Bluelinx Holdings Inc.

Investor Relations Officer, Tom Morabito. Please go ahead.

Thank you, operator, and welcome to the Blue Link's fourth quarter and full year 2023 earnings call. Joining me on today's call is Sham Reddy, our President and Chief Executive Officer, and Andy Wamser, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. 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 presentations. and these items are available in the investor section of our website, bluelingsco.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 gap financial measure can be found in the appendix of our presentation. Now, I'll turn it over to Shannon.

Thanks, Tom, and good morning, everyone. We are pleased with both our fourth quarter and full year 2023 results, especially in a year when rising interest rates and macroeconomic uncertainty impacted demand in the housing and building product sector. Our margins remained strong in specialty products, which accounted for about 70% of our net sales for both the quarter and the full year. And we continued to generate solid margins in our structural products business. During the quarter, we also demonstrated our commitment to returning capital to shareholders by repurchasing shares under our new $100 million share repurchase authorization. For the year, we returned $42 million to shareholders. which includes repurchases under our previous $100 million share repurchase authorization. Before I jump into the 2023 results, I want to share our vision, and that's to become the most technologically advanced two-step distributor of building products in the US in the coming years. This will enable us to become the first option for suppliers to bring their products to market and the first option for home retail stores one-step distributors, pro dealers, and independent lumber yards to deliver the right products where and when they need them. And in so doing, we'll be able to optimize our brand mix in all markets, reduce our cost to serve, manage our business more cost-effectively, reduce the number of touchpoints to meet our customers' and suppliers' demands, and to accelerate our ordering times. And that's just to name a few. In the meantime, we remain committed to our corporate growth strategy to get us there in 2024 and beyond. First, by focusing on our core business, specialty sales growth in five key categories. Second, by pursuing opportunistic M&A. And third, by developing opportunistic greenfields, all of which will be supported by three strategic enablers, business, operational, and digital excellence. As it relates to the first prong, We are allocating a substantial share of time, resources, and capital to growing engineered wood, siding, millwork, industrial, and outdoor living products, our five key high-margin specialty product categories in the core business. These product categories and the strategic vendor partners we've aligned with enable us to be a necessary extension of our customers' business. They're also two-step distribution-friendly product categories sold at various points of the construction cycle, rather than at just the front or back end of a single or multifamily housing project, or remodeling job for that matter. They also drive higher net sales and gross profit, which generates sustainable and durable operating cash flow that can be reinvested back into the business and used to fund opportunistic M&A and Greenfield projects. Given our scale, geographic reach, selling capabilities, and product depth, We are committed to providing our customers with a total two-step distribution-friendly product solution that also includes structural products, which our customers want and that we believe complements our specialty product and value-added services offering. From a channel perspective, we see additional opportunity by growing national accounts and multifamily sales while investing in builder pull-through capabilities to drive sales growth with our national account and traditional customer base. I continue to be excited about our strategic enablers, the fuel that supports our organic sales growth strategy, business operational digital excellence. These efforts have continued to support our customer experience, maintain solid margin levels in both specialty and structural products, and provide a flexible cost structure that can fluctuate based on seasonal levels of demand. We are also effectively managing our costs. resulting in a solid 2023 adjusted EBITDA margin of nearly 6%, despite wage, benefits, and other inflation on top of challenging market conditions. Now back to the vision. Becoming the most technologically advanced two-step distributor of building products in the United States, which I believe will transform Blue Wings and make us the provider of choice for both suppliers and customers. These technology improvements are designed to enable us to rapidly grow our business at scale with both customers and suppliers by providing an exceptional customer experience in a more efficient and effective manner than today. I would like to offer a few more details. Over the past couple of years, we have taken some preliminary and foundational steps designed to improve our data warehouse and analytical capabilities, upgrade some of our back office tools, expand our EDI capabilities, and enhance our general technology hardware and infrastructure. Beginning in 2024, we are embarking on a multi-year digital transformation journey that starts with architecting our data so that it better supports and advances our strategy, enhancing our transportation management capabilities, and launching e-commerce functionality. As a result, we will be optimizing our management of freight costs shipment routing, truck load build, and logistics, which is expected to reduce our cost to serve, implementing more scalable supplier and customer EDI capabilities, enhancing our governance and management of product, customer, and supplier master data, and piloting an e-commerce platform. We also believe that these digital improvements will further enhance our existing sales, operational, pricing, and procurement excellence initiatives. While our digital transformation journey will result in an initial increase in both OpEx and CapEx, which Andy will expand on in a moment, we believe these investments are critical to reducing our operating costs, realizing our vision, and enabling us to become the provider of choice for both customers and suppliers, thereby allowing us to execute successfully on our long-term profitable sales growth strategy. The second and third prongs of our growth strategy reflect our commitment to opportunistic M&A and greenfields. We are strategically targeting acquisition opportunities that are designed to expand our geographic reach and support our specialty product sales growth strategy. We remain committed to buying only companies at valuations that make sense for us, that support our strategy, and that are in the best interest of our stockholders, hence the opportunistic and measured nature of our approach. On the greenfield front, we have identified several markets that are potentially great opportunities for new market developments. Our financial position remains strong with liquidity of $868 million at the end of the year, including a record $522 million of cash on hand. This strength gives us the flexibility to reinvest in business initiatives that allow us to grow sales, improve productivity, expand our geographic reach, and provide better customer and vendor service, an example of which would be our digital transformation. And of course, having the ability to return capital to shareholders remains very important, as demonstrated by our share repurchase programs. Next, I'd like to offer a few highlights from 2023. First, we delivered solid full-year 2023 results, particularly in light of the challenging macro environment. As you know, during the year, higher interest rates and lingering recession risk slowed the rate of housing starts and repair and remodel activity, making the business environment very difficult. Our teams and supplier partners, combined with the confidence our customers have in BlueLynx, helped us to compete effectively in our markets, resulting in our strong financial performance. Second, our fourth quarter 2023 results were also solid. As expected, our revenues declined year over year, largely given the impact of market price deflation. However, our specialty and structural gross margins came in at 19.4% and 10.6% respectively, which highlights our team's ability to successfully manage margins despite the macro picture. Third, we continue to focus on expanding our specialty products business, which accounted for approximately 70% of net sales and 80% of gross profit for both the fourth quarter and full year 2023. For example, during the fourth quarter, we announced expanded distribution partnerships with Louisiana Pacific and Huber Engineered Woods. Both partnerships will broaden the geographic reach of our specialty product offerings, demonstrating our focus on specialty products growth. Fourth, we continue to execute on our disciplined capital allocation strategy, which includes returning capital to shareholders. Overall, we repurchased nearly 6% of our outstanding shares for $42 million in 2023. Last quarter, we announced a new $100 million authorization after the prior $100 million share repurchase authorization was completed. Of the $42 million of share repurchases in 2023, we bought back nearly $9 million worth of shares under the new program in Q4. Given our recent strong share price performance, the amount of repurchases in Q4 were admittedly less than originally anticipated. However, we will continue to be opportunistic in the market.

Fifth,

Our financial position continues to be strong as we prudently manage the business. With significant liquidity and very little net leverage, we are well positioned to invest in the business, to realize our vision, and to execute successfully on our corporate growth strategy, all while providing us with the flexibility to return capital to shareholders. Now, for a few more details on our full year results. We generated 2023 net sales of $3.1 billion and $183 million in adjusted EBITDA for a 5.8% adjusted EBITDA margin. Adjusted net income was $103 million or $11.41 per share. For the year, we delivered solid gross margin performance with specialty products coming in at 19.3% and structural products at 11.2%. Our focus on business and operational excellence led to effective pricing, strong service levels, procurement opportunities, and cost management, contributing to these strong results. In addition, our continued focus on working capital has generated significant improvements in operating cash flow. In 2023, we reduced our inventory by over $140 million with nearly all of the reduction coming from the specialty products category. We also generated free cash flow of $279 million during the year. Now turning to our perspective on the broader housing and building products market. While industry sources are suggesting a revised sense of optimism for the overall market, headwinds do remain. Builder sentiment has improved in recent months, and the industry saw meaningful improvements in housing starts during November and December. In addition, the financial markets are anticipating potential rate cuts in 2024. That said, mortgage rates are now around 7%, and while those are down from the 8% peak last year, they are still elevated. 90% of mortgages are still under 6%, and 80% of mortgages are under 5%. Overall, housing affordability remains an issue for many consumers, especially for first-time buyers as prices remain high. Repair and remodel spending continues to be lower than the elevated levels of the past two years, and is expected to decline further in 2024 due to low existing home sales that would otherwise drive repair and remodel activity on the way out of a home and on the way into a home. However, home equity levels do remain high, allowing owners to refund repair and remodel projects, albeit smaller ones. Through the first seven weeks of Q1 2024, we have maintained solid margins for specialty and structural products, generally in line with Q4 2023. However, Daily volumes have been impacted by the extreme weather patterns experienced in January and are down compared to our expectations into what we saw during the recent quarter. In fact, we had nearly half of our locations closed for between one and five days in January due to unusually cold weather and winter storms. The ramp up to normal business also took time. as the ground needed to thaw on many markets for building activity to commence and sales to flow through our customers and, in turn, us. During the most recent three weeks, specialty and structural volumes have improved. In addition, it is important to note that industry-driven specialty products price deflation continues to have an impact on both our top line and cost of goods during 2024. Even though margins are stable, gross profit dollars are lower. This adverse impact creates a near-term headwind and we hope to see this improve as the year progresses. Although the near-term outlook remains unpredictable, the industry is improving in many respects, and we clearly believe in the long-term prospects of the housing and building products sector, which underlines our strategic and investment focus. The shortage of homes, supportive demographic shifts, aging housing stock, necessary repair and remodel activity, and high levels of home equity should continue to benefit the building products industry and BlueLynx. In summary, we delivered solid results for both the fourth quarter and full year 2023, despite the challenging environment for housing and tough year-over-year comps. We're also delivering on our strategic priorities as seen by our specialty product expansion efforts, margin performance driven by our pricing and cost discipline, strong cash generation, and capital allocation initiatives. I'd like to end by thanking my fellow Blue Links associates for their continued perseverance and can-do attitude during last year's difficult housing market and for their selfless dedication to our customers and our suppliers. Our teams are committed to generating more profitable structural and specialty product sales while producing solid returns of working capital to ensure that we can position ourselves for long-term success in whatever market conditions we face. That grit gives me tremendous confidence in our ability to realize our vision of becoming the most technologically advanced two-step distributor of building products in the U.S. and executing on our three-pronged corporate growth strategy, specialty product sales growth, M&A, and greenfields. We have the purpose to inspire us, the culture to succeed, and the values to guide us, along with the intestinal fortitude to make the investments in technology, people, infrastructure, working capital, and equipment to accelerate our prospects and position us for breakneck growth as our corporate strategy delivers and our digital transformation takes effect each step of the way. Now, I'll turn it over to Andy, who will provide more details on our financial results and our capital structure.

Thanks, Sham, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, we delivered solid fourth quarter results. highlighted by strong margins in both our specialty and structural product categories. Net sales were $713 million, down 16% year-over-year. Specialty product sales were down 18% from the prior year due to a combination of deflation and lower volumes. Structural product sales were down 12%, also due to significant year-over-year declines in wood-based commodity prices and lower volumes. Total gross profit was $118 million, and gross margin was 16.6%, down 120 basis points from the prior period. SG&A was $85 million, down 8% from the prior year period, due to a decrease in variable compensation and delivery expenses. Net loss was $18 million, and diluted loss per share was $2.08. In previous filings, we've mentioned that we plan to terminate a legacy defined benefit pension plan. During December, we transferred all remaining financial responsibility for the plan to a highly rated insurance company under an annuity contract. We incurred a one-time charge of $31.4 million and made a final cash payment of $6.9 million. We are pleased to have this obligation behind us. as it was a legacy pension plan which provided no benefit for most of our active employees and was complex to manage. Adjusted net income was $26 million, and adjusted diluted EPS was $2.94 per share. Tax expense for the fourth quarter was $10.1 million. Due to our net loss in the quarter as a result of our pension settlement, the effective tax rate was not a meaningful calculation. For the first quarter of 2024, we anticipate our tax rate to be in the 24 to 28% range. Adjusted EBITDA was $36 million, or 5.1% of net sales, following our normal seasonal patterns. As a reminder, we tend to have higher adjusted EBITDA margins in the second and third quarters, but relatively lower margins in the first and fourth quarters of the year. Turning now to fourth quarter results for specialty products. Net sales were $487 million, down 18% year-over-year. This decline was largely driven by price deflation across several specialty product categories. Gross profit from specialty product sales was $94 million, down 24% year-over-year. Specialty gross margin was 19.4%, a strong margin, but down 170 basis points from last year. Through the first seven weeks of 2024, specialty product gross margin was in the range of 18 to 19%, with daily sales volumes down 6% compared to the fourth quarter of 2023, given the impact of the January weather. Over the past three weeks, however, specialty volumes were about flat on a year-over-year basis. We are, however, seeing average specialty pricing down about 10% versus this time last year, And we expect this to be less of a headwind as we progress throughout the year. Now moving on to structural products. Net sales were $226 million, down 12% compared to the prior year period. This decrease was primarily due to price deflation within framing lumber, partially offset by slightly higher volumes. Gross profit from structural products was $24 million, a decrease of 10% year-over-year and structural gross margin was 10.6% of 20 basis points from the same period last year. In the fourth quarter of 2023, average lumber prices were about $383 per thousand board feet, and panel prices were about $585 per thousand square feet, a 15% decrease and 11% increase, respectively, compared to the averages in the fourth quarter of 2022. Sequentially, comparing the third and fourth quarters of 2023, these prices were down 12% and 8%, respectively. During the fourth quarter, lumber prices declined early but rebounded in December, while panel prices increased during the quarter, and they finished the last week of December at $395 and $599, respectively. These prices have declined further in the first seven weeks of Q1 2024, and are now $387 per thousand board feet and $589 per thousand square feet, respectively. Our strong structural margin continues to reflect the excellent job our team does to manage commodity cost volatility risk through leveraging consignment and utilizing centralized purchasing and pricing to keep structural inventory levels low. Through the first seven weeks of Q1 2024, structural product gross margin was in the range of 10 to 11%, with daily sales volume down, mainly in lumber, compared to the fourth quarter of 2023, given the impact of January weather. Similar to specialty, there has been some improvement in volumes over the past three weeks. For the year, net sales were $3.1 billion, down 30% from 2022. 2023 results had very difficult comparisons when in contrast to the inflationary environment experienced in 2022. Specialty and structural product sales were down 24 and 40% respectively from the prior year due to a combination of deflation and lower volumes. Total gross profit was $527 million and gross margin was 16.8%. down 190 basis points from the prior year period. SG&A was $356 million, down 3% versus the prior year period. For 2024, we expect our SG&A levels to increase slightly as a percentage of sales due to the investments in technology that Shan mentioned, as well as our growth initiatives. Net income was $49 million, and diluted EPS was $5.39 per share. Adjusted net income was $103 million, and adjusted diluted EPS was $11.41 per share. The full year tax rate was 40.7%, once again impacted by the pension plan termination. For full year 2024, we anticipate our tax rate to be in the 24 to 28% range. Adjusted EBITDA was $183 million, or 5.8% of net sales. Looking now at our balance sheet, our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital. At the end of the year, cash on hand reached a record level of $522 million, an increase of $52 million from Q3. When considering our cash on hand and undrawn revolver capacity of $346 million, available liquidity was $868 million at the end of the year, also a record. Total debt, including our financing leases, was $585 million, and net debt was $64 million. Our net leverage is now 0.3 times, and we have no material outstanding debt maturities until 2029. For the terms of our credit agreement, which does not include real property financing leases, our net leverage ratio was a negative 1.0 times. Our balance sheet is in great shape, and when combined with our solid EBITDA and strong cash generation, we are well positioned to support our strategic initiatives. These include investments in our highest return opportunities, such as organic and inorganic growth initiatives and share repurchases. Now, moving on to working capital and free cash flow. During the fourth quarter, we generated operating cash flow of $76 million and free cash flow of $67 million. For the full year 2023, we generated operating cash flow of $306 million and free cash flow of $279 million. Our full year cash generation was supported by earnings and a net benefit from working capital, primarily related to the reduction of more than $140 million of inventory from the beginning of 2023. Turning now to capital allocation. During the quarter, we spent approximately $9 million in CapEx, primarily to improve our distribution facilities and upgrade our fleet. For the year, CapEx was about $28 million. For 2024, we expect capital investments to increase to around $40 million, focusing on facility improvements, further upgrades to our fleet, and the technology improvements previously discussed. Our digital transformation will also have at least a $5 million impact on operating expenses in 2024 related to software license implementation, as well as increased headcount associated with this initiative. During the fourth quarter, we purchased approximately $12 million of our company's common stock through open market transactions under our repurchase programs, and we plan to continue to be opportunistic in the market. Our guiding principles for capital allocation remain consistent. We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles, pursue a disciplined M&A strategy and geographic expansion, as well as return capital to shareholders. We also plan to maintain a long-term target net leverage of two times or less. Overall, we are pleased with our fourth quarter and full-year results. highlighted by our strong margins and free cash flows, especially when considering the difficult housing market. Our strong balance sheet positions us well to execute on our strategy and provide returns for our shareholders. Operator, we are now ready to take questions.

At this time, if you'd like to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Greg Palm with Craig Hallam Capital Group. Please go ahead.

Hey, good morning, everybody. I wanted to maybe start with a little bit more color on kind of price volume. I'm not sure you gave a lot of sort of metrics and was wondering if you can maybe quantify what the price headwind specifically was for full year 23. And I think it's still persisting in terms of that headwind in Q1 and Is there a point at a time this year where you feel like that sort of normalizes, or is it still sort of hard to know at this point?

Hey, Greg, it's Andy. I'll take the first stab at that. When we look at the pricing headwinds, you know, specifically in specialty, I would say it was in the, for the year, it was in the order of magnitude of the mid-teens. You know, it was higher in Q2, Q3, and then, you know, I'd say it was high, you know, maybe a little bit higher than, you know, 10, 12%, maybe in Q4. What we see in Q1 is that it's getting, it's improving a little bit. And as I mentioned in my comments, you know, for the specialty pricing in particular, it was, you know, about a 10, we're seeing about a 10%. still decrease. As we move throughout the year, we would expect that to, you know, improve. And so we're not going to give exact guidance in terms of, you know, what the exact cadence is if we go from Q1 to the end of the year. But by the end of the year, we think we should be, you know, lapping a lot of the specialty pricing.

Got it. Okay. That's helpful. And if I could shift gears a little bit and talk about this digital initiative and some of the investments behind that, Is the point of it or the hope that it improves internal operations, efficiencies, is there any way that you think that this maybe helps out the end customer as well and enables you to sort of maybe gain share? And then specifically on the investments, I think you said $5 million increase, but you also talked about an SG&A increase as well. And I was curious if you were referring – on a year-over-year basis or based on the levels that you saw specifically in Q4?

Hey, Greg, great to hear from you. Let me take the first part of that question, and I'll turn it over to Andy to dive into the SG&A aspect. So, first of all, the answer to your question is yes, in the context of both reducing our operating costs while also improving the customer experience. Ultimately, the primary goal is to provide the most provide the best customer and supplier experience in the two-step distribution space for building products. And the first phase of this, which we're embarking on in 2024, includes transportation, which will absolutely reduce our logistics costs as it relates to delivering to the customer where and when they need the product. So it could be to the actual lumber yard, home center, or it could actually be a multifamily or or job site delivery, but in any event, which we do today, but in a more efficient and cost-effective manner. And secondly, we're moving forward on the direct customer enhancement piece as well with the e-commerce platform. Our plan is to start a dedicated launch in the coming months with a pilot program with a few customers and a few branches. And once we've built that out and feel good about it, the idea would be to scale it across the entire enterprise And as I said earlier, reduce the number of touch points between our customer and us, give them better visibility ultimately in the inventory, have the ability to order from multiple locations, from multiple branches, and so on and so forth. So, you know, ultimately the idea is to provide, you know, an outstanding or exceptional customer experience.

And so this is Andy. As it relates to SG&A, let me give you some color on that. As we thought about Q4, Q4 did have some one-time benefits in terms of actual true-ups related to like workers' comp. We had some true-ups related to our healthcare burden rate. And so when I think about the SG&A run rate, it's more in line with what we saw in Q1 through Q3. But in addition to that, we will have about, you know, this $5 million in OPEX that I mentioned in my comments related to the technology investments. That being said, you know, we are always very focused on SG&A and to the degree that we see, you know, the market deteriorate, you know, we will act on, you know, the SG&A levers. But as we think about the plan that we have for this year, I think those are the right assumptions in terms of, you know, for 2024 in terms of taking the Q1 through Q3 sort of run right and then adding in, you know, the technology investment.

Understood. Okay. I will leave it there. Thanks.

Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Please go ahead.

Hey, thanks for taking my questions today, and congrats on my nice quarter. So I wanted to ask about daily sales volumes being down 10% over the first seven weeks of the year due to the adverse weather in January. How large of a first quarter sales concentration has marched from a historical perspective? And do you believe you can make up for the slow start of the year if weather cooperates here over the coming month or so?

Thanks, Jeff. Great to hear from you. So, look, as the quarter progresses, and we've seen it over the last few weeks, there is improvement that's flowing through the P&L. As we move into March and the season, we do expect the seasonality, the positive seasonality aspects to kick in and provide us with opportunities to improve on the challenging headwinds we faced in January. I can't give you specifics, obviously, from a numbers standpoint, but the trend has started and We expect things to continue to normalize as we head into the season.

Yeah, maybe just a little additional color. What I would say is, you know, it will be difficult for us to make up some of that volume, you know, just due to the weather in January. You know, as we mentioned, there was an improvement in structural still down a little bit year over year. The specialty, though, is in the last three weeks, you know, that has been I'd say more in line with the previous year. So I think difficult to make up and then structural still has a little bit to go in terms of making up some of that volume.

Got it. No, that makes sense. And I just wondered if you could talk more about R&R demand trends right now and what you've been hearing from your suppliers and channel partners, because large ticket R&R has been challenged due to the high cost of credit and lack of housing turnover. And Wondering if you're hearing any positive signs of potential inflection in demand as we move into 2024 here.

No, I would say that what we're hearing directly from our customers and our suppliers, for that matter, is consistent with what we're all hearing publicly on the R&R front.

Yeah, I think if you look at sort of just you know, sort of consensus numbers in terms of R&R, it's generally going to be down mid-single digits when you sort of look at LIRA, you know, et cetera. So, I think that's the general theme right now. Hopefully, things improve so we can move throughout the year, but that's the general view right now.

Okay. Got it. And one last one. You've had several partnership expansion announcements with leading suppliers the last several months. Sam, I just wondered if we could discuss the opportunity for additional supplier partnership expansion over the midterm and its potential impact on organic growth moving forward.

Sure. Yeah. So basically, we've got a great group of strategic suppliers we're working with to expand our geographic reach. A number of conversations that yet have to be made public where we're looking to expand their product offerings and in new markets, some of which would be opportunities for them where they're not otherwise located or alternatively result in the displacement of someone else who might already be there, hence why I can't get into too much detail. But the fact is I feel like we've got really, really good partnerships that are collaborative with our key suppliers that are allowing us to expand our geographic reach with them, which, again, gives us the ability to provide a scalable solution for all of our customers, including the national accounts that are located in multiple regions, whether they be the one-step distributors or the home centers. Great. Thank you.

Thank you. Your next question comes from the line of Ruben Garner with The Benchmark Company. Please go ahead.

Thank you. Good morning, everybody. So I think you guys have a little bit more exposure to the smaller builders. I was curious what you're hearing in recent weeks with a little bit of the rate reprieve that we've gotten, what their outlook might be for this year versus maybe what we're hearing from the bigger builders this kind of earnings season.

Yeah, I would say that their views are generally consistent with what we're hearing in the marketplace. I mean, builder sentiment did tick up. Then again, the weather hit really dramatically and fiercely in January, which caused housing starts to be a lot lower than expected. So it's a little hit or miss. I think, quite frankly, we'll get a much better read next week when we're at the International Builders Show, where we'll actually have an opportunity to truly see how people are feeling post-inclement weather in January. But generally speaking, everyone... You know, the smaller regional builders who are building more custom homes where folks may not be as rate sensitive, feel good, not as good as they have in the past. But at the same time, their sentiment is very much tempered in the near term. But it is consistently viewed across the board, no matter who we talk to, that the second half will be better.

Okay. And then a clarification on the specialty. pricing pressure that you're seeing is is the vast majority or all of that in in sort of the engineered wood products piece of it or are you seeing pricing pressure in some of the other products like diving decking anywhere else did you participate

Sure, yeah, great question. I would say when we think with the specialty pricing deflation, it's really predominantly in EWP and millwork, but we are seeing some pressure in industrial siding and outdoor materials as well. So it's predominantly it's EWP and millwork.

Okay, and then the last one for me, the technology or digital transformation effort How will you guys sort of track success here and longer term? I know you mentioned or referenced a $5 million investment. Now, over the coming few years, what does that number look like and what kind of, you know, return metrics are you using to kind of gauge the benefits of the program?

Yeah. So, with respect to the logistics rated, logistics oriented, improvements, such as, for example, the TMS-related work we're doing now. It's very straightforward in terms of getting better pricing on our freight, making sure that we're able to identify those opportunities where you have route optimization as well. And so there are very specific metrics we have that will allow us to generate the savings over the next few years and and reduce our cost to serve. So that's pretty straightforward. As it relates to e-commerce, obviously that will be measured in the context of how much incremental volume we can pick up and greater share of wallet that we can grab from any given customer by making it easier to do business with us as opposed to anyone else. Ultimately, the idea is to get to the point where the value is all about the customer experience. And so if the customer experience is top-notch, then it makes it a lot easier for folks to do business with us and ultimately run more transactional volume through us. And that is the goal. And so we will have a number of measures around TLE growth, margin enhancement, mixed shift, and that's how we'll track it over time.

And then, Ruben, just one point of clarification. You know, when we talk about the technology investments, at least for, you know, for 24, there's $5 million in OPEX and then at least $5 million in CAPEX. So, you know, the spend will be a little bit more than, you know, $10 million. And as we think about what the, you know, the benefits related to the TMS or the transportation management system, we expect that to have, you know, a really strong IRR that would start to pay off. I would say in the beginning of the 25 timeframe or 25, 26.

Great. That's very helpful. One quick clarification. Any of your business transacted via e-commerce today? And are there targets on where that could be over a certain period of time?

No, we're not doing any e-commerce today. Everything is done. It's done via directly with our sales teams. Okay, great.

Thank you, guys, and good luck. Thanks, Ruben.

Our final question will come from the line of Kurt Yinger with DA Davidson. Please go ahead.

Great, thanks, and good morning, everyone. Just wanted to follow up on the last e-commerce question. Is that primarily kind of business-to-business, dealers, home center customers that you would envision ordering through that, or is there actually a direct-to-consumer angle within that.

Yeah, and by the way, just in response to the last question that Jeff asked, let me give a point of clarification. We actually do, via the e-commerce platforms of our home centers, our national accounts, through their special order and other programs, there are orders done on their end that get processed through through their portals that get fulfilled by us. So there is some iteration of e-commerce that we participate in. But as it relates to Bluelinks itself, this would be our foray into developing e-commerce platform for any customer to order through us. So in that context, the idea would be it's business to business. We haven't thought about, I mean, in our current plans, There aren't any plans for an end user to be able to order through us. And to the extent that does become part of the solution, those orders would still flow through our primary customers because we don't, I mean, we care about our primary business customers. So to the extent one of their customers has an opportunity to order, it would be for the benefit of our primary customer. But right now, the e-commerce pilot we're exploring would be for our customers to order very efficiently through the platform and then the order gets fulfilled by the branch in that market.

Right. Okay. That makes a lot of sense, not competing with your customers. And then you talked more about green fields than we've heard in the past. And I guess I'm curious, what do you think are the most important factors to get right in assessing a greenfield location for that to be successful? And how should we think about, I guess, at least in 2024, the appetite to break ground on some of these facilities or maybe purchase the sites to kind of ramp that up?

Yeah, so the appetite is there. It's an important part of our strategy. That said, we're going to be very thoughtful and measured in our approach to make sure we're We're doing it the right way in the right market. As we think about the markets, there's a lot of gray space for us out west, right? So if you look at west of Denver, whether it's the southwest, the west, there are a number of MSAs that we don't have a presence in. That said, we do service all 50 states, either through long drives from certain facilities where the sale makes sense, or alternatively through direct sales or reloads. So we do service all 50 states, but there are obviously more cost-effective and efficient ways to do that in some of these MSAs. And as we think about the opportunity and why we might greenfield in one location over another, we're very focused on housing starts, single-family housing starts, as well as what the repair and remodel activity looks like. And then we take a look at whether or not the market is two-step distribution friendly, and in particular with respect to the products we carry. And then we make decisions based on that opportunity. And then at the same time, we have a very strong set of private label products, both EWP and Millwork, for example, as well as which are complemented by an incredibly strong structural products business. So between the two, we feel like we have the ability to ramp up a greenfield probably more so than than others, maybe. And at the same time, again, just being very thoughtful about where we start and how we progress over time.

And is that a situation where, I guess, when you go to a new geography, even if you're servicing it maybe from a further location already, where you would need to displace a competitor with an existing vendor for the most part, or given that you're already servicing it, is there not a whole lot of discussion that's required with your vendor partners in evaluating that type of expansion?

No, there would absolutely be discussion because the way that it typically works, our vendor partner relationships are tied to specific markets. And so the markets we're looking at, if they're going to be two-step distribution friendly and have strong housing starts, for instance, then most likely, in fact, in every market, there will be competitors there. The good thing is, unlike others, we actually have our own private label brands and a strong structural business that we can start with. And then with our existing suppliers, have very strong partnerships where we believe they would be supportive, if not out of the gate, then over time. I've actually already had a few conversations with a couple who said they would be very excited about supporting greenfield opportunities. So as the opportunities further ripen, those conversations will become more serious. But even if they take time, I'm very excited about the fact that we can start those projects with our private label brands as well as our structural business.

That's good to hear. And then lastly, I mean, M&A is also an important part of the strategy. Could you just talk a little bit about what you're seeing from a valuation perspective and how that stacks up against your appetite to perhaps be more aggressive buying back your stock at these levels? Yeah, I'll leave it there.

Sure. So let me take the M&A part, and then I'll let Andy comment on the capital allocation But as it relates to capital allocation at a high level, we clearly take it very seriously and are disciplined in our approach with returning capital to shareholders being one of the core elements of that strategy. As it relates to M&A, you know, we still believe the outlook is good, which is why it's part of our growth strategy. And it's a very efficient way of developing new markets. That said, we are pursuing a roll-up strategy that's rinse and repeat, given the dynamics of the two-step distribution space. So our M&A march has historically been slow and will continue to be slow and steady and disciplined on the types of businesses we're targeting and ultimately acquiring, and keeping an eye on the specialty product mix and geography as two of the primary drivers. Now, with the 2023 numbers in, as you might expect, the bid-ask spreads are continuing to compress. So from a valuation standpoint, the multiple should be based on 2023 EBITDA, which will, I think, bring a sense of conformity, logic, and rationale back to valuations. So again, it remains an important part of our strategy. We're starting to see opportunities be more realistic over time without, again, without compromising our desire to be opportunistic and buy companies at a level that makes sense for our business.

And then, Kurt, as it relates to share repurchase, you know, I don't think it's an either-or situation. I think given where the balance sheet is, I think we have the opportunity to do both. You know, we said that we'd be opportunistic on the new current plan that was, you know, the new $100 million plan, the additional $100 million plan that we did in Q4. You know, in total, we did about a little more than $12 million in total share repurchases and In the fourth quarter, we have $91 million left on the current authorization, and we're going to be opportunistic. But I don't think it's an either-or in terms of share purchase or M&A. Got it.

Okay. Well, appreciate the color, guys, and good luck here in Q1. Thanks, Kurt.

With that, I'll hand the call back to Tom Morabito for any closing remarks.

Thanks, Regina. Thank you again for joining us today, and we look forward to speaking with you in May as we share our first quarter 2024 results.

And that concludes our call for today. Thank you all for joining, and you may now disconnect.