Earnings Call Transcript - BXC Q4 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode, and today's call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host Investor Relations Officer, Tom Morabito. Please go ahead.

Tom Morabito, Investor Relations Officer

Thank you, operator, and welcome to the BlueLinx fourth quarter and full year 2023 earnings call. Joining me on today's call is Shyam Reddy, our President and Chief Executive Officer; and Andy Wamser, our Chief Financial Officer. At the end of today's prepared remarks we'll take questions. Our fourth quarter and full year news release and Form 10-K were issued yesterday after the close of the market along with our webcast presentation. These items are available in the Investors section of our website bluelinxco.com. We encourage you to follow along with the detailed information on those 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. Now, I'll turn it over to Shyam.

Shyam Reddy, CEO

Thanks, Tom, and good morning everyone. We are pleased with both our fourth quarter and full year of 2023 results, especially in a year when rising interest rates and macroeconomic uncertainty impacted demand in the housing and building product sector. Our margins remain strong in specialty products, which accounted for about 70% of our net sales for both the quarter and the full year, and we continue to generate solid margins in our structural products business. During the quarter, we also demonstrated our commitment to returning capital to shareholders by repurchasing shares under our new $100 million share repurchase authorization. For the year, we returned $42 million to shareholders, which includes repurchases under our previous $100 million share repurchase authorization. Before I jump into the 2023 results, I want to share our vision, and that's to become the most technologically advanced two-step distributor of building products in the U.S. in the coming years. This will enable us to become the first option for suppliers to bring their products to market and the first option for home retail stores, one-step distributors, pro dealers, and independent lumber yards to deliver the right products where and when they need them. And in so doing, we'll be able to optimize our brand mix in all markets, reduce our cost to serve, manage our business more cost-effectively, reduce the number of touch points to meet our customers and suppliers' demands, and to accelerate our ordering times. And that's just to name a few. In the meantime, we remain committed to our corporate growth strategy to get us there in 2024 and beyond. First, by focusing on our core business specialty sales growth in five key categories. Second, by pursuing opportunistic M&A, and third, by developing opportunistic greenfields, all of which will be supported by three strategic enablers: business, operational, and digital excellence. As it relates to the first prong, we are allocating a substantial share of time, resources, and capital to growing engineered wood, siding, millwork, industrial, and outdoor living products, our five key high-margin specialty product categories in the core business. These product categories and the strategic vendor partners we've aligned with enable us to be a necessary extension of our customers’ business. There are also two-step distribution-friendly product categories sold at various points of the construction cycle rather than just at the front or back end of a single or multifamily housing project or remodeling job for that matter. They also drive higher net sales and gross profit, which generates sustainable and durable operating cash flow that can be reinvested back into the business and used to fund opportunistic M&A and greenfield projects. Given our scale, geographic reach, selling capabilities, and product depth, we are committed to providing our customers with a total two-step distribution-friendly product solution that also includes structural products, which our customers want and that we believe complements our specialty product and value-added services offering. From a channel perspective, we see additional opportunity by growing national accounts and multifamily sales while investing in builder pull-through capabilities to drive sales growth with our national account and traditional customer base. I continue to be excited about our strategic enablers, the fuel that supports our organic sales growth strategy: business, operational and digital excellence. These efforts have continued to support our customer experience, maintain solid margin levels in both specialty and structural products, and provide a flexible cost structure that can fluctuate based on seasonal levels of demand. We are also effectively managing our costs, resulting in a solid 2023 adjusted EBITDA margin of nearly 6% despite wage benefits and other inflation on top of challenging market conditions. Now, back to the vision: becoming the most technologically advanced two-step distributor of building products in the United States, which I believe will transform BlueLinx and make us the provider of choice for both suppliers and customers. These technology improvements are designed to enable us to rapidly grow our business at scale with both customers and suppliers by providing an exceptional customer experience in a more efficient and effective manner than today. I would like to offer a few more details. Over the past couple of years, we have taken some preliminary and foundational steps designed to improve our data warehouse and analytical capabilities, upgrade some of our back office tools, expand our EDI capabilities, and enhance our general technology, hardware, and infrastructure. Beginning in 2024, we are embarking on a multiyear digital transformation journey that starts with architecting our data so that it better supports and advances our strategy, enhancing our transportation management capabilities, and launching e-commerce functionality. As a result, we will be optimizing our management of freight costs, shipment routing, truckload build, and logistics which is expected to reduce our cost to serve, implementing more scalable supplier and customer EDI capabilities, enhancing our governance and management of product, customer, and supplier master data, and piloting an e-commerce platform. We also believe that these digital improvements will further enhance our existing sales, operational, pricing, and procurement excellence initiatives. Our digital transformation journey will result in an initial increase in both OpEx and CapEx, which Andy will expand on in a moment. We believe these investments are critical to reducing our operating costs, realizing our vision and enabling us to become the provider of choice for both customers and suppliers, thereby allowing us to execute successfully on our long-term profitable sales growth strategy. The second and third prongs of our growth strategy reflect our commitment to opportunistic M&A in greenfields. We are strategically targeting acquisition opportunities that are designed to expand our geographic reach and support our specialty product sales growth strategy. We remain committed to buying only companies at valuations that make sense for us, that support our strategy, and that are in the best interest of our stockholders, hence the opportunistic and measured nature of our approach. On the greenfield front, we have identified several markets that are potentially great opportunities for new market development. Our financial position remains strong with liquidity of $868 million at the end of the year, including a record $522 million of cash on hand. This strength gives us the flexibility to reinvest in business initiatives that allow us to grow sales, improve productivity, expand our geographic reach, and provide better customer and vendor service, an example of which would be our digital transformation. And of course, having the ability to return capital to shareholders remains very important, as demonstrated by our share repurchase program. Next, I'd like to offer a few highlights from 2023. First, we delivered solid full year 2023 results, particularly in light of the challenging macro environment. As you know, during the year, higher interest rates and lingering recession risk slowed the rate of housing starts and repair and remodel activity, making the business environment very difficult. However, our teams and supplier partners, combined with the confidence our customers have in BlueLinx, helped us to compete effectively in our markets, resulting in our strong financial performance. Second, our fourth quarter 2023 results were also solid. As expected, our revenues declined year-over-year largely given the impact of market price deflation. However, our specialty and structural gross margins came in at 19.4% and 10.6% respectively, which highlights our team's ability to successfully manage margins despite the macro picture. Third, we continue to focus on expanding our specialty products business, which accounted for approximately 70% of net sales and 80% of gross profit for both the fourth quarter and full year 2023. For example, during the fourth quarter, we announced expanded distribution partnerships with Louisiana-Pacific and Huber Engineered Woods. Both partnerships will broaden the geographic reach of our specialty product offerings, demonstrating our focus on specialty products growth. Fourth, we continue to execute on our disciplined capital allocation strategy, which includes returning capital to shareholders. Overall, we repurchased nearly 6% of our outstanding shares for $42 million in 2023. Last quarter, we announced a new $100 million authorization after the prior $100 million share repurchase authorization was completed. Of the $42 million of share repurchases in 2023, we bought back nearly $9 million worth of shares under the new program in Q4. Given our recent strong share price performance, the amount of repurchases in Q4 were admittedly less than originally anticipated. However, we will continue to be opportunistic in the market. Fifth, our financial position continues to be strong as we prudently manage the business with significant liquidity and very little net leverage; we are well positioned to invest in the business to realize our vision and to execute successfully on our corporate growth strategy, all while providing us with the flexibility to return capital to shareholders. Now for a few more details on our full year results. We generated 2023 net sales of $3.1 billion and $183 million in adjusted EBITDA for a 5.8% adjusted EBITDA margin. Adjusted net income was $103 million or $11.41 per share. For the year, we delivered solid gross margin performance with specialty products coming in at 19.3% and structural products at 11.2%. Our focus on business and operational excellence led to effective pricing, strong service levels, procurement opportunities and cost management, contributing to the strong results. In addition, our continued focus on working capital has generated significant improvements in operating cash flow. In 2023, we reduced our inventory by over $140 million, with nearly all of the reduction coming from the specialty products category. We also generated free cash flow of $279 million during the year. Now turning to our perspective on the broader housing and building products market. While industry sources are suggesting a revised sense of optimism for the overall market, headwinds do remain. Builder sentiment has improved in recent months and the industry saw meaningful improvements in housing starts during November and December. In addition, the financial markets are anticipating potential rate cuts in 2024. That said, mortgage rates are now around 7%. And while those are down from the 8% peak last year, they are still elevated. 90% of mortgages are still under 6% and 80% of mortgages are under 5%. Overall, housing affordability remains an issue for many consumers, especially for first-time buyers as prices remain high. Repair and remodel spending continues to be lower than the elevated levels of the past two years and is expected to decline further in 2024 due to low existing home sales that would otherwise drive repair and remodel activity on the way out of the home and into a home. However, home equity levels do remain high, allowing owners to fund repair and remodel projects, albeit smaller ones. Through the first seven weeks of Q1 2024, we have maintained solid margins for specialty and structural products, generally in line with Q4 2023. However, daily volumes have been impacted by the extreme weather patterns experienced in January and are down compared to our expectations into what we saw during the recent quarter. In fact, we had nearly half of our locations closed for between one and five days in January due to unusually cold weather and winter storms. The ramp-up to normal business also took time as the ground needed to thaw in many markets for building activity to commence and sales to flow through our customers and to us. During the most recent three weeks, specialty and structural volumes have improved. In addition, it is important to note that industry-driven specialty products price deflation continues to have an impact on both our top line and cost of goods during 2024. Even though margins are stable, gross profit dollars are lower. This adverse impact creates a near-term headwind, and we hope to see this improve as the year progresses. Although the near-term outlook remains unpredictable, the industry is improving in many respects, and we clearly believe in the long-term prospects of the housing and building products sector, which underlines our strategic and investment focus. The shortage of homes, supportive demographic shifts, aging housing stock, necessary repair and remodel activity, and high levels of home equity should continue to benefit the building products industry and BlueLinx. In summary, we delivered solid results for both the fourth quarter and full year 2023 despite the challenging environment for housing and tough year-over-year comps. We're also delivering on our strategic priorities as seen by our specialty product expansion efforts, margin performance driven by our pricing and cost discipline, strong cash generation and capital allocation initiatives. I'd like to end by thanking my fellow BlueLinx associates for their continued perseverance and can-do attitude during last year's difficult housing market, and for their selfless dedication to our customers and our suppliers. Our teams are committed to generating more profitable structural and specialty product sales, while producing solid returns on working capital to ensure that we can position ourselves for long-term success in whatever market conditions we face. That gives me tremendous confidence in our ability to realize our vision of becoming the most technologically advanced two-step distributor of building products in the U.S. and executing on our three-pronged corporate growth strategy: specialty product sales growth, M&A, and greenfields. We have the purpose to inspire us, the culture to succeed and the values to guide us, along with the intestinal fortitude to make the investments in technology, people, infrastructure, working capital, and equipment to accelerate our prospects and position us for breakneck growth as our corporate strategy delivers and our digital transformation takes effect each step of the way. Now I'll turn it over to Andy, who will provide more details on our financial results and our capital structure.

Andy Wamser, CFO

Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Overall, we delivered solid fourth quarter results, highlighted by strong margins in both our specialty and structural product categories. Net sales were $713 million, down 16% year-over-year. Specialty products sales were down 18% from the prior year due to a combination of deflation and lower volumes. Structural product sales were down 12% also due to significant year-over-year declines in wood-based commodity prices and lower volumes. Total gross profit was $118 million and gross margin was 16.6%, down 120 basis points from the prior period. SG&A was $85 million down 8% from the prior year period due to a decrease in variable compensation and delivery expenses. Net loss was $18 million and diluted loss per share was $2.08. In previous filings, we've mentioned that we plan to terminate a legacy defined benefit pension plan. During December, we transferred all remaining financial responsibility for the plan to a highly rated insurance company under an annuity contract. We incurred a one-time charge of $31.4 million and made a final cash payment of $6.9 million. We are pleased to have this obligation behind us as it was a legacy pension plan, which provided no benefit for most of our active employees and was complex to manage. Adjusted net income was $26 million and adjusted diluted EPS was $2.94 per share. Tax expense for the fourth quarter was $10.1 million. Due to our net loss in the quarter as a result of our pension settlement, the effective tax rate was not a meaningful calculation. For the first quarter of 2024, we anticipate our tax rate to be in the 24% to 28% range. Adjusted EBITDA was $36 million or 5.1% of net sales, following our normal seasonal patterns. As a reminder, we tend to have higher adjusted EBITDA margins in the second and third quarters, but relatively lower margins in the first and fourth quarters of the year. Turning now to fourth quarter results for specialty products. Net sales were $487 million, down 18% year-over-year. This decline was largely driven by price deflation across several specialty product categories. Gross profit from specialty products sales was $94 million, down 24% year-over-year. Specialty gross margin was 19.4%, a strong margin but down 170 basis points from last year. Through the first seven weeks of 2024, specialty product gross margin was in the range of 18% to 19% with daily sales volumes down 6% compared to the fourth quarter of 2023, given the impact of the January weather. Over the past three weeks, however, specialty volumes were about flat on a year-over-year basis. We are, however, seeing average specialty pricing down about 10% versus this time last year, and we expect this to be less of a headwind as we progress throughout the year. Now moving on to structural products. Net sales were $226 million, down 12% compared to the prior year period. This decrease was primarily due to price deflation within framing lumber, partially offset by slightly higher volumes. Gross profit from structural products was $24 million, a decrease of 10% year-over-year, and structural gross margin was 10.6%, up 20 basis points from the same period last year. In the fourth quarter of 2023, average lumber prices were about $383 per thousand board feet and panel prices were about $585 per thousand square feet, a 15% decrease and 11% increase respectively compared to the averages in the fourth quarter of 2022. Sequentially, comparing the third and fourth quarters of 2023, these prices were down 12% and 8%, respectively. During the fourth quarter, lumber prices declined early but rebounded in December, while panel prices increased during the quarter and they finished the last week of December at $395 and $599, respectively. These prices have declined further in the first seven weeks of Q1 2024 and are now $387 per thousand board feet and $589 per thousand square feet, respectively. Our strong structural margin continues to reflect the excellent job our team does to manage commodity cost volatility risk through leveraging consignment and utilizing centralized purchasing and pricing to keep structural inventory levels low. Through the first seven weeks of Q1 2024, structural product gross margin was in the range of 10% to 11%, with daily sales volume down mainly in lumber compared to the fourth quarter of 2023, given the impact of January weather. Similar to specialty, there has been some improvement in volumes over the past three weeks. For the year, net sales were $3.1 billion, down 30% from 2022. 2023 results had very difficult comparisons when in contrast to the inflationary environment experienced in 2022. Specialty and structural product sales were down 24% and 40%, respectively from the prior year due to a combination of deflation and lower volumes. Total gross profit was $527 million and gross margin was 16.8%, down 190 basis points from the prior year period. SG&A was $356 million, down 3% versus the prior year period. For 2024, we expect our SG&A levels to increase slightly as a percentage of sales due to the investments in technology that Shyam mentioned as well as our growth initiatives. Net income was $49 million and diluted EPS was $5.39 per share. Adjusted net income was $103 million and adjusted diluted EPS was $11.41 per share. The full year tax rate was 40.7%, once again impacted by the pension plan termination. For full year 2024, we anticipate our tax rate to be in the 24% to 28% range. Adjusted EBITDA was $183 million or 5.8% of net sales. Looking now at our balance sheet. Our liquidity remains excellent due to the strong execution of our strategic initiatives and effective management of working capital. At the end of the year, cash on hand reached a record level of $522 million, an increase of $52 million from Q3. When considering our cash on hand and undrawn revolver capacity of $346 million, available liquidity was $868 million at the end of the year, also a record. Total debt, including our financing leases, was $585 million and net debt was $64 million. Our net leverage is now 0.3x and we have no material outstanding debt maturities until 2029. For the terms of our credit agreement, which does not include real property financing leases, our net leverage ratio was a negative 1.0x. Our balance sheet is in great shape, and when combined with our solid EBITDA and strong cash generation, we are well positioned to support our strategic initiatives. These include investments in our highest return opportunities such as organic and inorganic growth initiatives and share repurchases. Now moving on to working capital and free cash flow. During the fourth quarter, we generated operating cash flow of $76 million and free cash flow of $67 million. For the full year 2023, we generated operating cash flow of $306 million and free cash flow of $279 million. Our full-year cash generation was supported by earnings and a net benefit from working capital, primarily related to the reduction of more than $140 million of inventory from the beginning of 2023. Turning now to capital allocation. During the quarter, we spent approximately $9 million in CapEx, primarily to improve our distribution facilities and upgrade our fleet. For the year, CapEx was about $28 million. For 2024, we expect capital investments to increase to around $40 million, focusing on facility improvements, further upgrades to our fleet, and the technology improvements previously discussed. Our digital transformation will also have at least a $5 million impact on operating expenses in 2024 related to software license implementation as well as increased headcount associated with this initiative. During the fourth quarter, we purchased approximately $12 million of our company's common stock through open market transactions under our repurchase programs, and we plan to continue to be opportunistic in the market. Our guiding principles for capital allocation remain consistent. We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles, pursue a disciplined M&A strategy and geographic expansion, as well as return capital to shareholders. We also plan to maintain a long-term target net leverage of 2x or less. Overall, we are pleased with our fourth quarter and full year results, highlighted by our strong margins and free cash flows, especially when considering the difficult housing market. Our strong balance sheet positions us well to execute on our strategy and provide returns for our shareholders.

Operator, Operator

Our first question will come from Greg Palm with Craig-Hallum Capital Group.

Greg Palm, Analyst

I wanted to maybe start with a little bit more color on kind of price volume. I'm not sure you gave a lot of sort of metrics, and I was wondering if you can maybe quantify what the price headwind specifically was for the full year ‘23. And I think it's still persisting in terms of that headwind in Q1. Is there a point at a time this year where you feel like that sort of normalizes or is it still sort of hard to know at this point?

Andy Wamser, CFO

It's Andy. I'll address that first. When examining the pricing pressures in specialty, I would estimate they were around the mid-teens. It was higher in the second and third quarters, possibly reaching over 10% or 12% in the fourth quarter. In the first quarter, we're seeing some improvement. As I noted regarding specialty pricing, there is still a decrease of about 10%. As we progress through the year, we anticipate this will get better. While we won't provide specific guidance on the exact progression from the first quarter to year-end, we believe that by the end of the year, we should be overcoming much of the specialty pricing challenges.

Greg Palm, Analyst

And if I could shift gears a little bit and talk about this digital initiative and some of the investments behind that. Is the point of it or the hope that it improves internal operations, efficiencies, is there any way that you think that this maybe helps out the end customer as well and enables you to sort of maybe gain share? And then specifically on the investments, I think you said $5 million increase but you also talked about an SG&A increase as well. And I was curious if you were referring on a year-over-year basis or based on the levels that you saw specifically in Q4?

Shyam Reddy, CEO

Let me start by addressing the first part of your question, and then I’ll let Andy discuss the SG&A aspect. To answer your question, yes, we are focused on both reducing our operating costs and enhancing the customer experience. Our main objective is to deliver the best experience for both customers and suppliers in the two-step distribution sector for building products. The initial phase of this initiative, which we will begin in 2024, involves optimizing transportation to lower our logistics costs associated with product delivery. This could involve deliveries to lumber yards, home centers, or directly to multifamily or job sites, all of which we currently do, but in a more efficient and cost-effective way. Additionally, we are advancing our direct customer enhancement initiatives through our e-commerce platform. We plan to launch a dedicated pilot program in the coming months with a select group of customers and branches. Once we evaluate its success, we aim to scale it across the entire organization. As mentioned earlier, we intend to minimize the number of interactions between our customers and us, improve their visibility into inventory, and enable ordering from multiple locations and branches. Ultimately, our goal is to deliver an exceptional customer experience.

Andy Wamser, CFO

This is Andy. As it relates to SG&A, let me give you some color on that. So as we've thought about Q4, Q4 did have some one-time benefits in terms of actual true-ups related to workers comp. We had some true-ups related to our healthcare burden rate. Thus, when I think about the SG&A run rate, it's more in line with what we saw in Q1 through Q3. But in addition to that, we will have about this $5 million in OpEx that I mentioned in my comments related to the technology investments. That being said, we are always very focused on SG&A and to the degree that we see the market deteriorate, we will act on the SG&A leverage. But as we think about the plan that we have for this year, I think those are the right assumptions in terms of for 2024 in terms of taking the Q1 through Q3 sort of run rate and then adding in the technology investments.

Operator, Operator

Your next question comes from the line of Jeffrey Stevenson with Loop Capital.

Jeffrey Stevenson, Analyst

Congrats on a nice quarter. So I wanted to ask about daily sales volumes being down 10% over the first seven weeks of the year due to the adverse weather in January. How large of a first quarter sales concentration is March from a historical perspective? And do you believe you can make up for the slow start of the year if weather cooperates here over the coming months or so?

Shyam Reddy, CEO

As the quarter goes on, we have noticed improvements reflected in our financial performance over the last few weeks. Looking ahead to March and the upcoming season, we anticipate that the positive effects of seasonality will emerge and help us tackle the challenges we encountered in January. I can't provide specific numbers at this moment, but we are seeing a positive trend, and we expect conditions to continue to stabilize as we enter the season.

Andy Wamser, CFO

Yes, maybe just a little additional color. What I would say is it will be difficult for us to make up some of that volume that was just due to the weather in January. As we mentioned, there was an improvement in structural still down a little bit year-over-year. The specialty, though, is in the last three weeks that has been, I'd say, more in line with the previous year. So I think it will be difficult to make up, and then structural still has a little bit to go in terms of making up some of that volume.

Jeffrey Stevenson, Analyst

And just wondered if you could talk more about R&R demand trends right now and what you've been hearing from your suppliers and channel partners? Because large ticket R&R has been challenged due to the high cost of credit and lack of housing turnover. And I wonder if you're hearing any positive signs of potential inflection in demand as we move into 2024 here?

Shyam Reddy, CEO

No. I would say that what we're hearing directly from our customers and our suppliers for that matter is consistent with what we're all hearing publicly on the R&R front.

Andy Wamser, CFO

Yes. I think if you look at just sort of consensus numbers in terms of R&R, it's generally going to be down mid-single digits when you sort of look at LIRA, etc. So I think that's the general theme right now. Hopefully, things improve as we move throughout the year, but that's the general view right now.

Jeffrey Stevenson, Analyst

And one last one. You've had several partnership expansion announcements with leading suppliers in the last several months. And Shyam, I just wondered if we could discuss the opportunity for additional supplier partnership expansion over the mid-term and its potential impact on organic growth moving forward.

Shyam Reddy, CEO

Sure. Yes. So basically, we've got a great group of strategic suppliers we're working with to expand our geographic reach, a number of conversations that yet have to be made public, where we're looking to expand their product offerings in new markets, some of which would be opportunities for them where they're not otherwise located or alternatively result in the displacement of someone else who might already be there, hence, why I can't get into too much detail. But the fact is I feel like we've got really, really good partnerships that are collaborative with our key suppliers that are allowing us to expand our geographic reach with them, which, again, gives us the ability to provide a scalable solution for all of our customers, including the national accounts that are located in multiple regions whether they be the one-step distributors or the home centers.

Operator, Operator

Your next question comes from the line of Reuben Garner with the Benchmark Company.

Reuben Garner, Analyst

I know you guys have a little bit more exposure to the smaller builders. I was curious what you're hearing in recent weeks with a little bit of the rate repeat that we've gotten? What their outlook might be for this year versus maybe what we're hearing from the bigger builders this kind of earnings season?

Shyam Reddy, CEO

Yes. I would say that their views are generally consistent with what we're hearing in the marketplace. Builder sentiment did tick up, then again, the weather hit really dramatically and fiercely in January, which caused housing starts to be a lot lower than expected. So it's a little hit or miss. I think, quite frankly, we'll get a much better read next week when we're at the International Builder Show, where we'll actually have an opportunity to truly see how people are feeling post inclement weather in January. But generally speaking, everyone, the smaller regional builders who are building more custom homes where folks may not be as rate sensitive, feel good, not as good as they have in the past. But at the same time, their sentiment is very much tempered in the near-term. But it is consistently viewed across the board, no matter who we talk to, that the second half will be better.

Reuben Garner, Analyst

And then a clarification on the specialty pricing pressure that you're seeing. Is the vast majority or all of that in sort of the engineered wood products piece of it? Or are you seeing pricing pressure in some of the other products like diving, decking anywhere else did you participate?

Andy Wamser, CFO

When we consider the specialty pricing deflation, it is primarily occurring in engineered wood products and millwork, though we are also experiencing some pressure in industrial siding and outdoor materials. Overall, the main focus is on engineered wood products and millwork.

Reuben Garner, Analyst

And then last one for me. The technology or digital transformation effort, how will you guys sort of track success here? And longer term, I know you mentioned a reference has been $5 million investment now. Over the coming few years, what does that number look like? And what kind of return metrics are you using to gauge the benefits of the program?

Shyam Reddy, CEO

So with respect to the logistics-related improvements such as, for example, the TMS-related work we're doing now, it's very straightforward in terms of getting better pricing on our freight, making sure that we're able to identify those opportunities where you have route optimization as well. There are very specific metrics we have that will allow us to generate the savings over the next few years and reduce our cost to serve. So that's pretty straightforward. As it relates to e-commerce, obviously, that will be measured in the context of how much incremental volume we can pick up and greater share of wallet that we can grab from any given customer by making it easier to do business with us as opposed to anyone else. Ultimately, the idea is to get to the point where the value is all about the customer experience. So the customer experience is top-notch, then it makes it a lot easier for folks to do business with us and ultimately run more transactional volume through us. And that is the goal. We will have a number of measures around TLE growth, margin enhancement, mix shift, and that's how we'll track it over time.

Andy Wamser, CFO

Reuben, I want to clarify something. For 2024, we're planning to invest $5 million in operating expenses and at least another $5 million in capital expenditures, bringing the total spending to just over $10 million. We anticipate that the benefits from the transportation management system will lead to a strong internal rate of return, which we expect to begin realizing around early 2025, extending into 2026.

Reuben Garner, Analyst

One quick clarification. Any of your business transacted via e-commerce today? And are there targets on where that could be over a certain period of time?

Shyam Reddy, CEO

No. We're not doing any e-commerce today. Everything is done via directly with our sales teams.

Operator, Operator

Our final question will come from the line of Kurt Yinger with D.A. Davidson.

Kurt Yinger, Analyst

Just wanted to follow up on the last e-commerce question, is that primarily kind of business to business, dealers, home center customers that you would envision ordering through that, or is there actually a direct-to-consumer angle within that?

Shyam Reddy, CEO

And by the way, just in response to the last question that Jeff asked, let me give a point of clarification. We actually do via the e-commerce platforms of our home centers or national accounts through their special order and other programs, there are orders done on their end that get processed through their portals that get fulfilled by us. So there is some iteration of e-commerce that we participate in. But as it relates to BlueLinx itself, this would be our foray into developing an e-commerce platform for any customer to order through us. So in that context, the idea would be it's business to business. We haven't thought about, I mean, in our current plans, there aren't any plans for an end user to be able to order through us. And to the extent that does become part of the solution, those orders would still flow through our primary customers because we care about our primary business customers. So to the extent that one of their customers has an opportunity to order, it would be for the benefit of our primary customer. But right now, the e-commerce pilot we're exploring would be for our customers to order very efficiently through the platform, and then the order gets fulfilled by the branch in that market.

Kurt Yinger, Analyst

Now I continue with your customers. And then you talked more about greenfields than we've heard in the past. And I guess I'm curious, what do you think are the most important factors to get right in assessing a greenfield location for that to be successful? And how should we think about, I guess, at least in 2024, the appetite to break ground on some of these facilities or maybe purchase the sites to kind of ramp that up?

Shyam Reddy, CEO

So the appetite is there. It's an important part of our strategy. That said, we're going to be very thoughtful and measured in our approach to make sure we're doing it the right way in the right market. As we think about the markets, there's a lot of gray space for us out West, right? So if you look at west of Denver, whether it's the Southwest, the West, there are a number of MSAs that we don't have a presence in. That said, we do service all 50 states either through long drives from certain facilities where the sale makes sense or alternatively through direct sales or reloads. So we do service all 50 states, but there are obviously more cost-effective and efficient ways to do that in some of these MSAs. As we think about the opportunity and why we might greenfield in one location over another, we're very focused on housing starts, single-family housing starts, as well as what the repair and remodel activity looks like. We then take a look at whether or not the market is two-step distribution friendly, and in particular with respect to the products we carry, and then we make decisions based on that opportunity. At the same time, we have a very strong set of private label products, both EWP and millwork, for example, as well as which are complemented by an incredibly strong structural product business. So between the two, we feel like we have the ability to ramp up a greenfield probably more so than others. At the same time, again, just being very thoughtful about where we start and how we progress over time.

Kurt Yinger, Analyst

And is that a situation where I guess, when you go to a new geography, even if you're servicing it maybe from a further location already, where you would need to displace a competitor with an existing vendor for the most part? Or given that you're already servicing it, is there not a whole lot of discussion that's required with your vendor partners in evaluating that type of expansion?

Shyam Reddy, CEO

No, there would absolutely be a discussion because the way that it typically works, your vendor partner relationships are tied to specific markets. Most of the markets we're looking at, if they're going to be two-step distribution friendly and have strong housing starts, there will be competitors there. The good thing is, unlike others, we actually have our own private label brands and a strong structural business that we can start with. And then with our existing suppliers, we have very strong partnerships, where we believe they would be supportive, if not out of the gate, then over time. I've actually already had a few conversations with a couple who said they would be very excited about supporting greenfield opportunities. So as the opportunities further ripen, those conversations will become more serious. But even if they take time, I'm very excited about the fact that we can start those projects with our private label brands as well as our structural business.

Kurt Yinger, Analyst

And then Lastly, I mean M&A is also an important part of the strategy. Can you just talk a little bit about what you're seeing from a valuation perspective and how that stacks up against your appetite to perhaps be more aggressive buying back your stock at these levels? Yes, I'll leave it there.

Shyam Reddy, CEO

Let me take the M&A part, and then I'll let Andy comment on the capital allocation. But as it relates to capital allocation at a high level, we clearly take it seriously and are disciplined in our approach with returning capital to shareholders being one of the core elements of that strategy. As it relates to M&A, we still believe the outlook is good, which is why it's part of our growth strategy, and it's a very efficient way of developing new markets. That said, we are pursuing a roll-up strategy that rinse and repeats given the dynamics of the two-step distribution space. So our M&A march has historically been slow and will continue to be slow and steady and disciplined on the types of businesses we're targeting and ultimately acquiring, keeping an eye on the specialty product mix and geography as two of the primary drivers. Now with the 2023 numbers in, as you might expect, the bid-ask spreads are continuing to compress. So from a valuation standpoint, the multiple should be based on 2023 EBITDA which will, I think, bring a sense of conformity, logic, and rationale back to valuations. Again, it remains an important part of our strategy. We're starting to see opportunities be more realistic over time, without compromising our desire to be opportunistic and buy companies at a level that makes sense for our business.

Andy Wamser, CFO

And then, Kurt, as it relates to share repurchase, I don't think it's an either/or situation. I think, given where the balance sheet is, we have the opportunity to do both. We said that we'd be opportunistic on the new current plan that was the new $100 million plan for the additional $100 million that we did end in Q4. In total, we did about a little more than $12 million in total share repurchases in the fourth quarter, and we have $91 million left on the current authorization, and we're going to be opportunistic. But I don't think it's an either/or in terms of share repurchase or M&A.

Operator, Operator

With that, I'll hand the call back to Tom Morabito for any closing remarks.

Tom Morabito, Investor Relations Officer

Thanks, Regina. Thank you again for joining us today, and we look forward to speaking with you in May as we share our first quarter 2024 results.

Operator, Operator

And that concludes our call for today. Thank you all for joining and you may now disconnect.