Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx’s Third Quarter 2020 Investor Relations Call. [Operator Instructions]Thank you. I would now like to hand the conference over to your speaker for today, Ms. Mary Moll, Investor Relations for BlueLinx.

Thank you, Jay, and good morning, everyone. We appreciate you joining us for the BlueLinx’s 2020 third quarter earnings conference call. The earnings release is posted in the Investors section of our website at www.bluelinxco.com. We will also be referring to a supplementary presentation as we go through the call. The presentation is available on our website as well. Joining us on the call today are Mitch Lewis, Chief Executive Officer; and Kelly Janzen, Chief Financial Officer. Before we get started, I’d like to remind you that this presentation includes forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those reflected in the statements. Those risks and uncertainties are described in our earnings release and discussed in our filings with the SEC. Today’s presentation also includes references to non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the presentation materials, the earnings release and in the Investors section of our website. With that, I’ll turn the call over to Mitch.

Thanks, Mary, and good morning. While we'll be spending time this morning discussing the business results for BlueLinx in the third quarter. I would first like to acknowledge the incredible challenges created by the pandemic across BlueLinx, our country and the world. Its impact has been felt daily by our associates and our extended BlueLinx’s family. And we know, we are very fortunate to have had only a very small number of team members and their families infected with the virus. BlueLinx will always put the safety and well-being of our associates as our top priority. And we remain deeply appreciative of the hundreds of thousands of first responders across our great nation who continue to put their lives at risk everyday to ensure the safety of ours. Before diving into the numbers, I think it's important that we step back and remind everyone of the actions we took beginning in the latter half of 2019, which positioned us to fully benefit from the favorable market conditions that were present during the third quarter. These efforts included investing in a centralized team to drive logistics and operational efficiency across our broad distribution network, targeted initiatives to grow market share, enhancing our partnerships with strategic suppliers, a renewed emphasis in driving growth or a national customers and focusing on key product categories that offer unique opportunities for growth. These investments paid significant dividends as the operating performance of the business improved considerably, enabling us to provide an even higher level of service to our customers. Additionally, we began to recover market share last year as we work with our customers and suppliers to add value to the entire supply chain. By the first quarter of 2020, the business had good momentum as a result of these measures. Then in mid-March, we…

Thank you, Mitch, and good morning everyone. I will now give a brief overview of the third quarter financial performance. As Mitch mentioned, the third quarter generated record results. We reported net sales of $871 million of $192 million when compared to the prior year period, along with a related improvement in gross margin, which was up 450 basis points year-over-year to 18.3%. We also reported adjusted EBITDA of $81 million and improvement of $62 million over last year. This improvement led to strong cash generation during the quarter that along with sustained working capital management provided cash flow from operating activities of $61 million and cash on hand in excess availability under our ABL of approximately $202 million as of the end of the quarter. Importantly, this improved liquidity allowed for the reduction of the term-loan to a principal balance of $44 million in October, eliminating the net leverage covenant. Third quarter net sales of Specialty products which includes products such as engineered wood, theater, molding, siding, metal products and insulation were $496 million an increase of $43 million year-over-year and accounted for 57% of net sales for the current period. These prices typically comprised between 60% and 65% of our total net sales, and are not very sensitive to what base commodity markets given their specialized nature. Many of our Structural products are however, would base commodities whose prices rose sharply throughout the third quarter, continuing the strong rebound that began at the end of the second quarter. Commodity indices per random links peaked at unprecedented levels in mid-September at $955 for the Framing Lumber Composite Index, and $788 for the Structural Panel Composite Index. We attribute these increases to an improved demand for housing, along with the extended supply chain supply constraints at key North American Mills…

Thank you. [Operator Instructions] We stand-by while we compile the Q&A roster. [Operator Instructions] We have a question coming from the line of Brett Hendrickson from Nokomis Capital. Your line is open.

Good afternoon. Can everybody hear me?

Yeah, we can hear you.

Great, thanks. Just wanted to ask, you know, what are your thoughts? I know you guys like to leave in the past, I think you thought you'd like to leave about -- I think it was about 50 million of excess availability on the credit line. What are your thoughts on making more voluntary payments on the term-loan, just because there's a significant interest arbitrage there with between 8% and 2.5%, so what are your thoughts around just using either cash flow from operations for Q4 or just some of that excess availability on the credit line to just get rid of the term-loan all together? I know it's a covenant light kind of termed out piece of debt now, but I mean, I don't think variable rates are going to go up in the next three years. So I think it would be pretty safe to just get rid of it now. I'm curious to hear your thoughts.

Yeah, so obviously, there's the arbitrage benefit of moving away from a higher interest on that term-loan by utilizing ABL. And of course, with the quarter that we've just had, you know, as Kelly indicated, we certainly have transformed the balance sheet of the business. So we'll watch it very closely as we move forward into the fourth quarter. And you know, if it makes sense, and we're comfortable to do that, we'll certainly move in that direction quickly.

Okay. And similar question, I would think now that you've got your trailing 12 months leverage looks a whole world of difference from what it used to look like. I would assume that in the future for sale leaseback if even choose to do them because maybe you don't need to do them anymore. But to the extent you choose to do them would come that all things equal moderately at least moderately better cap rate, because you're a better credit to the landlord is am I thinking about that, right?

Well, I'm not real sure where the current market is from a sale leaseback perspective. But, you know, as we've looked at historically, obviously, all of our capital decisions, I think we've proven it, excuse me over the last two years that we're really thoughtful about the capital structure, as we look, of course, to maximize long-term value for our shareholders. So we haven't announced today, you know, a strategy to continue to move down the sale leaseback path. But of course, we would look at anything and everything, as it makes sense for the company going forward.

Okay, and as I -- you guys, I think some shareholders, myself included were surprised at the size of the ATM filing given the in our minds, you don't really need it. So was that just made with the $50 million just made the match what was on the shelf or what was the methodology between behind putting $50 million, I want to be shocked if you came out with a $10 million or $15 million one that $50 million was a huge multiple of what the company would need, given how short the industry is of houses and how fast builders need to frame houses in the next 12 months?

Yeah. And I think -- Brett, I appreciate the question. And certainly appreciate the potential sensitivity about the ATM. And again, first and foremost, I want to be very clear, again that you know, our Management Team and our Board, we're completely aligned with creating long-term shareholder value. And you know, it's our fiduciary duty. And we obviously take that obligation very seriously. The intent of the ATM was all about capital structure flexibility, enables us to sell some shares into the market at the price the company determines in our sole discretion for basically three years until September 2023. And we certainly don't know what the capital markets, or what our stock price will look like over the next three years. So we thought this option made sense to specifically answer your question. We just set the amount and the duration to line up with the S3 that we originally filed about a year ago. But I want to be clear that we have no obligation and we will not commit to selling shares under this program. And of course, we'd always sell shares in the future. We made sense to the company from a capital perspective at that time taking into consideration all the relevant factors. You know, that's about that. I think, we made a pretty clear. We feel really great about the future BlueLinx and where we're going. And, you know, I think we've proven over the last two years that we're very thoughtful about our capital structure, and you know, consistent with what we're trying to do, which is maximize long-term value for shareholders. And I can assure you, Brett and everyone that that will clearly continue to be the case in the years ahead.

Okay, appreciate it Mitch. Thanks for your time.

Okay, thank you.

Thank you. [Operator Instructions] We have a question coming from the line of [Dickstein Shapiro from Castle Knights]. Your line is open.

How do you gauge the ability to increase margins going forward? What should we expect in ‘21 ‘22 on both -- in both segments.

So, to start, we would generally don't give out guidance as it relates to future margins, what I can talk about are a couple things. Let's start with Specialty. We have invested historically and continue to invest in resources to enhance the margins that we have from a pricing perspective with our Specialty business. So we actually set up a centralized team to help monitor, educate, and continue the momentum that we've shown from a Specialty perspective. Of course, there are, you know, mix issues that always arise. But our strategy is to continue to, you know, really emphasize Specialty products that, you know, are highly accretive to the company going forward and to keep our focus on, you know, the margin enhancement for the business from a pricing perspective. On the Structural side, we've come off what is, you know, historically, good margins for the business related to just an incredible run-up from a commodity pricing in the marketplace. I think we indicated that we see that coming down now. But we are closely monitoring it. So we would not -- certainly not expect the normal course now to be the kind of margins that we saw in the third quarter. However, you know, historically, as housing market improves, and you know, it would be typical with classic supply and demand, you would expect that to be able to take advantage of some of the margin opportunities there. And then I would say overall, as you look at the entire margin of all of our product categories, we feel like we have a lot of opportunity to operate the business more efficiently from a logistic standpoint, from administrative standpoint, and to continue to enhance the overall margins of the business as we move forward.

Got it. Thank you. [indiscernible] the consolidation for you and your competitors, including bolt-on and in new or existing markets?

I would answer a question in this webinar. The wholesale distribution market is, you know, in our view highly prominent. There are, you know, dozens and dozens of competitors, some that are regional, some that are Specialty distributors. And you know, we will always look at opportunities that makes sense for the company that we feel like are enhancing and accretive for the business. And so we'll certainly be looking at that. I would view my opinion is that that the market will yes, continue to consolidate and in the years ahead and really it's falling on a theme that happened from a builders perspective as they continue to garner market share from our customers perspective, I'm sure you're aware, for example, the large BFS BMC merger that was announced there's continuing consolidation there. I expected that, ultimately will continue to find its way in wholesale distribution as well.

Got it. And then in terms of what you're seeing today, in terms of, you know, sometimes people talk about seasonal slowdown. What are you seeing today in terms of demand?

Yeah, it's, you know, it's really interesting and good question. One of the things that we like to track because we think it's correlative, particularly to single-family housing serves as our Structural unit volume. It was really interesting if you look back in Q3, what we saw was as the price went up from a commodity perspective, we sequentially saw volume declines during the -- actually during the quarter. To make – it make sense for a couple reasons, right. One is there's some supply disruption which led to the incremental increases in pricing. And the other is, we feel like that the -- our customer base because of the price increase was squeezing their inventories and that there's been inventory squeeze-out of the supply chain. So as we roll back in October, we talked about the fact that we certainly are experiencing margins that are lower in the Structural products than we saw in the third quarter. We're also seeing volumes increase on a unit basis in October, for example, compared to August, September.

Excellent. Well, thank you very much for your time. Congratulations.

Thank you. Thank you very much.

Thank you. [Operator Instructions] Speakers, there are no more questions at this moment. You may continue.

Okay. Well, thank you, Jovan. And, of course, thank you for your continued interest in BlueLinx. And we look forward to discussing our fourth quarter results with you in the first quarter of next year. So thank you very much.

Thank you, speakers. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.