000 shares authorized, 26,107,231 and 0 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 261 -
Additional paid-in capital 144,094 46,534
Retained deficit (20,107) (12,515)
Total stockholders' equity 124,248 34,164
Total liabilities and stockholders' equity $348,069 $286,012
STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
 (unaudited)
Nine months ended September 30,
(in thousands of dollars) 2013 2012
Cash flows from operating activities
Net loss $(7,592) $(10,763)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation expense 7,389 7,865
Amortization of intangible assets 1,672 1,093
Amortization of debt issuance costs 465 685
Change in deferred income taxes (3,723) (3,196)
Noncash stock compensation expense 573 1,069
Impairment of assets held for sale - 101
Gain on sale of property, equipment and real estate held for sale (270) (567)
Bad debt expense 1,316 1,435
Change in assets and liabilities
Accounts receivable (35,401) (34,319)
Inventories, net (20,598) (30,622)
Accounts payable 14,735 25,761
Other assets and liabilities 6,904 16,774
Net cash used in operating activities (34,530) (24,684)
Cash flows from investing activities
Change in restricted assets 3,223 3,458
Purchase of business (2,373) -
Proceeds from sale of property, equipment and real estate held for sale 3,070 922
Purchases of property and equipment (2,574) (2,382)
Net cash provided by investing activities 1,346 1,998
Cash flows from financing activities
Proceeds from revolving line of credit 961,160 753,580
Repayments of proceeds from revolving line of credit (973,305) (726,120)
Proceeds from issuance of common stock, net of offering costs 55,821 -
Other financing activities (2,657) (1,277)
Net cash provided by financing activities 41,019 26,183
Net increase in cash and cash equivalents 7,835 3,497
Cash and cash equivalents
Beginning of period 2,691 4,957
End of period $10,526 $8,454
STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Sales by Product Category
(unaudited)
 Three months ended
September 30, 2013
Three months ended
September 30, 2012
(in thousands of dollars) Sales % of Sales Sales % of Sales % Change
Structural components $46,335 14.1% $28,978 11.3% 59.9%
Millwork & other interior products 58,215 17.7% 47,956 18.7% 21.4%
Lumber & lumber sheet goods 114,147 34.8% 91,394 35.7% 24.9%
Windows & other exterior products 71,463 21.8% 54,803 21.4% 30.4%
Other building products & services 38,308 11.6% 32,702 12.9% 17.1%
Total sales $328,468 100.0% $255,833 100.0% 28.4%
Nine months ended 
September 30, 2013
Nine months ended 
September 30, 2012
(in thousands of dollars) Sales % of Sales Sales % of Sales % Change
Structural components $117,367 13.2% $77,818 11.3% 50.8%
Millwork & other interior products 161,213 18.1% 130,793 18.9% 23.3%
Lumber & lumber sheet goods 329,744 37.0% 240,884 34.9% 36.9%
Windows & other exterior products 182,062 20.4% 150,335 21.8% 21.1%
Other building products & services 101,461 11.3% 90,434 13.1% 12.2%
Total sales $891,847 100.0% $690,264 100.0% 29.2%

STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Measures
(unaudited)

 EBITDA is defined as net income (loss) before interest, income tax expense (benefit) and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus discontinued operations, net of taxes, restructuring expense, IPO transaction-related costs, management fees, non-cash compensation expense, acquisition costs, severance and other expenses related to store closures and business optimization and other expense resulting from the reduction of a tax indemnification asset. Adjusted income (loss) from continuing operations is defined as net income as adjusted for the same items deducted from EBITDA in calculating Adjusted EBITDA, and after tax effecting those items. Adjusted EBITDA and Adjusted income (loss) from continuing operations are intended as supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States ("GAAP"). We believe that Adjusted EBITDA and Adjusted income (loss) from continuing operations provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses Adjusted EBITDA to compare our performance to that of prior periods for trend analyses, for purposes of determining management incentive compensation and for budgeting and planning purposes. Adjusted EBITDA is used in monthly financial reports prepared for management and our board of directors. We believe that the use of Adjusted EBITDA and Adjusted income (loss) from continuing operations provide additional tools for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other distribution and retail companies, which may present similar non-GAAP financial measures to investors. However, our calculation of Adjusted EBITDA and Adjusted income (loss) from continuing operations are not necessarily comparable to similarly titled measures reported by other companies. Our management does not consider Adjusted EBITDA or Adjusted income (loss) from continuing operations in isolation or as alternatives to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are: (i) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (ii) Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt; (iii) Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes; (iv) Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditure or contractual commitments and (v) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements. In order to compensate for these limitations, management presents Adjusted EBITDA in conjunction with GAAP results. You should review the reconciliation of net income (loss) to Adjusted EBITDA and to Adjusted income (loss) from continuing operations below, and should not rely on any single financial measure to evaluate our business.

STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Measures (continued)
(unaudited)
The following is a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA.
Three months ended September 30, Nine months ended September 30,
(in thousands of dollars) 2013 2012 2013 2012
Net income (loss), as reported $(5,513) $40 $(7,592) $(10,763)
Interest expense 892 1,022 3,150 3,070
Income tax expense (benefit) 1,989 (394) 1,076 (5,950)
Depreciation and amortization 3,032 2,778 9,058 8,839
EBITDA $400 $3,446 $5,692 $(4,804)
Discontinued operations, net of taxes (90) (289) (341) (48)
IPO transaction-related costs 9,322 - 10,008 -
Restructuring expense 31 145 130 166
Management fees (a) 239 330 1,205 1,097
Non-cash compensation expense 309 389 573 1,069
Acquisition costs (b) - - 257 46
Severance and other expenses related to store closures and business optimization (c) 229 231 721 1,035
Reduction of tax indemnification asset (d) - - - 347
Adjusted EBITDA $10,440 $4,252 $18,245 $(1,092)
STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Measures (continued)
(unaudited)
The following is a reconciliation of net income (loss) to Adjusted income (loss) from continuing operations.
Three months ended September 30, Nine months ended September 30,
(in thousands of dollars) 2013 2012 2013 2012
Net income (loss), as reported $(5,513) $40 $(7,592) $(10,763)
Discontinued operations, net of taxes (90) (289) (341) (48)
IPO transaction-related costs 9,322 - 10,008 -
Restructuring expense 31 145 130 166
Management fees (a) 239 330 1,205 1,097
Non-cash compensation expense 309 389 573 1,069
Acquisition costs (b) - - 257 46
Severance and other expenses related to store closures and business optimization (c) 229 231 721 1,035
Reduction of tax indemnification asset (d) - - - 347
Tax effect of adjustments to continuing operations (e) (297) (412) (1,218) (1,323)
Adjusted income (loss) from continuing operations $4,230 $434 $3,743 $(8,374)
(a) Represents the expense for management services provided by Gores and its affiliates.
(b) Represents $0.2 million and $0.1 million related to the acquisitions of (i) Chesapeake Structural Systems, Inc., Creative Wood Products, LLC and Chestruc, LLC and (ii) Total Building Services Group, LLC, respectively, for the nine months ended September 30, 2013.
(c) Represents (i) $0.0 million, $0.0 million, $0.2 million and $0.3 million of severance expense for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012, respectively, and (ii) $0.2 million, $0.2 million, $0.5 million and $0.7 million related to closed locations, consisting of post-closure expenses for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012, respectively.
(d) Includes $0.3 million of expense related to the reduction of a tax indemnification asset, with a corresponding increase in income tax benefit, for the nine months ended September 30, 2012. This indemnification asset corresponds to the long-term liability related to uncertain tax positions for which Wolseley plc had indemnified the Company, which was reduced upon the expiration of the statute of limitations for certain tax periods.
(e) The tax effect of adjustments to continuing operations, excluding approximately $9.2 million of non-deductible IPO transaction-related costs, was based on the respective transactions' income tax rate, which was 33.2%, 37.7%, 33.3% and 35.2% for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012, respectively.
CONTACT: Investor Relations Contact

         Stock Building Supply Holdings, Inc.

         Mark Necaise

         

         or

         

         Solebury Communications Group LLC

         Richard Zubek

         (919) 431-1133

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