Q2 2024 BlueLinx Holdings Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings second quarter 2024 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.

Ladies and gentlemen, thank you for standing by and welcome to the Bluelinx Holdings second quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode and today's call is being recorded.

Operator: Ladies and gentlemen, thank you for standing by and welcome to the BlueLinx Holdings 2nd quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode, and today's call is being recorded.

Operator: We will begin with opening remarks and introductions.

We will begin with opening remarks and introductions.

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

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

Tom Morabito: Thank you, operator, and welcome to the BlueLinx 2nd quarter 2024 earnings call. Joining me on today's call is Shyam Reddy, our President and Chief Executive Officer, and Andy Womser, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions.

Tom Morabito: Thank you, Operator, and welcome to the BlueLinx Second Quarter 2024 Earnings Call. Joining me on today's call is Shyam Reddy, our President and Chief Executive Officer, and Andy Wamser, our Chief Financial Officer.

Thank you operator, and welcome to the Bluelinx second quarter 2024 earnings call. Joining me on today's call is Jim Reddy, Our President and Chief Executive Officer, and Andy Wamser, Chief Financial Officer.

Tom Morabito: At the end of today's prepared remarks, we will take questions. Our second quarter news release and Form 10-Q were issued yesterday after the close of the market, along with our webcast presentation. And these items are available in the investor section of our website, BlueLinxCo.com. We encourage you to follow along with the detailed information on the slides during the webcast. Today's discussion contains forward-looking statements. However, 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 filing.

At the end of today's prepared remarks, we will take questions.

Tom Morabito: Our second 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 webster section of our website bluelingsco.com. We encourage you to follow along with the detailed information on the slides during the webcast.

Our second quarter news release and Form 10-Q were issued yesterday after the close of the market along with our webcast presentation and these items are available in the investors section of our website Bluelinx co dot com.

We encourage you to follow along with the detailed information on the slides during the webcast.

Tom Morabito: Today's discussion contains forward-looking statements. Actual results made different 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 contexts for investors evaluating our business. Reconciliation through the close of gap financial measures can be found in the appendix of our presentation.

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.

Tom Morabito: Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the Closest Gap financial measures can be found in the appendix of our presentation. Now I'll turn it over to Shyam.

Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business.

Reconciliations to the closest GAAP financial measures can be found in the appendix of our presentation.

Tom Morabito: Now I'll turn it over to Shyam.

Now I'll turn it over to Sharon.

Sharon: Thanks, Tom and good morning, everyone. Our second quarter 2024 results demonstrated solid gross margins of approximately 19% in our specialty products business. Despite the impact of continued price deflation relative to prior year comps.

Shyam Reddy: Thanks, Tom, and good morning, everyone. Our second quarter 2024 result demonstrated solid gross margins of approximately 19% in our specialty products business, despite the impact of continued price deflation relative to prior year comps. Volume growth and key specialty product categories such as no work, engineered wood products, inciting, helped offset declining lumber prices and weaker structural volumes during the quarter.

Shyam K. Reddy: Thanks, Tom, and good morning, everyone. Our second quarter 2024 results demonstrated solid gross margins of approximately 19% in our specialty products business, despite the impact of continued price deflation relative to the prior year. Volume growth in key specialty product categories, such as millwork, engineered wood products, and siding, helped offset declining lumber prices and weaker structural volumes during the quarter. I am proud of my teammates for their hard work to deliver these results in spite of challenging market conditions.

Sharon: Volume growth in key specialty product categories, such as millwork engineered wood products in siding helped offset declining lumber prices and weaker structural volumes during the quarter.

Shyam Reddy: I am proud of my teammates for their hard work to deliver these results in spite of challenging market conditions. Before turning over to our second quarter results, I would like to note BlueLinks' 20th anniversary as a public company this year. While our origins date back to 1954 as a division of Georgia Pacific, we spent the last 20 years building the largest pure play two step building products distributor in the US. In so doing, we are playing a vital role in the building product supply chain while providing an outstanding place to work for all of our associates.

Sharon: Proud of my teammates for their hard work to deliver these results in spite of challenging market conditions.

Speaker Change: Before turning over to our second quarter results I would like to note Bluelinx is 20th anniversary as a public company. This year, while our origins date back to $19 54, as a division of Georgia Pacific. We spent the last 20 years building the largest pure play two step building products distributor in the U S.

Shyam K. Reddy: Before turning over to our second quarter results, I would like to note BlueLinx's 20th anniversary as a public company this year. While our origins date back to 1954 as a division of Georgia-Pacific, we spent the last 20 years building the largest pure-play, two-step building products distributor in the U.S. In so doing, we are playing a vital role in the building product supply chain while providing an outstanding place to work for all of our associates. In fact, nearly 400 of our roughly 2,000 employees have been with us for more than 20 years, which is a testament to their commitment to BlueLinx.

Speaker Change: In so doing we are playing a vital role in the building products supply chain, while providing an outstanding place to work for all of our associates.

Shyam Reddy: In fact, nearly 400 of our roughly 2000 employees have been with us for more than 20 years, which is a testament to their commitment to BlueLinks. Many of our suppliers and our customers have been with us during that time as well, and for that loyalty, we are sincerely grateful.

Sharon: In fact, nearly 400 of our roughly 2000 employees have been with us for more than 20 years, which is a testament to their commitment to bluelinx many of our suppliers and our customers have been with us during that time as well and for that loyalty we are sincerely grateful.

Shyam K. Reddy: Many of our suppliers and our customers have been with us during that time as well, and for that loyalty, we are sincerely grateful. Looking ahead, we have begun the initial work to modernize our business with new technology, with the first phase focused on re-architecting our data, launching an e-commerce solution, and implementing a world-class transportation management system. Subsequent phases will further enhance our operational and commercial capabilities. Our continued focus on modernizing the business with new technology will ultimately enable us to differentiate ourselves in the markets we serve so that we can accelerate our strategic profitable sales growth objectives.

Shyam Reddy: Looking ahead, we have begun the initial work to modernize our business with new technology, with the first phase focused on re-architecting our data, launching an e-commerce solution, and implementing a world-class transportation management system. Subsequent phases will further enhance our operational and commercial capabilities. Our continued focus on modernizing the business with new technology will ultimately enable us to differentiate ourselves in the markets we serve so that we can accelerate our strategic profitable sales growth of Jeff. We remain focused on growing our key specialty product categories at a higher rate than our structural product business to their product mix shifts over time.

Sharon: Looking ahead, we have begun the initial work to modernize our business with new technology with the first phase focused on re architected, our data launching an e-commerce solution and implementing a world class Transportation management system. Subsequent phases will further enhance our operational and commercial capabilities. Our continued focus on modern.

Sharon: I think the business with new technology will ultimately enable us to differentiate ourselves in the markets. We serve so that we could accelerate our strategic profitable sales growth objectives.

Shyam K. Reddy: We remain focused on growing our key specialty product categories at a higher rate than our structural product business so that our product mix shifts over time. We also continue to execute successfully on our local and national market strategies, as evidenced by our expansion of product lines with key national accounts, our expansion of branded product lines into new geographic markets, and launches of new product lines, just to name a few. We also continue to explore and evaluate M&A and greenfield opportunities to expand our geographic reach and to support our specialty product sales growth initiatives.

Sharon: We remain focused on growing our key specialty product categories at a higher rate than our structural product business to their product mix shifts over time. We also continued to execute successfully on our local and national market strategies as evidenced by our expansion of product lines with key national accounts or expansion of branded product line.

Shyam Reddy: We also continue to execute successfully on our local and national market strategies as evidence by our expansion of product lines with key national accounts, our expansion of branded product lines into new geographic markets and launches a new product lines, just to name a few. We also continue to explore and evaluate M&A and greenfield opportunities to expand our geographic reach and to support our specialty product sales growth initiatives.

Sharon: And to enter new geographic markets and launches a new product wise just to name a few.

We also continue to explore and evaluate M&A and greenfield opportunities to expand our geographic reach and to support our specialty product sales growth initiatives.

Shyam Reddy: Now turning to our second quarter results. We generated net sales of $768 million and adjusted EBITDAV $34 million for a 4.5% adjusted EBITDA margin. Adjusted net income was $15 million or $1.68 cents per share. Specialty products accounted for approximately 70% of net sales in about 85% of gross profits for the second quarter. Specialty product revenue is declined 6% year-over-year due to continued price deflation when compared to the prior year. However, our average specialty product prices through the first half of the year generally remained at the same level. We expect to see a reduced year-over-year impact from pricing as we move into 2025.

Shyam K. Reddy: Now turning to our second quarter results. We generated net sales of $768 million and adjusted EBITDA of $34 million, a 44.5% adjusted EBITDA margin. Adjusted net income was $15 million, or $1.68 per share.

Sharon: Now turning to our second quarter results.

We generated net sales of $768 million.

And adjusted EBITDA of $34 million for a four 5% adjusted EBITDA margin adjusted.

Sharon: Adjusted net income was $15 million or $1 68 per share.

Shyam K. Reddy: Specialty products accounted for approximately 70% of net sales and about 85% of gross profits for the second quarter. However, specialty product revenues declined 6% year over year due to continued price deflation when compared to the prior year. However, our average specialty product prices through the first half of the year generally remained at the same level. We expect to see a reduced year-over-year impact from pricing as we move into 2025. Now, as I mentioned earlier, we had solid volume growth in key specialty product categories, such as millwork, engineered wood products, and siding. We also delivered solid gross margin performance of 19.3% in specialty products due to our continued focus on business and operational excellence.

Sharon: <unk> products accounted for approximately 70% of net sales and about 85% of gross profits for the second quarter.

Sharon: Specialty product revenues declined 6% year over year due to continued price deflation when compared to the prior year. However, our average specialty product prices through the first half of the year generally remained at the same level.

Sharon: We expect to see a reduced year over year impact from pricing as we move into 2025.

Shyam Reddy: Now, as I mentioned earlier, we had solid volume growth in key specialty product categories, such as millwork, engineered wood products, and siding. We also delivered solid gross margin performance of 19.3% specialty products due to our continued focus on business and operational excellence. Structural product revenues declined 7% due to lower number pricing, as well as lower number of panel volumes. The lower number of prices are now at levels we have not seen in a few years. Panel prices, although better than last year, experience an especially meaningful decline as well. For example, OSB prices fell 31% over the course of the quarter.

As I mentioned earlier, we had solid volume growth in key specialty product categories, such as millwork engineered wood products and siding.

We also delivered solid gross margin performance of 19, 3% specialty products due to our continued focus on business and operational excellence.

Shyam K. Reddy: Structural product revenues declined 7% due to lower lumber prices, as well as lower lumber and panel volume. The lower lumber prices are now at levels we have not seen in a few years. Panel prices, although better than last year, experienced an especially meaningful decline as well. For example, OSV prices fell 31% over the course of the quarter. The contraction in lumber and panel prices put pressure on demand as customers kept their purchasing at minimal levels and on our gross margins given the natural lag on inventory costs coming down. For the quarter, structural product margins came in at 7.9%.

Speaker Change: Structural product revenues declined 7% due to lower lumber pricing as well as lower lumber and panel volumes. The lower lumber prices are now at levels. We have not seen in a few years panel prices, although better than last year experienced an especially meaningful decline as well for example, OSB prices fell 31% over the <unk>.

Sharon: <unk> of the quarter.

Shyam Reddy: The contraction and number of panel prices put pressure on demand as customers kept their purchasing at minimal levels and on our gross margins, given the natural lag on inventory costs coming down. For the quarter, structural product margins came in at 7.9%. However, we are optimistic that pricing will stabilize and eventually improve as manufacturers adjust their supply and the over-supply of wood in the channel draws down. At the same time, we believe that lower interest rates in the future will help fuel a more far-reaching industry recovery that is expected to create higher demand for structural products.

Sharon: The contraction in lumber and panel prices put pressure on demand as customers kept their purchasing at minimal levels and on our gross margins given the natural lag of inventory costs coming down for.

Sharon: <unk> for the quarter structural product margins came in at seven 9%. However, we are optimistic that pricing will stabilize and eventually improve as manufacturers adjust their supply and the oversupply of wood in the channel draws down.

Shyam K. Reddy: However, we are optimistic that pricing will stabilize and eventually improve as manufacturers adjust their supply and the oversupply of wood in the channel draws down. At the same time, we believe that lower interest rates in the future will help fuel a more far-reaching industry recovery that is expected to create higher demand for structural products. On a positive note, and despite market challenges for structural products, our Days Sales of Inventory, or DSI, for lumber and panels, remain consistent throughout the quarter due to our strategic management of structural product inventory.

Sharon: At the same time, we believe that lower interest rates in the future will help fuel a more far reaching industry recovery that is expected to create higher demand for structural products on a positive note and despite market challenges for structural products, our days sales of inventory or DSI for lumber and panels remained.

Shyam Reddy: On a positive note, and despite market challenges for structural products, our days sales of inventory, or DSI, for lumber and panels remain consistent throughout the quarter due to our strategic management of structural product inventory.

Sharon: Distant throughout the quarter due to our strategic management of structural product inventory.

Shyam Reddy: Lastly, on the quarter, our financial position remains strong, and our significant liquidity leaves us well positioned to achieve our vision and execute on our gross strategy, as well as to maintain the flexibility to return capital to shareholders. During the second quarter, we repurchased $15 million in Blue Link stock, bringing the total amount repurchased to over $120 million since the beginning of 2022. Once again, demonstrating our commitment to returning capital to shareholders.

Shyam K. Reddy: Lastly, for the quarter, our financial position remains strong, and our significant liquidity leaves us well-positioned to achieve our vision and execute on our growth strategy, as well as to maintain the flexibility to return capital to shareholders. During the second quarter, we repurchased $15 million in BlueLinx stock, bringing the total amount repurchased to over $120 million since the beginning of 2022, once again demonstrating our commitment to returning capital to shareholders.

Sharon: Lastly on the quarter, our financial position remains strong and our significant liquidity leaves us well positioned to achieve our vision and execute on our growth strategy as well as to maintain the flexibility to return capital to shareholders.

Speaker Change: During the second quarter, we repurchased $15 million in Bluelinx stock, bringing the total amount repurchased to over $120 million since the beginning of 2022 once again, demonstrating our commitment to returning capital to shareholders.

Shyam Reddy: Now turning to our perspective on the broader housing and building products market. Earlier this year, industry sources indicated a renewed sense of optimism for the overall market, especially for the second half of 2024. More recently, however, due to continued headwinds resulting from the Federal Reserve's positioning regarding rate cuts, low existing home turnover, and home affordability issues, just to name a few, any sort of significant rebound now appears to be pushed out into 2025. Mortgage rates are currently around 7%, and although they are lower than the 8% peak last year, they are still well above the 20-year average and back to the levels last seen in the fall of 2023.

Shyam K. Reddy: Now turning to our perspective on the broader housing and building products market. Earlier this year, industry sources indicated a renewed sense of optimism for the overall market, especially for the second half of 2024. More recently, however, due to continued headwinds resulting from the Federal Reserve's positioning regarding rate cuts, low existing home turnover, and home affordability issues, just to name a few, any sort of significant rebound now appears to be pushed out into 2025.

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

Speaker Change: Earlier this year industry sources indicated a renewed sense of optimism for the overall market, especially for the second half of 2024.

Speaker Change: More recently, however, due to continued headwinds, resulting from the federal reserve's positioning regarding rate cuts low existing home turnover at home affordability issues just to name a few any sort of significant rebound now appears to be pushed out into 2025.

Shyam K. Reddy: Mortgage rates are currently around 7%, and although they are lower than the 8% peak last year, they are still well above the 20-year average and back to the levels last seen in the fall of 2023. More importantly, they haven't stabilized, which is critical to accelerating repair and remodel activity and new housing starts, especially for private builders. Also, many homeowners are in low-interest rate mortgages. So although we expect interest rate cuts to initially jumpstart the housing recovery, we believe that sustained reductions in interest rates over time are necessary to continue the recovery.

Speaker Change: Mortgage rates are currently around 7% and although they are lower than the 8% peak last year. They are still well above the 20 year average and back to the levels last seen in the fall of 2023.

Shyam Reddy: More importantly, they haven't stabilized, which is critical to accelerating repair and repair model activity and new housing starts, especially for the private builders. Also, many homeowners are in low-interest rate mortgages, so although we expect interest rate cuts to initially jumpstart the housing recovery, we believe that sustained reductions in interest rates over time are necessary to continue the recovery. Now the US housing market remains volatile, as reflected by June total housing starts coming in at an adjusted annual rate of 1.35 million, up 3% for May, but still down 4.4% year-over-year. Seasonally adjusted single-family housing starts were at their lowest level since October 2023.

Speaker Change: More importantly, they havent stabilized, which is critical to accelerating repair and remodel activity and new housing starts, especially for the private builders.

Speaker Change: Also many homeowners are in low interest rate mortgages. So although we expect interest rate cuts to initially jumpstart the housing recovery, we believe that sustained reductions in interest rates over time are necessary to continue their recovery.

Speaker Change: Now the U S housing market remains volatile as reflected by June total housing starts coming in at an adjusted annual rate of $135 billion up 3% for may, but still down four 4% year over year.

Shyam K. Reddy: Now, the U.S. housing market remains volatile. As reflected by June, total housing starts came in at an adjusted annual rate of 1.35 million, up 3% for May, but still down 4.4% year over year. Seasonally adjusted single-family housing starts were at their lowest level since October 2023.

Speaker Change: Seasonally adjusted single family housing starts were at their lowest level since October 2023 <unk>.

Shyam Reddy: Large multi-family starts improved month-to-month, but were still down 23% year-over-year. In addition, after five months of sequential improvement, builders' confidence flat down April at 51 and dropped to 45 in May. It then dropped to 43 in June and 42 in July. All of these drops reflect negative, broad-based builder sentiment tied to anticipated building activity, which evidence the volatile and uncertain market conditions we're currently in. Looking at the components, present sales conditions was 47, down from 62 last July. Expected sales in the next six months was 48, down from 59 last July. And traffic of prospective buyers was 27, down from 40 last July.

Shyam K. Reddy: Large multifamily starts improved month to month, but we're still down 23% year over year. In addition, after five months of sequential improvement, builder confidence flattened out in April at 51 and dropped to 45 in May. It then dropped to 43 in June and 42 in July. All of these drops reflect negative broad-based builder sentiment tied to anticipated building activity, which illustrates the volatile and uncertain market conditions we're currently in. Looking at the components, present sales conditions were 47, down from 62 last July. Estimated sales in the next six months were 48, down from 59 last July. And the number of prospective buyers was 27, down from 40 last July.

Speaker Change: Large multifamily starts improved month to month, but we're still down 23% year over year in.

Speaker Change: In addition, after five months of sequential improvement builder's confidence flattened out in April at 51 and dropped to 45 in May. It then dropped to <unk> 43 in June and <unk> 42 in July all of these drops reflect negative broad based builder sentiment tied to anticipated building activity, which evidenced the volatile and it.

Speaker Change: Certain market conditions, we're currently at <unk>.

Speaker Change: Looking at the components present sales conditions was 47 down from <unk> 62 last July expected sales in the next six months was 48 down from 59 last July it traffic or perspective buyers was 27% down from 40 last July.

Shyam Reddy: Repair and remodel spending continues to be lower than the elevated levels of 2022 and 2023. Years during which pulled forward an expansive R&R occurred due to pandemic-related conditions driving more time and homes. Also, as interest rate increase impacts began accelerating in 2023, existing home sales sank to their lowest levels in 30 years, a phenomenon that has continued into 2024. As a result, a significant amount of repair and remodel activity that occurs when families sell their homes and buy new homes isn't happening due to current andemic sales velocity dynamics. Also, as we have noted before, we believe that most of the single-family housing starts are being driven by the large public builders because they can use their size, their scale, and their balance sheet to buy down mortgage rates, offer more attractive deals to consumers, and buy directly from manufacturers to support their production schedules.

Shyam K. Reddy: Repair and remodel spending continues to be lower than the elevated levels of 2022 and 2023, years during which pull-forward and expansive R&R occurred due to pandemic-related conditions driving more time in homes. Also, as interest rate increase impacts began accelerating in 2023, existing home sales sank to their lowest levels in 30 years, a phenomenon that has continued into 2024. As a result, a significant amount of repair and remodel activity that occurs when families sell their homes and buy new homes isn't happening due to the current anemic sales velocity dynamics.

Speaker Change: Repair and remodel spending continues to be lower than the elevated levels of 2022, and 2023 years during which pulled forward an expansive R&R occur due to pandemic related conditions driving more time in homes also as interest rate increase impacts began accelerating in 2023 existing.

Speaker Change: Home sales, saying to their lowest levels in 30 years, a phenomenon that has continued into 2024 as a result, a significant amount of repair and remodel activity that occurs with family sell their homes and buy new homes isn't happening due to current anemic sales velocity dynamics.

Shyam K. Reddy: Also, as we have noted before, we believe that most of the single-family housing starts are being driven by the large public builders because they can use their size, their scale, and their balance sheet to buy down mortgage rates, offer more attractive deals to consumers, and buy directly from manufacturers to support their production schedule. Two-step distributors like BlueLinx, however, tend to correlate more closely with smaller and custom home builder activity and, therefore, do not participate as much in the large production builder market.

Speaker Change: Also as we have noted before we believe that most of the single family housing starts are being driven by the large public builders because they can use their size their scale and their balance sheet to buy down mortgage rates offer more attractive deals to consumers and buy directly from manufacturers to support their production schedules to <unk>.

Shyam Reddy: Two-step distributors, like blue links, however, tend to correlate more closely with smaller and custom home builder activity and therefore do not participate as much in the large production builder market. We expect a single-family start trend to continue for the remainder of 2024.

Speaker Change: Distributors like Bluelinx, however tend to correlate more closely with smaller and custom homebuilder activity and therefore do not participate as much in the large production builder market. We expect a single family start trend to continue for the remainder of 2024.

Shyam K. Reddy: We expect the single-family home start trend to continue for the remainder of 2024. Although the near-term outlook remains uncertain and muted, we certainly believe in the long-term prospects of the housing and building product sectors, which drives our growth strategy. The substantial shortage of homes, supportive demographic shifts, the aged housing stock, necessary repair and remodel activity, and high levels of home equity should continue to benefit the building products industry and BlueLinx in the years to come as interest rates and home prices come down. Now I'll turn it over to Andy, who will provide more details on our financial results and our capital structure. Thanks.

Shyam Reddy: Although the near-term outlook remains uncertain and muted, we certainly believe in the long-term prospects of the housing and building product sector, which drives our growth strategy. The substantial shortage of homes, supported demographic shifts, age-tousing stock, and necessary repair and remodel activity, and high levels of home equity should continue to benefit the building products industry and BlueLinx in the years to come, as interest rates and home prices come down.

Speaker Change: Although the near term outlook remains uncertain and muted we certainly believe in the long term prospects of the housing and building products sector, which drives our growth strategy. The substantial shortage of homes supportive demographic shifts aged housing stock necessary repair and remodel activity at high levels of home equity should continue to benefit the build.

Speaker Change: <unk> products industry and Bluelinx in the years to come as interest rates and home prices come down.

Shyam Reddy: Now, I'll turn it over to Andy, who will provide more details on our financial results and our capital structure.

Speaker Change: Now I will turn it over to Andy who will provide more details on our financial results and our capital structure.

Andy Wamser: Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, our specialty products business delivered strong gross margins despite the impact of price deflation. However, structural product margins were negatively impacted by contracting lumber and panel prices in the quarter, as well as challenges in the housing and building products industry affecting demand. Net sales were $768 million, down 6% year over year. Total gross profit was $122 million, and gross margin was 15.9%, down 70 basis points from the prior period.

Andy Womser: Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, our specialty products business delivered strong gross margins despite the impact of price deflation. However, structural product margins were negatively impacted by contracting lumber and panel prices in the quarter, as well as challenges in the housing and building products industry affecting demand. Net sales were $768 million, down 6% year-by-year. Total growth profit was $122 million, and gross margin was 15.9%, down 70 basis points from the prior period. As we noted in our last call, first quarter 2024 results for specialty products reflected an estimated net benefit for import-duty-related matters incurred in prior periods.

Andy Wamser: Thanks, Jim and good morning, everyone.

Andy Wamser: Let's first go through the consolidated highlights for the quarter.

Andy Wamser: Overall, our specialty products business delivered strong gross margins. Despite the impact of price deflation. However, structural product margins were negatively impacted by contracting lumber and panel prices in the quarter as well as challenges in the housing and building products industry affecting demand.

Andy Wamser: Net sales were $768 million down.

Andy Wamser: Down 6% year over year.

Andy Wamser: Total gross profit was $122 million.

Speaker Change: Gross margin was 15, 9% down 70 basis points from the prior period.

Andy Wamser: As we noted in our last call, first quarter 2024 results for specialty products reflected an estimated net benefit for import duty-related matters incurred in prior periods. During the second quarter of 2024, the estimate was updated, resulting in an additional benefit of $2.7 million. We currently do not expect further material changes in estimates for future periods.

Speaker Change: As we noted in our last call first quarter 2024 results for specialty products reflected an estimated net benefit for import duty related matters incurred in prior periods.

Andy Womser: During the second quarter of 2024, the estimate was updated, resulting in an additional benefit of $2.7 million. We currently do not expect further material changes and estimates for future periods. More details on the matters are available in our 10-Q. SG&A was $89 million, up $1 million from last year's second quarter. The increase was mainly due to higher technology expenses and legal expenses associated with duty-related matters, partially offset by lower logistics costs and share-based compensation expense. Net income was $14 million or $1.65 per share, and adjusted net income was $15 million or $1.68 per share. Tax expense for the second quarter was $4.7 million, or 25%.

Speaker Change: During the second quarter of 2024, the estimate was updated resulting in an additional benefit of $2 7 million. We currently do not expect further material changes in estimates for future periods.

Andy Wamser: More details on these matters are available in our 10-Q. SG&A was $89 million, up $1 million from last year's second quarter. The increase was mainly due to higher technology expenses and legal expenses associated with a duty-related matter, partially offset by lower logistics costs and share-based compensation expense. Net income was $14 million, or $1.65 per share. An adjusted net income was $15 million, or $1.68 per share. Tax expense for the second quarter was $4.7 million, or 25%. For the third quarter of 2024, we anticipate our tax rate to be in the range of 24 to 28%.

Speaker Change: More details on the matters are available in our 10-Q.

Speaker Change: SG&A was $89 million up $1 million from last year's second quarter. The increase was mainly due to higher technology expenses and legal expenses associated with the duty related matters, partially offset by lower logistics costs and share based compensation expense net.

Speaker Change: Income was $14 million or $1 65 per share and adjusted net income was $15 million or $1 68 per share.

Speaker Change: Tax expense for the second quarter was $4 $7 million or 25%.

Andy Womser: For the third quarter of 2024, we anticipate our tax rate to be in the range of 24 to 28%. The adjusted EBITAM was $34 million or 4.5% of net sales, and includes the favorable duty-related matters. Not including these matters, adjusted EBITAM would have been $32 million or 4.1% of net sales.

Speaker Change: For the third quarter of 2024, we anticipate our tax rate to be in the range of 24% to 28%.

Andy Wamser: Adjusted EBITDA was $34 million, or 4.5% of net sales, and included the favorable duty-related matters. Not including these matters, adjusted EBITDA would have been $32 million, or 4.1% of net sales. Turning now to the second quarter results for specialty products, net sales were $539 million, down 6% year over year. This decline was driven by price deflation across specialty products.

Speaker Change: Adjusted EBITDA was $34 million or four 5% of net sales and includes the favorable duty related matters.

Speaker Change: Not including these matters adjusted EBITDA would have been $32 million or four 1% of net sales.

Andy Womser: Turning now to second quarter results for specialty products, net sales were $539 million, down 6% year-to-year. This decline was driven by price deflation across specialty products. As Shem mentioned, given current market conditions, we expect to see a reduced year-to-year impact from pricing as we move into 2025. Gross profit from specialty products sales was $104 million, down 4% year-to-year. duty-related item. Not including this benefit, specialty gross margins were still solid at 18.9 percent in the second quarter. Through the first four weeks of Q3, specialty products gross margin was in a range of 18 to 19 percent, with sequential daily sales volume slightly lower when compared to the second quarter of 2024 and higher than the equivalent period last year.

Speaker Change: Turning now to second quarter results for specialty products.

Speaker Change: Net sales were $539 million down 6% year over year.

Speaker Change: This decline was driven by price deflation across specialty products.

Andy Wamser: As Shyam mentioned, given current market conditions, we expect to see a reduced year-over-year impact from pricing as we move into 2025. Gross profit from specialty product sales was $104 million, down 4% year-over-year. Specialty gross margin was 19.3%, 20 basis points from last year, primarily due to duty-related items. However, not including this benefit, specialty gross margins were still solid at 18.9% in the second quarter. Through the first four weeks of Q3, specialty products' gross margin was in the range of 18 to 19%, with sequential daily sales volume slightly lower when compared to the second quarter of 2024 and higher than the equivalent period last year. Now moving on to structural products.

Speaker Change: As Sam mentioned, given current market conditions, we expect to see a reduced year over year impact from pricing as we move into 2025.

Sam: Gross profit from specialty product sales was $104 million down 4% year over year.

Sam: The gross margin was 19, 3% up 20 basis points from last year, primarily due to the duty related item.

Speaker Change: Not including this benefit specialty gross margins were still solid at 18, 9% in the second quarter.

Speaker Change: Through the first four weeks of Q3 specialty products gross margin was in the range of 18% to 19% with sequential daily sales volumes slightly lower when compared to the second quarter of 2024 and higher than the equivalent period last year.

Speaker Change: Now moving on to structural products.

Andy Wamser: Net sales were $229 million, down 7% compared to the prior year period. This decrease was primarily due to lower lumber prices, as well as lower lumber and panel volumes when compared to last year's levels. Gross profit from structural products was $18 million, a decrease of 33% year-over-year, and the structural gross margin was 7.9%, down from 11% in the same period last year. In the second quarter of 2024, average lumber prices were about $383 per 1,000 board feet, and panel prices were about $599 per 1,000 square feet, a 6% decrease and nearly a 13% increase, respectively, compared to the averages in the second quarter of

Speaker Change: Net sales were $229 million down 7% compared to the prior year period.

Andy Womser: This decrease was primarily due to lower lumber pricing, as well as lower lumber and panel volumes when compared to last year's levels. Gross profit from structural products was 18 million dollars, a decrease of 33% year-to-year, and structural gross margin was 7.9%, down from 11% in the same period last year. In the second quarter of 2024, average lumber prices were about 383 dollars per 1,000 board feet and panel prices were about 599 dollars per 1,000 square feet, a 6% decrease and nearly a 13% increase, respectively, compared to the averages in the second quarter of last year.

Speaker Change: This decrease was primarily due to lower lumber pricing as well as lower lumber and panel volumes when compared to last year's levels.

Speaker Change: Gross profit from structural products was $18 million, a decrease of 33% year over year and structural gross margin was seven 9% down from 11% in the same period last year.

Speaker Change: In the second quarter of 2024 average lumber prices were about $383 per thousand board feet in panel prices were about $599 per thousand square feet or 6% decrease in nearly a 13% increase respectively compared to the averages and the second.

Speaker Change: Order of last year.

Andy Wamser: sequentially, comparing the second quarter of 2024 with the first quarter, lumber prices declined 5%, and panels were down nearly 3%. Through the first four weeks of Q3, Threshold Products' gross margin was in the range of 8 to 9%, with daily sales volumes improving from the second quarter. Given the supply-demand dynamics in structural products, we would expect margins to be pressured through the end of the year. However, 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.

Andy Womser: Sequentially comparing the second quarter of 2024 with the first quarter, lumber prices declined 5%, and panels were down nearly 3%. Through the first four weeks of Q3, structural products gross margin was in a range of 8 to 9 percent, with daily sales volumes improving from the second quarter. Given the supply demand dynamics in structural products, we would expect margins to be pressured through the end of the year.

Speaker Change: Sequentially, comparing the second quarter of 2024 with the first quarter lumber prices declined 5% and panels were down nearly 3%.

Speaker Change: Through the first four weeks of Q3 structural products gross margin was in the range of 8% to 9% with daily sales volumes improving from the second quarter.

Speaker Change: Given the supply demand dynamics and structural products, we would expect margins to be pressured through the end of the year.

Andy Womser: Looking out our balance sheet, our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital. At the end of the quarter, cash on hand was $491 million, an increase of $10 million from Q1, largely due to normal seasonal patterns in working capital. When considering our cash on hand and on drawn revolver capacity of approximately $346 million, available liquidity was $838 million at the end of the quarter. Total debt excluding our real property financing leases was $348 million, and net debt was a negative $143 million. Our net leverage ratio was a negative 0.9 times, given our positive net cash position, and we have no material outstanding debt maturities until 2029.

Speaker Change: 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.

Andy Wamser: At the end of the quarter, cash on hand was $491 million, an increase of $10 million from Q1, largely due to normal seasonal patterns in working capital. When considering our cash on hand and the drawn revolver capacity of approximately $346 million, available liquidity was $838 million at the end of the quarter. Total debt, excluding our real property financing leases, was $348 million, and net debt was a negative $143 million.

Speaker Change: At the end of the quarter cash on hand was $491 million, an increase of $10 million from Q1, largely due to normal seasonal patterns in working capital when considering our cash on hand, and undrawn revolver capacity of approximately $346 million available liquidity was 830.

Speaker Change: $8 million at the end of the quarter.

Speaker Change: Total debt, excluding our real property financing leases was $348 million and net debt was a negative $143 million or net leverage ratio was a negative 0.9 times given our positive net cash position and we have no material outstanding debt maturities.

Andy Wamser: Our net leverage ratio was a negative 0.9 times, given our positive net cash position, and we have no material outstanding debt maturities until 2029. Our balance sheet and liquidity remain strong, and when combined with our solid EBITDA generation, we are well-positioned to support our strategic initiatives, including our digital transformation efforts. These include investments in our highest return opportunities, such as organic and inorganic growth initiatives and opportunistic share repurchase. Now, moving on to working capital and free cash flow.

Speaker Change: Until 2029.

Andy Womser: Our balance sheet and liquidity remain strong, and when combined with our solid EBITDA generation, we are well positioned to support our strategic initiatives, including our digital transformation efforts. These include investments in our highest return opportunities such as organic and organic growth initiatives and opportunistic sharey purchases.

Speaker Change: 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 opportunities such as organic and inorganic growth initiatives and opportunistic share repurchases.

Speaker Change: Yes.

Andy Womser: Moving on to working capital and free cash flow. During the second quarter, we generated operating cash flow of $36 million and free cash flow of $29 million, primarily driven by net income and improved working capital. in the Capital.

Speaker Change: Now moving on to working capital and free cash flow during the second quarter, we generated operating cash flow of $36 million and free cash flow of $29 million.

Andy Wamser: During the second quarter, we generated operating cash flow of $36 million and free cash flow of $29 million, primarily driven by net income and improved working capital. During the quarter, we spent $6.5 million in CapEx, primarily to improve our distribution facilities and our fleet. We also entered into finance leases for $3 million for fleet upgrades as well. For 2024, we expect capital investments to be approximately $40 million, focusing on facility improvements, further upgrades to our fleet, and the technology improvements previously discussed. As a reminder, our digital transformation will also have at least a $5 million impact on operating expenses this year related to software licenses, as well as increased headcount associated with this initiative.

Speaker Change: Primarily driven by net income and improved working capital.

Andy Womser: Turning out a capital allocation. During the quarter, we spent $6.5 million in CapEx, primarily to improve our distribution facilities and our fleet. We also entered into finance leases for $3 million for fleet upgrades as well. For 2024, we expect capital investments to be approximately $40 million, focusing on facility improvements, further upgrades, and the technology improvements previously discussed. As a reminder, our digital transformation will also have at least a $5 million impact on operating expenses this year related to software licenses, as well as increased headcount associated with this initiative. As Shyam mentioned, during the second quarter, we repurchased $15 million of stock, and we had $76 million remaining at quarter end on our current repurchased authorization.

Speaker Change: Turning now to capital allocation during the quarter, we spent $6 5 million in Capex, primarily to improve our distribution facilities and our fleet. We also entered into finance leases for $3 million per fleet upgrades as well for.

Speaker Change: For 2024, we expect capital investments to be approximately $40 million focusing on facility improvements further upgrades to our fleet and the technology improvements previously discussed.

Speaker Change: As a reminder, our digital transformation. We will also have at least a $5 million impact on operating expenses. This year related to software licenses as well as increased head count associated with this initiative.

Andy Wamser: As Shyam mentioned, during the second quarter, we repurchased $15 million of stock, and we had $76 million remaining at quarter end on our current repurchase authorization. We are committed to our share repurchase efforts and plan to remain opportunistic in the market, unless our Guiding Principles for Capital Allocation remain consistent. We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles, pursue a disciplined M&A strategy, and expand our geographic footprint, as well as return capital to shareholders.

Speaker Change: As Jim mentioned during the second quarter, we repurchased $15 million of stock and we had $76 million remaining at quarter end on our current repurchase authorization.

Andy Womser: We are committed to our shared repurchased efforts and plan to remain opportunistic in the market. Our guiding principles for capital allocation remain consistent. We intend to maintain a strong balance, which enables us to invest in our business through economic cycles, pursue a disciplined M&A strategy, and expand our geographic footprint, as well as return capital to shareholders. We also plan to maintain a long-term net leverage of two times or less.

Speaker Change: We are committed to our share repurchase efforts and plan to remain opportunistic in the market.

Speaker Change: Our guiding principles for capital allocation remain consistent.

Speaker Change: We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles pursue a disciplined M&A strategy and expand our geographic footprint as well as return capital to shareholders. We also plan to maintain our long term net leverage of two times or less.

Andy Wamser: We also plan to maintain a long-term net leverage of two times or less. Overall, we are pleased with our specialty product results despite continued deflation, which was able to offset some industry-related challenges in structural products within an uncertain housing environment. Our strong balance sheet and our liquidity position us well to execute on our strategy and continue to opportunistically return capital to shareholders. Operator, we are now ready to take questions.

Andy Womser: Overall, we are pleased with our specialty product results despite continued deflation, which were able to offset some industry-related challenges in structural products within an uncertain housing environment. Our strong balance and our liquidity positions us well to execute on our strategy and continue to opportunistically return capital to shareholders.

Speaker Change: Overall, we are pleased with our specialty product results. Despite continued deflation, which were able to offset some industry related challenges and structural products within an uncertain housing environment, our strong balance sheet and our liquidity positions us well to execute on our strategy and continued to Opportunistically return cash.

Speaker Change: <unk> the shareholders.

Tom Morabito: Operator, we are now ready to take questions.

Speaker Change: Operator, we are now ready to take questions.

Operator: At this time, if you would like to ask a question, please press star in the number one on your telephone keypad.

Operator: At this time, if you would like to ask a question, please press star and the number 1 on your telephone keypad. Our first question comes from the line of Jeffrey Stevenson with Loop Capital. Your line is open.

Speaker Change: At this time, if you would like to ask a question. Please press star and the number one on your telephone keypad are.

Jeffrey Stevenson: Our first question comes from the line of Jeffrey Stevenson with Loop Capital; your line is open. Thanks for taking my questions today. Could you provide any more color on the cadence of specially products volume growth as we move through the second quarter? In particular, did you see any volume pickup in June as weather became more favorable? And then also, just wanted to touch on what's driving the sequential volume improvement at the start of the third quarter as well. Sure, so let me think about the volumes at the end of the sequential basis. Specialty is down probably low single digits, but we're seeing really good volumes on structural.

Speaker Change: Our first question comes from the line of Jeffrey Stevenson with loop capital. Your line is open.

Jeffrey Patrick Stevenson: Hi, Thanks for taking my questions today.

Jeffrey Patrick Stevenson: Hi, thanks for taking my questions today. Could you provide any more color on the cadence, especially product volume growth as we move through the second quarter? In particular, did you see any volume pickup in June as weather became more favorable? And then also, just wanted to touch on what's driving the sequential volume improvement at the start of the third quarter as well?

Jeffrey Patrick Stevenson: Can you provide any more color on the cadence of specialty products volume growth as we move through the second quarter. In particular did you see any volume pickup in June as weather became more favorable and then also just wanted to touch on what's driving the sequential volume improvement at the start of the third quarter as well.

Speaker Change: Sure.

Andy Wamser: Sure. So when we think about the volumes, I'd say on a sequential basis, specialty is, you know, down probably in the low single digits, but we're seeing really good volumes on structural. So, you know, the structural volumes are up, I'd say, double digits, I would say, as we start the quarter. So the dynamic, at least as we think about volumes for Q3, is a little bit softer in specialty and certainly stronger on structural.

Speaker Change: Think about the volumes are down on a sequential basis spur.

Speaker Change: Specialty is.

Speaker Change: Don probably low single digits, but we're seeing really good volumes on structural so the structural volumes are up.

Shyam Reddy: So the structural volumes are up; I'd say double digits as we start the quarter. So the dynamic, at least as we think about volumes of Q3, is a little bit softer in specialty and certainly stronger on structural. Yeah, I would just add that the seasonality of the business contributes to the volume increases. If you recall back in Q1, we had a very slow start to the year. We started to see some pickup in some lag, and then it picked up in Q2, and then we're seeing some continuation through the early days of Q3. Got it.

Speaker Change: Hey.

Speaker Change: Double digits I would say is as we start the quarter. So the dynamic at least as we think about volumes in Q3 is a little bit softer and specialty and certainly stronger on structural.

Shyam K. Reddy: Yeah, I would just add that the seasonality of the business contributes to the volume increases. If you recall, back in Q1, we had a very slow start to the year. We started to see some pickup and some lag, and then it picked up in Q2, and then we're seeing some continuation through the early days of Q3.

Speaker Change: Yeah, and I would just add that the seasonality of the business contributes to the to the volume the volume increases if you recall back in Q1, we had a very slow start to the year, we started to see some pickup in some lag and then it picked up in Q2.

Speaker Change: And then we're seeing some continuation.

Speaker Change: Due to the early early days of Q3.

Speaker Change: Got it that's helpful. And then what was specialty products pricing in the second quarter and how should we think about the cadence of our segment year over year price deflation as we move through the back half.

Jeffrey Patrick Stevenson: Got it. No, that's helpful.

Shyam Reddy: No, that's helpful. And then what was Specialty Products pricing in the second quarter? And how should we think about the cadence of segment year-over-year price deflation as we move through the back half? Could segment pricing get closer to flat by the fourth quarter? Do you think year over year the clients will spill in the early next year? Yes, I mean, so when we think about the say specialty sort of just gross profit, it was minus 6% in the quarter. So, you know, Bimes roughs single digits, so that would sort of imply that pricing was, I'll say, still high single high to mid single digit in terms of price deflation.

Andy Wamser: And then what was specialty products pricing in the second quarter? And how should we think about the cadence of a segment's year over year price deflation as we move through the back half? Could segment pricing get closer to flat by the fourth quarter? Do you think year over year declines will spill into early next year?

Speaker Change: Segment price and get closer to the flat by the fourth quarter or do you think your year over year. The clients will spill into early next year.

Andy Wamser: Yes, I mean, when we think about, say, specialty sort of just gross profit, it was minus 6%, you know, in the quarter. So, you know, volumes were up, you know, single digits, so that would sort of imply that, you know, pricing was, I'll say, still high single, high to mid single digit in terms of price deflation. So, you know, we would expect that deflation, and Shyam's comments and my comments mentioned that we'd expect, you know, to see improvement as we move into 25, but I'd still expect, you know, negative specialty pricing comps as we go into Q3 and Q4 as well.

Speaker Change: Yes.

Speaker Change: We think about the.

Speaker Change: Say specialty sort of just gross profit it was minus 6%.

Speaker Change: In the quarter so.

Speaker Change: Volumes were up single digits, so that would sort of imply that pricing was I'll say, it's still high single high to mid single digit in terms of price deflation. So.

Shyam Reddy: So, you know, we would expect that deflation in champs' comments and my comments. We mentioned that we'd expect. You know, to see improvement as we move into 25, but I'd still expect, you know, negative specialty pricing comps as we go into Q3 and Q4 as well. Yeah, so if you think about it, it's a simple divide demand problem, right? We've got softness in the market. As I mentioned earlier, when we talked about builder sentiment, builder sentiment has had sequential drops throughout the quarter. And we haven't seen any indication that will necessarily improve in a meaningful way.

Speaker Change: We would expect that deflation in Jim's comments in my comments, we mentioned that we would expect.

Shyam K. Reddy: To see improvement as we move into 'twenty, five, but I'd still expect.

Shyam K. Reddy: Negative specialty pricing comps as we go into Q3 and Q4 as well.

Shyam K. Reddy: Yeah, so if you think about it, it's a simple supply-demand problem, right? We've got softness in the market. As I mentioned earlier when we talked about builder sentiment, builder sentiment has had sequential drops throughout the quarter, and we haven't seen any indication that it will necessarily improve in a meaningful way. So I would expect deflation to generally be consistent and carry through until the early days of 2025.

Speaker Change: Yes. So if you think about it as a simple supply demand problem right. We've got softness in the market as I mentioned earlier, when we talked about builder sentiment builder sentiment has had sequential drops throughout the quarter and we haven't seen any any indication that will necessarily improve in a meaningful way. So I would expect deflation to.

Shyam Reddy: So, I would expect deflation to generally be consistent and carry through until the early days of 2025. Okay, well, it's helpful.

Speaker Change: Generally be consistent and carried through until the early days of 22025.

Speaker Change: Okay.

Jeffrey Patrick Stevenson: That's helpful. And then, just lastly, on the M&A pipeline for specialty bulletin acquisitions, any updates there, and any progress on the new greenfield initiatives as well.

Speaker Change: Well that's helpful. And then just lastly on the M&A pipeline.

Shyam Reddy: And then just lastly, on the M&A pipeline for especially bolt-on acquisitions, any update there in any progress on the new green field initiatives as well. Yeah, so from an M&A standpoint, we have a robust pipeline of targets that we are actively talking to and discussions with or otherwise nurturing. And as I've said before, we're always looking for specifically focused on opportunities that can help us help support the strategy from specialty sales, geographic expansion, et cetera. And, you know, until we have a meeting of the minds that relates to valuation, which I think will become more and more of the case that the further remove we are from pandemic years.

Speaker Change: For specialty bolt on acquisitions any update there and any progress suddenly new greenfield initiatives as well.

Speaker Change: Yes, so from an M&A standpoint, we have a robust pipeline of targets that we are actively talking to in discussions with or otherwise nurturing.

Shyam K. Reddy: Yeah, so from an M&A standpoint, we have a robust pipeline of targets that we are actively talking to and having discussions with or otherwise nurturing. And as I've said before, we're always looking for, and we're specifically focused on opportunities that can help us help support the strategy from a specialty sales growth, geographic expansion, etc. And until we have a meeting of the minds as it relates to valuation, which I think will become more and more the case the further removed we are from the pandemic years, the more likely there will be an opportunity to announce another deal.

Speaker Change: As I've said before.

Speaker Change: We're always looking for.

Speaker Change: We're specifically focused on opportunities that can help us have helped support the strategy.

Speaker Change: From a specialty sales growth geographic expansion et cetera.

Speaker Change: And until we have a meeting of the buys as it relates to valuation, which I think will become more and more the case that further remove weir from pandemic gears.

Shyam Reddy: The more likely there will be an opportunity to announce another deal as it relates to, but it is part of our investment thesis in terms of growing the business and will be an incredibly important prong of the three-prong strategy. Moving on to the third prong, which is green fields. We have a number of markets where we are that we are actively exploring, first and foremost, with real estate evaluations. And in some cases, we have active real estate lease negotiations underway. So more to come in the future, but it is an important priority. The company and will definitely be in, you know, will be a part of the strategy over the coming years.

Speaker Change: The more likely it will there will be an opportunity to announce another deal as it relates to but it is part of our investment thesis in terms of growing the business it will be an incredibly.

Shyam K. Reddy: But it is part of our investment thesis in terms of growing the business and will be an incredibly important prong of the three-prong strategy. Moving on to the third prong, which is Greenfields, we have a number of markets where we are actively exploring, first and foremost with real estate evaluations. And in some cases, we have active real estate lease negotiations underway. So, more to come in the future, but it is an important priority of the company and will definitely be part of the strategy over the coming years as we look to grow net sales and volumes in the consolidated business.

Speaker Change: Important probably.

Speaker Change: The three pronged strategy moving on to the third product, which is greenfield.

Speaker Change: We have a number of markets.

Speaker Change: We are that we are actively exploring first.

Speaker Change: First and foremost with real estate evaluations and in some cases, we have active.

Speaker Change: The real estate lease negotiations underway, so more to come in the future, but it is an important priority of the company.

Speaker Change: And we will definitely.

Speaker Change: B and will be part of this strategy over the coming years as we look to grow net sales and volumes in the consolidated business.

Shyam Reddy: As we look to grow net sales and volumes in the consolidated business.

Jeffrey Patrick Stevenson: Great to hear. Thank you.

Jeffrey Stevenson: Great to hear. Thank you.

Speaker Change: Great to hear thank you.

Greg Palm: And your next question comes from the line of Greg Palm with Craig Hallum Capital Group. Your line is open. Yeah, thanks. I'm warning guys. I know you had talked about, you know, sort of the maybe the more the recovery, shifting from second half to calendar 25, but just, you know, given what's happened to rates in the last few months and really last few weeks, you know, how are those kind of conversations recently progressing with customers in terms of, I mean, are you seeing any green shoots, are you seeing maybe, you know, better visibility into sort of that recovery happening.

Gregory William Palm: And your next question comes from the line of Greg Palm with Craig Hallam Capital Group. Your line is open.

Speaker Change: And your next question comes from the line of Greg Palm with Craig Hallum Capital Group. Your line is open.

Shyam K. Reddy: Yeah, thanks, morning guys. I know you talked about, you know, sort of the, maybe the more recovery shifting from second half to calendar 25, but just, you know, given what's happened to rates in the last few months and really the last few weeks, how are those kind of conversations recently progressing with customers in terms of, I mean, are you seeing any green shoots? Are you seeing maybe, you know, better visibility into sort of that recovery happening? Just curious to get your thoughts.

Gregory William Palm: Yeah. Thanks, good morning, guys.

Gregory William Palm: I know you talked about.

Gregory William Palm: Sort of the maybe the more of the recovery is shifting from second half to calendar 'twenty five, but just given what's happened to rates in the last few months and really the last few weeks how are those kind of conversations recently progressing with with with customers in terms of I mean are you seeing any green shoots are you seeing maybe.

Speaker Change: Better visibility into sort of that recovery happen I'm, just curious to get your thoughts.

Shyam Reddy: I'm just curious to your thoughts.

Shyam Reddy: Yeah, so I would say that there's general, there's general agreement that the remainder of this year will, will, will kind of be soft, with 25 becoming the first year meaning for recovery. But at the same time, we all recognize that, you know, an initial rate cut is good to jumpstart the housing recovery, but it will take subsequent rate cuts to, quite frankly, season the recovery and address the lock-in rates that we current the lock-in effect that we see from low interest rates or 30-year mortgage rates that many people have. Of course, as the interest rates come down, the home equity or the key lock rates come down, which then will be a positive. We'll have a positive impact of repair remodel activity, but the point is, you know, between the lock-in effect, affordability issues, and other drags, if you will, you need to see not only the first that we are all expecting to happen in September, but who knows.

Shyam K. Reddy: Yeah, so I would say that there's general agreement that the remainder of this year will kind of be soft, with 25 becoming the first year of recovery. But at the same time, we all recognize that an initial rate cut is good to jumpstart the housing recovery, but it will take subsequent rate cuts to, quite frankly, season the recovery and address the lock-in rates, the lock-in effect that we see from low interest rates or 30-year mortgage rates that many people have.

Speaker Change: Yes, so I would say that there is general.

Speaker Change: There is general agreement that the remainder of this year.

Speaker Change: Both kind of be soft with.

Speaker Change: With 25, becoming the first year of meaningful recovery.

Speaker Change: But at the same time, we all recognize that.

Speaker Change: The initial rate cut is good to jumpstart the housing recovery, but it will take subsequent rate cuts.

Speaker Change: So quite frankly season seasonal recovery in and address the lock in rates that we curve to lock in effect that we see from.

Speaker Change: Low interest rates are at 30 year mortgage rates that many people have of course as the interest rates come down the home equity or the HELOC rates come down, which then will be a positive we will have a positive impact of repair and remodel activity, but the point is.

Shyam K. Reddy: Of course, as interest rates come down, home equity or the HELOC rates will come down, which will then have a positive impact on repair and remodel activity. But the point is, between the lock-in effect, affordability issues, and other drags, if you will, you need to see not only the first, which we are all expecting to happen in September, but who knows, and then subsequent rate cuts in 2025 that I think will, quite frankly, accelerate the housing recovery and kick off a multi-year cycle.

Speaker Change: Between the lock in effect affordability issues and other drag.

Speaker Change: Drags if you will you need to see not only the first that we are all expecting to happen in September but who knows.

Shyam Reddy: And then subsequent rate cuts in 2025 that I think will, quite frankly, accelerate the housing recovery and, you know, kick off a multi-year cycle. But generally, from a customer standpoint, we're all on the same boat. There's a view that the remainder of the year will be a continuation of what we're seeing now, with seasonality taking effect in Q4.

Speaker Change: Subsequent rate cuts.

Speaker Change: In 2025 that I think will will quite frankly accelerate the housing recovery and kick off a multi year cycle, but generally from a customer standpoint, we're all in the same boat. There is a view that the remainder of the year will be the continuation of what we're seeing now with seasonality taking effect in Q4.

Shyam K. Reddy: But generally, from a customer standpoint, we're all in the same boat. There's a view that the remainder of the year will be a continuation of what we're seeing now, with seasonality taking effect in Q4 and then things really starting to take off in 2025.

Shyam Reddy: And then things really, you know, starting to take off in 25. Yeah, that's helpful.

Speaker Change: When things really starting to take off in 'twenty five.

Speaker Change: Yes.

Gregory William Palm: Yep, that's helpful. And do you imagine that recovery happening initially better within R&D or, you know, your new home construction customers, which I know are a little bit different than maybe the publicly traded production builders that we all know about?

Shyam Reddy: And you envision that recovery happening initially better within R&R or, you know, your new home construction customers, which I know are a little bit sort of different than maybe the publicly traded production builders that we all know about. You know, the third party data, I mean, the third party providers would suggest that the repair remodel market will be kind of flat to the little bit up next year. And then, of course, single-family housing starts, we're all seeing that same data as well. But at the same time, you know, it's, so that's all I have to go on.

Speaker Change: Helpful.

Speaker Change: Asian that recovery happening initially better within R&R or your new home construction customers, which I know are a little bit different than maybe the publicly traded production builders that we all know about.

Speaker Change: Yeah.

Shyam K. Reddy: You know, the third-party data, I mean, the third-party providers would suggest that the repair and remodel market will be kind of flat to a little bit up next year. And then, of course, single-family housing starts, we're all seeing that same data as well. But at the same time.

Speaker Change: The third party data I think the third party providers would suggest that those that the repair and remodel Maher.

Speaker Change: Market will be kind of flat to a little bit up next year and then of course single family housing starts were all seeing that same that data as well, but at the same time.

Andy Wamser: You know, it's, so that's all I have to go on, but intuitively speaking, if you see the rates rapidly come down and your cost of remodeling coming down as a result, it's possible that you might see some pull forward there, but I think it's just gonna take time for it all to really start kind of seasoning. So I'm not entirely sure what's gonna come first, Craig, but that seems to be an easier pill to swallow than an expensive new construction.

Speaker Change: So thats all I have to go on but intuitively. It speaking if you see the rates rapidly come down and your.

Shyam Reddy: But intuitively speaking, if you see the rates rapidly come down and you're, you know, your cost of remodeling coming down as a result, it's possible that you might see some pull forward there. But I think it's just going to take time for it to all really start because seasoning. So I'm not entirely sure what's going to come first, Craig. But that seems to be an easier pill to swallow than in the expensive new construction. And in gracious Andy, I would say just one thing to add: you know, as Sam mentioned, you know, maybe, you know, R&R could be relatively muted; maybe next year, maybe it's up, you know, low single digits.

Speaker Change: Cost of remodeling coming down as a result, it's possible that you might see some pull forward there, but I think it's just going to take time for it to all really start kind of seasoning. So I'm not entirely sure what's going to come first Craig.

Craig: But that seems to be an easier pill to swallow that.

Craig: That is an expensive new construction and Greg Andy I'd say, just one thing to add as Jim mentioned, maybe R&R could be relatively muted maybe next year, maybe it's up low single digits, but.

Andy Wamser: And Greg, this is Andy. I'd say just one thing to add, you know, as Shyam mentioned, maybe, you know, R&R could be relatively muted maybe next year, maybe it's up, you know, low single digits, but, you know, single family could be, you know, up mid. And then I think the big change that you're gonna see, you know, next year, which I think everyone would agree on is that the multifamily should see a big improvement given the material drop-off that we've had this year.

Andy Womser: But, you know, single family could be, you know, up mid, and then I think the big change that you're going to see, you know, next year, I think what everyone would agree on is that the multi family should see a big improvement given the material drop off that we've had this year.

Greg Andy: Single family could be up mid and then I think the big change that you're going to see next year. I think everyone would agree is that the multifamily should see a big improvement given the material drop off that we've had this year. So.

Andy Womser: So, you know, we think 25 will certainly be a better year. Yeah, I do.

Andy Wamser: So, you know, we think 25 will certainly be a better year. Greg, one last point on the repair remodel that could be a difference next year versus, let's say, this year is that with the HELOC rates coming down, people might be more willing to do larger remodel projects than they were this year. Because up until now, you might have done a kitchen, but you're just gonna do your cabinets. And then you'll do your countertops next year and so on. But next year, folks may actually take on the bigger project as rates come down.

Speaker Change: We think 25 would certainly be a better year and Greg one last point on the repair remodel that could be different next year versus let's say this year is with the HELOC rates coming down.

Andy Womser: It was great. One last point on repair remodel that could be a different next year versus, let's say, this year is with the heat lock reads coming down. People might be more willing to do larger remodel projects than they were this year because up until now you might do a kitchen, but you're just going to do your cabinets. And then you'll do your countertops next year and so on, but next year folks may actually take on the bigger, bigger project at the rates come down. Yeah, okay.

Greg: People might be more willing to do larger remodel projects than they were this year because up until now you might do with kitchen, while youre just going to do your cabinets and then Youll Dear Countertops next year and so on but next year boats may actually take on a bigger project as the rates come down.

Speaker Change: Yeah, Okay, and I mean, just in light of the sort of macro discussion does this.

Shyam K. Reddy: Yep, okay. And I mean, just in light of this sort of macro discussion, does this, you know, and mostly as a result of, you know, hopefully a looming recovery, does it change the timeline in terms of how aggressive you wanna be in terms of, A, implementing some of this technology, the digital, you know, you know, initiative, and also the greenfield activity? I mean, does that change your timeline in terms of, you know, what you want to accomplish before the recovery takes hold?

Shyam Reddy: I mean, just in light of this sort of macro discussion, does this, you know, and mostly as, you know, as a result of hopefully aluminum recovery? I mean, does it change the timeline in terms of how aggressive you want to be in terms of A, either implementing some of this technology, the digital, you know, an initiative and also the Greenfield activity? I mean, does that change your timeline in terms of, you know, what you want to accomplish before the recovery takes hold? Well, it doesn't change the timeline now, per se, but I will say our timeline is based on, I mean, the investment strategy and the cadence for it are such that we want to put ourselves in a position to participate in the ultimate cycle when it does begin, because we do think it's a multi-year journey, right?

Speaker Change: And mostly as a result of hopefully illumina recovery I mean does it change the timeline in terms of how aggressive you want to be in terms of either implementing some of this technology.

Greg: Digital.

Greg: Initiative and also the Greenfield activity I mean does that change your timeline in terms of what you want to accomplish before the recovery takes hold.

Shyam K. Reddy: Well, it doesn't change the timeline now per se, but I will say our timeline is based on, I mean, the investment strategy and the cadence for it are such that we want to put ourselves in a position to participate in the ultimate cycle when it does begin. Because we do think it's a multi-year journey, right? And so, at the end of the day, it's positioning ourselves for above-market growth when the time comes.

Speaker Change: Well it doesn't change the timeline now per se, but I will say our timeline is based on when the investment strategy and the cadence for it are such that we want to we want to put ourselves in a position to participate in the the ultimate cycle. When it does begin because we do think it is a multiyear journey right and so at the end of the day it's.

Shyam Reddy: And so, at the end of the day, it's positioning ourselves for above-market growth when the time comes. You know, as it relates to the digital transformation journey, we're in the early stages, and as we continue to progress, to the extent there are opportunities to accelerate that, because we're moving faster than we would have expected, then obviously we would take that into account. But right now we're in the early stages, so we haven't really done enough yet for me to say when we're the other, but we are on schedule, and as it relates to the Greenfield strategy, we're also on schedule there.

Greg: Positioning ourselves for above market above market growth when the time comes.

Shyam K. Reddy: You know, as it relates to the digital transformation journey, we're in the early stages, and as we continue to progress to the extent that there are opportunities to accelerate that because we're moving faster than we would have expected, obviously, we would, wouldn't take that into account. But right now, we're in the early stages, so we haven't really done enough yet for me to say one way or the other. But we are on schedule, and as it relates to the Greenfield strategy, we're also on schedule there. And look, after we do one, two, three, then I can, then you know, in an ideal world, I'd love to accelerate, but until we get started, it's hard to say definitively. Yep, okay, fair enough.

Greg: As it relates to the digital transformation journey, we are in the early stages and.

Greg: And as we continue to progress to the extent there are opportunities to accelerate that because we're moving faster than we would have expected. Then obviously, we would we would take that into account, but right now we're in the early stages. So we haven't really done enough yet for me to say one way or the other but we are on schedule and as it relates to the Greenfield strategy. We're also in the <unk>.

Shyam K. Reddy: Schedule, there and look at that after we do 123 that I can then.

Shyam Reddy: And look, after we do one, two, three, then I can, then, you know, look, in an ideal world I'd love to accelerate, but until we get started, it's hard to say definitively. Okay, fair enough. I will; I'll leave it there. Thanks. Thanks, Greg.

Greg: Look in an ideal world I'd love to accelerate.

Greg: But until we get started it's hard to say definitively.

Gregory William Palm: Yep, okay, fair enough. I will leave it there, thanks.

Speaker Change: Yes, Okay fair enough I will leave it there thanks.

Craig: Thanks, Craig.

Reuben Garner: And your next question comes from the line of Room and Gardener with the Benchmark Company or line is open. Thanks. Good morning, everyone. Just one question. I had some technical difficulties, so I don't want to get repetitive.

Reuben Garner: And your next question comes from the line of Reuben Garner with The Benchmark Company. Your line is open.

Craig: And your next question comes from the line of Reuben Garner with Benchmark Company. Your line is open.

Reuben Garner: Thanks. Good morning, everyone. [inaudible] Just just one question. I have some technical difficulties, so I don't want to get repetitive. I was wondering if you could kind of update us on what your How you're thinking about the balance between M&A opportunities, share repurchases and the greenfield side, what kind of the economics look like relative to each other for each and do you have any kind of specifics yet on what the kind of greenfield economics look like in terms of the cost to the cost to expand what the return profile is and kind of, you know, the payback period.

Reuben Garner: Thanks, Good morning, everyone.

Reuben Garner: Good morning Reuben.

Reuben Garner: Just one question I had some technical difficulties, so I don't want to get repetitive.

Shyam Reddy: I was wondering if you could kind of update us on what you're, how you're thinking about the balance between M&A opportunities, share references, and the Greenfield side, what kind of the economics look like relative to each other for each, and do you have any kind of specifics yet on what the kind of Greenfield economics look like in terms of the cost to, the cost to expand what the return profile is and kind of, you know, the payback period. Yeah, so, you know, we're not yet in a position to provide specific details, although we expect to as we get the machine going. But I'll tell you from, you know, as I'm thinking about M&A versus Greenfield and the characteristics of the investments made, that's not an, that's not an either or, right? There's not a trade-off.

Speaker Change: I was wondering if you could kind of update us on what you are.

Speaker Change: How youre thinking about the balance between M&A opportunities share repurchases and the Greenfield.

Speaker Change: And what's kind of the economics look like relative to each other for each and do you have any kind of specifics yet on what the kind of Greenfield economics look like in terms of the cost to the cost to expand what the return profile is in kind of the payback period.

Shyam K. Reddy: Yeah, so we're not yet in a position to provide specific details, although we expect to as we get the machine going. But I'll tell you, as I'm thinking about M&A versus greenfield and the characteristics of the investments made, that's not an either-or, right? There's not a trade-off.

Speaker Change: Yes so.

Speaker Change: We're not yet in a position to provide specific details, although we expect to as we get the machine going but I'll tell you from a as I'm thinking about M&A versus Greenfield and the characteristics of the investments made that's not that's not an either or right. There is not a trade off I mean, there are greenfield opportunities.

Shyam K. Reddy: I mean, there are Greenfield opportunities we are actively pursuing in markets that have different sorts of drivers relative to potentially, you know, to M&A, specifically M&A opportunities that we're exploring. And then I'll turn it over to Andy to talk about it from a capital allocation standpoint, how we think about that in the context of, let's say, share repurchases versus, and M&A and other investments we make. Sure.

Andy Womser: I mean, there are greenfield opportunities. We are actively pursuing in markets that have different sort of drivers relative to potentially, you know, to M&A, specifically M&A opportunities that we're exploring, and then I'll turn it over to Andy to talk about it from a capital allocation standpoint. Now, we think about that in the context of, let's say, share references versus M&A and other investments we make. Sure. So, I mean, at the end of the day, we always want to invest in the highest returning opportunities. You know, but that being said, I'd say on the sharing purchase, you saw us more active, you know, certainly in the second quarter than we were in the first quarter.

Reuben Garner: We're actively pursuing in markets.

Reuben Garner: That have different drivers.

Reuben Garner: Relative to potentially to M&A, specifically M&A opportunities that we're exploring and then I'll turn it over to Andy to talk about it from a capital allocation standpoint, and how we think about that in the context of let's say share repurchases versus.

Andy Wamser: M&A and other investments we make sure at the end of the day, we always want to invest in the highest returning.

Andy Wamser: Sure. At the end of the day, we always want to invest in the highest-returning opportunities. But that being said, I'd say on the Sherry purchase, you saw us more active certainly in the second quarter than we were in the first quarter. And as we've talked about previously, if we think about the last, the original first $100 million authorization, that took about seven quarters to execute from beginning to end. I'm not saying that that's going to be the same for this program that we're in the middle of, but I think that's a reasonable sort of, I'd say, guidelines, if you will.

Andy Wamser: Opportunities, but that being said I would say on the share repurchase you saw more active certainly in the second quarter than we were in the first quarter and as we've talked about previously and if you think about the last.

Andy Womser: And as we've talked about, you know, previously, you know, if you think about the last, the original first $100 million dollar authorization, you know, that took about seven quarters, you know, to execute from beginning to end. I'm not saying that that's going to be the same for this, but for, you know, for this program that we're, you know, in the middle of. But I think that's a reasonable sort of, I'll say guidelines, you know, if you will, will continue to be opportunistic on the sharing purchase front. We, you know, we have a very strong balance sheet where I think, frankly, we can afford, frankly, green fields M&A and sharing purchase, and will continue to be balanced in terms of, you know, how we allocate.

Andy Wamser: The original first $100 million authorization that took about seven quarters to execute from beginning to end.

Andy Wamser: Im not saying that thats can be the same for this but free up for this program that we're in the middle of.

Andy Wamser: But I think thats, a reasonable sort of I'd.

Reuben Garner: I'd say guidelines, if you will will continue to be opportunistic on the share repurchase front.

Andy Wamser: We'll continue to be opportunistic on the Sherry purchase front. We have a very strong balance sheet where I think, frankly, we can afford, frankly, Greenfields, M&A, and Sherry purchases. And we'll continue to be balanced in terms of how we allocate.

Reuben Garner: We have a very strong balance sheet. We're I think frankly, we can afford frankly, greenfields M&A and share repurchase and we will continue to be balanced in terms of how we allocate.

Andy Womser: One last point is to add on the Greenfield, so just as a reminder to everyone, the capex requirements for BlueLinx and in particular to step distribution are relatively low, especially when you compare to manufacturing and other types of businesses. So from a Greenfield standpoint, the initial capex investments, the working capital investments, etc. are relatively light. You know, you're generally, you know, you've got to find the real estate; even there, you have some flexibility. You invest within the, you know, initial staffing requirements, which you ultimately grow into over time, and then the working capital and equipment, etc. are relatively reasonable, and you know, you can mix and match between locations as well.

Shyam K. Reddy: One last point just to add on greenfields. So just as a reminder to everyone, the CapEx requirements for BlueLinx, and in particular, two-step distribution, are relatively low, especially when you compare them to manufacturing and other types of businesses. So from a greenfield standpoint, the initial CapEx investments, the working capital investments, et cetera, are relatively light. You've got to find the real estate.

Reuben Garner: One last point just to add on the Greenfield. So just as a reminder to everyone. The.

Speaker Change: Yes, the capex requirements for Bluelinx in particular, two step distribution are relatively low, especially when you compare to manufacturing and other types of businesses. So from a greenfield standpoint, the initial capex investments the working capital investments et.

Speaker Change: Et cetera are relatively light you are generally youre at it you've got to find the real estate and even there you have some flexibility you invest within the initial staffing requirements, which you ultimately grow into over time, and then the working capital and equipment et cetera are relatively reasonable.

Shyam K. Reddy: And even there, you have some flexibility. You invest within the initial staffing requirements, which you ultimately grow into over time. And then the working capital and equipment, et cetera, are relatively reasonable. And you can mix and match between locations as well. So we feel pretty good about the investment thesis for greenfielding, which is why it's so core to our strategy.

Speaker Change: You can mix and match between locations as well so.

Andy Womser: So we feel pretty good about the investment thesis for Greenfielding, which is why it's so core to our strategy.

Speaker Change: We feel pretty good about the investment thesis for Green building, which is why it's so core to our strategy.

Kurt Gingert: Okay, and I said I only have one, but I'm going to seek in just one clarification question, and if you answered this already, I apologize, but I think you said that daily sales volumes were up, sequentially down in specialty, up in structural. That's kind of counter to what is normal, right? Like the third quarter is typically lower than the second on a volume perspective, it's kind of been difficult to gauge that the last handful of years with the commodity and other pricing moving so much, but I just wanted to kind of ask that question. Thanks.

Reuben Garner: Okay, and I said I only had one, but I'm going to sneak in just one clarification question. And if you've answered this already, I apologize. But I think you said that daily sales volumes were up.

Speaker Change: Okay, and I said I only have one but I'm going to sneak in just one clarification question and if you answered this already I apologize, but I think you said the daily sales.

Speaker Change: Sales volumes were up sequentially.

Speaker Change: Sequentially down and specialty up in structural.

Speaker Change: That's that's kind of counter to what is normal right like the third quarter is typically lower than the second on a volume perspective.

Been difficult to gauge that in the last handful of years with the commodity and other pricing moving so much but I just wanted to kind of ask that question. Thanks.

Shyam K. Reddy: Not necessarily. I mean, the second and third quarters are obviously the seasonal parts of the business, right, with the first and fourth, if you throw out the preceding years. But if you go back to historical norms, the second and third quarters, and typically the busiest part of the season, you've got people taking holidays, of course, and that sometimes leads to slowdowns in our industry. Hunting season also sometimes has an impact. But at the end of the day, the season will continue, quite frankly, up through the early part of November. And then after that, that's when you start having, whether it's the holiday period or weather, starting to have an impact in certain markets more so than others.

Speaker Change: Not necessarily I mean, the second and third quarters are obviously, the seasonal parts of the business right with first and fourth if you throw out the preceding years, but if you go back to historical norms of second and third quarter and typically the busy part of the <unk> you've got people, taking holiday of course and that sometimes leads to slowdowns in our industry.

Shyam Reddy: Not necessarily, I mean, the second and third quarters are obviously the, you know, the seasonal parts of the business, right, with first and fourth, if you throw out the preceding years. But if you go back to historical norms, the second and third quarter, and typically the busy part of the seat, you know, you've got people taking holiday, of course, and that sometimes leads to slowdowns in our industry. Hunting season also sometimes has an impact, but, you know, at the end of the day, you know, the season will continue quite frankly up through the early part of November, and then after that, that's when you start having whether it's the holiday period or whether it's starting to have an impact in certain markets more so than others.

Speaker Change: Hunting season also sometimes has an impact but at the end of the day. The season will continue quite frankly up through the early part of November and then after that that's when you start having.

Speaker Change: Whether it's the holiday period, our weather.

Speaker Change: Starting to have an impact in certain markets more so than others.

Shyam Reddy: Great, thanks, guys. Good luck on fourth. Great, thank you.

Reuben Garner: Great. Thanks, guys. Good luck going forward.

Speaker Change: Great. Thanks, guys. Good luck going forward.

Speaker Change: Great. Thank you.

Kurt Gingert: Your next question comes from the line of Kurt Gingert with DA Davidson; your line is open. Great, thanks, and good morning everyone. Not to be the dead horse, but in terms of the commentary on kind of daily sales volume, and the end of the program marks, I thought I might have heard you say that while yes down, sequentially specialty was kind of up on a year over your basis, is that right? Or did I miss your last? Yeah, I mean, for the second quarter, we kind of think about the second quarter, you know, volumes were up, you know, called low single digits, but you know, there's still the price, you know, the pricing sort of overhang.

Kurt Willem Yinger: Your next question comes from the line of Kurt Yinger with D.A. Davidson. Your line is open.

Speaker Change: Your next question comes from the line of Kurt Yinger with D. A Davidson your line is open.

Kurt Willem Yinger: Great, thanks, and good morning, everyone. Not to beat a dead horse but in terms of the commentary on kind of daily sales volume, Andy, in your prepared remarks, I thought I might have heard you say that while yes, down sequentially, specialty was kind of up on a year-over-year basis. Is that right, or did I mishear?

Kurt Willem Yinger: Great. Thanks, and good morning, everyone.

Kurt Willem Yinger: Not to beat a dead horse, but in terms of the commentary on kind of daily sales volume Andy in the prepared remarks, I thought I might have heard you say that while yes down sequentially specialty was kind of up on a year over year basis.

Speaker Change: Right or did I mishear.

Andy Wamser: Yeah, I mean, for the second quarter, if we kind of think about the second quarter, volumes were up, you know, I'll call it low single digits, but, you know, there's still that price, you know, the pricing sort of overhang. When we think about, you know, for this quarter or for Q3, in terms of what we're seeing, yes, it's up a little bit, you know, material and specialty are up, but sequentially, it's down, you know, low single digits. So, sorry for the comparison or confusion between year over year in sequential order.

Speaker Change: Yes.

Speaker Change: For the second quarter, if we kind of think about the second quarter volumes were up.

Speaker Change: I'll call it low single digits, but theres still about the price the pricing sort of overhang when we think about.

Shyam Reddy: When we think about, you know, for this quarter, but for Q3 in terms of what we're seeing, yes, it's up a little bit, you know, material specialty is up, but sequentially, it's down, you know, low single digits. So, sorry for that. This comparison or confusion between year over year and sequential. Okay, got it. And you talked about the conversations you're having with customers, and, you know, generally that people seem like they've kind of written off the back half of the year. We know where builder confidence is.

Speaker Change: For this quarter, but for Q3 in terms of what we're seeing yes, it's up a little bit material and specialty is up but sequentially, it's down it's down low single digits.

Speaker Change: Sorry for the comparison or confusion between year over year and sequential.

Speaker Change: Okay got it.

Speaker Change: And.

Speaker Change: You talked about the conversations you're having with customers and generally that people seem like they've kind of written off the back half of the year.

Kurt Willem Yinger: Okay, got it. And we talked about the conversations you're having with customers and, you know, generally that people seem like they've kind of written off the back half of the year, knowing where builder confidence is. I guess, could you talk about what that means in terms of what you're seeing from an overall kind of competitive environment and how that kind of ties into what you might expect to see in terms of specialty margins going forward?

Speaker Change: Nowhere builder confidence is I guess could you talk to what that means in terms of what youre seeing from an overall kind of competitive environment and how that kind of ties into what you might expect to see in terms of specialty margins going forward.

Shyam Reddy: I guess could you talk to what that means in terms of what you're seeing from an overall kind of competitive environment and how that kind of ties into what you might expect to see in terms of specialty margins going forward? Yeah, so let me start. Of course, you're going to see the market be more competitive. Although at the same time, I would point out that our efforts around certain business and operational initiatives that we have underway allow us to compete more effectively. So whether it be with respect to our centers of pricing and procurement excellence or some of the work we're doing operationally to help support what would you know better than what would they would otherwise be but on margins and then on the business excellence side doing things that that I think makes sense for the business to support solid gross margins as well.

Shyam K. Reddy: Yeah, so let me start. Of course, you're going to see the market become more competitive. At the same time, I would point out that our efforts around certain business and operational initiatives that we have underway allow us to compete more effectively. So, whether it be with respect to our Centers of Pricing and Procurement Excellence or some of the work we're doing operationally to help support what would be, you know, better than what they would otherwise be, but not margins.

Speaker Change: Yes, So let me start of course, youre going to see the market would be more competitive although at the same time I would I would point out that our our efforts around certain business and operational initiatives.

Speaker Change: That we have underway allow us to compete more effectively so whether it be with respect to our centers of pricing and procurement excellence or some of the work we're doing operationally.

Speaker Change: To help support.

Speaker Change: Better than what would they would otherwise be EBITDA margins and then on that on the business excellent side doing things that I think makes sense for the business to support.

Shyam K. Reddy: Solid gross margins as well so.

Shyam Reddy: So I feel like we have a good and especially as we think about our inventory management, and I've highlighted that before the past. We're very strategic about managing our, especially our structural inventory, but even with respect to our specialty inventory, we've got aggressive turn-day targets that we have all teams focused on throughout the year, with people not taking their eye out the ball. So that's how we generally deal with what's otherwise a very competitive market. At the same time as we think about growth, you know, we talked about some highlights as it relates to Millwork and EWP, but we've been very intentional about working with our existing suppliers and expanding product lines with them, which allows us to pick up more share or expanding our private label.

Shyam K. Reddy: And then on the business excellence side, doing things that I think make sense for the business to support solid gross margins as well. So, I feel like we have a good business, and especially as we think about our inventory management, and I've highlighted that before in the past, we're very strategic about managing our, especially our structural inventory. But even with respect to our specialty inventory, we've got aggressive turn day targets that we have all teams focused on throughout the year, with people not taking their eye off the ball.

Shyam K. Reddy: I feel like we have a good and especially as we think about our inventory management as I've highlighted that before in the past, we're very strategic about managing our especially our structural inventory, but even with respect to our specialty inventory. We've got aggressive turned eight targets that we have all teams focused on.

Shyam K. Reddy: Throughout the year, then I would people not taking their eye off the ball. So that's how we how we generally deal with what's otherwise a very competitive market at the same time as we think about growth we've talked about some highlights as it relates to millwork and AWP, but we've been very intentional about.

Shyam K. Reddy: So, that's how we generally deal with what's otherwise a very competitive market. At the same time, as we think about growth, we talked about some highlights as it relates to millwork and EWP, but we've been very intentional about working with our existing suppliers and expanding product lines with them, which allows us to pick up more share or expand our private label. We've just launched a Cedar program under our private label brand that is actually starting to bear fruit.

Shyam K. Reddy: Working with our existing suppliers and expanding product lines.

Andy Wamser: With them, which allows us to pick up more share or expanding our private label. We've just launched a cedar program under our private label brand that is actually starting to bear fruit.

Shyam Reddy: So we've just launched a Cedar program under our private label brand that is actually starting to bear fruit. We're expanding into new markets with LP and Hubert and Alura. And so, as I think about both our private label as well as our branded products, we're being very intentional about either expanding geographically, expanding the product lines within a specific supplier. And also with intentional efforts and multifamily in our national accounts like the home centers, even deepening or expanding our product mix within those channels in order to either gain share or otherwise grow the business and improve on what's otherwise a tough, challenging, soft, or declining markets year over year.

Shyam Reddy: Expanding into new markets with LP, and Huber and alert and so as I think about both our private label as well as our our branded products were being very intentional about.

Shyam K. Reddy: We're expanding into new markets with LP, Huber, and Allura. And so, as I think about both our private label as well as our branded products, we're being very intentional about either expanding geographically, expanding the product lines within a specific supplier, and also, with intentional efforts and multifamily international accounts like the home centers, even deepening or expanding our product mix within those channels in order to either gain share or otherwise grow the business and improve on what's otherwise a tough, challenging, soft, or declining market year over So, that's how we're managing through it.

Shyam K. Reddy: Either expanding geographically expanding the product lines within a specific supplier and also with intentional efforts in multifamily in our national accounts like the home centers EBIT deepening our expanding our product mix within those channels.

Shyam K. Reddy: In order to either gain share or otherwise grow the business and improve in what's otherwise.

Shyam K. Reddy: A tough challenging soft or declining markets year over year. So that's how we're managing through it and maybe just to add on just on the margin point.

Andy Womser: So that's how we're managing through it. Yeah, and maybe just to add, at least on the margin point, I mean, we still think specialty margins are going to hold on that 18 to 19%. That's consistent with where we've been. So we feel confident that there was a modest, I'd say, downshift, I'd say, in a structural margins. And that's because of the, like the deterioration you've seen in just, I'd say, Wander and panel pricing that we've had, you know, over the last six weeks. You know, we're our guide there is, you know, it's eight to 9% and I think the expectation is, well, we have really fish in our inventory, we're low 20 days supply on the structural side.

Andy Wamser: And maybe just to add, at least on the margin point, I mean, we still think specialty margins are going to hold in that 18 to 19% range. That's consistent with where we've been.

Shyam K. Reddy: We still think specialty margins are going to hold in that 18% to 19%.

Speaker Change: Yes, it's consistent with where we've been.

Andy Wamser: So we feel confident in that there was a modest I would say down shift I would say in a structural margins and thats because of the like the deterioration you've seen and just let's say lumber and panel pricing that we've had over the last six weeks.

Shyam K. Reddy: So, we feel confident that there was a modest, I'd say, downshift in the structural margins, and that's because of the deterioration you've seen in just, let's say, lumber and panel pricing that we've had over the last 6 weeks. So, our guide there is 8 to 9%, and I think the expectation is, well, we're really fishing our inventory. We're low on the 20-day supply on the structural side. So, we don't have maybe the same off-site positions that others would have, but that being said, that market feels heavy from a supply standpoint, and I think that that's due to the expectations that a lot of the manufacturers are expecting a busier season this year.

Andy Wamser: Yes.

Speaker Change: Our guide there is 8% to 9% in.

Speaker Change: I think the expectation is while we haven't really fits in our inventory, where low 20 day supply on the structural side. So.

Andy Womser: So, you know, we don't we don't have maybe the same off-size positions that others would have. But that being said, that market, it feels heavy, you know, from our supply. And I think that that's due to the expectations that, while the manufacturers are expecting a busier season this year. And, you know, there's this, I think a lot of inventory in the channel. That's why we're just being a little bit more prudent with where we think structural margins will be for the balance of the year. We do think they will improve in 25 as that supply demand dynamic becomes more that they had a more, I guess, reasonable balance.

Shyam K. Reddy: We don't have.

Speaker Change: Maybe the same all sides positions at others would have.

Shyam K. Reddy: But that being said the market it feels heavy from a supply and I think that that's due to the expectations that lot of the manufacturers are expecting a busier season. This year and there is I think a lot of inventory in the channel and that's why we're just being a little bit more prudent with where we think structural margins will be for the balance of the year. We do think they will improve in 'twenty five is that.

Shyam K. Reddy: And, you know, there's, I think, a lot of inventory in the channel, and that's why we're just being a little bit more prudent with where we think structural margins will be for the balance of the year. We do think they will improve in 2025 as that supply-demand dynamic becomes more, let's say, at a more, I guess, reasonable balance, but we do think it's going to be a little bit, and structural demand will be a little bit pressured for the balance of the year.

Shyam K. Reddy: Supply demand dynamic becomes more let's say.

Speaker Change: More I guess reasonable balance, but we do think it can be a little bit structure will be a little bit pressured for the balance of the year. When also during the pandemic. There was so much demand a lot of mills were put under construction. They came off line in anticipation of.

Shyam Reddy: But we do think it's going to be a little bit stressful, be a little bit pressured for the balance of the year. Well, and also, you know, during the pandemic, there was so much demand. A lot of mills were put under construction. They came online in anticipation of continuation or the housing recovery starting early. And so that that has also contributed to more wood being in the channel, which has obviously made the environment more competitive and depressed, you know, depressed pricing. Right. Okay. That all makes sense.

Kurt Willem Yinger: One also, you know, during the pandemic, there was so much demand; a lot of mills were put under construction, they came online in anticipation of the continuation or the housing recovery starting early. And so that has also contributed to more wood being in the channel, which has obviously made the environment more competitive and depressed, you know, depressed prices.

Speaker Change: Continuation or the housing recovery, starting early and so that that has also contributed to more wood being in the channel, which has obviously made the environment more competitive and depressed.

Kurt Willem Yinger: Depressed pricing.

Shyam K. Reddy: Right, okay, that all makes sense. And to your point, it feels like you've kind of proven out that high teens specialty margins are kind of sustainable or can persist even in kind of this softer demand backdrop with more competitive activity. I guess if we look forward 18 months and you were to kind of imagine a blue sky scenario in terms of how those could inflect in a positive way, outside of volume, what do you think could potentially be some drivers of improvement?

Speaker Change: Right, Okay that all makes sense.

Shyam Reddy: And, I mean, to your point, it feels like you've kind of proven out that high teen specialty margins are kind of sustainable or can persist even in kind of the softer demand backdrop with more competitive activity. I guess if we look forward 18 months and you were to kind of envision a blue sky scenario in terms of how those can inflect in a positive way. Outside of volume, what do you think could potentially be some drivers of improvement? Well, obviously, I mean, you're just talking about, I mean, if you're talking about margins in particular, continuing to be focused on value added services and also improving on the delivery proposition, whether it be continuous next day delivery, job site delivery, obviously expanding within our cutting capabilities.

Speaker Change: And I mean to your point it feels like you've kind of proven out that high teens specialty margins are kind of sustainable or can persist even in the softer demand backdrop with more competitive activity I guess, if we if we look forward to 18 months and you were to kind of envisioning a blue sky.

Speaker Change: <unk> scenario in terms of how those kind of inflect in a positive way.

Speaker Change: Outside of volume, what do you think could potentially be some drivers of improvement.

Shyam K. Reddy: Well, obviously, I mean, if you're talking about margins in particular, continuing to be focused on value-added services and also improving on the delivery proposition, whether it be continuous next-day delivery, job site delivery, obviously expanding within our cutting capabilities. So, for example, we have some markets where we've added SAWs to support local market dynamics and, as a result, have picked up share. In others, we've expanded our capabilities within an existing distribution site, such as adding new buildings, which has given us the ability to expand within a particular specialty product category and drive, when I say expand, adding a new building, covered space, and basically generating more, putting the land at better use, if you will, to generate more gross profit per new square foot or overall square foot, which will allow us to grow our specialty sales.

Speaker Change: Well, obviously I mean, you just are you just talking about if youre talking about margins in particular continuing to be focused on value added services.

Shyam K. Reddy: And also improving on the delivery proposition whether it be.

Shyam K. Reddy: Whether it be continuous next day delivery job site delivery, obviously expanding within our cutting.

Shyam K. Reddy: Capabilities. So for example, we have some markets, where we've added added source of support local market dynamics at <unk>. As a result have picked up have picked up share in others. We've expanded our capabilities within an existing distribution sites, such as adding new new buildings, which has given us the ability to expand within a particular specialty.

Shyam Reddy: So, for example, we have some markets where we've added saws to support local market dynamics. And as a result, have picked up, have picked up share. In others, we expanded our capabilities within an existing distribution site, such as adding new buildings, which has given us the ability to expand within a particular specialty product category and drive. When I say expand, adding a new building covered space and basically generating more, putting the land at better use, if you will, to generate more gross profit per new square foot or overall square foot, which will allow us to grow our specialty sales.

Shyam K. Reddy: The category and drive when.

Shyam K. Reddy: When I say, expanding adding a new building covered space.

Shyam K. Reddy: And basically generating more putting the land to better use if you will to generate.

Shyam K. Reddy: Our gross profit per new square foot or overall square foot, which will allow us to grow our specialty sales. So as a result of all that we continue to shift the mix over time as we continue to shift the mix a greater percentage of our gross profit will come from those specialty sales and then with the value added services and the better value proposition.

Shyam Reddy: So, as a result of all that, we continue to shift the mix. And over time, as we continue to shift the mix, a greater percentage of our gross profit will come from those specialty sales. And then, with the value-added services and the better value proposition around the delivery and other capabilities, you know, the gross margin should hang in there. So, that's how we compete. Got it. Okay. Thank you.

Shyam K. Reddy: So, as a result of all that, we continue to shift the mix. And over time, as we continue to shift the mix, a greater percentage of our gross profit will come from those specialty sales. And then, with the value-added services and the better value proposition around delivery and other capabilities, the gross margin should should hang in there. So that's how we compete.

Kurt Willem Yinger: Got it. OK. Thank you. And just lastly,

Shyam K. Reddy: Around the delivery and other capabilities.

Kurt Willem Yinger: The gross margin should should hang in there.

Kurt Willem Yinger: So that's how we compete.

Speaker Change: Got it okay. Thank you and just lastly.

Shyam Reddy: And just lastly, you talked about the commodity side, maybe being a little bit heavy from kind of an inventory perspective. Are there any specialty product categories where you see inventory levels either in your own system or at the customer level that you feel may be a little bit elevated? And could you just talk to, I guess, the overall appetite from customers to kind of put inventory on the ground here heading into the fall? Yeah, it could. Just to be clear on one point, but we don't have; we have really efficient inventory right now on the structural.

Speaker Change: You talked about the commodity side, maybe being a little bit heavy from kind of an inventory perspective are there any specialty product categories, where you see inventory levels either in your own system or at the customer level that you feel may be a little bit elevated and could you just talk to I guess the OS.

Kurt Willem Yinger: We've talked about the commodity side maybe being a little bit heavy from kind of an inventory perspective. Are there any specialty product categories where you see inventory levels either in your own system or at the customer level that you feel may be a little bit elevated? And can you just talk about, I guess, the overall appetite from customers to kind of put inventory on the ground here heading into the fall?

Kurt Willem Yinger: Raul appetite from customers to kind of put inventory on the ground here heading into the fall.

Andy Wamser: Yeah, Kurt, just to be clear on one point, we don't have – we have really efficient inventory right now in structural, so we're low, mid, 20-day supply. I think, in general, the channel is heavy, so I'm not going to just throw it. So, when we look at specialty, I would say when we look at our key categories, we don't see that there's heavy inventory in the system, so we don't see any sort of channel issues where we think that margins could be pressured on the specialty side. When I was talking about the volume checks, it was more on the structural side in terms of just lumber and panels.

Kurt Willem Yinger: Yes, Kurt just to be just wanted to be clear on one point. We don't have we have really efficient inventory write down structural so we're low mid 20 day supply I think in general the channel is heavy so.

Shyam Reddy: So, we're, you know, low mid 20 day supply. I think in general, the channel is heavy. So I'm going to just so when we look at specialty, I would say, you know, when we look at our key categories, we don't see that there's heavy inventory, you know, in the systems. We don't see any sort of channel issues that we rethink that margins could be pressured on the specialty side. You know, when I talk about the vine checks, it is more on the structural side in terms of just, you know, lumber panels. But to your point, or maybe this isn't exactly what you were asking, but we have, again, with the softness in the market and the type of demand, we have seen less build-up in inventory with our customers than we would have otherwise expected. But when you can find them, with how we manage our inventory and how we are very, very close to it, did even have the highest levels, but even throughout the business.

Andy Wamser: So when we look at specialty I would say when we look at our key categories. We don't see that there is heavy inventory.

Andy Wamser: In the system. So we don't see any sort of channel issues that we think that margins could be pressured on the specialty side.

Andy Wamser: I'll start with the volume checks is more on the structural side in terms of just.

Andy Wamser: Lumber and panels.

Shyam K. Reddy: But to your point, or maybe this isn't exactly what you were asking, but we have, again, with the softness in the market and the tepid demand, seen less buildup in inventory with our customers than we would otherwise have otherwise expected. But when you combine that with how we manage our inventory and how we are very, very close to it at the highest levels, but even throughout the business, I think that's been one of our, quite frankly, our differentiators around managing or ensuring solid margins, if you will. And then, of course, in a declining market, minimize the downside impact. Right?

Andy Wamser: But to your point or maybe this isn't exactly what you were asking but we have again with the softness in the market and the tepid demand. We have we have seen less buildup in inventory with our customers.

Shyam K. Reddy: We would have otherwise expected, but when you combine that with how we manage our inventory and how we are very very close to it.

Shyam K. Reddy: Highest level, but even throughout the business, but I think that's been one of our quite frankly, our differentiators around around managing more ensuring solid margins. If you will and then of course in a declining market minimizing the downside impact.

Kurt Gingert: I think that's been one of our, quite frankly, our differentiators around managing, more ensuring solid margins, if you will, and then, of course, in the declining market, minimizing the downside impact. Right. Okay. We'll appreciate all the color guys. Good luck here in Q3. Thanks, Kurt.

Kurt Willem Yinger: Right. Okay, I'll appreciate all the color guys. Good luck here in Q3.

Speaker Change: Right, Okay, well I appreciate all the color guys. Good luck here in Q3.

Kurt: Thanks Kurt.

Operator: And there are no further questions at this time.

Operator: And there are no further questions at this time. I will now turn the call back over to Tom Morabito.

Speaker Change: And there are no further questions at this time I will now turn the call back over to Tom Morabito.

Tom Morabito: I will now turn the call back over to Tom Morabito. Thanks, Kayla.

Tom Morabito: Thanks, Kayla. Thank you again for joining us today, and we look forward to speaking with you in late October as we share our third quarter 2024 results.

Tom Morabito: Thanks, Kayla. Thank you again for joining us today, and we look forward to speaking with you in late October as we share our third quarter 2020 for our results.

Tom Morabito: Thank you again for joining us today, and we look forward to speaking with you in late October as we share third quarter 2024 results.

Operator: And this concludes today's conference call.

Operator: And this concludes today's conference call. You may now disconnect.

Speaker Change: And this concludes today's conference call you may now disconnect.

Operator: You may now disconnect. Thank you.

Tom Morabito: [music].

Operator: Sure.

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Speaker Change: Thank you.

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