BlueLinx Holdings Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Concerning Forward-Looking Statements This Quarterly Report on Form 10-Q (“Quarterly Report” or “Form 10-Q”) contains forward-looking statements. Forward-looking statements include, without limitation, any statements that predict, forecast, indicate or imply future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “could,” “expect,” “estimate,” “intend,” “may,” “project,” “plan,” “should,” “will,” “will be,” “will likely continue,” “will likely result” “would,” or words or phrases of similar meaning. Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. The forward-looking statements in this report include, without limitation, statements about anticipated effects of adopting certain accounting standards; estimated future annual amortization expense; estimates made in connection with revenue recognition; the expected outcome of legal proceedings; the expected outcome of government and regulatory proceedings; industry conditions; seasonality; liquidity and capital resources; our confidence in the Company’s long-term growth strategy; our areas of focus and management initiatives; the demand outlook for construction materials and expectations regarding new home construction, repair and remodel activity and continued investment in existing and new homes; our positioning for long-term value creation; our efforts and ability to generate profitable growth; our ability to increase net sales in specialty product categories; our ability to generate profits and cash from sales of specialty products; our ability to effectively manage inventory; our ability to manage our lease commitments; our ability to negotiate collective bargaining agreements; our multi-year capital allocation plans; our ability to manage volatility in wood-based commodities; our improvement in execution and productivity; our efforts and ability to maintain a disciplined capital structure and capital allocation strategy; our ability to maintain a strong balance sheet; our ability to focus on operating improvement initiatives and commercial excellence; and whether or not the Company will continue any share repurchases. These risks and uncertainties also include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 30, 2023, those discussed elsewhere in this Form 10-Q, and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information included in this Form 10-Q and in our Annual Report on Form 10-K for fiscal year 2023 . In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under Item 1A “Risk Factors” in our Form 10-K for fiscal 2023 and under “Cautionary Statement Concerning Forward-Looking Statements” in Item 2 of this Form 10-Q. Our Culture, Values and Management Focus We remain committed to driving a culture of profitable growth within new and existing product lines and geographies, while positioning the Company for long-term value creation. The following initiatives represent key areas of our management team’s focus: 1. Migrate sales mix toward higher-margin specialty product categories. The Company is pursuing a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products. Additionally, the Company is expanding its value-added service offerings designed to simplify complex customer sourcing requirements, together with marketing, inventory and pricing services afforded by the Company’s national platform. 2. Foster a performance-driven culture committed to business excellence and profitable growth to be the provider of choice for suppliers and customers. This includes enhancing the customer experience through technology 17 Table of Contents enablement; accelerating organic growth within specific product and solutions offerings where the Company is uniquely advantaged; enhancing our performance by leveraging our scale and footprint together with pricing, operational and procurement capabilities; and deploying capital to drive sustained margin expansion, grow cash flow and maintain continued profitable growth. 3. Maintain a disciplined capital structure and pursue strategic investments that increase the value of the Company. The Company continues to strategically target acquisition opportunities that grow its specialty products business, expand its geographic reach, or complement its existing capabilities. The Company also continues to identify markets that are potential opportunities for new market development. The Company further seeks to maintain a disciplined capital structure while at the same time investing in its business to modernize its distribution facilities, as well as its tractor and trailer fleet, and to improve operational performance. During the nine months ended September 28, 2024, we engaged in the following transactions: • Used cash of $19.8 million and entered into $16.7 million of finance leases to enhance our facilities and fleet. • Returned capital of $30.0 million to our shareholders by using cash to purchase 297,951 shares of our common stock at an average price of $100.63. Our culture is guided by an unwavering commitment to apply our values to every decision we make and every action we take: • Customer Centric - We put our customers first, so we are customer centric in all that we do. • Integrity - We act with integrity, because doing the right thing is critical to our success. • Respect - We treat everyone with dignity and respect. • Grit - We show grit in the face of changing landscapes. • Collaboration - We collaborate with each other and our customers to build great teams and construct innovative solutions. Looking ahead, we plan to continue pursuing a three-pronged growth strategy focusing on specialty products sales growth, opportunistic mergers and acquisitions (“M&A”), and potential greenfield expansion in new geographic markets. Within specialty products, we will continue our focus on the five key areas of engineered wood, siding, moulding and millwork, outdoor living, and industrial products, which we believe are all favorable for two-step distributors and have attractive long-term prospects. Factors That Affect Our Operating Results and Trends Our results of operations and financial performance are influenced by a variety of factors, including the following: housing market conditions; pricing and product cost variability; volumes of product sold; competition; the cyclical nature of the industry in which we operate; consolidation among competitors, suppliers, and customers; disintermediation risk; loss of products or key suppliers and manufacturers; our dependence on international suppliers and manufacturers for certain products; effective inventory management relative to our sales volume or the prices of the products we produce; business disruptions; potential acquisitions and the integration and completion of such acquisitions; information technology security risks and business interruption risks; the ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs; exposure to product liability and other claims and legal proceedings related to our business and the products we distribute; natural disasters, catastrophes, fire, wars or other unexpected events; the impacts of climate change; successful implementation of our strategy; wage increases or work stoppages by our union employees; costs imposed by federal, state, local, and other regulations; compliance costs associated with federal, state, and local environmental protection laws; the effects of epidemics, global pandemics or other widespread public health crises and governmental rules and regulations; fluctuations in our operating results; our level of indebtedness and our ability to incur additional debt to fund future needs; the covenants of the instruments governing our indebtedness limiting the discretion of our management in operating the business; the potential to incur more debt; the fact that we have consummated certain sale leaseback transactions with resulting long-term non-cancelable leases, many of which are or will be finance leases; the fact that we lease many of our distribution centers, and we would still be obligated under these leases even if we close a leased distribution center; inability to raise funds necessary to finance a required repurchase of our senior secured notes; a lowering or withdrawal of debt ratings; changes in our product mix; increases in fuel and other energy prices or availability of third-part freight providers; changes in insurance-related deductible/retention liabilities based on actual loss development experience; the possibility that the value of our deferred tax assets could become impaired; changes in our expected annual effective tax rate could be volatile; the costs and liabilities related to our participation in multi-employer pension plans could increase; the risk that our cash flows and capital resources may be insufficient to service our existing or future indebtedness; interest rate risk, which could cause our debt service obligations to increase; and changes 18 Table of Contents in, or interpretation of, accounting principles. These factors, and the related trends and uncertainties, have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods. For more information on the risk factors impacting our business, refer to Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year 2023. 19 Table of Contents Results of Operations Our results of operations for the three months ended September 28, 2024 (“third quarter of fiscal 2024”) and for the three months ended September 30, 2023 (“third quarter of fiscal 2023”) were as follows: Three Months Ended September 28, 2024 % of Net Sales Three Months Ended September 30, 2023 % of Net Sales ($ amounts in thousands) Net sales $ 747,288 $ 809,981 Gross profit 125,669 16.8% 139,246 17.2% Selling, general, and administrative 92,210 12.3% 91,354 11.3% Depreciation and amortization 9,530 1.3% 8,089 1.0% Amortization of deferred gains on real estate (984) (0.1)% (984) (0.1)% Other operating expenses, net 888 0.1% 1,131 0.1% Operating income 24,025 3.2% 39,656 4.9% Interest expense, net 4,619 0.6% 5,577 0.7% Settlement of defined benefit pension plan (2,226) (0.3)% — —% Other expense, net — —% 594 0.1% Income before provision for income taxes 21,632 2.9% 33,485 4.1% Provision for income taxes 5,616 0.8% 9,103 1.1% Net income $ 16,016 2.1% $ 24,382 3.0% Our results of operations for the nine months ended September 28, 2024 (“first nine months of fiscal 2024”) and for the nine months ended September 30, 2023 (“first nine months of fiscal 2023”) were as follows: Nine Months Ended September 28, 2024 % of Net Sales Nine Months Ended September 30, 2023 % of Net Sales ($ amounts in thousands) Net sales $ 2,241,895 $ 2,423,852 Gross profit 375,794 16.8% 408,588 16.9% Selling, general, and administrative 272,913 12.2% 271,278 11.2% Depreciation and amortization 29,083 1.3% 23,758 1.0% Amortization of deferred gains on real estate (2,952) (0.1)% (2,952) (0.1)% Other operating expenses, net 1,210 0.1% 5,240 0.2% Operating income 75,540 3.4% 111,264 4.6% Interest expense, net 14,044 0.6% 19,575 0.8% Settlement of defined benefit pension plan (2,226) (0.1)% — —% Other expense, net — —% 1,782 0.1% Income before provision for income taxes 63,722 2.8% 89,907 3.7% Provision for income taxes 15,878 0.7% 23,247 1.0% Net income $ 47,844 2.1% $ 66,660 2.8% 20 Table of Contents The following table sets forth net sales by product category: Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net sales by product category ($ amounts in thousands) Specialty products $ 519,000 $ 558,851 $ 1,562,300 $ 1,697,679 Structural products 228,288 251,130 679,595 726,173 Total net sales $ 747,288 $ 809,981 $ 2,241,895 $ 2,423,852 Percentage of total net sales by product category Specialty products 69.5 % 69.0 % 69.7 % 70.0 % Structural products 30.5 % 31.0 % 30.3 % 30.0 % Total net sales 100.0 % 100.0 % 100.0 % 100.0 % The following table sets forth gross profit and gross margin percentages by product category: Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Gross profit by product category: ($ amounts in thousands) Specialty products $ 100,479 $ 110,898 $ 308,878 $ 326,366 Structural products 25,190 28,348 66,916 82,222 Total gross profit $ 125,669 $ 139,246 $ 375,794 $ 408,588 Gross margin % by product category: Specialty products 19.4 % 19.8 % 19.8 % 19.2 % Structural products 11.0 % 11.3 % 9.8 % 11.3 % Company gross margin % 16.8 % 17.2 % 16.8 % 16.9 % Third Quarter of Fiscal 2024 Compared to Third Quarter of Fiscal 2023 For the third quarter of fiscal 2024, the Company generated consolidated net sales of $747.3 million, a decrease of $62.7 million, or 7.7 percent, compared to the third quarter of fiscal 2023. The decrease in net sales in the current quarter was attributable to continuing pricing pressures in both specialty products and structural products, with commodity prices in U.S. markets for lumber and panels being down 12 percent and 19 percent, respectively, compared to the prior year period. However, pricing declines were partially offset by volume growth for both specialty and structural products. The Company’s gross profit for the third quarter of fiscal 2024 decreased by $13.6 million to $125.7 million from $139.2 million in the prior year period and this decrease was attributable to both specialty and structural products. Gross margin percentage for the Company decreased from 17.2 percent to 16.8 percent in the current quarter, also attributable to both structural products and specialty products. The import-duty and LCNRV matters discussed in the sections below for specialty products and structural products contributed $5.9 million to the current quarter’s gross profit. Excluding these items, gross margin percentage was 16.0 percent for the current quarter. Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased by $39.9 million, or 7.1 percent, to $519.0 million in the third quarter of fiscal 2024. This decrease in net sales was due to price deflation across all specialty product categories, partially offset by volume gains for millwork, engineered wood, and specialty lumber and panels. Specialty products gross profit decreased by $10.4 million to $100.5 million due primarily to the decrease in sales. Specialty products gross margin percentage decreased by 40 basis points to 19.4 percent compared to 19.8 percent in the third quarter of fiscal 2023 due primarily to decreases in pricing. The current period included a net benefit of $3.5 million for import duty-related items from prior periods. Excluding this benefit, specialty products gross margin percentage was 18.7 percent. The duty items were related to changes in retroactive rates for anti-dumping duties and to classification adjustments for certain goods imported by the Company. Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased by $22.8 million, or 9.1 percent, to $228.3 million in the third quarter of fiscal 2024 compared to the third quarter of 21 Table of Contents fiscal 2023. This decrease was primarily due to price deflation across all structural product types, partially offset by volume gains for all structural product types. Structural products gross profit decreased by $3.2 million to $25.2 million from $28.3 million in the prior year period due primarily to decreases in pricing. Structural products gross margin percentage for the third quarter of fiscal 2024 was 11.0 percent compared to 11.3 percent in the prior-year period. Gross profit and gross margin percentage for the third quarter of fiscal 2024 were positively impacted by a $2.4 million LCNRV inventory write-down for certain structural products at the end of the second quarter of fiscal 2024 that resulted in lower Costs of products sold in the third quarter of fiscal 2024 since substantially all of the inventory associated with the LCNRV write-down was sold during third quarter of fiscal 2024. This adjustment increased the current quarter’s gross margin percentage for structural products by 1.0 percent. The third quarter of fiscal 2023 was negatively impacted by a $0.6 million interim period LCNRV write-down for certain inventory related to our structural products. Our selling, general, and administrative (“SG&A”) expenses increased by $0.9 million, or 0.9 percent, compared to the third quarter of fiscal 2023. In the current quarter, higher technology expenses associated with our digital transformation were partially offset by lower fleet-related logistics costs. Depreciation and amortization expense increased 17.8 percent compared to the third quarter of fiscal 2023 due to a higher base of depreciable assets in the third quarter of fiscal 2024, resulting from our continued focus on strategic capital investment. Interest expense, net, decreased by 17.2 percent, or $1.0 million, compared to the third quarter of fiscal 2023. The decrease was due to the generation of additional interest income from larger balances of cash and cash equivalents and from higher interest rates on those balances in the current quarter compared to the prior year period. Additionally, interest income for the third quarter of fiscal 2024 includes $0.7 million related to antidumping import duty refunds recognized in the quarter. (see Note 2, Inventories ). Our effective income tax rates were 26.0 percent and 27.2 percent for the third quarters of fiscal 2024 and 2023, respectively. Our effective income tax rates for both periods were impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units. For fiscal 2024, we expect our annual effective income tax rate will be approximately 26 percent. Our net income for the third quarter of fiscal 2024 was $16.0 million, or $1.87 per diluted share, versus $24.4 million, or $2.71 per diluted share, in the prior-year period. Decreases in our net income and earnings per diluted share were due primarily to the factors discussed above. The 2024 period also reflects a pre-tax benefit of $2.2 million related to an adjustment of the settlement charge recorded in the fourth quarter of 2023 to settle our defined benefit pension plan. This benefit was partially offset by $1.2 million of estimated net losses related to Hurricane Helene in September 2024, which is reported within Other operating expenses, net on our unaudited condensed consolidated statements of operations. First Nine Months of Fiscal 2024 Compared to First Nine Months of Fiscal 2023 For the first nine months of fiscal 2024, the Company generated consolidated net sales of $2.24 billion, a decrease of $182 million, or 7.5 percent, compared to the first nine months of fiscal 2023. The decrease in net sales in the current period was attributable to both specialty products and structural products and reflected continuing pricing pressures, partially offset by volume gains . The Company’s gross profit for the first nine months of fiscal 2024 decreased by $32.8 million to $375.8 million from $408.6 million in the prior year period. This decline in net sales was attributable to both specialty products and structural products. The Company’s gross margin percentage was 16.8 percent for the 2024 period, a decrease from the 16.9 percent for the 2023 period. Gross profit and gross margin percentage benefited in the current period by a net benefit in specialty products of $12.7 million for import duty items. The import duty items were related to changes in retroactive rates for anti-dumping duties resulting in a credit to cost of products sold of $20.7 million, partially offset by classification adjustments for certain goods imported by the Company that resulted in a net increase in Cost of products sold of $8.0 million for the current period. Not including this net benefit, the Company’s gross margin percentage would have been 16.2 percent in the current period. 22 Table of Contents Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased by $135.4 million, or 8 percent, to $1.56 billion in the first nine months of fiscal 2024. The decline in net sales was due to price deflation across all specialty product types, partially offset by volume gains for millwork, engineered wood, siding, and specialty lumber and panels. Specialty products gross profit decreased $17.5 million to $308.9 million due to lower net sales, while specialty products gross margin percentage decreased 60 basis points to 19.8 percent for the first nine months of fiscal 2024 compared to 19.2 percent in the first nine months of fiscal 2023. The net impact of the import duty items described above increased specialty products gross profit for the current period by $12.7 million and specialty products gross margin percentage by 0.8 percent. Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $46.6 million to $679.6 million in the first nine months of fiscal 2024 primarily due to volume and price declines for the lumber category, partially offset by price and volume increases in the panels category. Gross profit for structural products decreased by $15.3 million to $66.9 million from $82.2 million in the prior year period due to lower sales in the current period. Structural products gross margin percentage for the first nine months of fiscal 2024 was 9.8 percent, a decline from 11.3 percent in the prior-year period due primarily to price deflation for the lumber category. Gross profit and gross margin percentage for structural products benefited in the prior year period by lower cost of products sold attributable to a $2.6 million LCNRV write-down of certain inventory at the end of fiscal 2022, partially offset by an interim $0.6 million LCNRV write-down of certain inventory during the 2023 period. During the first nine months of fiscal 2024, such interim period LCNRV inventory write-downs and reversals netted to zero. Our SG&A expenses in the first nine months of fiscal 2024 increased $1.6 million compared to the first nine months of fiscal 2023. In the current period, higher technology expenses associated with our digital transformation and legal expenses associated with duty-related matters were partially offset by lower sales-based incentive expenses and lower share-based compensation expense. Depreciation and amortization expense increased 22.4 percent compared to the first nine months of fiscal 2023 due to a higher base of depreciable assets throughout the first nine months of fiscal 2024 when compared the prior-year period, resulting from our continued focus on strategic capital investment. Other operating expenses, net decreased $4.0 million compared to the first nine months of fiscal 2023 primarily due to restructuring related expenses, including severance expenses, incurred in the 2023 period due to our leadership transition. Interest expense, net, decreased by 28.3 percent, or $5.5 million, compared to the first nine months of fiscal 2023. The decrease was primarily due to the generation of higher interest income, given our year-over-year increase in cash that is generating interest at higher rates than last year. Included in interest income for the nine months ended September 28, 2024 is $2.7 million of interest income related to the antidumping import duty refunds (see Note 2, Inventories ). Interest expense, net for the nine months ended September 28, 2024 also includes $1.2 million of estimated accrued interest expense related to estimated import duties owed by the Company (see Note 9, Commitments and Contingencies ). Our effective income tax rates were 24.9 percent and 25.9 percent for the first nine months of fiscal 2024 and 2023, respectively. Our effective income tax rate for both periods was impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, partially offset by a benefit from the vesting of restricted stock units, and in the 2024 period, a partial release of a valuation allowance for deferred income tax assets. For fiscal 2024, we expect our annual effective income tax rate will be approximately 26 percent. Our net income for the first nine months of fiscal 2024 was $47.8 million, or $5.53 per diluted share, versus $66.7 million, or $7.38 per diluted share, in the prior-year period. Our net income for the first nine months of fiscal 2024 decreased due primarily to the factors discussed above. The 2024 period also reflects a pre-tax benefit of $2.2 million related to an adjustment of the settlement charge recorded in the fourth quarter of 2023 to settle our defined benefit pension plan. This benefit was partially offset by $1.2 million of estimated net losses related to Hurricane Helene in September 2024, which is reported within Other operating expenses, net on our unaudited condensed consolidated statements of operations. 23 Table of Contents Liquidity and Capital Resources We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations, cash and cash equivalents on hand, and availability from our revolving credit facility, as needed. We expect that these sources will be sufficient to fund our ongoing cash requirements for at least the next 12 months and into the foreseeable future. As of September 28, 2024, we had $526 million of cash and cash equivalents plus $346.5 million of availability on our revolving credit facility. Senior Secured Notes In October 2021, we completed the private offering of $300 million of our 6.0 percent senior secured notes due 2029 (the “2029 Notes”). Interest is payable semi-annually. Our 2029 Notes are scheduled to mature on November 15, 2029, and no principal is due until that time as long as we remain in compliance with the related covenants. As of September 28, 2024, we were in compliance with these covenants. Revolving Credit Facility Our existing revolving credit facility (“Revolving Credit Facility”) with Wells Fargo Bank, National Association, as administrative agent (“Agent”), and certain other financial institutions, matures on August 2, 2026, provided we remain in compliance with the related covenants. As of September 28, 2024, we were in compliance with such covenants. Any outstanding borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) Adjusted Term Secured Overnight Financing Rate (“SOFR”) (calculated as SOFR plus 0.1 percent) plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on SOFR, or (ii) the Agent’s base rate (as that term is defined in the agreement for the Revolving Credit Facility) plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate. Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the agreement for the Revolving Credit Facility). The Company is required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. Our Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium but including all breakage costs incurred by any lender thereunder. As of September 28, 2024 and December 30, 2023, we had zero outstanding borrowings under our Revolving Credit Facility and available borrowing capacity was $346.5 million, net of undrawn letters of credit. Excess availability, which includes availability under our Revolving Credit Facility plus cash and cash equivalents in qualified accounts, was $872.8 million as of September 28, 2024. Finance Lease Obligations Our finance lease obligations consist of leases for real estate, equipment, and vehicles totaling $293.8 million and $285.4 million as of September 28, 2024 and December 30, 2023, respectively. Of the $293.8 million as of September 28, 2024, $243.1 million related to real estate and $50.8 million related to equipment. Of the $285.4 million as of December 30, 2023, $243.2 million related to real estate and $42.3 million related to equipment. Sources and Uses of Cash Operating Activities Net cash provided by operating activities for the first nine months of fiscal 2024 was $66.4 million compared to net cash provided of $230.7 million in the first nine months of fiscal 2023. The decrease in cash provided by operating activities during the first nine months of fiscal 2024 was primarily a result of a $18.8 million decrease in net income for the current year period and a $146.9 million net decrease in operating assets and liabilities in the current year period, primarily inventory. Investing Activities Net cash used in investing activities for the first nine months of fiscal 2024 was $19.0 million compared to net cash used of $18.7 million in the first nine months of fiscal 2023. In the current period, higher spending for property and equipment was 24 Table of Contents partially offset by proceeds from sales of assets. During the first nine months of fiscal 2024, we also acquired $16.7 million of property and equipment through finance leases, compared to $11.3 million for the first nine months of fiscal 2023. Financing Activities Net cash used in financing activities totaled $42.9 million for the first nine months of fiscal 2024 compared to net cash used of $41.1 million for the first nine months of fiscal 2023. The change in net cash used in financing activities was primarily due to an increase in cash used for payments for finance lease liabilities, offset by a decrease in cash used to repurchase shares to satisfy employee tax withholdings for vestings of restricted stock units. During the first nine months of fiscal 2024, we repurchased $30.0 million of our common stock compared to $29.3 million during the first nine months of fiscal 2023. Stock Repurchase Programs During the first nine months of fiscal 2024, we repurchased 297,951 shares of our common stock under our 2023 share repurchase program at an average price of $100.63, including broker commissions but excluding federal excise tax due on the repurchases, for a total of $30.0 million. All of the share repurchase in fiscal 2024 occurred in the second and third fiscal quarters. As of September 28, 2024, there remained $61.5 million repurchase capacity under this authorization. Between September 28, 2024 and October 25, 2024, we purchased an additional 43,240 shares of our common stock for $4.6 million at an average price of $106.34 per share, including broker commissions but excluding federal excise tax due on the repurchases. Under the 2023 share repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1. During the first nine months of fiscal 2023, we repurchased 358,212 shares of our common stock under the former 2021/2022 share repurchase program at an average price of $83.52 per share, including broker commissions but excluding federal excise tax due on the repurchases. The 2021/2022 share repurchase program was concluded during the fourth quarter of fiscal 2023. The repurchase dollar amounts noted above are based on trade date activity, while the amounts reported on our consolidated statements of cash flows for share repurchases are based on settlement date activity. Net Working Capital Net working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. Net working capital is defined as the sum of accounts receivables and inventory, less accounts payable, each determined in accordance with GAAP and included in our consolidated balance sheets. This metric differs from traditional working capital in that it excludes certain current assets and current liabilities that are reported in our consolidated balance sheets. Net working capital of $432.3 million as of September 28, 2024, compared to $414.1 million as of December 30, 2023, increased on a net basis by approximately $18.2 million, as shown below: September 28, 2024 December 30, 2023 September 30, 2023 (In thousands) Current assets: Receivables, less allowance for doubtful accounts $ 278,049 $ 228,410 $ 297,568 Inventories, net 340,541 343,638 364,162 618,590 572,048 661,730 Current liabilities: Accounts payable 186,319 157,931 202,256 Net working capital $ 432,271 $ 414,117 $ 459,474 25 Table of Contents Investments in Property and Equipment Our investments in capital assets consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure. The gross value of these assets is included in property and equipment, at cost on our unaudited condensed consolidated balance sheets. For the first nine months of fiscal 2024, we invested $19.8 million in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet. We also added $16.7 million in new finance leases during the first nine months of fiscal 2024 for new tractors and forklifts to enhance our logistics network. For the first nine months of fiscal 2023, we invested $18.9 million in cash investments in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet. We also added $11.3 million in new finance leases during the 2023 period for new forklifts to enhance our logistics network. Critical Accounting Policies The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks as part of our on-going business operations. Our exposure includes commodity price risk and interest rate risk. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.