Bluelinx Holdings Inc.

Ladies and gentlemen, thank you for standing by and welcome to Bluelink's third quarter 2020 investor relations call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Thank you. I would now like to hand the conference over to your speaker today, Ms. Mary Mong, investor relations for Bluelink.

Thank you, Jay, and good morning, everyone. We appreciate you joining us for the Bluelinks 2020 Third Quarter Earnings Conference Call. The earnings release is posted in the investor section of our website at www.bluelinksco.com. We will also be referring to a supplementary presentation as we go through the call. Presentation is available on our website as well. Joining us on the call today are Mitch Lewis, Chief Executive Officer, and Kelly Jansen, 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 risk 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 and the presentation materials, the earnings release, and an investor section of our website. With that, I'll turn the call over to Mitch.

Thanks, Mary, and good morning. While we'll be spending time this morning discussing the business results for Blue Links in the third quarter, I would first like to acknowledge the incredible challenges created by the pandemic across Blue Links, our country, and the world. Its impact has been felt daily by our associates and our extended Blue Links family. And we know we are very fortunate to have had only a very small number of team members and their families infected with the virus. Blue Links will always put the safety and well-being of our associates as our top priority. And we remain deeply appreciative of the hundreds of thousands of first responders across our great nation who continue to put their lives at risk every day to ensure the safety of ours. Before diving into the numbers, I think it's important that we step back and remind everyone of the actions we took beginning in the latter half of 2019, which positioned us to fully benefit from the favorable market conditions that were present during the third quarter. These efforts included investing in a centralized team to drive logistics and operational efficiency across our broad distribution network. targeted initiatives to grow market share, enhancing our partnerships with strategic suppliers, a renewed emphasis in driving growth for our national customers, and focusing on key product categories that offer unique opportunities for growth. These investments paid significant dividends as the operating performance of the business improved considerably, enabling us to provide an even higher level of service to our customers. Additionally, we began to recover market share last year as we worked with our customers and suppliers to add value to the entire supply chain. By the first quarter of 2020, the business had good momentum as a result of these measures. Then in mid-March, we started to feel the impact of the pandemic. I'm proud of the ability of the Blue Links organization to immediately and dramatically react to the resulting market conditions we experienced. In addition to the rigorous safety protocols that we put in place to protect our associates, we established a similar rigor approaching the opportunities to manage and control our working capital and liquidity. We immediately initiated centralized control processes to analyze and manage our purchasing and receivables across our platform, while adding more robust analytical capabilities. And we also doubled up on our efforts to closely assess and manage our pricing across the business. These efforts led to a material improvement in our performance during the second quarter, and we sustained these efforts as market conditions continued to improve. In the third quarter, we enjoyed the impact of all our hard work over the past year. Following the short-lived pandemic-related shock that we saw in the second quarter, the residential housing market has recovered in a remarkable fashion. This improvement, coupled with a historic run-up in wood-based commodity prices, resulted in Blue Links reporting its strongest quarter in the history of our company, with revenue, gross margin, and adjusted EBITDA all significantly increasing compared to last year. For Blue Links, this was a transformational quarter like none we've ever experienced. Our net sales were $871 million, our gross profit was $159 million, and we had a gross margin rate of 18.3 percent, resulting in adjusted EBITDA of $81 million. Our year-to-date adjusted EBITDA through the third quarter was $132 million, and our LTM EBITDA through the third quarter was $143 million. Perhaps even more importantly, we have fundamentally enhanced the liquidity of our company while significantly reducing our annual interest expense. We ended September with excess availability of over $200 million, a level we haven't seen since the robust housing market our country experienced before the Great Recession. In October, we used some of this increased liquidity to further reduce our term loan to $44 million, eliminating the leverage covenant associated with that facility. From a capital structure and leverage perspective, the impact of the third quarter It's simple to explain. We are fundamentally a different company today than we were just four months ago, having brought a new level of financial flexibility into the business. Kelly's going to dive into our numbers in a few minutes, where she'll highlight how strong our third quarter results were in more detail, and also clearly illustrate our current financial strength. And while the quarter was terrific, I think it's also important to highlight the fact that the significant improvement in our profit was primarily driven by our ability to capitalize on a rising wood-based commodity market. We did this by selling structural products inventory that were being sold at prices that were quickly rising above its costs. And in many cases, we were also expanding the margin we typically enjoy. We also continued the improvement in our specialty product gross margins during the third quarter, a trend that has continued unabated over the last year our investment in pricing analytics and training continues to add value as we know commodities by their very nature are cyclical and we were acutely aware that the historic run-up we experienced in the third quarter would ultimately subside in October commodity prices started falling back towards more historical levels which is generating lower structural margins than we experienced in the third quarter the good news is is that we continue to focus on managing our structural inventory levels tightly and have established several mitigation strategies to reduce the impact of a declining commodity price environment. Our mitigation strategies include increasing our levels of consigned inventory, which has less exposure to reduction in market pricing, ensuring purchasing lead times are as short as possible, keeping inventory levels low while continuing to serve our customer base, and closely managing our supply chain to move excess inventory to adjacent locations to minimize inventory risk across our platform. These efforts are making a difference, and we now anticipate that our structural gross margins for the month of October will actually exceed the levels we experienced in the fourth quarter of 2019. While our third quarter was exceptional, what I am most excited about is that we set the stage for fundamental improvements in the business in the months ahead. Today, our number one strategic imperative is organic growth. There are three primary ways in which we intend to achieve this objective. By increasing our national account presence, by focusing on product categories and brands that give Blue Links a competitive advantage, and by identifying market share opportunities at the local level. We have recently invested in senior executive sales leadership to drive our national account presence and take advantage of our scale and geographic footprint, which creates the opportunity to grow our relationship with our national account customers. Additionally, our extensive product assortment and excellent supply chain enables us to enhance our customers' product portfolio by providing additional products that they do not carry at their stores. We've also enhanced our efforts to drive growth with our strategic supplier partners at the national level. Evidence of this effort is the expansion of our distribution footprint for marquee brands and the reinitiation of opportunities that were lost with key suppliers. Prime examples include our recent announcement to drive market share growth with LP SmartSide in the northeastern part of the country. Our expanded relationship with Old Castle's decking product increases in our market share with Huber and adding new markets with Hardy. Another way we are driving top-line growth and where we anticipate having a competitive advantage is through strategic product categories that are wholesale distribution friendly. Great examples of these product categories include our import private label products, our on-center engineered wood products brand, and SKU-intensive product categories like millwork, cedar, and vinyl siding, where we can add value by providing just-in-time inventory to our customer base. We also have significant market share growth opportunity at the local level. We lost market share during the first half of 2019 as we integrated locations from our Cedar Creek acquisition, and our first step to fix that loss was to enhance our service proposition. We've done that. Now we are systematically assessing and developing strategies to get that share back. We've established a rigorous internal control growth process to drive growth initiatives across the company. Examples of recent successes include utilizing products and market expertise to cross-sell in new locations, investing in equipment that provides best-in-class service in local markets, and expanding our teams to grow our expertise and customer relationships where appropriate. We are also relentless in improving our logistics, operational, and administrative efficiency. We're investing in areas such as updating our rolling stock, which includes tractors, trailers, and forklifts. Many investments in modernizing our fleet are immediately cash flow accretive as they replace older models resulting in reduced maintenance costs. In fact, during the third quarter, we entered into $3 million of new leases for replacement tractors and are planning more in the coming months now that we've reduced our capital constraints. There remains significant opportunity to enhancing our operating cost structure as we reengage in route optimization, additional consolidations, and enhance the efficiency of our administrative processes throughout the company through automation and process redesign. This emphasis on improving our operating performance is not merely a reaction to the tumultuous environment we now face. It's being baked into our culture. While we are acutely aware that the pandemic is not behind us and that significant political and social risks are on the horizon, which may negatively impact our business, we've proven that we're up for the challenge. We will continue to assess everything we do to operate in a more efficient manner as we continue to provide industry-leading service to our customers. Before I turn it over to Kelly, I would be remiss if I did not make it clear that our third quarter performance is a testament to the Blue Lynx team and the support of our extended Blue Lynx family. In March, we simply rolled up our sleeves and got it done. Through hard work and determination, we set the stage over the past year to enjoy the quarter we just experienced. The Blue Lynx team is incredible, and every day I'm reminded of how fortunate I am to be on their team and how honored I am to represent them. I am confident that today the future of Bluelinks is brighter than it has been since I joined the company almost seven years ago. The third quarter was transformative, and with our team, our renewed financial stability, our unyielding commitment to our customers, and our inherent strength in the markets we serve, I know that we are just getting started. And now I'd like to turn it over to Kelly, who will walk you through our third quarter financial performance in more detail.