Good afternoon, Alex. Riedel B. Riley FBR, and I want to thank you all for coming this afternoon. We've got BlueLinx here, and I'm going to introduce Susan O'Farrell, CFO, to kick off the presentation.
Thank you, Alex. Good afternoon, everyone. So glad to get a chance to be with you here after lunch. Hopefully we'll keep the energy going if you hadn't had enough coffee after your cookies and carbs. We've got forward looking notes here.
My lawyers would be upset if I didn't share this with you, so take a moment to read that while I click past it. And there we go. So we're excited to get a chance to be here together with you today to tell you about the story of BlueLinx. We are one of the largest two step building materials distributors in The United States, And we've got a great transformation that we're going through in the business. We sell to customers like pro dealers, national home improvement retailers, industrial companies, as well as local and regional lumber yards.
Across the company, we've sold about over $3,000,000,000 in revenues last year. And we want to explain to you today where we fit in the value chain for building materials in the distribution industry. We're based out of Atlanta, again about $3,000,000,000 in revenues and we split into different categories that we call structural versus specialty. Our specialty products were just about 69% of our business in the first quarter and 31% on the structural side. So why should you, the investor, be interested in BlueLinx?
BlueLinx is considered the market leader, one of the market leaders in building materials distribution. In April 2018, we completed an acquisition of a competitor, Cedar Creek, which almost doubled the size of the company. We'll go into greater detail in a little bit as we have Sham Reddy, our Chief Transformation Officer here with us today to share more of that with you. The combination allowed us to scale our EBITDA margins and grow the business and greatly enhance our ability to generate cash flow as The U. S.
Housing market has continued to recover since the downturn from 02/2008. On top of this, we're realizing substantial synergies from the acquisition and a timeline that is accelerating and we're ahead of schedule and that cash that we generate from those synergies is allowing us to delever the business in a meaningful way and ultimately position our business more effectively. So on the investment proposition, it's simple. We can generate a significant amount of cash flow when operating at an efficient scale in a market where real estate construction is growing and the markets are steady with the commodities. Quantitatively, we don't feel the debt profile of our business reflects the real value of our company, which is largely a matter of time.
We closed our acquisition but needed about eighteen months to complete the 50,000,000 of synergies that we can generate to delever the business. We are ahead of our schedule in that regard and working more efficiently than we anticipated, but it does take time for that to screen effectively for the company and sets an opportunity as you look at this if you're willing to examine our company and get to know the business. Also we have substantial real estate assets that we can monetize through sales and sale leasebacks and we'll talk you through that in a little bit of detail and we can accelerate our cash flow potential with that and paying down debt. But first, I'm going take a step back and look at the distribution industry and give you an understanding of where we fit in the value proposition. So first, single family housing starts.
We looked back over the course of fifty years for single family housing starts, we do that because we're highly correlated to single family housing starts in The United States. We're still about 20% below the fifty year average of where you'd expect to see housing starts. And that's that without taking into account the population growth in The United States, which is over 100,000,000 people over this course of time. So we believe in the macroeconomic backdrop of single family housing starts. Now as a building product material distributor, we obviously look at where builders are thinking about their confidence and where they expect the markets to grow.
And so we look at this and the builders' confidence index has actually steadily ticked up this year. Just this last month, the confidence index went up to 66, anything over 51 is a positive sign, but it's going from 62 to 63 to 66 this year, which means our builders and our end customers are expecting a positive second half of the year and we're really excited about that opportunity. So where do we fit in the value chain? We are a two step distributor, which means we sell to other customers who sell to the end customer, sometimes known as a wholesale distributor. So we take products from the manufacturers that we show on the left.
We've got some marquee brands of products that we distribute with our 700 customer facing sales representatives, and we take them out to the market. So we take them out to companies like you'll see Home Depot, Lowe's, other regional yards, eighty four Lumber, etcetera, as well as manufactured housing and recreational vehicle manufacturers. And again, they sell to those end customers that could be homebuilders, custom homebuilders, DIY customers, contractors that work on repair and remodel. I think one of the things that's really unique about BlueLinx is that we have a great value proposition as you think about this space in our yards. We've got an extensive network of large distribution warehouses.
Our warehouses average anywhere from 25 to 65 acres, so much larger than our customers' yards. So we have the lungs, the holding power to bring in full railcars of product on low cost industrial rail, right? We've got heavy product that's moving through and anytime you've got an advantage on cost with freight, bringing the products into our warehouse is a value add for our customers. So some names in the industry. We've listed some of names of our competitors as well as some of our customers just so you can anchorage that space.
Certainly, we compete in the space with Weyerhaeuser and Boise, but specifically their distribution segments of their business. So not in the entire business, but they also have distribution segments. And so we compete with them. And we have some large customers too that you'll recognize the names of. And frequently, some folks think our customers are, in fact, our competitors.
But because of the place we play in two step distribution, in fact, we're selling to them who sell to the end customer. So we'll talk about value proposition here for a moment. A key thing that we provide is we are a full line building products distributor. So we sell a wide variety of products, and we've got them listed here on the bottom left. You can see anything from framing out a home to putting on siding on the home, roofing, flooring, decking, insulation, all the things that go into a single family home.
So that's very key. We're also managing the logistics and distribution for our customers. So we're making sure they have just in time products delivered to their facilities right as they need that. With this, I want to make sure we get a chance to have Sham share with you a little bit more about our value proposition and how Cedar Creek is adding to that value. Sham?
Thank you, Susan. So as you can see, we've got an interesting story here. BlueLinx was formed in 1954 as distribution arm of Georgia Pacific and then it spent the next sixty five years basically developing a great reputation in the wholesale distributor space in terms of customer service and its logistics to be able to fulfill its customers' needs. And then in April 2018, we were able to bookend that sixty five year period with a transformative acquisition of Cedar Creek. And as you can see, the combination of these two companies created one of the top three wholesale distributors of building products in the market.
Some of the richness of the story for Cedar Creek can be found below over several decades, it grew from it it was founded in Tulsa, Oklahoma in 1977. And then over the next several decades, it was able to get to a point where it did several strategic acquisitions, which we're now basically taking advantage of as a combined company. The one thing that the Cedar Creek acquisition did for BlueLinx was expand our geographic footprint and also give us an opportunity to expand our product profile, which is great for our customers. Moving forward, as a result of the merger and as I said earlier, we are one of the top three wholesale distributors of building products in The United States. Our businesses, our branches are located East Of The Rockies.
We've expanded our geographic footprint considerably. And in some cases in these overlapping markets, we've been able to generate significant synergies as a result of the consolidation activities that are taking place, which I'll touch on in just a minute. One of the things that we were really excited about when we did the deal was the fact that we were able to finance the transaction off the balance sheet instead of issuing new equity which would have diluted our shareholder base. Significant synergies have been generated as a result of the Cedar Creek acquisition. We told the markets we would generate at least $50,000,000 in run rate synergies and at the same time we said we would exit 2018 with at least $15,000,000 We actually doubled that when we exited 2018 and announced we exited 2018 with at least 30,000,000 in run rate synergies.
In addition to being able to deleverage the balance sheet over time with those synergies, we've also got some capacity on the real estate side. Under the term loan as well well, actually under the term loan, we're able to dispose of up to $75,000,000 in real estate assets, dollars 50,000,000 in the form of sale leaseback transactions with an additional 25,000,000 from outright sales in these overlapping markets where we're consolidating a legacy BlueLinx location into a legacy Cedar Creek facility. Just earlier this week on Monday, I believe, we announced that we did one sale leaseback transaction at $23,000,000 So we're well on track to do to fulfill that. Transactions as well as the outright sales go to pay down the debt. You'll see from the synergy breakdown that 40 percent is coming from G and A, 30% from supply chain and network and 30% from procurement.
Now we didn't get here by sheer luck. We've got a great management team led by Mitch Lewis, who with his thirty plus years of experience has been able to not only put together a team, but lead us through some transformative transactions over the last several years that took us from a position where we were significantly leveraged to ultimately deleveraging while at the same time doing the transformative acquisition of Cedar Creek. And the numbers speak for themselves. As you can see, we've got a pretty good runway here with $1,300,000 in 2014 that has now gone up to roughly $70,000,000 at the 2018. With that, I'd like to turn it over turn it back over to Susan.
Thanks, Jim. Appreciate that. So we're pretty excited about this deal, but ultimately all comes to the numbers, you want to understand that. So I want to take you through that a little bit and certainly we'll have time to answer questions that you may have. On this page, we've got our financial profile here, give you a little bit of an update there.
On the right, I think it's key to see the synergies that Sheam was talking about and how it plays through to gross margin. So if you look on the right, you can see that we've expanded our gross margin 90 basis points on specialty products and 20 on Structural Products. That's really coming from those procurement synergies that Sham talked about. So we've done a lot of heavy work in the fall to implement contracts that started in 2019. And already in Q1, you can start seeing that running into the gross margin rate as well as the cost out that we're able to get for the G and A synergies that we've been working on.
But certainly in the gross margin, nice, sustainable and glad to see those numbers coming through to the P and L. I think leverage profile is something key. I think it's something that's misunderstood about our company. So I want to talk to you about it in two different dimensions. We have the term loan that we took out as part of the Cedar Creek deal, and it's something that we are desiring and paying down quickly as we monetize real estate.
It's our intention to pay down debt and term loan would be our first priority because it's our highest part of our capital structure, highest part of the cost of the capital structure. So those proceeds went immediately on Monday to paying down the term loan. But in addition, so we did that $23,000,000 sale leaseback that takes us down to about $155,000,000 in the term loan, which is about two times trailing EBITDA TTM EBITDA. So we're really pleased to see that already starting to come down. Then in addition, the majority of our debt really is our ABL, our revolver, which is the working capital financing that we offer as part of our value proposition to our customers.
So that's our inventory and receivables. We keep that on the books. It's low cost paper. This is L plus two. So for us, we see it's a great part of our capital structure to be able to finance the business.
And it actually expands and contracts with the business, be it either seasonally or through the cycle. So we're really glad to have that there. We have high inventory velocity, low customer debt. So the ABL is really well costed for us. So when you start thinking about what happens when we bring together these synergies to the P and L, what happens to the cash and we start thinking about deleveraging the cash available for debt reduction.
So you can look at the costs that we have in our business. And we just took our last year's numbers, back half of last year and multiply it by two to give you an illustrative example of where this could position the company over time and paying down debt. So as we bring together the businesses, there's certainly plenty of cash for us to be delevering the business as we continue to grow and gain the synergies into our business. We're excited about that. So it tells you a little bit about the liabilities, but I think the assets are also something important for you to understand and real estate too.
So we'll get to both components. If we look at the assets as compared to the liabilities, they certainly exceed. We have terrific quality of our assets and the real estate is something that we talk about a good bit. And it goes hand in glove with the NOLs that we have to protect the cash generated by real estate sales. Our working capital exceeds the ABL debt by $62,000,000 providing plenty of cushion.
Again, if there's a contraction in our inventories and cycles, we bring that down and generate cash. And then the substantial real estate assets that Sham alluded to as far as the sale leasebacks. If we look at our real estate, as a two step distributor, we have a terrific legacy of having real estate in our business. As we were spun off from Georgia Pacific in 02/2004, we have that real estate on our books at original purchase price rather than mark to market. So there's a lot of value over and above what you can see.
As we look at this, we had real estate properties. This is through the end of the quarter, 33 properties now 32. We just did a sale leaseback that we owned, about $160,000,000 in value that was appraised by C. B. Richard Ellis.
And we've been monetizing some of those real estate and what we've seen is that we've been able to achieve those real estate values, as a matter of fact exceed those real estate estimates. So we're really pleased and confident in those values. You can see here one, a very impressive one is outside of Atlanta. It's about 30 miles from Atlanta. That's our Lawrenceville facility.
It is actually 65 acres, about 675,000 square feet under roof with a mile of rail line running through it. So we have industrial rail line where we can bring heavy product in at a low cost of freight, which impacts our COGS. So it's a terrific property. And these are unique. Our customers don't have anything like this for scale, which is why again we add value in the supply chain and the value proposition.
And as I mentioned last week, we just announced our University Park, which is a suburb of Chicago on a sale leaseback for $23,000,000 And again, the entire proceeds went to pay down the term loan. To conclude, this is what we think is really exciting. I don't know, I'm one page behind myself here. But we look at this on the real estate. So again, the real estate is on the books at just under $40,000,000 and the value is $160,000,000 So as we monetize that, we're able to pay down debt.
We've got $50,000,000 that we can work on sale leasebacks as well as another $25,000,000 in surplus properties because acquisition of Cedar Creek and having duplicative properties. And those are unencumbered. We can again use the proceeds from that to pay down the term loan, was actually at par. So really terrific value to be able to do that. So as we think about it in investment conclusion, what we see with all this is the opportunity to expand our EBITDA and look at generating cash to pay down and delever the business.
As a management team, we remain fully focused on customers, driving sales and generating the synergies that we know are going to materialize over time. We're making sure that we're using our working capital well and our balance sheet well, paying down that debt. And we believe good things are going to happen as we continue our integration. We're just now one year into our integration. And we see the things happening on our P and L, as we mentioned, the gross margin in first quarter and the lower SG and A costs that we've been able to achieve in the first quarter.
And then the real estate assets, we're going to continue to monetize the real estate assets. We have plenty to be able to do that with and the market is strong for industrial properties. We've seen a lot of interest in these properties and enable us to substantially transform our balance sheet in the coming year. So looking forward to driving these numbers, telling you more about the story, but now we've got some time to open it up for questions if there's anything on your mind. Alex?
Great question. So just to anchor back for those in the room and on the mic listening about the macro backdrop for the past six months. So I would say the end of last year and going to the first of this year, family housing starts did not perform as well as we've seen in recent history. Some of that was by policy to increase interest rates, which actually didn't come to fruition. But certainly on the single family housing starts, builders are very sensitive to new home builders new home buyers coming into the market who are very interest rate sensitive.
So I think that had a cooling effect certainly. In the first quarter to further that, there was also complications with weather and rain. There were about 15 states where the governors had declared state of emergency for flooding. So really hard to pour a foundation to start the year and to start the business. But that continued a little bit.
What we see though is the builders knowing what's happening with foot traffic and I think that's indicative by the builders' confidence index that's ticked up. So while it's been a tough start to the year, the confidence is very strong. And we hear that across the channel, as you might imagine, our position in the channel. We can see that coming from manufacturers as well as the customers that we're seeing a consensus towards an increase in acceleration in single family housing starts this year. So we're pleased with that.
On the lumber side, it's been a wild ride last year. We had some record highs as well as lows last year. The actually velocity and the change of commodity prices was unprecedented. We looked back and it was over thirty years that have been since the last time we had seen a decline in commodities as precipitously as happened last year. And that certainly had a negative impact on our business.
We had to ride that out. We are exposed to commodity markets. Our job is to manage that and to have high velocity on the inventory to burn through it quickly. And so that's what we've been doing. What you see now is a more stabilized commodity price.
So we look at the lumber price index as well as the panels price index. And you see we're still tracking right now fairly flat for this year. For lumber, I think about $3.40 in there, which is about 10% below a five year average, but it's fairly flat for this year. And the prognosticators would suggest that it's going to continue to be a fairly flat year. That bodes well for our gross margin rate.
The reality though is there's a challenge of the year over year comparisons as you look at the top line revenue as it relates to structural products of our business. That's 31% of our business. We'll be negatively impacted by deflation, but we see the gross margin rate has recovered. So that's a nice combination. Yes?
So the question is about free cash flow from operations expected this year. We don't give forward looking guidance on that, But what we can say is you can see the components in the use of cash and we expect to continue to improve on that, especially as we pay down the term loan debt, which takes out some of that cash servicing cost. So we've got that range back on a few pages we can refer to. Yes?
Can you talk about breakdown between commodity and specialty products and what you've been looking in the few
years from now? So the question is about the breakdown of commodity and specialty as far as our mix and where it could be in a few years from now. The reality is we love both products. Our customers need both products. You can't put specialty products on a home until it's been framed.
So it's an important part of the value proposition. It is certainly a lower gross margin profile, we recognize that. You saw a 9.5%. Having said that though, it's also less working capital intensive. So we incent our business owners and our general managers to think about things from an EBITDA point of view as well as a return on working capital.
And so we want to make sure that we are selling what the customers want to buy. We don't want to stop selling commodities alone because it actually it starts the project of a house and framing out a home. So we think it's an important part of our business, but we think there's certainly opportunities to sell more specialty products, which has a higher gross margin profile. Yes.
First is for Shay. I'm talking about the scale. I was just wondering if you could talk about how the scale has changed in last year and where you might be in three to five years?
Yes. So great question. So the question was about scale and what we've been able to accomplish in the last year and how it may look in three to five years. So what scale has done for the company via the merger is, it's given legacy Cedar Creek, for example, access to the Northeastern markets and then BlueLinx greater access in the Midwest. And then at the same time with the overlapping markets by getting the efficiencies from consolidations, we've been able to take advantage of the new product lines that are coming in as a result of the combined company.
So the scale gives us greater efficiencies just from an operating standpoint. From a procurement perspective, being able to consolidate the spend and then negotiate better rebate programs with our suppliers and also give them deeper penetration in the markets has been a great win win. And then of course from a network standpoint, you've just got greater efficiencies just due to an optimal log point from an optimal log point basis, just you don't have trucks passing each other in the night and you can get a more efficient logistics operation out of it. But at the same time, I think that what this I mentioned this earlier with respect to products, it has really been just I think transformative on some level. I mean neither business for example was selling Hardie siding, which is a really, really popular siding product.
We've also been expanding into product lines in new territories like Mira Tech in Texas. We're selling Huber products in the Northeast. So there are a lot of exciting opportunities that come with this scale. Over the next three to five years, we're going to end up as a result of this develop the muscle memory and the platform to continue finding opportunities, whether it be from a consolidation standpoint or leveraging the scale to bring in new and exciting products and bake it into the platform.
So if I can just add, one of the key things that we look at is how highly fragmented this industry is. And so while we're the second largest player in the building products distribution space, we still believe we likely have less than 5% of the marketplace. There are so many competitors throughout the landscape. And then we look at what could happen as far as a roll up into the industry And we'd like to be a leader in rolling up the industry. We've a platform for that.
We've got a great management team. We've got a scalable ERP system that we can continue to grow the business and that will continue to give us scale over the course of time. So we expect to be looking for those opportunities.
Okay.
Very much. Thank