Q1 2020 Earnings Call

May 6, 2020

Ladies and gentlemen, thank you for standing by and welcome to the first water. So any Plenti Investor Relations conference call at this time, all but it's been blind our you know listen only mode. After the speakers presentation. There will be a question answer session. So as the question you will need to brass its firewall.

On your telephone leased good-bye subsidies gone, France is being recorded easier to acquire and for a distance lease spreads to size zero. Thank you I wouldn't like to hand conference over to your speaker today Ms. Mary Mall. Please go ahead ma'am.

Thank you Andy and good morning, everyone. We appreciate you joining us for the Bluelinx 2021st quarter earnings Conference call. The earnings release as opposed to in the Investor section of our website at Www Dot Bluelinx co Dot com, we will also be referring to a supplementary.

Rather than taken as we go through the coal the presentation is available on our website as well.

Joining us on the call today, our Mitch Lewis Chief Executive Officer, and Kelly Janssen, Chief Financial Officer before we get started I'd like to remind you that this presentation includes forward looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those reflected in the state.

Uh huh.

Those risks and uncertainties are described in our earnings release and discussed in our filings with the FCC. Today's presentation. Also includes references to non-GAAP financial measures. These non-GAAP measures are described and reconciled to their gap counterparts in the presentation materials the earnings release and in the Investor section of our website.

With that I'll turn the call over to Mitch.

Thanks, Mary Anne and good morning.

I want to start today by first thanking our nation's health care professionals and first responders.

They're taking risks everyday to help minimize the devastating impact the covert 19 pandemic has had on so many families.

And our Hearts go out to those who have lost loved ones. During this terrible period.

I also want to thank our Bluelinx associates, who have truly stepped up over the last six day weeks.

We were fortunate that our business has been deemed essential in every state that we operate and that our supply chain has remained intact.

We've been able to continue our day to day operations during the covert 19 pandemic through the dedication and commitment of our associates their safety and well being have been and will remain our top priority as we continue to serve our customers and work with our trade partners to support our nation's housing infrastructure.

In late February we formed a cross functional covert 19 emergency preparedness team responsible for implementing new policies and procedures to protect our associates their families and our communities.

The primary mission is to prioritize employee health and safety with respect to all business decisions through the duration of the Pandemics.

Like many other companies, we immediately instituted sanitation and social distancing guidelines when recommended by health officials for our employees.

We also instituted work from home policies as well as implemented new procedures regarding visitors deliveries and business critical services for locations, where essential employees were required to be present.

I'm pleased to report that our core operations are functioning effectively as we have hold these new policies. During this time and thankfully to date, we have no reported cases of covert 19, among our 2200 Bluelinx associates.

Our first quarter results demonstrate the momentum we were building this year through early March during which we were successfully executing on our sales strategies and processes, realizing operational efficiencies and enhancing our existing relationships with key customers and supplier partners we've discussed in detail.

Over the last several earning calls the challenges that we faced in the first half of 2019 and our response to those events, we address those issues beginning in the second half of the year and exited the fourth quarter of 2019 ready to capitalize on the initiatives we undertook.

Our first quarter results are a reflection of the significant progress we made during that time.

And yet we are acutely aware that our results in the first quarter of 2020 have little bearing on the business environment. We are now spacing as a result of the pandemic.

We did move quickly and took several actions earlier in the first quarter that contributed to putting bluelinx in the solid position for the business environment that we're currently facing.

We continue to exit executing on our strategy to monetize our owned real estate to Delever, our balance sheet, we've reduced our term loan by $78 million since the end of fiscal year 2019, primarily through the completion of sale leaseback transactions earlier this year on an additional 14 properties.

In connection with the pay down of the term loan. We were also able to amended its terms to eliminate the leverage covenant when the principal balance reaches $45 million.

Which we could now achieved by paying down an additional $24 million.

Our remaining owned real estate, which consists of 13 properties. This valued at approximately $40 million and is still available for future monetization.

While we recognize that the real estate market is currently in a state of disruption the historical market value of these properties is still about 65% over the amount that would be needed to eliminate the term loans leverage covenant.

We actually have several potential near and longer term sources for term loan replay repayment, including additional real estate monetization generating operating cash flow through both our operating results as well as a constriction of our balance sheet and drawing on our ABL facility.

In anticipation of the short term challenges in our markets. We were also able to amend our term loan in late March to significantly increase our leverage covenant ratio to 8.75 for both the second and third quarters of 2020.

And in addition to the work we did on our term loan. We also favorably renegotiated our ABL to provide additional liquidity as we navigate through a turbulent second quarter.

We realized by early March the Cobot 19 would likely have a disruptive impact to the overall us economy. The building products industry. In addition to enhancing our term loan and ABL terms earlier in the year, we anticipated that curtailing our operating expenses would also be necessary.

This realization coupled with the economic impact than I anticipated would soon be felt by many on our Bluelinx team compelled me to inform our board that I would be reducing my base salary to one dollar for six months.

And I'm proud to be part of an executive management team that them voluntarily took their base salaries down by 10% for the same period and a board that unanimously voted to take its cash compensation down by 20% for the next two quarters.

In addition to these actions we also initiated a hiring freeze have delayed almost all capital expenditures deferred certain benefits and furloughed approximately 15% of our salaried workforce.

Furlough these seller and associates was heavily scrutinized to mitigate the impact to our customers and our revenue.

We also were able to redeploy several vessels associates to functional areas that require heightened attention during times of market disruption such as daily detailed accounts receivable review and assessment inventory analytics centralized payment authorization and forecasting.

In light of a highly uncertain demand environment. We also implemented a rigorous daily variable cost analysis to react quickly to market changes across our geographical footprint.

We will continue to monitor both our operating efficiency and our fixed costs. So that we can react quickly if needed given the potential for adverse market conditions in the days ahead.

On a positive note we were pleasantly surprised to see how our sales volume held up relatively well in April despite seeing downward pressure towards the end of March.

Our revenue during our fiscal April which ended on May Onest was down about 11% over the prior year period, and only down about 8%. When you factor in lost sales from the discontinued siding product line that we've previously discussed.

From a sequential perspective, and when excluding the citing impact. The first two weeks of April were down about 12% in revenue compared to the same period in 2019, while the remainder of the month was down around 6%.

We believe our relatively modest decline in revenue is reflective of existing homebuilding contracts that were completed during the month and our volume may decline more significantly at single family housing starts continue a rapid steep decline or remain negatively impacted over a protracted period.

Of course, the extent to which the US economy. The housing market will be affected by the pandemic remains uncertain. What we do know today is that single family housing starts declined dramatically in March compared to the February positive momentum that we were seeing.

March was down about 17.5% from February levels on a seasonally adjusted basis, and we expect to see a further decline with the results come out for April.

Another data point that we track as the builders confidence index, which experienced a 42 point decline from March to April.

While certain areas of the country are slowly reopening of their economies that is still too early to tell when and at what rate. We will see a reemergence of strong housing activity, especially considering the historic unemployment levels. We now face. There is however, growing sentiment that while the pandemic will have a short term negative impact.

On the single family housing market. It may have a long term positive effect, if it drives potential homeowners, particularly millennials away from living in apartments, or multifamily complexes and large metropolitan markets to a safer environment in the suburbs.

And this covance 19 environment.

We know that operational improvements have become more critical than ever and we must remain nimble and adapt to rapidly changing market conditions. The current environment has compelled us to go even further and finding and driving efficiencies and improving processes and we expect that once we are passed this crisis. We will continue to reap the benefits of these improvements as we.

We emerge and even stronger company.

Our long term strategies, which we have discussed at length in previous calls remain intact.

In the short term, we will navigate our liquidity and operations through this tumultuous business environment.

We believe we are doing all the right things to drive the company to the next level and as a leader in our industry.

We will continue to pursue profitable growth in sales and are doing everything in our power to position the company to successfully manage the coming weeks and months ahead and to be ready when the economy begins its recovery.

We're joined today by our new Chief Financial Officer, Kelly Jansan Kelly's started with the company on April 13th and has joined Bluelinx. During what are the most interesting and challenging times in our company's history.

It is jump right in and joins Bluelinx after holding financial leadership positions at major industrial companies, including more than a decade with general electric.

She was most recently chief accounting officer for West Brock, an 18 billion dollar corrugated and consumer packaging company and prior to that for the oilfield services Company Baker Hughes, Helen brings to Bluelinx, a wealth of technical and financial expertise that will help us drive even greater process and operational efficiencies within our organization.

The bluelinx statements fortunate to have someone with Kelly's experience and background joining our company.

And now I'd like to turn it over to Kelly.

Thanks, Mitch and good morning to all of our stakeholders, who are with us on the call today I am very excited to have joined the Bluelinx team and is an understatement to say that during the best of time stepping into such a new role at the challenge, but needless to say in the current environment is even more style, yet I'm confident that together our team will be able to weather the storm and.

Im eager to contribute and lead right away I look forward to getting better acquainted with all of you stand now I will recap the financial results in our financial position for the quarter. We were pleased with the first quarter's results. Despite the fact that we began to see some impact of Kevin 19. During the last couple of weeks of March.

Let's see on page nine the first quarter of 2020, we reported net sales of 662 million compared to 639 million last year, we generated gross margin of 14.1% and improvement of 60 basis points year over year. This gross margin improvement continues to your long trend and contributed to 19.9 million.

Adjusted EBITDA for the first quarter up approximately 20% as compared to the first quarter of 2019, the increase in net sales for the quarter with offset by the continued comparative effect of the discontinuation of the keys that siding product line, which contributed approximately 32 million in the first quarter of 2019 as long as some lingering transit.

Action related to synergies and overlap Marquette.

Commodity price levels during the quarter generally moved higher relative to 2019 and the effect on net sales the relatively minimal with positive for the first time since 2018.

We recorded higher gross profit on a year over year basis, generating 93 million compared to 86 million last year. The increased profit was driven by the higher gross margin of 14.1% compared to 13.5% and this is the highest our gross margin had been and over 15 years.

This improvement was the result of gains in both structural and specialty product category with structural gross margin and proving to 10.1% from 9.5% last year as specialty gross margin increasing to 16.4% compared to 15.2% last year.

For the first quarter, we delivered adjusted EBITDA of 19.9 million compared to 16.6 million last year as DNA for the quarter was 77.8 million, which was 11.7% of sale compared to 74.4 million last year, which was also the same percentage of sales for that quarter niche alluded.

To the fact that we have reduced fixed cost than reaction to the kind of a 19 pandemic the voluntary reduction in salaries, coupled with the savings from Furlett associates and temporarily reducing benefit yields the reduction in M&A on an annualized basis of approximately 13 million.

Additionally, we have generated savings in areas such as professional services, a non trade supply contract as well as through general operating efficiencies. We will continue to evaluate further cost reduction opportunities during the coming weeks as we're still in the process of implementing some of the actions we have started as well as evaluating these opportunities it is.

Certainly difficult to access there to assess their total impact. However, we do expect that we could have meaningful additional cost savings from further action.

Cash on hand, and excess availability under the ABL was approximately 97 million at quarter end and we were pleased to have this level of liquidity as we look ahead into the second quarter, we are particularly focused on maintaining and preserving our liquidity. During this time, a little closely monitor inventory level, the strength of our receivables and all expense.

Tours that every level of the company.

Turning to slide 10 for the first quarter of this year, we saw commodity prices higher than last quarter and last year and in fact higher than their respective five year average at these higher prices were likely driven in part from the fact that the year started off with a strong housing market. Looking ahead. It is unlikely this trend of higher prices will continue throughout the year based.

On current expectations for the us housing industry, the pandemic definitely cooled off the commodity market as composite lumber composite panel price panel indices dropped by 18% and 16% respectively from their peaks in early March as compared to the April monthly average.

We have seen recent improvement and relative stability in the commodity wood based market as the current pricing has come off their mid April load.

On slide 11, we show that through the first quarter of 2020, we continued our trend of gross margin improvement driven by gains and both structural and specialty categories. We generated 10.1% gross margin in the structural category, which is the highest quarterly structural gross margin. We have seen since the first quarter of 2011 and 16.4.

Is that gross margin in the specialty category, an increase of 30 basis points from the fourth quarter last year, and an improvement of 120 basis points from the prior year quarter.

Moving to slide 12, our borrowings under the ABL sales were 382 million at quarter end compared to 394 million for the same quarter last year. Our term loan balance was 77 million at quarter end compared to 178 million at the first quarter end last year as such that under our term loan and revolving credit facility was reduced.

By 113 million over the prior year period.

During 2019, we were able to reduce the term loan by 32 million and this year through April 1st we've reduced the term loan by a further 78 million for a total of 110 million repaid over this time using proceeds primarily from the various real estate transactions that we have announced accordingly, our term loan debt balance is currently standing at six.

89 million.

As we previously announced we also amended our term loan to proactively increase the leverage covenant ratio from 8.75 to 8.75 excuse me from 6.5 for the second quarter and six for the third quarter of this year to provide us with greater financial flexibility in the current environment. Furthermore, as Mitch mentioned, we have today.

And ourselves well and that we will no longer be subject to a leverage covenant ratio should the principal balance of the term loan b less than 45 million.

In terms of our owned real estate portfolio. We now have 13 remaining owned properties valued at approximately $40 million that are available to monetize three of these properties valued at approximately 8 million are considered dark properties and our available for sale, while the other 10 or so operating we view we view our owned real estate, which is the phrase that up.

The only four times the current book value as another good resource available for debt reduction.

We exited the first quarter with 97 million, an excess availability under the ABL and the higher seasonal advance rates that were put in place in the first quarter will provide ample near term liquidity to meet our daily cash requirement. When we amended the term loan leverage ratios to 8.75 for both the second and third quarters of 2020.

He also said that we were highly confident that we would meet our first quarter leverage ratio covenant of 6.25 and ended the quarter with a leverage ratio below SEC.

As we enter the second quarter, we know that the changes that we made to enhance our capital structure and liquidity earlier. This year will help to mitigate some of the uncertainty that the pandemic brings to our industry.

And with that any we would like to open it up for any question.

As a reminder.

Question, you will need to brass Sarwan Sala following that.

And your telephone until we draw your question rested Balinsky can you just on my only come by looking at any roster.

Presenters Seadrill high level question from the line of all accelerate sales from the right.

The FBR. Your line is open you may ask your question.

Good morning, everyone know quarter.

Thank you good morning.

Most helpful.

The balance of.

Sales and prudent.

Yes.

I would have been able to to answer that question a lot better about two months ago right. When we had anticipated and I think on the last call. We may have talked about the fact that we were having.

Good dialogue, particularly on the dark properties and we're looking at opportunities.

For continued sale leasebacks Im right now just because of the uncertainty that we're facing in real estate.

Asset value markets as well as the credit markets associated with that.

We've kind of hit the pause button on that I am I would say if we return to we don't know what the new normal is going to look like but the valuations appear to be in the same Zip code.

We will continue the continued view on.

Taking down the term loan through real estate monetization.

Okay.

Awful.

Okay.

Can you give us a little bit of color on the cadence of.

Okay, and global term loan too.

Equally below that we've had billion level.

And so we when we amended the de leverage ratio up to the 875 that was with an intent to give us a lot of runway.

Not knowing obviously, what's kind of what was going to happen in the second quarter or the third quarter of the business.

So as I think I alluded to in my notes you know there there are different avenues to do that in one of things that we have.

Focused on is working our working capital hard and we will continue to look at opportunities to generate cash off of the working capital as you know.

As Kelly talked about and we do have availability.

Under the HDL and than we have the real estate as well and again, if we as we continue to.

Look at the business and and run more efficiently with a recovery.

In the market our expectation certainly would be that we're we're earning up more than our our cash cost of course, and we can utilize that as well to pay down debt.

And then you all grew flaw in the global strong first quarter can you talk a little town or quantify how much of that was from.

Products alone will.

All they see sort of.

Over the last Friday.

Well it will be on a more approvals.

Okay.

Yes. So we were we've actually I felt like we were we had good momentum.

As we've talked about in the past we were looking at it and I think we gave these numbers in 2019.

Loan it was in the neighborhood of $160 million of lost sales for the year.

And so while we're making good progress it will take a while to come back on that but we talked about.

Picking up a couple new brands marquee brands that have helped and weeks, we certainly are garnering marketshare boat, but it's not.

Going to be and it will take awhile for us to recover that particular product line.

With the new products that we've had.

That's helpful. Thank you I'll get back into queue.

Okay. Thank you.

Again, ladies and gentlemen, if you would like to ask a question he loaded progressive star one on your telephone again that is Taiwan and your telephone keypad.

Okay.

We do have another question from the line of Alan ready from JV Capital. Your line is open you may ask your question.

Good morning.

So good morning.

Can you talk about and I realize.

Slide of uncertainties, how you think about kind of the cash flow for the balance of the year the business and also like if there's any changes in terms of.

Ready to some of the customers.

Okay. So as we think about the cash flow for the rest of the year, we are closely monitoring watching and and reducing our working capital, but as we see volume decline and becoming more efficient. We've we've put in place in fact in inventory analytics.

And on a centralized basis that is reviewing.

Ill purchase orders and.

And there is it and there's a team that is communicating with folks out in the field to make sure that we're bringing in inventory that we need understanding that as a wholesale distributor we will carry inventory to service our customer base.

Actively so.

The balance sheet as clearly as an opportunity from a cash flow standpoint, and we have of course.

Receive some benefit on the interest rate environment, that's lowering our costs, we've as we've talked about deferred capital.

As well so so our actual cash outlays fixed cash outlays of decline from numbers that we presented in the past, but it's still a moving target. There also are have been some opportunities to push back some payments as I'm sure you're aware with some of the federal legislation that has taken place. So we've been able to to push back payments.

I would otherwise have to makes with which certainly helps for 2020 from a.

From a.

Cash flow perspective on the receivable side and what we're seeing from a customer standpoint is is similar to what we did putting together very strong team that's daily reporting on the inventory side. We did the exact same thing on the receivable side and this and probably goes back a month ago or so and so we've also when I talked about.

Redeploying before some of us people into that group a more now looking at that very closely and I would say.

For now the credit characteristics of the business same seem good we havent seen any major disruption our industrial customers appear to have been hurt a more early on some of the markets close down.

But it has not.

Evidence yet from a receivable standpoint, so no at the moment everything seems to be okay from a root receivables perspective, we will watch it very closely and understand that if the market.

Remains diminished over longer period of time that that it will flush out potential issues, but I can tell you we're on top of it.

Okay, great. Thank you.

Sure. Thank you.

Again, ladies and gentlemen, if you would like last question you will need to brass is found one on your telephone keypad.

There are no further questions from the line presented you me continue.

Okay, well, thanks, Andy and thank you for joining us and of course your continued industry interest and support a bluelinx. We look forward to speaking to you again in August Thank you very much.

Ladies and gentlemen. This concludes today's conference calls you may now disconnect. Thank you for participating you have a day.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the first why there's plenty plenty Investor Relations conference calls I'd be side, but it's like line or even though he says on the mode Outstanding do you guys presentation. There will be a question and I suppose fashion. So I asked the question.

You want it to brass it's far one on your telephone please be advised that todays conference is being recorded if you require and.

Nice grass is sized ill. Thank you I wouldn't say like so had gone friends Oh, but yes, you could today. It's now you all please go ahead now.

Thank you Andy and good morning, everyone. We appreciate you joining us for the Bluelinx 2021st quarter earnings Conference call. The earnings release as posted in the Investor section of our website at Www Dot Bluelinx code Dot Com, we will also be referring to a supplementary.

Rather than station as we go through the call. The presentation is available on our website as well.

Joining us on the call today are much Lewis Chief Executive Officer, and Kelly Janssen, Chief Financial Officer before we get started I want to remind you that this presentation includes forward looking statements. These statements are subject to risk and uncertainties that could cause our actual results could differ materially from those reflected in the state.

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Those risks and uncertainties are described in our earnings release and discussed in our filings with the FCC. Today's presentation. Also includes references to non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials the earnings release and Investor section of our website.

With that I'll turn the call over to match.

Thanks, Mary Anne and good morning.

I want to start today by first thanking our nation's health care professionals and first responders.

They're taking risks every day to help minimize the devastating impact the cobot 19 pandemic has had on so many families.

And our Hearts go out to those who have lost loved ones. During this terrible period.

I also want to thank our Bluelinx associates, who truly stepped up over the last six day weeks.

We're fortunate that our business has been deemed essential in every state that we operate and that our supply chain has remained intact.

We've been able to continue our day to day operations during the cobot 19 pandemic through the dedication and commitment of our associates their safety, a well being happen and will remain our top priority as we continue to serve our customers and work with our trade partners to support our nation's housing infrastructure.

The primary mission is to prioritize employee health and safety with respect to all business decisions through the duration of the Pandemics.

Like many other companies, we immediately instituted sanitation and social distancing guidelines when recommended by health officials for our employees.

We also instituted work from home policies as well as implemented new procedures regarding visitors deliveries and business critical services for locations, where central employees were required to be present.

I'm pleased to report that our core operations are functioning effectively as we up hold these new policies. During this time and thankfully to date, we have no reported cases of covert 19, among our 2200 Bluelinx associates.

Over the last several earning calls.

The challenges that we faced in the first half of 2019 and our response to those are that's.

We addressed those issues beginning of the second half of the year and exited the fourth quarter of 2019 ready to capitalize on the initiatives we undertook.

First quarter results are a reflection of the significant progress we made during that time.

And yet we are acutely aware that our results in the first quarter of 2020 have little bearing on the business environment. We are now facing as a result of the pandemic.

We did move quickly and took several actions earlier in the first quarter that contributed to putting bluelinx and a solid position for the business environment that we're currently pacing.

We continued excellent executing on our strategy to monetize our own real estate to Delever our balance sheet.

We've reduced our term loan by $78 million since the end of fiscal year 2019, primarily through the completion of sale leaseback transactions earlier this year on an additional 14 properties.

In connection with the pay down of the term loan. We were also able to amend its terms to eliminate the leverage covenant when the principal balance reaches $45 million.

Which we could now achieved by paying down an additional $24 million.

Our remaining owned real estate, which consists of 13 properties is valued at approximately $40 million and there's still available for future monetization.

While we recognize that the real estate market is currently in a state of disruption.

Historical market value of these properties is still about 65% over the amount that would be needed to eliminate the term loans leverage covenant.

And in addition to the work we did on our term loan. We also favourably renegotiated our ABL to provide additional liquidity as we navigate through a turbulent second quarter.

We realized by early March the Carbonite team would likely have a disruptive impact to the overall U.S. economy. The building products industry. In addition to enhancing our term loan and a b L terms earlier in the year, we anticipated that curtailing our operating expenses would also be necessary.

In addition to these actions we also initiated a hiring freeze have delayed almost all capital expenditures deferred certain benefits and furloughed approximately 15% of our salaried workforce.

Furlough, the seller and associates was heavily scrutinized to mitigate the impact to our customers and our revenue.

We also were able to redeploy several assos associates to functional areas that require heightened attention during times of market disruption such as daily detailed accounts receivable review and assessment inventory analytics centralized payment authorization and forecasting.

In light of a highly uncertain demand environment. We also implemented a rigorous daily variable cost analysis to react quickly to market changes across our geographical footprint.

We will continue to monitor both our operating efficiency and our fixed costs. So that we can react quickly if needed given the potential for adverse market conditions and the days ahead.

On a positive note we were pleasantly surprised to see how our sales volume held up relatively well in April.

Spicing downward pressure towards the end of March.

Of course, the extent to which the U.S. economy. The housing market will be affected by the pandemic remains uncertain. What we do know today is that single family housing starts declined dramatically in March compared to the February positive momentum that we were seeing.

March was down about 17.5% from February levels on a seasonally adjusted basis, we expect to see a further decline with the results come out for April.

Another data point that we track as the builders confidence index, which experienced a 42 point decline from March to April.

While certain areas of the country are slowly reopening of their economies. It is still too early to tell when and at what rate, we will see a reemergence of strong housing activity, especially considering the historic unemployment levels. We now face. There is however, growing sentiment that while the pandemic will have a short term negative impact.

And this covert 19 environment.

We expect that once we are passed this crisis, we will continue to reap the benefits of these improvements as we emerge and even stronger company.

Our long term strategies, which we have discussed at length in previous calls remain intact.

In the short term, we will navigate our liquidity and operations through this tumultuous business environment.

We believe we're doing all the right things to drive the company to the next level and as a leader in our industry.

Let's jump right and joins Bluelinx after holding financial leadership positions at major industrial companies, including more than a decade with general electric.

She was most recently chief accounting officer for West Brock, an $18 billion corrugated and consumer packaging company and prior to that for the oilfield services Company Baker Hughes Kelly brings to Bluelinx, a wealth of technical and financial expertise that will help us drive even greater process and operational efficiencies within our organization.

The bluelinx statements fortunate to have someone with Kelly's experience and background joining our company.

And now I'd like to turn it over to Kelly.

Thanks, Mitch and good morning to all of our stakeholders, who are with us on the call today I am very excited to have joined the Bluelinx team. It is an understatement to say that during the best uptime stepping into such a new role as a challenge, but needless to say in the current environment is even more so yes, im confident that together our team will be able to weather the storm and.

Im eager to contribute and lead right away I look forward to getting better acquainted with all of these Dan.

Now I will recap the financial results in our financial position for the quarter. We were pleased with the first quarter's results. Despite the fact that we began to see some impact of Kevin 19. During the last couple of weeks of March.

Adjusted EBITDA for the first quarter up approximately 20% as compared to the first quarter of 2019, the increase in net sales for the quarter was offset by the continued comparative effect of the discontinuation of a key siding product line, which contributed approximately 32 million in the first quarter of 2019 as well some lingering transit.

Action related to synergies and overlap markets.

Commodity price levels during the quarter generally moved higher relative to 2019 and the effect on net sales the relatively minimal with positive for the first time since 2018.

This improvement was the result of gains in both structural and specialty product category with structural gross margin improving to 10.1% from 9.5% last year as specialty gross margin increased need to 16.4% compared to 15.2% last year.

Alluded to the fact that we have reduced fixed costs and reaction to the coven 19 pandemic the voluntary reduction in salary coupled with the savings from furloughed associates and temporarily reducing benefit yield the reduction in M&A on an annualized basis of approximately 13 million.

Additionally, we have generated savings in areas, such as professional services and non trade supply contracts as well as through general operating efficiencies. We will continue to evaluate further cost reduction opportunities during the coming weeks.

We're still in the process of implementing some of the actions we have started as well as evaluating these opportunities and it's certainly difficult to access there to assess their a total impact. However, we do expect that we could have meaningful additional cost savings from further action.

Cash on hand, and excess availability under the ABL was approximately 97 million at quarter end and we were pleased to have this level of liquidity as we look ahead into the second quarter, we are particularly focused on maintaining and preserving our liquidity. During this time and we will closely monitor inventory level, the strength of our receivable and all expense.

The chart that every level at the company.

Turning to slide 10 for the first quarter of this year, we saw commodity prices higher than last quarter and last year and in fact higher than their respective five your advertising.

At higher prices were likely driven in part from the fact that the year started off with a strong housing market. Looking ahead. It is unlikely this trend of higher prices will continue throughout the year based on current expectations for the us housing industry. The pandemic definitely cooled off the commodity market as composite lumber composite panel price panel.

Indices dropped by 18% and 16% respectively from their peak than early March as compared to the April monthly average.

We have seen recent improvement relative stability in the commodity wood based market as the current pricing has come off their mid April load.

On slide 11.

We show that through the first quarter of 2020, we continued our trend of gross margin improvement driven by gains and both structural and specialty categories.

We generated 10.1% gross margin in the structural category, which is the highest quarterly structural gross margin. We have seen since the first quarter of 2011 at 16.4% gross margin in the specialty category, an increase of 30 basis points from the fourth quarter last year, and an improvement of 120 basis points from the prior year quarter.

Moving to slide 12, our borrowings under the ABL sales were 382 million at quarter end compared to 394 million for the same quarter last year, our term loan balance with 77 million at quarter end compared to 178 million at the first quarter and last year as such that under our term loan and revolving credit facility with review.

By 113 million over the prior year period.

Accordingly, our term loan debt balances currently standing at 69 million.

Furthermore, as Mitch mentioned, we have positioned ourselves well and that we will no longer be subject to a leverage covenant ratio should the principal balance of the term loan b less than 45 million.

In terms of our owned real estate portfolio. We now have 13 remaining owned properties valued at approximately 40 million that are available to monetize three of these properties valued at approximately 8 million, our consider dark properties and our available for sale, while the other 10 or so operating we view, we view our owned real estate, which is appraised.

Only four times the current book value as another good resource available for debt reduction.

So sad that we were highly confident that we would meet our first quarter leverage ratio covenant of 6.25 and ended the quarter with a leverage ratio below SEC.

And with that any we would like to open it up for any question.

As a reminder to ask the question you will need to brass Sarwan telephone that's the star one and your telephone and to withdraw your question Rasta Balinsky nieces form by all the combined.

Sir.

Okay.

Present does can you do have a question from the line of accelerate sales.

The Riley FBR. Your line is open you may ask your question.

Good morning, everyone this quarter.

Thank you good morning.

Looking hopeful.

On the.

With wells and sort of approval.

Yes.

I would have been able to to answer that question a lot better about two months ago right. When we had anticipated thats and I think on the last call. We may have talked about the fact that we were.

Moving.

Good dialogue, particularly on the dark properties and we're looking at opportunities.

For continued sale leasebacks Im right now just because of the uncertainty that we're facing in real estate.

Asset value markets as well as a credit markets associated with that.

We've kind of hit the pause button on that I am I would say if we returned to we don't know what the new normal is going to look like but you know evaluations appear to be in the same Zip code.

We will continue the continued view on.

Taking down the term loan through real estate monetization.

Okay.

Awful.

That's helpful.

Can you give us a little bit of color on the cadence.

Okay.

Loan too.

Decrease the below that.

Level.

And so.

When we amended the the leverage ratio up to the 875 that was with an intent to give us a lot of runway.

Not knowing obviously, what's kind of what was going to happen in the second quarter or the third quarter of the business.

So as I think I alluded to in my notes you know there there are different avenues to do that in one of the things that we have.

Focused on is working our working capital part we will continue to look at opportunities to generate cash offer the working capital as you know and as Kelly talked about and we do have availability under the ideal and than we have to real estate as well and again, if we as we continue to.

Look at the business and run more efficiently with a recovery.

In the market our expectation certainly would be that were.

Earning more than our our cash cost of course, and we can utilize that as well to pay down Pat.

And then you.

On a global.

First quarter can you.

Quantify how much that was from new products alone will.

They see sort of fall below the law offline.

Well move on a more approvals.

Okay.

Yes. So we were we've actually I felt like we were we had good momentum.

As we've talked about in the past we were looking at it and I think we gave these numbers in 2019 alone. It was in the neighborhood of $160 million of.

Lost sales for the year.

And so while we're making good progress it will take a while to come back on that but we talked about.

Picking up a couple new brands marquee brands that have helped and weeks, we certainly are garnering marketshare boat, but it's not.

Going to be and it will take a while for us to recover that particular product line.

With the new products that we've had.

That's helpful. Thank you I'll get back into queue.

Okay. Thank you.

Again, ladies and gentlemen, if you would like to us lessen hiload it the breath to star one on your telephone again that is Taiwan and your thoughtful feedback.

We do have another question from the line of Alan Weber from Davy Cognos. Your line is open you may ask your question.

Good morning.

Good morning, Mitch can you talk about I realize there's lot of uncertainties. How you think about kind of the cash flow for the balance of the year the business and also like if there's any changes in terms of credit to some of the customers.

Okay. So as we think about the cash flow for the rest of the year, we are closely monitoring watching and and reducing our working capital as we see volume decline and becoming.

More efficient we've we've put in place in fact in inventory analytics team on a centralized basis that is reviewing.

Ill purchase orders and.

And there's a than there is a team that is communicating with folks out in the field to make sure that we're bringing in inventory that we need understanding that as a wholesale distributor we will carry inventory to service our customer base.

Effectively so.

The balance sheet is clearly as an opportunity from a cash flow standpoint, we have of course.

Receive some benefit on the interest rate environment, that's lowering our costs, we have as we talked about the for capital.

We'd otherwise have to makes with which certainly helps for 2020 from a.

From a.

Cash flow perspective on the receivable side and what we're seeing from a customer standpoint is similar to what we did putting together very strong team that's daily reporting on the inventory side. We did the exact same thing on the receivable side in this town probably goes back a month ago or so and so we've also when I talked about.

Redeploying before some of our best people into that group a more now looking at that very closely and I would say.

For now the credit characteristics of the business seeing seem good we havent seen any major disruption our industrial customers appear to have been hurt more early on some of the markets closed down.

But it has not.

Evidence yet from a receivable standpoint, so no at the moment everything seems to be okay from a receivables perspective, we will watch it very closely and understand that if the market.

Remains.

Diminished over longer period of time that that it will flush out potential issues, but I can tell you we're on top of it.

Okay, great. Thank you.

Sure. Thank you.

Again, ladies and gentlemen, if you would like last question you will need so for US is far one on your telephone keypad.

There are no further questions from the line presented you me continue.

Okay, well, thanks, Annie and thank you for joining us and of course, your continued industry interest and support of Bluelinx.

Look forward to speaking to you again in August Thank you very much.

Ladies and Gents amenities concludes today's conference call. You may now disconnect. Thank you for parts to beating you have a day.

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