BXC Q3 2026 earnings call transcript, November 4, 2026

Ladies and gentlemen, thank you for standing by, and welcome to the Blue Links Holdings 3rd Quarter 2026. 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 Moribido. Please go ahead.

Thank you, Operator, and welcome to the Blue Links third quarter 2020. 26 earnings call. Joining me on today's call is Sham 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 10Q were issued yesterday after the close of the market. Along with our webcast presentation, and these items are available in the Investor section of our website. We encourage you to follow along with the detailed information on the 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 content. Thanks for investors evaluating our business. Reconciliations to the Closest Gap Financial Measure can be found in the appendix of our presentation. Now I'll turn it over to Shannon. Thanks, Tom. Good morning, everyone.

Our third quarter results demonstrate our continued ability to execute successfully in a challenging market with strategic volume growth and margin strength top priorities. Despite ongoing pressure from elevated interest rates, affordability concerns. Inflation and cautious customer spending, we once again generated volume growth in key areas of the business while effectively managing the company through waves of escalating costs. During the quarter, net sales were up 8.5% year-over-year, driven by continued momentum in our strategic customer channels, contributions from Destero, and the ongoing expansion of our supplier relationships. We also benefited from favorable pricing and solid volumes in structural products. Specialty gross margin was 18.7% and structural gross margin was 10.7%, both of which reflect the strength of our customer value proposition and effective inventory management. The specialty gross margin includes the impacts of an import duty item and an inventory provision tied to a strategic vendor. Realignment outdoor living products, both of which Kelly will discuss in a moment. Our specialty product strategy remains a key element of our growth engine representing approximately 70% of net sales. And 80% of gross profit during the quarter. Our channel strategy continues to serve as a powerful commercial engine for our supplier partners. The combination of our multifamily focus, builder pull-through programs.

And national accounts business is helping us drive branded product adoption across multiple end markets to create value through the distribution chain for all customers. These initiatives are helping us identify opportunities earlier. In the project lifecycle, convert additional business to strategic brands and deepen customer relationships. In turn, they are strengthening our position as a preferred growth partner for suppliers seeking to drive. Demand, expand their reach, and accelerate product adoption across our entire customer base. The value of our model is being recognized by manufacturers looking for innovative and disruptive distribution partners capable of creating demand and supporting growth across multiple geographies and customer segments. Our differentiated channel focus, scale, broad geographic footprint, local market expertise, and value-add services allow us to provide a level of commercialization support that few distributors can match. We continue to build on that advantage. through expanded supplier partnerships, additional product introductions, and broader geographic coverage of key brands. Recent momentum with strategic suppliers has accelerated, reflecting the success of these efforts and further validating our commercial strategy. Examples include the addition of eight locations to our RDI railing distribution network, bringing the total footprint to 21 locations, broadening our partnership with Westlake.

Royal building products to now distribute their clear PVC trim products in 27 locations, as well as to expand the availability of their true exterior siding and trim products from 12 to. 17 locations. Expanding our relationship with LP to offer their smart side trim and siding products in 20 attractive locations. Expanding our relationship with Fiberon to include. Decking in 34 locations and railing in 15 locations. Our rollout at TREX products is on track and proceeding as planned. The 11 location TREX footprint touching three of our five. Regions has inventory, and each one is delivering products to its customers. All of these examples clearly demonstrate our commitment to focusing on our higher margin specialty products business. In a manner that's strategic, not just expansion of specialty products for the sake of expansion, but rather growing and deepening key vendor relationships in ways that fuel our channel growth. Strategy, capitalizing on branded expansion opportunities and outdoor living, siding and trim products, all of which are some of the most attractive categories in residential construction and repair. This model work, touching two-step distribution, densifies the specialty product foundation to create long-term, durable relationships with our customers. Operationally, we remain highly disciplined. Our teams continue. To actively manage inventory levels, respond quickly to changing market conditions, and maintain a strong focus on working capital efficiency, no matter the market backdrop. These capabilities have contributed to our performance.

Through the trough of the cycle, while positioning us well for above market growth as conditions improve. We are also advancing our AI and digital transformation initiatives. With our latest round of investments focused on commercial growth insights. Customer self-service and digital engagement, streamlined quoting and ordering, and inventory optimization. These efforts are intended to drive profitable sales growth and stronger returns on working capital. Enhance decision-making and strengthen our ability to support customers and suppliers more effectively than the competition. Finally, our balance sheet remains strong. We ended the quarter with $689 million. of available liquidity, providing us with continued flexibility to invest in the business, pursue strategic growth opportunities, and continue allocating capital in a disciplined manner. While market conditions remain uncertain, our strategic priorities have not changed, nor will they. We remain focused on growing specialty products, expanding supplier relationships in terms of geographic scope and SKUs, increase penetration in key customer channels, and growing our multifamily sales, all while investing in tech-enabled solutions and executing with efficiency and discipline in mind. Now let me provide a few additional highlights from our third quarter performance. We generated net sales of $813 million and adjusted EBITDA of $32 million for a 3.9% adjusted EBITDA margin.

a significant improvement on a year-over-year basis. Destero, which we acquired in Q4 2025, contributed over $25 million in net sales and $2.5 million in adjusted EBITDA. Adjusted net income was $5.5 million, or 68 cents per diluted share. Our results continue to demonstrate the benefits of our strategic initiatives that we've discussed throughout the year. which are delivering growth against another quarter of housing start declines in soft repair and remodel activity. Specifically, multi-family volumes increased low double digits, national accounts volumes increased slightly, and our builder pull-through programs supported growth across several strategic product categories. We're especially proud of our solid gross margin and EBITDA margin performance despite cost inflation, freight challenge. challenges and the competitive pricing environment. Our teams did so by managing inventory effectively, maintaining pricing discipline, providing differentiated value-add services, better leveraging our new transportation management system and successfully navigating ongoing cost pressures. For example, diesel fuel costs and flatbed freight rates are up 64% and 44% on a year-over-year basis, respectively. We've also dealt with approximately 80 cost increases from suppliers through Q3-2026 compared to around 30 through Q3-2026. We've done our best to recover as much of these cost increases through disciplined pricing and fuel surcharges. With the challenging market as a backdrop, our scale, geographic reach, and broad customer base

provide us with strategic areas of diversification that enable us to participate in areas of relative strength while maintaining a disciplined approach to managing the business efficiently. Despite another successful quarter of growing volumes, in key areas of focus, we believe that maintaining that momentum at the same rate will remain challenging. Housing starts have declined for two consecutive quarters, with Q3 showing a meaningful acceleration of declining housing starts since Q2. We also believe fuel costs and freight rates will remain high. That combined with the lowest builder sentiment since 2012, a 14-year low, sovereign high inflation and housing affordability issues portend a challenging backdrop for the foreseeable future. Regardless, we are convinced that our ability to outperform and outcompete will remain strong because we are focused on our profitable sales growth strategy and controlling what we can to drive efficiency. We are also investing selectively in the business and maintaining the financial flexibility necessary to. to pursue future opportunities that accelerate our growth objectives. To wrap up, I'd like to thank all of our associates for their ongoing dedication to our customers, suppliers, one another, and the communities we serve. Now I'll turn it over to Kelly, who will provide.

additional details on our financial results and our capital structure. Thanks, Sham, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, both specialty products and structural products delivered solid sales growth and gross margins in what continues to be a challenging new home construction and repair and remodel market. Net sales for the third quarter of 2026 were $813 million, up 8.5% year-over-year. Total gross profit was $131 million and gross margin was 16.1%, up from 14.4% in the prior year period. As Sham mentioned, two unusual items impacted both Consolidated Gross Margin... and specially gross margins during the quarter. First, we recognized a $2.2 million benefit related to expense recognized in prior periods for import duty items. Second, we... We also reported a one-time inventory provision of $2.9 million resulting from a strategic brand and vendor change within one of our key product lines. Excluding the impact of these items, gross margin was 16.2% in the quarter versus... ...14.7% last year. SG&A was $106 million, up $17 million from last year's third quarter. This increase was mainly due to the acquisition of the STERO in Q4 last year. ...higher fuel and third-party freight expenses, as well as higher employee compensation-related expenses. Given the challenging demand environment and continued pressure on operating costs consistent with prior quarters, we remain...

...focused on disciplined expense management and identifying additional opportunities to improve efficiency. Net loss for the quarter was $600,000, or $0.07 per basic and diluted share. Adjusted net income... ...was $5.5 million for $0.68 per diluted share, up approximately 50%. Our effective income tax rate for the quarter was not meaningful, largely given the impact of non-deductible items. Adjusted EBITDA was $31.7 million, up 42% from the third quarter of 2025 due to increased sales, including Destero, improved gross margins in both specialty and structural products. Continued disciplined expense management and the benefit of the duty-related items. Turning now to the third quarter results for specialty products. Net sales for specialty products were $550 million in the third quarter, up nearly 5% year-over-year. This increase was driven by the stare of sales and increased pricing in nearly all product types, partially offset by lower volumes. Gross profit from specialty product sales was $103 million, up 18%. Year-over-year. Specialty gross margin was 18.7%, up from last year's 16.6%. Adjusted for duty-related items and the inventory-related item I mentioned before, gross margin for specialty products. Increased to 18.8% from 17% last year. In the current fourth quarter, we expect specialty product gross margin to be in the range of 17.5% to 18.5%. The daily sales volumes slightly lower than the third quarter of 2026 and the fourth quarter of 2025.

Now moving on to structural products. Structural products had another very strong quarter. Net sales were $263 million for the... ...the third quarter, up nearly 18% compared to the prior year period. This increase was primarily due to higher pricing and volumes for both lumber and panels when compared to last year. Gross profit for structural... ...products was $28 million, an increase of 36% year-over-year, and structural gross margin was 10.7%, up from 9.3% in the same period last year. We expect Q4 structural product gross margin to be in the range... ...of 9% to 10%, with daily volumes to be slightly lower than the third quarter of 2026 and the fourth quarter of 2025. Now, turning to our balance sheet, our liquidity continues to be very strong. At the end of the quarter, cash and cash equivalents were $350 million, $32 million higher than Q2-2026. When considering our cash on hand and undrawn revolver capacity of $350 million, $39 million, available liquidity was approximately $689 million at the end of the quarter. Total debt, excluding our real property financing leases, was $371 million in net. debt was $21 million. Our net leverage ratio was 0.2 times trailing four-quarter adjusted EBITDA, and we have no material outstanding debt maturities until 2029. Additionally, given the strength of our balance sheet and continued strong liquidity, we remain well positioned to support our strategic initiatives. These strategic initiatives include continued growth with our large

national customers and in the multi-family channel. with a focus on benefiting our traditional local customers. Product demand pull-through efforts to drive strategic sales that benefit our customers with respect to large national and regional builders. Continued specialty product expansion with key services. Flyers including the recent announcements that Shannon highlighted earlier. Our business and digital transformation efforts and other organic and inorganic growth initiatives. Now moving on to working capital and free cash flow. During the third quarter we. Had operating cash flow of $45 million and free cash flow of $40 million. Both strong results but down from the third quarter of 2025 primarily due to net changes in inventory and timing of. Payments for accounts payable. Turning now to capital allocation. During the quarter, we incurred $5 million of CapEx primarily related to investments in our fleet, facility and technology improvements. For the remainder of 2026, our capital expenditures will include facility maintenance and improvements, as well as investments that support our channel and product strategies and our business and digital transformation initiatives. During the third quarter, we did not repurchase any common share. And at quarter end, we continue to have a total of $54 million remaining under our share repurchase authorizations. Our guiding principles for capital allocation remain consistent with prior quarters.

We intend to maintain a strong balance sheet, which enables us to... ...invest in our business through economic cycles, expand our geographic footprint, strategic suppliers, pursue a disciplined inorganic growth strategy as demonstrated by our acquisition of the Stero, and opportunistically return... capital to shareholders through shared repurchases. We also expect to maintain a long-term net leverage ratio of two times or less. Overall, we are pleased with our strong third quarter results, especially given the challenging market. We were particularly pleased to see an increase in net sales, gross margins, and adjusted EBITDA year-over-year. That said, we remain measured in our expectations for the full quarter of 2026.

2027, as housing conditions are expected to remain soft. Operator, we will now take questions.

We will now begin the question and answer session. If you would like to ask a question, please press star. 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

Please stand by while we compile the Q&A roster. Your first question comes from the line of Ruben Garner with StoneX. Your line is open. Please go ahead.

Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Your line is open. Please go ahead.

Yeah, thanks, Jeff. Appreciate the question. Yeah, obviously, the strength of these brands provide us with significant share gain opportunities with our traditional customer base across the country, while also providing us with enhanced opportunities. To accelerate our multifamily and national accounts growth, which are two primary elements of the channel growth strategy. And when you think about the builder pull through side of our channel growth strategy, we have a much stronger. To drive bundled product offerings, which when paired with our business excellence initiatives, I think put us in a position to, quite frankly, outperform at the local market level. And drive share gains. So we're really excited about the developments that we have. Another point I'd like to make, too, is in many of these cases, we got expansion in top-tier markets where you're seeing significant demographic growth trends. For example, in Texas and the Southeast Sunbelt region. Also, in strong repair and remodel markets like the Northeast, where you don't necessarily have big track builders, the outdoor living assortment that we have is very friendly to those markets, and in particular with those customers that have long-term brand loyalty, for example. with respect to Fibron and RDI. So we're really pleased with how our long-term efforts have led to this evolution of brand assortment.

No, that's great. Thank you. I wanted to shift to your fourth quarter average daily sales expectations, which is expected to be down slightly, both on a year-over-year and sequential basis. Is the slowdown largely in line with normal seasonality, or are you baking in sequential softening and residential demand fundamentals as well? Yeah, so clearly seasonality. Is part of it. But honestly, as I think through the seasonality and cyclicality of this business, the best way to overcome the slowdown, whether it's tied to the market conditions or even on the seasonality front, is to continue leveraging. Channel strategy, i.e. multifamily, the national accounts and builder pull through side of the coin to drive share gains and to minimize any any market related impacts that are kind of affecting all of us in an equal opportunity way. The in this area of the distribution chain, but also to take advantage of our business excellence initiatives to outperform at the local level to drive those share gains in a profitable way as well. And if you look. Back and see how we have managed our working capital, how we're executing on our pricing and cost pass through efforts in order to ensure that we're getting paid appropriately for the value add services and investments we're making. I think we're. Well positioned to to manage to manage through those kind of the general market conditions, whether it's seasonality or or big picture, you know, market declines on housing starts and multifamily.

Softness. Got it. Got it. That's really helpful. And then I guess lastly, you know, if we, you know, see another year of, you know, single family start declines and. Softness and underlying R&R. Could you walk me through which product categories in both your specialty and structural product segments would be kind of most at risk?

You know, so when you think about the specialty side of the business and you look at, you know, public reporting and even as we think about our conversations with suppliers, they're obviously facing significant inflationary costs, inflationary impacts, which they are definitely passing down to their two-step distribution partners. You know, as I mentioned, we've had over 80 price increases this year, which we have successfully passed through into the marketplace, which has been accepted, right? So from that perspective, you know, those pass-throughs are pretty much happening. So to the extent there's any risk, it would honestly be on the demand destruction side. And for us, we're leveraging our value-add services and the investments we're making to, quite frankly, mitigate against that risk. And as we've shown over the course of the year, we've been actually driving year-over-year volume growth. And now on the... On the structural side, the fact is we've had a good year on a year-over-year basis, although pricing has come down in the back in the last few months and heading through. Throughout Q3 heading into Q4, but as you well know, in the commodity space, manufacturers and mills, they do curtailments, they take out capacity. Which we've seen publicly announced over the last few weeks. So there generally is a right-sizing relative to market demand that calibrates pricing fairly quickly.

I guess the upshot is with specialty, the manufacturers and we, given the business excellence and investments we've made, are doing a really good job of making sure that pricing is stabilized. For certain aspects, you know, earlier in the year we talked about how EWP was very competitive given some foreign engineer wood products coming into the market, but given inflation on the fuel front, marine freight rates, I think. That's quickly ending. If not, you know, will be ending in the not-too-distant future. But for the most part, I don't see as much of a risk there. And then on the commodity, it's just managed through the general means by which, you know, mill capacity is managed. And of course, and I'll end on this point, we've always done, you know, we've got strategic supplier relationships. We do a pretty good job managing between consignment and cash positions in order to navigate. And to navigate market conditions so that we drive profitable sales growth.

Perfect. Thanks, Sean.

Your next question comes from the line of Ruben Garner.

Talk about is growing the business up and to the right, which means driving specialty mix shift. So we're growing both structural and specialty products, but ideally you want to grow your specialty products at a faster rate than you're growing structural. product sales. However, the channel strategy is also driving how we think about our go to market strategy. Understood. Thanks for the detail guys and good luck for the remainder of the year. Thank you. Thanks. As a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Kurt Jinger with DA Davidson. Your line is open. Please go ahead.

for the beginning of the year. And then Kelly, Kelly can spend more time talking about the working capital build and how we're thinking about inventory management. Yeah. And Kurt there, I mean, obviously we're, we're bringing the inventory in, you know, as we speak. And so our, our inventory levels will be elevated a bit before those sales start to come in really kind of early, early next year. So just to put the numbers around it, you know, I'd expect this inventory investment on the front end to be kind of an additional. 15 to $20 million net across all the brands that we're talking about here. And then, yeah, the timing of the sales. We'll see some this year, not much for the reasons that you mentioned. And then we'll see it ramped in the Q1 and Q2 next year. Got it. And just on the sales side, just maybe so we can understand better, like, is that, hey, some of these guys are going to be new customers. You got to establish new programs and seasonality, or is there a component? Of kind of that sales ramp where, you know, you just have a lot of different distribution partners in inventory that you're competing against, you know, as these transitions occur. Yeah, the transition is definitely very commercial in the sense of you've got to, you know, big picture, you've got to convert customers who are buying that product from. Other distributors, and we want to convert them over to us. Then you're also facing head-to-head competition with respect to competing brands. Like in the case of Trex, you're obviously competing against the decorator.

And you're competing against the timber tech brands and so on. And so it's a multifaceted conversion approach that requires head-to-head work at the ground level. In collaboration with your supplier partners. And so that's happening in all the markets that we have. And then, you know, include whether it be the Northeast, the Southeast Sunbelt region. That's why it takes time in order for for all this to shake out and not just for us, but for everybody. And that's where I feel like our business excellence initiatives, for example, the value add services on top of the channel strategy and the focus we have put us in a better position. And to compete at the at the ground level. Yeah. And I would add that we are in the middle of our program season with our largest largest accounts. And we're from a program perspective. These are brands that we're talking about this year. Right. That we didn't have last year. So that's that factors into the equation as well as we as we map out what those programs look like with some of our existing and new customers. OK. OK. That's helpful. And then. Maybe kind of irrespective of the brand transition. I mean, what are you kind of seeing and hearing from the dealers? I mean, it seems like an environment where, you know, they might look to tighten. Inventory days on hand, go kind of risk off mode, which, you know, is probably good for two-step distribution. But I'm just curious your sense on, you know, whether we're going to see inventory levels.

Continue to decline, whether that's a little bit different than maybe what you would have thought a couple months ago. And I think the market is very two-step distribution friendly. You know, first of all, we're going to manage our inventory. levels tightly like we always do. We have a very good approach that involves, you know, Kelly and folks at the highest level here in Atlanta with working collaboratively. with our branches to ensure that we're managing our working capital investments very strategically and we're matching market demand, which, quite frankly, as we think about our customers, they're in a position where the market is, you know, generally. tight and soft where they want to buy, you know, less more often. And when you think about products that have longer turn days, in particular, things like outdoor living products and siding and so on, that actually works well. You know, works in our favor, especially when you factor in the value-add services that go on top of those products, whether it be building a complex order, you know, piece picking, putting together job packs, etc. So I think we're heading into a year where we become even more valuable, and then you take our channel strategy and our business excellence initiatives to basically put us in a position to outcompete. At the local market level. But I do think the key is going to be taking advantage of how well we manage our inventory and then supporting our customers in an environment where they don't want to build big inventory.

positions and where they would prefer to buy less more often. Okay, that makes sense. And then just lastly on on specialty kind of organic volume. In the quarter, I know you touched on some of the strategic kind of growth drivers, but from from a product category perspective, can you just walk through kind of the the puts and takes and maybe areas of pressure and Q3 on the specialty side?

Yeah, Kirk, so in Q3, right, on the specialty side, we had a really strong pricing execution, right, you know, that's pushing through kind of price increases not only related to what we saw from our vendors, but also just, you know, kind of covering our general and overall increase in operating costs, you know. A quarter year over year, especially really across all the categories, volumes were down, but again, we more than made up for that on the price side, and I'd say that, you know, the, you know, in terms of which, you know, minor categories, right, millwork was the. one that was down kind of the most, and then all the other products were down, you know, kind of roughly low single digit percentages.

All right. Appreciate the color, guys. Thank you. You're welcome. There are no further questions at this time. I will now turn the call back to Tom Morabito for closing remarks. Thanks, Warren. 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 2026 results. This concludes today's call. Thank you for attending. You may now disconnect.