Dallas-based Builders FirstSource (BFS) posted a $13.2 million operating gain during the second quarter, up from an operating loss of $1.4 million a year earlier, as sales climbed 46.4% to $391.1 million for the same period, the company announced after the market's close July 25. The company credited the bulk of its sales gains to higher volumes and the rest to increased prices.
The rosy top-line report shows a company whose operations have been propelled of late by a hefty refinancing package. Costs associated with the deal pulled the company's bottom line further into the red, to a loss of $48.2 million from a loss of $12 million in the prior-year same quarter. In December 2012, BFS amended its first-lien term loan agreement, increasing its liquidity by $93 million, which company officials said would help support sales growth. And in May, the company completed an offering of $350 million in senior-secured notes and entered into a $175-million revolving credit facility with the option to borrow an additional $150 million.
"Our recent refinancing transaction provides a tremendous boost to our goal of returning to positive net income," the company's senior vice president and CFO Chad Crow said in a statement. "As a result of our new capital structure, our annual cash interest going forward will be approximately $28 million, assuming nothing is drawn on our revolver."
Factoring in account refinancing costs, the fair-value adjustment for stock warrants, and tax valuation allowance, BFS officials say second-quarter net income would have been $500,000. Of its $61.1 million in second-quarter interest expenses--up from $10.5 million a year earlier--the company attributes $48.4 million to the refinancing.
In a call with analysts July 26, the company talked little about the refinancing and more about its market position as it contents with still-low levels of new-construction activity and labor shortages that threaten to stall their customers' projects.
“We’re still looking at a very, very competitive landscape," CEO Floyd Sherman told analysts. "We’re still in a very depressed housing environment. This year, while things are certainly getting better, I don’t think it’s anywhere near what we would call a healthy or normal environment. There still is a lot of supply chasing the demand.”
Crow estimates the company's current footprint can handle $2 billion in revenues but would need housing starts to surpass the one-million mark in order for that demand to be realized. He expects BFS to be cashflow-positive during the final two quarters of 2013.
Sherman added that the company is balancing its reliance on driving the bulk (approximately 60%) of its demand from larger builders by targeting small and midsize operations, which he said account for approximately 35% of the company's customer mix.
"We really have been very, very aggressive and active in going and looking for that smaller builder," he told analysts. "We’ve been adding significantly to our new accounts on a quarterly basis and this cumulatively has really been the reason for our ability to maintain that mix. That’s what we’re going to continue putting all efforts into doing ... because that [customer mix] is needed in our business in order to get the longer term profitability that we have to have."
Editor's note: An earlier version of this article misstated Builders FirstSource's second-quarter 2012 operating loss. The correct amount is a loss of $1.4 million. We regret the error.