Bluelinx Holdings Inc.

earnings call. Joining me on today's call is Sharon Reddy, our President and Chief Executive Officer, and Andy Wanzer, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Our second quarter news release and Form 10-Q were issued yesterday after the close of the market, along with our webcast presentation, and these items are available in the Investors section of our website, bluelinksco.com. We encourage you to follow along with the detailed information on the slides during the 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 measures can be found in the appendix of our presentation. Now I'll turn it over to Shan.

Thanks, Tom, and good morning, everyone. Our second quarter 2024 results demonstrated solid gross margins of approximately 19% in our specialty products business, despite the impact of continued price deflation relative to prior year comps. Volume growth in key specialty product categories, such as millwork, engineered wood products, and siding, helped offset declining lumber prices and weaker structural volumes during the quarter. I am proud of my teammates for their hard work to deliver these results in spite of challenging market conditions. Before turning over to our second quarter results, I would like to note Blue Links' 20th anniversary as a public company this year. While our origins date back to 1954 as a division of Georgia Pacific, we spent the last 20 years building the largest pure play two-step building product distributor in the U.S. In so doing, we are playing a vital role in the building product supply chain while providing an outstanding place to work for all of our associates. In fact, nearly 400 of our roughly 2,000 employees have been with us for more than 20 years, which is a testament to their commitment to BlueLynx. Many of our suppliers and our customers have been with us during that time as well, and for that loyalty, we are sincerely grateful. Looking ahead, we have begun the initial work to modernize our business with new technology, with the first phase focused on re-architecting our data, launching an e-commerce solution, and implementing a world-class transportation management system. Subsequent phases will further enhance our operational and commercial capabilities. Our continued focus on modernizing the business with new technology will ultimately enable us to differentiate ourselves in the markets we serve so that we can accelerate our strategic profitable sales growth objectives. We remain focused on growing our key specialty product categories at a higher rate than our structural product business so that our product mix shifts over time. We also continue to execute successfully on our local and national market strategies as evidenced by our expansion of product lines with key national accounts, our expansion of branded product lines into new geographic markets, and launches of new product lines, just to name a few. We also continue to explore and evaluate M&A and Greenfield opportunities to expand our geographic reach and to support our specialty product sales growth initiatives. Now turning to our second quarter results. We generated net sales of $768 million and adjusted EBITDA of $34 million for a 4.5% adjusted EBITDA margin. Adjusted net income was $15 million, or $1.68 per share. Specialty products accounted for approximately 70% of net sales and about 85% of gross profits for the second quarter. Specialty product revenues declined 6% year-over-year due to continued price deflation when compared to the prior year. However, our average specialty product prices through the first half of the year generally remained at the same level. We expect to see a reduced year-over-year impact from pricing as we move into 2025. Now, as I mentioned earlier, we had solid volume growth in key specialty product categories, such as millwork, engineered wood products, and siding. We also delivered solid gross margin performance of 19.3% in specialty products due to our continued focus on business and operational excellence. Structural product revenues declined 7% due to lower lumber pricing, as well as lower lumber and panel volumes. The lower lumber prices are now at levels we have not seen in a few years. Panel prices, although better than last year, experienced an especially meaningful decline as well. For example, OSB prices fell 31% over the course of the quarter. The contraction in lumber and panel prices put pressure on demand as customers kept their purchasing at minimal levels and on our gross margins, given the natural lag on inventory costs coming down. For the quarter, structural product margins came in at 7.9%. However, we are optimistic that pricing will stabilize and eventually improve as manufacturers adjust their supply and the oversupply of wood in the channel draws down. At the same time, we believe that lower interest rates in the future will help fuel a more far-reaching industry recovery that is expected to create higher demand for structural products. On a positive note, and despite market challenges for structural products, our Days Sales of Inventory, or DSI, for lumber and panels remain consistent throughout the quarter due to our strategic management of structural product inventory. Lastly, on the quarter, our financial position remains strong, and our significant liquidity leaves us well-positioned to achieve our vision and execute on our growth strategy, as well as to maintain the flexibility to return capital to shareholders. During the second quarter, we repurchased $15 million in Blue Link stock, bringing the total amount repurchased to over $120 million since the beginning of 2022. Once again, demonstrating our commitment to returning capital to shareholders. Now turning to our perspective on the broader housing and building products market. Earlier this year, industry sources indicated a renewed sense of optimism for the overall market, especially for the second half of 2024. More recently, however, Due to continued headwinds resulting from the Federal Reserve's positioning regarding rate cuts, low existing home turnover, and home affordability issues, just to name a few, any sort of significant rebound now appears to be pushed out into 2025. Mortgage rates are currently around 7%, and although they are lower than the 8% peak last year, they are still well above the 20-year average and back to the levels last seen in the fall of 2023. More importantly, they haven't stabilized, which is critical to accelerating repair and remodel activity and new housing starts, especially for the private builders. Also, many homeowners are in low interest rate mortgages, so although we expect interest rate cuts to initially jumpstart the housing recovery, we believe that sustained reductions in interest rates over time are necessary to continue the recovery. Now, the U.S. housing market remains volatile. As reflected by June, total housing starts coming in at an adjusted annual rate of 1.35 million, up 3% for May, but still down 4.4% year-over-year. Seasonally adjusted single-family housing starts were at their lowest level since October 2023. Large multifamily starts improved month-to-month, but were still down 23% year-over-year. In addition, after five months of sequential improvement, builder's confidence flattened out in April at 51 and dropped to 45 in May. It then dropped to 43 in June and 42 in July. All of these drops reflect negative broad-based builder sentiment tied to anticipated building activity, which evidence the volatile and uncertain market conditions we're currently in. Looking at the components, Present sales conditions was 47, down from 62 last July. Expected sales in the next six months was 48, down from 59 last July. And traffic of prospective buyers was 27, down from 40 last July. Repair and remodel spending continues to be lower than the elevated levels of 2022 and 2023, years during which pull forward and expansive R&R occurred due to pandemic-related conditions driving more time in homes. Also, As interest rate increase impacts began accelerating in 2023, existing home sales sank to their lowest levels in 30 years, a phenomenon that has continued into 2024. As a result, a significant amount of repair and remodel activity that occurs when families sell their homes and buy new homes isn't happening due to current anemic sales velocity dynamics. Also, As we have noted before, we believe that most of the single-family housing starts are being driven by the large public builders because they can use their size, their scale, and their balance sheet to buy down mortgage rates, offer more attractive deals to consumers, and buy directly from manufacturers to support their production schedules. Two-step distributors like Bluelinks, however, tend to correlate more closely with smaller and custom home builder activity and therefore do not participate as much in the large production builder market. we expect the single-family start trend to continue for the remainder of 2024. Although the near-term outlook remains uncertain and muted, we certainly believe in the long-term prospects of the housing and building product sector, which drives our growth strategy. The substantial shortage of homes, supportive demographic shifts, aged housing stock, and necessary repair and remodel activity And high levels of home equity should continue to benefit the building products industry and Blue Links in the years to come as interest rates and home prices come down. 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, our specialty products business delivered strong gross margins despite the impact of price deflation. However, structural product margins were negatively impacted by contracting lumber and panel prices in the quarter, as well as challenges in the housing and building products industry affecting demand. Net sales were $768 million, down 6% year-over-year. Total gross profit was $122 million, and gross margin was 15.9%, down 70 basis points from the prior period. As we noted in our last call, first quarter 2024 results for specialty products reflected an estimated net benefit for import duty related matters incurred in prior periods. During the second quarter of 2024, the estimate was updated, resulting in an additional benefit of $2.7 million. We currently do not expect further material changes in estimates for future periods. More details on the matters are available in our 10Q. SG&A was $89 million, up $1 million from last year's second quarter. The increase was mainly due to higher technology expenses and legal expenses associated with the duty-related matters, partially offset by lower logistics costs and share-based compensation expense. Net income was $14 million, or $1.65 per share. And adjusted net income was $15 million, or $1, and 68 cents per share. Tax expense for the second quarter was $4.7 million, or 25%. For the third quarter of 2024, we anticipate our tax rate to be in the range of 24 to 28%. Adjusted EBITDA was $34 million, or 4.5% of net sales, and includes the favorable duty-related matters. Not including these matters, adjusted EBITDA would have been $32 million or 4.1% of net sales. Turning now to second quarter results for specialty products. Net sales were $539 million, down 6% year over year. This decline was driven by price deflation across specialty products. As Sham mentioned, given current market conditions, we expect to see a reduced year over year impact from pricing as we move into 2025. Gross profit from specialty product sales was $104 million, down 4% year-over-year. Specialty gross margin was 19.3% of 20 basis points from last year, primarily due to the duty-related item. Not including this benefit, specialty gross margins were still solid at 18.9% in the second quarter. Through the first four weeks of Q3, specialty products gross margin was in the range of 18 to 19%, with sequential daily sales volume slightly lower when compared to the second quarter of 2024 and higher than the equivalent period last year. Now moving on to structural products. Net sales were $229 million, down 7% compared to the prior year period. This decrease was primarily due to lower lumber pricing as well as lower lumber and panel volumes when compared to last year's levels. Gross profit from structural products was $18 million, a decrease of 33% year-over-year, and structural gross margin was 7.9%, down from 11% in the same period last year. In the second quarter of 2024, average lumber prices were about $383 per thousand board feet and panel prices were about $599 per thousand square feet, a 6% decrease and nearly a 13% increase, respectively, compared to the averages in the second quarter of last year. Sequentially, comparing the second quarter of 2024 with the first quarter, lumber prices declined 5% and panels were down nearly 3%. Through the first four weeks of Q3, Structural products gross margin was in the range of 8 to 9%, with daily sales volumes improving from the second quarter. Given the supply-demand dynamics in structural products, we would expect margins to be pressured through the end of the year. 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 quarter, cash on hand was $491 million, an increase of $10 million from Q1, largely due to normal seasonal patterns in working capital. When considering our cash on hand and undrawn revolver capacity of approximately $346 million, available liquidity was $838 million at the end of the quarter. Total debt excluding our real property financing leases was $348 million, The net debt was a negative $143 million. Our net leverage ratio was a negative 0.9 times given our positive net cash position, and we have no material outstanding debt maturities until 2029. Our balance sheet and liquidity remain strong, and when combined with our solid EBITDA generation, we are well positioned to support our strategic initiatives, including our digital transformation efforts. These include investments in our highest return opportunities, such as organic and inorganic growth initiatives and opportunistic share repurchases. Now moving on to working capital and free cash flow. During the second quarter, we generated operating cash flow of $36 million and free cash flow of $29 million, primarily driven by net income and improved working capital. Turning now to capital allocation. During the quarter, we spent $6.5 million in CapEx, primarily to improve our distribution facilities and our fleet. We also entered into finance leases for $3 million for fleet upgrades as well. For 2024, we expect capital investments to be approximately $40 million, focusing on facility improvements, further upgrades to our fleet, and the technology improvements previously discussed. As a reminder, Our digital transformation will also have at least a $5 million impact on operating expenses this year related to software licenses, as well as increased headcount associated with this initiative. As Shan mentioned, during the second quarter, we repurchased $15 million of stock, and we had $76 million remaining at quarter end on our current repurchase authorization. We are committed to our share repurchase efforts and plan to remain 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 expand our geographic footprint, as well as return capital to shareholders. We also plan to maintain a long-term net leverage of two times or less. Overall, we are pleased with our specialty product results despite continued deflation. which were able to offset some industry-related challenges in structural products within an uncertain housing environment. Our strong balance sheet and our liquidity positioned us well to execute on our strategy and continue to opportunistically return capital to shareholders. Operator, we are now ready to take questions.