Huttig Building Products, Inc. Announces Third Quarter 2021 Results

Huttig Building Products, Inc. (“Huttig” or the “Company”), a leading domestic distributor of millwork, building materials and wood products, reported financial results for the third quarter ended September 30, 2021.

“Despite the continued challenging business environment related to severe supply chain disruption and a lack of available labor, our organization pulled together once again to generate another quarter of strong financial results,” said Jon Vrabely, President and CEO of Huttig. “Our strong performance in the quarter, and on a year-to-date basis, are a direct result of the fortitude and dedication of our associates, and the actions we have taken over the past two years to meaningfully and sustainably improve our financial model.”

Results of Operations

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Net sales were $245.3 million in the third quarter of 2021, which were $32.6 million, or 15.3%, higher than the third quarter of 2020. The increase in net sales was primarily attributable to an increase in residential construction activity as compared to the third quarter of 2020. Net sales in 2021 were also favorably impacted by an improved pricing environment where demand-driven pricing was pronounced due to higher input costs, including labor and materials, caused primarily by supply chain disruption. Year-over-year sales growth in the third quarter of 2021 was moderated by restructuring activities announced in the second quarter of last year, and by our 2020 product rationalization program. Despite these factors, sales increased in all three of our product classifications.

Millwork sales of $105.7 million in the third quarter of 2021 were $14.9 million, or 16.4%, higher than the third quarter of 2020. Millwork has been significantly impacted by supply chain disruption and by 2020 restructuring and product rationalization activities. This product classification has been subject to multiple price increases since third quarter 2020. Building products sales increased 12.7% in the third quarter of 2021 to $119.6 million, compared to $106.1 million in the third quarter of 2020. Third quarter 2021 building products sales benefitted from consistent high levels of demand and by price increases for certain product lines within the category. The year-over-year sales growth in this category was also mitigated by ongoing supply chain disruption. Wood product sales increased 26.6% in the third quarter of 2021 to $20.0 million, compared to $15.8 million in the third quarter of 2020. Higher market prices on a year-over-year basis contributed to the increase in this category.

Gross margin was $56.8 million in the third quarter of 2021, compared to $42.7 million in the third quarter of 2020. As a percentage of net sales, gross margin was 23.2% in the third quarter of 2021, compared to 20.1% in the third quarter of 2020. Gross margins were favorably impacted by our continued focus on non-commoditized, strategic product lines which carry higher margins, as well as effective pricing management. We also benefitted from increased purchasing incentives in 2021. The increase in our gross margin percentage from these actions more than offset the impact from a disproportionate increase in lower-margin direct sales in the third quarter of 2021 as compared to 2020.

Operating expenses were $39.3 million in the third quarter of 2021, which were $3.5 million, or 9.8% higher than the $35.8 million reported in the third quarter of 2020. Personnel costs increased $2.2 million, or 10.4%, reflecting increased variable incentive compensation from improved operating results, wage increases and reinstatement of compensation reductions and other cost reduction actions taken in 2020. These increases were partially offset by a $1.5 million Cares Act Employee Retention Tax Credit and lower medical costs. Non-personnel costs increased $1.3 million, or 8.9%. The increase was primarily driven by higher fuel, insurance and tax costs. Overall, our cost structure was levered against higher sales volume. As a percentage of net sales, operating expenses were 16.0% in the third quarter of 2021 compared to 16.8% in the third quarter of 2020.

In the third quarter of 2021, we recorded a gain on the sale of our former Selkirk, New York facility, which was closed as part of our 2020 restructuring activities.

Net interest expense was $0.7 million in the third quarter of 2021 compared to $0.8 million in the third quarter of 2020. Net interest expense in the third quarter of 2021 includes $0.1 million in period costs related to refinancing the credit facility. Lower overall net interest expense in the third quarter of 2021 reflects both lower average debt balances and lower interest rates.

Income taxes were a benefit of $0.3 million and zero for the quarters ended September 30, 2021 and 2020, respectively. We utilized our remaining carryforward federal tax net operating losses to offset taxable income during the third quarter of 2021, eliminating our federal deferred tax asset and releasing an equivalent amount of our valuation allowance.

As a result of the foregoing factors, we reported net income of $18.7 million for the quarter ended September 30, 2021, compared to net income of $6.1 million for the quarter ended September 30, 2020.

Adjusted EBITDA was $17.5 million for the third quarter of 2021, compared to $8.5 million for the third quarter of 2020. Adjusted EBITDA is a non-GAAP measurement. See the below reconciliation of non-GAAP financial measures.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net sales were $707.4 million in the first nine months of 2021, which was $99.7 million, or 16.4%, higher than the first nine months of 2020. The increase in net sales was primarily attributable to an increase in residential construction activity in 2021 compared to 2020 which was significantly impacted by the onset of the pandemic. Sales growth in the first nine months of 2021 was moderated in comparison to the first nine months of 2020 by restructuring activities announced in the second quarter of last year, and by our 2020 product rationalization program. Net sales in 2021 were favorably impacted by an improved pricing environment where demand-driven pricing was pronounced due to higher input costs, including labor and materials, caused primarily by supply chain disruption. Despite these factors, sales increased in all three of our product classifications.

Millwork product sales increased 11.4% in the first nine months of 2021 to $299.2 million, compared to $268.7 million in the first nine months of 2020; building products sales increased 17.4% in the first nine months of 2021 to $347.6 million, compared to $296.1 million in the first nine months of 2020; and wood product sales increased 41.3% in the first nine months of 2021 to $60.6 million, compared to $42.9 million in the first nine months of 2020. Millwork sales, although significantly impacted by supply chain disruption and by our 2020 restructuring and product rationalization activities, increased due to continued strong levels of demand and a favorable pricing environment. Demand for our value-added millwork products currently exceeds supply, creating an input-constrained ability to produce. Building products sales benefitted from consistent high levels of demand for certain product lines within the category, including certain strategic product lines. The year-over-year sales growth in this category was mitigated by supply chain disruption and by product rationalization activities related to our focus on higher-margin, non-commoditized products. Wood product sales benefitted from higher market prices on a year-over-year basis.

Gross margin was $157.8 million in the first nine months of 2021, compared to $122.3 million in the first nine months of 2020. As a percentage of net sales, gross margin was 22.3% in the first nine months of 2021, compared to 20.1% in the first nine months of 2020. Gross margins were favorably impacted by our continued focus on non-commoditized, strategic product lines which carry higher margins, as well as effective pricing management. We also benefited from increased purchasing incentives in 2021. The increase in our gross margin percentage from these actions more than offset the impact from a disproportionate increase in lower-margin direct sales in the first nine months of 2021 as compared to 2020.

Operating expenses were $115.7 million in the first nine months of 2021, which were $6.2 million or 5.7% higher than the $109.5 million reported for the same period a year ago. Personnel costs increased $6.0 million, or 9.6%, reflecting increased variable incentive compensation from improved operating results, wage increases and reinstatement of compensation and other cost reductions taken in 2020. These increases were partially offset by lower medical costs and a $1.5 million Cares Act Employee Retention Tax Credit. Non-personnel costs increased $0.2 million, or 0.4%. Higher fuel, insurance and tax costs were offset by lower contract haul expenses, reduced operating rent costs, and an improved bad debt provision. Overall, our cost structure was levered against higher sales volume. As a percentage of net sales, operating expenses were 16.4% in the first nine months of 2021 compared to 18.0% in the first nine months of 2020.

In the third quarter of 2021, we recorded a gain on the sale of our former Selkirk, New York facility which was closed as part of our 2020 restructuring activities.

During the first quarter of 2020, a decline in the market value of our public equity concurrent with the COVID-19 pandemic triggered an assessment of goodwill. As a result of the interim goodwill impairment test, we recognized a goodwill impairment charge of $9.5 million.

During the second quarter of 2020, we announced the closing our Columbus, Ohio and Selkirk, New York branch locations, which was substantially completed during the third quarter of 2020. We recorded a restructuring charge of $1.5 million in the second quarter of 2020 for closure-related costs including personnel, facility, equipment and working capital-related costs.

Net interest expense was $2.0 million in the first nine months of 2021 compared to $3.0 million in the first nine months of 2020. Net interest expense in the first nine months of 2021 includes $0.1 million in period costs related to refinancing the credit facility. The lower net interest expense in the first nine months of 2020 reflected both lower average borrowing and lower interest rates.

Income taxes were zero for the first nine months ended both September 30, 2021 and 2020. We utilized our remaining carryforward federal tax net operating losses to offset taxable income during the nine months ended September 30, 2021, eliminating our federal deferred tax asset and releasing an equivalent amount valuation allowance.

As a result of the foregoing factors, we reported net income of $41.7 million and a net loss of $1.2 million for the nine months ended September 30, 2021 and 2020, respectively. Adjusted for the $9.5 million goodwill impairment charge and the $1.5 million restructuring charge in 2020, adjusted net income for the first nine months of 2020 was $9.8 million.

Adjusted EBITDA was $45.4 million for the first nine months of 2021, compared to $17.7 million for the first nine months of 2020. Adjusted EBITDA is a non-GAAP measurement. See the below reconciliation of non-GAAP financial measures.

Balance Sheet & Liquidity

Cash provided by operating activities was $21.2 million during the first nine months of 2021, compared to $35.6 million during the first nine months of 2020. During the first nine months of 2021, we invested $22.4 million in a normal seasonal build of inventories, compared to rationalization of $31.7 million of inventory in response to the COVID-19 pandemic in the first nine months of 2020. The impact from the increased inventory investment in 2021 was substantially offset by an increase in accounts payable of $29.2 million and by higher cash flows from improved operating results as compared to the first nine months of 2020.

At September 30, 2021, we had total liquidity of $168.5 million, including excess committed borrowing availability of $167.2 million and net available cash of $1.3 million, adjusted for $3.2 million of cash temporarily committed as collateral under our insurance programs. At September 30, 2020, total liquidity was $69.8 million, including excess committed borrowing availability of $69.0 million and cash of $0.8 million.

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About Huttig

Huttig, currently in its 137th year of business, is one of the largest domestic distributors of millwork, building materials and wood products used principally in new residential construction and in-home improvement, remodeling and repair work. Huttig distributes its products through 25 distribution centers serving 41 states. Huttig’s wholesale distribution centers sell principally to building materials dealers, national buying groups, home centers and industrial users, including makers of manufactured homes.

Source: Huttig Building Products, Inc.