UFP Industries, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2022 UFP Industries, Inc. Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Mr. Dick Gauthier, Vice President of Communications and Investor Relations. Please go ahead, sir.

Welcome to the first quarter 2022 conference call for UFP Industries. Hosting the call today are CEO Matt Massad and CFO Mike Cole. Matt and Mike will offer prepared remarks, and then the call will be open for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at UFPI.com. A replay will also be available at that website. Before I turn the call over to Matt Massad, let me remind you that today's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in the filings with the Securities and Exchange Commission. Now I would like to turn the call over to Matt Massad.

Thank you, Dick, and good afternoon, everyone. It is an amazing time. The music's pumping, the crowd's excited, and the USP team is shouting, turn down for what? Even with the macroeconomic and geopolitical party crashers, the team is executing their plans to keep the momentum going. They produced an unbelievable first quarter, which on its own is the third best year in UFPI's 67-year history. I am extremely grateful for their efforts and proud of their ability to set new first quarter records like these. Net sales of $2.49 billion. pre-bonus operating profit of $329.3 million, gross profit dollars of $478.4 million, and earnings per share of $3. We suspect many investors will be pleasantly surprised with these results. We've explained our balanced business model as well as our natural hedge against lumber market price fluctuations in the past, and the proof of these benefits is included in the record quarterly results. I will keep highlighting this message of diverse products, customers, and markets which complement each other and make UFPI a unique and rewarding investment. But the credit for our performance goes to our great UFP teammates who continue to post these outstanding results. Investors may question how we continue to post exceptional numbers when the lumber market is so volatile. UFPI in 2022 is a different, more diverse company than it was 15 years ago, or even three years ago. In the late 2000s, with our heavy concentration on retail and construction markets, we were less insulated from adverse effects of lumber market swings. Prior to our new structure, our operations were less cohesive for national customers, which created inefficiencies and other challenges. Today, with a much broader market presence in retail, construction, and industrial, we have a balance of customer types and pricing methods which serves as a natural hedge. While the lumber market swings may impact part of our businesses, the other parts of our business act like a counterbalance. When we execute like we have, it works quite well, as you can see from the results. Of course, sales dollars will fluctuate with the overall lumber market, which is why we focus on unit sales and gross profit dollars per unit. You're probably wondering why I'm explaining this today when it is a concept most of you know. My reasoning is simple. We believe UFPI is a great long-term investment. I don't want you to wake up one day and say, I wish that Matt had told me more about that UFPI opportunity. Regret can be tough, so I'm telling you now so you can avoid a case of FOMO in the future. To affirm our belief in the company's long-term value, we've repurchased 800,000 shares so far this year. which nearly covers all of our issuances under our compensation and employee purchase plans in 2022. And the repurchase price was less than the issue price. We still have additional repurchase authorizations remaining, as well as ample capital. We'll talk more about capital allocation and future outlook in a few minutes. But first, let's review the individual segments. In the retail solution segment, unit sales were up 12 percent, and gross profit dollars were up 34 percent. Our ProWood and Sunbelt units, with their concentration of variable price products, had a very nice quarter, as variable price products did well. Our purchasing and operations teams have done a very nice job at Sunbelt to reduce lumber market impacts, too. Sunbelt also began production at its new facility in Sterling, Georgia, which provides a significant transportation advantage for the Savannah, Georgia, and South regional market. It will also allow some more import and export advantages via the Port of Savannah. ProWood is adding a new ProWood FR fire retardant location in Q2, which will bring capacity nationally to 45 million board feed. The new two-hour fire assembly is expected to generate strong customer interest in the back half of 2022. UFP Edge, our siding, pattern, and trim business grew unit sales by 7 percent in the quarter. They continue to add production capacity each week, but some manufacturing components for their new line are delayed, so full production capacity will not be achieved until Q4 of this year. Decorator's composite decking unit sales increased 5 percent in Q1, while plastic lattice and accessories saw declines. Demand for the mineral-based composite product continues to grow, and our additional capacity should be completed this year as scheduled. The decorators team is also scaling the new ultra-aluminum product line into UFP's existing customer base, which is going very well. Handprint, the home and decor business unit, continues to grow and expand new customers with its cut-to-size product offerings. The Outdoor Essentials product line continues to expand as well, and this spring we are introducing the Haven Collection of raised garden beds and planters. These are e-commerce friendly designs using mixed materials with tool-free assembly. This is a great example of our core line innovation process, which takes old ideas, improves them, and makes them more easily marketable both in-store and online. UFP construction unit sales increased by 15 percent in Q1, and gross profit dollars increased 82.7 percent. Our site-built business unit continues to benefit from strong demand. Engineered wood products such as LDL remain in short supply, but our design and engineering teams are using their expertise to redesign roofs and floor systems to utilize more readily available alternative products. Our Endurable acquisition now has the largest backlog in their history, and we continue to scale these and other new products, such as light-gauge steel, in new markets. In addition to the New England capacity, we have added light-gauge steel in North Carolina and Tennessee. We also continue to perform more value-added services, such as exterior envelope panels, which include both siding and windows. Our growth has been slowed by the lack of available labor in certain markets. And while this is disappointing, we see other companies have a similar problem, which overall may help prevent overbuilding in the marketplace since the ability to deliver completed homes is moderated by the labor shortage. Our factory-built unit remains strong as manufacturers add capacity for more affordable small homes. Although not historically a big part of our business, recreational vehicle sales have slowed in Q1. While the recreational vehicle manufacturers remain optimistic, higher interest rates and higher gas prices will put additional pressure on the RV market. The commercial construction business unit is progressing as expected in 2022. And our concrete forming solution sales grew nicely in the first quarter. We continue to add talent to our team and expand our full service model to additional locations. Throughout the first quarter, we have seen very little impact from the federal infrastructure bill. UFP industrials unit sales declined by 3 percent, while gross profit dollars increased 86.7 percent. As we discussed, unit sales comparisons are more challenged as the industrial team converts high-volume commodity-type sales to lower-volume but more value-added sales. The growing value-add component is evident in these results. In the structural packaging arena, our strip pack corrugated and wood container is gaining more converts. This product line is easily scalable and gaining very good traction. We are also growing our structural steel components and packaging as well, with our new Georgia facility coming online by the end of Q4. Pallet 1 is expanding machine-built pallet production outside the geographic areas they previously served. This was a key part of our scale and synergy plan, which is proceeding on schedule. We also continue to uncover more opportunities to improve. The protective packaging team is leveraging its recent acquisition of Advantage Label and expanding the sales effort on labels and tags nationally. And our international group continues to show strength in Mexico, Australia, and in our recent acquisition in India. Timber sales from Eastern Europe, which are not material to UFPI overall, have been shut off due to the war in Ukraine, so our sourcing teams have been working hard to procure fiber from other parts of the world. Our European effort in Italy has been slowly rebounding as COVID restrictions have lifted, but their sales to Middle Eastern manufacturers have been slower and less profitable than anticipated. A key building block to successful innovation is new product introductions. Our new product sales in the first quarter were 151 million, which is well ahead of the pace necessary to hit our 2022 goal of 525 million. We also recognize the need to keep our new product pipeline full as we develop innovative groups of products with larger scale and application. We will be allocating additional capital for innovation fund, which will find or create new products with a high degree of intellectual property value and develop them to the point of commercialization with the help of our innovation accelerator team. Once commercialized, these products will be absorbed into the appropriate business unit or units. Historically, our operations have been reluctant to make these types of long-term investments, which can have an uncertain payback on a local level. This innovation fund can absorb these development costs, which are expected to be repaid at the time of commercialization. In the meantime, each segment will continue to invest in creating core line innovations and new products with rapid commercialization potential. With a great first quarter now behind us, what's the outlook for the balance of the year? First, new home construction is expected to plateau in Q3 and Q4, given higher interest rates and inflation, which impact affordability and may influence whether more projects are multifamily versus single-family. Current trends show multifamily starts up significantly, and we are well-positioned to succeed because we serve both single-family and multifamily customers and because the majority of our facilities are in geographic areas, which are projected to have strong population growth over the next decade. The repair and remodel market, which is a good guidepost for retail big box, remains solid and is in line with pre-pandemic levels thus far. With lack of available housing inventory and homeowners having increased equity in their homes, repair and remodel becomes a more attractive option versus moving. Big box and independent retail customer feedback indicates that northern markets have started slower with a delayed spring in many areas, while southern markets have performed as expected so far. Pull-through in Q2 will be a key data point for the back half of 2022. Durable goods manufacturing was down slightly through February, but remained solid for our industrial customers. Many manufacturers continue to work through their supply chain issues, which tends to extend order files. The Manufactured Housing Institute is predicting another strong year with extended lead times, while the RV market lags, as I mentioned. These highlights point to a good, solid 2022, which is a very positive environment for us to operate in. Obviously, not everything in the forecast is moonbeams and butterflies. There are some challenges and a few headwinds, but I'm confident our teammates will navigate them as well as anyone. Just a couple of factors that will challenge us. The first is inflation. Wages, benefits, consumables, resins, metals, and commodities are all seeing costs increase. We are doing our best to pass these costs along, yet at some point, the total of these costs are likely to slow growth. Interest rates. We're hopeful that the Fed will exercise due caution and restraint when raising rates. We hope they don't repeat history by raising rates too fast without allowing the typical three- to six-month lag between Fed decision and reaction in actual businesses. In either scenario, UFP's strong balance sheet will allow us flexibility to take advantage of opportunities in the marketplace to strengthen our long-term value. Labor is another challenge. We continue to employ creative solutions and look for new ones to increase our applicant pool and encourage people to come back into the workforce at UFP. Our spring hourly bonus was very well received, and we plan to incorporate some type of additional annual incentive as part of our permanent hourly incentive plan. Transportation remains a challenge from both an expense standpoint and availability. Rail and ocean freight have improved slightly, while trucking has remained spotty, depending on geography. We have provided extra incentives to our truck drivers for their service, which is helping with recruiting and retention. The last challenge is around SEC and other regulatory disclosures and requirements. The SEC has proposed disclosure rules around topics for which there is no legislative requirement. The regulatory changes and additional requirements continue to increase our non-value-added expenses. These expenses, coupled with potential tax increases, could have a negative impact on earnings in the future. As always, UFP will face the challenges head on and keep our focus on protecting and enhancing long-term shareholder value. One of the most important ways to combat the headwinds is through effective allocation of capital. We prioritize capital on growth creating long-term value, and providing a solid return to our shareholders. Our growth capital is directed to strategic acquisitions, new products and services, expansionary and efficiency capital expenditures. We have plenty of acquisition targets in the pipeline, but we'll keep our disciplined approach and adjust our model consistent with our view of the future, which is consistent growth, albeit at a slightly lower growth rate than 2020 and 2021. Our return of capital to shareholders takes three forms, share repurchases, cash dividends, and increase in share value. The performance of the USP team delivered significant dry powder to pursue these shareholder returns. In addition to the share repurchases, we believe that a consistent and growing dividend adds value to our shareholders and are pleased to report that our board authorized an increased dividend of 25 cents per share payable on June 15 to shareholders of record June 1. As for increasing the share value itself, we plan to keep demonstrating our performance as well as enhancing our marketing effort to attract new investors who may be skeptical of the complexities of our company and may simply not know enough about us to make an investment. Now I'd like to turn it over to Mike Cole, who will provide more details on our financial performance.