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Builders FirstSource Reports Third Quarter 2012 Results

Continuing, Mr. Sherman added, "We are seeing stronger sales trends as the housing market continues to recover, and our recent market share gains have also certainly contributed to our improving sales. Our sales growth and increased operating efficiencies drove the improvement in our financial results for the quarter."

Chad Crow, Builders FirstSource Senior Vice President and Chief Financial Officer, commented on the current quarter results, saying, "While we were very pleased by the improved building activity and our increased sales during the quarter, our gross margins were again negatively impacted by inflation on commodity lumber within the quarter and our limited ability to adjust intra-quarter customer pricing. While we were able to pass on some price increases as part of our third quarter pricing, we once again experienced a rising commodity market for most of the quarter. Commodity prices increased, on average, 14 percent from the end of the second quarter through mid-September, before falling back somewhat by quarter-end. These factors, combined with what is still an extremely competitive pricing environment, constrained our gross margin during the quarter."

Third Quarter 2012 Results Compared to Third Quarter 2011

(See accompanying financial schedules for full financial details and reconciliations of Non-GAAP financial measures to their GAAP equivalents.)
  • Sales were $291.8 million compared to $217.2 million in the third quarter of 2011, an increase of $74.6 million, or 34.3 percent. We estimate sales increased approximately 27 percent due to increased volume and 7 percent due to price.
  • Gross margin percentage was 19.8 percent, down from 20.5 percent, a 0.7 percentage point decrease. Specifically, our gross margin decreased 1.5 percentage points largely due to commodity lumber inflation during the quarter relative to fixed customer pricing commitments and was offset by a 0.8 percentage point gross margin improvement due to increased sales volume. On a sequential quarter basis gross margin improved from 19.7 percent to 19.8 percent.  
  • Selling, general and administrative ("SG&A") expenses increased $8.5 million, or 16.8 percent. As a percentage of sales, however, SG&A expense decreased from 23.1 percent in the third quarter of 2011 to 20.1 percent in 2012. Salaries and benefits expense, excluding stock compensation expense, was $35.6 million, an increase of $6.8 million, primarily related to higher sales commissions and additional staffing needs to service the increased sales volume. 
  • The third quarter of 2012 included $0.7 million of facility closure costs primarily related to revisions of sub-rental income estimates on two previously closed facilities in South Carolina and Tennessee. The company recorded $0.1 million of facility closure costs in the third quarter of 2011.
  • Interest expense was $10.6 million, an increase of $5.3 million from the third quarter of 2011. The increase was primarily due to interest associated with the company's new term loan combined with a $0.7 million, non-cash, fair value adjustment related to stock warrants issued in connection with the term loan.
  • The company recorded $0.0 million of income tax expense in the third quarter of 2012, compared to $0.3 million in the third quarter of 2011. The company recorded an after-tax, non-cash tax valuation allowance of $4.6 million and $4.7 million in 2012 and 2011, respectively, related to its net deferred tax assets. Absent this valuation allowance, the effective tax rate would have been 37.6 percent and 39.2 percent in 2012 and 2011, respectively. As of the end of the current quarter, the company's gross federal income tax net operating loss available for carryforward was $226.2 million.
  • Loss from continuing operations was $12.3 million, or $0.13 loss per diluted share, compared to $11.5 million, or $0.12 loss per diluted share in the third quarter of 2011. Excluding the fair value adjustment for stock warrants, facility closure costs and the tax valuation allowance, loss from continuing operations per diluted share was $0.07. For the third quarter of 2011, loss from continuing operations per diluted share was $0.07, when excluding facility closure costs and the tax valuation allowance. See reconciliation attached.
  • Loss from discontinued operations in the third quarter of 2012 was $1.3 million, or $0.01 loss per diluted share, compared to $0.1 million, or $0.00 loss per diluted share in the third quarter of 2011. Loss from discontinued operations in the current quarter is due primarily to revisions of sub-rental income estimates for a previously closed Ohio facility.
  • Net loss for the third quarter of 2012 was $13.6 million, or $0.14 loss per diluted share, compared to net loss of $11.6 million, or $0.12 loss per diluted share, in the third quarter of 2011.
  • Diluted weighted average shares outstanding were 95.5 million in the third quarter of 2012 compared to 95.0 million in the same quarter of 2011.
  • Adjusted EBITDA was $3.0 million in the third quarter of 2012, compared to a loss of $0.7 million last year. See reconciliation attached.

Liquidity and Capital Resources
  • Liquidity at September 30, 2012 was approximately $55.7 million, representing $90.7 million of cash reduced by the $35.0 million minimum cash requirement in our term loan.
  • In addition to the $90.7 million of cash, the company had $12.8 million in restricted cash at September 30, 2012, of which $1.8 million was included in long-term assets. Restricted cash consists of $11.9 million used to collateralize letters of credit outstanding under the company's letter of credit facility and $0.9 million used as collateral for other casualty insurance obligations.
  • Operating cash flow was negative $11.1 million compared to negative $9.2 million for the third quarter of 2011.
  • Capital expenditures in the third quarter of 2012 were $5.2 million, compared to $1.1 million in the third quarter of 2011. This increase is primarily due to the purchase of our Chelsea, AL location, which was previously a leased facility, and additional buyouts of expiring vehicle and equipment leases.

Regarding the company's liquidity, Mr. Crow said, "Of the $14.4 million of cash used in the third quarter, $9.5 million was cash used for interest, $5.2 million related to capital expenditures and the balance was due to an increase in working capital, offset somewhat by positive EBITDA during the quarter. Our cash usage for fiscal 2012 is expected to be at the high end of original guidance due to the increase in working capital necessary to support our higher-than forecasted sales volume. As a result, we expect to end the year with approximately $90 million of unrestricted cash and $55 million of net liquidity."

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