The CEO and president/COO of BMC Select described their newly named, newly reorganized company today as a smaller and more focused version of its predecessor Building Materials Holding Corp. (BMHC), but essentially a continuation of the building materials dealer it was before it entered Chapter 11.
"The footprint is smaller and we've gone back to our core: distribution, trusses, wall panels, millwork, targeted construction services," said CEO Paul Street, who along with president/COO Stan Wilson spoke to ProSales during the International Builders' Show in Las Vegas. It no longer will provide such other homebuilding services as doing plumbing or electrical work, he said.
BMC Select will target "a customer who appreciates the value of the services and products we bring," not builders looking solely for the lowest-cost provider, Street said. Wilson added that while BMHC was best known for pursuing production builders--particularly at its SelectBuild group--the Boise, Idaho-based firm will pursue a mix of customers, from big to medium-sized builders to a builder creating "the weirdest custom house you can do."
While the customer focus will widen, the number of vendors BMC Select uses and the mix of products it produces will narrow.
BMC Select serves 16 markets in 11 states, all of which--except for North Carolina and Texas--stretch from Colorado to the Pacific coast. Street said he expects the company's revenues will fall below $1 billion this year. BMC Select isn't turning a profit now, but it should be by December, he said. Based on a Nov. 30 court filing, BMHC incurred $32.1 million in net losses between mid-June through Nov. 30. The results would have been far worse had the company not booked a $44.8 million income tax benefit in October, enabling it to swing to a $17.9 million profit that month.
What was then BMHC entered Chapter 11 bankruptcy law protection last June and emerged on Jan. 4 reorganized and with the new name of BMC Select. With the change, it moved from a stockholder-owned public corporation to a private entity owned by BMHC's secured lenders, particularly Wells Fargo Bank.
According to the 2009 ProSales 100, BMHC had $1.3 billion in sales in 2008, all of them to pros, and operated 77 locations with 8,200 employees. In the Jan. 4 announcement, BMC Select said it employs more than 3,700 people.
Both in today's comments and in its marketing collateral, BMC Select emphasized continuity. A key marketing brochure is titled "Same People. Same products and services: Let's Keep Building." And when you open the brochure, the main headline declares "A new beginning for a trusted partner" while the text highlights slogans like "leaner and greener than ever."
Likewise, the executives noted that BMHC was on the road to organization long before going into Chapter 11. One such move came in May 2008, when BMHC merged its BMC West and SelectBuild units. BMC West focused on building materials distribution to customers of all types and also did some installed sales, while SelectBuild was best known for providing turnkey construction services for production builders.
The bankruptcy "was more about restructuring than it was about reorganizing," Street said. "We never gave up on the basic idea of providing targeted services. ... We want to get back to our knitting."
BMHC's pre-Chapter 11 history also included decisions to exit markets such as Florida. Street said the markets BMC Select will operate in were chosen on the basis of whether it had returned positive financial results, whether the company owned real estate there and whether it had a strong management team and promising demographic prospects.
The company has been organized into five regions: Northwest (Oregon and Washington); California; Southwest (Arizona and Las Vegas); Intermountain (Montana, Idaho, Utah, and Colorado); and Texas (plus a national multifamily millwork unit in North Carolina). Vice presidents for all but the Southwest region have been named.
The central office will handle accounting, payroll and accounts payable activities for all branches, as well as human resources, marketing, national accounts, and credit. Field offices will be responsible for sales, credit management (within general corporate policies) and inventory management. Some purchasing will be Boise's responsibility, while local branches will handle other buys.
Company-wide, BMC Select today gets about half of its revenues from selling building products and 50% from its truss plants, millwork shops, and construction services. At a market level, those ratios may change, Street said.
Congress gave BMC Select a huge boost late last year when it changed the tax code to enable companies to apply current losses against profits BMHC made up to five years ago. In Chapter 11 filings, BMHC estimated the losses, combined with sales of two of its units it concluded by Dec. 31 of last year, will generate as much as $73 million in tax benefits.
As large as those tax benefits were, the real gain BMC Select reaped from the tax law change was that it enabled the company to get better terms for its exit financing. It emerged from Chapter 11 having slashed its outstanding indebtedness by $150 million, cutting its debt level to $135 million. Street said the company anticipates making no draws on its revolving credit line. "We've got a strong balance sheet and adequate liquidity," he said.
Street said his key metrics for the near term include closely watching the firm's revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) numbers, operational figures like inventory levels, and such production metrics as truss plant hours of operations. The company produces a daily profit-and-loss report that it shares with key staffers.
"The financial restructuring has occurred and we've got quality people in all the right markets," Street remarked at another point in the interview. "We're ready to go."
