Builders FirstSource (BFS), one of the Southeast's biggest LBM operations, forecast that it will post a loss of $9 million to $12 million this quarter using its adjusted EBITDA measuring stick, improving from a $15.3 million adjusted EBITDA loss in 2010's first quarter, on relatively flat sales of $160 million to $165 million.
The company based its first-quarter forecasts on $95.7 million in sales it recorded in the first two months of 2011, up 4.2% from the year-earlier period. This came at a time when actual single-family housing starts in Southern states fell 19.8%, BFS noted.
Dallas-based BFS included the forecasts and two-month financial report in its April 5 SEC filing in conjunction with its recently announced plan to offer $250 million worth of senior secured notes due in 2019 that it will use in part to pay off similar notes that fall due next year and in 2016.
BFS' adjusted EBITDA measure counts the usual building blocks of EBITDA--net income before interest expenses, taxes, depreciation and amortization--as well as gains or losses on sales of sales, income or losses from discontinued operations, and other non-cash or non-recurring items like asset impairments, facility closing costs, severance, recapitalization costs, and stock compensation expenses. BFS regards adjusted EBITDA as a worthwhile way to measure its financial performance beyond the typical accounting metrics.
"We believe our sales increased [in January and February] despite the challenging macro-economic environment due to the strength of our competitive position, and that our financial results are indicative of market share gains over this time period," BFS said in its SEC filing. "For the fiscal first quarter ending March 31, we anticipate that sales will be in the range of approximately $160 million to $165 million; essentially flat with first quarter 2010 sales of $161.4 million on significantly fewer housing starts and comparable lumber commodity prices. We expect that our fiscal first quarter adjusted EBITDA loss will be in the range of approximately $(9) million to $(12) million, compared to $(15.3) million in the first quarter of 2010. A range of net income (loss) and a reconciliation of Adjusted EBITDA to net income (loss) cannotbe provided at this time because the line items in our statement of operations have not been finalized with sufficient certainty."
The hoped-for aggregate $250 million in senior secured notes would fall due in 2019 and would be secured by a first-priority lien on certain non-current assets and a second-priority lien on certain current assets. The senior secured revolving credit facility is secured by a first-priority lien on certain current assets and a second-priority lien on non-current assets.
Along with paying off its 2012 and 2016 notes, BFS also will use the $250 million for working capital and general corporate purposes, the company said. In February, the company announced it had swung to a net loss of $24.6 million in 2010's fourth quarter from $6.6 million net income in 2009's fourth quarter, when it was able to claim $33.2 million worth of tax benefits. Sales fell 4.3% in the quarter to $147.1 million. On a continuing operations basis, BFS swung to a $24.5 million loss in the fourth quarter from a $6.2 million profit in the final three months of 2009. Adjusted EBITDA amounted to a $12.5 million loss in the quarter, compared with income of $6.6 million during the year-earlier period.
That weak operating performance and what Moody's Investors Service regards as "insufficient" restructing initiatives led Moody's to put a Caa2 rating on BFS' corporate family rating; obligations rated Caa" represent a very high credit risk. Moody's also assigned the company a speculative grade liquidity of SGL-4, which it said denotes weak liquidity and few prospects for obtaining outside financing. Meanwhile, Standard & Poor's Ratings Services affirmed its CCC+ corporate credit rating on BFS with a negative rating. It also assigned a CCC rating to the $250 million notes due 2019. "The recovery rating is '5', indicating our expectation of modest (10% to 30%) recovery for lenders in the event of a payment default," S&P said.
BFS ranks 10th on the most recent ProSales 100 and has since moved to No. 9 because of a merger higher up. (See updated list.) It serves builders across the Southeast, from Maryland to Florida to Texas. Historically it has focused on serving America's biggest homebuilders, but CEO Floyd Sherman said in February that focus is shifting to include remodelers and smaller builders.