Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 Third Quarter 2025 Earnings Call. Joining me on today's call is Shyam Reddy, our Chief Executive Officer; and Kelly Wall, our Chief Financial Officer and Treasurer. At the end of today's prepared remarks, we will take questions. Our third quarter news release and Form 10-Q were issued yesterday after the close of the market, along with our webcast presentation, and these items are available in the Investors section of our website, 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. 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 measures can be found in the appendix of our presentation. Now I'll turn it over to Shyam.

Thanks, Tom, and good morning, everyone. Although soft market conditions are pressuring our margins, we are pleased with our overall sales growth efforts, our acquisition of a high-end specialty products distributor and our Portland greenfield expansion. I am especially proud of the team's efforts to grow our EWP volumes by low double digit percentages and our outdoor living product category by low-single digits during a challenging quarter. On to our Q3 performance. Our third quarter results were highlighted by an increase in sales as we continued to positively execute on our product and channel strategies to grow through challenging market conditions. Net sales and volumes improved for specialty products as overall pricing for this business continued to improve, while our product and channel strategies drove volume gains. Structural products also saw year-over-year pricing improvements for the overall business, which were offset by slight volume declines this quarter. When you adjust for the duty-related matter that Kelly will discuss later, our specialty product gross margins were relatively good at 17% in a tougher-than-expected quarter. Importantly, we announced the exciting acquisition of Disdero Lumber Company, a specialty products distributor. Operating since 1953 and based just south of Portland, Oregon, Disdero is a value-added distributor focusing on premium and higher-margin specialty wood products. I will offer some additional details on this transaction in a moment. We're continuing to create demand for our products through builder pull-through programs and value-add services, along with dedicated efforts focused on national accounts and multifamily opportunities. This strengthens our value proposition for customers and suppliers, helps us deepen our market presence and supports our product and channel expansion strategies. We believe that our strategy, when coupled with our strong balance sheet and liquidity position, provides resilience while positioning us well for better-than-market long-term success. Market-driven price deflation for…

Thanks, Shyam, and good morning, everyone. Before I review the consolidated results for the third quarter, I'd like to offer a few more details on the Disdero acquisition. We purchased the company for $96 million. The acquisition was funded with cash on hand, and we expect it to be immediately accretive to adjusted EBITDA and adjusted diluted earnings per share. When adjusting for the net present value of expected tax benefits related to the acquisition of approximately $8 million, the net transaction value is approximately $88 million. Pro forma for the funding of the acquisition, our net leverage remains within our previously stated targeted range and our available liquidity remains strong at approximately $680 million between cash on hand and the unfunded revolving credit facility. For the last 12 months ended September, Disdero generated just over $100 million in net sales. Pro forma, after expected cost synergies and including the tax benefit, the purchase price was approximately 7x EBITDA. I would like to reiterate Shyam's thoughts that we are very excited about purchasing a specialty products distributor that fits squarely within the M&A component of our capital allocation strategy and believe it will significantly benefit both our customers and suppliers as we offer the Disdero products across the existing BlueLinx branch network and continue expanding in the Western part of the U.S. We are also excited about the talented and experienced group at Disdero that is joining the BlueLinx team. Turning now to our third quarter results. Overall, our specialty products business delivered solid volume growth in a challenging macro environment, while structural products volumes were lower year-over-year. Net sales were $749 million, up slightly year-over-year. Total gross profit was $108 million and gross margin was 14.4%, down from 16.8% in the prior period. Our results for specialty products reflects…

[Operator Instructions] Your first question comes from Greg Palm with Craig-Hallum Capital Group.

This is Danny Eggerichs on for Greg today. Maybe just digging into the Disdero acquisition a little bit more and how that came to be. Looking at the kind of acquisition multiple, the 7x post synergy, quite a bit higher than what your stock trades at. So maybe just rationalize that purchase price here versus buying back your own stock. How this going to be? What it brings to the table? And what makes you excited and willing to pay a bit more of a premium for Disdero?

Yes. So Danny, it's Kelly. Shyam will hit on what we see in terms of the excitement around Disdero going forward. But what I would point out is that this transaction is clearly in the specialty products space. The gross profit margins are in the high 20s. And then we see an opportunity not only on the cost synergy side of about $1 million, but we've got $1 million to $3 million of cost synergies that we –- or, excuse me, revenue synergies that we see over time as we roll their products out across certain of our branches. So the fact that this is a higher-margin business that fits well within our strategy to grow specialty products and then the upside potential that we see in this business going forward is what helped us ultimately be comfortable with the purchase price we paid.

Yes. Okay. And is that kind of consistent with some of your M&A strategy going forward? You're fine with paying those kind of multiples as long as it brings some of these characteristics to the table? Or how should we think about it moving forward?

Yes. So yes. I mean, if you recall, when we developed the M&A strategy, the idea was, okay, let's get more focused on what's going to support the overall strategy of the business in order to leverage -- expand upon our scale. So first and foremost, geographic expansion. Some deals that would support that would obviously be inherently -- they would inherently minimize disintermediation or consolidation-related risk or integration-related risk. Secondly, when you look at the specialty mix shift, we started going after primarily specialty products distributors, and Disdero fits right in that. Their specialty product offering is very much two-step distribution friendly, has high stickiness with customers and supports high-end builders and high-end repair and remodel projects through our customer base. What we -- what this multiple does not take into account is -- are the commercial synergies that we expect to generate over time. We took a very conservative approach on our expression of the pro forma multiple post expense synergies. But once we start taking full advantage of the BlueLinx network in order to expand the Disdero business, that in and of itself will help accelerate our mix shift while also making the purchase price we paid for this business a pretty fair deal. And to your question around -- look, as you shift the specialty mix, the multiple expansion associated with that over time makes sense for this business in the long run. So we will continue to look at specialty-oriented businesses given the long-term benefits we'll generate.

Okay. Got it. I appreciate that color. Maybe on SG&A. We saw some good operating leverage this quarter with OpEx taking a step down. So maybe how should we think about that moving forward? I know you mentioned there was some lower incentive comp, but there's still some ongoing expense management. And how should we think about it relative to the levels we saw in Q3?

Yes. I'd say that the levels in Q3 as a percentage of sales are lower than what we would expect going forward. We have continued investment in some of our initiatives around multifamily as well as our digital transformation efforts. With those and just kind of a continued flow-through of increased kind of merit costs and other things through the course of the year, we expect that SG&A as a percentage of sales will be slightly elevated year-over-year, year-end '25 versus year-end '24. And then we continue to take actions that are impacting the current quarter that will have some benefit into 2026.

The next question comes from Zack Pacheco with Loop Capital.

Maybe to start, just any more color you guys can provide on how specialty volumes trended throughout the quarter. Curious if you saw any deceleration in demand as the quarter progressed given single-family demand fundamentals continuing to soften during the back half of the year?

Yes. I think on the specialty volume side, we saw some -- a slight kind of increase led by our EWP product, engineered wood product. And so yes, we've seen that decelerate some in Q4, but we had a good quarter kind of year-over-year in Q3 on the volume side.

Yes. So just to highlight that a little bit more. So clearly, there's a seasonal decline as you come into the Q4 cycle because you're coming off season. But if you look at EWP broadly speaking and also outdoor living products, those were 2 specific areas where we were up year-over-year on volumes. And even though we were down on pricing year-over-year, it was still tempered at mid-single digits. So if you look at our double –- low-double digit volume growth in EWP and single digit volume growth on outdoor living products as the market contracted in Q3 as we look at housing starts through August, it's a pretty remarkable story. Like if you look at our structural volumes, for example, they actually track the housing start decline. Yet on the EWP front, we were -- we went against that trend, which I think shows the merit of the various strategies we've employed to grow our private label business and otherwise grow the channel with respect to some of these strategic focus areas with builder pull-through programs, multifamily, also national accounts as well.

Okay. That makes sense. Yes. And then maybe just more generally speaking, what you guys are seeing from the regional and independent builders, again, assuming they continue to trail the large publics, given they're more sensitive to higher rates. But I guess on that, just any internal initiatives or thoughts on how to increase share with the large publics.

Yes. I mean, look, we have -- one of the ways -- one of the reasons we know we're gaining share or winning on the EWP front, in particular, is we've developed programs with large publics as well as regional builders. And in head-to-head match-ups, we're preserving existing business and winning new programs. And then if you think about that in the context of our overall pricing only being down kind of mid-single digits, which we believe is better than what we've seen publicly and what we're hearing privately relative to our competitor set shows that we are doing -- we're continuing to progress our efforts with these builders. So although they are contracting to some degree, we are actually performing very competitively and picking up more of that overall wallet across multiple regions with some regions being higher than others. So for example, in the South, we've been fairly successful. In some regions like the Northeast, you have a much lower big builder or regional builder presence or more custom homebuilders. But again, given the economics up there, that market is actually doing well because custom homebuilders are still doing well.

The next question comes from Reuben Garner with Benchmark.

So if I'm understanding it correctly on a kind of a clean basis, the specialty gross margin was 17% in the third quarter. You're seeing a little bit higher than that to start the fourth quarter. What exactly is driving that uptick? I think -- and correct me if I'm wrong, but at least in recent history, the fourth quarter tends to have a lower gross margin profile in specialty than the third. Is there anything kind of unique that happened in the third quarter or to start the fourth that's driving that dynamic?

Yes. I think in the fourth -- or in the third quarter, we saw rebate and kind of deviation activity a bit lower than prior periods as well. And what we're seeing in Q4 is that at more normal levels going forward, right? So that uptick in Q4 is just as we are ending the year, right, and we're kind of recognizing those benefits to our cost of products on the rebate side, it's helping us get back in line with our -- the levels that we saw through the course of the year, we're trending towards.

Yes. And just from a strategic perspective, as we continue to try and differentiate ourselves from our competitors, we are really leaning into value-add services, whether they be much faster turns on EWP plans and takeoff services in order to drive sales of our own products and get greater stickiness with builders so we can pull our products to our customers and help generate business for them. Obviously, on the multifamily side, too, from some of the value-add services we're providing, that's helping us grow. And so ultimately, all things being equal, the goal for us is to demonstrate the value and then get paid for the value because in the long run, that's obviously better for our customers as they grow their businesses more profitably.

Okay. And then kind of a bigger picture question. There's definitely been some movement in both probably some of your customers and suppliers, whether it's consolidation or just different ownership. Have you seen or do you see any opportunities, whether it's picking up new brands on one side or working with customers differently as they kind of evolve their businesses. Just curious if you're seeing any impact yet or what the likelihood is that, that comes in the months ahead?

Yes, absolutely. I do think that some of the consolidation you're seeing in the marketplace, especially with respect to suppliers, could open up some new opportunities for us. At the same time with customers, I mean, we're the value-add services we're providing, let's take multifamily, for example, many of our smaller customers and medium-sized customers, they don't have multifamily capabilities, whereas we do. I mean we've made investments across the network on top of what we've done at corporate to really drive demand for our products through their business because we will not break channel, but we will -- we are determined to help our customers succeed. And to the extent we can leverage our -- the investments we make at scale to do that, the better off everybody else is. So I think that -- and by the way, that multifamily channel also allows us to take advantage of some of the disruption you're referring to, whether it be on the customer side from a consolidation perspective or on the supplier side from a brand perspective.

Okay. I'm going to sneak a couple more in, if I can. Your inventory is pretty consistent with a year ago in terms of what percentage of revenue it is. There's been some talk of destocking across various categories within building products as things kind of softened throughout the year. How are you guys thinking about it? Have you been kind of staying consistent? Is there any categories, whether it's outdoor living or commodity or any others where you're staying invested because you believe that there's a recovery around the quarter? Can you just talk about your thoughts there?

Yes. Generally speaking, we are trying to adapt and adjust to the market. I mean we have a very strong philosophy here of not taking positions, no matter the category. I mean we are -- we have very strong -- I mean, we're constantly working with the business to make sure we have optimal inventory levels. Obviously, heading into the summer, the spring/summer seasonal upside of normal building products and housing. I think we all built inventory to expecting more business than actually materialize, and that was -- I mean that's everybody, right? And so over the course of the summer heading into the fall, we have been very disciplined around our inventory management and taking into account what we had planned for. So we will not -- there is no build it and they will come. I mean I think we have a very smart strategic approach that's very disciplined around both specialty and structural inventory management.

Okay. Last one for me. Engineered Wood Products. have you seen the sequential price pressure there yet?

Yes. Well, it's stabilized, right? It's definitely stabilizing. And again, as we -- some of the things we're trying to do in order to demonstrate our value, right, is quicker turnaround times on EWP plan designs, for example. We're doing some other value-add services with key customers to help them for us to be a more powerful extension of their business. So there are a number of things we're doing to not only get on the front end of that stabilization of price, but also get paid on the margins for incremental value we provide that others don't. But yes, a long-winded way of saying, yes, it's stabilized, continue to see stabilization.

Great, thanks. Thank you and good luck through year-end. Congrats on the acquisition.

Thank you.

Thank you.

The next question comes from Adi Madan with D.A. Davidson.

Maybe first off with -- you kind of hit on this earlier, but what specifically drove down specialty gross margin sequentially on an adjusted basis? And specifically, what like go-forward impacts or have about this segment to end the year and into 2026?

Yes. We saw across primarily on the specialty side, just a net higher cost of products sold. The duty-related item we called out and we've also seen in terms of some of our rebate activity and a lower benefit in the quarter than prior periods. Again, we've addressed that and expect and are seeing that at a more normalized level in the first 4 weeks of the current quarter. And again, are experiencing margins in that 17% to 18% range currently and expect to achieve that in Q4 as well.

Okay. Got it. And maybe about the run rate SG&A on a go-forward basis? And are there any structural cost reductions underway that might have been baked into the 3Q numbers?

Yes. So no structural changes kind of baked into the Q3 numbers. We are taking some actions in Q4 that we expect to see benefits from that, some in Q4, but also mostly on an annualized basis next year. As a percentage of sales, as we go into 2026, I think for the full year, we expect some slight pressure kind of increasing that, but we're in the tune of kind of somewhere between 0 and 25 basis points.

Okay. Yes, that sounds good. And maybe lastly about capital allocation after the Disdero deal, are you more inclined towards share buybacks at these levels?

So we're going to continue to be opportunistic as we look at buying back shares. When we look at the acquisition of Disdero combined with last quarter's activity, that was about $100 million of capital that we put to work. So we'll be disciplined going forward. The level of activity may be lower here as we end this year and go into next year. But we continue to see the share repurchases as a key way for us to continue to return free cash flow back to our investors to the extent we're not putting it to work elsewhere.

Perfect. Sounds good. Good luck to end the year guys.

Thank you.

This concludes the question-and-answer session. I'll turn the call to Tom for closing remarks.

Thanks, Sarah. Thank you again for joining us today, and we look forward to speaking with you in late February as we share our fourth quarter and full year 2025 results.

This concludes today's conference call. Thank you for joining. You may now disconnect.