BlueLinx Holdings Inc. (BXC) Earnings Call Transcript & Summary

Greetings. Welcome to BlueLinx's acquisition of Vandermeer Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll turn the conference over to Ryan Taylor, Vice President of Investor Relations and Treasury. Ryan, you may now begin.

Thanks, operator. And good morning, everyone. Thank you for joining us today to hear more about our acquisition of Vandermeer Forest Products. With me on the call are Dwight Gibson, President and Chief Executive Officer; and Kelly Janzen, our Chief Financial Officer. The call is also being webcast. Access to the webcast and supporting materials are available in the Investor Relations section of our website, bluelinxco.com. We encourage you to follow along with the slides during our call. Today's discussion contains forward-looking statements. Actual results may differ from those forward-looking statements due to various risk factors and uncertainties, including the risks described in our most recent SEC filings. At the conclusion of our prepared remarks, we will open the line for questions. Given the timing of this call, I also want to establish that our scope for today will be solely focused on the acquisition announcement. We will not provide any disclosure or updates regarding third quarter results or any other topic unrelated to this acquisition. With that, I'll turn the call over to Dwight.

Thanks, Ryan. And good morning, everyone. We appreciate you joining us for this exciting news. I want to first welcome all Vandermeer Forest Products employees to the BlueLinx team. We respect the work you've done to build and run a high-quality business, and we are truly excited for you to join our team. I also want to thank our BlueLinx teammates, who are involved in the due diligence and integration planning related to the acquisition of Vandermeer. I'll begin by saying that the acquisition is well aligned to our strategy and our disciplined capital allocation framework. This acquisition extends our reach into the Northwest United States, Hawaii and Alaska, provides a platform for specialty products growth and strengthens our relationships with key strategic suppliers. We acquired the business for $67 million, including $3.6 million for a 10-acre site in Spokane, Washington. We purchased the business for $63.4 million or approximately 3.3x trailing 12-month adjusted EBITDA as of September. The deal was entirely funded with cash on hand. After funding the acquisition, we are still in a very strong financial position with net leverage below 1x and ample liquidity. As I mentioned, this acquisition is consistent with our stated specialty-focused growth strategy. Over the past 3 years, Vandermeer's specialty product sales have averaged 66% of total sales. They have a strong siding offering and a growing engineered wood business. We believe there are opportunities to pull-through sales of our key specialty products into Vandermeer's markets, including our private label brands, on-center for engineered wood and [ prime links ] for millwork. This acquisition is very compelling from a geographic perspective. We're adding 3 distribution branches in the state of Washington, which are conveniently located near Seattle and Portland, 2 of the largest and the fastest-growing metropolitan areas in the United States. This enhances our ability to gain allocation from strategic suppliers and grow key specialty product categories with our national accounts. Vandermeer has high-quality suppliers, including strong brands such as Louisiana Pacific, [ Roseburg ] and West Fraser. And they serve over 250 customers, including some of our key national accounts, such as [ Builders FirstSource ], Home Depot, LMC and Do It Best. Taking a look at our combined footprint, you can see the acquisition of Vandermeer Forest products gives us coast-to-coast coverage throughout the United States, and we now serve all 50 states. Our due diligence was comprehensive and thorough. Our integration team is being led by a 30-year veteran in the building products industry. And we have a clear detailed plan for seamless integration. In summary, this acquisition checks all the boxes in terms of our strategic criteria. We are excited about leveraging this acquisition as a platform for growth in the most attractive MSAs in the West. That concludes my prepared remarks. At this time, we'll be happy to take your questions.

[Operator Instructions] Our first question is coming from the line of Greg Palm with Craig-Hallum.

Yes. Congrats on the announcement here. Can you maybe expand a little bit on the background of the transaction just from a standpoint, was this something that process driven? Was this something that was more coming from you? Maybe just a little bit of background would be helpful to start.

Yes, Greg, the team did a really, really great job on this. We've been talking about building out our corporate development capability and being really thoughtful around what opportunities we would pursue that would accelerate and complement our strategy, and this is the result of exactly doing that. So identifying the regions of the country that we were excited about, we want to increase our presence in and going through a pretty thoughtful and disciplined process of identifying potential targets and beginning conversations. And that's what happened here, and we're really excited about the outcome.

Okay. Good. I want to dig into the potential revenue synergies here because it sounds pretty meaningful, and you've got a slide strategic rationale. I mean, I think the geographic expansion is pretty clear cut. But can you just maybe go into a little bit more detail on -- just from a synergy potential from a gaining exposure to additional suppliers? I don't know how much customer overlap there is. You talked about some, but there's probably some customers that they're working with that you aren't and frankly, a lot that you're working with that they aren't. And so I'm guessing some cross-sell potential as well, but maybe just highlight a few that you think are more important.

Yes. I think you've summed it up quite well. We're excited about the opportunity now to have a growth platform in a part of the country that we are very keen on. And Vandermeer has some great suppliers that are aligned with our specialty-focused strategy, obviously, in the siding side and elsewhere. And we think this creates more opportunity for us to lean into that market and drive growth. And they also are -- it's a market that is well suited for some of the products that we have that they don't currently carry, and we look for opportunities to bring that into their portfolio and offer that more broadly in their region. And there is a good overlap on the customer side, which is also exciting in terms of us being able to do more for our customers that we see meaningful growth with and additional customers that potentially we could bring more capability to. So we're really confident that the growth potential here with the combination is going to be meaningful. And we have a really capable team that's well versed in the market, understand the supply side, the customer side that's really focused on driving the integration here, and we're excited about the potential.

What do you think that Vandermeer gains from being part of a bigger organization like BlueLinx versus doing this as a stand-alone independent?

Yes. It's just all the things that come with scale, right? So obviously, from a supply perspective, they now have a part of a broader, bigger organization and can have different kinds of conversations with suppliers. And then there's customer opportunities that we now can leverage in a more efficient way, not only for customers that they have that we want to grow with but vice versa. So just the ability to kind of lean into our capabilities on the procurement side, extend their capabilities on the product management side, our private label products are something they're very keen on and we think has great opportunity in that market. We can provide that now in a more inclusive and broader way. And we're just really excited about the opportunities to give them more capability for us to have greater reach and to do more together.

Yes. Okay. Great. Congrats again.

Our next question comes from the line of Kurt Yinger with D.A. Davidson.

Great. I just want to start on the margin side. I mean, 12.8% over the last 12 months is pretty impressive for, I guess, a business of their scale and how far they deliver Hawaii and Alaska, I would think that would be perhaps lower-margin business. So maybe you could just talk about why you think the margins there are so strong?

So I'll get started and maybe Kelly could weigh in a bit as well, really well-run business. And interestingly enough, markets like Hawaii and Alaska, the margin profile is probably a bit stronger, just given the local needs in that market and the ability to get product in. And they've done a really good job being present in that market for a while and have established a really good foothold. So we actually like those margins quite a bit. And then their mix. They're really focused on the parts of the home that bring the most value, have great capability on the siding side and have done some really interesting things to establish really strong relationships. So very thoughtful team, capable sales organization, has access to great brands in a good part of the country, and they've been able to perform really well. So we're looking forward to leveraging that and continuing to move forward.

Got it. And I think I missed it, but what was the mix of sales, specialty versus commodity?

Over the last few years, they've averaged almost 70%, about 66% of their sales have been on the specialty side.

Got it. Okay. Great. And then you talked about the purchase of the Spokane facility. Was Vandermeer previously leasing that? And are there any savings associated with the purchase of the real estate?

That's an owned facility that they had as a part of their business, and we like it. We think there's a lot of opportunity there. They really have done a good job of creating good capability, and the quality of their facilities fits in with our organization. And we're looking to kind of take that and use that to create more capability and capacity to drive growth in the region.

Got it. Okay. And realizing you guys gave the kind of trailing 12 EBITDA number. Is there any way you could provide maybe kind of a 3- or 5-year kind of look back in terms of what the business has done. I mean, obviously, the last 2 years have been pretty exceptional. So just trying to get a feel for maybe what that business looked like pre-pandemic or even 2020, 2021?

Sure. Well, we don't have all the detailed look back here available for the call, but it behaved a lot like a well-run business with a similar mix that Dwight talked about just a minute ago. Certainly, they saw some upside in the last couple of years, given the tailwinds that you just talked about. But again, good margin relative to their mix and not wholly inconsistent with the way we think about what margin should be for these types of products.

Okay. All right. And then just last two from me real quick. On the synergy front, it sounds like you see the potential for some sales synergies, but is there anything on the cost side? And then secondly, are you going to kind of maintain the Vandermeer brand? Or are you going to try to bring that under, I guess, the BlueLinx umbrella eventually?

I'll take the synergy one. So we certainly do expect some cost synergies. While this is primarily around expansion, growth, leveraging the networks for both sides, as Dwight all mentioned earlier, we certainly do expect some cost synergies. We're still working through what that impact would be, and we can talk about that later. But certainly, as we go to bring our best practices and we've talked about leveraging our services and our scale, we would expect to see some benefit there. And then I'll let Dwight talk about the branding.

Yes. So we're excited about the capacity and the capability that the team brings, and our plan is to really be thoughtful about that. But we will be leveraging the BlueLinx brand in the future as we really drive growth and capability to this incredible team and platform that's now part of the organization.