Bluelinx Holdings Inc.

Greetings and welcome to Blue Links Holding's fourth quarter of full year 2022 results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexandra, Manager of Investor Relations.

Please go ahead. Thank you, Operator. Good morning, everyone, and welcome to the Bluelinks Holdings fourth quarter and full year 2022 earnings call. Presenting today are Dwight Gibson, President and CEO of Bluelinks, and Kelly Jansen, our Chief Financial Officer. Our fourth quarter and full year news release and Form 10-K were issued yesterday after the close of the market, along with our webcast presentation. These items are available in the investor section of our website, bluelinksco.com. We encourage you to follow along with the detailed information on the slides during our webcast. Today's discussion contains forward-looking statements. Actual results may differ significantly from those forward-looking statements due to various risks and uncertainties, including the risks described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'll turn the call over to Dwight.

Thanks, Alexandra, and good morning, everyone. Thank you for joining us on the call today. Over the past year, our team has built Bluelinks into a stronger, more profitable, and more resilient business. We have transformed our balance sheet with leverage under one times and total liquidity of $645 million. Despite the soft market environment, we are positioned to continue to execute our strategy, which includes growing our higher value specialty product sales, driving operational excellence across our business, fortifying our balance sheet while investing in profitable growth, and building a strong team that is committed to driving a high-performance culture and generating long-term value. In 2020-22, Favorable market conditions combined with these strategic priorities contributed to us achieving one of the best annual financial performances in our history in terms of net sales, earnings per share, adjusted EBITDA, and operating cash flow, even as market conditions began to decline late into the year. For the fiscal year 2022, we delivered $4.5 billion in sales and $296 million in net income. This translated into adjusted EBITDA of $478 million, a new record, and more than $32 in diluted earnings per share on an adjusted basis. We also generated a record $400 million in operating cash flows, of which approximately $170 million was allocated during the year to acquire Vandermeer Forest products for $67 million, make capital investments that improve the effectiveness of our distribution facilities and fleet, and acquire 9% of our outstanding shares under our share repurchase programs. For the fourth quarter of 2022, we generated net sales of $848 million and $32 million of net income. This resulted in $3.97 per diluted share on an adjusted basis and $63 million for adjusted EBITDA. We also generated $154 million of operating cash flow, a significant increase of $136 million over Q4 of last year. Our fourth quarter results were solid, despite lower sales volumes resulting from a meaningful decrease in overall market demand given the macroeconomic environment. Even with the softer demand, we were able to deliver strong margin performance in both specialty and structural products by staying disciplined with our pricing approach, We also continued to emphasize efficiency across our distribution facilities and managed our overall operating costs. We focused on our working capital management, which included a disciplined approach to our overall inventory on hand. These actions allowed us to deliver strong profitability and robust operating cash flows for the quarter. In January, earnings were in line with our expectations. We experienced softness on the top line, and we continued to focus on margin maximization. Now I'll share a perspective on our market. Our end markets of repair and remodel, residential new home construction, and to a lesser extent, commercial markets, all experienced significant growth over the past few years as demand vastly exceeded supply. Over the past year, however, mortgage rates have more than doubled, impacting both single-family housing and repair and remodel demand as consumers adjust to the higher rates. Home prices have also appreciated meaningfully, contributing to significantly reduced home affordability for most buyers. Inflation has eased some, but remains elevated. This lack of housing affordability and general economic uncertainty has led to a significant reduction in new housing starts. In January, single-family housing starts declined 27% year-over-year, with housing starts down single digits sequentially from December. As we look at 2023, we believe single-family housing starts will continue to be in double-digit decline as compared to 2022, as the macroeconomic environment continues to impact the industry and until there is more certainty around mortgage rates. We are more optimistic regarding the repair remodel and believe recent housing turnover, aged housing stock, and high levels of homeowners' equity will support better performance for the repair remodel market during 2023. Many homeowners are also locked in with a mortgage rate below 5% and may not have the desire to move and trade up for a house with a higher rate. Instead, they will likely seek to customize, update, and upgrade their existing homes. We expect repair and remodel activity to remain relatively flat for 2023. Despite these market dynamics, we believe that the fundamental undersupplied homes and supportive demographic shifts along with aged housing stock, necessary repair activity, and high levels of home equity continue to be positive indicators for the housing industry over the medium and longer term. During periods of market softness, we believe it is important to balance the short-term needs of the business with our long-term strategic priorities. We will continue to prioritize a fortified balance sheet. Managing our cost structure appropriately can match the levels of demand and maintain rigor around our pricing discipline. We will continue to work closely with our customers and suppliers to navigate the economic cycle.