Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode, and today's call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host Investor Relations Officer, Tom Morabito. Please go ahead.

Thank you, operator, and welcome to the BlueLinx fourth quarter and full year 2023 earnings call. Joining me on today's call is Shyam Reddy, our President and Chief Executive Officer; and Andy Wamser, our Chief Financial Officer. At the end of today's prepared remarks we'll take questions. Our fourth quarter and full year news release and Form 10-K were issued yesterday after the close of the market along with our webcast presentation. And these items are available in the Investors section of our website bluelinxco.com. We encourage you to follow along with the detailed information on those slides during our webcast. Today's discussion contains forward-looking statements. Actual results may differ significantly from those forward-looking statements due to various risks and uncertainties, including the risks described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the closest GAAP 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. We are pleased with both our fourth quarter and full year of 2023 results, especially in a year when rising interest rates and macroeconomic uncertainty impacted demand in the housing and building product sector. Our margins remain strong in specialty products, which accounted for about 70% of our net sales for both the quarter and the full year and we continue to generate solid margins in our structural products business. During the quarter, we also demonstrated our commitment to returning capital to shareholders by repurchasing shares under our new $100 million share repurchase authorization. For the year, we returned $42 million to shareholders, which includes repurchases under our previous $100 million share repurchase authorization. Before I jump into the 2023 results, I want to share our vision and that's to become the most technologically advanced 2-step distributor of building products in the U.S. in the coming years. This will enable us to become the first option for suppliers to bring their products to market and the first option for home retail stores, one-step distributors, pro dealers and independent lumber yards to deliver the right products where and when they need them. And in so doing we'll be able to optimize our brand mix in all markets, reduce our cost to serve, manage our business more cost effectively, reduce the number of touch points to meet our customers and suppliers demands and to accelerate our ordering times. And that's just to name a few. In the meantime, we remain committed to our corporate growth strategy to get us there in 2024 and beyond. First, by focusing on our core business specialty sales growth in five key categories. Second, by pursuing opportunistic M&A, and third, by developing opportunistic greenfields, all of which will be supported by…

Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, we delivered solid fourth quarter results, highlighted by strong margins in both our specialty and structural product categories. Net sales were $713 million, down 16% year-over-year. Specialty products sales were down 18% from the prior year due to a combination of deflation and lower volumes. Structural product sales were down 12% also due to significant year-over-year declines in wood-based commodity prices and lower volumes. Total gross profit was $118 million and gross margin was 16.6%, down 120 basis points from the prior period. SG&A was $85 million down 8% from the prior year period due to a decrease in variable compensation and delivery expenses. Net loss was $18 million and diluted loss per share was $2.08. In previous filings, we've mentioned that we plan to terminate a legacy defined benefit pension plan. During December, we transferred all remaining financial responsibility for the plan to a highly rated insurance company under an annuity contract. We incurred a onetime charge of $31.4 million and made a final cash payment of $6.9 million. We are pleased to have this obligation behind us as it was a legacy pension plan, which provided no benefit for most of our active employees and was complex to manage. Adjusted net income was $26 million and adjusted diluted EPS was $2.94 per share. Tax expense for the fourth quarter was $10.1 million. Due to our net loss in the quarter as a result of our pension settlement, the effective tax rate was not a meaningful calculation. For the first quarter of 2024, we anticipate our tax rate to be in the 24% to 28% range. Adjusted EBITDA was $36 million or 5.1% of net sales, following our normal seasonal patterns. As…

[Operator Instructions] Our first question will come from the line of Greg Palm with Craig-Hallum Capital Group.

I wanted to maybe start with a little bit more color on kind of price volume. I'm not sure you gave a lot of sort of metrics and I was wondering if you can maybe quantify what the price headwind specifically was for full year ‘23. And I think it's still persisting in terms of that headwind in Q1. Is there a point at a time this year where you feel like that sort of normalizes or is it still sort of hard to know at this point?

It's Andy. I'll take the first stab at that. When we look at the pricing headwinds typically in specialty, I'd say it was in the -- for the year, it was in the order of magnitude of the mid-teens. It's higher in Q2, Q3 and then I'd say as high -- maybe a little bit higher than 10%, 12%, maybe in Q4. What we see in Q1 is that it's getting -- it's improving a little bit. And as I mentioned in my comments for the specialty pricing, in particular, it was about -- we're seeing about 10%, still decrease. As we move throughout the year, we would expect that to improve. And so we're not going to give exact guidance in terms of what the exact cadence is we go from Q1 to the end of the year. But by the end of the year, we think we should be lapping a lot of the specialty pricing.

And if I could shift gears a little bit and talk about this digital initiative and some of the investments behind that. Is the point of it or the hope that it improves internal operations, efficiencies, is there any way that you think that this maybe helps out the end customer as well and enables you to sort of maybe gain share? And then specifically on the investments, I think you said $5 million increase but you also talked about an SG&A increase as well. And I was curious if you were referring on a year-over-year basis or based on the levels that you saw specifically in Q4?

Let me take the first part of that question, and I'll turn it over to Andy to dive into the SG&A aspect. So first of all, the answer to your question is, yes, in the context of both reducing our operating costs while also improving the customer experience. Ultimately, the primary goal is to provide the most -- provide the best customer and supplier experience in the 2-step distribution space for building products. And the first phase of this, which we're embarking on in 2024, includes transportation, which will absolutely reduce our logistics costs as it relates to delivering to the end -- to the customer where and when they need the product. So it could be to the actual lumber yard, home center or it could actually be a multifamily or job site delivery, but in any event, which we do today, but in a more efficient and cost-effective manner. And secondly, we're moving forward on the customer -- the direct customer enhancement piece as well with the e-commerce platform. Our plan is to start a dedicated launch in the coming months with a pilot program with a few customers and a few branches. And once we've built that out and feel good about it, the idea would be to scale it across the entire enterprise. And as I said earlier, reduce the number of touch points between our customer and us, give them better visibility ultimately into inventory, have the ability to order for multiple locations from multiple branches and so on and so forth. So ultimately, the idea is to provide an outstanding or exceptional customer experience.

This is Andy. As it relates to SG&A, let me give you some color on that. So as we've thought about Q4, Q4 did have some onetime benefits in terms of actual true-ups related to like workers comp. We had some true-ups related to our healthcare burden rate. And so when I think about the SG&A run rate, it's more in line with what we saw in Q1 through Q3. But in addition to that, we will have about this $5 million in OpEx that I mentioned in my comments related to the technology investments. That being said, we are always very focused on SG&A and to the degree that we see the market deteriorate, we will act on the SG&A leverage. But as we think about the plan that we have for this year, I think those are the right assumptions in terms of -- for 2024 in terms of taking the Q1 through Q3 sort of run rate and then adding in the technology investments.

Your next question comes from the line of Jeffrey Stevenson with Loop Capital.

Congrats on a nice quarter. So I wanted to ask about daily sales volumes being down 10% over the first 7 weeks of the year due to the adverse weather in January. How large of a first quarter sales concentration as March from a historical perspective? And do you believe you can make up for the slow start of the year if weather cooperates here over the coming months or so?

So look, as the quarter progresses and we've seen it over the last few weeks that there is improvement that's flowing through the P&L. As we move into March and the season, we expect the seasonality -- the positive seasonality aspects to kick in and provide us with opportunities to improve on the challenging headwinds we faced in January. I can't give you specifics, obviously, from a number standpoint. But the trend has started and we expect things to continue to normalize as we head into the season.

Yes, maybe just a little additional color. What I would say is it will be difficult for us to make up some of that volume that was just due to the weather in January. As we mentioned that there was an improvement in structural still down a little bit year-over-year. The specialty, though, is in the last 3 weeks that has been, I'd say, more in line with the previous year. So I think difficult to make up and then structural still has a little bit to go in terms of making up some of that volume.

And just wondered if you could talk more about R&R demand trends right now and what you've been hearing from your suppliers and channel partners? Because large ticket R&R has been challenged due to the high cost of credit and lack of housing turnover. And I wonder if you're hearing any positive signs of potential inflection in demand as we move into 2024 here?

No. I would say that what we're hearing directly from our customers and our suppliers for that matter is consistent with what we're all hearing publicly on the R&R front.

Yes. I think if you look at just sort of consensus numbers in terms of R&R, it's generally going to be down mid-single digits when you sort of look at LIRA et cetera. So, I think that's the general theme right now. Hopefully, things improve as we go move throughout the year but that's the general view right now.

And one last one. You've had several partnership expansion announcements with leading suppliers in the last several months. And Shyam, I just wondered if we could discuss the opportunity for additional supplier partnership expansion over the mid-term and its potential impact on organic growth moving forward.

Sure. Yes. So basically, we've got a great group of strategic suppliers we're working with to expand our geographic reach, a number of conversations that yet have to be made public, where we're looking to expand their product offerings in new markets, some of which would be opportunities for them where they're not otherwise located or alternatively result in the displacement of someone else who might already be there, hence, why I can't get into too much detail. But the fact is I feel like we've got really, really good partnerships that are collaborative with our key suppliers that are allowing us to expand our geographic reach with them, which, again, gives us the ability to provide a scalable solution for all of our customers, including the national accounts that are located in multiple regions whether they be the one-step distributors or the home centers.

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

I know you guys have a little bit more exposure to the smaller builders. I was curious what you're hearing in recent weeks with a little bit of the rate repeat that we've gotten? What their outlook might be for this year versus maybe what we're hearing from the bigger builders this kind of earnings season?

Yes. I would say that their views are generally consistent with what we're hearing in the marketplace. I mean builder sentiment did tick up, then again, the weather hit really dramatically and fiercely in January, which caused housing starts to be a lot lower than expected. So it's a little hit or miss. I think, quite frankly, we'll get a much better read next week when we're at the International Builder Show, where we'll actually have an opportunity to truly see how people are feeling post inclement weather in January. But generally speaking, everyone, the smaller regional builders who are building more custom homes where folks may not be as rate sensitive, feel good, not as good as they have in the past. But at the same time, their sentiment is very much tempered in the near-term. But it is consistently viewed across the board, no matter who we talk to, that the second half will be better.

And then a clarification on the specialty pricing pressure that you're seeing. Is the vast majority or all of that in sort of the engineered wood products piece of it? Or are you seeing pricing pressure in some of the other products like diving, decking anywhere else did you participate?

I would say when we think with the specialty pricing deflation, it's really in -- predominantly in EWP and millwork, but we are seeing some pressure in industrial siding and outdoor materials as well. So it's -- but predominantly, it's EWP and millwork.

And then last one for me. The technology or digital transformation effort, how will you guys sort of track success here? And longer term, I know you mentioned a reference has been $5 million investment now. Over the coming few years, what is that number look like? And what kind of return metrics are you using to kind of gauge the benefits of the program?

So with respect to the logistics rated -- logistics-oriented improvements such as, for example, the TMS-related work we're doing now. It's very straightforward in terms of getting better pricing on our freight, making sure that we're able to identify those opportunities where you have route optimization as well. And so there are very specific metrics we have that will allow us to generate the savings over the next few years and reduce our cost to serve. So that's pretty straightforward. As it relates to e-commerce, obviously, that will be measured in the context of how much incremental volume we can pick up and greater share of wallet that we can grab from any given customer by making it easier to do business with us as opposed to anyone else. Ultimately, the idea is to get to the point where the value is all about the customer experience. And so the customer experience is top notch, then it makes it a lot easier for folks to do business with us and ultimately run more transactional volume through us. And that is the goal. And so we will have a number of measures around TLE growth, margin enhancement, mix shift and that's how we'll track it over time.

And then Reuben, just one point of clarification. When we talk about the technology investments at least for '24, there's $5 million in OpEx and then at least $5 million in CapEx. So the spend will be a little bit more than $10 million. And as we think about what the benefits related to the TMS or the transportation management system, we expect that to have a really strong IRR that would start to pay off, I would say, in the beginning of the '25 time frame -- '25, '26 actually.

One quick clarification. Any of your business transacted via e-commerce today? And are there targets on where that could be over a certain period of time?

No. We're not doing any e-commerce today. Everything is done. It's done via directly with our sales teams.

Our final question will come from the line of Kurt Yinger with D.A. Davidson.

Just wanted to follow up on the last e-commerce question, is that primarily kind of business to business, dealers, home center customers that you would envision ordering through that or is there actually a direct-to-consumer angle within that?

And by the way, just in response to the last question that Jeff asked let me give a point of clarification. We actually do via the e-commerce platforms of our home centers or national accounts through their special order and other programs, there are orders done on their end that get processed through their portals that get fulfilled by us. So there is some iteration of e-commerce that we participate in. But as it relates to BlueLinx itself, this would be our foray into developing e-commerce platform for any customer to order through us. So in that context, the idea would be it's business to business. We haven't thought about I mean, in our current plans, there aren't any plans for an end user to be able to order through us. And to the extent that does become part of the solution, those orders would still flow through our primary customers because we don't -- I mean, we care about our primary business customers. So to the extent, one of their customers has an opportunity to order it would be for the benefit of our primary customer. But right now, the e-commerce pilot we're exploring would be for our customers to order very efficiently through the platform and then it gets -- then the order gets fulfilled by the branch in that market.

Now I continue with your customers. And then you talked more about greenfields than we've heard in the past. And I guess I'm curious, what do you think are the most important factors to get right in assessing a greenfield location for that to be successful? And how should we think about, I guess, at least in 2024, the appetite to break ground on some of these facilities or maybe purchase the sites to kind of ramp that up?

So the appetite is there. It's an important part of our strategy. That said we're going to be very thoughtful and measured in our approach to make sure we're doing it the right way in the right market. As we think about the markets, there's a lot of gray space for us out West, right? So if you look at west of Denver, whether it's the Southwest, the West, there are a number of MSAs that we don't have a presence in. That said, we do service all 50 states either through long drives from certain facilities where the sale makes sense or alternatively through direct sales or reloads. So we do service all 50 states, but there are obviously more cost effective and efficient ways to do that in some of these MSAs. And as we think about the opportunity and why we might greenfield in one location over another, you just -- we're very focused on housing starts, single-family housing starts as well as what the repair and remodel activity looks like. And then we take a look at whether or not the market is 2-step distribution friendly and in particular with respect to the products we carry and then we make decisions based on that opportunity. And then at the same time, we have a very strong set of private label products, both EWP and millwork, for example, as well as which are complemented by an incredibly strong structural products business. So between the 2, we feel like we have the ability to ramp up a greenfield probably more so than others maybe. And at the same time, again, just being very thoughtful about where we start and how we progress over time.

And is that a situation where I guess, when you go to a new geography, even if you're servicing it maybe from a further location already, where you would need to displace a competitor with an existing vendor for the most part? Or given that you're already servicing it, is there not a whole lot of discussion that's required with your vendor partners in evaluating that type of expansion?

No, there would absolutely be a discussion because the way that it typically works, your vendor part -- our vendor partner relationships are tied to specific markets. And so most -- the markets we're looking at, if they're going to be 2-step distribution friendly and have strong housing starts, for instance, and most likely, in fact, in every market, there will be competitors there. The good thing is, unlike others, we actually have our own private label brands and a strong structural business that we can start with. And then with our existing suppliers have very strong partnerships, where we believe they would be supportive, if not out of the gate than over time. I've actually already had a few conversations with a couple who said they would be very excited about supporting greenfield opportunities. So as the opportunities further ripen, those conversations will become more serious. But even if they take time, I'm very excited about the fact that we can start those projects with our private label brands as well as our structural business.

And then Lastly, I mean M&A is also an important part of the strategy. Can you just talk a little bit about what you're seeing from a valuation perspective and how that stacks up against your appetite to perhaps be more aggressive buying back your stock at these levels? Yes, I'll leave it there.

So let me take the M&A part, and then I'll let Andy comment on the capital allocation. But as it relates to capital allocation at a high level, we clearly take it seriously and are disciplined in our approach with returning capital to shareholders being one of the core elements of that strategy. As it relates to M&A, we still believe the outlook is good, which is why it's part of our growth strategy and it's in a very efficient way of developing new markets. That said we are pursuing a roll-up strategy that rinse repeat given the dynamics of the 2-step distribution space. So our M&A March has historically been slow and will continue to be slow and steady and disciplined on the types of businesses we're targeting and ultimately acquiring and keeping an eye on the specialty product mix and geography as 2 of the primary drivers. Now with the 2023 numbers in, as you might expect, the bid-ask spreads are continuing to compress. So from a valuation standpoint, the multiple should be based on 2023 EBITDA which will I think bring a sense of conformity logic and rationale back to valuations. So again, it remains an important part of our strategy. We're starting to see opportunities be more realistic over time without -- again, without compromising our desire to be opportunistic and buy companies at a level that makes sense for our business.

And then, Kurt, as it relates to share repurchase. I don't think it's an either/or situation, I think, given where the balance sheet is, I think we have the opportunity to do both. We said that we'd be opportunistic on the new current plan that was the new $100 million plan for the additional $100 million that we did end in Q4. In total, we did about a little more than $12 million in total share repurchases in the fourth quarter, we have $91 million left on the current authorization and we're going to be opportunistic. But I don't think it's an either/or in terms of share repurchase or M&A.

With that, I'll hand the call back to Tom Morabito for any closing remarks.

Thanks, Regina. Thank you again for joining us today, and we look forward to speaking with you in May as we share our first quarter 2024 results.

And that concludes our call for today. Thank you all for joining and you may now disconnect.