Thank you guys for coming. My name is Ryan Shumway. I am with the Industrials, Investment Banking group here at Jefferies. It's my pleasure to introduce Dwight Gibson and Kelly Janzen, respectively, the CEO and CFO of BlueLinx. Without further ado, I'll hand over to them.
Excellent. Well, good afternoon, everyone. Thank you for taking the time to join us today as we have a conversation around what is truly a whole new Blue. Again, I'm Dwight Gibson, our President CEO. Super excited to have the opportunity to chat a bit with you about what's going on at BlueLinx and how we're gonna really create the preeminent building material products distribution company in the U.S. Obviously, safe harbor statements, but let's jump into it. You know, one of the things I've been in the chair now a little bit over a year, and one of the things that's really exciting to me about this company is the market in which we operate in. Probably not the story you would expect to hear given the current mood in the market around housing and starts.
If I take a step back and I think about what we do and the space in which we operate, I get excited. It's a large market. It's fundamental to the operation of the U.S. economy. On the distribution side, it's highly fragmented. If you look at us, we are the largest pure play two-step distributor, and we have less than double-digit share. Lots of opportunity, a lot of sub-scale competitors that provide real value and service in the housing space, both on the new construction side and the repair and remodel side. Based upon that, I think we're in a great position to take full advantage of that and drive growth.
We have good vendor relationships that can get better and can drive scale benefits there, and we touch and serve the largest and fastest-growing customers in the space. I'm really excited and more often energized by the opportunity we have to drive growth. You know, as a testament to the efforts of the team, Kelly's and otherwise, we've really positioned ourselves to be able to lean into that growth. Our balance sheet is in a really strong spot, which provides flexibility, and we have the wherewithal, the motivation and the aspiration to invest that productively and drive great performance. Let me tell you a little bit about BlueLinx, who we are. We are, you know, over 60 locations across the country, servicing thousands of customers, large portfolio of products. Home base is Atlanta.
We touch the vast majority of the lower 48 states, and we have the appetite and interest in expanding our reach and our touch points. Most importantly, we operate in the MSAs that have a really attractive growth profile, as well as really attractive profile in terms of the specialty products, which are a big priority for us and something we'll talk about a little bit more as we move forward. We're coming off a record 2021. Again, wanna thank my team for the great work they did delivering record performance, both in the top line and bottom line in 2021. Really a testament to a lot of hard work.
Clearly some tailwinds from the market, but a lot of effort around pricing, a lot of effort around inventory management, particularly on the structural side, which resulted in really outstanding performance north of $460 million in adjusted EBITDA. From a profile perspective, you know, we are almost 60% specialty in 2021, and we're skewing even heavier in 2022, and our aspiration over time is to get that to around 80% of our volume. From an end market perspective, we are primarily. Really, our demand is driven from the repair and remodel space, and 15% roughly from multifamily and commercial and the balance being driven by new home construction and starts.
You know, it's always important for folks to understand the role we play in the space and industry, and I think it's helpful to really lay that out very clearly. You know, we are really the conduit between our suppliers, which are large, in some instances, private, manufacturers and customers who then serve end users directly. Our customers are pro- dealers, home centers, so the Lowe's and Home Depot of the world, co-ops and industrial companies as well. We provide services that allow them to really focus on their end user supply, and we provide some really great support around value add, next day delivery, inventory management and the like.
One of the things that I've come to discover as we've spent time visiting our vendors and our suppliers and spending a lot of time with the customers is that this is an incredibly complex supply chain as it relates to servicing the housing market, either from a new homes perspective or a repair and remodel perspective. The things we distribute are big and bulky. They require a level of technical expertise. They require some warehouse and logistical support, and they require delivery that's appropriate to our customers' needs. We fill that void for customers and for suppliers. We're an extension of their sales force. We have over 600 sales folks across the country who are very adept at our portfolio and can help our customers pick the right product for the right application and deliver it on time.
We play a very crucial role, and it's an area that I think will only become more important as this industry evolves and grows. I believe all the fundamentals drive for this to be really important, continue to be a really important part of the economy and the role we play, I think, will only grow over time. Just to give you a sense of what it is that we distribute, it's really things directly related to the home environment, either from a construction or repair and remodel perspective. We focus on and really believe we bring unique capability on specialty products. Specialty products are generally a little bit more highly engineered, a bit more crucial, have a higher margin profile, stickier, brand driven. Pricing is negotiated versus kinda spot pricing.
We have really great capabilities in those areas, whether it be engineered wood, siding, millwork, outdoor living products, et cetera. We bring value add to that. Not only do we provide inventory dimension to it, but we can design, provide design services around EWP, light fabrication, and other necessary elements to make sure that our customers get what they need, how they need it in a way that's most effective for them to service their customers. You know, the broader market environment is a topic of a lot of conversation recently.
Clearly, we've been in a hyper-growth environment coming out of the pandemic for a variety of reasons, and we're seeing some moderation as a result of inflation concerns and efforts by the Fed to really manage that and as a result, increased interest rates. That being said, if you look over time at where we are, we still think that this is a fairly healthy market. Stats, I think, are moderating a bit, but still woefully below where they need to be to satisfy the demand in the market. We still see very strong remodeling activity. All the forecasts we see still account for some growth in that, even in a softer overall market going into 2023.
The other thing I'll tell you is that, you know, despite the uptick in rates, they're still historically in a favorable spot. I think if the market gets some certainty around where rates are gonna be, it'll kinda unlock some energy in the market and could be supportive in the medium term. On the whole, we're still really excited about the housing space, residential space in particular, and we think we have an opportunity to continue to provide real value to all of our stakeholders. The other thing I'll tell you is that I really do believe the way people think about their homes and what that means to them and how their willingness to invest in that is different. I think the pandemic has changed the way we work.
Our homes are no longer just a place where we live and maybe play, but it's also a place where we work. There is a need to make that fit for its new purpose. We do believe that, you know, some level of work from home, hybrid or more permanent is here to stay, and we believe that is supportive of demand for the things that we distribute. The other thing I'll tell you is that the homeowner's balance sheet is in a really good spot. Record levels of home equity. Unemployment continues to be at historically low- levels.
There is some wage inflation happening, so their appetite and their capacity to invest in their homes are at a pretty high- level, pretty healthy level, and I think sustainable over the medium and longer term. BlueLinx, what is it that we're gonna do and continue to do differently to really take full advantage of what we think is an attractive place to be in? There's really four elements to our strategic priorities going forward. The first is around growth. We're gonna really lean into accelerating growth, particularly in the specialty arena. We think that is a place that today generates the majority of our profitability. It's a place where a lot of our competitive advantages and capabilities bear the most fruit. We really wanna mine that in a rich way.
I'll spend a little bit more time talking about how we're gonna continue to grow this business, particularly in the specialty arena, going forward. We have ample opportunity to be more productive, more efficient as an organization. I've had the good fortune to visit the vast majority of our locations, probably 45 of the 55 or 60 or so, and I'm always impressed by the energy, the capability, the capacity of our people, but we can make their lives a little bit easier. We can make the work that they do easier to do by driving some process standardization, driving a bit more prioritization and focus, and leveraging best practice across our network to really establish BlueLinx operating rhythm and culture.
If we do that, we're gonna unlock a lot of potential and margin into the business that we can reinvest to drive growth. We're very early days of that journey. We've built a team out that I think is ready to take on that challenge and look forward to, you know, sharing the progress with all of you over the course of time. The third dimension to this is around performance. You know, one of the things that I want us to be known for as BlueLinx is an organization that consistently exceeds expectations and has not only a culture, but the capability and the capacity to consistently deliver at a high level.
That is in terms of the targets we set, the governance, and the rhythm we follow to deliver against those targets, and continuing to reinvest and drive a level of continual improvement in the business. I'm excited about the organization's receptivity to that, and the early results I think are incredibly encouraging, and I think the combination of that emphasis will be outstanding in terms of value creation for the enterprise. All of this doesn't work though if you don't have talent to make it go. One of the things we spent a lot of time on in my first year is building out a leadership team that's ready for this task and can take the business to the next level. We've invested in capability in some key functional areas.
On the operations side, brought in a new supply chain leader. On the talent side, brought in a new chief people officer. We've invested in a new leader for our strategy and M&A business. We've added some new commercial capability across the organization. We've really tried to lean into the areas that we believe are gonna drive value over time. Pricing has been an area of focus for us. We've built out a new pricing team, a new PMO team to make sure we can execute big projects in a timely and efficient way.
I do believe that we now have a level of capability that's different and gives me great confidence that we have the opportunity to really realize our full potential. Growth, this to me is first and second and third priority for the business, quite honestly. Given the scale we have, given the fragmentation of our market, I think we have an opportunity to take share and drive growth again in these core categories. Our ambition is to really shift the business to a majority specialty business over time. You know, we really like a couple core categories, engineered wood, siding, millwork, outdoor living products, and industrial products. We believe these are well-suited for distribution. We believe they benefit from the technical acumen we have and the capabilities we have. We wanna really be known for tremendous performance in that regard.
That's a big area of focus for the organization. We're aligning a lot of our energy and our incentives around making this happen. One of the things that's necessary for this to happen is you gotta have the supply. In this market, you wanna be aligned with the suppliers and the vendors that have the best products, so you can have a really compelling conversations for their customers. We really have spent a lot of time building out relationships and deepening those relationships. I've personally been involved in conversations and thinking about ways that we can partner more strategically versus transactionally, and thinking about how we make sure we dedicate the majority of our spend to the brands and the products and partners that we like.
Similarly, on the customer side, it's much easier to grow with an existing customer than a new one, and many of our national accounts are large, great growth profile to them, and they have the need for distribution. So whether it be on the retail side, the pro builder side, we're looking at opportunities to make sure we understand exactly what they need, and we can deliver that in an exceptional way. The other thing that's critical is, again, we wanna have meaningful relationships with our vendors, strategic relationships. The best indication of that is what kind of distribution partner are you? Are you exclusive, ideally? Or if not, are you one of a few?
Across our core categories, I feel pretty good about the relationship and our positioning there, where we have the ability to really lean into the market, drive growth, drive performance, and invest with the confidence that we're gonna be able to deliver a good return. We're gonna continue to make sure that whether it be for our private label product on the EWP side, like onCENTER, or it's branded product that, you know, we have great relationships, we're partnering with our vendors, and they're excited about us being their route to market. Productivity. This is an area that I think is ripe for the company. Again, large network that I think has the opportunity to continue to be more efficient over time. We've been leaning into this in a fairly big way.
We've dramatically increased our level of capital investment over the past 18 months, and that's really gonna drive a level of performance and efficiency across our network, that we're excited about, whether that be new trucks, new trailers, new forklifts, yard improvements, roofing improvements to allow our material handlers to get in and out and load trucks faster, more efficiently, and more safely. We're expecting to see that really show up in our results over the next 12-18 months. Process standardization, big opportunity for us here. You know, there is the best-known way to do something. We pick, we pack, we ship.
There should be more consistency around that across our network, so we're really looking to harmonize that and drive a level of consistency there that will increase our capacity and also increase the level of customer service that we can deliver. Technology. You know, we have an opportunity, I think, to introduce technology into our environment that will be supportive of all the things that we wanna do, and we have the capability and capacity to do so. I'm really, really excited about where this effort around productivity is gonna take the business and the additional degrees of freedom it's gonna provide, and most importantly, the opportunity to delight our customers in an even more compelling way as we move forward.
We spend a lot of money buying things, and I think the opportunity to make sure that we are doing that as effectively, efficiently, and as consistently as possible is a tremendous win for us. We are working very hard to make sure that across our network, across all of our procurement activities, there's real alignment, and there is a strategic view as to how we think about our vendors and the relationships and how we gain access to more volume, but do it in a way that's appropriate and from a pricing perspective, something that, you know, recognizes the role we play in the space. S&OP is an area of growth and opportunity for us, really aligning our supply and our demand profile, leveraging analytics, again, in these key areas of growth around the specialty side, around certain markets.
I'm looking forward to that continuing to support the really good performance we've had on the working capital side and accelerating that through, as we move forward and really mature in this capability. You know, I get a big smile on my face when I think about our productivity opportunity, when I think about our procurement opportunity, just given where we are and where I believe that we can get to. You know, the thing that gives me the most confidence around the likelihood that we're gonna be incredibly successful on this journey is the team that we have making this happen. I am super proud of the team we have.
I think our capability functionally, the culture, the mindset, the desire to win, the level of integrity, they lead it in the right way, is creating a really exciting time at the organization. We've started to measure our employee engagement, and over the past year, we've seen massive improvements in that, in a fairly short period of time. I think it's a testament to a lot of the people, that we've brought into the organization and the clarity we've given them around how we're gonna win, and drive real performance for all of our stakeholders going forward. These are leaders that have demonstrated great capability historically in their areas of expertise and are completely aligned to the strategy that we're trying to drive.
Again, it's around accelerating growth by focusing our specialty products, focusing on our best customers, and driving share gain in the markets we like. It's around being as efficient as we possibly can with our SG&A and all other levels of cost. All with the goals of delivering an elite level of customer service, again, for these customers that matter and doing it very safely, and then holding ourselves to a high standard. You know, we are excited by extending the boundaries of what's possible and creating the best distribution company in the space. That's what we're focused on, that's what I'm focused on, that's what the team's focused on, and all of our energies around making that happen. I believe that we have a great opportunity to do so.
With that, I'll pass it on to Kelly, and she'll talk a bit more about value creation.
Thank you, Dwight. Good afternoon. My name is Kelly Janzen. I'm the CFO and have been with the company since April of 2020. I joined at a very interesting time for the company. As you can see, the last three years, we have put up the strongest financial results across all the metrics in the history of the company, actually. While, of course, that is primarily driven by the tremendous market we've seen in this industry over the last two and a half years or so, I absolutely can attest that I think the company itself and the team made a lot of really good and smart moves during this timeframe to optimize and actually take advantage of the market, specifically areas such as inventory management.
I think we compared to, you know, just anybody in the industry, we are by far leading the way on inventory management around the commodity business and the structural lumber and panels, for sure. I think that's paid off, as you can see, there's multiple quarters where we saw significant volatility, and we came out with strong margins and minimized our risk there. I think that was a tremendous change in approach that really paid off. In addition, we have pulled together a lot stronger approach than we've historically had around centralizing areas in pricing and certain procurement opportunities. We started doing that in mid-2020 as we kinda went into the pandemic.
As we came out of it, we learned so much, and we're continuing to even build on those capabilities today. That's before we even get to really Dwight's strategy that he just laid out and the immense talent that we've been able to bring in as a result that will just bring us to the next level. The first half of this year is the strongest first half we've ever had. We're seeing, you know, some pressure coming as we talked about earlier. H owever, we still feel really good about where we would land in really any scenario in any cycle, and that we're much better prepared for it than we've ever been.
Those results have translated to an incredibly strong balance sheet, and that's what's allowing us to truly invest and fuel our growth going forward. We're less than 1x levered right now at this point, and that is with raising, you know, $300 million of bonds last year. We do have some real estate leases on our books that are legacy related to our older capital structure. As we're starting to transition this capital structure, we have this really strong liquidity profile, and that's what allows us to invest in really both organic, potentially inorganic.
We've actually recently, and I'll talk about that in a minute, done an accelerated buyback as well, as it was an opportunistic time, for us. Speaking of that, as I just highlighted, our capital allocation framework, we've really been able to pull this together as we've had the opportunity now to really think hard about how we allocate capital. Certainly the most important right now for us is investing in the business. We're employing over $30 million of CapEx this year. That's, you know, over 5x of what we've really done in any year previous. We're investing in things like our facilities to make them more efficient, our fleet to also make it more efficient, more safe, and more just usable for the types of products that we're moving into on the specialty side.
We're investing in various types of equipment in our facilities to allow for value-added services that are very synergistic to our specialty products. It's really important. That, along with potential inorganic opportunities, especially as we go into this market soon, we'll start hopefully seeing some of those good opportunities come with some valuations coming down. On top of that, like I said, we're being very thoughtful about how we allocate capital back to shareholders. I think that, you know, the ASR was a really good first step in that direction. Finally, I'll just end with, you know, we put out. We had an Investor Day in June, and these are the midterm targets that we put out, and I'll reiterate those here. You know, we really...
You know, when you think about cycles. You know, we go into a midterm-type cycle, you know, not a short-term pressure cycle. It's not what we're talking about here. We're talking about, you know, three, four years from now. Where would we expect in a normalized cycle? We expect sustainably to be at least $4 billion-$4.5 billion business on the revenue side, with at least margins above 18% blended, of which ours historically have been, you know, these days, we're running around 16%. That's really gonna be attributable to that change in mix that we just talked about, the specialty being a bigger piece, with adjusted EBITDA over 10% and free cash flow of over $225 million.
That is what we absolutely expect to happen, given you know, all of the strategies that we've been talking about on a more sustainable basis. Now, we even hit some of these targets in the last couple years, based on the market tailwinds, but this is what we would expect in a more normalized environment in the future. What I've also said is, you know, those days of, you know, sub 100 EBITDA years, that those are absolutely in the past. You know, we have completely transformed the company, and then our low end is much higher than what, even some of our high ends were in previous years. We feel really good about where we're positioned right now coming out of 2022.
Coming out of first half of 2022 and as we get ready for the next cycle. With that, we'll move on to questions for either Dwight or myself.
Just curious on the margin front. If you look back over the past 10 years, the EBITDA margins have been in the low single digits, and it's not like you guys are the only distributor whose margins have exploded over the past couple of years. Like, how do you get to that, you know, this peak being the new normal kind of thing?
Yeah. I assume you're referring to EBITDA margins.
Yeah.
Yeah. Well, for one, again, I think you know, it starts with the gross margin process, right? We were much more decentralized and heavily weighted towards commodities. We also had about three times the commodity inventory than we have right now. Really we took a lot of ups and downs on the commodity markets in the past, which took a heavy hit on our EBITDA bottom line.
I think, you know, between the stabilization, I would say, of the structural business, and that we've put that risk in a much tighter range and been able to manage through that and keep our structural margins in the mid to high single digits, even in tough times, as well as continuing to expand, significantly expand our specialty margins and really set a floor that, you know, our floor is higher than what we really did previous to 2021. Our highest were like 17%. We're saying now our normalized margins would be more than 19%-20% range.
When you blend those together, you just, you know, and you keep your costs contained, of which we've talked about, you know, keeping our SG&A relatively contained, and investing where we really need to, that just automatically brings a much higher blended margin and drop through to the bottom line. That's how we're gonna get there.
Can I ask just one follow-up? The five categories that you listed there for the specialty focus, like, those products look like a lot of the products that your customers are trying to also expand share in, right? Like, if you talk to Bill or you talk to BA, like, that's their focus too. I imagine in the past there's a reason, you know, why your specialty mix was where it was and just kinda how are you gonna take that share from them?
Yeah. I'll answer part of it, and I'll let Dwight talk about the going forward piece. Historically speaking, really what happened is a lot of our local branches where we came through acquisition were. Some were very heavy commodity branches, and others were more specialty driven. Now what we're doing is really trying to harmonize to where all the branches are moving towards a much higher specialty mix. That's a big piece of the transition that we're going through, which is why the previous years really looked and felt different than what they're starting to at this point.
Yeah. I think, you know, a couple things. We're thinking about our mix very differently than we had in the past. Just by definition, as we mix up more on the higher margin stuff, our margin profile is gonna be better. Our pricing capabilities are better independent of what inflation is doing. Basic things around pricing. Do you have market-based pricing versus very decentralized and cost-plus pricing? Do you have guardrails around the floor? Do you even have a pricing floor? Do you have list pricing? Sounds like basic things, but we've kind of implemented a lot of those processes that provides much tighter price and performance based upon the value we really bring. Are we pricing the value-add services that we provide in addition to products?
We've really moved the needle on our pricing sophistication and capability and consistency, which is gonna be supportive of margin expansion. As it relates to our customers, a lot of these specialty products that we're talking about are strategic to them, and they need technical expertise. They need warehousing support. They need logistics support to be able to meet the demand they have. EWP is a great example of that. We see ourselves as partners for them to allow them to service their customers better. We've got some great examples around that as we look at the retail space as these guys try to Lowe's in particular and others build out their pro desk. You know, they were built to serve a DIY customer. The pro customer is different. Where are the product categories?
What's the level of expertise? We actually have people, salespeople in Lowe's stores working and supporting that environment and being a special order house for them, right? There's ample opportunities like that, I think, for us to continue to drive growth. Again, if I look at share, you know, it's a really fragmented space, and there can be multiple winners, and we wanna be one of them.
That's all that we have time for. I wanna thank you guys again, and thank you guys for coming.
Yeah. Thank you for having us.
Thank you. Appreciate it.