UFP Industries, Inc.

Good day and welcome to the Q4 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Dick Gauthier, Vice President of Investor Relations. Sir, the floor is yours.

Welcome to the fourth 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 website 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'd like to turn the call over to Matt Massad.

Thank you, Dick, and happy Fat Tuesday, everyone. Thank you for joining our fourth quarter and year-end 2022 call. It was a banner year with a record $9.6 billion in net sales. I know some of you are wondering, Why I couldn't cobble together another 400 million to make it an even 10 billion to hit our 2027 goal five years early. It is something I will work on. For the incredible year, our UFP teammates deserve all the accolades. I want to thank each one of them for working so hard to provide excellent products and services to our customers, which in turn allowed us to break records and to reward our teammates with well-deserved bonuses. We were also able to add over $60 million in year-end bonuses and other extra compensation to our hourly and production teammates. It is truly exceptional. Now I feel a bit like someone who finishes a delicious meal and says, this is the best meal I have ever eaten. And he immediately thinks, is that as good as it will ever get? Well, we certainly don't think so. While we enjoy and celebrate positive achievements, We're constantly looking to improve. We are creating new recipes to make sure that the future can be savored even more. But I'm pretty sure you didn't join this call to celebrate 2022 or to do meal planning for the future. You're far more interested in what's going to happen in 2023 and beyond. We have reviewed countless forecasts, predictions, opinions, and pure guesses, which seem to change frequently. It is difficult to find a consensus, but here is where our leadership team stands today. New home construction is likely to fall 15 to 20% from 2022 levels. Interest rates will move, probably up during the first half of the year and maybe down in late Q4 or early 2024. Government will continue to borrow and become an even larger portion of total domestic spending. As an aside, we should probably send our grandkids a thank you note for this funding. Other data points are less clear. While we believe we are likely already in a mild recession, the question is how it will end. Will the economy have a hard landing, a smooth, soft landing, or a soft landing with the wheels up, which will definitely leave some marks? Will consumer spending continue or have the effects of inflation curb individual spending power? Since we cannot control these external factors, the UFP team is poised to do what it always does, execute our plan and continue to position our company for even better success in the future. We have accumulated a significant amount of capital during the last two years and are well positioned to take advantages of opportunities we expect to see. We will stay operationally aggressive and fiscally conservative, using our balance sheet to support our growth and value creation. Our unique business model allows decisions on cost containment, staffing, and inventory levels to be handled by those closest to the action, and we don't wait for events to make decisions. 2023 may be a turbulent year, but we will adjust quickly as needed to be efficient in our operations while being nimble in pursuing growth. Now let's review segment performance and outlook. In retail solutions, as a value-added manufacturer, seller, and self-distributor, our products provide solutions for the DIY consumer as well as the professional contractor. Our new president of retail solutions, Will Schwartz, has hit the ground running. This is our largest segment by sales volume, and it has significant opportunities for creating synergies and scaling new and existing products. Our decorators product line has moved up to number three on the 2023 Life Story Research Most Trusted Brand List. And while we are pleased to be moving up, we are focused on becoming the best and staying there. The recently added capacity in mineral-based manufacturing will allow us to launch additional new products which utilize our patented technology, which is already a favorite among installers and homeowners for its aesthetics, durability, and sustainability. The number of decorator-certified professional installers has grown, and they have become enthusiastic brand advocates. Our ProWood and Sunbelt units are utilizing our Performance Formulations chemical company to grow fire-retardant-treated lumber sales, while developing new and improved preservatives to position our future growth. We continue to work with our customers to enhance our value proposition and to expand our industry leading market position. USP Edge siding pattern and trim products are excellent as our custom coating capabilities as well as thermally modified wood product offerings are well received. The financial performance was disappointing in 2022 due to delays on automation equipment not being delivered and installed in a timely fashion. We are looking for significantly better results in 2023 from this unit. Our e-commerce platform continues to grow and serve our customers with direct fulfillment on many of our manufactured products. And our retail solution strategy is simple. One, provide innovative new products and solutions. Two, find and harness opportunities. Three, select and build the right brands. Four, utilize our national reach, purchasing expertise, and distribution network to provide the best customer value. The outlook for retail in 2023 is generally steady for repair and remodel. Big boxes forecasting flat unit volumes and are expected to take share from other retailers. Independent retail is predicting flat to down somewhat. The first quarter will be difficult to compare against 2022, but we expect easier comparisons in Q2 and Q3. Moving on to construction, our president of construction, Patrick Benton, did an excellent job leading his team to record 2022 performance. The results were impressive, and the group has already adjusted to the lower trend line in new housing, both in site-built and factory-built. Mike will provide more details on trends but this is the area where costs will be most difficult in 2023. The forecast for housing starts is in the range of 15 to 20% below 2022 levels. And our balanced approach serving multifamily as well as single family helps position us well in the markets we serve, which also tend to be the more resilient markets in the country and which continue to gain population. We are well positioned to meet anticipated market needs and will continue to adjust to the actual market conditions going forward. Overall starts around the 1.3 million rough estimates still provide ample opportunities for us to produce a strong year with a good ROI. We've noticed that multifamily continues to show strength in many markets and the build to rent investments by equity funds may help bolster the housing starts numbers. Factory-built is expected to have a trend line similar to site-built, barring more interest rate changes. Factory-built housing is still the most affordable option, and our factory-built customers are predicting a better back half of 23 than the first half. RV may take longer to recover, although it is not a big portion of our business. Our product innovations in RV may help us gain share even with the smaller market size. The outlook for concrete forming and for commercial construction is solid for 2023, with some new infrastructure projects coming online. We will be adding additional laydown yards for concrete forming in 2023 to serve both new markets with better growth prospects and to expand our capabilities in existing markets. Overall, for construction, we will rely on our experienced management team to guide the business through any uncertainty and still produce strong results. UFP packaging sure seems like a better, more fitting name to me than UFP industrial. We hope you agree. Scott Worthington and his team have streamlined their segment, creating more focus and speed, and have generated enthusiasm both with the customers as well as with the packaging team. We have many runways and diverse end markets to pursue, such as durable goods, appliances, light and heavy equipment, agriculture, moving and storage, automotive, furnishings, horticulture, and glass. The packaging industry is very fragmented, and our very modest market share leaves tremendous opportunity for growth. The recent acquisition of Titan and All Boxed Up creates a connection to corrugate conversion and printing and gives a great touchpoint with existing and new customers. Increasing our design, engineering, testing, and analytical capabilities has helped create more opportunities to bring solutions to customers who value that level of expertise and creativity. Adding increased capacity in steel and other materials creates improved value propositions for mixed material packaging. We expect to expand these capabilities in our markets. Pallet 1 has also performed very well and will continue to expand its national footprint utilizing existing UFP locations where practical. Again, while there will be economic challenges, the long-term outlook for UFP packaging remains strong. We will continue to invest in automation, innovation, and acquisition to advance our goal of becoming a global packaging solutions provider. From an economic outlook, we expect some runways to grow while others are flat to down. Our conservative estimate overall for UFP packaging is flat to down 3% in units. Our international team is focused heavily on extending our packaging solutions to multinational customers. The core capabilities in India and Australia, our strip pack branded products in the Asia and other markets, and pallets and structural packaging in Mexico, Europe, and other end markets enhance our total product offerings. Our international sourcing and sales efforts create worldwide supply capabilities for both our domestic and foreign customers, which we will also be enhancing in 2023 with new technology. Some other areas of interest are in the new product space, sales for the fourth quarter were 164 million, and for the year were 736 million. Both numbers exceeded our targets. While we beat our targets in 2022, we need to do better and have created a target for 2023 of 795 million. We know the world is moving faster and we need to stay ahead. And the best way to add lasting value is to provide the consumer with a product that meets an unmet need. Our investments in the innovation accelerator assist speed to market for new product ideas by rapid iteration, and faster scale and synergy. Our recently launched Innovate Fund is very actively seeking late-stage development or early-stage commercialization projects. The best opportunities will fit within our enterprise and can be scaled broadly and rapidly throughout the organization. The goal of this innovation team matches our internal company theme for 2023. We need to innovate to dominate. In purchasing, the lumber market has been trending up slightly since the beginning of the year, but does not appear to have the same movement or volatility as a year ago. We expect that the mills will better manage the supply side, and unless there is unexpected high demand, we don't anticipate the same levels of the lumber market we saw in 22 or 21. This will likely cause revenues to be lower even on the same level of unit sales. UFT Transportation has invested to improve our delivery costs and efficiencies with new technology and new leadership. Shannon Evans, our new VP of Transportation, has instituted several changes already and will bring improved performance to this profit center. We are excited for her vision to take shape. Human capital. While the typical unemployment numbers remain low, the use fee index is over 6% and the workforce participation rate is below historical highs. Finding applicants is getting easier, yet finding those who wish to work hard in our industry remains a challenge. We know others face similar challenges, so we seek to be an employer of choice, in part by providing significant rewards to our teammates when we perform well. We balance our workforce among segments to ensure easy transfers from areas which are seeing a slowdown to those that remain strong. We also have expanded recruiting efforts to areas that are unfamiliar with USP and may not have understood the breadth of opportunities offered by our company. Those who start at the ground floor and work their way up with training, mentorship, and practical experience provided by the company. All who want to work hard to create a better life for themselves and their families are welcome and encouraged at UFP. Now I'd like to turn it over to Mike Cole to review the financial information.