Huttig Building Products, Inc.
Q1 2016 Earnings Call Transcript

Published: 3 May 2016

[Operator:]

Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Huttig Building Products First Quarter 2016 Conference Call. [Operator Instructions] And I would like to turn the call over to your first speaker Vice President and Chief Financial Officer Oscar Martinez, please go ahead.

[Oscar Martinez:]

Thank you, and welcome everybody to Huttig Building products first quarter 2016 earnings call. With me this morning, is Jon Vrabely, President and Chief Executive Officer. Today we will discuss our operating and financial results for the first quarter 2016 and we will update you on the acquisition of BenBilt building systems and the progress of our integration. Following our prepared remarks we will open the call for questions. We would appreciate it if you could limit yourself to one question or top it with one follow up please. If you have other questions you can jump back in the queue or I will be happy to schedule time to speak with you after this call. Before I turn the call over to Jon, let me say how excited I am to have joined this management team. I look forward to contributing to the growth and success of the organization. Let me also take a moment to remind you that today's discussion reflect management views as of today and may include forward looking statements. Actual results could differ materially from those currently anticipated and Huttig disclaims any obligation to update any information discussed in this call as a result of developments that could occur afterwards. Also those listening to this call on a replay information could already have changed. Additional information about factors that could potential impact our financial results are included in the earnings release issued yesterday and the Form 10-K filed with the SEC. During this call we will discuss certain non-GAAP financial measures. A description of any non-GAAP adjustments are reconciliation to the most comparable GAAP measures can be found in the earnings release issued yesterday and on our website. And now, it is my pleasure to introduce Mr. Jon Vrabely, Huttig's President and CEO.

[Jon Vrabely:]

Thank you, Oscar. I would also like to take the opportunity to officially welcome you to Huttig. Good morning and thank you for joining our call. The results we announced yesterday mark us another successful quarter which I attribute to the hard work and dedication of our people. I want to thank all of the Huttig associates for their commitment to the organization to our customers and to being the best service provider of every service we sell in every market we serve. During the first quarter we grew net sales by 7.7% to $158.8 million while increasing gross margins by 90 basis points to 20.2%. We maintain tight control of our operating expenses which were 18.2% of our net sales. Our operating income was $3.1 million compared to $600,000 in the prior year quarter. Finally our adjusted EBITDA was $4.2 million which represented an increase of almost 2.5 times versus last year's quarter excluding unusual charges we completed our 20th consecutive quarter of year-over-year improved financial performance. Between 2012 and 2014, total housing starts increased from approximately from 780,000 units to 1 million units and in 2015 increased by approximately by 100,000 starts to a total of 1.1 million. Total housing starts remained at 1.1 million in the first quarter of 2016. While we are encouraged by the growth in total housing starts the market remains more than 20% below the 30 year historical average of 1.4 million total housing starts on an annualized basis. As I indicated last quarter that first time single family home buyers have yet to enter the market in a meaningful way. As first time home buyers enter the market, it will fuel consistent sustainable growth opportunities for Huttig. As a result of our strong financial performance in the continued growth of the housing market we are very well positioned to continue to execute our strategy to accelerate growth and financial performance. On April 4th, we announced the acquisition of BenBilt building systems, a leading wholesale distributor and door fabricator that has served the mid-Atlantic region for 15 years. Like Huttig BenBilt focuses on branded products, quality services and customer relationships. This acquisition provides a tremendous growth opportunity for Huttig in the mid-Atlantic region and strengthens our position as the largest door fabricator and value distributor in the country. Our integration is progressing well. We have already integrated many of the back office functions and we are in the process of developing and implementing plans that provide the most advantageous opportunities to leverage our collective resources to expedite continued growth in the mid-Atlantic region. Having been deeply engaged in the acquisition and immigration processes, I have spent a lot of time with the owners of BenBilt and I am very pleased to have Jim and J.J. Benett and all of the BenBilt associates on the Huttig team. In less than a month they are already making contributions that reach beyond the mid-Atlantic region. BenBilt is truly a best in class organization and I am very appreciative of the collaborative effort they are making to ensure this acquisition benefits the Huttig shareholders. This acquisition marks a key turning point for Huttig and supports the accelerated growth strategy we have been publicly communicating. Our evaluation criteria continues to focus on a creed of acquisitions that is additionally achieved at least one of the following criteria. Market consolidation, core product and or core segment expansion, geographic expansion or business diversification. Our comprehensive growth strategy also focuses organically on profitable segment penetration, expansion of profitable value-add service capabilities and product line additions that require value add services or scale. At this point, I would like to turn the call back over to Oscar to discuss the income statement and balance sheet.

[Oscar Martinez:]

Thank you Jon, as you heard earlier we increased net sales by 7.7% as compared to the first quarter of last year to a $158.8 million while achieving growth margins of 20.2%. This is the fourth quarter in a row in which we had gross margins greater than 20%. The improvement was primarily due to our operational initiative, this as we continue to expand our value add capabilities and repair remodel construction segment and we also benefitted from a shift in product mix. Sales increased in the mill work and building products category or we can realize better margins and decline in the wish product category as we decreased our focus on lower margin products. Operating expenses of $28.9 million or 18.2% of net sales compared to 18.9% last year. Even though on a national basis operating expenses increased by $1 million, primarily driven by higher personnel costs resulting from new hires and offset by lower fuel costs, the result of this performance was net income of $1.4 million and adjusted EBITDA of $4.2 million. Turning to the balance sheet, we entered the quarter with total available liquidity of $82.6 million compared to $60.6 million at the same time last year. Working capital as a percent of the quarterly sales was 13.9% compared to 15.1% in the prior year period. Our cash cycle defined as net base of receivables, inventory of payables was 49 days down from 53 days last year. Total debt to capitalization net of cash was 55% as compared to 48% at December 31, 2015. Our sole financial covenant is the fixed charge coverage ratio and we are comfortable that we have ample room to reply to this covenant. I thank you for your interest in our company and your participation in the call today. Alan, we will open it up for questions now please.

[Oscar Martinez:]

Fine, I think we must have done our job on the call but I offered in my remarks if anybody would like to follow up separately, please do reach out to us in the office and we will be happy to have some chat with you. Alan I thank you very much and I think at this point it concludes our remarks.

[Jon Vrabely:]

Yes, I would like to thank the participants for participating in the call today and for your interest in Huttig. Thank you very much.

[Operator:]

Ladies and gentlemen, your conference will be made available for replay beginning today, May 3rd, at 12