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.