Q3 2023 BlueLinx Holdings Inc Earnings Call

At this time all participants are in a listen only mode.

On today's call is being recorded.

We will begin with opening remarks and introductions.

At this time I would like to turn the conference over to your host Investor Relations Officer, Tom Morabito.

Go ahead Sir.

Thank you operator, and welcome to the Bluelinx third quarter 2023 earnings call. Joining me on today's call is shame ready, our president and Chief Executive Officer, and Andy Wamser, Chief Financial Officer.

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 Bluelinx core dotcom.

Encourage you to follow along with 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 here a bit.

Reconciliation to the closest GAAP financial measure can be found in the appendix of our presentation.

Now I'll turn it over to Jan.

Thanks, Tom and good morning, everyone. We are pleased with our third quarter results given the higher interest rate environment, that's impacting the housing and building product sector.

16, punctuated the quarter with strong margins and specialty products, which accounted for about 70% of our net sales.

We continued to generate solid margins in our structural business and when combined with our margins in specialty products. The team produced strong free cash flow.

We also demonstrated our clear commitment to returning capital to shareholders by completing our share repurchase program and by announcing a new $100 million share repurchase authorization.

These results reflect our relentless commitment to the company's primary strategic priorities.

First we remain focused on growing five key high margin specialty product categories that are not only two step distribution friendly. They also support the long term prospects of the housing industry and personal preferences of the American consumer.

Engineered wood siding, millwork, industrial and outdoor living products, all of which we believe will generate higher net sales and gross profit results in a sustainable and programmatic manner with our customers.

In addition to representing approximately 70% of our net sales specialty products generated 80% I brought our gross profit dollars in the third quarter and further into the longer term goal of specialty products, making up 80% of net sales.

We are accomplishing our objectives, because our teams are leveraging our scale geographic reach selling capabilities and product mix, including our commodity product offering to sell the bluelinx value proposition, which includes our expanded specialty product offerings and value added services in key markets. These.

Expanded partnerships highlight the confidence and paid all our suppliers have placed in our nationwide capabilities and our commitment to providing best in class products and services to our customers.

Second we continued to drive operational pricing and procurement excellence deeper into the DNA of the company. These efforts have continued to support our customer experience solid margin levels in specialty and structural product and a cost structure that is in line with fluctuating a seasonal levels of demand.

We are effectively managing our costs as our adjusted EBITDA margin year to date is 6%, which we believe is strong given the downward pressure associated with wage benefits and other SG&A inflation on top of challenging market conditions.

We are also making technology investments to support our current growth strategy and to prepare for our digital transformation journey. For example, we have strengthened our data warehouse and analytical capabilities.

Great at some of our back office tools expanded E b I capabilities and enhanced our general technology hardware and infrastructure in our warehouses.

We continue to explore ways to leverage technology to further enhance our sales operational pricing of procurement excellence initiatives.

Third we remain committed to exploring and executing on opportunities to grow the business via organic expansion in new markets and M&A. The industry remains fragmented providing the potential for future expansion opportunities through organic market expansion and M&A efforts, we are targeting opportunities geographically.

Radically and by specialty product line importantly, we are going to be disciplined with any potential expansions geographic or otherwise to ensure they support long term value creation.

Bagram Air Force products, which joined the Bluelinx family just over one year ago is a great example of the muscle our team has developed to do a reasonably sized deal integrated well and leverage the collective skills and strengths of both teams to expand blue links into new market successfully in a short period of <unk>.

Time.

As you May recall vandermeer provided a strong platform for growth in the Pacific northwest, but giving us the ability to serve all 50 states and to grow our specialty products business in new areas of the country.

A year later vandermeer is performing very well and that significantly exceeded our EBITDA expectations from the time of the transaction.

The business is not only integrated with the rest of Bluelinx. It is a strategic focus area for growing our business via bluelinx supplier relationships and our commercial excellence capabilities.

We're also enhancing the operational capabilities of the Pacific Northwest business by putting our centralized operational center of excellence to work for it in ways. They never experienced prior to joining the Bluelinx family.

Our strategic priorities are closely tied with our capital allocation philosophy, which is disciplined and focused on reinvesting in business initiatives that allow us to grow sales improve productivity and expand our geographic reach and provide better service. This discipline will drive organic growth, while giving us the <unk>.

Opportunity to return capital to shareholders.

Financial position remains strong with liquidity of $816 million at the end of the third quarter, including a record $470 million of cash on hand as a result, we have the flexibility to make strategic investments that are designed to grow the business and to be more efficient.

During the third quarter, we invested $5 million and capital expenditures to improve our business.

We also returned approximately $18 billion to shareholders through share repurchases under our previous $100 million share repurchase program, which is now complete.

Our board of directors has approved a new $100 million share repurchase authorization further demonstrating our confidence and our recent performance and in our long term growth strategy now.

Now moving on to our third quarter results.

As you all know the year over year comps have been tough not just for us but for everyone in the housing and building products industry. The comparable quarter last year was at the tail end of a low interest rate and pandemic induced housing boom with.

With higher interest rates slowing the rate of housing starts and repair and remodel activity. The current business environment is challenging. Fortunately however, our teams and supplier partners combined with the faith and confidence our customers have placed in bluelinx enable us to compete effectively in the markets, we serve as evidenced by our <unk>.

<unk> financial performance Nats.

Naturally then I am very pleased with the team's efforts to deliver a solid quarter for our shareholders in the current environment and with tough year over year comparisons as a headwind. Our teams are committed to generating more profitable specialty product sales driving value added pricing and producing solid returns on working capital.

To ensure that we can position ourselves to win in the market conditions were dealt with and to invest in our long term success, hence the solid results we delivered.

To be clear our success is attributable to our teams and their relentless commitment to deliver what matters to our customers. So they can successfully grow their business.

We generated net sales of $810 million and $50 million and adjusted EBITDA at a six 2% adjusted EBITDA margin and approximately 70 30 specialty structural product net sales mix.

Net income was $27 million or $2 98 per share.

We delivered solid gross margin performance in the third quarter with specialty products at 19, 8% the highest level of the year and structural products at 11, 3%.

Our focus on commercial and operational excellence led to effective pricing and cost management, which were contributing factors to our sequential margin improvement of 100 basis points from the second quarter.

Our continued focus on working capital has generated significant improvements in operating cash flow year to date, we have reduced our inventory by over $120 million with most of the reduction coming from the specialty product category.

We also generated free cash flow of $73 million in the third quarter.

As Andy will discuss in further detail similar to the first and second quarters of 2023, we experienced deflation and volume declines in some specialty product categories that said during the third quarter average daily volumes of specialty products remained consistent with the second quarter.

Now turning to our perspective on the broader housing and building products market.

Looking ahead into the fourth quarter of 2023 industry sources are suggesting a deceleration and the positive momentum observed during the spring and early summer.

Builder sentiment has decreased in recent months as mortgage rates have continued to increase and home pricing remained stubbornly high.

It is making housing less affordable for many consumers, particularly first time buyers.

It is difficult to predict the interest rate and overall macroeconomic environment, which is causing the industry to be cautious and it's forecast to be muted.

Repair and remodel spending continues to be lower than the elevated levels of the past few years, However, home equity levels remain high, allowing owners to fund repair and remodel projects, albeit smaller ones.

Through the first four weeks of Q4, we have maintained solid margins for specialty products, Although daily volumes are slightly down compared to what we saw during the recent quarter that said they are in line with historical seasonality, which we believe further demonstrates normalization structural margins have compressed as prices declined throughout October.

The daily volumes are slightly higher.

Although the near term outlook remains uncertain, we still believe in the long term prospects of the building products industry, thereby justifying our strategic and investment focus.

Abundant metal under supply of homes supported demographic shifts aged housing sock necessary repair activity and high levels of home equity should continue to benefit the building products industry and bluelinx.

In summary, we delivered solid quarterly financial results. Despite the challenging environment for housing and tough year over year comps were also making good progress on our strategic priorities as seen by our specialty product expansion efforts margin performance strong cash generation and capital allocation initiatives.

We continue to maintain our pricing discipline, while proactively managing our working capital to generate strong operating cash flows key strengths of Bluelinx in light of the macro uncertainties and the lingering possibility of an economic slowdown.

This discipline will serve us well as the housing and building products sector continues to normalize.

As a result of our prudent management of the business. We have a strong balance sheet that allows us to reinvest in the business to pursue a digital transformation strategy to expand geographically and to selectively pursue acquisitions, all of which position us well for the long term prospects of the business while providing.

Aiding us with flexibility to return capital to shareholders.

I'd like to end by thanking my fellow Bluelinx associates for their continued great tenacity and competitive spirit and a challenging housing environment and for their continued dedication to our customers and suppliers.

I've met with so many of our teams across the country in the last few months meeting with them has provided an opportunity to be close to the business and our efforts to support customers, while allowing me to feel the pulse of the organization its heartbeat.

Meeting with customers and our markets. In addition to our strategic suppliers has also provided valuable insights and when combined with the direct feedback provided by our associates, we are able to make better informed decisions to run the business in these challenging macroeconomic conditions and to make strategic investments that position the company.

To take full advantage of the underlying fundamentals of the housing industry that support long term growth.

So thanks to our customers and suppliers for enabling us to be better.

Our teams are so dedicated to our customers as their commitment to enhancing the customer experience is palpable not a day goes by without me feeling a great sense of pride and privilege being on their team now I'll turn it over to Andy who will provide more details on our financial results and capital structure.

Thanks, Jim and good morning, everyone. Let's first go through the consolidated highlights for the quarter.

We delivered solid third quarter results highlighted by strong margins in both our specialty and structural product categories.

Net sales were $810 million down 24% year over year.

Specialty products sales were down 23% from the prior year due to a combination of deflation.

And lower volumes.

Structural product sales were down 25% also due to a significant year over year declines in wood based commodity prices and lower volumes.

As a reminder, when reviewing the year over year comparisons it's important to point out that in the third quarter of 2022, we were experiencing unusually high levels of demand and significant price inflation across the business.

So while the variances are quite significant we are pleased with the financial results. We generated this quarter considering recent market conditions.

Total gross profit was $139 million and gross margin was 17, 2% down 70 basis points from the prior year period.

SG&A was $91 million flat with the prior year period as lower delivery costs were offset by higher operating expenses due to the <unk> acquisition.

Net income was $24 4 million and diluted EPS was $2 71 per share.

Adjusted net income was $26 $8 million and adjusted diluted EPS was $2 98 per share.

The third quarter tax rate was 27, 2% in line with our expectations and for the fourth quarter of 2023, we anticipate our tax rate to be in the 20% to 24% range.

Adjusted EBITDA was $50 million or six 2% of net sales.

Turning now to the third quarter results for specialty products.

Net sales were $559 million down 23% year over year. This.

This decline was driven by a combination of deflation and lower volumes across several specialty product categories.

Gross profit from specialty product sales was $111 million down 27% year over year spec.

Specialty gross margin was 19, 8% a strong margin, but down 110 basis points from last year.

Through the first four weeks of Q4 specialty product gross margin was in the range of 18% to 19% with daily sales volumes slightly down compared to the third quarter of this year, but in line with historical seasonality.

Now moving onto structural products.

Net sales were $251 million down 25% compared to the prior year period.

This decrease was primarily due to the significant year over year decline in average composite lumber and panel prices as well as volume.

Gross profit from structural products was $28 million, a decrease of 25% year over year and structural gross margin was 11, 3% consistent with the same period last year.

In the third quarter of 2023 average lumber prices were about $437 per thousand board feet in panel prices were about $636 per thousand square feet, or 26% and a 5% decrease respectively compared to the averages observed in the third.

Operator: 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.

Third quarter of 2022.

Sequentially, comparing the third and second quarters of 2023, these prices were up 7% and 20% respectively.

Tom Morabito: At this time, I would like to turn the conference over to your host, investor relations officer, Tom Morabito. Please go ahead, sir.

The sequential increase helped support the structural margins observed in the quarter.

However, lumber and panel prices declined throughout the third quarter and finished the last week of September at $422 and $626 respectively. These prices have declined further in the first four weeks of the fourth quarter and are down $376 per thousand board feet and 500.

Tom Morabito: Thank you, operator, and welcome to the BlueLinx Third Quarter 2023 earnings call. Joining me on today's call is Shyam Reddy, our president and chief executive officer, and Andy Wamser, our chief financial officer. At the end of today's preparatory remarks, we will take questions. Our third quarter news release informed 10Q were issued yesterday after the close of the market, along with our webcast presentation. And these items are available in the investor's section of our website, bluelingsco.com.

Third $72 per thousand square feet, respectively.

Our strong structural margin continues to reflect the excellent job our team does to manage commodity cost volatility risk through leveraging confinement and utilizing centralized purchasing and pricing to keep structural inventory levels as well.

Tom Morabito: 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 risk and uncertainties, including the risks described in our most recent SEC violence. Today's presentation includes certain non-geth and adjusted financial measures that we believe provide helpful concepts for investors evaluating our business. Reconciliation to the closest geth financial measures can be found in the appendix of our presentation.

Through the first four weeks of Q4 structural products gross margin was in the range of 9% to 10% with daily sales volumes slightly up compared to the third quarter of this year.

This excludes any net impact that could arise from inventory adjustments.

Looking at our balance sheet, our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital because.

Shyam Reddy: Now I'll turn it over to Shyam. Thanks, Tom.

So at the end of the third quarter cash on hand reached a record level of $470 million, an increase of $51 million from Q2 to Q3, when considering our cash on hand, and undrawn revolver capacity of $347 million.

Shyam Reddy: Good morning, everyone. We are pleased with our third quarter result, given the higher interest rate environment that's impacting the housing and building product sector. The bluelings team punctuated the quarter with strong margins and specialty products, which accounted for about 70% of our net sales. We continue to generate solid margins in our structural business. And when combined with our margins and specialty products, the team produced strong free cash flow. We also demonstrated our clear commitment to returning capital to shareholders by completing our share repurchase program and by announcing a new $100 million share repurchase authorization.

Available liquidity was $816 million at the end of the third quarter also a record.

Total debt, including our financing leases was $577 million and net debt was $107 billion. Our net leverage is now 0.5 times and we have no material outstanding debt maturities until 2029.

Our balance sheet is in excellent shape and when combined with our solid EBITDA and strong cash generation, we are well positioned to support our strategic initiatives. These include capital allocation projects and investments in our highest return opportunities such as organic and inorganic growth investments and share repurchases.

Shyam Reddy: These results reflect our relentless commitment to the company's primary strategic priorities. First, we remain focused on growing five key high-margin specialty product categories that are not only two-step distribution-friendly, they also support the long-term prospects of the housing industry and personal preferences of the American consumer. Engineering would, citing no work, industrial and outdoor living products, all of which we believe will generate higher net sales and gross profit results in a sustainable and programmatic manner with our customers.

Now moving on to working capital and free cash flow.

During the third quarter, we generated operating cash flow of $78 million and free cash flow of $73 million.

Our third quarter cash generation was supported by earnings and a net benefit from working capital primarily related to a reduction of approximately $15 million of inventory.

Shyam Reddy: In addition to representing approximately 70% of our net sales, specialty products generated 80% of our gross profit dollars in the third quarter. In furtherance of the longer-term goal of specialty products making up 80% of net sales. We are accomplishing our objectives because our teams are leveraging our scale, geographic reach, selling capabilities and product mix, including our commodity product offering to sell the blue-linked value proposition, which includes our expanded specialty product offerings and value added services and teamwork.

Specifically, we ended the third quarter with $364 million.

The inventory down over $120 million from beginning of the year.

Turning now to capital allocation during the quarter, we spent approximately $5 million in Capex, which were primarily for enhancements to our distribution branches for the year, we still expect capital investments to remain around $30 million focusing on facility improvements and further upgrades to our fleet.

Shyam Reddy: These expanded partnerships highlight the confidence and faith our suppliers have placed in our nation-wide capabilities and our commitment to providing best-in-class products and services to our customers. With fluctuating and seasonal levels of demand, we are effectively managing our costs as our adjusted EBITDA margin year-to-date is 6%, which we believe is strong given that Dowland Pressor associated with wage benefits and other SGA inflation on top of challenging market conditions. We are also making technology investments to support our current growth strategy and to prepare for our digital transformation journey.

Also during the third quarter, we purchased approximately $18 million of the company's common stock through an open market transaction.

Under our prior $100 million share repurchase program, which as of last month is now complete.

Sam mentioned the board has approved another $100 million share repurchase authorization and we plan to be opportunistic in the market when repurchasing shares.

A reminder, this is our second $100 million share repurchase authorization in the last two years.

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 geographic expansion and M&A strategy as well as return capital to shareholders. We also plan to maintain our long term target net leverage.

Of three times or less.

Overall, we are pleased with our third quarter results highlighted by our strong margins and free cash flows, especially when considering the challenging environment, our strong balance sheet positions us well to execute on our strategy and provide return to our shareholders is further evidenced by our new share repurchase authorization.

Shyam Reddy: For example, we have strengthened our data warehouse and analytical capabilities, upgraded some of our back office tools, expanded EVI capabilities, and enhanced our general technology hardware and infrastructure in our warehouses. We'll continue to explore ways to leverage technology to further enhance our sales, operational pricing, and procurement excellence initiatives. Third, we remain committed to exploring and executing opportunities to grow the business via organic expansion in new markets and M&A. The industry remains fragmented, providing the potential for future expansion opportunities through organic market expansion and M&A efforts.

Operator, we are now ready to take questions.

Thank you.

Ladies and gentlemen, we will now be conducting a question and answer session.

If you'd like to ask a question. Please press star and one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press star two if you'd like to remove your question from the queue.

Shyam Reddy: We are targeting opportunities geographically and by specialty product lines. Importantly, we are going to be disciplined with any potential expansions, geographic or otherwise, to ensure they support long-term value creation. Vandermeer Force Products, which joined the BlueLinks family just over one year ago, is a great example of the muscle our team has developed to do a reasonably-sized deal, integrated well, and leverage the collective skills and strengths of both teams to expand BlueLinks into new markets successfully.

Ladies and gentlemen, we will wait for a moment, while we poll for questions.

Yeah.

Our first question comes from the line of Greg Palm with Craig Hallum Capital Group. Please go ahead.

Yeah. Good morning, everybody thanks for sticking.

Taking the questions I guess wanted to start with a little bit of the the outlook commentary suggests October volumes are more or less in line with that of Q3 just to be clear is that normal I assume volumes would likely trend.

Shyam Reddy: As you may recall, Vandermeer provided a strong platform for growth in the Pacific Northwest by giving us the ability to serve all 50 states and to grow our specialty products business in new areas of the country. A year later, Vandermeer is performing very well and has significantly exceeded our EBITDA expectations from the time of the transaction. The business is not only integrated with the rest of BlueLinks, it is a strategic focus area for growing our business via BlueLinks supplier relationships and our commercial excellence capabilities.

Lower in the months of November and December versus October. So just maybe you wanted to be sure I was thinking about that right. I mean, maybe we get into the point should we expect normal seasonal trends in Q4 versus Q3.

Hey, Greg This is Andy.

It's a great question and what I would say is October normally aligns with some of the trends that we've seen the third quarter and as a as a reminder, our second and third quarters I'd say in a more normalized market, which we're experiencing right now are generally our highest.

Shyam Reddy: We are also enhancing the operational capabilities of the Pacific Northwest business by putting our centralized operational center of excellence to work for it and ways they never experienced prior to joining the BlueLinks family. Our strategic priorities are closely tied with our capital allocation philosophy, which is disciplined and focused on reinvesting in business initiatives that allow us to grow sales, improve productivity, expand our geographic reach and provide better service. This discipline will drive organic growth while giving us the opportunity to return capital to Sherville.

And so youre on point, when we think about October.

Trends were pretty decent I mean in terms of.

The volume outlook.

As we start to close out the month, but.

As we look to November and December we then we'd see a debt certainly in that and that seasonality. So.

We certainly would expect I would say the fourth quarter to be in line, we're not trying to message to the fourth quarter and it would be in line with the third quarter in terms of profitability.

Yeah, Okay understood and then.

So the gross margin within specialty was yeah, I'd say, a highlight again and I'm. Just curious are there was kind of certain categories within that that you are focusing on on more whether it be you know higher margin product lines and kind of long term how do you. How do you think about the focus there.

Shyam Reddy: Our financial position remains strong with liquidity of $860 million at the end of the third quarter, including a record $470 million a cash on hand. As a result, we have the flexibility to make strategic investments that are designed to grow the business and to be more efficient. During the third quarter, we invested $5 million in capital expenditures to improve our business. We have an estimated $18 million to shareholders through share repurchases under our previous $100 million share repurchase program, which is now complete. Our board of directors has approved a new $100 million share repurchase authorization further demonstrating our confidence in our recent performance and in our long-term growth strategy.

Whether it be on higher margin product lines versus maybe higher growth opportunities.

Yes.

Another great question.

I would frame it as you know when we look at the specialty margin in the third quarter. It certainly was a high mark.

Of the of the year, so far at 19, 8%.

As we saw we mentioned we thought as.

As we look to the fourth quarter, it's sort of trending in the 18% to 19%. So I'd say, a modest sort of slight dip when I think about some of the.

Shyam Reddy: Moving on to our third quarter results. As you all know, the year-over-year cons have been tough, not just for us, but for everyone in the housing and building products industry. The comparable quarter last year was at the tail end of a low interest rate in pandemic-induced housing boom. With higher interest rates slowing the rate of housing starts and repairing model activity, the current business environment is challenging. Fortunately, however, our teams and supplier partners, combined with the faith and confidence our customers have placed in blue links, enable us to compete effectively in the markets we serve as evidenced by our solid financial performance.

The trend lines I would say AWP millwork siting continues to do well.

With some of those volumes and as those volumes have performed pretty well. That's that's those are those three categories that certainly helped.

The margin profile, but I'd say, we're focused on all five.

The ones, we consistently mentioned.

But those are the three that really helped in the quarter, yeah, and just to add add to that.

As it relates to our margins.

We're leveraging our pricing and service proposition capabilities to make sure where we're pricing competitively by charging the appropriate price for the product and service offering we provide while there's thinking strategically about our sales based on those characteristics and the customers, we're selling to so basically those who buy more from us get better deals and those who don't.

Shyam Reddy: Naturally then, I am very pleased with the team's efforts to deliver a solid quarter for our shareholders in the current environment and with tough, year-over-year comparisons as they headwind. Our teams are committed to generating more profitable specialty product sales, driving value added pricing, and producing solid returns on working capital to ensure that we can position ourselves to win in the market conditions we're dealt with, and to invest in our long-term success, hence the solid results we delivered.

And ultimately we were thinking about sales growth.

In the context of the long term value creation, which is which is what's and then a diversified product portfolio helps us.

Execute successfully on that objective.

Understood helpful cost I will I'll leave it there thanks.

Shyam Reddy: To be clear, our success is attributable to our teams and their relentless commitment to deliver what matters to our customers so they can successfully grow their business. We generated net sales of $810 million in $50 million in adjusted EBITDA at a 6.2% adjusted EBITDA margin in approximately 70-30 specialty structural product net sales mix. Adjusted net income was $27 million or $2.98 per share. We delivered solid gross margin performance in the third quarter with specialty products at 19.8%, the highest level of the year, in structural products at 11.3%.

Thanks, Craig.

Thank you.

Next question comes from Reuben Garner with Benchmark company. Please go ahead.

Thank you good morning, everybody.

Good morning, Robert.

So.

The quarter, we heard.

On the commodity side of your business that things, maybe you were starting to get a little bit more competitive.

Uh huh.

I think I.

Kind of aggressive was even.

Throwing around from some on the industry or are you guys. Feeling that have you had to defend share position. How are you thinking about that I see your guidance for the fourth quarter is a touch below but still very strong on the structural piece of kind of 10%.

Shyam Reddy: Our focus on commercial and operational excellence led to effective pricing and cost management, which were contributing factors to our sequential margin improvement of 100 basis points from the second quarter. Our continued focus on working capital has generated significant improvements in operating cash flow. Year to date, we have reduced our inventory by over $120 million, with most of the reduction coming from the specialty products category. We also generated free cash flow of $73 million in the third quarter.

Gross margin, but maybe just walk me through if you're seeing any of that.

Kick in and how you kind of think about share versus margin in that part of your business.

Sure. So I'll take the first stab at that what I would say on the on structural there certainly has been a little bit of a margin compression as we go from the fourth quarter or go into the fourth quarter and some of my comments.

I gave sort of a framework in terms of where we ended in September two.

Shyam Reddy: As Andy will discuss in further detail, similar to the first and second quarters of 2023, we experienced deflation and volume declines in some specialty product categories. That said, during the third quarter, average daily volumes of specialty products remained consistent with the second quarter.

We are trending in October so when you look at lumber and panels. It is down a decent bit we've seen some real drop off here and pricing I'd say over the last frankly eight weeks or so.

It relates to volumes, though to the first.

Shyam Reddy: Now turning to our perspective on the broader housing and building products market. Looking ahead into the fourth quarter of 2023, industry sources are suggesting a deceleration in the positive momentum observed during the spring and early summer. Builder sentiment has decreased in recent months as mortgage rates have continued to increase and home pricing remains stubbornly high. This is making housing less affordable for many consumers, particularly first-time buyers. It is difficult to predict the interest rate in overall macroeconomic environment, which is causing the industry to be cautious and its forecast to be muted.

Four weeks of this year structure.

Structural volumes I would say are modestly up from a sequential again I wouldn't read too much into that the same sort of I would sort of say the same comments as I mentioned to Greg where it's good to see that October volumes on a sequential basis in October up to call. It.

But mid single digits.

But then we do expect that that drop off in that normal seasonality.

In November and December.

Yeah look the structural piece of our business is an important one we are obviously moving in the direction of achieving an 80% net sales to 20%, 80%, 20% specialty structural mix.

Shyam Reddy: Repair remodel spending continues to be lower than the elevated levels of the past two years. However, home equity levels remain high, allowing owners to fund repair remodel projects albeit smaller ones. To the first four weeks of Q4, we have maintained solid margins for specialty products, although daily volumes are slightly down compared to what we saw during the recent quarter. That said, they rely on historical seasonality, which we believe further demonstrates normalization.

But given the needs of our customers, we really believe that through strategic management of our of our structural program in which we are and where we use consignment great inventory management from a centralized per <unk>.

Perspective gives us the ability to really.

To take advantage of that piece of our business to drive overall overall sales growth and support our customers in the way they need in order to be successful on their own. So despite the margin compression. We are seeing those volumes pick back up mainly because it's a core it's a core piece of our business. The focus is.

Shyam Reddy: Structural margins have compressed as prices declined throughout October, though daily volumes are slightly higher. Although the near-term outlook remains uncertain, we still believe in the long-term prospects of the building products industry, thereby justifying our strategic and investment focus. The fundamental, under-supply of homes, supported demographic shifts, age-thalving stock, necessary repair activity, and high levels of home equity should continue to benefit the building products industry and blue links.

Specialty.

And on the specialty side.

I think more exposure to the R&R space, there and I recognize the the longer term comments about home equity levels and you.

Shyam Reddy: In summary, we delivered solid, quarterly financial results despite the challenging environment for housing and top year-over-year costs. We're also making good progress on our strategic priorities, as seen by our specialty product expansion efforts, margin performance, strong-cast generation, and capital allocation initiatives. We continue to maintain our price and cost discipline, while proactively managing our working capital to generate strong operating cash flows, key strengths of blue links, and lighted a macro uncertainties in the lingering possibility of an economic slowdown.

Aging housing stock and that sort of thing, but in the near term.

That area I would assume is maybe a little bit more challenged than new construction is that a fair.

Assessment and are you seeing any particular opportunities or product categories that are doing better than others. So outdoor living for instance versus.

Any other exposure that you have.

Yeah. So so yes, I mean, obviously, we will feel some of the adverse impact as it relates to repair and remodel.

Repair and remodel activity lowering or the outlook being a little muted heading into the next year that said as we look at.

Shyam Reddy: This discipline will serve us well as the housing and building product sector continues to normalize. As a result of our prudent management of the business, we have a strong balance sheet that allows us to reinvest in the business, to pursue a digital transformation strategy, to expand geographically, and to selectively pursue acquisitions, all of which position us well for the long-term prospects of the business, while providing us with flexibility to return capital to shareholders.

As we look at our product diversification, we do play in many in many layers of the construction cycle. So to the extent there are changes being made or sacrifices being made we feel like they'll still be repair and remodel activity it'll just be smaller projects and maybe in the past because of home equity levels are high but.

At the same time, our product diversification and our performance relative to the market declines suggests that we're favor where.

Shyam Reddy: I'd like to end by thanking my fellow blue links associates for their continued grit, tenacity, and competitive spirit in a challenging housing environment, and for their continued dedication to our customers and suppliers. I've met with so many of our teams across the country in the last few months, meeting with them has provided an opportunity to be close to the business, and our efforts to support customers. While allowing me to feel the pulse of the organization, it's hard, meeting with customers in our markets in addition to our strategic suppliers has also provided valuable insights and when combined with the direct feedback provided by our associates, we are able to make better informed decisions to run the business in these challenging macro economic conditions and to make strategic investments that position the company to take full advantage of the underlying fundamentals of the housing industry that support long term growth.

Actually comping favorably so if the market comes down we're not coming down as much and I truly believe that that is the case because of our product mix.

So in areas like AWP and millwork and siding for instance, those are starting there's a lag for example, which we've talked about in the past, which I think is contributes to the numbers. We experienced in Q3 outdoor living products is one of those we're absolutely focused on but to your point it could be something that a home.

Boehner puts off maybe a quarter or two.

As they as they wait through their own uncertainty through the uncertainty of the market, but we are focused on it and we'll continue to push it and we have multiple multiple products within that outdoor living category that we can sell depending on the price point or what the American consumer wants.

Shyam Reddy: So thanks to our customers and suppliers for enabling us to be better. Our teams are so dedicated to our customers as their commitment to enhancing the customer experience is palpable, not a day goes by without me feeling a great sense of pride and privilege being on their team.

And within your specialty categories is there any.

As we go into 'twenty, four and beyond are there any areas where you.

The inventory very bear in and.

And the channel that you'd have to to rebuild or Conversely, any any places where frankly, there's too much.

Andy Wamser: Now I'll turn it over to Andy who will provide more details on our financial results and capital structure. Thanks, Sam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, we delivered solid third quarter results highlighted by strong margins in both our specialty and structural product categories. Net sales were $810 million down 24% year-to-year, specialty product sales were down 23% from the prior year due to a combination of deflation and lower volumes.

Product and might be some pricing pressure going into 'twenty four in a software environment.

No look no not at all what the supply chain constraints have eased and as far as our inventory management.

Muscle we managed very strategically we are actively focused on inventory management to make sure that we have the appropriate inventory levels to meet our customers' needs and to the extent there are things going on in the market. Then we act very quickly to generate cash off the balance sheet in the appropriate manner.

Andy Wamser: Structural product sales were down 25% also due to significant year-to-year declines and wood based commodity prices and lower volumes. As a reminder, when reviewing the year-to-year comparisons, it's important to point out that in the third quarter of 2022, we were experiencing unusually high level of demand and significant price inflation across the business. So while the variances are quite significant, we are pleased with the financial results we generated this quarter considering recent market conditions.

Evidenced in our performance year to date as it relates to working capital management, but.

Sort of what Andy Yeah, I think just the only thing to accurate is that a little bit more detail just as we think about the inventory.

Through the first three quarters of this year we've reduced.

Our inventory of about $120 million I would say there isn't that much more room to go there could be maybe a slight incremental more as we as we go into the year end, but we think we feel really good about where our inventory levels are.

Andy Wamser: Total gross profit was $139 million and gross margin was 17.2% down 70 basis points from the prior year period. As GNA was $91 million flat with the prior year period as lower delivery costs were offset by higher operating expenses due to the Vandermeer acquisition. Net income was $24.4 million and diluted EPS was $2.71 per share. The adjusted net income was $26.8 million and adjusted diluted EPS was $2.98 per share. The third quarter tax rate was 27.2% in line with our expectations and for the fourth quarter of 2023, we anticipate our tax rate to be in the 24% range.

As we go into the new year and are ready for 'twenty four.

And look our strategy is to grow this business and I really believe that our arm the muscle we've developed around managing our working capital will enable us to do that very efficiently and effectively and smartly quite frankly.

Great. Thanks, guys. Good luck through the balance of the year.

Appreciate it thank you.

Thank you our.

Our next question comes from the line of Cock the NGO with D. A Davidson. Please go ahead.

Great. Thanks, and good morning, everyone.

Seeker.

Sam I just wanted to stick on that last point in terms of being.

Being focused on growing the business.

I guess I'm curious, how do you kind of balance the desire to maintain.

Andy Wamser: The adjusted EBITDA was $50 million for 6.2% of net sales, turning out to the third quarter results for specialty products. Net sales were $559 million down 20% year-to-year. This decline was driven by a combination of deflation and lower volumes across several specialty product categories. Growth profit from specialty product sales was $111 million down 27% year-to-year, specialty growth margin was 19.8% the strong margin but down 110 basis points from last year. To the first four weeks of Q4, specialty product growth margin was in the range of 18-19% with daily sales volumes slightly down compared to the third quarter of this year, but in line with historical seasonality.

<unk> discipline and margins in specialty with volumes, just because you know.

The last several years, that's been an area. That's that's lagged pretty consistently so just curious whether you think you can do both or if that focus on the margin side might be a detractor going forward in terms of volume potential.

Yeah, you know well know thanks for the question. It's a great one I honestly I don't think they're mutually exclusive propositions I think we can do both.

We're pricing competitively you know like I said by charging the appropriate price given the service proposition. We offer we do work very closely with our strategic customers and suppliers to make sure. We've got great programs in place, where we all grow together and build our respective businesses in a way that will that will create value.

For the employees and other stakeholders and our stockholders and when we talk about pricing discipline.

Andy Wamser: Now moving on to structural products, net sales were $251 million, down 25% compared to the prior year period. This decrease was primarily due to the significant year-to-year decline in average composite lumber and panel prices as well as volume. Growth profit from structural products was $28 million, a decrease of 25% year-to-year in structural growth margins was 11.3% consistent with the same period last year. In the third quarter of 2023, average lumber prices were about $437 per thousand board feet and panel prices were about $636 per thousand square feet, a 26% and a 5% decrease respectively compared to the averages observed in the third quarter of 2022.

And margin for example, we're really talking about the capabilities to manage that pricing across all of our locations to make sure that.

The local transactions fall within our pricing guidelines and governance, we absolutely do not believe we're losing business we want because of this pricing discipline in fact.

If you look at if you look at the <unk>.

Our volumes and how they trend with respect to construction activity in the context of permits completions starts et cetera, our declines are not as bad as market declines in fact, they are much better and so stay.

Stated differently, we are trending favorably so that they're in.

In that statement suggest that we're not losing the business. We we don't want to lose so I think we have figured out and look there's always room for improvement, but I really believe that our focus on on commercial excellence operational excellence pricing and procurement excellence really puts us in a position to grow share.

Andy Wamser: Sequentially comparing the third and second quarters of 2023, these prices were up 7% and 20% respectively. The sequential increase helps support the structural margins observed in the quarter. However, lumber and panel prices declined throughout the third quarter and finished the last week of September at $422 and $626 respectively. These prices have declined further in the first four weeks of the fourth quarter and are now $376 per thousand board feet and $572 per thousand square feet respectively.

In a way that's profitable and good in a win win for our customers and our and our suppliers and ourselves and look if you look at our Q2 numbers, we underperformed in Q2, that's on me.

Transition got the eye off the ball underperformed in Q2, but in Q3, we got our act together and our teams executed successfully to make sure that we're both doing well volume wise on a relative basis and while maintaining a discipline around pricing for the service we're actually providing.

Andy Wamser: Our strong structural margin continues to reflect the excellent job our team does to manage commodity cost volatility risk through leveraging confinement and utilizing centralized purchasing and pricing to keep structural inventory levels low. Through the first four weeks of Q4, structural products gross margin wasn't a range of 9% to 10% with daily sale volumes slightly up compared to the third quarter of this year. This excludes any net impact that could arise from inventory adjustments.

Got it Okay. That's super helpful color.

On the capital allocation front I mean, recognizing.

The desire to invest in the business, which obviously.

You guys have a lot of capacity to do as well as grow the platform.

Just with the opportunity set that you see out there how do you kind of way M&A versus buying back your own stock at these levels, just given kind of where they were trading on a valuation basis.

Andy Wamser: Looking out our balance sheet, our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital. As of the end of the third quarter, cash on hand reached a record level of $470 million in increase of $51 million from Q2 to Q3. When considering our cash on hand and undrawn revolver capacity of $347 million, available liquidity was $816 million at the end of the third quarter, all for a record.

Yes, it's a great question.

I would say simply when you look at where our business is trending today.

Let's see.

Intrigued on a multiple basis.

And we think about our long term prospects, we feel really comfortable in terms of being able to buy back our shares at these levels I mean, it's certainly sub.

A five times multiple so we feel really good about that and then and then in the context of M&A.

Andy Wamser: Total debt including our financing leases was $577 million and net debt was $107 million or net leverage is now 0.5 times. And we have no material outstanding debt maturities until 2029. Our balance sheet is an S1 shape and when combined with our solid EBITDA and strong cash generation, we are well positioned to support our strategic initiatives. These include capital allocation projects and investments and our high return opportunities, such as organic and intervianic growth investments and share reports.

It's frankly, it's hard to find deals.

No that are that are trading in that sort of five times.

Or even slightly below area. So.

I will say that it's not mutually exclusive because when we look at the interfere in terms of what we're able to do there in terms of centralized some of our processes.

And bring it into I'd say to the Bluelinx family.

That's turned out to be a terrific deal for us, especially when you look on a synergize.

<unk> as we look back over the last year now if we could find another banner year by all means we would do that.

Andy Wamser: Now moving on to working capital and free cash flow. During a third quarter, we generated operating cash flow of $78 million in free cash flow of $73 million. A third quarter cash generation was supported by earnings and net benefit from working capital, primarily related to a reduction of approximately $15 million in inventory. Specifically, we ended the third quarter with $364 million of inventory down over $120 million from beginning of the year.

But in the context of where the balance sheet as it sits today at <unk> five times, we feel really comfortable in terms of.

The business has normalized because.

And we have visibility to year end so.

We feel comfortable in terms of where the balance sheet will end at year end. We think it is appropriate now for us to do this new authorization.

Because you don't need to have the leverage that to your point about a time. So we think it's appropriate.

Effectively considering how we're trading.

Andy Wamser: Turning now to capital allocation. During the quarter, we spent approximately $5 million in CAPEX, which were primarily for enhancements toward distribution branches. For their year, we still expect capital investments to remain around $30 million, focusing on facility improvements and further upgrades toward flea. Also, during the third quarter, we purchased approximately $18 million of a company's common stock through an open market transaction under our prior $100 million share repurchase program, which as of last month is now complete.

Just to add on as it relates to M&A I mean, let me reiterate that it is a core element of our growth strategy in.

In addition to making investments to grow the business organically. So there's opportunity out there. There are initial excitement has been a little unit by the bid ask spreads. However, we're now seeing that bid ask spreads start to compress which means the outlook for M&A remains strong in our view.

The pipeline is robust.

We'll continue to work at the multiples are high but like I said, they are coming down and once these 2023 numbers come in I think.

There might be some opportunities that we can we can take advantage of but like I said and as we've alluded to we will be very disciplined in the type of deal we do.

Andy Wamser: Shyam mentioned the board as approved another $100 million share repurchase authorization, and we plan to be opportunistic in the market when repurchasing shares. As a reminder, this is our second $100 million share repurchase authorization in the last two years. 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 geographic expansion and M&A strategy as well as return capital to shareholders.

From a risk return standpoint also the multiple we pay in light of the overall capital allocation strategy.

Right Okay.

Great. That's helpful and then just lastly.

In terms of opportunities in the next year I am curious whether.

From a product category perspective, and kind of expanding those geographically across more of the platform or specific vendor relationships and any expansion. There are there any areas, where you're particularly excited about in terms of the potential to drive above market growth.

Andy Wamser: We also plan to maintain a long-term target net leverage of three times or less. Overall, we are pleased with our third quarter results, highlighted by our strong margins and free cash flow, especially when considering the challenging environment. Our strong balance sheet positions us well to execute on our strategy and provide return to our shareholders as further evidence by our new share repurchase authorization.

And 24.

Oh, absolutely and I wish I wish I could talk about them now, but there will be announcements coming out that will support honestly, the faith and our suppliers have in us and the the great work. Our teams are doing to engender that faith and confidence in us there's only so much.

Operator: Operator, we are now ready to take questions. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. Our confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. Ladies and gentlemen, we will wait for a moment while we pull for questions.

I can do right.

Anybody on the management can team can do it's really about those sales teams and the folks who support them on the product management side. So yes. There are examples of expansions of our existing strategic product categories into new markets with existing vendors.

And more to come on that front, but.

We are all very excited about the opportunities.

Greg Palm: Our first question comes from the line of Greg Palm with Greg Halem Capital Group. Please go ahead. Yes, good morning, everybody. Thanks for taking the questions. I guess I wanted to start with a little bit of the outlook commentary. It suggests October volumes more or less in line with that of Q3. Just to be clear, is that normal? I assume volumes would likely trend lower in the months of November and December versus October. So maybe you wanted to be sure I was thinking about that right. I mean, maybe get into the point.

That will produce long term long term growth.

In those five key specialty product categories.

Okay.

Perfect well, we'll keep an eye out for that and I. Appreciate the color guys and good luck here in Q4.

Thanks Kurt.

Thank you.

Our next question is from Jeffrey Stevenson with loop capital markets. Please go ahead.

Thanks for taking my questions and congrats on a nice quarter.

So I was wondering if you could talk about how volumes trended during the quarter in your core five specialty product categories and more specifically did you see any pickup in demand as the quarter progressed from increase in single family housing starts this summer.

Andy Wamser: Should we expect normal seasonal trends in Hey, Greg.

Andy Wamser: This is Andy. It's a great question. And what I would say is, you know, October normally aligns with, you know, some of the trends that we've seen in the third quarter, and as a reminder, you know, our second and third quarters, I'd say in a more normalized market, which we're experiencing right now, or generally our highest.

Yeah, we actually we actually did from again, if youre looking at sort of Q3 relative to Q2.

There was a.

Through the course of the quarter, our specialty products picked up in volumes. There was a decline with structural either we're seeing as Andy alluded to earlier a pickup in volumes in the first four weeks of Q4, but yes like I said before I really believe our product diversification allows us to play in every stage of of the can.

Andy Wamser: And so you're on point when we think about October, you know, the trends, you know, were pretty decent, I mean, in terms of, you know, the volume outlook, you know, as we saw to close out the month, but the, you know, as we look to November and December, we then would see a debt certainly in that, in that seasonality. So, you know, we certainly would expect, I would say the, you know, the fourth quarter to be in line. We're not trying to message the fourth quarter, and you would be in line with the third quarter in terms of profitability. Yep. Okay. Understood.

Instructions of of the construction of a single family home and we started to see that flow through the P&L in Q3 with with volumes picking up in each one of our five key product categories.

Andy Wamser: And then, you know, the gross margin within, you know, specialty was, yeah, I'd say a highlight again, and I'm just curious are there are kind of certain categories within that, that you're focusing on, on more, you know, whether it be, you know, higher margin product lines and kind of long term, how do you, how do you think about the focus there, whether it be on, you know, higher margin product lines versus maybe higher growth opportunities? Yeah.

With with and at least for them for sure.

At the same time.

As we think about the market trends as I alluded to earlier.

We are generally trending favorably relative to the markets in which we operate in terms of volume So we're getting.

We're just doing better relative to market I think it's testament to our teams and the focus we have on these five key specialty product categories as opposed to one disproportionately relative to the other.

Andy Wamser: Another great question. The way I'd frame it is, you know, when we look at, you know, the specialty margin, the third quarter, it certainly was a high mark, you know, of the year so far, 19.8% is you, as we saw, or we mentioned, we thought, as we look to the fourth quarter, it's sort of trending in 18 to 19%. So, I'd say a modest, you know, sort of slight dip, but when I think about, you know, some of the, you know, the trend lines, I would say, you know, EWP, millwork fighting, you know, continues to do well, you know, with some of those volumes and, as those volumes have performed pretty well, that's, that's those three categories that certainly help, you know, the margin profile, but I would say we're focused on all five, the ones we, you know, consistently mentioned, but, you know, those are the three that really help in the quarter.

But Jeff maybe just a little bit more color I mean, what I would say is if we look at just the handful that were.

Favorable from a <unk> perspective from a volume perspective would've been DWP millwork in siding.

Got it.

Got it.

Very helpful color I appreciate that.

And then you guys had another strong quarter of specialty product margins and that continues to hold well above previous normalized levels.

Challenging residential environment, just wondering if the strong results this quarter and really how they've held them. This year gives me further confidence that specialty margins were normalize at or above that 18% to 19% level.

Yes.

Andy Wamser: Yeah, and just to add, add to that, you know, as it relates to our margins, I mean, we, we're, we're leveraging our pricing and service proposition capabilities to make sure we're, we're pricing competitively by charging the appropriate price for the product and service offering we provide, while then thinking strategically about our sales based on those characteristics and that customers were selling to. So, basically, those who buy more from us, get better deals than those who don't, and ultimately, we're thinking about sales growth in the context of long-term value creation, which is, which is what's, and then a diversified product portfolio helps us execute successfully on that objective.

It seems to be the right range.

Gone through sort of the first through third quarters, you know we've gone from 18% to 19, eight but I expect a little bit of softness here in the fourth quarters.

<unk> was between 18% to 19%, but we think that margin profile is really held in well.

Particularly as we sort of test with this new normalization looks like and so I think the results speak for themselves at least for this year and it feels like the right Zip code.

No that makes sense and then just lastly, thanks for the update on kind of why you have the new $100 million share repurchase authorization that makes sense, but just.

Greg Palm: Under said, helpful car, I will leave it there. Thanks. Thanks, Greg. Thank you.

Just kind of from your capital allocation standpoint, if there isn't the right acquisition. If you feel your shares are undervalued will you kind of be aggressive in buying back stock or how are you thinking about it from.

Reuben Garner: Our next question comes from Ruben Garnal with Benchmark Company. Please go ahead. Thank you.

The magnitude of share repurchases.

Reuben Garner: Good morning, everybody. So, throughout the quarter, we heard on the commodity side of your business that things maybe were starting to get a little bit more competitive. I think the term progresses was we can throw it around from some of the industry. Are you guys feeling that? Have you had to defend share position? How are you thinking about that? I see your guidance for the fourth quarter. Is it touch below, but still very strong on the structural piece at 9 to 10 percent first margin, but maybe just walk me through.

Moving forward.

Well I think we have to put the $100 million sort of in the context first of where we are and so it is call it between 15% to 17% of our market cap. So that's.

A meaningful amount.

I think given market conditions.

If they.

Remained fairly decent.

We sit here today, I think it's reasonable that that that authorization.

Could be done as we as we go through the end of 2024.

We have to get through the first one first before we talk about an additional one so let's see how the market conditions go.

Reuben Garner: If you're seeing any of that, kick in and how you kind of think about share versus margin in that part of your business. Sure, so I'll take the first stab at that. What I would say on structural, there certainly has been a little bit of a margin compression as we go from the fourth quarter or go into the fourth quarter. And in some of my comments, I gave sort of a framework in terms of where we ended in September to where we're returning in October.

But I would tell you our intent is to do that over this quarter and then through the course of next year.

But we'll be looking at M&A as well I mean, that's going to be an important focus for us as well.

So it'll be a balance between the two.

Great. Thank you.

Thank you.

There are no further questions I would now hand, the conference over to Tom Morabito for closing comments.

Reuben Garner: So when we look at lumber and panels, it is down a decent bit. We've seen some real drop-off here and pricing, I'd say over the last, frankly, eight weeks or so. As it relates to volumes, to the first four weeks of this year, structural volumes, I would say, are modestly up from a sequential. Again, I wouldn't read too much into that the same sort of, I would sort of say the same comments as I mentioned in Greg, where it's good to see that October volumes. It's a sequential basis in October, I'd call it, you know, moment single digits.

Thanks, Ryan. Thank you again for joining us today, and we look forward to speaking with you in February as we share our fourth quarter and full year 2023 results.

Thank you.

<unk> of Bluelinx Holdings has now concluded. Thank you for your participation you may now disconnect your lines.

[music].

Shyam Reddy: But then we do expect that that drop-off in that normal seasonality in November and December. Yeah, and look, the structural piece of our business is an important one. We are obviously moving in the direction of achieving an 80% net sales to to 20%, 80%, 20% specialty structural mix. Given the needs of our customers, we really believe that through strategic management of our structural program and which we're in where we use confinement, great inventory management from a centralized perspective gives us the ability to really, you know, to take advantage of that piece of our business to drive overall sales growth and support our customers in the way they need in order to be successful on their end.

Shyam Reddy: So, despite the margin compression, we are seeing those volumes take back up mainly because it's a core piece of our business that the focus is on specialty. And on that specialty side, I think more exposure to the R&R space there and I recognize the longer-term comments about home equity levels and, you know, aging of housing stock and that sort of thing. But in the near-term, that area I would assume is maybe a little bit more challenge than new construction.

Shyam Reddy: Is that a fair assessment? And are you seeing any particular opportunities or product categories that are doing better than others? So, outdoor living, for instance, versus, you know, any other exposure that you have. Yeah, so, yeah, I mean, obviously, we'll feel some of the adverse impact as it relates to repair remodel, repair remodel activity, lowering or the outlook being a little muted heading into the next year. That said, as we look at, as we look at our product diversification, we do play in many, in many layers of the construction cycle.

Shyam Reddy: So, to the extent there are changes being made or sacrifice is being made, you know, we feel like there'll still be repair remodel activity. It'll just be smaller projects and maybe in the past because the home equity levels are high. But at the same time, our product diversification and our performance relative to the market decline suggests that we're favor, we're actually comping favorably. So, if the market comes down, we're not coming down as much.

Shyam Reddy: And I truly believe that is the case because of our product myth. So in care areas like EWP, MillWork, Insighting, for instance, those are starting, there's a lag, for example, which we've talked about in the past, which I think is, you know, contribute to the numbers we experienced in Q3. Outdoor living products is one of those we're absolutely focused on, but to your point, it could be something that a homeowner puts off maybe a quarter or two as they wait through their own uncertain, you know, but we are focused on it, and we'll continue to push it, and we have multiple, multiple products within that outdoor living category that we can sell depending on the price pouring or what the American consumer wants.

Shyam Reddy: And within your specialty categories, is there any, as we go into 24 and beyond, are there any areas where you be inventory very bare in the channel that you'd have to rebuild or conversely any places where maybe there's too much product and might be some pricing pressure going into 24 in a software environment? No, look, no, not at all. What the supply chain constraints have eased, and as far as our inventory management, you know, muscle, we manage very strategically.

Shyam Reddy: We are actively focused on inventory management to make sure that we have the appropriate inventory levels to meet our customers' needs, and to the extent there are things going on in the market that we act very quickly to generate cash off the balance sheet in the appropriate manner. As evidence in our performance, year to date as it relates to working capital management that I'll sort of let Andy. Yeah, I think just the only thing to add to that a little bit more detail is just, you know, as we think about the inventory, you know, through the first three quarters of this year, we've reduced, you know, or inventory about $120 million, you know, I would say there isn't that much more room, you know, to go there could be maybe a slight incremental more as we go into the year end, but we think we feel really good about where our inventory levels are, you know, as we go into the new year and are ready for 24.

Shyam Reddy: Yeah, look, our strategy is to grow this business, and I really believe that our, the muscle we've developed around managing our working capital will enable us to do that very efficiently and effectively, and smartly, quite frankly.

Reuben Garner: Great, thanks guys, good luck through the balance of the year. Appreciate it, thank you. Thank you.

God Yinger: Our next question comes from the line of God Yingo with DA Davidson, please go ahead. Great, thanks, and come on, everyone. Sigurd?

Shyam Reddy: Shama, I just wanted to stick on that last point in terms of, you know, being focused on growing the business, then I guess I'm curious, how do you kind of balance the desire to maintain the pricing discipline and margins and specialty with volumes just because, you know, the last several years that's been an area that's that's lagged pretty consistently. So just curious whether you think you can do both or if that focus on the margins side might be a detractor going forward in terms of volume potential.

Shyam Reddy: Golf. Yeah, you know, thanks for the question. It's a great one. Honestly, I don't think they're mutually exclusive propositions. I think we can do both. You know, we're pricing competitively, you know, like I said, by charging the appropriate price, given the service proposition we offer, we do work very closely with our strategic customers and suppliers to make sure we've got great programs in place where we all grow together and build our respective businesses in a way that will create value for the employees and other stakeholders and our stockholders.

Shyam Reddy: When we talk about pricing discipline and margin, for example, we're really talking about the capabilities to manage that pricing across all of our locations to make sure that the local transactions fall within our pricing guidelines and governance. We absolutely do not believe we're losing business we want because of this pricing discipline. In fact, you know, if you look at, if you look at the, you know, our volumes and how they trend with respect to construction activity in the context of permits, completions, starts, et cetera, our declines are not as bad as market declines.

Shyam Reddy: In fact, they're much better. And so, you know, stated differently, we're trending favorably. So that, that therein, I mean, in that statement suggests that we're not losing the business we don't want to lose. So I think we have figured out, and look, there's always room for improvement, but I really believe that our focus on commercial excellence, operational excellence, pricing and procurement excellence really puts us in a position to grow share in a way that's profitable and good in a win-win for our customers and our suppliers and ourselves.

Shyam Reddy: And look, if you look at our Q2 numbers, we underperforming Q2. That's on me. You know, transition, got the eye off the ball underperforming Q2, but in Q3, we got our act together and our teams execute it successfully to make sure that we're both doing well, volume-wise on a relative basis and while maintaining a discipline around pricing for the service we're actually providing. Got it. Okay, now that's that's super helpful color.

Shyam Reddy: On the capital allocation from, I mean, recognizing, you know, the desire to reinvest in the business, which obviously you guys have a lot of capacity to do as well as grow the platform. I mean, just with the opportunity set that you see out there, how do you kind of weigh M&A versus buying back your own stock at these levels, just given kind of where you're trading on a valuation basis? Yeah, Kurt, it's a great question.

Shyam Reddy: You know, what I would say simply, you know, when we look at, you know, where our business is trending today, let's say on a trade on a multiple basis, you know, and we think about our long-term prospects, we feel really comfortable in terms of being able to buy back our shares at these levels. I mean, it's certainly sub, you know, five times multiples, so we feel really good about that. And then in the context of M&A, you know, it's frankly as hard to find deals, you know, that are trading in this sort of, you know, five times or even slightly below areas.

Shyam Reddy: So I'll say that it's not mutually exclusive, because when we, we look at the interim here in terms of what we're able to do there, in terms of centralize some of our processes, and bring it into, I'd say, to the Bluevings family, you know, that's turned out to be a terrific deal for us, especially when you look on a synergized basis, you know, as we look back over the last year. Now, if we get find another interim here, by all means, we would do that.

Shyam Reddy: But in the context of where the balance sheet is fits today at 0.5 times, we feel really comfortable in terms of the, you know, where the business has normalized because and we have visibility to year-end. So we feel comfortable in terms of whether balance sheet will end at year-end. We think it is appropriate now for us to, you know, do this new authorization, because you know, we don't need to have the leverage at 0.5 times.

Shyam Reddy: So we think it's appropriate, you know, effectively considering how we're trading. You know, and as it, just to add on, as a relates to M&A, I mean, let me reiterate that it is a core element of our gross strategy. In addition to making investments to grow the business organically so there's opportunity out there though our initial excitement has been a little muted by the bid-ass spreads however we're now seeing that bid-ass spreads start to compress which means the outlook for M&A remains strong in our view.

Shyam Reddy: But like I said, and as we've alluded to, we will be very disciplined in the type of deal we do from a risk return standpoint also the multiple we pay in light of the overall capital allocation strategy. Right. Okay. Appreciate that. That's helpful.

Shyam Reddy: And then just lastly, in terms of opportunities in the next year, I'm curious whether from a product category perspective and kind of expanding those geographically across more of the platform or specific vendor relationships and any expansions there. Are there any areas where you're particularly excited about in terms of the potential to drive above market growth in 24? Oh, absolutely. And I wish I could talk about them now but there will be announcements coming out that will support honestly the faith that our suppliers have in us and the great work our teams are doing to engender that faith and confidence in us.

Shyam Reddy: There's only so much, you know, I can do right or anybody on the management can team can do. It's really about those sales teams and the folks who support them on the product management side. So yes, there are examples of expansions of our existing strategic product categories into new markets with existing vendors. And more to come on that front, but we are all very excited about the opportunities that will produce long term, long term growth in those five key specialty product categories. Okay. Perfect. Well, we'll keep an eye out for that and appreciate the color guys and good luck here in Q4. Thanks. Thank you.

Jeffrey Stevenson: Next question is from Jeffrey Stevenson with loop capital markets. Please go ahead. Thanks for taking my questions today and congrats on the nice quarter. So I was wondering if you could talk about how volumes trend that they're in the quarter and your core five specialty product categories and more specifically. Did you see any pickup and demand as a quarter progress from the increase in single family housing starts this summer? Yeah, we actually we actually did from again, if you're looking at sort of Q3 relative to Q2, there was a through the course of the quarter specialty products picked up in volumes.

Jeffrey Stevenson: There was a decline with structural or there were seeing as any alluded to earlier a pickup and volumes in the first four weeks of Q4. But yes, I like I said before I really believe our product diversification allows us to play in every stage of the construction of the construction of a single family home. And we started to see that flow through the P and L and Q3 with with volumes picking up in each one of in in our five key product categories with with in at least for them for sure.

Jeffrey Stevenson: At the same time, you know, as we think about the market trends as I alluded to earlier, we are we are generally trending favorably relative to the markets in which we operate in terms of volume. So we're getting we're we're just doing better relative to market. I think it's testament to our teams and the focus we have on these five key specialty product categories as opposed to one disproportionately relative to the other.

Jeffrey Stevenson: But Jeff, maybe just a little bit more color. I mean, what I would say is if we had to look at, you know, just the handful that were, you know, pretty favorable from like a TLE perspective, volume perspective, it would have been, he'd have a female work inciting. Got it. No, it's very helpful color. I appreciate that. And then you guys had another strong quarter of a specially product margins and they continue to hold well above previous normalized levels of this, you know, challenging residential environment.

Jeffrey Stevenson: And just wondered if the strong results this quarter and really how they've held in this year give you farther confidence, especially margins were normalized at or above that 18 and 19% level. Yeah, I mean, I think it seems to be the right range, you know, as we've we've gone through, you know, sort of the first through third quarters, you know, we've gone from 18 to 19, eight, not expect a little bit of softness here in the fourth quarters, you know, as our guidance was between 18 and 19%.

Jeffrey Stevenson: But we think that margin profile, you know, has really held in well, particularly as we sort of cast with this new normalization looks like. And so I think the results are to speak for themselves, at least for, you know, for this year and you know that it feels like the right zip code. No, that makes sense. Then just lastly, yeah, thanks for the, you know, update on kind of why you have the new 100 million cherry purchase authorization that makes sense.

Jeffrey Stevenson: But just kind of from your capital allocations standpoint, if there isn't the right acquisition, if you feel your shares are undervalued, will you kind of be aggressive and buying back stock or how are you thinking about it from, you know, the magnitude of of cherry purchase. Moving forward. Well, I think we have to put the 100 million, you know, sort of in the context first of, you know, where we are. And so, you know, it is, you know, called between 15 to 17% of our market cap.

Jeffrey Stevenson: So that's, you know, that that's a meaningful amount. You know, I think, you know, given market conditions. If they, you know, remain, you know, fairly decent. And as we sit here today, I think it's reasonable that, you know, that that authorization, you know, could be done, you know, as we, as we go through, you know, the end of 2024. We have to get through the first one first before we talk about an additional one.

Jeffrey Stevenson: So let's see how the market conditions go. But I'll tell you our intent is to do that over, you know, this quarter and then, you know, through the course of next year. But we'll be looking at MNA as well. I mean, that's going to be an important focus for us as well. And so it will be a balance between the two. Great. Thank you. Has there been a further questions?

Tom Morabito: I would now hand the conference over to Tom Morabito for closing comments. Thanks, Ryan. Thank you again for joining us today. And we look forward to speaking with you in February as we share our fourth quarter and four year 2023 results. Thank you.

Operator: The conference of blue links holdings has now concluded. Thank you for your participation. You may now disconnect your lines.