BlueLinx Q4 2024 Earnings Report

BlueLinx EPS Results

• Actual EPS: $0.51
• Consensus EPS: $0.52
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

BlueLinx Revenue Results

• Actual Revenue: $710.64 million
• Expected Revenue: $700.66 million
• Beat/Miss: Beat by +$9.98 million
• YoY Revenue Growth: N/A

BlueLinx Announcement Details

• Quarter: Q4 2024
• Date: 2/18/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 19, 2025
• Conference Call Time: 10:00AM ET

BlueLinx (NYSE:BXC), together with its subsidiaries, engages in the distribution of residential and commercial building products in the United States. It distributes specialty products, including engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products; and structural products, such as lumber, plywood, oriented strand boards, rebars and remesh, as well as other wood products that are used for structural support in construction projects. It also provides various value-added services and solutions to customers and suppliers. The company serves national home centers, pro dealers, cooperatives, specialty distributors, regional and local dealers, and industrial manufacturers. BlueLinx Holdings Inc. was incorporated in 2004 and is headquartered in Marietta, Georgia.

BlueLinx Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you

[Operator]

for standing by, and welcome to the Blue Link Coatings Fourth Quarter Full Year twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode, and today's call is being recorded. We will begin with opening remarks and introductions. At this time, I will turn the conference over to your host, Investor Relations Officer, Tom Marbodoe. Please go ahead, sir.

[Tom Morabito, Investor Relation Officer at BlueLinx]

Thank you, operator, and welcome to the BlueLinx fourth quarter and full year twenty twenty four earnings call. Joining me on today's call is Sham Reddy, our President and Chief Executive Officer and Kim DeBrock, our Vice President, Chief Accounting Officer and Interim Principal Financial Officer. At the end of today's prepared remarks, we will take questions.

[Tom Morabito, Investor Relation Officer at BlueLinx]

Our

[Tom Morabito, Investor Relation Officer at BlueLinx]

fourth quarter and full year news release and Form 10 K 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, 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.

[Tom Morabito, Investor Relation Officer at BlueLinx]

Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation. Now, I'll turn it over to Shan.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Thanks, Tom, and good morning, everyone. We are pleased with both our fourth quarter and full year twenty twenty four results, especially in a year when elevated high mortgage rates and record home prices depressed sales in the housing and building products sector. Despite these headwinds, our margins remain strong in specialty products and we continue to generate solid margins in our structural products business as well. During the quarter, we also demonstrated our commitment to returning capital to shareholders by continuing to repurchase shares under our $100,000,000 share repurchase authorization. Next, I'd like to offer a few highlights from 2024.

[Shyam Reddy, CEO, President & Director at BlueLinx]

First, we delivered solid full year 2024 results. Our teams and supplier partners, combined with the confidence our customers have in BlueLinx, helped us compete effectively in challenging end markets, resulting in strong gross margins of 19.4% for specialty products and 10.1% for structural products for the year. Second, our fourth quarter results were also solid. As expected, our revenues were flat year over year largely due to market driven price deflation. However, our specialty and structural gross margins came in at eighteen point four percent and ten point eight percent, respectively.

[Shyam Reddy, CEO, President & Director at BlueLinx]

That's testament to the value of our service proposition to customers and our ability to effectively manage our inventory. In addition, while deflation still had an impact in Q4, it improved from Q3. It is also worth noting that specialty product volumes were up low single digits year over year, demonstrating that our corporate growth strategy is bearing fruit. Third, we remain focused on our five key high margin specialty product categories: engineered wood, siding, millwork, industrial and outdoor living products. Specialty products accounted for approximately 70% of net sales and 80 of gross profit for both the fourth quarter and full year 2024.

[Shyam Reddy, CEO, President & Director at BlueLinx]

We also continue to execute successfully on our local and national market share gain strategies as seen by our multifamily growth, expansion of product lines with key national accounts, our expansion of branded product lines into new geographic markets and launches of new product lines. For example, we recently announced an expanded distribution partnership with Louisiana Pacific that will broaden the geographic reach of our wood based siding offering, demonstrating our focus on specialty product growth. These product categories and the strategic vendor partners we've aligned with enable us to be a necessary extension of our customers in a scalable way, whether they are local or national. These product categories are also 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. In addition, they drive higher net sales and gross profit, which generate sustainable and durable operating cash flow that can be reinvested back into the business and used to fund opportunistic greenfields and M and A opportunities.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Fourth, our digital transformation journey is well underway as we strive to become the most technologically advanced two step distributor building products in The United States, transforming BlueLinx and making 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 and supplier experience that is more efficient and effective. They will also enable us to drive productivity improvements that will enhance our gross margins and EBITDA margins. Phase one includes implementing a new master data management platform, launching an e commerce platform, which is now live in a pilot phase and establishing a new transportation management system, which is on track to be fully implemented by Q3 twenty twenty five. We are also emphasizing the technology enablement of our warehouse operations.

[Shyam Reddy, CEO, President & Director at BlueLinx]

We believe that subsequent phases will further enhance our operational and commercial capabilities. Modernizing the business with new technology will differentiate ourselves in the marketplace and accelerate our profitable sales growth and operational excellence initiatives. Fifth, in November, we announced our first greenfield in Portland, Oregon and we expect to have additional announcements in 2025. We expect our upfront cash investment for each new location to be less than $5,000,000 and EBITDA positive after two years with EBITDA margins between 610%. These greenfields should generate between $40,000,000 and $100,000,000 of net sales at maturity.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Of course, these expectations will vary depending on the size of the market, the branch real estate footprint, product mix and other factors. It is also important to note that as we launch at Greenfield, we intend to have a product mix more heavily weighted to specialty products. We will strive to get to our seventythirty specialty structural split in the initial year and then to around eightytwenty at maturity. We have considerable strength managing our structural products business, so we believe that capability will provide us with a competitive advantage when launching greenfields and allow us to meet our financial objectives much faster. Sixth, our financial position remains strong with liquidity of $852,000,000 at the end of the year, including $5.00 $6,000,000 of cash on hand.

[Shyam Reddy, CEO, President & Director at BlueLinx]

This strength gives us the flexibility to reinvest in business initiatives that allow us to increase sales, improve productivity, expand our geographic reach and provide better customer and vendor service, an example of which would be our digital transformation initiative. And of course, having the ability to return capital to shareholders remains a priority as demonstrated by our share repurchase program. For the year, we returned $45,000,000 to shareholders. Now, for a few more details on our full year results. We generated 2024 net sales of $3,000,000,000 and $131,000,000 in adjusted EBITDA for a 4.4% adjusted EBITDA margin.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Adjusted net income was $55,000,000 or $6.44 per diluted share. For the year, we delivered solid gross margin performance with specialty products coming in at 19.4% and structural products at 10.1%. Our focus on business and operational excellence led to effective pricing, strong service levels, procurement opportunities and cost management contributing to these strong results. Kim will provide more details in her remarks. Now let's turn to our perspective on the broader housing and building products market.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Early last year, industry sources were optimistic about the overall market for building products rebounding in the second half of 'twenty four. As we all know, that rebound never happened. As we continue to operate in an environment with the lowest existing housing sales backdrop in thirty years, elevated interest rates, home affordability issues and market volatility due to tariff and other recent policy announcements, there is general uncertainty about the timing for a sustained housing recovery. Of course, one of the critical factors inhibiting a housing recovery is the Federal Reserve's positioning regarding rate cuts in addition to policies and market forces that may keep mortgage rates stubbornly high or otherwise volatile. As we noted before, it is also important to note that the Federal Reserve interest rate cuts do not directly result in lower mortgage rates given other macroeconomic factors that influence these rates.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Now, although the year ended with many observers expecting housing starts to be up slightly in '25, recent views suggest that housing starts will be flat to down this year. In fact, builders' sentiment fell five points from January over concerns about tariffs, high mortgage rates and affordability issues with housing. Regardless of market conditions, 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. Repair and remodel spending continues to be soft because existing home sales are low. Despite this softness, our strategic focus on national accounts is expected to enable us to grow this business on a year over year basis.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And as the 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 turn. Now although this near term outlook remains uncertain, we continue to believe in the long term prospects of the housing and building products sector. As many of you know, it is estimated that 1,800,000 homes need to be built every year for the next ten years to meet the housing demand, which if anything 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, which generated positive results in 2024. Focus and clarity will continue to be critical to the successful execution of our strategy in 2025.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Through the first seven weeks of Q1 twenty twenty five, we have maintained solid margins for specialty products, which are generally in line with Q4 twenty twenty four. Structural product margins are slightly lower so far in 2025, largely due to declining panel prices. Daily volumes have been adversely impacted by the extreme weather patterns experienced in January. In fact, over 20 of our locations were closed for at least half a day in January due to unusually cold weather and winter storms. In addition, it is important to note that while industry driven specialty products price deflation continues to have an impact on both our top line and cost of goods sold, the situation improved in Q4.

[Shyam Reddy, CEO, President & Director at BlueLinx]

For example, in the fourth quarter, specialty pricing was down mid single digits versus high single digits in the third quarter. For the first seven weeks of the year, pricing has been volatile, but generally flat relative to Q4 when you take all the puts and takes into account. Given the political backdrop, inflationary pressures and discussions with our vendor partners, we are optimistic that the specialty pricing volatility will abate at some point. The flip side, however, is that the outlook for volumes may be tempered a bit by these same factors, high mortgage rates and economic uncertainty. In summary, we delivered solid results for both the fourth quarter and full year 2024.

[Shyam Reddy, CEO, President & Director at BlueLinx]

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 and capital allocation initiatives. I'd like to end by thanking my fellow Blue Lakes associates for their continued grit, tenacity and resilience during a challenging housing market and for their dedication to our customers and our suppliers. Our teams are committed to generating more profitable structural and specialty product sales to ensure that we position ourselves for long term success regardless of near term market conditions. Now, I'll turn it over to Kim, who will provide more details on our financial results and our capital structure.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

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 solid margins in both our specialty and structural product categories. Net sales were $711,000,000 consistent with last year's fourth quarter. Specialty product sales were down 1% from the prior year due to price deflation.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

Structural product sales were up 1% largely due to year over year increases in lumber prices. Total gross profit was $113,000,000 and gross margin was 15.9, down 70 basis points from the prior period. SG and A was $93,000,000 up 10% from the prior year period, primarily due to increased payroll and payroll related expenses, partially driven by increased logistics costs due to higher volumes and costs associated with our digital transformation. Net income was $5,300,000 and diluted earnings per share was $0.62 per share. Adjusted net income was $5,200,000 and adjusted diluted EPS was $0.61 per share.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

Tax expense for the fourth quarter was $1,700,000 or 24.3%. For the first quarter of twenty twenty five, we anticipate our tax rate to be in the 24% to 28% range. Adjusted EBITDA was $22,000,000 or 3% 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.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

Net sales were four eighty four million dollars down 1% year over year. This decline was largely driven by price deflation across most of our specialty product categories, partially offset by higher volumes. Gross profit from specialty product sales was $89,000,000 down 6% year over year. Specialty gross margin was 18.4%, a strong margin, but down 100 basis points from last year. Through the first seven weeks of twenty twenty five, specialty product gross margin was in the range of 18% to 19% with daily sales volumes down low double digits compared to the fourth quarter of twenty twenty four given the impact of the January weather.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

Over the past three weeks, however, specialty volumes were about flat on a year over year basis. In addition, we are seeing average specialty pricing down low single digits compared to this time last year. Now moving on to structural products. Net sales were $227,000,000 up 1% compared to the prior year period. This increase was primarily due to price increases in framing lumber, partially offset by slightly lower volumes.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

Gross profit from structural products was $25,000,000 a decrease of 3% year over year and structural gross margin was 10.8%, up 20 basis points from the same period last year. In the fourth quarter of twenty twenty four, average lumber prices were about $430 per 1,000 board feet and panel prices were about $549 per 1,000 square feet, a 12% increase and a 6% decrease respectively compared to the averages in the fourth quarter of twenty twenty three. Sequentially, comparing the third and fourth quarters of twenty twenty four, these prices were up 126% respectively. During the fourth quarter, both lumber and panel prices increased in October and November but declined in December and finished the December at $433 and $543 respectively. In the first seven weeks of Q1 twenty twenty five, these prices are now $446 per 1,000 board feet and $543 per 1,000 square feet respectively.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

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 twenty twenty five, structural product gross margin was in the range of 8% to 9% with daily sales volumes down low double digits compared to the fourth quarter of twenty twenty four given the impact of January weather. Similar to specialty products, over the past three weeks there has been some improvement in volumes and pricing is also up slightly year over year. For the year, net sales were $3,000,000,000 down 6% from 2023, largely due to specialty price deflation. Specialty and structural product sales were down 65% respectively, once again largely due to price deflation.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

Total gross profit was $489,000,000 and gross margin was 16.6%, down 20 basis points from the prior year period. SG and A was $366,000,000 up almost 3% versus the prior year period. For 2025, we expect our SG and 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 $53,000,000 and diluted EPS was $6.19 per share. Adjusted net income was $55,000,000 and adjusted diluted EPS was $6.44 per share.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

The full year tax rate was 24.9% and for full year 2025, we anticipate our tax rate to be in the 24% to 28% range. Adjusted EBITDA was $131,000,000 or 4.4% 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 was $5.00 $6,000,000 a decrease of $21,000,000 from Q3 largely due to normal seasonal changes in working capital. When considering our cash on hand and undrawn revolver capacity of $346,000,000 available liquidity was $852,000,000 at the end of the year.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

Total debt excluding our real property financing leases was $350,000,000 and net debt was a negative $156,000,000 Our net leverage ratio was a negative 1.2 times given our positive net cash position and we have no material outstanding debt maturities until 2029. Our balance sheet and liquidity remains 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 prospects, such as organic and inorganic growth initiatives and opportunistic share repurchases. Now moving on to working capital and free cash flow. During the fourth quarter, we generated operating cash flow of $19,000,000 and free cash flow of negative $1,500,000 primarily driven by lower net income, working capital seasonality and CapEx.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

For the full year 2024, we generated operating cash flow of $85,000,000 and free cash flow of $45,000,000 Our full year cash generation was supported by solid earnings, partially offset by increased CapEx. Turning now to capital allocation. During the quarter, we spent approximately $20,000,000 in CapEx, primarily to improve our distribution facilities, upgrade our fleet and for our digital transformation. For the year, CapEx was about $40,000,000 For 2025, we expect capital investments to once again be around $40,000,000 focusing on facility improvements, further upgrades to our fleet and the technology improvements previously discussed. Our digital transformation will also have approximately a $5,000,000 impact on operating expenses in 2025 related to software license implementation as well as increased headcount associated with this initiative.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

As Sham mentioned, during the fourth quarter, we purchased approximately $15,000,000 of our company's common stock through open market transactions under our repurchase program 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, expand our geographic footprint and pursue a disciplined M and 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 pleased with our fourth quarter and full year results highlighted by our strong margins, especially when considering the difficult housing market.

[Kim DeBrock, Vice President & Chief Accounting Officer at BlueLinx]

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.

[Operator]

Thank you. Your first question is from the line of Jeffrey Stevenson with Loop Capital.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Hey, thanks for taking my questions today. Shyam, can you provide more color on the sequential improvement on specialty product pricing you saw during the quarter? And whether that included any stabilization in key categories such as EWP? And then also at a high level, how should we think about cadence of year over year specialty products pricing as we move through fiscal twenty twenty five?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Sure. Thanks, Jeff. Good to hear from you. So, first of all, I'm very proud of the five quarters of sequential year over year growth that the year over year growth after over five consecutive quarters with respect to specialty products, which shows our strategy bearing fruit, as I said earlier in my remarks. It's a very targeted strategy, both channel and product.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And so, as we continue to move forward, it will generate more volume despite headwinds or market headwinds because we're very focused on national accounts and multifamily while also expanding geographic footprint with key suppliers, expanding our SKU mix with key suppliers, and also pulling in new products to support specialty growth in key markets. As it relates to pricing, over the course of the year, it's very challenging from a certainty standpoint because of the various policy positions that are coming out that make it a little bit more difficult to get a handle on the demand curve. But at the end of the day, we have centers of excellence around pricing. We have a strong value proposition. And also from an operational excellence standpoint and scale tied to our supply chain, we believe that we can continue to make headway on stabilizing the pricing through intentional efforts.

[Shyam Reddy, CEO, President & Director at BlueLinx]

That said, I mean, market pricing is market pricing, but we believe that with our scale and operational, our operational value proposition that we can manage through it, especially given how well we've done with inventory, for example. And as you've seen with our margin management over multiple quarters, we feel pretty good about continuing that. But it's too early to tell, Jeff, quite frankly. I mean, we've seen if you look at the first seven weeks, pricing was improving in January, so we saw it continue. And then in February, it started to come down.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And the market is very noisy, right? We had bad weather in January, not nearly as bad as a year prior. And so, over the first part of the year, our volumes are up, but there's still significant pressure as it relates to pricing. But we are starting to see it come back up this week on the specialty side.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Got it. Got it. No, that's very clear. Thanks for all that insight. And I just wondered as well what you're hearing from both channel partners and contracted customers regarding R and R demand expectations in 2025.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

You cited some of the leading indicators such as existing home sales remain soft, but we have seen a little bit of sequential improvement as we move through the back half of the year and other leading demand indicators such as Alira have started to improve. And wondered if you've seen any sequential improvement in market demand expectations?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yeah. You know, as long as we continue to see low existing home sales turnover, generally speaking, that puts pressure on repair and remodel activity, right, because people typically invest in their homes on the way in and on the way out. That said, again, in terms of owning our destiny, we are absolutely laser focused on key elements of our channel strategy, one of which is national accounts. So, the fact is the overall pie is big, the market is big, and even with sort of depressed or less than ideal activity, we continue to gain share in that space because of our value proposition and our product mix that supports a meaningful repair and remodel jobs. On top of that, even DIY jobs, if you're picking up trim board off an aisle with respect to a major customer, you can still do that yourself, put it up in a bedroom or whatnot.

[Shyam Reddy, CEO, President & Director at BlueLinx]

So, there our strategy, again, tackles both the small R and R job to the big R and R job. And quite frankly, if we weren't focused on it, I'd probably be more subject or BlueLinx would be more subject to the current market dynamic. Doesn't mean that we're not. We're just trying to make lemonade out of lemons, right, despite the market headwinds in spite of the market headwinds.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Great. No. No. Understood. And then last question, just on the timeline of your Phase one of your technology investments.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Obviously, the completion of your transportation management system system will be done in the third quarter of this year. But when do you expect the full ramp of your e commerce platform to complete? Is that a 2026 story? Or how are you thinking about that right now, Shyam?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes. So, confirmed on the OTM going fully live later this year and starting to bear some early fruit as it relates to the savings in Q4 of this year and then we'll get a full year of it next year. As it relates to e commerce, we've taken a more graduated approach to it. So, we launched an e commerce pilot in one of our markets. We are now enhancing the capabilities of that service proposition so that we can scale it out to other markets across The US.

[Shyam Reddy, CEO, President & Director at BlueLinx]

But I would think about it as sort of version one point zero or two point zero of a multiyear journey around e commerce because as you can imagine, in this space, we are still our overall industry, unlike some of our customers, like the biggest customers are obviously as they're more B2C oriented, tend to have robust e commerce platforms that are actually used pretty ubiquitously across the nation, whereas in our space and with our industry, they're still in the early innings of getting wide scale adoption. And so with that in mind, we are gradually making investments, so we have a seat at the table, and then tweaking with tweaking the offering with customer input so that it truly, quite frankly, is responsive to what our customers' needs are now while providing flexibility to expand the capabilities over time. And then ultimately we'll be in a position to really put in place, you know, advance it to the point where it's a full, robust platform that does way more than just facilitating the purchase and sale or the purchase and delivery of a product.

[Jeffrey Stevenson, Vice President at Loop Capital Markets LLC]

Great. Thank you.

[Operator]

Your next question is from the line of Greg Palm with Craig Hallum.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yes. Thanks, Maureen. It sounds like sales activities rebounded quite a bit. I think you said the last three weeks it was flat in specialty relative to maybe what you saw in the month of January. So I'm just curious, is that just a catch up phenomenon?

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Is there still a lot of pent up demand left, just a result of the softness that you saw at least

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

at the beginning of the quarter?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes. He's talking about pricing. Greg, first of all, great to hear from you. Great to have you on the line. So you're talking about pent up demand and but I just want to make sure I understand the question.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Are you more focused on pricing or volumes?

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Volumes, I think what you said was down double digits so far in the quarter, but the last three weeks it was flat. So, I guess it implies that it's rebounded quite a bit in the last couple of weeks.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes, I mean, so yes. So, year over year, it was up just in the first part of this year. And that's but at the same time, it was down sequentially because of the we had over 20 branches that were closed for at least half a day and in some cases up to two days. And then through the February, we started to see a ramp back up. It's hard for me to say if it's pent up demand or normalized demand or but no doubt that there's clearly there are clearly sales that aren't happening while your customers are closed and they put them in as they reopen.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And so, I would say it's a combination of pent up demand plus new purchases. And then as we head into February, just as we thought things were getting back up to speed, another winter storm hit the Midwest and I think it's going up into the Northeast. We're also seeing some weather here in the South. So, we've had some locations shut down this week as well. But generally speaking, we're seeing pricing go back up and we're also feeling like volumes not feeling volumes are ramping back up.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yes. Okay. Sounds about right. So, I guess what I'm trying to get at is barring any future weather events, it sounds like there still could be some pent up or some catch up activity as a result of some of the disruptions you've seen kind of quarter to date. I guess that's what I'm looking at.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes, absolutely. Yes. Okay.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

And then I want to spend a minute on Greenfields. It's been several months now that Portland has been open. So maybe you can give us a little bit of sense on kind of the ramp up of this specific location. And I think what you said was a couple of years until it hits EBITDA breakeven or profitability. Where are we right now in terms of the losses and just the ramp up period of the revenue itself?

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Is that sort of the same as EBITDA? Like what just help us understand kind of when you open a location, the amount of time it takes up to get to sort of that full run rate, that mature level of revenue and EBITDA?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes. So, this is our first one, first greenfield that we've done in my time at BlueLinx, which is coming up on ten years. So, I'd love to get back to you on that. But let me just in terms of giving you more specificity, but generally speaking, you know, the startup costs and, you know, coupled combined with our expertise put us in a great the low startup costs combined with our expertise put us in a great position to do greenfields. In this particular case, we're doing it in the part of the country where we actually have anchor locations up in Seattle and Spokane.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And so the so it will we believe we will be able to accelerate its growth probably more so than in, let's say, a brand new market. That said, we did open it in the wintertime and we've had a challenging first few months. And we've been mainly focused on getting the equipment there, getting the racking in place. We just took delivery of new trucks. We have a new GM in place who was recently hired towards the end of last year or January, and we've got new salespeople coming on board.

[Shyam Reddy, CEO, President & Director at BlueLinx]

So, it does take a quarter to a quarter and a half to ramp up the capabilities. But as salespeople come in and as we take inbound product, we are in a position to start selling and delivering. And to the extent we don't have the product received yet, we do have locations in Seattle and Spokane that can actually service the business, so we're not necessarily stymied, any more than we need to be. But that's all to say, Greg, that I just need a little bit more time to give you more specificity.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yes, that's fair. Maybe I'll try one more, but I might get the same kind of answer. But, again, based on what you've seen so far, you said that you're planning on opening up more locations. So, is there a goal, a cadence in terms of amount of locations a year or is that also kind of a TBD?

[Shyam Reddy, CEO, President & Director at BlueLinx]

So, look, as someone who is maniacally focused on growing this business, I would love to open up, let's say, three a year. But the problem is the primary constraint is real estate. And having spent thirteen years in this space finding real estate can be challenging, especially nowadays when you're competing for with, let's say, data centers, right, where you've got investors buying up raw property, unused property, land, etcetera, which makes it even more challenging. So, the fact is we have an aggressive, I guess, posture around greenfielding, but we're limited by real estate availability in any given market. Because we're not looking at going into a, a tertiary market, right?

[Shyam Reddy, CEO, President & Director at BlueLinx]

We're we have a very methodical approach to greenfielding, which ties back to housing starts and permits and also being able to more effectively leverage our scale so that we can, quite frankly, generate the profitable sales more quickly. Now, we do have the scale, right, with our supplier relationships and we can they want to be partners with us as we go into new greenfield locations, so I feel good about making sure we have the supply chain to support specialty and commodity sales. We obviously have, you know, pretty good brand recognition in the marketplace to hire new leaders and new salespeople. But at the end of the day, it comes down to real estate and whether I can get enough indoor and outdoor storage and preferably rail, have it be rail served in order to be truly optimized. That said, depending on where we are, we don't necessarily need the rail, right, if we're in the in parts of the country where it's truck in, truck out from a cost effectiveness standpoint.

[Shyam Reddy, CEO, President & Director at BlueLinx]

So, it just depends, I guess. But aspirationally, I have pretty high ambitions.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yes, makes sense. I will hop back in the queue. Thanks.

[Operator]

Your next question is from the line of Kurt Yinger with D. A. Davidson.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Great. Thanks and good morning everyone. Curious kind of operationally whether your approach or strategy on the structural side might change at all if we were to see tariffs on Canada come through? And then relatedly, I guess, as we move through Q4 and into Q1 here, anything from a customer purchasing pattern perspective that provides you any insight or takeaways in terms of how the market might be kind of adapting to that possibility?

[Shyam Reddy, CEO, President & Director at BlueLinx]

You know, that so that is the, that is one of the prevailing questions that many of us in this space are asking. So, I would say any market volatility or uncertainty really causes people to sort of hold back on spending, whether it's commercial or consumer spending. We've seen recent consumer sentiment come out that is troubling. Obviously, we saw recently that inflation is back up to 3%. And as I think about our year over year within the first seven weeks of the year numbers, our facilities were closed for more than 20 I'm sorry, more than 20 of our locations were closed anywhere between half a day and two days.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And so, you would expect volumes to be down. That said, they were more facilities were closed for longer last year, and you would expect volumes to be higher. They were higher on a year over year basis, but not as high as we would have liked, which would suggest that there could be some holdback on spending to some degree. But it's really hard to say. But, you know, at the end of the day, I do think the uncertainty does play a role.

[Shyam Reddy, CEO, President & Director at BlueLinx]

But we are seeing things pick up as the weather has improved and feel pretty good about that. And then, of course, our strategy is very much focused, focused in a meaningful way to drive share gain, which over five consecutive quarters has been the case, with the last three in particular being pretty exciting. As it relates to Canada and you know, with our strategy change, I would say if I didn't have confidence and faith in our inventory management capabilities, which we do, we have a very, I think we have a best in class inventory management team combined with processes and collaboration across the entire organization that drives great turns, return on working capital, etcetera, with respect to our structural business. And so and as it relates to tariffs and commodity wood products, those prices will get passed through pretty quickly. What's and again, as we think about how we buy and sell and the low day sale DSI that we have with respect to those products, you know, our ability to manage through the risk is probably, well, I believe, again, being as aspirational as I am, second to none, The hard part for us in this space, whether it's us or any of our competitors, quite frankly, is it's one thing for a tariff to go in.

[Shyam Reddy, CEO, President & Director at BlueLinx]

The fact that it could be pulled back 30 days later is what is really hard to manage through. But we have teams in place, we have the supply chain, you know, vendor relationships that we're taking advantage of to make sure that we're managing our risk accordingly. And so, we'll do what we need to do. But from a strategy standpoint, we'll still continue to be in the space and we'll manage our buys accordingly in a manner that doesn't compromise our customer relationships.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Okay. Yes, that makes sense. And a little bit of commodity inflation wouldn't be such a bad thing either. In terms of the Portland facility, I get that it's early days, the equipment's moving in, new people. Where do you kind of stand in terms of building out the vendor commitments or list to get kind of a full product lineup, that you would need to kind of hit those mature sales targets that you put out?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes. So, we actually have we have a product mix that we've landed on as a team and the vendor relationships are there to support the product mix. It's just a matter of timing in terms of receiving the product. And I think all the racking is in place, the trucks have been delivered, we've hired a couple of key sales people, we have our GM in place. So, I am I feel great about the foundation to grow.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Now, we're just managing through the laws of physics to get it done, to get everything in place as quickly as possible to take advantage of what we've already landed on, just in terms of the supply chain.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Got it. Okay. That makes sense.

[Shyam Reddy, CEO, President & Director at BlueLinx]

It'll just take some time. But like we said, like I said earlier in my remarks, I mean, the plan is to get to the optimal mix as quickly as possible and hit the market. I mean, we already have started delivering product and making sales. It's happening, but it clearly has to be a lot higher than it currently is. But that's not surprising.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Right, right. Okay.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

And

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

your specialty gross margin performance has been really stable and notwithstanding some duty benefits that provided a little bit of a lift this last year. I guess as we enter 2025, you talked about some of the cloudiness on the demand side, some of the uncertainty on pricing. I mean bigger picture, what do you see as kind of the biggest downside risk to specialty margins, if there are any? I guess, how are overall competitive activity levels, in the current environment?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes. I mean, look, obviously as it relates to tariffs, the most important thing is that we don't lose margin if and when tariffs are implemented. And so, our ability to leverage our supply chain, our vendor relationships, our focus on operational excellence, and clearly pricing, pricing strategically, right, so that our most strategic and our best customers get the best and right pricing and those who are more transactional or come to us when they need us at the last minute are priced accordingly, right, is the most important thing we can do as a company to maintain those margins. So, and obviously in terms of managing our return on working capital, in particular our turn days as it relates to inventory and reducing downside inventory adjustments, which is tied to, quite frankly, making sure we're executing operationally at a level that would make our customers proud, will continue to be a focus. So, again, it's really just getting laser focused on the business and the things that we do best, whether it's operationally or from a procurement standpoint, and just being prepared to handle these potential swings in the market that may happen as a result of newly implemented policies or demand dropoffs or uncertainty.

[Shyam Reddy, CEO, President & Director at BlueLinx]

But, look, at the end of the day, we believe in our strategy and is still a lot of housing happening, whether that be single family or multifamily. And we've got more than 66 locations across the country and markets, some really great markets to continue serving to manage through some these headwinds that we're all being that we're all dealing with.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Got it. All right. Well, appreciate all the color and I'll turn it over.

[Operator]

Your next question is from the line of Reuben Garner with Benchmark Company.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Thank you. Good morning, guys.

[Shyam Reddy, CEO, President & Director at BlueLinx]

Good morning.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Maybe to start, just a follow-up on the greenfield. I know there was a few questions. I'm a little confused. I thought initially the plan or the way that you were going to have to kind of get started in these markets was going to have to be led heavily by structural, but it sounds like you're already thinking you're going to be kind of above company average with specialty in year one, if I heard that correctly. Has something changed in that regard or you just had a lot of success in this Portland location?

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Can you just walk us through that strategic shift if there were more?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes, sure. Yes, so we can always backstop any greenfield with our structural business fairly easily, right? And we have strong capabilities around it. At the same time, with each new location and each new market as we have conversations with our specialty product suppliers beyond just our private label. So, for example, we've got, you know, we've got On Center, which is EWP, and we've got PrimeLinks as it relates to millwork or trim board and other products.

[Shyam Reddy, CEO, President & Director at BlueLinx]

So, we have a number of private label brands combined with our structural products to form the foundation of any Greenfield location. But as we've had more and more conversations with our key suppliers on the specialty side, there continues to be a tremendous amount of support to help us grow their grow our business while also growing their business. So, I just feel better today than now that we've got one location in terms of how those conversations have gone and reaching the docking positions over the next couple years to drive the best mix possible.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Okay, great.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

And then

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

this may be got it.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

This may be a little deep in the weeds, but, just a question about kind of on the tariffs topic. Southern Yellow Pine I know has always kind of struggled to gain adoption in some markets geographically to be used in new housing for instance. Are you seeing any acceleration in kind of shifting demand to that product just given that it's a deeper wood source and wouldn't have to deal with the Canadian issues or are there reasons that that will not happen?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Not yet, but it is something that we think about and that is absolutely as we think about substitute products and whatnot, but let's not forget that there's only so much milk capacity in The US, right? And so, there's only so much it can absorb. So it's hard to know, quite frankly, until we actually see some of this coming through.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Okay. That's helpful. And then

[Shyam Reddy, CEO, President & Director at BlueLinx]

That said yeah, but that said, in fact, I was looking at, you know, I get emails every day on pricing and we are seeing it go up. In fact, this morning, there was a we got some commentary asking the question, you know, is it going up ahead of anticipated tariffs, for example. And so, we're starting to see it go up, but again, it's too hard, it's too early to say if this is going to be sustainable or if it's reflective of demand or just some normal market movement that you just see from time to time.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Understood. Sorry for cutting you off. The last question I have is I think you said and correct me if I'm wrong, but I think you said you grew your multifamily business year over year. That would be pretty impressive just given the that market is off significantly from where it was over the last couple of years. Can you talk specifically about what you're doing to kind of gain some share in that space?

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

And maybe how underpenetrated are you to multifamily?

[Shyam Reddy, CEO, President & Director at BlueLinx]

Yes. So, first of all, just to kind of go back a little bit, we set the strategy last year and then we organized the team to support the strategy and then we started allocating capital, to whether it be in the context of OpEx or CapEx in order to drive the strategy, all of which has happened over the last over twenty four. And that is what and I strongly believe that is what is leading to the share gain that we have. So, as we think about multifamily in particular, we have stood up or enhanced a centralized multifamily team with headcount also being added in the field to drive multifamily sales across multiple channels. And those channels include and those channels include not only our sort of traditional customer base, whether it be the pro dealer or the lumberyard that might have a local multifamily project, but it's also happening with our national accounts as well.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And then on top of that, we have pretty strong relationships with the multifamily brokers out there that's helping, you know, that's helping drive volumes from a multifamily standpoint. Now, in the overall scheme of things, historically speaking, BlueLinx's multifamily business was a relatively small piece of our business. And so, we have very aggressive year over year growth targets and they're panning out. And by the way, as we were before we did all this, before we decided to make this a core part of our strategy, we piloted multifamily efforts in certain regions and markets that, you know, brought through pretty quickly. And so, as a result, we fine tune the machine, we've developed a payload, we have a leader in place, we have people who are tied to headquarters who drive it nationally from an operational excellence or commercial excellence standpoint, and then we've got people in the field who are working both locally and with the national team to drive sales.

[Shyam Reddy, CEO, President & Director at BlueLinx]

And it continues to bear fruit, so we will continue to focus on it. Oh, and one last thing, as I mentioned earlier around CapEx. So, we have invested heavily in vehicles in our fleet to drive multi support multi family sales as well. So, as you can imagine, with a multi family sale, it usually requires jobsite delivery. So, we will pull through, you know, a sale in collaboration with a key customer that will then get delivered to a job site, a multifamily job site, and we've invested CapEx in equipment with Moffets and Princeton's and straight trucks, etcetera, that allow for that, in addition to

Participants

Executives

• Tom Morabito, Investor Relation Officer
• Shyam Reddy, CEO, President & Director
• Kim DeBrock, Vice President & Chief Accounting Officer

Analysts

• Jeffrey Stevenson, Vice President at Loop Capital Markets LLC
• Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies
• Reuben Garner, Equity Research Analyst at The Benchmark Company LLC