|Shares Out. (in M):||10||P/E||4.3||0|
|Market Cap (in $M):||329||P/FCF||0||0|
|Net Debt (in $M):||580||EBIT||0||0|
1) Reporting of combined Q2 financials and an update on the integration process in August
2) Continued monetization of its 33 owned warehouses illuminating the value of its assets and going toward debt paydown (targeted leverage ratio reduction from 4x to 2.5x over the next year)
3) Increased institutional awareness from expanded corporate communication and sell-side initiations by Wells Fargo, BTIG and likely others
4) Ongoing operational improvements converting to financial performance
|Entry||07/23/2018 12:43 PM|
I will field this one:
1. Addressed in writeup near the end. Read carefully.
2. Services levels, locations.
3. U.S. Census Bureau releases detailed info monthly.
|Entry||07/24/2018 11:10 AM|
I have two questions: 1) why have the EBITDA margins for both BXC & CC been well below the other comp's (what is fundamentally different about the businesses) and if they hit their object of $50m in cost reductions, what do you believe their margins will be, & 2) can you provide a link to the document outlining the incentive performance bonuses for senior management tied to achieving the $50M in annual integration synergies, as I could not find this in the June 5th filings on the sec.gov website?
|Subject||Re: Two questions|
|Entry||07/24/2018 11:58 AM|
Re: Incentive Performance Bonus
Integration Incentive Plan
On April 18, 2018, in connection with the Cedar Creek Acquisition, the Compensation Committee approved the BlueLinx Corporation Integration Incentive Plan (the “Plan”). Pursuant to the Plan, certain employees of the Company may be eligible to receive cash bonuses based on the achievement of certain integration synergy targets relating to the integration of the Cedar Creek operations, as will be specified in each such Plan participant’s participation agreement (each such agreement, a “Participation Agreement”), during the performance period. The performance period for the Plan commenced on April 16, 2018 and will end on October 16, 2019. There are two possible tranches of cash bonuses payable under the Plan: a base integration bonus and a supplemental integration bonus, each of which will be payable based on separate, specified integration synergy targets set forth in the applicable Participation Agreement.
Pursuant to the Plan, any base integration bonus will be paid in two installments with 50% paid within sixty (60) days after the fiscal month end in which the initial integration performance target is met, and the second 50% installment paid six (6) months following the fiscal month end in which the initial integration performance target is met, but in any event no later than April 30, 2020. In addition, any supplemental integration bonus will be determined within a reasonable time after the expiration of the performance period and paid on or before March 15, 2020. Unless specified otherwise in a Participation Agreement, a Plan participant must be employed by the Company at the time of the payment of any bonus pursuant to the Plan in order to receive such bonus. In addition, no bonus will be paid unless and until the Company achieves a threshold level of adjusted EBITDA as determined by the Committee, and if such threshold level of adjusted EBITDA is not achieved prior to October 16, 2019, no bonus will be payable under the Plan.
1.Participation. The Participant is hereby eligible to receive a Base Integration Bonus and a Supplemental Integration Bonus in accordance with and subject to the terms and conditions of the Plan and this Agreement.
(a) Upon the realization of at least $50 million in Net Synergies (the “Initial Integration Performance Target”), the Participant’s Base Integration Bonus shall be equal to the product of (A) the Participant’s Base Salary multiplied by (B) [____%]. The Participant’s Base Integration Bonus will be reduced to the extent the Cost To Achieve Synergies exceeds $[__] million in an amount equal to [___] for every [___] million in excess of [___] million of Cost To Achieve Synergies.
(b) The Supplemental Integration Bonus shall be in an amount equal to [___%] of the Participant's Base Salary for every [__] million of Net Synergies above $50 million up to [__] million of Net Synergies. The Participant’s Supplemental Integration Bonus will be reduced to the extent the Cost To Achieve Synergies exceeds [__] million in an amount equal to [__] for every [_] million in excess of [___] million of Cost To Achieve Synergies.
(c) No payment will be made on account of the Base Integration Bonus or the Supplemental Integration Bonus until the Minimum Adjusted LTM EBITDA is at least [___] million. In the event the Minimum Adjusted LTM EBITDA has not exceeded [___] million on or before October 16, 2019, then no Bonus shall be paid under the Plan.
(d) No Bonus shall be paid to the Participant if the Participant is not employed on the applicable payment date for such Bonus.
|Subject||Pro forma LTM EBITDA?|
|Entry||07/24/2018 02:58 PM|
New to the situation here, but I'm curious why you would use "pro forma LTM EBITDA ($154mn)" giving them full credit for $50mn in synergies on an LTM basis, it makes this whole situation look much cheaper than it actually is. Using $104mn LTM EBITDA makes things look much more appropriate ~ 9x LTM EV/EBITDA on a combined basis. I understand mgmt. pumped out those numbers, but it is not even close to the current reality.
There is also a "severely underfunded" pension.. Wondering how you are accounting for that as it looks like possibly a 2018 liability or if mgmt. has discussed a time-line in '18-19 for mitigating the gap?
|Subject||Re: Re: Pro forma LTM EBITDA?|
|Entry||07/24/2018 04:38 PM|
I'm not saying I wouldn't use pro forma EBITDA of $154mn, but just 18 months out. All I'm saying is using it on a trailing basis as if magically they generated $50mn in synergy EBITDA without any heavy lifting is aggressive. There is a lot that can happen in 18 months. It also looks like it is being comped to current multiples, HBP and other building products companies.
I still find it an intriguing idea, the synergies make sense and the incentives align--and yes, it is cheap if they can get $50mn+ in synergies by the EOY '19.
|Subject||Re: Re: Pro forma LTM EBITDA?|
|Entry||07/24/2018 06:24 PM|
I've owned this for a while, but I did cut down my position recently because I do not believe the recent downtick in lumber pricing over the last two months (-20%) will have zero impact on profits. Even if they hold their 12.5% gross margin +/-, the $-profits will decline due to ASP coming down. If lumber comes down alot more, it may derail the thesis. Given that we dont have a sense whether CC can maintain its margins during declining ASPs, I think that is also a near-term risk. If anyone has any additional information or reason to believe why the ASP decline wont impact BXC or CC much, would love to hear more.
I also think you need to add in the capital leases into the valuation. So, valuation is still compelling, but not as much if you adjust for capital leases, which one should do.
So, I generally agree, but valuation needs adjusting and I think the lumber price risk could be real....Kept some of my position because could work really well over the medium-term if they get the cost saves and lumber price decline can be managed.
|Entry||07/25/2018 02:26 PM|
Hi Deerwood, thanks for posting the idea. You mention material insider purchases in June. I looked at those form 4s and they seem like the executives were getting granted some RSUs that vest over a certain time period. Am I missing something? To me that is not the same as a purchase, but maybe I am not looking at this right...
|Subject||Re: Re: Two questions|
|Entry||07/25/2018 03:16 PM|
Thanks for the response. As a follow up, given the lower margins/returns at the combined BXC/CC after the $50m in cost savings vs. the comp's (due somewhat as you point out to a larger mix of commodity products), what do you believe is an appropiate EBITDA multiple (I assume a discount to the comp's) for the new company? Also assuming some further synergies) after completing the $50m savings in 18 months, what do you think the following 3 year EBITDA CAGR is?
Thank again for the interesing idea.
|Entry||08/09/2018 11:41 AM|
Solid quarter and favorable update regarding the integration of Cedar Creek. Here are the main takeaways so far.
This update de-risks the setup and improves the sightline to our appraisal of +$75 per share. Upcoming conference presentations, asset sales and potential sell-side initiations should help between now and Q3 earnings.
|Subject||Re: Q2 update|
|Entry||08/09/2018 11:58 AM|
Only addl comment I would add is that they reiterated intention to get to 2.5-3x levered by end of 2019. Taking the most conservative view, I am penciling out 3x @ $150mm EBITDA = $450mm debt. That would be $165mm reduction from current. Assume $25mm of that is from the facility sale proceeds, leaves $140mm net reduction. Maybe some of this comes out of working capital...assume 30%. Net of $100mm FCF from business operations over 18-mos = $11/shr (over 18 mos) or $7.35/annum. So stock trading at sub 6x FCF.
And could presumably be upside to extent they are not penciling out cash inflow from working capital, etc.
I will update when I have a chance to speak w/Company.