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Stock Building Supply Announces 2014 Third Quarter Results

Net Income of $5.0 million; Adjusted EBITDA Increases 26.5% to $13.2 million

RALEIGH, N.C., Oct. 28, 2014 (GLOBE NEWSWIRE) -- Stock Building Supply Holdings, Inc. (Nasdaq:STCK) (the "Company"), a large, diversified lumber and building materials distributor and solutions provider that sells primarily to new construction and remodeling contractors, today reported its financial results for the third quarter ended September 30, 2014.

Third Quarter 2014 Financial Highlights

  • Net sales of $354.1 million, up 7.8%, compared to $328.5 million in the prior year period
  • Operating income of $8.4 million, compared to operating loss of $2.9 million in the prior year period
  • Net income of $5.0 million, compared to net loss of $5.5 million in the prior year period
  • Adjusted income from continuing operations of $5.8 million, up 36.4%, compared to $4.2 million in the prior year period
  • Adjusted EBITDA of $13.2 million, up 26.5%, compared to $10.4 million in the prior year period
  • Cash provided by operating activities of $16.7 million, up 302.0%, compared to $4.2 million in the prior year period

Commenting on the Company's results, Jeff Rea, President and Chief Executive Officer, stated, "In the third quarter, we reported year-over-year financial improvement, reflecting the continued execution of our core strategies designed to grow our business profitably. Our year-over-year sales volume growth of approximately 8% and gross profit growth of 12% in the third quarter continue to compare favorably to U.S. single-family housing starts, which increased less than 4% for the nine months ended September 30, 2014. We remain committed to our growth strategies and believe we are well positioned to accelerate profitability as the housing market continues to move toward more historical levels of activity."

Jim Major, Executive Vice President and Chief Financial Officer, stated, "Our local sales and service professionals continued to drive operational improvements leading to enhanced financial performance. Gross margins increased by approximately 90 basis points in the third quarter compared to the prior year period, marking six consecutive quarters of year-over-year improvement. Third quarter Adjusted EBITDA improved approximately 27%, compared to the prior year period, resulting in pull-through of incremental sales dollars of nearly 11%. Cash provided by operating activities increased $12.5 million in the third quarter and $39.3 million for the nine months ended September 30, 2014, compared to the prior year periods, allowing us to accelerate capital investment in our growth strategy. We remain intensely focused on operating margin expansion, while capitalizing on opportunities to profitably gain share in our construction end-markets."

Third Quarter 2014 Financial Results Compared to Prior Year Period

Net sales for the third quarter of 2014 totaled $354.1 million, up $25.6 million, or 7.8%, compared to $328.5 million in the third quarter of 2013. The Company estimates net sales increased approximately 8.0% related to sales volume, which was partially offset by reduced selling prices on commodity products.

Gross profit in the third quarter of 2014 was $84.4 million, up $9.0 million, or 12.0%, compared to $75.4 million in the third quarter of 2013, primarily as a result of increased sales volume. The gross margin percentage for the third quarter of 2014 increased approximately 90 basis points to 23.8% from 22.9% in the third quarter of 2013, primarily as a result of improved gross margins on sales of structural components and lumber and lumber sheet goods and increases in supplier consideration due to higher purchase volumes.

Selling, general and administrative expenses during the third quarter of 2014 were $73.7 million, up $6.8 million, or 10.1%, from $66.9 million in the third quarter of 2013. Variable costs associated with higher sales volume, such as sales commissions, shipping and handling costs and other variable compensation, increased by $1.7 million. Other salary, wage, benefit and taxation costs increased $4.2 million, primarily as a result of increases in self-insured health costs, stock compensation expense and selected headcount additions to serve higher sales volume and generate future growth opportunities.

Operating income in the third quarter of 2014 was $8.4 million, compared to operating loss of $2.9 million in the third quarter of 2013. Net income during the quarter totaled $5.0 million, or $0.19 per diluted share, compared to net loss of $5.5 million, or $(0.30) per diluted share, in the third quarter of 2013.

Adjusted EBITDA in the third quarter of 2014 totaled $13.2 million, up $2.8 million, compared to $10.4 million in the third quarter of 2013. Adjusted income from continuing operations for the third quarter of 2014 increased $1.6 million to $5.8 million, compared to adjusted income from continuing operations of $4.2 million in the third quarter of 2013. A reconciliation of non-GAAP financial measures to comparable GAAP financial measures is provided as an appendix to this release.

Liquidity and Capital Resources

Total liquidity as of September 30, 2014 was approximately $108.6 million, which includes cash and cash equivalents of $8.2 million and $100.4 million of borrowing availability under our revolving line of credit.

Capital expenditures during the third quarter of 2014 totaled approximately $8.0 million, primarily to fund purchases of delivery fleet, material handling equipment and technology investments.

Outlook

"While the U.S. housing market has been slower than anticipated so far in 2014, our service professionals have once again delivered solid operating result improvements," stated Mr. Rea. "We anticipate a continued, gradual recovery in the housing market from today's levels and remain focused on both near-term and longer-term value creation activities. Additionally, we are maintaining the pace of investment in our strategic service and growth initiatives which we expect will enhance the strength of our business moving forward."

Conference Call

The Company will host a conference call on Tuesday, October 28, 2014 at 10:00 a.m. (Eastern Time) and will simultaneously broadcast it live over the Internet. The conference call can be accessed by dialing 877-407-0784 (domestic) or 201-689-8560 (international). A telephonic replay will be available approximately three hours after the call and can be accessed by dialing 877-870-5176, or for international callers, 1-858-384-5517. The participant passcode for the live call and the replay is 13593043. The telephonic replay will be available until 11:59 pm (Eastern Time) on November 4, 2014. 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 21 metropolitan areas in 14 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 68 strategically located facilities. We offer a broad range of 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 remodeling contractors.

Non-GAAP Financial Measures

This press release presents EBITDA, Adjusted EBITDA and Adjusted income from continuing operations, which are non-GAAP financial measures within the meaning of applicable Securities and Exchange Commission ("SEC") rules and regulations. For a reconciliation of EBITDA, Adjusted EBITDA and Adjusted income from continuing operations to the most comparable GAAP measure and 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 remodeling 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 claims relating to our products and services; (vi) our ability to maintain profitability; (vii) our ability to attract and retain key employees and (viii) 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 Annual Report on Form 10-K, filed with the SEC on March 4, 2014, and subsequent filings with the SEC. 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, except share and per share amounts) 2014 2013 2014 2013
Net sales $ 354,060 $ 328,468 $ 978,629 $ 891,847
Cost of goods sold 269,668 253,087 746,781 691,166
Gross profit 84,392 75,381 231,848 200,681
Selling, general and administrative expenses 73,665 66,931 211,878 188,458
Depreciation expense 1,681 1,456 4,790 4,716
Amortization expense 563 563 1,690 1,672
Impairment of assets held for sale 48
Public offering transaction-related costs 60 9,322 508 10,008
Restructuring expense 2 31 11 130
75,971 78,303 218,925 204,984
Income (loss) from operations 8,421 (2,922) 12,923 (4,303)
Other income (expense)
Interest expense (712) (892) (2,011) (3,150)
Other income, net 197 200 610 596
Income (loss) from continuing operations before income taxes 7,906 (3,614) 11,522 (6,857)
Income tax expense (2,972) (1,989) (4,417) (1,076)
Income (loss) from continuing operations 4,934 (5,603) 7,105 (7,933)
Income from discontinued operations, net of income tax expense of $25, $54, $133 and $237, respectively 40 90 208 341
Net income (loss) 4,974 (5,513) 7,313 (7,592)
Redeemable Class B Senior Preferred stock deemed dividend (363) (1,836)
Income (loss) attributable to common stockholders $ 4,974 $ (5,876) $ 7,313 $ (9,428)
Weighted average common shares outstanding
Basic 25,733,833 19,813,209 25,713,688 15,718,667
Diluted 26,229,323 19,813,209 26,218,405 15,718,667
Basic income (loss) per share
Income (loss) from continuing operations $ 0.19 $ (0.30) $ 0.27 $ (0.62)
Income from discontinued operations 0.01 0.02
Net income (loss) per share $ 0.19 $ (0.30) $ 0.28 $ (0.60)
Diluted income (loss) per share
Income (loss) from continuing operations $ 0.19 $ (0.30) $ 0.27 $ (0.62)
Income from discontinued operations 0.01 0.02
Net income (loss) per share $ 0.19 $ (0.30) $ 0.28 $ (0.60)
STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts) September 30,
2014
December 31,
2013
Assets
Current assets
Cash and cash equivalents $ 8,244 $ 1,138
Restricted assets 956 460
Accounts receivable, net 130,624 111,285
Inventories, net 114,748 91,303
Costs in excess of billings on uncompleted contracts 10,163 7,921
Assets held for sale 2,363
Prepaid expenses and other current assets 11,818 9,332
Deferred income taxes 5,561 3,332
Total current assets 282,114 227,134
Property and equipment, net of accumulated depreciation 71,085 56,039
Intangible assets, net of accumulated amortization 23,099 24,789
Goodwill 7,186 7,186
Restricted assets 861 1,359
Other assets 1,878 2,033
Total assets $ 386,223 $ 318,540
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 89,167 $ 64,984
Accrued expenses and other liabilities 40,693 30,528
Income taxes payable 5,704 2,989
Current portion of restructuring reserve 998 1,594
Current portion of capital lease obligation 1,676 1,240
Billings in excess of costs on uncompleted contracts 1,798 1,599
Total current liabilities 140,036 102,934
Revolving line of credit 81,816 59,072
Long-term portion of capital lease obligation 6,176 6,011
Deferred income taxes 13,695 15,496
Other long-term liabilities 7,548 7,346
Total liabilities 249,271 190,859
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding at September 30, 2014 and December 31, 2013
Common stock, $0.01 par value, 300,000,000 shares authorized, 26,176,056 and 26,112,007 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively 262 261
Additional paid-in capital 146,527 144,570
Retained deficit (9,837) (17,150)
Total stockholders' equity 136,952 127,681
Total liabilities and stockholders' equity $ 386,223 $ 318,540
STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
(in thousands) 2014 2013
Cash flows from operating activities
Net income (loss) $ 7,313 $ (7,592)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation expense 8,054 7,389
Amortization of intangible assets 1,690 1,672
Amortization of debt issuance costs 353 465
Deferred income taxes (4,030) (3,723)
Non-cash stock compensation expense 1,848 573
Impairment of assets held for sale 96
Gain on sale of property, equipment and real estate (1,076) (270)
Bad debt expense 417 1,316
Change in assets and liabilities
Accounts receivable (19,756) (35,401)
Inventories, net (23,445) (20,598)
Accounts payable 26,951 14,735
Other assets and liabilities 6,396 6,904
Net cash provided by (used in) operating activities 4,811 (34,530)
Cash flows from investing activities
Purchases of property and equipment (20,795) (2,574)
Proceeds from sale of property, equipment and real estate 3,493 3,070
Change in restricted assets 2 3,223
Purchase of business (2,373)
Net cash (used in) provided by investing activities (17,300) 1,346
Cash flows from financing activities
Proceeds from revolving line of credit 1,046,220 961,160
Repayments of proceeds from revolving line of credit (1,023,476) (973,305)
Proceeds from issuance of common stock, net of offering costs 55,821
Other financing activities (3,149) (2,657)
Net cash provided by financing activities 19,595 41,019
Net increase in cash and cash equivalents 7,106 7,835
Cash and cash equivalents
Beginning of period 1,138 2,691
End of period $ 8,244 $ 10,526
STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES
Sales by Product Category
(unaudited)
Three Months Ended
September 30, 2014
Three Months Ended
September 30, 2013
(in thousands) Net Sales % of Sales Net Sales % of Sales % Change
Structural components $ 49,163 13.9% $ 46,335 14.1% 6.1%
Millwork & other interior products 64,821 18.3% 58,215 17.7% 11.3%
Lumber & lumber sheet goods 123,116 34.8% 114,147 34.8% 7.9%
Windows & other exterior products 73,626 20.8% 71,463 21.8% 3.0%
Other building products & services 43,334 12.2% 38,308 11.6% 13.1%
Total net sales $ 354,060 100.0% $ 328,468 100.0% 7.8%
Nine Months Ended
September 30, 2014
Nine Months Ended
September 30, 2013
(in thousands) Net Sales % of Sales Net Sales % of Sales % Change
Structural components $ 132,846 13.6% $ 117,367 13.2% 13.2%
Millwork & other interior products 178,528 18.2% 161,213 18.1% 10.7%
Lumber & lumber sheet goods 343,279 35.1% 329,744 37.0% 4.1%
Windows & other exterior products 201,921 20.6% 182,062 20.4% 10.9%
Other building products & services 122,055 12.5% 101,461 11.3% 20.3%
Total net sales $ 978,629 100.0% $ 891,847 100.0% 9.7%

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

EBITDA is defined as net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus impairment of assets held for sale, public offering transaction-related costs, restructuring expense, discontinued operations, net of taxes, management fees, non-cash compensation expense, acquisition costs, and severance and other items related to store closures. 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. EBITDA, 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 EBITDA, 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 EBITDA and 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. EBITDA and Adjusted EBITDA are used in monthly financial reports prepared for management and our board of directors. We believe that the use of EBITDA, 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 EBITDA, 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 EBITDA, 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 EBITDA, Adjusted EBITDA and Adjusted income (loss) from operations is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are: (i) EBITDA, Adjusted EBITDA and Adjusted income (loss) from continuing operations do not reflect changes in, or cash requirements for, our working capital needs; (ii) EBITDA and Adjusted EBITDA do not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt; (iii) EBITDA and Adjusted EBITDA do not reflect our income tax expenses or the cash requirements to pay our taxes; (iv) EBITDA, Adjusted EBITDA and Adjusted income (loss) from continuing operations do not reflect historical cash expenditures or future requirements for capital expenditures 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 EBITDA, Adjusted EBITDA and Adjusted income (loss) from continuing operations do not reflect any cash requirements for such replacements. In order to compensate for these limitations, management presents EBITDA, Adjusted EBITDA and Adjusted income (loss) from continuing operations in conjunction with GAAP results. You should review the reconciliations of net income (loss) to EBITDA, Adjusted EBITDA and 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) 2014 2013 2014 2013
Net income (loss) $ 4,974 $ (5,513) $ 7,313 $ (7,592)
Interest expense 712 892 2,011 3,150
Income tax expense (benefit) 2,972 1,989 4,417 1,076
Depreciation and amortization 3,298 3,032 9,744 9,058
EBITDA $ 11,956 $ 400 $ 23,485 $ 5,692
Impairment of assets held for sale 48
Public offering transaction-related costs 60 9,322 508 10,008
Restructuring expense 2 31 11 130
Discontinued operations, net of taxes (40) (90) (208) (341)
Management fees (a) 37 239 126 1,205
Non-cash compensation expense 868 309 1,848 573
Acquisition costs (b) 257
Severance and other items related to store closures (c) 325 229 440 721
Adjusted EBITDA $ 13,208 $ 10,440 $ 26,258 $ 18,245

The following is a reconciliation of net income (loss) to Adjusted income from continuing operations.

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2014 2013 2014 2013
Net income (loss) $ 4,974 $ (5,513) $ 7,313 $ (7,592)
Impairment of assets held for sale 48
Public offering transaction-related costs 60 9,322 508 10,008
Restructuring expense 2 31 11 130
Discontinued operations, net of taxes (40) (90) (208) (341)
Management fees (a) 37 239 126 1,205
Non-cash compensation expense 868 309 1,848 573
Acquisition costs (b) 257
Severance and other items related to store closures (c) 325 229 440 721
Tax effect of adjustments to continuing operations (d) (457) (297) (895) (1,218)
Adjusted income from continuing operations $ 5,769 $ 4,230 $ 9,191 $ 3,743
(a)
Represents the expense for management services provided by The Gores Group, LLC ("Gores") through August 2013 and professional services provided by an affiliate of Gores.
(b)
Represents transaction expenses related to the acquisition of Chesapeake Structural Systems, Inc., Creative Wood Products, LLC , Chestruc, LLC and Total Building Services Group, LLC.
(c)
Represents severance expense and other items related to closed locations, consisting primarily of pre-tax losses incurred during closure and post-closure activities.
(d)


The tax effect of adjustments to continuing operations was based on the respective transactions' income tax rate, which was 37.5%, 33.2%, 36.0% and 33.3% for the three months ended September 30, 2014 and 2013 and the nine months ended September 30, 2014 and 2013, respectively. The tax effect of adjustments to continuing operations excludes approximately $0.1 million, $9.0 million, $0.5 million and $9.2 million of non-deductible public offering transaction-related costs for the three months ended September 30, 2014 and 2013 and the nine months ended September 30, 2014 and 2013, respectively.

CONTACT: Investor Relations Contact Stock Building Supply Holdings, Inc. Mark Necaise (919) 431-1021 or Solebury Communications Group LLC Richard Zubek (919) 431-1133

Source:Stock Building Supply Holdings, Inc.