Bluelinx Holdings Inc.

Joining me on today's call is Sham Reddy, our President and Chief Executive Officer, and Ken DeBrock, our Vice President, Chief Accounting Officer, and Interim Principal Financial Officer. At the end of today's prepared remarks, we will take questions. Our first 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 gap financial measures can be found in the appendix of our presentation. Now, I'll turn it over to Shannon.

Thanks, Tom, and good morning, everyone. Our first quarter results were highlighted by gross margins of over 18% for specialty products and just over 9% for structural products, despite the impact of continued price deflation in some categories and lower volumes in others due to weather and macroeconomic forces. Broadly speaking, While market-driven price deflation has improved since Q4, it continues to have an impact on our financial results, especially in certain product categories. That said, we partially offset this deflation by driving volume growth in engineered wood products, lumber, and panels. We continue to execute on our local and national market share gain strategies to grow our key specialty product categories, engineered wood, siding, millwork, industrial, and outdoor living products. at a higher rate than our structural product business in order to shift the product mix over the next several years across all of our customer segments. Our digital transformation efforts are on track, with phase one set to be completed by Q3 2025. We believe that our continued focus on modernizing the business with new technology will ultimately enable us to differentiate ourselves in the market, allowing us to accelerate our profitable sales growth and operational excellence initiatives. We also continue to explore and evaluate Greenfield and M&A opportunities to expand our geographic reach and to support our specialty product sales growth initiatives. Our Greenfield in Portland, Oregon is performing better than expected and has been expanding its product offering every month. Leading products currently include LP siding, followed by structural panels and lumber. We expect to continue expanding our product offering by leveraging key supplier relationships. As we roll out additional greenfields in high potential locations, we expect to apply best practices learned in Portland. Now turning to our first quarter results. We generated net sales of $709 million in adjusted EBITDA of $19.6 million for a 2.8% adjusted EBITDA margin. Adjusted net income was $2.3 million, or 27 cents per share. Specialty products continued to account for approximately 70% of net sales and about 80% of gross profit for Q1. Specialty product net sales declined nearly 5% year-over-year due to continued price deflation, mostly in engineered wood products and millwork. Volume pressure, most notably in siding and industrial products, also played a role as poor weather, lower housing starts, and lower R&R activity, depending on the market, had an impact. Our west region, and in particular Texas, experienced significant headwinds due to the challenges faced by large tract builders. As I mentioned earlier, these declines were partially offset by strong volume growth in EWP, where we are gaining market share in the strategically important category. We also delivered gross margin performance of 18.7% in specialty products. I would also like to note that the results for specialty products improved significantly in March when compared to January and February. Structural product revenues increased more than 3% largely due to significant price increases in lumber combined with volume increases in both lumber and panels. These increases in volume were largely due to growth in our multifamily business. We're similar to EWP. We believe we are gaining market share as a result of our focused multifamily share gain strategy. For the quarter, Industry average lumber prices were up 13%, while panel prices were down 13% year over year. We once again leveraged our strategic approach to inventory management and our centers of business excellence to manage margins. Our focus on business excellence continues to deliver solid gross margin performance quarter after quarter, despite challenging market conditions. Furthermore, our focus on driving an enterprise-wide corporate strategy enables us to better leverage our diversified customer base geographic footprint, and scale to navigate the challenging landscape effectively. This discipline positions us very well for the housing and building products market recovery when that occurs. Lastly, on the quarter, our financial position remains strong, and our significant liquidity leaves us well-positioned to achieve our vision, execute on our profitable sales growth strategy, and take advantage of share gain opportunities as the market rebounds. We also continue to have the flexibility to demonstrate our commitment to returning capital to shareholders by repurchasing $15 million in shares during the first quarter. Now, let's turn to our perspective on the broader housing and building products market. As you all know, the housing market is challenging, which is putting pressure on the building materials sector. Housing affordability and high mortgage rate concerns were being addressed with value engineering, builder concessions, and declining mortgage rates heading into the year. The impact of these measures are now being tempered by declining consumer sentiment tied to tariffs, stock market declines, and inflation fears, to name a few. On top of that, we're operating in the lowest existing housing sales backdrop in 30 years, which is a powerful force for driving repair and remodel activity. The impacts of the new administration's policies should be temporal, as the long-term fundamentals of housing are strong. Currently, the U.S. is 4 million homes short. which is better for the building product sector than being in a situation where supply far outstrips demand, a problem the building materials and housing sector experienced during the financial crisis in the off. And at some point, homeowners will need to improve their existing homes or drive existing home sales activities to meet family formation and other personal needs, thereby driving greater repair and remodel activities. In the meantime, There will continue to be general uncertainty about the timing for sustained housing recovery. In fact, we're seeing this flow through various indicators of builder and consumer sentiment. March total and single-family housing starts were down considerably. On the other hand, multifamily housing starts were significantly higher on a year-over-year basis. Builders' confidence and consumer sentiment levels are trending downward as well. Repair and remodel spending continues to be soft given low existing home sales. Despite this softness, our strategic focus on national accounts is enabling us to grow this business on a year-over-year basis. And as the housing turnover increases, we believe the investments we're making today will accelerate our growth efforts in the repair and remodel driven business when the markets improve, which we cannot predict the timing of. Although the near-term outlook remains uncertain, we continue to believe in the long-term prospects of the housing and building product sector, It is estimated that more than 1.5 million homes need to be built every year for the next 10 years to meet the anticipated housing demand, which is probably a low estimate based on the actual need due to a variety of demographic trends. We took the anticipated demand curve and the fundamental drivers for housing and building products into account when we developed our share gain strategy to drive profitable sales growth. Tariffs, however, will put pressure on our gross margins. Even though we expect to pass them along via price increases, we believe that it will be difficult to maintain our most recent margins with certain product categories given the expansive scope and magnitude of the tariffs. Regardless of market conditions and administration policies, we will continue to emphasize our product and channel growth strategies and, in particular, our multifamily growth strategy to gain share in an otherwise challenging market. I remain convinced that our enterprise-wide product and channel strategies are good for long-term success as they are designed to fully leverage our scale to drive profitable sales growth in the toughest and best of housing market conditions. Through the first four weeks of Q2 2025, margins for specialty products were slightly below Q1, which is largely attributable to regional and competitive dynamics surrounding certain specialty product categories. Structural product margins were slightly better during the first four weeks which is mainly due to higher lumber prices when compared to earlier in the year. Daily volumes are up mid-double digits for specialty products and up mid-single digits for structural products in Q2. In addition, it is important to note that while industry-driven specialty products price deflation continues to impact our top line and cost of goods sold, the situation once again improved in Q1. In the first quarter, specialty pricing was down low single digits, while in the fourth quarter of 2024, specialty pricing was down mid-single digits. And in the third quarter of 2024, pricing was down high single digits. For the first four weeks of Q2, pricing has been generally flat relative to Q1. Given the political backdrop, inflationary pressures, and discussions with our vendor partners, we are optimistic that the specialty pricing volatility will stabilize at some point. However, the outlook for volumes may be tempered significantly by these same factors, tariffs, high mortgage rates, and general economic uncertainty. In summary, we delivered solid results for the first quarter of 2025. We're also delivering on our strategic priorities as seen by our specialty product expansion efforts, margin performance, and capital allocation initiatives. Focus and clarity will continue to be critical in the successful execution of our strategy for the remainder of 2025. I'd like to end by thanking my fellow Blue Links associates for their continued perseverance and can-do spirit within a challenging housing market, and for their dedication to our customers, our suppliers, and the communities they serve. Our teams are committed to generating profitable specialty and structural product sales to ensure that we position ourselves for long-term success. regardless of short-term market conditions. Now I'll turn it over to Kim, who will provide more details on our financial results and on our capital structure.

Thanks, Dan, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, both our specialty and structural products businesses delivered solid gross margins, despite the impact of price deflation and a challenging macro picture. Pricing and volume declines in specialty products were partially offset by pricing and volume gains in structural products. Net sales were $709 million, down 2% year over year. Total gross profit was $111 million, and gross margin was 15.7%, down 190 basis points from the prior period. Similar to previous quarters, our first quarter 2025 results for specialty products included a net benefit for import duty-related matters of $2.4 million. More details on these matters are available in our 10Q. SD&A was $94 million, up $2.8 million from last year's first quarter. The increase was mainly due to continued investments in technology associated with our digital transformation and higher logistics costs. Net income was $2.8 million, or 33 cents per share. Adjusted net income was $2.3 million, or 27 cents per share. Tax expense for the first quarter was $1.3 million, or 32.3%. For the second quarter, we anticipate our tax rate to be in the range of 29 to 33%. Adjusted EBITDA was $19.6 million, or 2.8% of net sales, and includes the favorable duty-related matters. Not including these matters, adjusted EBITDA would have been $17.1 million, or 2.4% of net sales. Turning now to first quarter results for specialty products. Net sales were $480 million, down 5% year-over-year. This decline was driven by overall price declines, primarily for engineered wood, and by overall volume declines, mostly for siding, partially offset by volume increases for engineered wood. As Sham mentioned, given current market conditions, we are optimistic that specialty pricing volatility will abate at some point. Gross profit from specialty product sales was $90 million, down 14% year over year. Specialty gross margin was 18.7%, down 200 basis points from last year's 20.7%, primarily due to price deflation, decreases in volumes, and the impact of duty-related items. Excluding these items, For both periods, specialty products gross margin would have been 18.2% in the first quarter of 2025, down 120 basis points from first quarter 2024's 19.4%. Through the first four weeks of Q2, specialty product gross margin was in the range of 17 to 18%, with daily sales volumes higher when compared to both the first quarter of 2025 and the second quarter of 2024. Now moving on to structural products. Net sales were $230 million, up over 3% compared to the prior year period. This increase was primarily due to higher lumber pricing and increased lumber and panel volumes when compared to last year. Gross profit from structural products was $21 million, a decrease of 10% year-over-year, and structural gross margin was 9.3%, down 130 basis points from the same period last year. In the first quarter of 2025, average lumber prices were about $456 per thousand board feet and panel prices were about $534 per thousand square feet, a 13% increase and a 13% decrease, respectively, compared to the averages in the first quarter of last year. Sequentially, comparing the first quarter of 2025 with the fourth quarter of 2024, Lumber prices were up about 6% and panel prices were down about 2.5%. Through the first four weeks of Q2, structural products growth margin was in the range of 9% to 10%, with daily sales volumes improving from both the first quarter of 2025 and second quarter of 2024. 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 $449 million, a decrease of $57 million from Q4, largely due to the normal seasonal changes in working capital. When considering our cash on hand, an undrawn revolver capacity of $346 million, available liquidity was approximately $795 million at the end of the quarter. Total debt excluding our real property financing leases was $374 million, and net debt was a negative $75 million. Our net leverage ratio was a negative 0.7 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 strategic initiatives include investments in our highest return prospects, such as organic and inorganic growth initiatives, and opportunistic share repurchases. Now moving on to working capital and free cash flow. During the first quarter, we generated operating cash flow of negative $34 million and free cash flow of negative $40 million, primarily driven by lower net income and changes in working capital. Turning now to capital allocations. During the quarter, we spent $6 million in CapEx, primarily tied to our digital investments and to improve our fleet and distribution facilities. For 2025, we plan to manage our CapEx relative to market conditions and our plan to maintain a strong balance sheet. These investments will focus on facility improvements, further upgrades to our fleet, and the technology improvements previously discussed. Our digital transformation will also have approximately a $5 million impact on operating expenses in 2025 related to software license implementation, as well as increased headcount associated with this initiative. As Sham mentioned, during the first quarter, we repurchased $15 million of stock and we had $31 million of repurchases remaining at quarter end on our current share 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, expand our geographic footprint, and pursue a disciplined M&A strategy, as well as return capital to shareholders. We also plan to maintain a long-term net leverage ratio of two times or less. Overall, we are off to a solid start in 2025, and we're pleased with our gross margins in both our specialty and structural products in light of the challenging macroeconomic environment. Our strong balance sheet and our liquidity positions us well to execute on our strategy and continue to opportunistically return capital to shareholders. Operator, we will now take questions.