Caroline Lowden - Director Finance Mitch Lewis - Chief Executive Officer Susan O’Farrell - Chief Financial Officer.

Tristan Thomas - Sidoti Alan Weber - Robotti & Company Mark Kaufman - MLK Investment Management.

Good afternoon. My name is Angel and I will be your conference operator today. At this time, I would like to welcome everyone to the BlueLinx Third Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions).

Thank you. Ms. Lowden, you may begin..

Thank you, Angel. And good afternoon everyone. Thank you for joining us to the BlueLinx third quarter 2014 earnings conference call. This call is being webcast on the company’s website at bluelinxco.com. The earnings release and presentation slides for this call can be found in the Investor Relations section of the company’s website.

This presentation includes statements about our expectations for future, operational and financial performance as well as our credit agreement, liquidity position and capital structure that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are subject to a number of risks, uncertainties and assumptions that could cause our actual results to differ materially from those provided, including, but not limited to risks and uncertainties with respect to economic, governmental and technological factors outside of our control and changes in the supply and/or demand for products we distribute, particularly as a result of conditions in the residential housing markets.

These and other factors that could cause actual results to differ materially from forward-looking statements are discussed in greater detail in our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date of this presentation. We undertake no obligation to revise them in light of new information.

Finally, we undertake no obligation to review or confirm analysts’ expectations or estimates that might be derived from this presentation. This presentation includes references to adjusted EBITDA, which is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission’s Regulation G.

A reconciliation of GAAP net income to adjusted EBITDA is included as an appendix and is posted on our website at bluelinxco.com. Our speakers this afternoon are Mitch Lewis, Chief Executive Officer; and Susan O’Farrell, Chief Financial Officer.

Mitch will begin the call this afternoon with comments on the current results and a review of the business, then Susan will review the financial statements before opening the call to your questions. With that, I’ll turn the call over to Mitch..

Thanks Caroline and good afternoon. I’d like to talk briefly about the highlights of our third quarter and what we’re focused on and then I’ll turn it over to Susan who will walk you through our financials in more detail. Our third quarter was another solid quarter where we enjoyed improving results compared to our prior year performance.

Our adjusted EBITDA of $11.1 million is a $3.9 million or 54% improvement from Q3 in 2013. It’s first time we had back-to-back quarters over $10 million since prior to the economic meltdown began at the end of the 2008. We’re pleased that the initiatives and efforts of our team of providing momentum in our performance and we’re just getting started.

Our revenue for the quarter for the first time this year exceeded our 2013 performance on the same center basis as a markets continued their modest improvement. Same center sales for the quarter were up 3%, but to be fair, this increase was below the single-family housing starts increase of 7.1% for the quarter.

As have been the case really all year along, our specialty products have outperformed our structural products on a comparative basis.

We’ve discussed previously the long inventory position we took in structural products in the first half of 2013 and we sold off the remainder of this position in the third quarter of 2013, which again impacted our volume in structural products and led to the decline in our comparative structural sales in the third quarter of this year, which were down by 1.7%.

Our specialty sales continue to performance better and increased from the third quarter of 2013 by about 6%, which is pretty much on pace with the increase of single-family housing starts for the quarter.

While we did experience another decline in our structural product category, I think it’s important to emphasize that our goal is not to focus on the sales of our specialty products to the detriment of our structural products.

The primary value we bring to our customers has been the full scale building products distributor with thousands of building products to sell and this requires having all the product categories our customers need, which of course include structural products.

Also as we continue our focus on contribution margin rather than just gross margin, we now more fully understand that the cost to serve our customers is often lower within our structural product category.

The bottom-line is that we’re working hard to profitably serve our customers with the products they want and that certainly includes our structural product category. You should be aware that we recently initiated a strategic directional shift to increase local economy of BlueLinx.

It’s clear that our markets across United States vary greatly when you look at virtually any component of our business whether it’s our product, supply base, customers, brand preferences, fragmentation or even the competitive landscape in which operate. So, we’ve made the decision to give our local general managers more control over local decisions.

We spent two to four weeks over the last few months having detailed strategy sessions with each of our local general managers at BlueLinx. And what is appearing after these discussions is that there is tremendous opportunity at BlueLinx to grow our business.

We plan to do this by expanding our sales to customers who we don’t currently serve, while also growing the share of the existing products we offer to our current customer base. We want to utilize the vast array of products we currently carry, which today exceeds 10,000 products to capture share in our markets.

We’re also investigating adding or enhancing very light manufacturing capabilities to the organization. These investments would have relatively small capital requirements and we believe would enable us to add more value to our customers and suppliers, while increasing our returns on the products we sell.

We look forward to sharing with you some of these successes in these areas in the months ahead. We’re also now making good progress on several of our operational initiatives. We have initiated our sales and inventory operational process and are working to ensure we have the appropriate inventory levels required to effectively service our customers.

To be clear, I would not expect a significant reduction in our inventory levels in the first few quarters of this process. We’re actually more focused on converting our investment in underutilized inventory and to SKUs where we believe we have the opportunity to grow our volume.

We believe we’ve missed some good opportunities to grow our business simply by not having plenty of inventory in our existing products when demand spiked in certain product categories. So for now, we’ll be focused on both reducing excess inventory while making sure we have the products our customers need.

We’ve also made progress in our efforts to improve our logistics and operational performance. Just one example of this is the work we’ve done to improve efficiency in the truck routes we used to deliver products to our customers.

In the third quarter, the sales that were shipped out of our warehouses from our existing locations, increased by approximately 3.2%. At the same time, we were able to ship these additional products to our customers while driving approximately 130,000 fewer miles and were able to save around $2,000 in fuel cost during the quarter.

This efficiency improvement also enabled us to decrease our seasonal outsourcing to third-party carriers during the quarter by around $150,000. So, we’re making good progress and yet significant operational efficiency opportunities remain.

As you’re likely aware, now is the time of the year when our industry becomes intensely focused on next year’s housing starts. I’ve personally talked to numerous suppliers, customers and even several economists about 2015 expectations.

I can tell you at this point that economists covering residential housing tend to be much more optimistic than our suppliers and customers. The economists tend to continue to look at how low current housing starts are relative to historical levels which of course on a state that certainly caused for optimism.

Our customers and suppliers have not been as aggressively optimistic and generally we’re hearing 2015 estimates of growth in the 5% to 10% range.

But we’re not relying on these forecasts to drive our activity of BlueLinx, rather we’re planning to make sure that we’re ready to ramp up if the markets take off next year or scale down in the event the industry hits its peak level.

As we enter into the fourth quarter of 2014, we’re now looking back at a year where it appears we have turned the corner of BlueLinx. Our year-to-date adjusted EBITDA is $22.7 million and this is after five straight years, since the economic downturn in 2008 where we had little to no annual EBITDA.

We’re also entering now the fourth quarter which typically slows down and as I’m sure you’re aware is a period in which the performance in residential construction and building products is notoriously reliant on weather conditions. And we have seen a slight softening in our markets over the last couple of weeks.

Rest assured, we are discussing contingency plans in the event of another harsh winter to help mitigate the impacts of a significant volume decline. But based on what we’re seeing today, our expectations are that 2014 will be the best performance we’ve had here in many years. And the really good news is that we’re just getting started.

And I’d like to personally thank our BlueLinx associates for their collective efforts to quickly capitalize on the opportunities we have to drive improvement at our company. This organization scale, footprint and customer and market intimacy bode well for a long and prosperous run in the years ahead as the housing market recovers.

And now I’d like to turn it over to Susan who will discuss our numbers with you in more detail..

Thank you Mitch and good afternoon everyone. It’s a pleasure to speak to you about our business and our third quarter results. For those of you following along, I will begin with slide 10. Revenues for the third quarter ended October 1, 2014 decreased by 1% to $549.8 million from $557.9 million in the third quarter ended September 28, 2013.

On a same center basis, 2014 third quarter revenue increased $14.3 million or 3% compared to the fiscal third quarter of 2013. The factors driving this increase were unit volume growth in our specialty business as well as higher pricing in plywood and lumber categories.

Gross profit for the third quarter totaled $64.6 million, an increase of $2.1 million or 3% from $62.5 million in a year ago period. Gross profit on a same center basis for 2014 fiscal third quarter increased by approximately $3 million or 5% compared to the fiscal third quarter 2013.

Gross margin increased approximately 50 basis points from the third quarter 2014, up 11.7% from 11.2% at the fiscal third quarter 2013. Our third quarter gross margin showed improvement for the year ago period to the lower margins realized last year as we sold through inventory from the five locations we closed.

Additionally, our margin improvement in the fiscal third quarter 2014 can be attributed to a higher pricing in our specialty business where we saw improvement in 15 of our 21 product categories. As Mitch shared with you, we continue to work on improving not only our gross margin but our overall bottom-line.

We have implemented the contribution margin tool that enables our general managers to have better line of sight to not only gross margin, but also our cost to serve. Our teams are working to better understand the contribution of our products in the markets we serve. We believe this will enhance our ability to improve our business.

Our operating expenses were $58.5 million, compared to $59.4 million for the same period a year ago. As of the end of the third quarter 2014, we have fully realized the cost savings due to the restructuring last year and have actually exceeded our $13 million savings target by approximately $2 million.

We achieved these additional savings through additional expense control and G&A, payroll, travel and supplies. Continuing on slide 11, the company had a net loss of $0.9 million or $0.01 per diluted share for the fiscal third quarter 2014, which has improved from the net loss of $3.2 million or $0.04 per diluted share for the year ago period.

Unfortunately we had some special items recorded this quarter, primarily a $2.4 million there for restructuring, severance, debt fees and other, without which, our net income would have actually been $1.5 million.

Finally adjusted EBITDA for 2014 fiscal third quarter improved to $11.1 million from an adjusted EBITDA of $7.2 million for the same period a year ago up $3.9 million or 54%. Turning to cash flow on slide 12, our cash usage for the year-to-date improved by $17.4 million compared to year-to-date usage as of the third quarter 2013 of $17.8 million.

This decrease in cash used by operating activity primarily reflects our improved earnings over the year. As we turn to slide 13, our working capital reflects the seasonality in our business.

Our net working capital as of the end of the quarter decreased by 2.5% compared to the prior year period due to the seasonal increase of our current maturities of long-term debt. We anticipate current maturities of long-term debt [even slow] on a seasonal basis.

Other components of working capital increased due to demand, seasonal payment patterns and increased purchasing volumes related to that increased demand. Moving to slide 14, we had approximately $88 million of excess availability under our asset-backed revolver credit facilities as at the quarter-end.

That’s approximately $43 million above our minimum availability requirement on our U.S. revolving credit facility as of October 04, 2014.

Moving into winter and due to the seasonal nature of our business, we expect lower inventory levels throughout the winter, which long-term will lower our availability under our ABL as at the normal course of business. As of October 04, 2014, the combined debt balance on our mortgage and revolving credit agreement was $455.8 million.

Of that total, our mortgage balance is approximately $178 million not including our prepaid principal of $4 million held by our lenders as of October 04, 2014. As we announced in August of this year, we amended our U.S. revolving credit facility in the third quarter extending the $20 million tranche A loan final maturity date to June 30, 2015.

As we finished the year, we continue to examine favorable debt financing, refinancing structures and strategies for the future. That concludes my remarks. So with that, Angel, we’d like to open up the lines to any questions we might have..

(Operator Instructions). Your first question comes from Tristan Thomas of Sidoti..

Hey, how is everyone?.

Good. Good afternoon, Tristan..

A couple of questions. First, Mitch you mentioned the -- forgive me if I’m not quoting a 100% right, but social products are actually at lower cost for you to get to your end consumer than specialty.

Can you maybe provide just a little bit more color on that?.

Yes. So, one of the things and Susan alluded to this, what we’re really becoming jealous about is the contribution margin overall product offering.

And so, as you look at lower gross margin products to the extent for example you’re selling carloads of those products that for example has a lower cost and then when you’re selling a much smaller proportion of the truck, so you may have lower handling costs, you fill up the trucks, you have a lower a prudent unit of freight cost associated with the product category as well.

So, we talk a lot about the gross margin of the business. And the one thing I wanted to just highlight was that sometimes while the gross margins look lower, it doesn’t necessarily tell the whole story..

Okay.

So, is that simply just kind of an aspect of just as volume increases, structural become more efficient?.

Yes. We think generally the structural which are much more commodity-based, there is a higher percentage that might be direct ship sales for example that has very low cost for the company, more higher reload percentages, which may have a lower cost as well.

But for sure for all of our products as volume increases, the unit, logistics and operational costs should decline..

Okay, got you.

So, what’s typically you’re going to do to try to drive structural volume?.

Wells, one of the things that’s emphasizing it, I mean we have gone through a very rigorous process just recently in our incentive programs.

We haven’t fully announced this yet to the team, but we’re looking at changes that we made last year that we think were actually counterproductive and might have negatively impacted the sales of some of the products.

The focus again on looking at the overall contribution margin and the return on invested capital associated with the sales also I think drive us to better decisions and enable us to understand that we could actually can sell a lower gross margin that actually may have a higher return on invested capital for the company..

Okay.

So, will it be kind of your ideal product mix in structural and specialty compared to where it is now?.

Yes. And that’s a great question. We really aren’t set, we’re not setting targets, so no. Historically we’ve talked a lot about really trying to drive the organization to specialty mix. And that’s one thing I think is important to understand that the legacy of this company certainly has been much more into the structural basis. It’s enabling for us.

I talked about try and get more share of the wallet from our existing customer base and part of that is giving them a product that maybe a lower margin might enable us to get products at higher margin.

So, really we’re trying to push down decision making into the organization enabling them to make good local decisions and they need to look at the products and the customers on an independent and local basis. And we don’t really have a target for the mix at all..

Okay.

Just could you touch on some of the local bridge making, how long has that been implemented?.

We really rolled it out in terms of we had a strategic Board meeting in August where we talked about it at [Linx] with the Board of Directors and basically walked away from that was the decision to go to the organization and communicate that.

So, I would say that end of August we started the communication and then we had these -- there were basic three hour sessions with roughly 30 independent general managers and the senior executive teams over a three week period or so that took place mostly in mid September through mid-October.

And part of that was with the planning process, we’re really pushing a local approach to our planning session and to have really a step back, think line entrepreneur, think like a local manager to drive value that you can provide to your customer base at the local level..

Okay.

So is it still little too early to maybe quantify any positive impact from that?.

Yes, it’s very early. I will tell you the organization got very excited when you take notes from each of these meetings and you just talk through all of the opportunities that we have when we start thinking locally an entrepreneurially. I mean there is a long laundry list of opportunities that we’re driving through now as we speak..

Okay. Moving on just towards pricing for the fourth quarter and then maybe a little more in depth about 2014.

I mean do you think we’re going to kind of stay at these levels or do you think we still have a little bit more room to run regarding just lumber and plywood?.

That’s a great question. I’m smiling, I have to tell you, because I don’t, everybody in the organization that -- the thing about commodity is it’s really challenging to know what’s going to happen. And if you know what’s going to happen 90 days out, you probably should do that [without leaving].

So, I would tell you -- generally what we’re hearing is that it feels like there is some stability we might get the height of the market, but I would also tell you, I am really not qualified to tell exactly where it’s going over the next….

I was just kind of curious if you’ve gone up….

Generally the settlement is that it’s a stable to marginally declining over the next 90 days, but we’ll see..

Okay. And then just one final question.

September has been a lot of mix kind of signals; I mean what are you kind of looking for outside of the weather for the fourth quarter? I mean do you think it’s going to be kind of that slow steady pace you’ve had the rest of this year or do you think it may decline a little bit moving into ‘15?.

Yes. As you know, we generally don’t talk about the business going forward. I will say the sentiment is relatively flat. So, if you’re thinking that kind of 140,000 range that feels kind of what we’re hearing from our customers and the suppliers as well..

Okay, fantastic. Thank you guys..

Yes, sure..

Okay. Our next question comes from Alan Weber of Robotti & Company. .

Good afternoon.

When you talked about kind of the decentralized decision making, can you talk about I guess how far through that process you are? And also to really have to the general managers, have they always had the proper data to kind of interpret what the kind of P&L should be on incremental margins or which products are more profitable and like data or is that just more recent?.

No, I would say the data was always here. There has been a historical trend at the organization to make a lot of decisions as it relates to product or movement of product, categories markets centrally.

The data I think was generally here -- I mean the contribution margin that both Susan and I alluded to is something that we really drove the FP&A and accounting teams have done a terrific job in a very short period of time to come up with basically an internal tool that is fantastic as far as assessing product and a customer and how much the incremental sale or the loss of the sale would mean to deal from an operating profit of the company.

So, the data always has been available. What we’re really trying to do is because of -- and really it’s the nature of the market, in my view.

The economy obviously as you know in this market has been terrible; it led to layoffs; tighter controls that I think you have to have in a command and control type of environment and when your markets are suffering the way that the housing market has suffered.

But the problem is that I think it’s negatively impacted the entrepreneurial spirit of the organization. So that’s a cultural shift that we really just started in the last 90 days or so. And with any cultural change in a large institution, it takes time.

Some folks pick it up immediately and I’d say why did take it so long and some folks need a little nudging to take risk for making independent decisions..

Okay. And then you talked about some additional manufacturing that wouldn’t require much capital.

What were you specifically talking about?.

Well, there are few things I’m specifically thinking about.

And several of these came out in the context of our strategic sessions that we had with the general managers, I mean one I could talk to is if you would think just of light, what I call light fabrication, maybe cutting lumber, cutting metals, very light manufacturing that does provide value-add to our customer base.

So, this is not major capital equipment or major fundamental shift in what we’re doing but very light fabrication..

Okay.

And then my last question is over the last year or so, you closed a few centers; can you talk about other, what changes that you see on the distribution side in terms of competitors or vendors like that that impact you besides just housing starts?.

I’d tell you one of the things that came out of our discussions is the market opportunity and the market share that we have, which in the marketplace is highly fragmented. And as we were looking at the strategy for the business, we also did some deep dives into the competitive landscape.

One of the things that really caught me off guard candidly that I did not expect when I came on board was half fragmented. The wholesale distribution market is for building products. So, if we look at for example, I think with the Atlantic region, don’t hold me to these numbers, but it was something like 70 plus competitors in that marketplace.

And so, there is some consolidation that’s taking place, there are some regionals that are opening up, there are specialty wholesale distributors that are opening.

But I look at it and I think the organization is looking at it now is what we have tremendous scale both in products and our footprint and certainly I think we have the most knowledgeable associates in the industry. And really the approach we’re taking is that literally our industry is a Blue Ocean for us.

And so, the fact that there were trends that are changing or maybe changing from a wholesale distribution standpoint is not something that fundamentally concerns us or something that we’re really focused on. Right now we’re focused on servicing our customers better and gaining share and there is a lot out there that we can get..

Okay. Thank you very much..

Sure. Thank you..

Your next question is from Mark Kaufman of MLK Investment Management Group..

Hi, how you doing? My question is, when do you hope to start to see results from this move to the regional or local market focus? And also I’ve heard this issue about BlueLinx about a year before you arrived that it had become substantially operated in light of the recession and the class and housing industry.

So, I’m just curious what kind of benchmark that you have or timeframe that you have, hope to see some of the improvements.

And also if you could just comment what you’re seeing in the home improvement channel for your products?.

Okay. Great question on the timing. And answer to that is immediate, I mean I’ve already seen it.

Whether it’s quick reaction time to opportunities from new supply channels or supplier goods coming in where we’ve made what product managers have collaborated very closely for example with local management to make decisions about bringing new brands and products into the organization, which in the past would have been a centralized decision in all likelihood pushed down to the organization and in all likelihood we had a lot of inventory in place just that we would need them.

So, the problem is characterizing that right when you’re talking about a cultural shift from centralized to decentralized. We’re not doing it intending to add headcount into the organization, but the actual amount of dollars that it’s immediately going to drive or long-term it’s going to drive, very hard to quantify.

But I would tell you immediately we’re seeing changes comes in the organization that are benefiting the organization, a lot of which are taking blinders off with respect to opportunities, a lot of creativity going on and moving faster and being more nimble locally.

The home improvement question, it’s improving, has improved and our expectations are it will continue to improve. And that’s a big component of some of our specialty products going into the home improvement market. So, we expect that to continue to prove and improve and be somewhat correlated to the single-family housing starts..

And if I may I have a question maybe this is more Susan’s area. How do you count than for additional SKUs or inventory that would be for these various regions around the country by pace and essence.

So, how does that feedback into the inventory working capital?.

Well, certainly a transition process we’re working through. So, what we’re finding is as Mitch alluded to, there is some inventory markets that’s terrific inventory, we just need to get it into the right market. It might have been central to a location where we’d sell beautifully in a region nearby.

So, we like what we’ve got, it’s just a matter of do we have it always in the right place. That’s something we’re working through and as you might imagine there is transition to get there. But more importantly going forward, how can we unleash that inventory against now in the right place.

We have that capital to invest more deeply into categories that are very performing in that local market and our local general managers as we know them, they are very clear on what sells in their markets, what brands, their customers’ needs.

And so, we think that will be a favorable thing for us, but again, some work overtime, this decision is really just starting as far as then getting their feet in the water and understanding they have that capability to make those changes. So, early days, but we think we’ve got inventory just kind of get it into the right market..

Yes. And Mark I would add, as any good entrepreneur would approach our GMs are thinking about how to make most money and get the most return on investment and a lot of the dialogue is not so much about expanding product categories, it’s shrinking them.

So, what should we be known for, how we’re going to service our customers, what in this market from a static standpoint is the customer base want more because of the competitive landscape in this market where our suppliers are located, what makes sense for us.

So that natural as we’re talking through strategy session, I was kind of like you’re walking in wanting to see if everybody was going to say hey okay, triple my inventory with different product categories and where we really saw a lot of stuff and actually to the contrary people -- our team is very thoughtful about what should I have what should I be attacking and how should I strategically go after particularly identifying products to grow the business..

So, I’ve got ask to this question, what would your target be or hope or minimum hope of an improvement in overall margin that this might lead to and I’m not talking about your gross margin or maybe a contribution margin like you’re saying all in.

How many basis points or the percentage that you would hope that this might bring to the company?.

We unfortunately don’t give future forecasts. I don’t blame you for asking, good question. You know, I can’t answer..

That’s why I said hope..

We appreciate your interest, Mark. Thank you. .

Rest assured, we’re on it..

Okay..

Thank you Mark..

Thanks Mark. Have a good afternoon..

There are no further questions..

Okay, great. Well, thank you again as always for your time and for your interest. And we certainly look forward to sharing our continued progress with you in the months ahead. Have a great afternoon..

This does conclude the conference. You may all disconnect..