Good morning and welcome to the Q1 2018 financial results. My name is Rochet, and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. [Operator Instructions] At this time, I would like to turn this show over to Ms. Poulos, Director of Investor Relations. You may begin.

Thank you, Rochet, and good morning, everyone. We appreciate you joining us for our first quarter 2018 earnings call. The earnings release and presentation slides for this call can be found in the Investor Relations section of the company's website at www.bluelinxco.com. Joining us on the call today are Mitch Lewis, Chief Executive Officer; and Susan O'Farrell, Chief Financial Officer. I'll also remind you that this presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our future operations and financial performance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those provided, including but not limited to, those identified in our press release and discussed in our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to revise them in light of new information. Today's presentation also includes references to non-GAAP financial measures. With that, I'll turn the call over to Mitch.

Thanks, Natalie, and good morning. We are pleased to report that we had a strong first quarter, in which we were able to grow our top-line, executed on a $110 million of sale-leaseback transactions, entered into an agreement to acquire Cedar Creek and are able to announce our best first quarter and adjusted EBITDA in over a decade. First, I'd like to reiterate how excited I am about our strategic acquisition of Cedar Creek. On April 13, we closed the transaction, positioning the combined company as one of the largest wholesale distributors in the industry, with more than 50,000 branded and private label SKUs, a broad distribution footprints servicing 40 states, and approximately 700 associates calling on customers every day. The integration began immediately following the closing and we're making good progress. We're beginning to realize the significant strategic and financial benefits that I discussed when we first announced this transaction. Some of the key attributes of combining our businesses include the breadth of geographic presence, with an extended reach and footprint east of the Rockies, significant sales coverage with likely the largest sales force among our direct competitors, a comprehensive product and service portfolio that provides the opportunity for accelerated growth, a diversified and extensive roster of high quality national and regional customers, a stronger position to capitalize on a continued recovery in the U.S. housing market, significant cost savings opportunities anticipated to be at least $50 million annually, and improved financial flexibility to support growth and long term deleveraging. I know that I'm speaking for our BlueLinx associates, including those who recently joined from Cedar Creek, when I say that we look forward to the opportunities that now lie ahead for our company. As we indicated previously, we expect this combination to generate significant cost savings and margin…

Thanks, Mitch, and good morning, everyone. It's a pleasure for me to speak with you today and to review our first quarter business results. As Mitch mentioned, the first quarter was certainly transformative for BlueLinx. In early January, we executed on a $110 million of sale-leaseback transactions. We shared this with you two months ago on our fourth quarter earnings call. With these transactions, the entire remaining $98 million mortgage principal was retired in the first quarter of 2018, well ahead of the scheduled maturity dates in 2018 and 2019. After the January sale, we still have $150 million to $160 million in remaining real estate value at the end of the first quarter, which is approximately four times the net book value. Late last year, we engaged in nationally renowned real estate firm to help us with the evaluation of our remaining real estate portfolio, so these are fresh appraisals. This $150 million to $160 million in appraisal value demonstrates the meaningful value as well as the potential of the real estate still on our balance sheet. This real estate transaction was enabling. As we paid down our mortgage debt, we were well-positioned to pursue the Cedar Creek acquisition, as Mitch discussed. We announced the transaction on March 12, and were able to quickly make it through the regulatory approval process. With that, we were able to consummate and announce the closing just over 30 days later. While we know this was an incredibly fast time line, the Cedar Creek business last year generated adjusted EBITDA of over $1 million per week on average, so our goal was to capture that value as quickly as possible. We are incredibly excited about the opportunities this brings to BlueLinx. On or before June 29, we anticipate sharing the pro forma financials…

[Operator Instructions] Your first question is from the line of Alan Weber.

Good morning. Can you talk about, with the acquisition kind of how you expect somewhat the timing of the cash payments to integrate the businesses, and then when you actually start to see the cost savings and like that?

Yes, Alan, thanks for the question. I would say, it's front-ended as it relates to the actual expense going out. And then we've talked about 18 months to fully realize on a run-rate at least $50 million of synergies that we've talked about.

Okay, and then, can I...

We haven't given specific guidance as to when the cash is going to be paid or where the cash will go out upfront for the integration costs relative to the synergies coming in.

Right, okay. And then in terms of not next core synergy, in terms of kind of cross-selling opportunities and like that, when do you hope to see any benefits there?

Yeah, I'd tell you, what is incredibly enlightening is how - as you know, culture matters when you're doing acquisitions like this. And what's been incredibly enlightening is how quickly our teams are communicating. So we've seen on a modest scale already benefits where two facilities close to each other, their sales teams are communicating, or perhaps one of the facilities didn't have product and the other one did. And they're picking up the phone and calling. So I would say, in a minor way it's already happening. As we look at opportunities going forward, we're systematically looking at products and brands that we have and that will be a longer exercise, again probably taking several months as we go through our product category. But as indicated in my talk, the excitement that we have as far as the ability to take products that either of the legacy businesses didn't have and the excitement generated at the local level is palpable.

And I guess with the stock having appreciated, giving you optimism, you're not looking to raise capital by issuing shares, are you?

Yes, we have not. Right now, all we're doing is focused on integrating these businesses. As you would expect, to the extent there are financial opportunities from a capitalization standpoint, we would approach them in the manner that we thought was best for the company and our shareholders.

Okay. Great. Thank you very much.

Sure, thank you.

[Operator Instructions] Your next question is from the line of Mitchell Scott.

Good morning, Mitch and Susan. How is it going?

Going well. Thank you. How are you?

Good morning, Mitchell.

I'm doing well. Congratulations on getting the deal closed and quickly.

Thank you.

Yes. I guess if you could, just maybe from a high level give us and everybody else a bit of perspective on the major differences as you see them between the two companies. And any color you can provide on how that bleeds through into the different margin profiles of the companies would be I think very interesting and helpful.

Okay. Again, one of the things that we're finding is that, certainly at the local level the two businesses are very similar actually in a lot of ways. I mean, the primary one being the focus on the customer and the desire to make sure that we're servicing our customers well. I would say, when you look back at the businesses, one of the things we found very attractive to Cedar Creek is they were outperforming BlueLinx from a legacy perspective as it relates to organic growth. And there was more of that entrepreneurial - there is more of an entrepreneurial feel and spirit in the field. And as you know, having followed us for a while, that was where we were taking the company strategically. We removed our general managers from a centralized location, and were pushing them out into the field to get closer to the customers and the products in the markets that we serve. So I would say that's an enhanced benefit for the company that we're seeing. From a general margin perspective, the goal is to take the best of both worlds. Some of the things that legacy BlueLinx team brings to the table is a very strong and decades-long knowledge on, for example, commodity purchasing. We have imports in the legacy Cedar Creek business that is not an expertise - I'm sorry, in the legacy BlueLinx business that's not an expertise for Cedar Creek. So there is a lot of opportunity as it relates to the first - both the purchasing of the products, the supply chain of the products and, of course, understanding the products going out in the marketplace that we think will enhance the margins of the combined company.

Okay. Great, very helpful. And then, I guess from a distribution-center-footprint perspective, I mean, I think we all understand that you guys own most of your real estate currently. What does it look like for Cedar Creek? And what is the - I guess, the greater flexibility of the two distribution center network?

So Cedar Creek primarily leased their facilities. They have I believe one owned facility. And what we're doing is, where we have overlapped markets we have a team that's 100% dedicated in assessing the businesses on a comprehensive basis. And obviously, one of the factors that you look at is owned versus rented. But as you can imagine, if you had a very small facility that you owned and a very large facility that you leased, that might enter into the equation of whether you would take the owned facility and move it into the leased facility or vice versa as well as just a myriad of alternatives. So we're just getting started. We've committed to - internally to the organization that by July 4, we will tell them, when we'll tell them, how we're assessing the facilities. So it will take, as you can imagine, a lot of data as we evaluate it. But we're committed, obviously, to move forward as quickly as possible. But I would not assume that the ownership of real estate is dispositive as it relates to the decision between facilities, because it's not.

Okay, very helpful. And I'll jump off. I guess, just last thing I would add is it's nice to see Mr. Averitt as well incentivized to quickly capture and exceed the synergy target out there, so kudos to the board for again getting the incentives right. Look forward to seeing the financials when they come out later this summer. So thank you.

Sure. Thank you.

[Operator Instructions] Your next question is from the line of [Chris Colwen] [ph].

Thanks for taking my question. And congrats on getting the transaction done. Just two quick questions. One is, how much does your revenue benefit from lumber pricing? It's being up, what, 30%, 40%, 50% year-over-year?

So we certainly benefit from that. But I'll say, Chris, one of the things we do is we make sure we're taking positions. So we keep in stock what we need to take care of our customers and keep spending that. So that means when markets rise or decrease, we actually don't feel it as widely as some other folks might if they're trying to play those markets. So it's one of the things we do. And certainly, as the prices increase, there's a cost that flows through on that one. But in general, we keep our commodities fairly tight and spinning, so it has a muted impact on our business versus if we had gone longer on the product.

So I guess, if - I guess, what I'm getting to is if lumber prices were flat from last year, what would the revenue look like? I assume, would it be down X percent or...?

Well, there's certainly an impact too. As prices rise, some customers sit on the sideline to see where the market might settle. So you have some impact on volume as it relates to increasing and decreasing product prices. But certainly, overall, when we look at it, it was the pricing on commodities that led the way for our growth.

Yeah. Chris, the other thing I think to think about is we report specialties and structural. And structural is less than half of the business, and lumber is just a piece of that. So when you're thinking about lumber across the entire platform of the product portfolio that we have, while we don't disclose what that is, you need to - I think it's important to consider, it's not like we're a lumber distributor. I mean, that is an important component of what we do, but it doesn't drive the entire top line of the business. It doesn't at all.

Okay. And then my second last question is just gross profit or gross margin being down a little bit year-over-year. What was the main driver for that?

Actually, the gross margin dollars are up year-over-year.

Gross margin - yes, I mean, gross profit margin, I guess, is what I'm referring to. Is it percent or...?

The gross margin rate was flat year-over-year at 12.7%.

Yeah, and one thing to think about as you raised this pointer on lumber, just the math, if you hold on to your per unit profit in a rising inflationary environment as it relates to the product, your actual margin percentage will go down. So we're actually pretty proud of the team in light of what you indicated before, which was an escalating inflationary environment on lumber, for example. We were able to hold on to that gross margin percentage, it's actually a pretty good job from our team.

Absolutely, and to add to that, I mean.

That's what I was kind of alluding to. Without that quick rise, I assume you probably would have seen some gross margin expansion. Is that fair?

Well, could have. And actually, so our structural gross margins were up 10 basis points and our specialty gross margins were up 50 basis points. So we think it's nice work across the board.

Great. Well, I appreciate it.

Okay, sure. Thank you for the questions.

Thank you.

Thank you.

[Operator Instructions] And your next question is from the line of [James Liu] [ph].

Hey, Mitch. Hey, Susan.

Good morning.

With regard to your messaging prior to the acquisition around shifting toward same center of growth later in the year, has that - has the focus now changed with the Cedar Creek acquisition? Or is that still something that is very sort of mixed into how you think about the remainder of the year? Thanks.

Yeah, it's definitely mixed in. As I talked about when I was going through my prepared remarks, it's one of the key pillars of our strategy, short-term. And it's one of the attractive attributes that we love about Cedar Creek is that they have demonstrated organic growth through their history. And so, yes, absolutely. In fact, just in the last couple of days, we've had the Regional Vice Presidents as new leadership team, who's really going to be driving the P&L of the business for a day-and-a-half. And we're talking a lot about top line and how we grow top line. And I can assure you, Alex's - that's front of mind of what he's going to try to accomplish. And we intentionally set aside, and I alluded to it, leaders of the business, I mean, very talented people in the organization to be dedicated to the integration so that we could have the business leaders focused on running the business and growing the top line of the business as well. So that remains a key strategic initiative and imperative for the company going forward.

Terrific. Thank you.

Okay, sure.

Thanks.

[Operator Instructions] And there are no other questions at this time.

Okay. Well, thank you, Rochet. And we certainly appreciate your continued interest in BlueLinx and look forward to sharing our second quarter results as we're - as well as the progress of the integration later in the summer. Thank you, again. Have a great day.

This concludes today's conference call. You may now disconnect at this time.