Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2020 Investor Relations Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Mary Moll. Please go ahead, ma'am.

Thank you, Annie, and good morning, everyone. We appreciate you joining us for the BlueLinx 2020 first quarter earnings conference call. The earnings release is posted in the Investors section of our website at www.bluelinxco.com. We will also be referring to a supplementary presentation as we go through the call. The presentation is available on our website as well. Joining us on the call today are Mitch Lewis, Chief Executive Officer; and Kelly Janzen, Chief Financial Officer. Before we get started, I’d like to remind you that this presentation includes forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those reflected in the statements. Those risks and uncertainties are described in our earnings release and discussed in our filings with the SEC. Today's presentation also includes references to non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, the earnings release and in the Investors section of our website. With that, I'll turn the call over to Mitch.

Thanks, Mary, and good morning. I want to start today by first thanking our nation's healthcare professionals and first responders. They're taking risks every day to help minimize the devastating impact the COVID-19 pandemic has had on so many families. And our hearts go out to those who have lost loved ones during this terrible period. I also want to thank our BlueLinx associates who have truly stepped up over the last six to eight weeks. We are fortunate that our business has been deemed essential in every state that we operate, and that our supply chain has remained intact. We've been able to continue our day-to-day operations during the COVID-19 pandemic through the dedication and commitment of our associates. Their safety and well-being have been and will remain our top priority as we continue to serve our customers and work with our trade partners to support our nation's housing infrastructure. In late February, we formed a cross-functional COVID-19 emergency preparedness team responsible for implementing new policies and procedures to protect our associates, their families and our communities. The primary mission is to prioritize employee health and safety with respect to all business decisions through the duration of the pandemic. Like many other companies, we immediately instituted sanitation and social distancing guidelines when recommended by health officials for our employees. We also instituted work from home policies as well as implemented new procedures regarding visitors, deliveries and business-critical services for locations where essential employees were required to be present. I am pleased to report that our core operations are functioning effectively as we uphold these new policies during this time. And thankfully, to date, we have no reported cases of COVID-19 among our 2,200 BlueLinx associates. Our first quarter results demonstrate the momentum we were building this year through early…

Thanks, Mitch, and good morning to all of our stakeholders who are with us on the call today. I am very excited to have joined the BlueLinx team. It is an understatement to say that during the best of times, stepping into such a new role is a challenge. But needless to say, in the current environment, it is even more so. Yet I am confident that together, our team will be able to weather the storm, and I am eager to contribute and lead right away. I look forward to getting better acquainted with all of you soon. Now I will recap the financial results and our financial position for the quarter. We were pleased with the first quarter's results despite the fact that we began to see some impact of COVID-19 during the last couple of weeks of March. As you will see on Page 9, the first quarter of 2020 we reported net sales of $662 million compared to $639 million last year. We generated gross margin of 14.1%, an improvement of 60 basis points year-over-year. This gross margin improvement continues a year-long trend and contributed to $19.9 million of adjusted EBITDA for the first quarter, up approximately 20% as compared to the first quarter of 2019. The increase in net sales for the quarter was offset by the continued comparative effect of the discontinuation of a key siding product line, which contributed approximately $32 million in the first quarter of 2019, as well as some lingering transaction-related the synergies in overlap markets. Commodity price levels during the quarter generally moved higher relative to 2019, and the effect on net sales, though relatively minimal, was positive for the first time since 2018. We recorded higher gross profit on a year-over-year basis, generating $93 million compared to $86…

[Operator Instructions] Presenters, we do have a question from the line of Alex Rygiel from B. Riley FBR. Your line is open. You may ask your question.

Thank you. Good morning, everyone. Nice quarter

Thank you. Good morning.

Mitch, can you help us to better understand the balance of the asset sales and sort of the cadence that we can expect over the next year or two?

I would have been able to answer that question a lot better about two months ago, right, when we had anticipated – and I think on the last call, we may have talked about the fact that we were having good dialogue, particularly on the dark properties, and we're looking at opportunities for continued sale leasebacks. Right now, just because of the uncertainty that we're facing in the real estate asset value markets as well as the credit markets associated with that, we've kind of hit the pause button on that. I would say if we return to – we don't know what the new normal is going to look like, but if the valuations appear to be in the same ZIP code, we will continue the continued view on taking down the term loan through real estate monetization.

Helpful. And then also kind of on that topic, can you give us a little bit of color on the cadence of paying down that term loan to decrease it below that $45 million level?

Yes. So when we amended the leverage ratio up to the 8.75, that was with an intent to give us a lot of runway. Not knowing, obviously, what was going to happen in the second quarter or the third quarter of the business. So as I think I alluded to in my notes, there are different avenues to do that. And one of the things that we have focused on is working our working capital hard. And we will continue to look at opportunities to generate cash off of the working capital. As you know, and as Kelly talked about, I mean, we do have availability under the ABL and then we have the real estate as well. And again if we – as we continue to look at the business and run more efficiently with a recovery in the market, our expectation certainly would be that we're earning more than our cash cost, of course, and we can utilize that as well to pay down debt.

And then your organic growth, that's pretty strong in the first quarter. Can you comment on or quantify how much of that was from new product lines that were kind of added to sort of backfill the lost siding business, and just broadly kind of more update us on those activities?

Yes. So we we're – we actually felt like we had good momentum. As we've talked about in the past, we were looking at it, and I think we gave these numbers in 2019 alone, it was in the neighborhood of $160 million of lost sales for the year. And so while we're making good progress, it will take a while to come back on that, but we talked about picking up a couple of new brands, marquee brands that have helped, and we certainly are garnering market share. But it's not going to be – and it will take a while for us to recover that particular product line with the new products that we've had.

That’s helpful. Thank you. I’ll get back in the queue.

Okay. Thank you.

[Operator Instructions] We do have another question from the line of Alan Weber from JB Capital. Your line is open. You may ask your question.

Good morning.

Good morning.

So Mitch, can you talk about – I mean, I realize there's a lot of uncertainties, how do you think about kind of the cash flow for the balance of the year, the business? And also like if there's been any changes in terms of credit to some of the customers?

Okay. So as we think about the cash flow for the rest of the year, we are closely monitoring, watching and reducing our working capital as we see volume decline and becoming more efficient. We've put in place, in fact, an inventory analytics team on a centralized basis that is reviewing all purchase orders. And there's a team that is communicating with folks out in the field to make sure that we're bringing in inventory that we need, understanding that as a wholesale distributor, we will carry inventory to service our customer base effectively. So the balance sheet is clearly is an opportunity from a cash flow standpoint. I mean we have, of course, received some benefit on the interest rate environment that's lowering our costs as we talked about deferred capital as well. So our actual cash outlays, fixed cash outlays, have declined from numbers that we've presented in the past, but it's still a moving target. There also have been some opportunities to push back some payments, as I'm sure you're aware, with some of the federal legislation that has taken place. So we've been able to push back payments that we would otherwise have to make, which certainly helps for 2020 from a cash flow perspective. On the receivables side, and what we're seeing from a customer standpoint, is similar to what we did putting together a very strong team that's daily reporting on the inventory side. We did the exact same thing on the receivables side. And this, Alan, probably goes back a month ago or so. And so we've also – when I talked about redeploying before some of our best people into that group, we're now looking at that very closely. And I would say for now, the credit characteristics of the business seem good. We haven't seen any major disruption. Our industrial customers appear to have been hurt more early on. Some of the markets closed down but it has not evidenced yet from a receivable standpoint. So at the moment, everything seems to be okay from a receivables perspective. We will watch it very closely and understand that if the market remains diminished over a longer period of time that it will flush out potential issues, but I can tell you we're on top of it.

Okay. Great. Thank you.

Sure. Thank you.

[Operator Instructions] There are no further questions from the line, presenters. You may continue.

Okay. Well, thanks, Annie, and thank you for joining us and of course your continued interest and support of BlueLinx. We look forward to speaking to you again in August. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating. You have a good day.