Bluelinx Holdings Inc.

I'm Mara Vito. Please go ahead.

Thank you, Operator, and welcome to the Blue Links Third Quarter 2025 Earnings Call. Joining me on today's call is Sham Reddy, our Chief Executive Officer, and Kelly Wall, our Chief Financial Officer and Treasurer. At the end of today's prepared remarks, we will take questions. Our third 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. Although soft market conditions are pressuring our margins, we are pleased with our overall sales growth efforts, our acquisition of a high-end specialty products distributor, and our Portland Greenfield expansion. I am especially proud of the team's efforts to grow our EWP volumes by low double-digit percentages and our outdoor living product category by low single digits during a challenging quarter. On to our Q3 performance. Our third quarter results were highlighted by an increase in sales as we continue to positively execute on our product and channel strategies to grow through challenging market conditions. Net sales and volumes improved for specialty products as overall pricing for this business continued to improve, while our product and channel strategies drove volume gains. Structural products also saw year-over-year pricing improvements for the overall business, which were offset by slight volume declines this quarter. When you adjust for the duty-related matter that Kelly will discuss later, our specialty product gross margins were relatively good at 17% in a tougher-than-expected quarter. Importantly, we announced the exciting acquisition of Destero Lumber Company, a specialty products distributor. Operating since 1953 and based just south of Portland, Oregon, Destero is a value-added distributor focusing on premium and higher-margin specialty wood products. I will offer some additional details on this transaction in a moment. We're continuing to create demand for our products through builder pull-through programs and value-add services, along with dedicated efforts focused on national accounts and multifamily opportunities. This strengthens our value proposition for customers and suppliers, helps us deepen our market presence, and supports our product and channel expansion strategies. We believe that our strategy, when coupled with our strong balance sheet and liquidity position, provides resilience while positioning us well for better than market long-term success. Market-driven price deflation for specialty products continues to stabilize, with pricing flat for the third quarter versus being down high single digits this time last year. We were able to offset the relatively neutral pricing impact in Q3 with volume growth in engineered wood products and outdoor living products in particular, as our channel and product strategies continue to generate positive momentum to grow sales and gain share in these product categories, despite housing starts being down year over year through August. Our focused efforts are causing large national builders to convert from other well-known EWP brands to our high-quality on-center brands, which is a terrific win for our customers as we accelerate our demand creation efforts for their and our benefit. We're also supporting builder-rent projects with our targeted builder pull-through programmatic efforts, a segment of the housing market that we believe will continue to gain momentum in light of housing affordability issues. Pricing for the overall structural products business was up slightly this quarter. which partially offset the impact of volume declines. Strategically, we are maintaining our commitment to expanding our five main specialty product categories, engineered wood, siding, millwork, industrial, and outdoor living across all customer segments. Although our mixed shift strategy remains unchanged, we are prioritizing strategic channel growth when making decisions, about new product launches and working capital investments. We are also continuing our efforts to expand our multifamily business, our builder pull-through efforts, and our national accounts business, all areas where we are seeing positive results. We expect to see solid rebounds in the multifamily segment, which efficiently addresses housing demand and affordability over the long run. Recent housing data shows year-over-year improvement supporting our strategy for long-term growth in this channel. Our multifamily focus is creating demand for our products in tough single-family market conditions, though these sales often involve longer inventory turnover and direct sales, which have lower gross margins. This channel also provides a smoother path for product conversions, to the brands we carry, such as our on-center engineered wood products and Allura fiber cement siding. Our digital transformation work remains on schedule, with phase one set to be completed this year. We have strengthened our master data foundation, we have converted more than two-thirds of our markets to our new Oracle Transportation Management System, and we have successfully processed e-commerce transactions in our pilot market. Our learnings from phase one will inform future investments in our digital transformation journey. We're also advancing our AI work to improving efficiency and boosting productivity. We've gone from piloting AI with a group of Bluelinks associates to providing most of our associates with the ability to build agency in the Microsoft platform to streamline their work and to help improve their productivity. We believe our technology modernization will help us stand out and accelerate profitable sales growth and operational excellence. In addition, M&A and Greenfields remain important elements of our profitable sales growth strategy. So we continue to explore and evaluate opportunities in both areas in order to expand our geographic reach and to support our specialty product sales growth initiatives. We are now coming up on one year since we announced our Portland, Oregon Greenfield, which continues to perform very well. Last quarter, we significantly expanded our product offerings and doubled our warehouse space in that location due to better than expected demand. Along these lines, and as we announced on Monday, we are very excited about the acquisition of DeSero Lumber Company, a specialty products distributor. DeStero focuses on higher margin premium specialty wood products, which are used primarily in the construction of high-end custom homes and decks, as well as upscale multifamily residential projects. With customers in nearly all 50 states, we are looking forward to growing this business, not only as part of our Western expansion, but also by distributing DeStero products out of several Bluelinks locations across our footprint. We also plan to offer many of our core specialty products to DeStero's existing customers. The acquisition directly addresses several of our key strategies, such as shifting our product mix increasingly toward higher margin specialty products, supporting growth in the multifamily channel, and to expanding our business in the western United States. We are also pleased that the highly experienced DeStero team will be staying on with Bluelinks. Combining DeStero with Bluelinks' longstanding customer and supplier relationships, nationwide scale, and overall financial strength should result in a significant expansion of this successful business. Now, turning to our third quarter results. We generated net sales of $749 million and adjusted EBITDA of $22.4 million for a 3.0% adjusted EBITDA margin. Adjusted net income was $3.7 million, or 45 cents per share. Specialty products continued to account for approximately 70% of net sales and over 80% of gross profit for Q3. specialty product net sales increased slightly year over year due to strong volumes in engineered wood products and outdoor living products. Unfortunately, price deflation in EWP partially offset the benefits of our net sales and volume increases in this category. Gross margins for specialty product sales came in at 16.6%, which as reported was below our expected range and due in part to a duty-related adjustment that Kelly will discuss in a moment. Excluding that duty-related adjustment, our gross margins would have been 17%. Our commitment to business excellence ensures solid gross margins, even in challenging markets. By leveraging our diverse customer base, broad geographic reach, product assortment, multifamily and builder pull-through capabilities, and large scale, we can deliver greater value to our customers and suppliers and remain well positioned for long-term success. It is important to note that while industry-driven specialty products price deflation in certain categories continues to adversely impact our top line and our cost of goods sold, the price declines overall continue to improve and we're flat in Q3. compared to prices being down high single digits this time last year. We are optimistic that specialty pricing volatility will continue to stabilize. Despite our success, higher profitable sales growth may be adversely impacted by tariffs, high mortgage rates, and general economic uncertainty, which I will briefly discuss in a minute. Structural product revenues decreased slightly year over year. largely due to price declines in panels, combined with volume declines in both lumber and panels. These volume declines were due to continued challenging market conditions. For the quarter, industry average lumber prices were up 6%, while panel prices were down 14% year over year. We once again leveraged our disciplined approach to inventory management and our centers of business excellence to effectively manage margins in our structural product categories. Our financial position remains strong, and our significant liquidity gave us the flexibility to return capital to shareholders by repurchasing $2.7 million of shares in Q3. Combined with our new $50 million share repurchase authorization announced last quarter, our total current availability is $58.7 million. Now let's turn to our perspective on the broader housing and building products market. As you all know, the housing market continues to be soft, which is impacting the building materials and distribution sector. Broadly speaking, housing affordability, elevated mortgage rates, short-term interest rates, construction labor availability, inflation, consumer confidence, and other factors continue to affect the housing and repair and remodel markets. The uncertainty being generated by government policies and the adverse impact of the macroeconomic environment on building materials should be short-term in nature as the long-term fundamentals of housing are strong enough to drive demand when the market recovers. Currently, the U.S. is 4 million homes short on supply. which is clearly positive for the building product sector. And with the average age of a home at 40 plus years old, it's clear that homeowners will need to make improvements to their existing homes or buy new homes, which will drive greater repair and remodel activity. August total housing starts, which is the latest data available due to the government shutdown, were down nearly 6% year over year. and single-family housing starts were down nearly 12% from August 2024. Builders' confidence and consumer sentiment levels are also down significantly compared to this time last year. By comparison, multifamily housing starts were actually much higher on a year-over-year basis, serving as a catalyst for our strategy. Although the total starts are down, our product and channel strategies are leading to gains in a contracting market due to sales growth tied to success with our product expansion, builder pull-through, multifamily, and national accounts efforts. While interest rates have been improving and thus helping with the affordability issue, consumer sentiment being down over 20% year over year remains a real concern. During the quarter, I spent a great deal of time meeting with customers and suppliers in markets all across the country, and the general tone continues to be one of near-term uncertainty coupled with longer-term optimism. As we have said before, several sources have 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, and that may be a conservative number. Repair and remodel spending continues to be soft, due to low existing home sales. Despite this softness, our strategic focus on national accounts is enabling us to grow this segment of pro-business at scale. As housing activity increases, we believe the investments we're making today will accelerate our growth efforts in the repair and remodel pro-business when it recovers. Despite difficult market conditions and uncertain government policies, We believe the market will improve in the back half of next year if interest rates continue to decline and housing starts and repair and remodel activity improve as a result. Regardless, we will continue to emphasize our product and channel growth strategies, and in particular, our builder pull-through, multifamily, national accounts, and product expansion efforts to grow in an otherwise challenging market. Our enterprise-wide product and channel strategies position us well for long-term success as they are designed to fully leverage our scale to drive profitable sales growth, not only in challenging markets like the one we're currently in, but more so when the housing market recovers. In summary, although our Q3 results were solid given challenging market conditions, we are most proud of our continued success executing our strategic initiatives as evidenced by our specialty product expansion efforts, multifamily channel growth, national accounts growth, capital allocation initiatives, Portland Greenfield expansion, and the DeStero specialty products distributor acquisition. We look forward to finishing the year on a high note and to setting ourselves up for success in 2026. I want to express my appreciation to all Bluelinks associates for their ongoing commitment to our customers, suppliers, and one another. Our teams remain focused on driving profitable growth in both specialty and structural product sales, ensuring we are prepared for long-term success, even as we navigate current market challenges. Now I'll turn it over to Kelly, who will provide more details on our financial results and on our capital structure.