Q4 2024 BlueLinx Holdings Inc Earnings Call

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Blue Link Coding's fourth quarter, four-year 2024 earnings conference call.

Speaker Change: At this time, all participants are in a listen-only mode, and today's call is being recorded. We will begin with opening remarks and introductions. At this time, I will turn the conference over to your host, Investor Relations Officer Tom Morabito. Please go ahead, sir.

Tom Morabito: Thank you, Operator, and welcome to the Blue Wings fourth quarter and full year 2020 Fort Ernie's Call. Joining me on today's call is Shyam Reddy, our President and Chief Executive Officer, and Kim DeBrock, our Vice President, Chief Accounting Officer, and Interim Principal Financial Officer. At the end of today's prepared remarks, we will take questions.

Tom Morabito: Our fourth quarter and full year news release in Form 10-K were issued yesterday after the close of the market, along with our webcast presentation, and these items are available in the Investors section of our website, bluelingsco.com.

Tom Morabito: We encourage you to follow along with the detailed information on the slides during our webcast.

Tom Morabito: 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.

Tom Morabito: Reconciliations to the Closest Gap financial measure can be found in the appendix of our presentation.

Now I'll turn it over to Shyam.

Thanks, Tom, and good morning, everyone.

Tom Morabito: We are pleased with both our fourth quarter and full year 2024 results, especially in a year when elevated high mortgage rates and record home prices depressed sales in the housing and building products sector. Despite these headwinds, our margins remain strong in specialty products, and we continue to generate solid margins in our structural products business as well.

Tom Morabito: During the quarter, we also demonstrated our commitment to returning capital to shareholders by continuing to repurchase shares under our $100 million share repurchase authorization.

Next, I'd like to offer a few highlights from 2024.

First, we delivered solid full-year 2024 results.

Tom Morabito: Our teams and supplier partners, combined with the confidence our customers have in Bluelinks, helped us compete effectively in challenging ed markets, resulting in strongest margins of 19.4% for specialty products and 10.1% for structural products for the year.

Tom Morabito: Second, our fourth quarter results were also solid. As expected, our revenues were flat year-over-year, largely due to market-driven price deflation. However, our specialty and structural gross margins came in at 18.4% and 10.8% respectively.

Tom Morabito: That's testament to the value of our service proposition to customers and our ability to effectively manage our inventory.

Tom Morabito: In addition, while deflation still had an impact in Q4, it improved from Q3. It is also worth noting that specialty product volumes were up low single digits year-over-year, demonstrating that our corporate growth strategy is bearing fruit.

Tom Morabito: Third, we remain focused on our five key high-margin specialty product categories, engineered wood, siding, millwork, industrial, and outdoor living products.

Tom Morabito: Specialty products accounted for approximately 70% of net sales and 80% of gross profit for both the fourth quarter and full year 2024.

Tom Morabito: We also continue to execute successfully on our local and national market share gain strategies.

Tom Morabito: As seen by our multifamily growth, expansion of product lines with key national accounts, our expansion of branded product lines into new geographic markets, and launches of new product lines.

Tom Morabito: For example, we recently announced an expanded distribution partnership with Louisiana Pacific that will broaden the geographic reach of our wood-based siding offering, demonstrating our focus on specialty product growth.

Tom Morabito: These product categories and the strategic vendor partners we've aligned with enable us to be a necessary extension of our customers in a scalable way, whether they are local or national.

Tom Morabito: These product categories are also sold at various points of the construction cycle rather than at just the front or back end of a single or multi-family housing project or remodeling job for that matter.

Tom Morabito: In addition, they drive higher net sales and gross profit, which generates sustainable and durable operating cash flow that can be reinvested back into the business and used to fund opportunistic greenfields and M&A opportunities.

Tom Morabito: Fourth, our digital transformation journey is well underway as we strive to become the most technologically advanced two-step distributor of building products in the United States, transforming Blue Links and making us the provider of choice for both suppliers and customers.

Tom Morabito: These technology improvements are designed to enable us to rapidly grow our business at scale, with both customers and suppliers, by providing an exceptional customer and supplier experience that is more efficient and effective.

Tom Morabito: They will also enable us to drive productivity improvements that will enhance our gross margins and EBITDA margins.

Tom Morabito: Phase one includes implementing a new master data management platform, launching an e-commerce platform,

Tom Morabito: which is now live in a pilot phase and establishing a new transportation management system which is on track to be fully implemented by Q3 2025. We are also emphasizing the technology enablement of our warehouse operations.

Tom Morabito: We believe that subsequent phases will further enhance our operational and commercial capabilities. Modernizing the business with new technology will differentiate ourselves in the marketplace and accelerate our profitable sales growth and operational excellence initiatives.

Tom Morabito: Fifth, in November, we announced our first greenfield in Portland, Oregon, and we expect to have additional announcements in 2025. We expect our upfront cash investment for each new location to be less than $5 million and EBITDA positive after two years, with EBITDA margins between 6 and 10 percent.

Tom Morabito: These greenfields should generate between $40 and $100 million of net sales at maturity. Of course, these expectations will vary depending on the size of the market, the branch real estate footprint, product mix, and other factors.

Tom Morabito: It is also important to note that as we launch at Greenfield, we intend to have a product mix more heavily weighted to specialty products.

Tom Morabito: We will strive to get to our 70-30 specialty structural split in the initial year and then to around 80-20 at maturity.

Tom Morabito: We have considerable strength managing our structural products business, so we believe that capability will provide us with a competitive advantage when launching greenfields and allow us to meet our financial objectives much faster.

Tom Morabito: Sixth, our financial position remains strong with liquidity of $852 million at the end of the year, including $506 million of cash on hand.

Tom Morabito: This strength gives us the flexibility to reinvest in business initiatives that allow us to increase sales, improve productivity, expand our geographic reach, and provide better customer and vendor service, an example of which would be our Digital Transformation Initiative.

Tom Morabito: And of course, having the ability to return capital to shareholders remains a priority, as demonstrated by our share repurchase program. For the year, we returned $45 million to shareholders.

Now, for a few more details on our full-year results.

Tom Morabito: We generated 2024 net sales of $3 billion and $131 million in adjusted EBITDA for a 4.4% adjusted EBITDA margin. Adjusted net income was $55 million, or $6.44 per diluted share.

Tom Morabito: For the year, we delivered solid gross margin performance with specialty products coming in at 19.4% and structural products at 10.1%.

Tom Morabito: Our focus on business and operational excellence led to effective pricing, strong service levels, procurement opportunities, and cost management, contributing to these strong results.

Kim will provide more details in her remarks.

Tom Morabito: Now let's turn to our perspective on the broader housing and building products market. Early last year, industry sources were optimistic about the overall market for building products rebounding in the second half of 2004.

As we all know, that rebound never happened.

Tom Morabito: elevated interest rates, home affordability issues, and market volatility due to tariff and other recent policy announcements, there is general uncertainty about the timing for a sustained housing recovery.

Tom Morabito: Of course, one of the critical factors in inhibiting a housing recovery is the Federal Reserve's positioning regarding rate cuts, in addition to policies and market forces that may keep mortgage rates stubbornly high or otherwise volatile.

Tom Morabito: As we've noted before, it is also important to note that the Federal Reserve interest rate cuts do not directly result in lower mortgage rates given other macroeconomic factors that influence these rates.

Tom Morabito: Now, although the year ended with many observers expecting housing starts to be up slightly in 2025, recent views suggest that housing starts will be flat to down this year.

In fact,

Tom Morabito: Builder's sentiment fell five points from January over concerns about tariffs, high mortgage rates, and affordability issues with housing.

Tom Morabito: Regardless of market conditions, we will continue to emphasize our product and channel growth strategies and, in particular, our multi-family growth strategy to gain share in an otherwise challenging market.

Tom Morabito: Repair and remodel spending continues to be soft because existing home sales are low. Despite this softness, our strategic focus on national accounts is expected to enable us to grow this business on a year-over-year basis.

Tom Morabito: And as the turnover increases, we believe the investments we're making today will accelerate our growth efforts in the repair and remodel driven business when the markets turn.

Tom Morabito: Now, although this near-term outlook remains uncertain, we continue to believe in the long-term prospects of the housing and building product sector.

Tom Morabito: As many of you know, it is estimated that 1.8 million homes need to be built every year for the next 10 years to meet the housing demand, which, if anything, is probably a low estimate based on the actual need due to a variety of demographic trends.

Tom Morabito: We took the anticipated demand curve and the fundamental drivers for housing and building products into account when we developed our share gain strategy to drive profitable sales growth, which generated positive results in 2024. Focus and clarity will continue to be critical in the successful execution of our strategy in 2025.

Tom Morabito: Through the first seven weeks of Q1 2025, we have maintained solid margins for specialty products, which are generally in line with Q4 2024.

Tom Morabito: Structural product margins are slightly lower so far in 2025, largely due to declining panel prices.

Tom Morabito: Daily volumes have been adversely impacted by the extreme weather patterns experienced in January. In fact, over 20 of our locations were closed for at least half a day in January due to unusually cold weather and winter storms.

Tom Morabito: In addition, it is important to note that while industry-driven specialty products price deflations continues to have an impact on both our top line and cost of goods sold, the situation improved in Q4.

Tom Morabito: For example, in the fourth quarter, specialty pricing was down mid-single digits versus high-single digits in the third quarter.

Tom Morabito: For the first seven weeks of the year, pricing has been volatile, but generally flat relative to Q4 when you take all the puts and takes into account.

Tom Morabito: Given the political backdrop, inflationary pressures, and discussions with our vendor partners, we are optimistic that the specialty pricing volatility will abate at some point.

Tom Morabito: The flip side, however, is that the outlook for volumes may be tempered a bit by these same factors, high mortgage rates and economic uncertainty.

Tom Morabito: In summary, we delivered solid results for both the fourth quarter and full year 2024. We're also delivering on our strategic priorities as seen by our specialty product expansion efforts, margin performance driven by our pricing and cost discipline, and capital allocation initiatives.

Tom Morabito: I'd like to end by thanking my fellow Blue Lakes associates for their continued grit, tenacity, and resilience during a challenging housing market, and for their dedication to our customers and our suppliers.

Tom Morabito: Our teams are committed to generating more profitable structural and specialty product sales to ensure that we position ourselves for long-term success, regardless of near-term market conditions.

Tom Morabito: Now I'll turn it over to Kim who will provide more details on our financial results and our capital structure.

Kim DeBrock: Thanks Shyam and good morning everyone. Let's first go through the consolidated highlights for the quarter.

Kim DeBrock: Overall, we delivered solid fourth quarter results, highlighted by solid margins in both our specialty and structural product categories. Net sales were $711 million, consistent with last year's fourth quarter. Specialty product sales were down 1% from the prior year due to price deflation.

Kim DeBrock: Structural product sales were up 1% largely due to year-over-year increases in lumber prices.

Kim DeBrock: Total gross profit was $113 million and gross margin was 15.9%, down 70 basis points from the prior period.

Kim DeBrock: SG&A was $93 million, up 10% from the prior year period, primarily due to increased payroll and payroll-related expenses, partially driven by increased logistics costs due to higher volumes and costs associated with our digital transformation.

Kim DeBrock: Net income was $5.3 million and diluted earnings per share was $0.62 per share. Adjusted net income was $5.2 million and adjusted diluted EPS was $0.61 per share.

Kim DeBrock: Tax expense for the fourth quarter was $1.7 million or 24.3%. For the first quarter of 2025, we anticipate our tax rate to be in the 24% to 28% range.

Kim DeBrock: Adjusted EBITDA was $22 million or 3% of net sales following our normal seasonal patterns. As a reminder, we tend to have higher adjusted EBITDA margins in the second and third quarters, but relatively lower margins in the first and fourth quarters of the year.

Kim DeBrock: Turning now to fourth quarter results for specialty products. Net sales were $484 million, down 1% year-over-year. This decline was largely driven by price deflation across most of our specialty product categories, partially offset by higher volumes.

Kim DeBrock: Gross profit from specialty product sales was $89 million, down 6% year-over-year. Specialty gross margin was 18.4%, a strong margin, but down 100 basis points from last year.

Kim DeBrock: Through the first seven weeks of 2025, specialty product gross margin was in the range of 18 to 19 percent, with daily sales volumes down low double digits compared to the fourth quarter of 24, given the impact of the January weather.

Kim DeBrock: Over the past three weeks, however, specialty volumes were about flat on a year-over-year basis.

Kim DeBrock: In addition, we are seeing average specialty pricing down low single digits.

compared to this time last year.

Kim DeBrock: Now moving on to structural products. Net sales were $227 million, up 1% compared to the prior year period. This increase was primarily due to price increases in framing lumber, partially offset by slightly lower volumes.

Kim DeBrock: Gross profit from structural products was $25 million, a decrease of 3% year over year, and structural gross margin was 10.8%, up 20 basis points from the same period last year.

Kim DeBrock: In the fourth quarter of 2024, average lumber prices were about $430 per 1,000 board feet and panel prices were about $549 per 1,000 square feet, a 12% increase and a 6% decrease, respectively, compared to the averages in the fourth quarter of 2023.

Kim DeBrock: Sequentially, comparing the third and fourth quarters of 2024, these prices were up 12% and 6% respectively.

Kim DeBrock: During the fourth quarter, both lumber and panel prices increased in October and November, but declined in December, and finished the last week of December at $433 and $543, respectively.

Kim DeBrock: In the first seven weeks of Q1 2025, these prices are now $446 per 1,000 board feet and $543 per 1,000 square feet, respectively.

Kim DeBrock: Our strong structural margin continues to reflect the excellent job our team does to manage commodity cost volatility risk through leveraging consignment and utilizing centralized purchasing and pricing to keep structural inventory levels low.

Kim DeBrock: Through the first seven weeks of Q1 2025, Structural Product Gross Margin was in the range of 8 to 9 percent, with daily sales volumes down low double digits compared to the fourth quarter of 2024, given the impact of January weather.

Kim DeBrock: Similar to specialty products, over the past three weeks there has been some improvement in volumes, and pricing is also up slightly year-over-year.

Kim DeBrock: For the year, net sales were $3 billion, down 6% from 2023, largely due to specialty price deflation.

Kim DeBrock: Specialty and structural product sales were down 6% and 5% respectively, once again largely due to price deflation. Total gross profit was $489 million and gross margin was 16.6%, down 20 basis points from the prior year period.

Kim DeBrock: SG&A was $366 million, up almost 3% versus the prior year period.

Kim DeBrock: For 2025, we expect our SG&A levels to increase slightly as a percentage of sales due to the investments in technology that Shyam mentioned, as well as our growth initiatives. Net income was $53 million and diluted EPS was $6.19 per share.

Kim DeBrock: Adjusted net income was 55 million dollars and adjusted diluted EPS was six dollars and forty four cents per share.

Kim DeBrock: The full year tax rate was 24.9%, and for full year 2025, we anticipate our tax rate to be in the 24 to 28% range.

Adjusted EBITDA was $131 million or 4.4% of net sales.

Looking now at our balance sheet.

Kim DeBrock: Our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital. At the end of the year, cash on hand was $506 million, a decrease of $21 million from Q3, largely due to normal seasonal changes in working capital.

Kim DeBrock: When considering our cash on hand and undrawn revolver capacity of $346 million, available liquidity was $852 million at the end of the year.

Kim DeBrock: Total debt excluding our real property financing leases was 350 million dollars and net debt was a negative 156 million dollars.

Kim DeBrock: 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.

Kim DeBrock: These include investments in our highest return prospects, such as organic and inorganic growth initiatives and opportunistic share repurchases.

Now moving on to working capital and free cash flow.

Kim DeBrock: During the fourth quarter, we generated operating cash flow of $19 million and free cash flow of negative $1.5 million, primarily driven by lower net income, working capital seasonality, and CapEx.

Kim DeBrock: For the full year 2024, we generated operating cash flow of $85 million and free cash flow of $45 million. Our full year cash generation was supported by solid earnings, partially offset by increased CapEx.

Kim DeBrock: Turning now to capital allocation. During the quarter, we spent approximately $20 million in CapEx, primarily to improve our distribution facilities, upgrade our fleet, and for our digital transformation.

Kim DeBrock: For the year, CapEx was about $40 million. For 2025, we expect capital investments to once again be around $40 million, focusing on facility improvements, further upgrades to our fleet, and the technology improvements previously discussed.

Kim DeBrock: Our digital transformation will also have approximately a $5 million impact on operating expenses in 2025 related to software license implementation, as well as increased headcount associated with this initiative.

Speaker Change: As Shyam mentioned during the fourth quarter, we purchased approximately $15 million of our company's common stock through open market transactions under our repurchase program, and we plan to continue to be opportunistic in the market.

Speaker Change: 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.

Speaker Change: expand our geographic footprint and pursue a disciplined M&A strategy as well as return capital to shareholders. We also plan to maintain a long-term net leverage ratio of two times or less.

Speaker Change: Overall, we are pleased with our fourth quarter and full-year results, highlighted by our strong margins, especially when considering the difficult housing market. Our strong balance sheet positions us well to execute on our strategy and provide returns for our shareholders.

Operator, we are now ready to take questions.

Speaker Change: Thank you. If you would like to ask a question at this time, press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star followed by the number one. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question is from the line of Jeffrey Stevenson with Loop Capital.

Hey, thanks for taking my questions today.

Speaker Change: Shyam, can you provide more color on the sequential improvement on specialty product pricing you saw during the quarter and whether that included any stabilization in key categories such as EWP? And then also at a high level, how should we think about the cadence of year-over-year specialty products pricing as we move through fiscal 25?

Speaker Change: Sure. Thanks, Jeff. Good to hear from you. So, first of all, I'm very proud of the five quarters of sequential year-over-year growth, the year-over-year growth after over five consecutive quarters with respect to specialty products, which shows our strategy.

bearing fruit, as I said earlier in my remarks.

It's a very targeted strategy, both channel and product.

And so as we continue to move forward, it will...

generate more volume despite

headwinds or market headwinds.

Speaker Change: because we're very focused on national accounts and multifamily while also expanding geographic footprint with key suppliers, expanding our SKU mix with key suppliers, and also pulling in new products to support specialty growth in key markets.

as it relates to pricing.

Speaker Change: you know, over the course of the year. It's very challenging from a certainty standpoint.

Speaker Change: because of the various policy positions that are coming out that make it.

Speaker Change: It's a little bit more difficult to get a handle on the demand curve.

Speaker Change: But at the end of the day, we have centers of excellence around pricing. We have a strong value proposition.

Speaker Change: and also from an operational excellence standpoint and scale tied to our supply chain, we believe that we can continue to make headway on stabilizing the pricing through intentional efforts.

Speaker Change: That that said I mean market pricing is market pricing, but we believe that with our scale and operational

Speaker Change: our operational value proposition that we can manage through it, especially given.

Speaker Change: How well we've done with inventory, for example. And as you've seen with our margin management over multiple quarters, we feel pretty good about continuing that.

Speaker Change: But it's too early to tell, Jeff, quite frankly. I mean, we've seen, if you look at the first seven weeks,

Pricing was improving in January, so we saw

We saw it continue, and then in February...

Speaker Change: But there's still significant pressure as it relates to pricing, but we are starting to see it come back up this week.

On the special case side.

Speaker Change: Got it. Got it. No, that's very clear. Thanks for all that insight.

Speaker Change: You know, I just wondered as well, you know, what you're hearing from both, you know, channel partners and contractor customers regarding, you know, R&R demand expectations in 2025, you cited.

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

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Speaker Change: Yeah, you know as long as we we continue to see

Speaker Change: low existing home sales turnover, generally speaking, that puts pressure on repair and remodel activity, right? Because people typically invest in their homes on the way in and on the way out. That said, again, in terms of owning our destiny, we are absolutely laser-focused on key elements of our channel strategy, one of which is national accounts.

Speaker Change: So the fact is, the overall pie is big, the market is big, and even with sort of depressed or less than ideal activity, we continue to gain share in that space because of our value proposition.

and our product mix that supports

Speaker Change: customer, you can still do that yourself, put it up in a bedroom or whatnot. So our strategy again tackles both

Speaker Change: the small R&R job to the big R&R job, and quite frankly, if we weren't focused on it, I'd...

Speaker Change: I'd probably be more subject, or Blue Wings would be more subject to the current market dynamic. Doesn't mean that we're not, we're just trying to make lemonade out of lemons, right, despite the market headwinds, in spite of the market headwinds.

It's no, no understood and, um...

Unidentified Person: And then last question, just on, you know, the timeline of your phase one of, you know, your technology investments, obviously, you know, the completion of your transportation management system will be done and, you know, the third quarter of this year, but when do you expect the full ramp of your e-commerce platform, you know, to complete? Is that a 2026 story or, you know, how are you thinking about that right now, Shyam?

Unidentified Person: Yeah, so confirmed on the OTM going fully live later this year and starting to bear.

Unidentified Person: some early fruit as it relates to the savings in Q4 this year, and then we'll get the full year of it next year. As it relates to e-commerce, we've taken a more graduated approach to it. So we launched an e-commerce pilot in one of our markets. We are now enhancing the capabilities of that.

Unidentified Person: Service proposition so that we can scale it out to other markets across the US, but I would think about it as Sort of version

Unidentified Person: 1.0 or 2.0 of a multi-year journey around e-commerce, because as you can imagine, in this space...

We are still, our overall industry...

unlike some of our customers, like the biggest customers.

are obviously, they're more B2C oriented.

Unidentified Person: tend to have robust e-commerce platforms that are actually used pretty ubiquitously across the nation, whereas

Unidentified Person: in in our space and with our industry it's they're still in the early innings of getting wide-scale adoption and so with that in mind we are gradually making investments so we have a seat at the table and then tweaking with tweaking the

Unidentified Person: quite frankly, is responsive to what our customers' needs are now, while providing flexibility to expand the capabilities over time. And then, ultimately, we'll be in a position to really put in place

Unidentified Person: you know, advance it to the point where it's a full, robust platform that does way more than just facilitating the purchase and sale or the purchase and delivery of a product.

Great, thank you.

Unidentified Person: Your next question is from the line of Greg Palm with Craig Holland.

Greg Palm: Yeah, thanks Maureen. Sounds like sales activities rebounded quite a bit. I think you said the last three weeks it was it was flat in specialty, you know, relative to maybe what you saw in the month of January. So I'm just curious, is that, you know, just a catch up phenomenon? Is there still a lot of pent up demand left, you know, just a result of the softness that you saw at least at the beginning of the quarter?

Speaker Change: Are you talking about pricing? First of all, great to hear from you. Great to have you on the line.

Speaker Change: So you're talking about pent-up demand, but I just want to make sure I understand the question. Are you more focused on pricing or volumes? Volumes. I think what you said was down double digits so far in the quarter, but the last three weeks it was flat. So I guess it implies that it's rebounded quite a bit in the last couple of weeks.

Speaker Change: But at the same time, it was down sequentially because we had over 20 branches that were closed for at least half a day and in some cases up to two days.

Speaker Change: And then through the first part of February, we started to see it ramp back up.

Speaker Change: It's hard for me to say if it's pent-up demand or normalized demand, but no doubt

Dad

Speaker Change: you know, there's clearly, there are clearly sales that aren't happening while your customers are closed and they put them in as they reopen. And so I would say it's a combination of pent-up demand plus new

new purchases.

Speaker Change: And then as we head into February, just as we thought things were getting back up to speed, another winter storm hit the Midwest and...

Speaker Change: and I think it's going up into the northeast. We're also seeing some weather here in the south. So we've had some...

Speaker Change: locations shut down this week as well, but generally speaking, we're seeing pricing go back up, and we're also feeling like volumes, not feeling, volumes are ramping back up.

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

Yeah, absolutely.

Speaker Change: kind of the ramp up of this specific location and I think what you said was.

you know, a couple of years until it hits.

Speaker Change: But I'll break even a profitability, you know, where are we right now in terms of

Speaker Change: sort of the same as EBITDA? Just help us understand kind of when you open a location, you know, the amount of time it takes up to get to sort of that sort of that full run rate, that mature level of revenue in EBITDA.

Yeah, so

Thank you.

Speaker Change: So, this is our first one, first Greenfield that we've done in my time at Blue Wings, which is coming up on 10 years. So, I'd love to get back to you on that, but let me, just in terms of giving you more specificity, but generally speaking, you know, the startup costs and

Speaker Change: combined with our expertise put us in a great, the low startup costs combined with our expertise put us in a great position to do Greenfields. In this particular case.

Speaker Change: We're doing it in a part of the country where we actually have anchor locations up in Seattle and Spokane.

Speaker Change: And so we believe we will be able to accelerate its growth, probably more so than in, let's say, a brand new market. That said, we did open it in the wintertime.

and we've had a challenging first few months.

Speaker Change: and we've been mainly focused on getting the equipment there, getting the racking in place, we just took delivery of new trucks.

Speaker Change: We have a new GM in place who was recently hired towards the end of last year or beginning of January, and we've got new salespeople coming on board. So, it does take a quarter to a quarter and a half to ramp up the capabilities.

but as salespeople come in.

Speaker Change: and as we take inbound product, we are in a position to start selling and delivering.

Speaker Change: And to the extent we don't have the product received yet, we do have locations in Seattle and Spokane that can actually service the business, so we're not necessarily

Speaker Change: stymied any more than we need to be. But that's all to say, Greg, that I just need a little bit more time to give you more specificity.

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

Speaker Change: You know, so look, as someone who's maniacally focused on growing this business,

Speaker Change: I would love to open up, let's say, three a year, but the problem is the primary constraint is real estate.

and having spent, you know,

13 years in this space, space finding real estate.

Speaker Change: can be challenging, especially nowadays when you're competing for with, let's say, data centers, right, where you've got investors buying up raw property, unused property, land, etc., which makes it even more challenging.

The fact is we have an aggressive

I guess posture around greenfielding, but we're limited.

Speaker Change: by real estate availability in any given market because we're not looking at going into a

Speaker Change: you know, a tertiary market, right, where we have a very methodological...

methodical approach to

Greenfielding, which ties back to housing starts and permits.

Speaker Change: and also being able to more effectively leverage our scale so that we can...

quite frankly, generate the profitable sales more quickly.

Speaker Change: Now, we do have the scale, right, with our supplier relationships, and we can

Speaker Change: They want to be partners with us as we go into new Greenfield locations, so I feel good about that.

Speaker Change: making sure we have the supply chain to support specialty and commodity sales.

Speaker Change: We obviously have pretty good brand recognition in the marketplace to hire new leaders and new salespeople.

Speaker Change: But, at the end of the day, it comes down to real estate and whether I can get enough indoor and outdoor storage and preferably rail.

Speaker Change: have it be rail served in order to be truly optimized. That said, depending on where we are, we don't necessarily need the rail, right, if we're in the, you know, in parts of the country where it's truck-in, truck-out from a cost-effectiveness standpoint. So, it's just…

Speaker Change: It just depends, I guess, but aspirationally I have pretty high ambitions.

Speaker Change: Yeah, makes sense. I will hop back in the queue. Thanks.

Speaker Change: Your next question is from the line of Kurt Younger with DA Davidson.

Great, thanks and good morning everyone.

Speaker Change: or strategy on the structural side might change at all if we were to see tariffs on Canada

Speaker Change: provide you any insight or takeaways in terms of how the market might be kind of adapting to that possibility?

You know, that, so that is the...

Speaker Change: That is one of the prevailing questions that many of us in this space are asking. So I would say any market volatility or uncertainty really causes people to...

sort of hold back on spending whether it's

Speaker Change: Whether it's commercial or consumer spending, we've seen recent consumer sentiment come out that it's troubling. Obviously, we saw recently that inflation is back up to 3%.

Speaker Change: And, you know, as I think about our year-over-year within the first seven weeks of the year numbers, our facilities were closed for more than 20.

Speaker Change: I'm sorry, more than 20 of our locations were closed anywhere between half a day and two days.

Speaker Change: and so you would expect volumes to be down. That said, more facilities were closed for longer last year.

Speaker Change: and you would expect volumes to be higher. They were higher on a year-over-year basis, but not as high as we would have liked.

Speaker Change: which would suggest that there could be some some hold back on

Speaker Change: on spending to some degree, but it's it's really hard to say, but

Speaker Change: You know, at the end of the day, I do think the uncertainty does play a role, but we are seeing things pick up as the weather has improved and feel pretty good about that. And then, of course, our strategy is very much focused.

Speaker Change: focused in a meaningful way to drive share gain, which over five consecutive quarters has been the case with the last three in particular being pretty exciting. As it relates to Canada and would our strategy change?

Speaker Change: I would say if I didn't have confidence and faith in our inventory management capabilities, which we do, we have a very, I think we have a best-in-class

Speaker Change: inventory management team combined with processes and collaboration across the entire organization that drives great turns return on working capital etc with respect to our structural business

Speaker Change: And so, as it relates to tariffs and commodity wood products, those prices will get passed through pretty quickly.

Speaker Change: what's hard you know and again as we think about how we buy and sell and the low day sale DSI that we have with respect to those products you know our ability to manage through the risk

Speaker Change: is probably, well, I believe, again, being as aspirational as I am, second to none. The hard part for us in this space, whether it's us or any of our competitors, quite frankly, is, you know, it's one thing for

Speaker Change: a tariff to go in, the fact that it could be pulled back 30 days later

is what is really hard to manage through.

Speaker Change: that we're taking advantage of to make sure that we're managing our risk accordingly. And so we'll do what we need to do. But from a strategy standpoint, we'll still continue to be in the space and we'll manage our buys accordingly.

in a manner that doesn't compromise our customer relationships.

Speaker Change: Where do you kind of stand in terms of building out the vendor commitments or list to get kind of a full product lineup That you would need to kind of hit those mature sales targets that you put out

Speaker Change: Yeah, so we actually have a product mix that we've landed on as a team.

Speaker Change: and the vendor relations are, relationships are there to support the product mix. It's just a matter of, you know, timing in terms of receiving the product and...

Speaker Change: You know, I think all the racking is in place, the trucks have been delivered, we've hired a couple of key sales people, we have our GM in place, so I am...

I feel great about

the foundation to grow, now we're just...

Speaker Change: managing through the laws of physics to get it done to get everything in place as quickly as possible to take advantage of of what we've already you know what we've already landed on just in terms of the supply chain.

Speaker Change: got it okay it'll just it'll just take some time but but like we said like I said earlier in my remarks I mean the plan is to get to the optimal mix as quickly as possible and and hit the market I mean we already have started delivering product and making sales

Speaker Change: It's happening, but it clearly has to be a lot higher than it currently is, but that's not surprising.

Right.

you know

Speaker Change: some some duty benefits that provided a little bit of a lift this last year, I guess, as we enter 2025, you talked about, you know, some of the cloudiness on the demand side, some of the uncertainty on pricing. I mean,

Speaker Change: bigger picture, what do you see as kind of the biggest downside risk to specialty margins if there are any? How are overall competitive activity levels in the current environment?

Speaker Change: Yeah, you know, I mean look, obviously as it relates to tariffs the most important thing is that we don't we don't lose margin.

Speaker Change: If and when tariffs are implemented, and so our ability to leverage our supply chain

our vendor relationships.

Speaker Change: Our focus on operational excellence and clearly pricing strategically, right, so that our most strategic and our best customers.

Speaker Change: get the best and right pricing and those who are more transactional or come to us when you know when they they need us at the last minute are priced accordingly right is is The most important thing we can do as a company to maintain those margins

So

Speaker Change: and obviously in terms of managing our return on working capital, in particular our return days as it relates to inventory.

Speaker Change: reducing, you know, downside inventory adjustments, which is tied to, quite frankly, making sure we're executing operationally at a level that that would make our customers proud. We'll continue to be a focus.

Speaker Change: So I, again, it's really just getting laser focus on the business and the things that we do best, whether it's operationally or from a procurement standpoint, and just being prepared to handle these potential swings in the market.

Speaker Change: that may happen as a result of newly implemented policies or demand drop-offs or uncertainty. But look, at the end of the day, we believe in our strategy.

and they're still...

Speaker Change: There's still a lot of housing happening, whether that be single-family or multi-family. And we've got more than 66 locations across the country and markets, some really great markets to continue serving to manage through some, you know, these headwinds that we're all being, that we're all dealing with.

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

Your next question is from Lina Reuben-Gardner with Benchmark Company.

Thank you, good morning, guys.

Um, good morning.

Speaker Change: The way that you were going to have to kind of get started in these markets was going to have to be

Speaker Change: led heavily by Structural but it sounds like you're already thinking you're going to be kind of above company average with specialty in year one if I heard That correctly has something

Speaker Change: Changed in that regard or you just had a lot of success in this Portland location Can you just walk us through that that strategic shift? sure

Speaker Change: Yeah, so we can always backstop any greenfield with our structural business fairly easily, right? And we have strong capabilities around it. At the same time,

Speaker Change: With each new location and each new market, as we have conversations with our specialty product suppliers on just our private label. So, for example, we've got.

Speaker Change: to form the foundation of any Greenfield location. But as we've had more and more conversations with our key suppliers on the specialty side, there continues to be a tremendous amount of support to help us grow our business while also growing their business.

Speaker Change: So I just feel better today than now that we've got one location in terms of how those conversations have gone and reaching the docking positions, you know, over the next couple years to drive, you know, the best mix possible.

Okay, great. And then this may be...

Speaker Change: Got it. This may be a little deep in the weeds, but just a question about kind of on the tariffs topic.

Speaker Change: The Southern Yellow Pine, I know, has always kind of struggled to gain adoption in some markets geographically to be used in new housing. For instance, are you seeing any acceleration in kind of shifting demand to that product just given that it's a...

Speaker Change: would source and wouldn't have to deal with the Canadian issues, or are there reasons that that will not happen?

Speaker Change: Well, not yet, but it is something that that we think about and that is absolutely, as we think about substitute products and whatnot, but let's not forget that there's only so much milk capacity in the U.S.

Speaker Change: right and so there's only so much it can absorb so it's it's it's hard to know quite frankly until

We actually see some of this coming through.

Speaker Change: That said, in fact, I was looking at, you know, I get emails every day on pricing, and we are seeing it go up. In fact, this morning, we got some commentary asking the question, you know, is it going up ahead of anticipated tariffs, for example?

Speaker Change: and so it's we're starting to see see it go up but again it's too hard it's too early to say if this is going to be sustainable.

Speaker Change: or if it's reflective of demand or just some normal market movement that you just see from time to time.

Understood. Sorry for cutting you off.

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

Speaker Change: share in that space and maybe, you know, how underpenetrated are you to multifamily?

Yeah, so first of all...

Speaker Change: Just to kind of go back a little bit, we set the strategy last year, and then we organized the team to support the strategy, and then we started allocating capital to, whether it be in the context of OpEx or CapEx, in order to drive the strategy, all of which has happened.

Speaker Change: over the last, you know, over 24. And that is what, and I strongly believe that is what is leading to this share gain that we have.

Speaker Change: So as we think about multifamily in particular, we have stood up or enhanced a centralized multifamily team.

with head count also being added in the field.

Speaker Change: to drive multifamily sales across multiple channels. And those channels include not only our sort of traditional customer base, whether it be the pro dealer or the lumber yard that might have a local multifamily project, but it's also happening...

Speaker Change: Blue Lynx's, you know, multifamily business was a relatively small piece of our business. And so we have very aggressive year-over-year growth targets, and they're panning out. And by the way, as we were...

Speaker Change: Before we did all this, before we decided to make this a core part of our strategy, we piloted multifamily efforts in certain regions and markets.

that

Speaker Change: you know, bore through pretty quickly. And so, as a result, we fine-tuned the machine, we've developed a payload, we have a leader in place.

Speaker Change: We have people who are tied to headquarters who drive it nationally from an operational excellence or commercial excellence standpoint. And then we've got people in the field who are working both locally and with the national team to drive sales.

It continues to bear fruit, so we will

Speaker Change: Oh, and one last thing, as I mentioned earlier around CapEx, so we have invested heavily

Speaker Change: vehicles in our fleet to drive multi-family sales as well. So, as you can imagine, with a multi-family sale, it usually requires job site delivery. So, we will pull through, you know, a sale in collaboration with a key customer that will then get delivered

Speaker Change: to a job site, a multifamily job site. We've invested CapEx in equipment.

Speaker Change: with Moffitts and Princetons and you know straight trucks etc that allow for that in addition to you know taking our normal tractor trailers to a multi-family job site which is again helped us grow share while also strengthening key customer relationships.

Great. Thanks for all the detail and good luck, guys.

Thanks.

Speaker Change: This concludes the Q&A portion of today's call. I will now hand the call back over to Tom Morabito for any closing remarks.

Tom Morabito: Thanks, Tameka. Thank you again for joining us today, and we look forward to speaking with you in May as we share our first quarter 2025 results.

Speaker Change: This concludes today's call. Thank you for joining. You may now disconnect your lines.

Charlie Pellett and Rose Reddy