June 17 Editor's Note: This article, originally written on June 14, erred in reporting Stock Building Supply's losses per common share as its actual net losses. That has been corrected in this story and extra numbers from its earnings statement have been added to provide clarity. Also, the Gores Group paid $25 million to buy Wolseley Plc's remaining stake in Stock. The earlier story said Gores paid $25,000. That has been corrected here. We regret the errors.
Stock Building Supply, the nation's ninth-biggest pro-oriented building material dealer, has filed for an initial public offering (IPO), the company announced late today. Stock also revealed that it recorded operating losses of nearly $206 million and net losses of $130 million over the past 3-1/4 years.
An announcement by the Raleigh, N.C.-based company said the number of shares to be offered and the price for those shares hasn't been set yet. Goldman, Sachs & Co., Barclays Capital Inc. and Citigroup Global Markets Inc. will serve as joint book-running managers of the proposed offering.
Stock's Form S-1 filing appears intended to take advantage of a favorable environment for accessing the public investor market at a time when the appetite to cash in on housing's revival is strong but the current investment opportunities are weak. Over the past several months, firms such as Boise Cascade and Ply Gem have gone public to strong demand. For investors interested in a so-called "pure play" LBM investment, currently their only option is Builders FirstSource (BFS). Now comes Stock.
Like BFS, Stock expects that its current owners--in this case the Gores Group, an investment fund based in Los Angeles--will continue to control more than 50% of the common stock. And like BFS, Stock has operated in the red for years. Its operating losses in 2010, 2011, and 2012 were $122.8 million, $59.3 million, and $18.4 million, respectively, and the company posted an operating loss of $5.2 million for the first quarter of 2013. But thanks in part to $79.5 million worth of income tax benefits, Stock's net losses were reduced to $70 million in 2010, $42.1 million 2011, $14.2 million 2012, and $4 million for January through March of this year.
Stock noted that net sales have climbed 25%, from $751.7 million in 2010 to $943.4 million in 2012, and 2013's first-quarter sales of $248.7 million topped the year-earlier quarter's by 32.2%. "In 2006, our current blueprint of facilities generated approximately $1.8 billion in sales, and we believe that we will achieve attractive growth as our markets recover to normalized levels of new home construction," the company said.
The prospectus included in the S-1 revealed plenty of other details that haven't been known publicly about the company for years. For instance, Stock said it gets 35.5% of its revenues from lumber and sheet goods, 21.5% from windows and other exterior products, 18.9% from millwork and other interior products, 11.3% from structural components, and 12.8% from "other" building products and services--a category that most likely includes installed sales.
Roughly 36.7% of Stock's 2012 revenues come from production builders, it reported; 10 customers account for one-fifth of all its sales. Custom builders provide 35.4% of the money, remodelers 18%, commercial firms and multifamily builders 4.1% each, and 1.7% from other sources.
With its planned IPO, Stock begins a new chapter in the life of a company that ranked among the biggest participants in the housing industry boom of a decade ago--as well as arguably the company that was humbled most severely when that market crashed. The firm once known as Carolina Holdings topped the ProSales 100 from 1998 through 2005, in part through a flurry of acquisitions driven by Stock's owners, the British firm Wolseley Plc. By 2006, Stock posted $5.3 billion in sales from 323 facilities staffed by 17,000 employees.
That was the peak. As the housing market withered, Stock sought frantically to shed assets and Wolseley came under pressure from its shareholders to dump Stock. On May 5, 2009, Gores bought 51% of Stock as part of an arrangement in which Stock filed the next day to reorganize under Chapter 11 bankruptcy-law protection from creditors.
Over the next two months, Stock used Chapter 11 status to get rid of even more assets, including canceling leases on facilities it had acquired. "Since 2009, we have closed or sold over 100 facilities in locations that we determined would not provide us with sufficient scale, or where we would otherwise not be able to compete effectively and profitably," the company's prospectus said.
Stock emerged from Chapter 11 in on June 30, 2009, as a much smaller firm. In November 2011, Gores bought Wolseley's remaining interest in the company for $25 million; Wolseley had already written off its investment by then. By the end of 2012, Stock ranked No. 9 on the ProSales 100 with sales of just $942 million (up 22% from the year before), 59 locations and 2,455 employees.
Today it counts operations in 13 states, mainly in the South and West, but added that it gets 69% of its total sales from four states: Texas (32% of all 2012 sales), North Carolina (16%), California (11%), and Utah (10%). It asserted that it's one of the top three dealers (based on net sales) in 80% of the markets it operates.
As of March 31, the company estimated it has $104.6 million in accounts receivable and $95.6 million worth of inventory. Accounts payable totaled $88.8 million. Its balance sheet totals $286 million, of which just $6.5 million is goodwill--residue from its July 1, 2010, acquisition of Bison Building Materials, the Houston-based dealer that plays a big role today in Stock's Texas revenues.
As part of its IPO, Stock said it will use $60 million of the net proceeds to pay outstanding balances under a revolving credit agreement; it currently holds $92.5 million worth of long-term debt. Stock also will pay $9 million to Gores to terminate the California company's management services agreement.
The prospectus also noted a name change in Stock's official owner. It had been held by Saturn Acquisition Holdings Inc., a company Gore created. On May 2, Saturn officially was renamed Stock Building Supply Holdings LLC.