BlueLinx Holdings Inc.BXCNYSE
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Operator: Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. And today's call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host, Investor Relations Officer, Thomas C. Morabito. Please go ahead.
Thomas C. Morabito: Thank you, Operator, and welcome to the BlueLinx Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Call. Joining me on today's call is Shyam K. Reddy, our Chief Executive Officer, and Christopher Kelly Wall, our Chief Financial Officer and Treasurer. At the end of today's prepared remarks, we will take questions. Our fourth quarter and full year news release and Form 10-Ks were filed yesterday after the close of the market along with our webcast presentation and these items are available in the Investors section of our website, bluelinxco.com. We encourage you to follow along with the detailed information on the slides during our webcast. Today's discussion contains forward-looking statements. Actual results may differ significantly from those forward-looking statements due to various risks and uncertainties, including the risks described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation. I will now turn it over to Shyam. Thanks, Tom, and good morning, everyone. 2025 embodied grit and determination. Our fourth quarter and full year results demonstrated our ability to grow the business in the face of another year of challenging market headwinds and competitive pricing conditions. Our relentless focus on the company's profitable sales growth strategy targeting both single and multifamily end markets with different disruptive product and service expansion initiatives led to flat net sales and higher volumes at solid margins in 2025 when compared to 2024. Our strategy is working, as it enables us to successfully navigate a market that saw 2025 single family housing starts down 7% year over year. In essence, our disciplined execution of the strategy led to share gains across multiple product lines and customer channels. In terms of M&A, our acquisition of the Distero Lumber Company is going well and performing as expected, which I will speak to in a moment. I would like to offer a few highlights from 2025. We delivered solid full year results thanks to the team's commitment to our product and channel strategies and our business excellence initiatives. As a result, we competed effectively in challenging end markets to win business and achieve solid gross margins of 18% in specialty products and 9.2% in structural products for the year. Our operating cash flow highlights the effectiveness of our disciplined approach to managing inventory in a challenging market environment. Our results reflect the effective commercial and inventory management capabilities we have as demonstrated by our successful efforts to address the inventory build ahead of a normal spring-summer selling season that never emerged. As market conditions improve, those capabilities are expected to translate into materially stronger cash flow. Our fourth quarter results were also solid for the same reasons, though we did have an extra week in the quarter that increased top line, volumes, and SG&A. Revenues rose slightly year over year driven by higher volumes and the addition of the Distero specialty product sales in our financial results, which helped offset continued pricing pressure in structural products that lasted through the end of the year. Specialty and structural gross margins were 18.1% and 10%, respectively, reflecting the strength of our customer value proposition and effective inventory management. Our product strategy remains designed to grow our five key higher margin specialty product categories: engineered wood, siding, millwork, industrial, and outdoor living products. Though our efforts are now more deliberately aligned with the channel growth strategy to yield greater success. Despite market softness, and multifamily sales that generate incremental structural product sales, the specialty products growth strategy led to approximately 70% of net sales and over 80% of gross profit for both the fourth quarter and full year 2025. While our product mix shift objectives remain on track, we are emphasizing strategic channel growth when assessing new product launches and managing working capital, which we believe gives us a competitive advantage. We continue to grow our multifamily channel, fine-tune our builder pull-through efforts with key customers, and expand our national accounts business to more effectively drive sales across key product categories. Our focus on strategic value-added services that align with specific customer needs is also differentiating us in the market, thereby enabling us to gain share and grow in challenging market conditions. We expect the multifamily end market to deliver strong long-term growth as multifamily housing stock is more affordable, which is why we remain committed to investing time, energy, and resources into this channel to augment our institutional sales efforts that ultimately support single family housing starts and repair and remodel activity. Recent year-over-year housing data has reinforced the strategic merits of investing in our multifamily channel, which grew volumes 19% for BlueLinx Holdings Inc. in 2025. From a strategic perspective, it, along with our builder pull-through efforts, provided effective pathways for converting customers to key brands, including Oncenter EWP, Allura fiber cement siding, and GP gypsum products. Naturally, this makes us an even more valuable growth partner to our suppliers, providing opportunities for geographic and product expansion with key partners. On the other hand, multifamily sales have longer inventory cycles and lower gross margins due to sales in a competitive pricing environment. From a vision and long-term competitive perspective, we made significant progress in 2025 on our digital transformation journey to become the provider of choice for both suppliers and customers. These transformational investments are designed to rapidly grow our business at scale with both customers and suppliers by providing an exceptional experience that is highly efficient and effective. These investments will also enable us to drive operational excellence via productivity and efficiency improvements that enhance our gross margins and our EBITDA margins. Phase one was completed in a timely manner and under budget. It included enhancements to our master data management platform and a new Oracle Transportation Management system. Although we successfully launched e-commerce pilots, we decided to place greater emphasis going forward on assisting several of our largest customers with optimizing their more advanced digital marketing platforms, thereby aligning our e-commerce strategy with our channel growth strategy. We currently view AI and current technological advancements as being the broad-based e-commerce solution going forward, rather than traditional e-commerce platforms, though our thinking may change as the fast paced tech environment evolves. As we mentioned last quarter, we are especially excited about advancing our AI initiatives that enable productivity improvements and align with our sales growth strategy and that support our business excellence initiatives. What began as a pilot with a small group in the company has expanded to give most salaried associates the ability to build agentic agents to streamline their work. We have also launched AI agents that help with modeling and data analytics, just to name a couple. We are even developing AI applications that support our core business such as value-add services, inventory management, commercial initiatives, and training. We expect subsequent digital investment phases to further strengthen our commercial, operational, and functional capabilities. Modernizing the business with new technology will set us apart from the competition and accelerate profitable sales growth and operational excellence. From an M&A perspective, we are pleased with the progress we have made with the purchase of Distero, a longtime Portland-based specialty distributor of premium high-margin specialty wood products used in custom homes, decks, and upscale multifamily projects. This acquisition advances our key strategies: increasing our specialty product sales, growing multifamily sales, and strengthening our Western U.S. presence. We believe Distero will be able to grow faster than it otherwise could by leveraging our national distribution network and strong customer relationships. Although it is early, we are pleased with Distero's results and the execution of our integration plan. Our financial position remains strong. We had liquidity of $726 million at the end of the year, including $386 million of cash and cash equivalents. This financial strength gives us the flexibility to reinvest in business initiatives that allow us to increase sales, improve productivity, expand our geographic reach, and provide better service to our customers and suppliers, all while providing us with the foundation to continue weathering soft market conditions. We were also able to opportunistically return capital to shareholders by completing $38 million in share repurchases in 2025. Now for a few more highlights in our full year results, we generated 2025 net sales of $3 billion and $83 million in adjusted EBITDA, for a 2.8% adjusted EBITDA margin. Adjusted net income was $7.8 million or $0.97 per diluted share. We were less profitable in 2025 compared to 2024 due to challenging market conditions and the SG&A impact of investments made to drive our commercial and digital transformation strategies. However, we are pleased that our strategic sales and product expansion efforts led to flat sales and higher volumes at solid margins. Specifically, we experienced 19% volume growth in multifamily, and 17% volume growth with some of our national accounts. Our builder pull-through programs executed in partnership with strategic customers led to key channel and specialty product growth. Our differentiated value proposition led to geographic and product expansion with key suppliers with meaningful year-over-year growth across multiple product lines that align with our channel growth strategy. For example, our EWP sales were roughly flat and our EWP volumes grew by more than 7% on a year-over-year basis despite significant headwinds affecting housing starts. We also delivered solid gross margin performance, despite difficult market conditions and a competitive pricing environment, with specialty products at 18% and structural products at 9.2%. Our relentless focus on the product and channel strategy fueled by our operational and business excellence initiatives such as effective pricing, strong value-add services, exceptional customer service, product expansion gains, and disciplined inventory management helped drive these results. Though the year demanded, our associates remained focused on the profitable sales growth strategy, customer service, and supplier expansion efforts, we did not lose sight of other important strategic levers to drive financial performance and shore up our financial position. For example, we purchased Distero, refinanced our ABL, and executed on certain cost-out and capital improvement initiatives. Now let's turn to our perspective on the broader housing and building product market. The housing market remains soft, pressuring the building materials and distribution sector. Affordability challenges, low housing turnover, and other factors continue to weigh on both housing and repair and remodel activity. We continue to view these pressures as temporary, especially given the persistent housing shortage and potential government policies that could unlock the housing recovery. Long-term fundamentals remain strong for both new construction and repair and remodel work for the foreseeable future, providing a durable value proposition for BlueLinx Holdings Inc. shareholders. Despite lower housing starts and tepid repair and remodel activity in 2025, our product and channel strategies drove share gains, supported by product expansion, builder pull-through, and value-add service initiatives, multifamily efforts, and national accounts attention. Our focus on the company's largest accounts enabled growth, despite low housing turnover and high interest rates. We believe that today's strategy and investments will accelerate momentum across all customer segments when the market improves. Regardless of the near-term market backdrop, we will continue executing our profitable sales growth strategy to gain share at scale today while continuing to make key investments in the business that will position us well for long-term sustainable profitable growth. Lastly, we are also monitoring the various proposals that the administration is exploring to help boost the housing market. While details are still being ironed out, we are optimistic that these proposals could kick-start the housing recovery. In summary, we delivered on our strategic priorities in 2025, as demonstrated by our specialty product expansion results, multifamily channel growth, key national accounts growth, margin performance, digital transformation, the Distero purchase, and our capital allocation initiatives. As a result, we delivered solid results for both the fourth quarter and full year 2025. We believe in our strategy and will continue to execute on it through the current cycle, which will position us for better-than-market growth when the housing recovery begins. I would like to wrap up by thanking all of our associates for their grit, resilience, and dedication during a difficult housing market. Your commitment to our customers, suppliers, and each other continues to drive more profitable specialty and structural product growth across our customer channels in challenging times while positioning us for long-term success. I will now turn the call over to Christopher Kelly Wall, who will provide more details on our financial results and our capital structure. Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter.
Christopher Kelly Wall: Before we get started, I would like to remind everyone that the fourth quarter of 2025 had 14 weeks versus our usual 13 weeks. As a result, our fiscal year also had 53 weeks versus the typical 52 weeks. Overall, both specialty products and structural products delivered solid volumes and gross margins within a challenging macro environment. Net sales for the fourth quarter of 2025 were $716 million, up slightly year over year. Total gross profit was $113 million and gross margin was 15.7%, down slightly from 15.9% in the prior-year period. SG&A was $102 million, up $10 million from last year's fourth quarter. This increase was mainly due to higher personnel expense, the addition of Distero, the extra week in the fourth quarter, and increased sales and logistics expenses driven by our strategic channel growth, including multifamily. Given the difficult demand environment, we remain focused on rigorous expense management and on identifying opportunities to further improve operational efficiency. Net loss for the quarter was $8.6 million, or $1.08 per share, primarily due to higher net interest expense, higher depreciation and amortization, and M&A-related expenses. Adjusted net loss was $3.7 million, or $0.47 per share. And we had an income tax benefit of 28% of the pretax loss. Adjusted EBITDA for the quarter was $13.9 million. Turning now to fourth quarter results for Specialty Products, fourth quarter net sales for Specialty Products were $505 million, up over 4% year over year. This increase was driven by higher volumes in nearly all product categories and modest price increases in millwork and siding, as well as the addition of Distero, partially offset by volume declines in millwork. Gross profit for specialty product sales was $92 million, up 3% year over year. Specialty gross margin was 18.1%, down slightly from last year's 18.4% primarily due to price deflation in certain product categories, partially offset by the acquisition of the higher-margin Distero business. Sequentially, Specialty gross margin increased 150 basis points from Q3 2025. Based on the first seven weeks of Q1 2026, we expect specialty product gross margin to be in the range of 17% to 18%, with daily sales volumes lower than the Q4 2025 and higher than the Q1 2025, which was heavily impacted by severe weather. Now moving on to Structural Products. Net sales were $211 million for Structural Products in the fourth quarter, down 7% compared to the prior-year period. This decrease was primarily due to lower pricing for both lumber and panels when compared to last year, offsetting the higher volumes we drove in those categories during the quarter. Gross profit from Structural Products was $21 million, a decrease of 14% year over year, and structural gross margin was 10%, down from 10.8% in the same period last year. In the fourth quarter of 2025, average lumber prices were about $378 per thousand board feet, and panel prices were about $438 per thousand square feet, a 12% decrease and a 20% decrease respectively compared to the average in the fourth quarter of last year. Sequentially, structural gross margin increased 70 basis points from Q3. And comparing the fourth quarter of 2025 to the third quarter of 2025, lumber prices were down nearly 8% sequentially and panel prices were down about 1%. Based on the first seven weeks of the current first quarter, we expect Q1 gross margin for Structural Products to be in the range of 9% to 10%, with daily sales volumes down versus the fourth quarter of 2025 and up compared to the first quarter of 2025, once again due to the severe weather experienced last year. For the full year, net sales were $3 billion in 2025, flat compared to 2024, largely due to volume growth in several categories and the Distero acquisition, offset by lower price deflation in both specialty and structural products. Specialty sales were up slightly in 2025 due to higher volumes and the Distero acquisition, partially offset by price deflation in several categories such as EWP and millwork. Structural product sales were down slightly as, similar to specialty, higher volumes were offset by price deflation. Total gross profit was $452 million for the full year and gross margin was 15.3%, 130 basis points lower than the prior-year period. SG&A in 2025 was $381 million, up 4% versus the prior-year period due to the acquisition of Distero, the extra week in fiscal 2025, increased sales and logistics expenses driven by our strategic channel growth, as well as investments we have made in headcount and technology to drive our strategy and long-term earnings growth initiatives. For 2026, we expect our SG&A expense to increase slightly as a percentage of sales due to the addition of Distero, an increase in strategic sales headcount and additional material handlers to deliver on expected volume growth, and overall inflation in wages and other expenses such as fuel and health care costs. Net income was $219,000 for the full year, and diluted EPS was $0.02 per share. Adjusted net income was $7.8 million and adjusted diluted EPS was $0.97 per share. The full year tax rate was not meaningful given the level of our pretax income, and for the full year 2026, we anticipate our tax rate to be approximately 25% of pretax net earnings before $3 million to $4 million of permanent nondeductible items impacting the tax rate. And for the full year, adjusted EBITDA was $83 million. Turning now to our balance sheet. Our liquidity remains very strong. At the end of the quarter, cash and cash equivalents were $386 million, a decrease of $44 million from Q3 largely due to the Distero acquisition, which, as a reminder, was purchased with cash. When considering our cash on hand and undrawn revolver capacity of $340 million, available liquidity was approximately $726 million at the end of the quarter. Total debt, excluding our real property financing leases, was $381 million and net debt was a negative $5 million. Our net leverage ratio, given our positive net cash position, was a negative 0.1 times adjusted EBITDA, and we have no material outstanding debt maturities until 2029. Additionally, given the strength of our balance sheet and continued strong liquidity, we remain well positioned to support our strategic initiatives. These strategic initiatives include continued growth with our largest customers, and in the multifamily channel, with this focus also benefiting our smaller customers, demand pull-through efforts to drive strategic product sales that benefit our customers, continued specialty product expansion with key suppliers, our digital transformation efforts, and other organic and inorganic growth initiatives. Now moving on to working capital and free cash flow. During the fourth quarter, we generated operating cash flow of $62 million and free cash flow of $56 million primarily due to effective working capital management, particularly as it relates to driving our inventory levels lower to be in line with the current demand environment, partially offset by the cash impact of lower earnings in the quarter. For the full year 2025, during the quarter, we incurred $5.4 million of CapEx, generated operating cash flow of $60 million and free cash flow of $33 million. Turning now to capital allocation, primarily related to our digital investments, normal replacement of aging components within our fleet, and the typical maintenance and investment in our branches. For 2026, we plan to manage our CapEx in a manner that reflects current market conditions and allows us to maintain a strong balance sheet. Our remaining capital investments will focus on facility improvements, further replacement of trucks and trailers, and the technology improvements previously discussed. Also, we did not repurchase any shares during the fourth quarter. For the full year 2025, we repurchased shares totaling $38 million. At year end, we had $58.7 million remaining under our previous share repurchase authorizations. Our guiding principles for capital allocation remain consistent with prior quarters. We intend to maintain a strong balance sheet which enables us to invest in our business through economic cycles, expand our geographic footprint, and pursue a disciplined inorganic growth strategy as demonstrated by our acquisition of Distero, and opportunistically return capital to shareholders through share repurchases. We also plan to maintain a long-term net leverage ratio of two times or less. Overall, we are pleased with our solid fourth quarter and full year 2025 results, particularly in light of current market conditions. Operator, we will now take questions.
Operator: Thank you. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Once again, to ask a question, please press star followed by the number one. Our first question comes from Jeffrey Patrick Stevenson from Loop Capital Markets. Please go ahead. Your line is open.
Jeffrey Patrick Stevenson: Hi. Thanks for taking my questions today. You know, first up, you know, specialty products gross margin reported a nice sequential improvement during the fourth quarter and returned to your previously discussed normalized 18% to 19% range. And I wondered if you could provide more color on what were the primary drivers of the sequential improvement you saw in segment margins during the quarter?
Christopher Kelly Wall: Yeah. Hi, Jeff. It is Kelly. So I think part of the improvement, if you recall, we talked last quarter, we had some one-time rebate-related true-ups with one of our vendors and that represented about half of the increase. It is really been normalizing for what we would expect in a typical quarter, and, you know, I guess the rest here is just continuing to maintain, you know, discipline, right, as we continue to price into what continues to be a challenging market. And what I would say is that as we move into 2026, right, we would, you know, kind of similar to the trend that we have seen in the back half of 2025 with the kind of a normalization or flattening, if you will, of the decline that we have seen over the last two or three years in that specialty product margin, we are expecting in 2026 to be relatively flat to the margins that we experienced in the fourth quarter.
Shyam K. Reddy: And just to add, Jeff, you know, obviously, with soft market conditions, it is a competitive pricing environment. But given our go-to-market strategy with respect to product and channel, we are really leveraging our value-add services on top of key investments we have made to support those channels to really maintain our pricing at acceptable levels that correspond to the value we are providing, whether it be on project management, takeoff services, certain CapEx investments we are making to drive various product-related value-add services, and so on. So we are really proud of what we have been able to do over the last year in an incredibly challenging housing environment with respect to not only volume growth, but maintaining those margins you were asking about.
Jeffrey Patrick Stevenson: No. That is great color, and I appreciate all the detail. And, you know, maybe kind of following up on, you know, specialty product pricing, in addition to some of the initiatives you have done internally, you know, we have heard from, you know, one of your competitors that, you know, EWP price has largely stabilized and, you know, we are likely at the bottom as far as sequential declines go unless the builders' spring selling season comes in worse than anticipated. And, you know, wondered if you would, you know, agree with that from what you are seeing in your business and, you know, maybe, you know, could talk about a broader, you know, pricing outlook in the segment as we move into the '26.
Shyam K. Reddy: Yeah. I would say based on, you know, our conversations, well, between looking at macro-level data and conversations with customers, suppliers, and other stakeholders, we absolutely agree with that. We do think it has stabilized. But coming back to our value proposition in the market, there are various, you know, creative programs that we have developed on top of channel focus with multifamily, for example, that puts us in a more competitive position as it relates to driving, for example, EWP volumes while maintaining solid margins and being above the fray when it comes to an incredibly competitive pricing environment due to market conditions. But to your question, yes. We agree with that statement.
Jeffrey Patrick Stevenson: Got it. Got it. Understood. And then, you know, lastly, you know, just, you know, appreciate the update on kind of where things stand with your technology investments. And, you know, wondered if you could provide, you know, additional thoughts on, you know, why you pivoted away from, you know, you know, an internal e-commerce, you know, platform, and now that, you know, there is more AI opportunities. And then, you know, moving forward, you know, you talked about, you know, a larger phase two, you know, with things like, you know, warehouse management system. Is that still in the cards over the coming years, Shyam?
Shyam K. Reddy: Yeah. So to take your first question on e-commerce, I am sure you are in the same boat as us where you cannot pick up a paper every day or listen to something on the news where AI is rapidly changing the tech environment. So, for example, it is not out of the realm of possibility that people will be able to execute on e-commerce orders via ChatGPT or Claude or Perplex or one of these other AI platforms, or X off OpenClaw, which is all the big rage over the last couple weeks. You know, you have got vibe coding that is taking place as well where people can very quickly spin up new applications in order to drive sales internally as opposed to relying on third-party platforms. All of that is to say that I think it would be foolhardy to spend millions of dollars investing in an e-commerce platform that is based on traditional notions that could be obsolete before we even got through phase one of it. So the idea is to take a step back and invest on the digital e-commerce side in a way that aligns with our channel strategy and where we are driving sales. So with our biggest accounts, being more aligned with them to drive accelerated sales off their platforms and to really accelerate growth from a digital commerce standpoint that way, while continuing to evaluate the landscape and figure out ways to jump in as quickly as possible as the tech landscape changes. As it relates to WMS, we absolutely believe in WMS. In fact, we have a very successful pilot that has shown, you know, promising results. And so the idea would be to invest in a very responsible way over the coming, you know, twelve to twenty-four months, you know, in other facilities beyond what we already have. So, you know, we have bin locations and a variety of other things that support operational excellence and, you know, in a $3 billion top-line distribution business, we have that. The idea is to take it to the next level. And the recent pilot showed that it makes great sense to do so. So that is the plan over the next twelve to twenty-four months to make those targeted investments where it makes the most sense. The good thing is we are now further along in what that solution looks like than we were, call it, two years ago.
Jeffrey Patrick Stevenson: Great. Thank you.
Thomas C. Morabito: Yeah.
Operator: As a reminder, to ask a question, please press star followed by the number one on your telephone key. Next question comes from John McGlade from The Benchmark Company. Please go ahead. Your line is open.
John McGlade: Hey, guys. This is John on for Reuben. Just congratulations on the quarter.
Shyam K. Reddy: Thanks, John. Thank you.
John McGlade: So I just wanted to ask kind of two and a half questions here. First one, just curious with with kind of how the market landscape has been over the past few quarters and how it looks like it is going to head into this year. Could you maybe give us some additional color on how your customer conversations have shifted? Maybe they are viewing the value of your services differently in the way that they are operating day to day.
Shyam K. Reddy: Sure, John. Good morning. Yeah. I would be happy to do that. So if I think about the market landscape over the last few quarters, it is not lost on me that beyond just housing starts, whether it be total housing starts or even single family housing starts, that beyond that, if you look at housing expenditures as a percent of overall GDP and where that sits, there have been sequential quarterly declines over the last year. And then if you look at housing burden, the cost of housing burden over the last four quarters, that has continued to go up. And then if you look at personal consumption expenditures, those are also, as it relates to repair and remodel and some other key indicators with housing, those are also very much down. So all of that is to say besides what everybody talks about, there are additional macro statistics that suggest an incredibly weak housing market. All of that said, the fact is we have grown share and we have maintained top line year over year at solid margins because of the investments we have made to drive value-add services. Whether that be, you know, on the multifamily side, the channel focus as it relates to multifamily and certain key customers, we are able to drive greater conversions into our product lines, namely with EWP, for example, or on the siding front. With multifamily, we have converted off, you know, one of the more popular, one of another competitive suppliers out there that we do not carry in the GP DENS product. So the fact is that we have taken our strategy and we have gone out to the marketplace with our customer base and our supplier base to show them that even in soft market conditions, we can actually grow their business. And we have done that, and we have proven it. And as a result, our customers and our suppliers are absolutely seeing the value of two-step distribution as it relates to BlueLinx Holdings Inc. and what we can do to help them grow their business. So on the customer front, it is helping them help their customers grow their business, especially in these tough times. And then for our suppliers, it is really a commercialization play. We are absolutely helping them commercialize their product not only with traditional customers, but also via the multifamily channel and growing their business at a time when they may not have thought it was going to be more difficult. So that value-add opportunity that we provide those two constituent groups is very strong for us, as our results have demonstrated in 2025. And, also, I would add one additional thing to that, which is if you look at the fourth quarter in particular, a number of our customers, if not all of our customers, were very focused on managing inventory levels as tight as they could. In that environment, that is good for two-step, right? Because, you know, we sit here ready to kind of fill their orders, right, that they may not be able to fill efficiently out of the inventory stock that they are currently carrying. Part of the margin increase that we saw on the structural side in the fourth quarter was due to that, right? We had a relatively flat pricing market in terms of input costs, but with our customers at lower inventory levels, they were utilizing two-step more than they did last year. And that is where we saw our volumes increase. We saw a similar thing across key specialty product categories as well.
Shyam K. Reddy: Yeah. And just to add on that, absolutely. And so whether it is a destocking or whether it is tough market conditions, two-step can benefit just by buying—we will put aside—just in soft market conditions, customers will buy less more often, right? That is one of the opportunities for two-step distribution. I would say though that if you look at us relative to what may take place at other companies, our ability to meet that less-more-often desire on the part of customers while maintaining optimal inventory levels through our own working capital management capabilities, which I continue to feel are second to none, I think it is a pretty noteworthy competitive advantage we have because we were able to meet our customers' expectations, manage our inventory levels accordingly, end the year with a strong cash balance, especially compared year over year in light of a soft selling year, and yet maintain good margins. Right? We did not have to—because we are able to match up or marry up the inventory levels with the customer demand, while selling the value-add and other services we provide, we were able to maintain those solid margins, optimal inventory levels that did not compromise our ability to grow volumes as demonstrated by the results and, of course, maintain pricing at appropriate levels to ensure year-over-year flat sales in an otherwise tough market.
John McGlade: Okay. That is fantastic. I really appreciate the deep dive there. Just one other thing, and I know it has been a focus, and I know last quarter you guys shared just really kind of the exceptional level of service you have been providing in the multifamily sector. It sounds to me like you really may have shifted there before others decided that was going to be more of a priority this year for the end markets. Obviously, those projects have a longer timeline than single family. I was hoping you might be able to give us a rough estimate on when you kind of expect to see that increased activity, increased interest starting to flow through. We have heard from others that it is more of a late Q3, Q4 event for them.
Shyam K. Reddy: Sorry. You are talking about multifamily?
John McGlade: Yes.
Shyam K. Reddy: Yeah. So, yeah. Yeah. So let me just be clear, John, given the affordability crisis in housing, and if you look at housing as a percentage of GDP and where it has been going over the last couple years, especially over the last four quarters, it is clear that multifamily is going to be, in my view, the solve to bending the cost curve as it relates to housing pricing, especially given the demand or the need to put people in homes over the next ten years. So whether it is good or bad, our strategy is designed to take more and more multifamily share and to grow our multifamily business. So it is kind of all over the map. If you look at the forecasting, it changes from month to month and quarter to quarter. When people were running away from multifamily, we were running into the fire because we strongly believe that if you build more faster, against the backdrop of the current regulatory environment, you could help bend the cost curve and get more people into homes. And so we have designed our product strategy and our go-to-market strategy as it relates, from a channel perspective, to take advantage of the multifamily housing starts that are out there, number one. Number two, if you look at kind of the way the financing market works and the instruments that people typically use in order to finance multifamily housing, the rate environment is favorable as it relates to that from a short-term standpoint given the recent rate cuts because their instruments are based on short-term rates by and large. By the way, that is similar with some aspects of our industrial business and the OEM market, like manufactured housing. That is also supportive of kind of where you see that rate environment relative to where long-term rates may be. So the long-winded answer to that question is, I do see multifamily continuing to improve over time, mainly because there is an absolute need for multifamily housing in the context of an affordable housing crisis, number one. Number two, between the rate environment and our channel and product strategy, I am absolutely convinced that we will continue to grow multifamily share over the coming years because we have built capabilities to support that share growth, which came to fruition in 2025 with 19% volume growth year over year.
John McGlade: Okay. And I guess I might have thrown you off a little bit there on the initial question. But maybe if I could pin you down and just try and get an idea of, like you said, you guys are running into the fire when everyone else was running out. I guess, how much of a head start do you think that that might have given you?
Shyam K. Reddy: I think it has given us a huge head start because if you look at it—okay. So two things. Number one, in order to grow that channel, it truly does take endurance, stamina, and investments in key services that you might not otherwise find elsewhere. So, for example, we have invested in enhanced capabilities when it comes to takeoff services, which is something that historically two-step distribution has not had. And we have those capabilities around takeoff services that allow us to respond to—basically look at plans and be able to drive our product sales through those multifamily projects in a way that we could not have otherwise done a few years ago, number one. So that is just one example. The other is project management services and the working capital management associated with supporting multifamily projects where you have to keep—we have got some—we have ways of making the sales but then managing the inventory through our warehouses with reload services and other working capital management levers that support those multifamily projects in a way that is good for our business. That is not necessarily easy to do overnight, okay? So we have got that, and that supports the project management piece. We have also invested CapEx into specialized equipment that allows us to deliver to multifamily job sites, for example, in urban environments at two in the morning. Right? That was a nuanced approach to our CapEx strategy that aligned with the channel strategy that gave us a head start. And then last but not least, I would suggest that the personnel investments we have made between what we have at a corporate level combined with field resources to drive business development in the multifamily channel distinguishes us from maybe others in the space. And those BD resources, those resources out in the field combined with the scalable capabilities that we are offering from an enterprise-wide basis, allows us to bring our customers into the mix and have channel partners get more closely aligned with those end developers, and ultimately provide us a means by which we can convert jobs into our product offerings, whether it be siding, for example, or EWP, or GP DENS, and so on. So we have a head start because we have invested CapEx and OpEx to drive it, and then there are these value-add services that others do not necessarily have that are enabling, or giving us a competitive advantage, I think. So I do believe we are ahead of the game.
John McGlade: Alright. Thank you so much for the color. I took up so much time. I will pass it on now.
Shyam K. Reddy: Alright. Thanks, John.
Operator: Our next question comes from Aditya Madan from D.A. Davidson. Please go ahead.
Aditya Madan: Hi. It is Adi on for Kurt today. Thank you for taking my question and for all the details so far. A lot of my questions have been answered. But a couple of them are around the incremental cost maybe from the AI focus versus the traditional e-commerce platform. What do those incremental costs even look like and is there any rough timeline you have in mind for rolling it out?
Shyam K. Reddy: Okay. So Adi, I really appreciate the question. But I think if I gave you a timeline, it would be obsolete a week from now. So I honestly do not know. I will say that the incremental costs are also unknown. But suffice it to say that they would be, in the scheme of things, kind of immaterial relative to traditional costs that would go into a regular e-commerce platform. You know, with AI, as we have all seen, there are virtually zero barriers to entry for all, at least for now. I mean, who knows what it is going to be when the investments catch up down the road that others are making, not us.
Aditya Madan: So I—
Shyam K. Reddy: You know, as it relates to e-commerce, I do not know, quite frankly. But I do know that the future looks bright. Just if you look at some of the recent announcements with some of the big Fortune 50 companies and their partnerships with some of the most prominent AI platforms, I mean, there is a world where people will just go into a ChatGPT or, you know, Claude and direct it to buy something off one of their, you know, rewards accounts, whether it be a Walmart Plus or, you know, Amazon or something else. And people may never even go to the traditional e-commerce platforms anymore, which is why I do not know what the future looks like.
Shyam K. Reddy: As it relates to our AI investments that we have made to drive—which, incidentally, are aligned with our commercial strategy as well as just productivity improvements or giving our employees what I very affectionately describe as an Ironman suit—have really enabled our folks to just be more productive. Do we have any measures on it? Absolutely not. It is too early to know. But as it relates to AI applications, we are—
Thomas C. Morabito: We are—you know, we as I said in my remarks—
Shyam K. Reddy: We have developed AI tools for people to assist with modeling. So, for example, you know, in the traditional way, someone would normally have to call an associate, one of their teammates in FP&A, to help them with the model. Now there is an actual AI application or AI agent they can use to build a model before they even have the conversation with our FP&A team, which is exciting. You know, from a benefits perspective, we have benefits chatbots that our teammates are able to use in order to answer standard benefits questions or get their arms around something before they might have a call with a benefits specialist. And then, of course, on sales, for instance, you can use our AI agents to help you build sales plans, sales execution plans, especially given the data, the access to data that folks have through our BI intelligence platforms via Microsoft. So all of that is to say there really is not any incremental cost as it relates to our employees using the AI platforms that are part of our Microsoft suite of products. But, you know, as the future continues to develop, I do not know what that is going to be. I mean, there is clear cost associated with software engineering and building connections into the systems that we are still trying to figure out, but for now, we are just focused on making sure that our data architecture is—
Aditya Madan: Got it. So it is mainly been, like, an internal focus, yeah, and not external client-facing just yet?
Shyam K. Reddy: Is well designed to be able to take advantage of that next frontier of technology. Well, I would not say—so our tools, our folks can use the tools to make them better client-facing teammates. As it relates to someone from the outside accessing an AI agent, for example, to place an order, that does not exist yet, you know? But those are absolutely the kinds of things that we think about. You know, for example, just to give you an example, let's say someone sends in an email—
Aditya Madan: Asking for a quote.
Shyam K. Reddy: And we set up an inbox to take those quotes, there is a not-too-distant future state where a fax and email message could get routed into an AI agent that takes that information, links with our ERP, i.e., Agility, and then puts forth a quote, generates a quote that one of our sales associates can review and then execute on, right? Whether it is picking up the phone and calling or using the agents and then respond accordingly at scale so that we can process more, faster. Those are absolutely the kinds of ideas that we are exploring. But nothing in action yet. Let us just put it that way.
Aditya Madan: Got it. Yeah. That makes sense. And maybe when you are looking at M&A pipeline right now, how are you thinking about growing the acquisition to fill in the white space on the West Coast, specifically maybe to complement Distero versus buybacks?
Shyam K. Reddy: Yeah. It is absolutely an important piece of our strategy. So as we think about our M&A strategy, it is two-pronged, and that is grow our specialty product mix, which Distero absolutely did, and, secondly, you know, support geographic expansion. Distero actually accomplished both, more so on the front end with respect to specialty distribution, and then as it related to geographic expansion, it just further strengthened our Pacific West Coast presence. But those are absolutely two prongs. We have got, you know, a pipeline of potential targets that we are regularly evaluating. You know, we use shows like IBS and one-on-ones over the course of the year to continue nurturing those relationships so that we can be opportunistic when the time comes.
Aditya Madan: Awesome. Thank you for taking my question. For all the detail. Good luck here in the first quarter.
Shyam K. Reddy: Thanks. Thanks, Adi.
Operator: And we have no further questions. I would like to turn the call back over to Thomas C. Morabito for closing remarks.
Thomas C. Morabito: Thanks, Julian. Thank you again for joining us today, and we look forward to speaking with you in May as we share our first quarter 2026 results.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.