UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 28, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission file number: 001-32383
 | ||||||||
| (Exact name of registrant as specified in its charter) | ||||||||
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(770 ) 953-7000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically (Section 232.405 of this chapter) every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated Filer | ☐ | Non-accelerated Filer | ☐ | Smaller Reporting Company | ||||||||||||||||||
| Emerging Growth Company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of October 25, 2024, there were 8,380,695 shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.
BLUELINX HOLDINGS INC.
Form 10-Q
For the Quarterly Period Ended September 28, 2024
Table of Contents
| PAGE | |||||
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of products sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses (income): | |||||||||||||||||||||||
| Selling, general, and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Amortization of deferred gains on real estate | ( | ( | ( | ( | |||||||||||||||||||
| Other operating expenses, net | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Non-operating expenses: | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Settlement of defined benefit pension plan | ( | ( | |||||||||||||||||||||
| Other expense, net | |||||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Amortization of unrecognized pension gain, net of tax | |||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Total other comprehensive income | |||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes.
1
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| September 28, 2024 | December 30, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, less allowances of $ | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, at cost | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred income tax asset, net | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued compensation | |||||||||||
| Finance lease liabilities - current | |||||||||||
| Operating lease liabilities - current | |||||||||||
| Real estate deferred gains - current | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Finance lease liabilities, less current portion | |||||||||||
| Operating lease liabilities, less current portion | |||||||||||
| Real estate deferred gains, less current portion | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies | |||||||||||
| STOCKHOLDERS’ EQUITY: | |||||||||||
Preferred Stock, $ | |||||||||||
Common Stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying Notes.
2
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Stockholders’ Equity Total | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance, December 30, 2023 | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Vesting of restricted stock units | (a) | (a) | — | ||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | ||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | — | ( | — | ( | ||||||||||||||||||||||||
| Balance, March 30, 2024 | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Vesting of restricted stock units | ( | — | |||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | ||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | (a) | ( | — | ( | ||||||||||||||||||||||||
| Common stock repurchase and retirement | ( | ( | ( | — | ( | ||||||||||||||||||||||||
| Balance, June 29, 2024 | |||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Vesting of restricted stock units | (a) | (a) | — | ||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | ||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | (a) | ( | — | ( | ||||||||||||||||||||||||
| Common stock repurchase and retirement | ( | ( | ( | — | ( | ||||||||||||||||||||||||
| Balance, September 28, 2024 | $ | $ | $ | $ | |||||||||||||||||||||||||
(a) Activity rounds to less than one thousand
See accompanying Notes.
3
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Stockholders’ Equity Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Vesting of restricted stock units | ( | — | — | ||||||||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Obligation for repurchase of shares to satisfy employee tax withholdings | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Balance, April 1, 2023 | ( | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Obligation for repurchase of shares to satisfy employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Common stock repurchase and retirement | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance, July 1, 2023 | ( | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | |||||||||||||||||||||||||||||||
| Compensation related to share-based grants | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Obligation for shares repurchases not yet settled | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Common stock repurchase and retirement | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
See accompanying Notes.
4
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | |||||||||||
| September 28, 2024 | September 30, 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to cash provided by operations: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Settlement of frozen defined benefit pension plan | ( | ||||||||||
| Provision for deferred income taxes | |||||||||||
| Amortization of deferred gains from real estate | ( | ( | |||||||||
| Share-based compensation | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | |||||||||||
| Accounts payable | |||||||||||
| Other current assets | ( | ||||||||||
| Other assets and liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sale of assets | |||||||||||
| Property and equipment investments | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Common stock repurchase and retirement | ( | ( | |||||||||
| Repurchase of shares to satisfy employee tax withholdings | ( | ( | |||||||||
| Principal payments on finance lease liabilities | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash and cash equivalents | |||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Interest paid during the period | $ | $ | |||||||||
| Taxes paid during the period | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Property and equipment acquired under finance leases | $ | $ | |||||||||
| Liabilities for properties and equipment investments | $ | $ | |||||||||
| Obligation for shares repurchases not yet settled | $ | $ | |||||||||
See accompanying Notes.
5
BLUELINX HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 28, 2024
(Unaudited)
1. Basis of Presentation
BlueLinx Holdings Inc., including consolidated subsidiaries (collectively, the “Company”), is a leading wholesale distributor of residential and commercial building products in the United States. The Company is a two-step distributor and purchases products from manufacturers and distributes those products to dealers and other suppliers in local markets, who then sell those products to end users. The Company carries a broad portfolio of both branded and private-label stock keeping units (“SKUs”) across two principal product categories: specialty products and structural products. Specialty products include items such as engineered wood, siding, moulding and millwork, outdoor living, specialty lumber and panels, and industrial products. Structural products include items such as lumber, plywood, oriented strand board, rebar, and remesh. The Company also provides a wide range of value-added services and solutions aimed at relieving distribution and logistics challenges for its customers and suppliers, while enhancing their marketing and inventory management capabilities.
The Company’s unaudited condensed consolidated financial statements and accompanying notes have been prepared using generally accepted accounting principles in the United States (“GAAP”) and the interim reporting guidance of the U.S. Securities and Exchange Commission (“SEC”). The Company is composed of a single reportable segment for financial reporting purposes. The Company’s consolidated balance sheet as of December 30, 2023 contained herein was derived from the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (the “2023 Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”) on February 20, 2024. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the Company’s results of operations, financial position, and cash flows for the reporting periods presented.
The Company has condensed or omitted certain notes and other information from the unaudited condensed consolidated financial statements presented in this report. Therefore, these condensed financial statements and accompanying notes should be read in conjunction with the Company’s 2023 Form 10-K. The results for the three and nine months ended September 28, 2024 are not necessarily indicative of results that may be expected for the full fiscal year ending December 28, 2024, or any other interim period.
The Company operates on a 5-4-4 fiscal calendar and its fiscal year ends on the Saturday closest to December 31st of each year and may comprise 53 weeks in certain years. Fiscal 2024 contains 52 weeks and will end on December 28, 2024. Fiscal 2023 contained 52 weeks and ended on December 30, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates based on assumptions about current and, for some estimates, future economic and market conditions, which affect reported amounts and related disclosures in the Company’s financial statements. Although current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from management’s expectations, which could materially affect the Company’s results of operations and financial position.
Significant Accounting Policies
The Company has made no material changes to its significant accounting policies described in the notes to its consolidated financial statement included in its 2023 Form 10-K. The Company did not adopt any new accounting standards during the fiscal year ended December 30, 2023 or during the nine months ended September 28, 2024.
Recent Accounting Pronouncements - Not Yet Adopted
Segment Reporting Improvements. On November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The FASB issued the new guidance primarily to provide financial statement users with more disaggregated expense information about a public business entity’s (“PBE”) reportable segment(s). This ASU will require PBEs to provide incremental disclosures related to the entity’s reportable segment(s), including disclosures for expenses that are both 1)
6
significant to each reportable segment and are provided regularly to the Chief Operating Decision Maker (“CODM”) or easily computed from information regularly provided to the CODM and 2) included in the reported measure of segment profit or loss used by the CODM to assess performance and allocate resources. If a PBE does not disclose any significant segment expenses for a reportable segment, it is required to disclose narratively the nature of the expenses used by the CODM to manage each segment’s operations. Under the provisions of this ASU, all of the disclosures required in the segment guidance, including disclosing a measure of segment profit or loss used by the CODM and reporting significant segment expenses, applies to all PBEs, including those with a single operating or reportable segment. However, this ASU does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating segments into reportable segments. ASU 2023-07 will be effective for the Company’s annual reporting period for fiscal 2024 and all interim reporting periods beginning in fiscal 2025. At adoption, the disclosures are retrospectively presented for all comparative periods presented. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.
Income Tax Disclosure Improvement. On December 14, 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. The ASU’s disclosure requirements apply to all entities subject to Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). The overall objective of these disclosure requirements is for an entity, particularly an entity operating in multiple jurisdictions, to disclose sufficient information to enable users of financial statements to understand the nature and magnitude of factors contributing to the difference between the effective tax rate and the statutory tax rate. ASU 2023-09 will be effective for the Company for the fiscal 2025 annual reporting period. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-09.
2. Inventories
The Company’s inventories consist almost entirely of finished goods inventory, with a very limited amount of work-in-process inventory. The cost of all inventories is determined by the moving average cost method. The Company included all material charges directly incurred in bringing inventory to its existing condition and location, including the cost of inbound freight, volume incentives, inventory adjustments, tariffs, duties and other import fees. The Company evaluates its inventory value at the end of each quarter to ensure that inventory, when viewed by category, is carried at the lower-of-cost-and-net-realizable-value (“LCNRV”), which also considers items that may be considered damaged, excess, and obsolete inventory.
During the second quarter of fiscal 2024, the Company recorded a write-down of $2.4 million to reflect the LCNRV for certain inventory related to its structural products. The $2.4 million write-down was due to declines in wood-based commodity prices. During the third quarter of fiscal 2024, substantially all of the inventory covered by this $2.4 million LCNRV write-down was sold, thereby resulting in lower Costs of products sold by that same amount in the third quarter of fiscal 2024. This adjustment increased gross margin percentage for structural products in the third quarter of fiscal 2024 by 1.0 percent.
Substantially all of the amount reported in Cost of products sold on the Company’s consolidated statement of operations is composed of costs incurred to purchase inventory that is subsequently resold to customers, including costs related to import duties and tariffs. Import duties and tariffs are not typically passed through to customers as separately billed charges. Certain import duties are classified by the U.S. Department of Commerce (the “Commerce Department”) as “antidumping or countervailing duties,” and these duties may be subject to periodic review and adjustments by the Commerce Department through a process known as a trade remedy administrative review, which can result in both retroactive and prospective adjustments to duty rates. At the time of importation, the Company tenders antidumping duty and countervailing duty cash deposits (as use of that term has been defined by the Commerce Department) to the U.S. Customs and Border Protection (“U.S. Customs”) and accounts for duties and tariffs based on the then-current rates in effect, and records any retroactive adjustments in the period in which U.S. Customs determines final duty rates at the time entries subject to antidumping and countervailing duties liquidate (as use of that term has been defined by the Commerce Department), typically through the resolution of a trade remedy administrative review proceeding. During the three and nine months ended September 28, 2024, the Company recognized refunds of $3.8 million and $20.7 million, respectively, plus interest of $0.7 million and $2.7 million, respectively, related to retroactive adjustments associated with certain antidumping duties for imported wood moulding and millwork products. The antidumping duty cash deposits were originally paid and accounted for by the Company in prior reporting periods at the then-current rates. Impacted inventories have since been sold. These adjustment amounts are reflected in Cost of products sold and Interest expense, net, respectively, on the Company’s unaudited condensed consolidated statements of operations for
7
the three and nine months ended September 28, 2024. See Note 9, Commitments and Contingencies, for disclosure concerning another matter related to import duties.
3. Goodwill and Intangible Assets, net
During the fiscal quarter and year-to-date period ended September 28, 2024, the only change to the carrying values of Goodwill and Intangible assets, net, was the amortization of Intangible assets, all of which have definite lives. Amortization expense for intangible assets was $1.0 million and $3.0 million for the three and nine month periods ended September 28, 2024, respectively. For the three and nine month periods ended September 30, 2023, amortization expense was $1.0 million and $3.2 million, respectively.
4. Revenue Recognition
The following table presents the Company’s revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Product type | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Specialty products | $ | $ | $ | $ | |||||||||||||||||||
| Structural products | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
The following table presents the Company’s revenues disaggregated by sales channel. Sales and usage-based taxes are excluded from revenues.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Sales channel | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Warehouse and reload | $ | $ | $ | $ | |||||||||||||||||||
| Direct | |||||||||||||||||||||||
| Customer discounts and rebates | ( | ( | ( | ( | |||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
Warehouse sales are delivered from Company warehouses. Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third parties, where the Company stores owned products to enhance operating efficiencies. The reload channel is employed primarily to service strategic customers that would be less economical to service from Company warehouses, and to distribute large volumes of imported products from port facilities. Direct sales are shipped from the manufacturer to the customer without the Company taking physical possession of the inventory and, as a result, typically generate lower margins than warehouse and reload distribution channels but require lower amount of committed capital and fixed costs.
Performance obligations in contracts with customers generally consist solely of delivery of goods.
8
5. Debt and Finance Lease Obligations
As of September 28, 2024 and December 30, 2023, debt and finance lease obligations consisted of the following:
| September 28, 2024 | December 30, 2023 | ||||||||||
| (In thousands) | |||||||||||
Senior Secured Notes (“2029 Notes”) (1) | $ | $ | |||||||||
Revolving Credit Facility (2) | |||||||||||
Finance lease obligations (3) | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Unamortized bond discount costs | ( | ( | |||||||||
| Less: current portion of finance lease obligations | |||||||||||
| Total, net of current portion | $ | $ | |||||||||
(1) As of September 28, 2024 and December 30, 2023, long-term debt was comprised of $300 294.7 million and $293.7 million as of September 28, 2024 and December 30, 2023, respectively. This balance sheet presentation is net of unamortized discount of $2.6 million and $3.0 million, respectively, and unamortized debt issuance costs of $2.6 million and $3.2 million, respectively, as of September 28, 2024 and December 30, 2023. The Senior Secured Notes are presented in this table at their face value.
(2) Available borrowing capacity under the Revolving Credit Facility was $346.5
(3) Refer to Note 8, Leases, for interest rates associated with finance lease obligations. Amounts on this line include $125.1 million and $125.0 million as of September 28, 2024 and December 30, 2023, respectively, for sale-leasebacks of real estate in fiscal 2019 and 2020 that did not qualify for sale treatment for accounting purposes.
Interest expense, net on the Company’s unaudited condensed consolidated statements of operations consisted of the following components:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Interest expense | $ | $ | $ | ||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense, net | $ | $ | $ | $ | |||||||||||||||||||
Interest expense for the reporting periods presented in the above table primarily reflects interest expense for the 2029 Notes, interest expense on finance lease obligations, certain ongoing fees for the Revolving Credit Facility that are classified as interest expense, amortization of debt issuance costs for the 2029 Notes and Revolving Credit Facility, and amortization of original-issue bond discount on the 2029 Notes. Total amortization of debt issuance costs and bond discount costs was $0.3 million and $1.0 million for the three and nine months ended September 28, 2024, respectively, and $0.3 million and $1.0 million for the three and nine months ended September 30, 2023, respectively. Interest expense for the nine months ended September 28, 2024 also includes $1.2 million for estimated interest expense related to import duties that the Company believes it may owe (see Note 9, Commitments and Contingencies).
Interest income for the reporting periods presented in the above table primarily reflects interest earned on the Company’s cash and cash equivalents. Interest income for the three and nine months ended September 28, 2024 also includes $0.7 million and $2.7 million, respectively, on refunds approved in fiscal 2024 from U.S. Customs for anti-dumping import duties (see Note 2, Inventories).
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2029 Notes
Interest expense, excluding amortization of debt issuance costs and bond discount, for the 2029 Notes totaled $4.5 million and $13.5 million for the three and nine months ended September 28, 2024, respectively, and $4.5 million and $13.5 million for the three and nine months ended September 30, 2023, respectively. The 2029 Notes pay interest at a fixed annual rate of 6.0 percent through maturity.
Revolving Credit Facility
As of September 28, 2024 and December 30, 2023, the Company had zero 346.5 872.8 million and $868.2 million as of September 28, 2024 and December 30, 2023, respectively.
Debt Covenants
The Revolving Credit Facility and the 2029 Notes contain various covenants and restrictions, including customary financial covenants. The Company was in compliance with all such covenants as of September 28, 2024 and December 30, 2023. The Company’s right to make draws on the Revolving Credit Facility may be conditioned upon, among other things, compliance with these covenants. These covenants also limit the Company’s ability to, among other things: incur additional debt; grant liens on assets; make investments; repurchase stock; pay dividends and make distributions; sell or acquire assets, including certain real estate assets, outside the ordinary course of business; engage in transactions with affiliates; and make fundamental business changes.
Finance Lease Obligations
6. Net Periodic Pension Cost (Benefit)
As previously disclosed, effective December 5, 2023, the Company settled its noncontributory defined benefit pension plan (the “DB Plan”) by purchasing an irrevocable nonparticipating annuity contract with an insurance company (the “buy-out contract”). The buyout contract met the requirements for a settlement, as that term is defined in ASC No. 715, Compensation-Retirement Benefits, and the DB Plan and Company, as sponsor, were relieved of primary responsibility for the benefits obligations.
The Company incurred the following net periodic pension (benefit) cost for the following periods:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
Service cost (1) | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost on projected benefit obligation | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of unrecognized gain | |||||||||||||||||||||||
Settlement loss adjustment(2) | ( | ( | |||||||||||||||||||||
| Net periodic pension (benefit) cost | $ | ( | $ | $ | ( | $ | |||||||||||||||||
(1) Service cost not a part of net periodic pension benefit as the pension plan was frozen for all participants.
(2) Represents an adjustment for the settlement charge originally recognized during the fourth quarter of fiscal 2023 related to settlement of the Company’s frozen defined benefit pension plan.
Net periodic pension cost is included in Other expense, net in the Company’s unaudited condensed consolidated statement of operations and comprehensive income. However, the settlement charge and related adjustments are reported on a separate line
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under Non-operating expenses on the Company’s unaudited condensed consolidated statement of operations and comprehensive income.
7. Share-Based Compensation
During the three and nine months ended September 28, 2024, the Company incurred stock compensation expense of $3.2 million and $6.9 million, respectively. Expense in the nine months ended September 28, 2024 included a credit of $1.7 million (recognized in fiscal second quarter 2024) related to cumulative adjustments for certain unvested restricted stock unit grants that were granted in June 2022 and are subject to vesting based, in part, on performance criteria that are not expected, as of September 28, 2024, to be fully achieved before the end of the vesting period on June 28, 2025.
As of September 28, 2024, unearned compensation for share-based grants was $23.0 million, with $14.2 million of this amount associated with grants made in the first nine months of fiscal 2024. Under the Company’s 2021 BlueLinx Holdings, Inc. 2021 Long-Term Incentive Plan as of September 28, 2024, 506,044 shares of common stock remain available for future issuance pursuant to equity-based compensation awards.
8. Leases
The Company has operating and finance leases for certain of its distribution facilities, office space, land, mobile fleet, and equipment. Many of these leases are non-cancelable and typically have a defined initial lease term, and some provide options to renew at the Company’s election for specified periods of time. The majority of these leases have remaining lease terms of to 15 one or more options to extend the leases for typically five years
The Company determines if an arrangement is a lease at inception and assesses lease classification as either operating or finance at lease inception or modification. Operating lease right-of use (“ROU”) assets and liabilities are presented separately on the Company’s consolidated balance sheets. Finance lease ROU assets are included in property and equipment and the finance lease obligations are presented separately in the Company’s consolidated balance sheets. When a lease does not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. The Company has also made the accounting policy election to not separate lease components from non-lease components related to the mobile fleet asset class.
The Company’s finance lease liabilities consist of leases related to equipment and vehicles, and real estate. A majority of the Company’s finance leases relate to real estate. During fiscal 2017 and fiscal 2018, the Company entered into real estate financing transactions on certain of its warehouse facilities. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, the Company entered into long-term leases on the properties having renewal options. The Company accounted for these transactions in accordance with the ASC 840, Leases, which was the lease accounting standard in effect for the Company at the inception of these arrangements. The Company recorded these transactions as finance lease liabilities on its consolidated balance sheet. Gains on these sale-leaseback transactions were deferred and are being recognized into the Company’s earnings. As of September 28, 2024 and December 30, 2023, the remaining unrecognized deferred gains related to these transactions were $68.2 million and $70.5 million, respectively, and these deferred gains are being recognized in earning on a straight-line basis. During the three months ended September 28, 2024 and September 30, 2023, the Company recognized $1.0 million and $1.0 million, respectively, of these deferred gains in each quarter. In the nine months ended September 28, 2024 and September 30, 2023, the Company recognized $3.0 million and $3.0 million, respectively, of these deferred gains in each period.
The following table presents the assets and liabilities related to the Company’s leases as of September 28, 2024 and December 30, 2023:
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| Lease Assets and Liabilities | September 28, 2024 | December 30, 2023 | ||||||||||||
| (In thousands) | ||||||||||||||
| Assets | Classification | |||||||||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | $ | $ | |||||||||||
Finance lease right-of-use assets (1) | ||||||||||||||
| Total lease right-of-use assets | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||
| Current portion: | ||||||||||||||
| Operating lease liabilities | Operating lease liabilities - current | $ | $ | |||||||||||
| Finance lease liabilities | Finance lease liabilities - current | |||||||||||||
| Non-current portion: | ||||||||||||||
| Operating lease liabilities | Operating lease liabilities - noncurrent | |||||||||||||
| Finance lease liabilities | Finance lease liabilities - noncurrent | |||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $111.4 million and $102.9 million as of September 28, 2024 and December 30, 2023, respectively.
The components of lease expense were as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Components of lease expense | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Operating lease expense: | |||||||||||||||||||||||
| Operating lease expense before sublease income | $ | $ | $ | $ | |||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease expense: | |||||||||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | |||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total finance lease expense | $ | $ | $ | $ | |||||||||||||||||||
Supplemental cash flow information related to leases is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Cash flow information | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||||||||
| Operating cash flows, operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Operating cash flows, finance leases | $ | $ | $ | $ | |||||||||||||||||||
| Financing cash flows, finance leases | $ | $ | $ | $ | |||||||||||||||||||
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Non-cash supplemental cash flow information related to leases is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Non-cash information | September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | |||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Right-of-use assets obtained in exchange for lease obligations | |||||||||||||||||||||||
| Operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Finance leases | $ | $ | $ | $ | |||||||||||||||||||
Supplemental balance sheet information related to leases is as follows:
| Balance Sheet Information | September 28, 2024 | December 30, 2023 | |||||||||
| ($ in thousands) | |||||||||||
| Finance leases | |||||||||||
| Property and equipment | $ | $ | |||||||||
| Accumulated depreciation | ( | ( | |||||||||
| $ | $ | ||||||||||
| Weighted Average Remaining Lease Term (in years) | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted Average Discount Rate | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
The major categories of the Company’s obligations under finance leases as of September 28, 2024 and December 30, 2023 are as follows:
| Category | September 28, 2024 | December 30, 2023 | |||||||||
| (In thousands) | |||||||||||
| Equipment and vehicles | $ | $ | |||||||||
Real estate(1) | |||||||||||
| Total finance leases | $ | $ | |||||||||
(1)Amounts include $125.1 million and $125.0 million as of September 28, 2024 and December 30, 2023, respectively, for sale-leasebacks of real estate in fiscal 2019 and 2020 that did not qualify for sale treatment for accounting purposes.
Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of September 28, 2024. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the unaudited condensed consolidated balance sheet, including options to extend lease terms that are reasonably certain of being exercised.
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| Fiscal Year: | Operating Leases | Finance Leases | |||||||||
| (In thousands) | |||||||||||
| 2024 | $ | $ | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | $ | $ | |||||||||
| Less: imputed interest | ( | ( | |||||||||
| Total | $ | $ | |||||||||
9. Commitments and Contingencies
Regulatory Matters
Government and regulatory agencies may have the ability to conduct routine audits and periodic examinations of, and administrative proceedings regarding, the Company’s business operations. As previously disclosed, U.S. Customs gathered initial information from the Company under routine audit procedures, and the information indicated that the Company potentially underpaid duties in prior periods arising from certain classification discrepancies for products imported into the United States as separately entered shipments. In working with U.S. Customs, the Company has exercised reasonable care to address this matter in an equitable and expeditious manner through the filing of a prior disclosure submission with U.S. Customs. As of September 28, 2024, the Company estimates that it will be required to pay approximately $8.0 million, excluding any interest. This amount is reflected in Other current liabilities on the Company’s unaudited condensed consolidated balance sheet as of September 28, 2024. On the Company’s unaudited condensed consolidated statements of operations, expense of $0.3 million and $8.0 million, excluding interest, was recognized for this matter in the three and nine months ended September 28, 2024, respectively, within Cost of products sold. See Note 2, Inventories, for disclosure concerning another matter related to import duties.
Environmental Matters
From time to time, the Company is involved in various proceedings incidental to its business and the Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. Although the ultimate outcome of these proceedings cannot be determined with certainty, based on presently available information, the Company believes that adequate liabilities have been accrued for probable losses with respect thereto and receivables recorded for expected receipts from settlements. The Company further believes that, while the ultimate outcome of these matters could be material to the Company’s financial position, results of operations and cash flows in any given reporting period, they will not have a materially adverse effect on the Company’s long-term financial condition, results of operations, or cash flows.
Collective Bargaining Agreements
As of September 28, 2024, approximately 18.4 percent of the Company’s employees were represented by various local labor unions with terms and conditions of employment governed by collective bargaining agreements (“CBAs”). Two CBAs covering approximately 1.3 percent percent of the Company’s employees are up for renewal during the remainder of fiscal 2024 and are expected to be renegotiated before their renewal dates.
10. Accumulated Other Comprehensive Loss
As of September 28, 2024 and December 30, 2023, the Company had no accumulated other comprehensive income or loss. For changes in accumulated other comprehensive loss during the three and nine months ended September 30, 2023, see the unaudited condensed consolidated statements of operations and comprehensive income included in this Form 10-Q. As of September 30, 2023, the components of accumulated other comprehensive loss were as follows:
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| Defined Benefit Pension Plan, net of tax | Other, net of tax | Total Accumulated Other Comprehensive Loss | |||||||||||||||
| (In thousands) | |||||||||||||||||
September 30, 2023 balances | $ | ( | $ | $ | ( | ||||||||||||
11. Income Taxes
Effective Income Tax Rate
The Company’s effective income tax rates for the three months ended September 28, 2024 and September 30, 2023 were 26.0 percent and 27.2 percent, respectively. The Company’s effective income tax rates for the nine months ended September 28, 2024 and September 30, 2023 were 24.9 percent and 25.9 percent, respectively.
The Company’s effective income tax rates for the three and nine months ended September 28, 2024 and September 30, 2023 were impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, partially offset by a partial release of a valuation allowance for deferred income tax assets, the vesting of restricted stock units, and the return-to-provision adjustment associated with the most recently filed U.S. Federal income tax return.
The Company’s effective income tax rates for the three and nine months ended September 30, 2023 were impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including executive compensation, offset by a benefit from the vesting of restricted stock units.
For fiscal 2024, the Company expects its consolidated annual effective income tax rate will be approximately 26 percent.
For additional information about the Company’s income taxes, see Note 7, Income Taxes, to the consolidated financial statements included in Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
12. Earnings Per Share and Stockholders' Equity
The Company calculates basic earnings per share by dividing net income for the period by the weighted average number of shares of common stock outstanding for the period. For rounding purposes when calculating earnings per share, the Company’s policy is to round down to the whole cent.
The Company calculates diluted earnings per share using the treasury stock method whereby net income for the period is divided by the weighted average number of shares of common stock outstanding for the period including the dilutive effect, if any, of shares of stock associated with unvested share-based grants. However, for share-based grants that vest in whole or in part based on performance metrics, their dilutive effect is included only after the performance metrics have been achieved.
The reconciliations of basic net income and diluted earnings per common share for the three and nine month periods ended September 28, 2024 and September 30, 2023 are as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| Net income (in thousands) | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares outstanding - Basic | |||||||||||||||||||||||
| Dilutive effect of share-based awards | |||||||||||||||||||||||
| Weighted-average shares outstanding - Diluted | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
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During the three and nine months ended September 28, 2024, unvested time-based restricted stock units totaling 6,299 and 1,644 , respectively, and unvested performance-based restricted stock units totaling 139,654 103,152 and 161,572 , respectively, and unvested performance-based restricted stock units totaling 112,252
The unvested time-based restricted stock units were excluded because they were antidilutive based on their unearned compensation amounts and on the Company’s average stock price during the periods. The unvested performance-based restricted stock units were excluded because their performance metrics had not been achieved as of the end of the respective reporting period.
Repurchases of Common Stock
2023 Authorization
On October 31, 2023, the Company’s board of directors authorized a new share repurchase program for $100 million. Under the new share repurchase program, the Company may repurchase its common stock from time to time, without prior notice, subject to prevailing market conditions and other considerations. Repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1.
During the three and nine months ended September 28, 2024, the Company repurchased 145,548 shares and 297,951 shares, respectively, of its common stock at a weighted-average average price of $103.08 and $100.63 , respectively, including broker commissions but excluding federal excise tax on the repurchases, for a total of $15.0 million and $30.0 million, respectively. These amounts are based on trade date activity, while the amounts reported on the Company’s consolidated statements of cash flows for share repurchases are based on settlement date activity. As of September 28, 2024, there remained $61.5 million repurchase capacity under this authorization.
Between September 28, 2024 and October 25, 2024, the Company purchased an additional 43,240 shares of its common stock for $4.6 million at a weighted-average share price of $106.34 per share, including broker commissions but excluding federal excise tax due on the repurchases.
2021/2022 Authorization
On August 23, 2021, the Company’s board of directors approved a stock repurchase program that authorized the Company to repurchase up to $25.0 million of its common stock. On May 3, 2022, the Company’s board of directors increased the share repurchase authorization to $100 million. During the three and nine months ended September 30, 2023, the Company repurchased 216,507 shares and 358,212 shares, respectively, of its common stock under the 2021/2022 authorization at a weighted-average price of $84.93 , and $83.52 , respectively, including broker commissions but excluding federal excise tax on the repurchases, for total cash of $11.5 million and $29.9 million, respectively. These amounts are based on trade date activity, while the amounts reported on the Company’s consolidated statements of cash flows for share repurchases are based on settlement date activity. During fiscal October 2023, the Company exhausted the remaining available capacity of $3.7 million under the 2021/2022 authorization.
13. Fair Value Disclosures
The Company has no assets or liabilities with carrying values that are remeasured and adjusted to fair value on a recurring basis for each reporting period. The Company has not elected the fair value option for any assets or liabilities.
As of September 28, 2024 and December 30, 2023, the fair value of the 2029 Notes was approximately $290 million and $273 million, respectively, which were estimated from inputs that are designated as Level 2 in the fair value hierarchy. The Company’s valuation technique is based primarily on observable market prices in less active markets.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report” or “Form 10-Q”) contains forward-looking statements. Forward-looking statements include, without limitation, any statements that predict, forecast, indicate or imply future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “could,” “expect,” “estimate,” “intend,” “may,” “project,” “plan,” “should,” “will,” “will be,” “will likely continue,” “will likely result” “would,” or words or phrases of similar meaning. Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. The forward-looking statements in this report include, without limitation, statements about anticipated effects of adopting certain accounting standards; estimated future annual amortization expense; estimates made in connection with revenue recognition; the expected outcome of legal proceedings; the expected outcome of government and regulatory proceedings; industry conditions; seasonality; liquidity and capital resources; our confidence in the Company’s long-term growth strategy; our areas of focus and management initiatives; the demand outlook for construction materials and expectations regarding new home construction, repair and remodel activity and continued investment in existing and new homes; our positioning for long-term value creation; our efforts and ability to generate profitable growth; our ability to increase net sales in specialty product categories; our ability to generate profits and cash from sales of specialty products; our ability to effectively manage inventory; our ability to manage our lease commitments; our ability to negotiate collective bargaining agreements; our multi-year capital allocation plans; our ability to manage volatility in wood-based commodities; our improvement in execution and productivity; our efforts and ability to maintain a disciplined capital structure and capital allocation strategy; our ability to maintain a strong balance sheet; our ability to focus on operating improvement initiatives and commercial excellence; and whether or not the Company will continue any share repurchases.
These risks and uncertainties also include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 30, 2023, those discussed elsewhere in this Form 10-Q, and in future reports that we file with the SEC.
We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information included in this Form 10-Q and in our Annual Report on Form 10-K for fiscal year 2023.
In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under Item 1A “Risk Factors” in our Form 10-K for fiscal 2023 and under “Cautionary Statement Concerning Forward-Looking Statements” in Item 2 of this Form 10-Q.
Our Culture, Values and Management Focus
We remain committed to driving a culture of profitable growth within new and existing product lines and geographies, while positioning the Company for long-term value creation. The following initiatives represent key areas of our management team’s focus:
1.Migrate sales mix toward higher-margin specialty product categories. The Company is pursuing a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products. Additionally, the Company is expanding its value-added service offerings designed to simplify complex customer sourcing requirements, together with marketing, inventory and pricing services afforded by the Company’s national platform.
2.Foster a performance-driven culture committed to business excellence and profitable growth to be the provider of choice for suppliers and customers. This includes enhancing the customer experience through technology
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enablement; accelerating organic growth within specific product and solutions offerings where the Company is uniquely advantaged; enhancing our performance by leveraging our scale and footprint together with pricing, operational and procurement capabilities; and deploying capital to drive sustained margin expansion, grow cash flow and maintain continued profitable growth.
3.Maintain a disciplined capital structure and pursue strategic investments that increase the value of the Company. The Company continues to strategically target acquisition opportunities that grow its specialty products business, expand its geographic reach, or complement its existing capabilities. The Company also continues to identify markets that are potential opportunities for new market development. The Company further seeks to maintain a disciplined capital structure while at the same time investing in its business to modernize its distribution facilities, as well as its tractor and trailer fleet, and to improve operational performance. During the nine months ended September 28, 2024, we engaged in the following transactions:
•Used cash of $19.8 million and entered into $16.7 million of finance leases to enhance our facilities and fleet.
•Returned capital of $30.0 million to our shareholders by using cash to purchase 297,951 shares of our common stock at an average price of $100.63.
Our culture is guided by an unwavering commitment to apply our values to every decision we make and every action we take:
•Customer Centric - We put our customers first, so we are customer centric in all that we do.
•Integrity - We act with integrity, because doing the right thing is critical to our success.
•Respect - We treat everyone with dignity and respect.
•Grit - We show grit in the face of changing landscapes.
•Collaboration - We collaborate with each other and our customers to build great teams and construct innovative solutions.
Looking ahead, we plan to continue pursuing a three-pronged growth strategy focusing on specialty products sales growth, opportunistic mergers and acquisitions (“M&A”), and potential greenfield expansion in new geographic markets. Within specialty products, we will continue our focus on the five key areas of engineered wood, siding, moulding and millwork, outdoor living, and industrial products, which we believe are all favorable for two-step distributors and have attractive long-term prospects.
Factors That Affect Our Operating Results and Trends
Our results of operations and financial performance are influenced by a variety of factors, including the following: housing market conditions; pricing and product cost variability; volumes of product sold; competition; the cyclical nature of the industry in which we operate; consolidation among competitors, suppliers, and customers; disintermediation risk; loss of products or key suppliers and manufacturers; our dependence on international suppliers and manufacturers for certain products; effective inventory management relative to our sales volume or the prices of the products we produce; business disruptions; potential acquisitions and the integration and completion of such acquisitions; information technology security risks and business interruption risks; the ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs; exposure to product liability and other claims and legal proceedings related to our business and the products we distribute; natural disasters, catastrophes, fire, wars or other unexpected events; the impacts of climate change; successful implementation of our strategy; wage increases or work stoppages by our union employees; costs imposed by federal, state, local, and other regulations; compliance costs associated with federal, state, and local environmental protection laws; the effects of epidemics, global pandemics or other widespread public health crises and governmental rules and regulations; fluctuations in our operating results; our level of indebtedness and our ability to incur additional debt to fund future needs; the covenants of the instruments governing our indebtedness limiting the discretion of our management in operating the business; the potential to incur more debt; the fact that we have consummated certain sale leaseback transactions with resulting long-term non-cancelable leases, many of which are or will be finance leases; the fact that we lease many of our distribution centers, and we would still be obligated under these leases even if we close a leased distribution center; inability to raise funds necessary to finance a required repurchase of our senior secured notes; a lowering or withdrawal of debt ratings; changes in our product mix; increases in fuel and other energy prices or availability of third-part freight providers; changes in insurance-related deductible/retention liabilities based on actual loss development experience; the possibility that the value of our deferred tax assets could become impaired; changes in our expected annual effective tax rate could be volatile; the costs and liabilities related to our participation in multi-employer pension plans could increase; the risk that our cash flows and capital resources may be insufficient to service our existing or future indebtedness; interest rate risk, which could cause our debt service obligations to increase; and changes
18
in, or interpretation of, accounting principles. These factors, and the related trends and uncertainties, have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods.
For more information on the risk factors impacting our business, refer to Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year 2023.
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Results of Operations
Our results of operations for the three months ended September 28, 2024 (“third quarter of fiscal 2024”) and for the three months ended September 30, 2023 (“third quarter of fiscal 2023”) were as follows:
| Three Months Ended September 28, 2024 | % of Net Sales | Three Months Ended September 30, 2023 | % of Net Sales | ||||||||||||||||||||
| ($ amounts in thousands) | |||||||||||||||||||||||
| Net sales | $ | 747,288 | $ | 809,981 | |||||||||||||||||||
| Gross profit | 125,669 | 16.8% | 139,246 | 17.2% | |||||||||||||||||||
| Selling, general, and administrative | 92,210 | 12.3% | 91,354 | 11.3% | |||||||||||||||||||
| Depreciation and amortization | 9,530 | 1.3% | 8,089 | 1.0% | |||||||||||||||||||
| Amortization of deferred gains on real estate | (984) | (0.1)% | (984) | (0.1)% | |||||||||||||||||||
| Other operating expenses, net | 888 | 0.1% | 1,131 | 0.1% | |||||||||||||||||||
| Operating income | 24,025 | 3.2% | 39,656 | 4.9% | |||||||||||||||||||
| Interest expense, net | 4,619 | 0.6% | 5,577 | 0.7% | |||||||||||||||||||
| Settlement of defined benefit pension plan | (2,226) | (0.3)% | — | —% | |||||||||||||||||||
| Other expense, net | — | —% | 594 | 0.1% | |||||||||||||||||||
| Income before provision for income taxes | 21,632 | 2.9% | 33,485 | 4.1% | |||||||||||||||||||
| Provision for income taxes | 5,616 | 0.8% | 9,103 | 1.1% | |||||||||||||||||||
| Net income | $ | 16,016 | 2.1% | $ | 24,382 | 3.0% | |||||||||||||||||
Our results of operations for the nine months ended September 28, 2024 (“first nine months of fiscal 2024”) and for the nine months ended September 30, 2023 (“first nine months of fiscal 2023”) were as follows:
| Nine Months Ended September 28, 2024 | % of Net Sales | Nine Months Ended September 30, 2023 | % of Net Sales | ||||||||||||||||||||
| ($ amounts in thousands) | |||||||||||||||||||||||
| Net sales | $ | 2,241,895 | $ | 2,423,852 | |||||||||||||||||||
| Gross profit | 375,794 | 16.8% | 408,588 | 16.9% | |||||||||||||||||||
| Selling, general, and administrative | 272,913 | 12.2% | 271,278 | 11.2% | |||||||||||||||||||
| Depreciation and amortization | 29,083 | 1.3% | 23,758 | 1.0% | |||||||||||||||||||
| Amortization of deferred gains on real estate | (2,952) | (0.1)% | (2,952) | (0.1)% | |||||||||||||||||||
| Other operating expenses, net | 1,210 | 0.1% | 5,240 | 0.2% | |||||||||||||||||||
| Operating income | 75,540 | 3.4% | 111,264 | 4.6% | |||||||||||||||||||
| Interest expense, net | 14,044 | 0.6% | 19,575 | 0.8% | |||||||||||||||||||
| Settlement of defined benefit pension plan | (2,226) | (0.1)% | — | —% | |||||||||||||||||||
| Other expense, net | — | —% | 1,782 | 0.1% | |||||||||||||||||||
| Income before provision for income taxes | 63,722 | 2.8% | 89,907 | 3.7% | |||||||||||||||||||
| Provision for income taxes | 15,878 | 0.7% | 23,247 | 1.0% | |||||||||||||||||||
| Net income | $ | 47,844 | 2.1% | $ | 66,660 | 2.8% | |||||||||||||||||
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The following table sets forth net sales by product category:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| Net sales by product category | ($ amounts in thousands) | ||||||||||||||||||||||
| Specialty products | $ | 519,000 | $ | 558,851 | $ | 1,562,300 | $ | 1,697,679 | |||||||||||||||
| Structural products | 228,288 | 251,130 | 679,595 | 726,173 | |||||||||||||||||||
| Total net sales | $ | 747,288 | $ | 809,981 | $ | 2,241,895 | $ | 2,423,852 | |||||||||||||||
| Percentage of total net sales by product category | |||||||||||||||||||||||
| Specialty products | 69.5 | % | 69.0 | % | 69.7 | % | 70.0 | % | |||||||||||||||
| Structural products | 30.5 | % | 31.0 | % | 30.3 | % | 30.0 | % | |||||||||||||||
| Total net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
The following table sets forth gross profit and gross margin percentages by product category:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 28, 2024 | September 30, 2023 | September 28, 2024 | September 30, 2023 | ||||||||||||||||||||
| Gross profit by product category: | ($ amounts in thousands) | ||||||||||||||||||||||
| Specialty products | $ | 100,479 | $ | 110,898 | $ | 308,878 | $ | 326,366 | |||||||||||||||
| Structural products | 25,190 | 28,348 | 66,916 | 82,222 | |||||||||||||||||||
| Total gross profit | $ | 125,669 | $ | 139,246 | $ | 375,794 | $ | 408,588 | |||||||||||||||
| Gross margin % by product category: | |||||||||||||||||||||||
| Specialty products | 19.4 | % | 19.8 | % | 19.8 | % | 19.2 | % | |||||||||||||||
| Structural products | 11.0 | % | 11.3 | % | 9.8 | % | 11.3 | % | |||||||||||||||
| Company gross margin % | 16.8 | % | 17.2 | % | 16.8 | % | 16.9 | % | |||||||||||||||
Third Quarter of Fiscal 2024 Compared to Third Quarter of Fiscal 2023
For the third quarter of fiscal 2024, the Company generated consolidated net sales of $747.3 million, a decrease of $62.7 million, or 7.7 percent, compared to the third quarter of fiscal 2023. The decrease in net sales in the current quarter was attributable to continuing pricing pressures in both specialty products and structural products, with commodity prices in U.S. markets for lumber and panels being down 12 percent and 19 percent, respectively, compared to the prior year period. However, pricing declines were partially offset by volume growth for both specialty and structural products. The Company’s gross profit for the third quarter of fiscal 2024 decreased by $13.6 million to $125.7 million from $139.2 million in the prior year period and this decrease was attributable to both specialty and structural products. Gross margin percentage for the Company decreased from 17.2 percent to 16.8 percent in the current quarter, also attributable to both structural products and specialty products. The import-duty and LCNRV matters discussed in the sections below for specialty products and structural products contributed $5.9 million to the current quarter’s gross profit. Excluding these items, gross margin percentage was 16.0 percent for the current quarter.
Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased by $39.9 million, or 7.1 percent, to $519.0 million in the third quarter of fiscal 2024. This decrease in net sales was due to price deflation across all specialty product categories, partially offset by volume gains for millwork, engineered wood, and specialty lumber and panels. Specialty products gross profit decreased by $10.4 million to $100.5 million due primarily to the decrease in sales. Specialty products gross margin percentage decreased by 40 basis points to 19.4 percent compared to 19.8 percent in the third quarter of fiscal 2023 due primarily to decreases in pricing. The current period included a net benefit of $3.5 million for import duty-related items from prior periods. Excluding this benefit, specialty products gross margin percentage was 18.7 percent. The duty items were related to changes in retroactive rates for anti-dumping duties and to classification adjustments for certain goods imported by the Company.
Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased by $22.8 million, or 9.1 percent, to $228.3 million in the third quarter of fiscal 2024 compared to the third quarter of
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fiscal 2023. This decrease was primarily due to price deflation across all structural product types, partially offset by volume gains for all structural product types. Structural products gross profit decreased by $3.2 million to $25.2 million from $28.3 million in the prior year period due primarily to decreases in pricing. Structural products gross margin percentage for the third quarter of fiscal 2024 was 11.0 percent compared to 11.3 percent in the prior-year period. Gross profit and gross margin percentage for the third quarter of fiscal 2024 were positively impacted by a $2.4 million LCNRV inventory write-down for certain structural products at the end of the second quarter of fiscal 2024 that resulted in lower Costs of products sold in the third quarter of fiscal 2024 since substantially all of the inventory associated with the LCNRV write-down was sold during third quarter of fiscal 2024. This adjustment increased the current quarter’s gross margin percentage for structural products by 1.0 percent. The third quarter of fiscal 2023 was negatively impacted by a $0.6 million interim period LCNRV write-down for certain inventory related to our structural products.
Our selling, general, and administrative (“SG&A”) expenses increased by $0.9 million, or 0.9 percent, compared to the third quarter of fiscal 2023. In the current quarter, higher technology expenses associated with our digital transformation were partially offset by lower fleet-related logistics costs.
Depreciation and amortization expense increased 17.8 percent compared to the third quarter of fiscal 2023 due to a higher base of depreciable assets in the third quarter of fiscal 2024, resulting from our continued focus on strategic capital investment.
Interest expense, net, decreased by 17.2 percent, or $1.0 million, compared to the third quarter of fiscal 2023. The decrease was due to the generation of additional interest income from larger balances of cash and cash equivalents and from higher interest rates on those balances in the current quarter compared to the prior year period. Additionally, interest income for the third quarter of fiscal 2024 includes $0.7 million related to antidumping import duty refunds recognized in the quarter. (see Note 2, Inventories).
Our effective income tax rates were 26.0 percent and 27.2 percent for the third quarters of fiscal 2024 and 2023, respectively. Our effective income tax rates for both periods were impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units. For fiscal 2024, we expect our annual effective income tax rate will be approximately 26 percent.
Our net income for the third quarter of fiscal 2024 was $16.0 million, or $1.87 per diluted share, versus $24.4 million, or $2.71 per diluted share, in the prior-year period. Decreases in our net income and earnings per diluted share were due primarily to the factors discussed above. The 2024 period also reflects a pre-tax benefit of $2.2 million related to an adjustment of the settlement charge recorded in the fourth quarter of 2023 to settle our defined benefit pension plan. This benefit was partially offset by $1.2 million of estimated net losses related to Hurricane Helene in September 2024, which is reported within Other operating expenses, net on our unaudited condensed consolidated statements of operations.
First Nine Months of Fiscal 2024 Compared to First Nine Months of Fiscal 2023
For the first nine months of fiscal 2024, the Company generated consolidated net sales of $2.24 billion, a decrease of $182 million, or 7.5 percent, compared to the first nine months of fiscal 2023. The decrease in net sales in the current period was attributable to both specialty products and structural products and reflected continuing pricing pressures, partially offset by volume gains. The Company’s gross profit for the first nine months of fiscal 2024 decreased by $32.8 million to $375.8 million from $408.6 million in the prior year period. This decline in net sales was attributable to both specialty products and structural products. The Company’s gross margin percentage was 16.8 percent for the 2024 period, a decrease from the 16.9 percent for the 2023 period. Gross profit and gross margin percentage benefited in the current period by a net benefit in specialty products of $12.7 million for import duty items. The import duty items were related to changes in retroactive rates for anti-dumping duties resulting in a credit to cost of products sold of $20.7 million, partially offset by classification adjustments for certain goods imported by the Company that resulted in a net increase in Cost of products sold of $8.0 million for the current period. Not including this net benefit, the Company’s gross margin percentage would have been 16.2 percent in the current period.
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Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased by $135.4 million, or 8 percent, to $1.56 billion in the first nine months of fiscal 2024. The decline in net sales was due to price deflation across all specialty product types, partially offset by volume gains for millwork, engineered wood, siding, and specialty lumber and panels. Specialty products gross profit decreased $17.5 million to $308.9 million due to lower net sales, while specialty products gross margin percentage decreased 60 basis points to 19.8 percent for the first nine months of fiscal 2024 compared to 19.2 percent in the first nine months of fiscal 2023. The net impact of the import duty items described above increased specialty products gross profit for the current period by $12.7 million and specialty products gross margin percentage by 0.8 percent.
Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $46.6 million to $679.6 million in the first nine months of fiscal 2024 primarily due to volume and price declines for the lumber category, partially offset by price and volume increases in the panels category. Gross profit for structural products decreased by $15.3 million to $66.9 million from $82.2 million in the prior year period due to lower sales in the current period. Structural products gross margin percentage for the first nine months of fiscal 2024 was 9.8 percent, a decline from 11.3 percent in the prior-year period due primarily to price deflation for the lumber category. Gross profit and gross margin percentage for structural products benefited in the prior year period by lower cost of products sold attributable to a $2.6 million LCNRV write-down of certain inventory at the end of fiscal 2022, partially offset by an interim $0.6 million LCNRV write-down of certain inventory during the 2023 period. During the first nine months of fiscal 2024, such interim period LCNRV inventory write-downs and reversals netted to zero.
Our SG&A expenses in the first nine months of fiscal 2024 increased $1.6 million compared to the first nine months of fiscal 2023. In the current period, higher technology expenses associated with our digital transformation and legal expenses associated with duty-related matters were partially offset by lower sales-based incentive expenses and lower share-based compensation expense.
Depreciation and amortization expense increased 22.4 percent compared to the first nine months of fiscal 2023 due to a higher base of depreciable assets throughout the first nine months of fiscal 2024 when compared the prior-year period, resulting from our continued focus on strategic capital investment.
Other operating expenses, net decreased $4.0 million compared to the first nine months of fiscal 2023 primarily due to restructuring related expenses, including severance expenses, incurred in the 2023 period due to our leadership transition.
Interest expense, net, decreased by 28.3 percent, or $5.5 million, compared to the first nine months of fiscal 2023. The decrease was primarily due to the generation of higher interest income, given our year-over-year increase in cash that is generating interest at higher rates than last year. Included in interest income for the nine months ended September 28, 2024 is $2.7 million of interest income related to the antidumping import duty refunds (see Note 2, Inventories). Interest expense, net for the nine months ended September 28, 2024 also includes $1.2 million of estimated accrued interest expense related to estimated import duties owed by the Company (see Note 9, Commitments and Contingencies).
Our effective income tax rates were 24.9 percent and 25.9 percent for the first nine months of fiscal 2024 and 2023, respectively. Our effective income tax rate for both periods was impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, partially offset by a benefit from the vesting of restricted stock units, and in the 2024 period, a partial release of a valuation allowance for deferred income tax assets. For fiscal 2024, we expect our annual effective income tax rate will be approximately 26 percent.
Our net income for the first nine months of fiscal 2024 was $47.8 million, or $5.53 per diluted share, versus $66.7 million, or $7.38 per diluted share, in the prior-year period. Our net income for the first nine months of fiscal 2024 decreased due primarily to the factors discussed above. The 2024 period also reflects a pre-tax benefit of $2.2 million related to an adjustment of the settlement charge recorded in the fourth quarter of 2023 to settle our defined benefit pension plan. This benefit was partially offset by $1.2 million of estimated net losses related to Hurricane Helene in September 2024, which is reported within Other operating expenses, net on our unaudited condensed consolidated statements of operations.
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Liquidity and Capital Resources
We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations, cash and cash equivalents on hand, and availability from our revolving credit facility, as needed. We expect that these sources will be sufficient to fund our ongoing cash requirements for at least the next 12 months and into the foreseeable future. As of September 28, 2024, we had $526 million of cash and cash equivalents plus $346.5 million of availability on our revolving credit facility.
Senior Secured Notes
In October 2021, we completed the private offering of $300 million of our 6.0 percent senior secured notes due 2029 (the “2029 Notes”). Interest is payable semi-annually. Our 2029 Notes are scheduled to mature on November 15, 2029, and no principal is due until that time as long as we remain in compliance with the related covenants. As of September 28, 2024, we were in compliance with these covenants.
Revolving Credit Facility
Our existing revolving credit facility (“Revolving Credit Facility”) with Wells Fargo Bank, National Association, as administrative agent (“Agent”), and certain other financial institutions, matures on August 2, 2026, provided we remain in compliance with the related covenants. As of September 28, 2024, we were in compliance with such covenants.
Any outstanding borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) Adjusted Term Secured Overnight Financing Rate (“SOFR”) (calculated as SOFR plus 0.1 percent) plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on SOFR, or (ii) the Agent’s base rate (as that term is defined in the agreement for the Revolving Credit Facility) plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.
Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the agreement for the Revolving Credit Facility). The Company is required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. Our Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium but including all breakage costs incurred by any lender thereunder.
As of September 28, 2024 and December 30, 2023, we had zero outstanding borrowings under our Revolving Credit Facility and available borrowing capacity was $346.5 million, net of undrawn letters of credit. Excess availability, which includes availability under our Revolving Credit Facility plus cash and cash equivalents in qualified accounts, was $872.8 million as of September 28, 2024.
Finance Lease Obligations
Our finance lease obligations consist of leases for real estate, equipment, and vehicles totaling $293.8 million and $285.4 million as of September 28, 2024 and December 30, 2023, respectively. Of the $293.8 million as of September 28, 2024, $243.1 million related to real estate and $50.8 million related to equipment. Of the $285.4 million as of December 30, 2023, $243.2 million related to real estate and $42.3 million related to equipment.
Sources and Uses of Cash
Operating Activities
Net cash provided by operating activities for the first nine months of fiscal 2024 was $66.4 million compared to net cash provided of $230.7 million in the first nine months of fiscal 2023. The decrease in cash provided by operating activities during the first nine months of fiscal 2024 was primarily a result of a $18.8 million decrease in net income for the current year period and a $146.9 million net decrease in operating assets and liabilities in the current year period, primarily inventory.
Investing Activities
Net cash used in investing activities for the first nine months of fiscal 2024 was $19.0 million compared to net cash used of $18.7 million in the first nine months of fiscal 2023. In the current period, higher spending for property and equipment was
24
partially offset by proceeds from sales of assets. During the first nine months of fiscal 2024, we also acquired $16.7 million of property and equipment through finance leases, compared to $11.3 million for the first nine months of fiscal 2023.
Financing Activities
Net cash used in financing activities totaled $42.9 million for the first nine months of fiscal 2024 compared to net cash used of $41.1 million for the first nine months of fiscal 2023. The change in net cash used in financing activities was primarily due to an increase in cash used for payments for finance lease liabilities, offset by a decrease in cash used to repurchase shares to satisfy employee tax withholdings for vestings of restricted stock units. During the first nine months of fiscal 2024, we repurchased $30.0 million of our common stock compared to $29.3 million during the first nine months of fiscal 2023.
Stock Repurchase Programs
During the first nine months of fiscal 2024, we repurchased 297,951 shares of our common stock under our 2023 share repurchase program at an average price of $100.63, including broker commissions but excluding federal excise tax due on the repurchases, for a total of $30.0 million. All of the share repurchase in fiscal 2024 occurred in the second and third fiscal quarters. As of September 28, 2024, there remained $61.5 million repurchase capacity under this authorization. Between September 28, 2024 and October 25, 2024, we purchased an additional 43,240 shares of our common stock for $4.6 million at an average price of $106.34 per share, including broker commissions but excluding federal excise tax due on the repurchases.
Under the 2023 share repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1.
During the first nine months of fiscal 2023, we repurchased 358,212 shares of our common stock under the former 2021/2022 share repurchase program at an average price of $83.52 per share, including broker commissions but excluding federal excise tax due on the repurchases. The 2021/2022 share repurchase program was concluded during the fourth quarter of fiscal 2023.
The repurchase dollar amounts noted above are based on trade date activity, while the amounts reported on our consolidated statements of cash flows for share repurchases are based on settlement date activity.
Net Working Capital
Net working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. Net working capital is defined as the sum of accounts receivables and inventory, less accounts payable, each determined in accordance with GAAP and included in our consolidated balance sheets. This metric differs from traditional working capital in that it excludes certain current assets and current liabilities that are reported in our consolidated balance sheets. Net working capital of $432.3 million as of September 28, 2024, compared to $414.1 million as of December 30, 2023, increased on a net basis by approximately $18.2 million, as shown below:
| September 28, 2024 | December 30, 2023 | September 30, 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Receivables, less allowance for doubtful accounts | $ | 278,049 | $ | 228,410 | $ | 297,568 | |||||||||||
| Inventories, net | 340,541 | 343,638 | 364,162 | ||||||||||||||
| 618,590 | 572,048 | 661,730 | |||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | 186,319 | 157,931 | 202,256 | ||||||||||||||
| Net working capital | $ | 432,271 | $ | 414,117 | $ | 459,474 | |||||||||||
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Investments in Property and Equipment
Our investments in capital assets consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure. The gross value of these assets is included in property and equipment, at cost on our unaudited condensed consolidated balance sheets.
For the first nine months of fiscal 2024, we invested $19.8 million in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet. We also added $16.7 million in new finance leases during the first nine months of fiscal 2024 for new tractors and forklifts to enhance our logistics network.
For the first nine months of fiscal 2023, we invested $18.9 million in cash investments in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet. We also added $11.3 million in new finance leases during the 2023 period for new forklifts to enhance our logistics network.
Critical Accounting Policies
The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks as part of our on-going business operations. Our exposure includes commodity price risk and interest rate risk. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Our management performed an evaluation, as of the end of the period covered by this report on Form 10-Q, under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are, and from time to time may be, a party to routine legal proceedings incidental to the operation of our business. Except as disclosed in Note 9, Commitments and Contingencies, under Regulatory Matters, to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, the Company does not expect that the outcome of any other pending or threatened proceedings, if determined adversely to the Company, would individually, or taken together, have a material adverse effect on our financial condition, operating results, or cash flows, based on our current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Part I, "Item 1A.Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents our share repurchase activity for each fiscal month of the fiscal quarter ended September 28, 2024:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share(2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||
| June 30 - August 3 | 77,241 | $ | 104.54 | 69,267 | $ | 69,152,479 | |||||||||||||||||
| August 4 - August 31 | 16,737 | $ | 101.40 | 16,466 | $ | 67,482,814 | |||||||||||||||||
| September 1 - September 28 | 59,878 | $ | 100.83 | 59,815 | $ | 61,453,701 | |||||||||||||||||
| Total | 153,856 | 145,548 | |||||||||||||||||||||
(1) Includes shares withheld by us in connection with tax withholding obligations of our employees upon vesting of such employees’ restricted stock unit awards.
(2) Includes broker commissions associated with the repurchases. Excludes federal excise tax incurred under The Inflation Reduction Act of 2022.
(3) On October 31, 2023, our Board of Directors announced a new share repurchase authorization for up to $100 million. As of September 28, 2024, we had a remaining authorization amount of approximately $61.5 million under this program. With the remaining availability under the stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None of our directors or executive officers adopted terminated
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ITEM 6. EXHIBITS
| Exhibit Number | Description | ||||||||||
| * | |||||||||||
| * | |||||||||||
| ** | |||||||||||
| ** | |||||||||||
| 101.Def | Definition Linkbase Document. | ||||||||||
| 101.Pre | Presentation Linkbase Document. | ||||||||||
| 101.Lab | Labels Linkbase Document. | ||||||||||
| 101.Cal | Calculation Linkbase Document. | ||||||||||
| 101.Sch | Schema Document. | ||||||||||
| 101.Ins | Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||
| 104 | The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 28, 2024, formatted in Inline XBRL. | ||||||||||
| * | Filed herewith. | ||||||||||
| ** | Exhibit is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended. | ||||||||||
| ± | Indicates management contract or compensatory plan or arrangement. | ||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BlueLinx Holdings Inc. | ||||||||
| (Registrant) | ||||||||
| Date: October 29, 2024 | By: | /s/ Andrew Wamser | ||||||
| Andrew Wamser | ||||||||
| Senior Vice President, Chief Financial Officer and Treasurer | ||||||||
| (Principal Financial Officer) | ||||||||
| Date: October 29, 2024 | By: | /s/ Kimberly A. DeBrock | ||||||
| Kimberly A. DeBrock | ||||||||
| Vice President and Chief Accounting Officer | ||||||||
| (Principal Accounting Officer) | ||||||||
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