UFP Industries, Inc.

Good day, and welcome to the Q4 2023 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. The floor is yours, sir.

Welcome to the fourth quarter 2023 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. I will now turn the call over to Matt Massad.

Thank you, Dick, and good morning, everyone. Thank you for joining our fourth quarter and year-end 2023 earnings call. Like George Costanza, we stopped short of our goal for the year, but thanks to the efforts of our team, we posted the third best sales and profit year in our 69-year history. As we have described before, the best way to analyze our performance without the abnormal lumber market, supply constraints, and outsized demand from Q3 of 2020 through 2022 is to go back to 2019 and measure our progress. For 2019, we reported sales of 4.4 billion and EBITDA of 317.3 million, or a 7.2% EBITDA margin. We just completed 2023 with sales of 7.2 billion, an EBITDA of 810 million, and an 11.2% EBITDA margin. We began our new structure in 2020, and if we had predicted then that we would improve EBITDA by 255%, EBITDA margins by 156% and that we grow sales by 164% in four years, we would have said those were lofty goals. But that's exactly what our team achieved. Like the Detroit Lions who performed well but were disappointed at the end, we had a good year and we know there are better years ahead. Our forecast for 2024 are based on data which is inconsistent and not well aligned, which makes forecasting difficult. Nonetheless, Our view for the year is as follows. We plan on a relatively flat demand environment overall with an expected range of aggregate unit sales from slightly down to slightly up. We plan for new home construction to be slightly up to slightly down in 2024. The overall market mix between single-family and multi-family is expected to be approximately two-thirds single-family. January 2024 housing starts were an annualized 1.33 million and below expectations with weather being a commonly cited factor. We saw repair and remodel trend down over the fourth quarter of 2023, but it is expected to be up slightly to down slightly in 2024. In January 2024, we saw a decline in units from expected with weather again cited as a factor. The Purchasing Managers Index trended down during Q4 of 2023, and is expected to be down from 1 to 3% in 2024. January 2024, however, saw an uptick in the index, bringing it closer to neutral. Interest rates are projected to move down in 2024, and the current expectation is three rate cuts at some point during the year. The federal deficit is expected to be 1.6 trillion in 2024, which will likely have an impact on capital markets. We can only acknowledge these economic forecasts and incorporate them into our plans and budgets for the next five years. While we are mindful of these macro factors, our focus remains on areas we can control. Regardless of market conditions, our attitude is to keep moving forward, to keep succeeding despite factors out of our control. Our goal in 2024 is to take the lessons from prior years and, as expressed in our internal theme, make it better. We had underperforming operations in 2023 that will improve or be exited. We have opportunities to reduce costs or improve efficiencies in each area of our business. From purchasing and manufacturing to sales, marketing, transportation, we will pursue actions that drive better bottom line performance. As always, our goal is to create a stronger, more resilient company and build a strong team which can excel for many years to come. Providing long-term shareholder value is a requirement, and our teammates who are also shareholders are completely aligned in the mission. Of course, growth is central to our strategy. Whether through M&A or organic growth, we will aggressively pursue our runways. Acquisitions remain a key component, and we had several acquisition opportunities during 2023. Our international group completed an acquisition in Spain, but we were unable to close others primarily due to valuation challenges based on the target's hockey stick view of anticipated future performance versus our more muted and realistic view. On the organic growth side, we invested in several opportunities in 2023 and have several new projects planned for 2024 in new targeted geographic markets. The strong operations performance over the last three years has allowed us to build capital for growth, and if we are unable to acquire reasonably priced acquisition targets in line with our model, we will grow organically. Return on investment is the key to this decision. For example, our request for capital from our business units for 2024 totaled well over $350 million, which includes automation, technology, marketing, and new product capacity, as well as investments in markets where we have been unable to acquire targets at a fair ROI. We will stay operationally aggressive and fiscally conservative using our balance sheet to support our growth and value creation. Now let's review segment performance and outlook. We'll start with UFP Retail Solutions. As a value-added manufacturer, seller, and self-distributor, our products provide solutions for the DIY consumer as well as professional contractor. Our president of retail solutions, Will Schwartz, has worked well with his team to build on the success of the segment and outperform 2022 results. 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 continues to gain recognition and trust in the marketplace. We are investing to grow capacity and to add additional manufacturing in the Northeast. In addition to expanded marketing efforts, Decorators has sub-branded its mineral-based composite product offerings as SureStone to highlight the unique advantages of the patented technology. Expect some exciting new marketing efforts behind this technology and product line. Recently added PLUS Plan future capacity and SureStone manufacturing will allow us to launch additional products too. The SureStone technology is quickly becoming a favorite among installers and homeowners for its aesthetics, durability, and sustainability. The number of decorators certified professional installers has grown to over 900 and they continue to be great advocates for the products. While we grow our SureStone technology, we also expect some consolidation in the wood plastic composite space. Moving to ProWood and Sunbelt, those units are creating more synergies with treating efficiencies and preservative utilization and development. Our ProWood FR fire retardant treated lumber sales continue to grow. The PFS Chemical Development Company is moving into our innovation group to drive more external sales as well as to accelerate the development of new formulations to preserve, protect, and strengthen wood products. USP Edge siding pattern and trim products struggled in 2023 as demand waned for the category overall and as we continue to transition to more value-added products from basic commodity type products. We have restructured management of this business unit and expect substantially better performance in 2024 and beyond. We also believe there are opportunities to deploy our SureStone technology in this product category. Our e-commerce platform continues to grow and serve our customers with direct fulfillment of many of our manufactured items. We recorded online sales of more than $400 million in 2024 and will continue to grow out this capacity. Our retail solution strategy is simple. Provide innovative new products and solutions. find, expand, and harness opportunities, select and build the right brands, and to utilize our national reach, purchasing expertise, and distribution network to provide the best customer value. The outlook for retail in 2024 ranges from up slightly to down slightly for the year. A rebound is expected in 2025 and 2026. The big box retailers expect to gain market share as they focus more on small, professional contractors. In January, our retail solutions performance was down versus a year ago, due in part to tougher weather conditions in many parts of the country. Moving on to the construction segment, led by Patrick Benton, the site-built business unit remained resilient with a good mix of single-family and multifamily projects. While starts in 2024 are projected to be slightly up to slightly down from the 1.413 million actual starts in 2023, there is optimism for rate cuts later this year and a rebound in 2025 and 2026. Our balanced approach serving multifamily as well as single family helps position us well in the markets we serve, which tend to be the more resilient markets in the country and that continue to benefit from in-migration. We are well positioned to meet anticipated market needs and will continue to adjust to the actual market conditions going forward. We also note that the build-to-rent market is growing, and when multifamily units are included, over 40% of all new construction is in rental units. We expect that higher interest rates coupled with a forecasted decline in rates in six to nine months may cause some multifamily developers to wait until later in the year to begin construction on their new projects. Moving to factory-built, the business unit is expecting a trend line similar to site-built. We remain bullish on factory-built housing over the long term as it remains the most affordable housing option. Recreational vehicles have been very slow, but have worked through inventory in their dealer network and are expecting to see a modest upswing later this year. While RV is a small portion of our business, we have several products in our recreate or recreate pipeline to help us gain share and grow within the market as industry recovers. We saw considerable improvement in commercial construction in 2023, and we are forecasting a better bottom line result in 2024 This group has continued to balance manufacturing capacity and has consolidated manufacturing into four main locations domestically and one overseas. And in the concrete forming space, we added new locations in 2023 to serve new markets that have stronger growth prospects or to expand our capabilities in existing markets. The results were impacted by the ramp up of these new operations, but in 2024, we expect significant improvement in bottom line results more growth towards value-added products, and less focus on distribution of sticks and panels. Overall, our expectation for construction in 2024 is slightly up to slightly down. January housing starts were lower than forecast, so a back half of the year catch-up will be important to hitting our annual target. In the packaging segment, led by Scott Worthington, we have seen the biggest headwinds. Many of our customers have seen lower market demand, which means less demand for packaging. These customers are also evaluating costs in all areas and looking for concessions as the economy is more difficult. While we believe our value proposition is strong, we are not immune to these challenges and continue to seek less expensive yet still value-added solutions for our customers. The packaging team is evaluating its internal costs as well and consolidating production in certain hubs, eliminating excess capacity, and focusing on manufacturing efficiencies with a lower level of overall production. Longer term, we have a diverse end customer markets to pursue, including appliances, light and heavy equipment, agriculture, moving and storage, automotive, furnishings, horticulture, and glass. The packaging industry remains very fragmented, and our modest market share leaves tremendous opportunity for growth. 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. Our new steel packaging facility has added excellent alternatives for packaging heavy items and reusable applications. And we continue to expand our mixed material offerings and specialty products, such as strip pack, to new geographies, both domestically and internationally. Pallet 1 saw a decline in volume in 2023. As large pallet pool operators right-size their inventories, they are relying more on used pallets. However, we expect a return to more normalized environment later this year. As a result, the second half of 2024 is projected to be stronger than the first half. This business unit is expanding its national footprint and is poised for strong growth in 2025 and 2026. 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. And we will be combining our research, development, and state-of-the-art testing capabilities into a central location in 2024. Overall, we expect unit sales to be down slightly in 2024 and to rebound in 2025 and 2026. On the international front, our team is focused heavily on extending our packaging solutions to multinational customers. The corrugate capabilities in India and Australia, our strip pack branded products in Asia and other markets, and pallets and structural packaging in Mexico, Europe, and elsewhere enhance our total product offerings. Our international sourcing and sales efforts create worldwide capabilities for both our domestic and foreign customers, which we will be enhancing with new technology, much like the timber-based product that was launched earlier this year. Clearly, the overall economic outlook is mixed. While it certainly doesn't inspire unbridled optimism like the Odysseus lander's rocket ride to the moon, we aren't discouraged. We've been here before, and there's no team better prepared to create success. We can hear Jeff Lynn singing, don't bring me down, and we might add a twist, you can't bring me down. Some other items of interest in our focus areas and departments are, first of all, new products. New product sales for the fourth quarter were 142 million, and for the year were 716 million. Both numbers were below our targets for the year, due in part to lower lumber market prices. For 2024, we have raised the bar on the definition of new products as we drive focus on more value-added products and services. For new products, we have increased the return on investment target. We've placed more emphasis on innovation and eliminated many products that were new to UFP but did not have a competitive or sustainable advantage. With the higher standard, we are lowering the forecast for new product sales to 510 million for 2024. We will still be marketing and selling the products which no longer qualify as new and estimate those items could sell up to 300 million in 2024. Our investments in the innovation accelerator assist speed to market for new product ideas by rapid iteration and faster scale and synergy. We have seen several new products developed in 2023 and tested, which we expect we will bring to market during 2024. Our Innovate Fund has completed four investments in either late-stage development or early-stage commercialization projects. The team has several other opportunities in the pipeline as we fulfill our 2021 commitment of $100 million of investments for these types of projects over the next few years. Purchasing. In 2024, the lumber market is expected to remain within a trading range more in line with historical levels. The mills are bringing on additional capacity of more than 1 billion board feet in 2024. We expect that mills will manage the supply side by taking production offline at less efficient mills to match market demand rather than erode their margins. We've noted that in January, the lumber market has declined steadily. Transportation. During 2023, we invested in improved technology and worked to centralize our transportation functions to gain efficiency and reduce our overall costs. As with most major changes, the rollout of technology has come with some challenges which are being addressed, and we have also uncovered areas which will be improved by our new model. We expect to have the core systems fully implemented in 2024. On the human capital front, we note that the current U6 unemployment rate at the end of January was 8 percent, up from 7 percent at the end of December 2023. We note that many of the jobs being created are in nonprofits, healthcare, and government. These factors help explain the current lack of growth in the manufacturing space. Our facilities are consistently evaluating staffing levels and production schedules to optimize our teams. We also balance our workforce among segments to ensure easy transfers from areas seeking a slowdown to those that remain strong. We make sure that we keep our strong performers on our team while de-emphasizing the need for temporary workers. We also continue to train, recruit, and hire to keep growing our skills and talent. We have a long history of promoting from within, and we augment this practice by hiring outside expertise and talent to help us improve. The UFP Business School continues to add unique opportunities for current and prospective employees to enhance their skills and knowledge and move up in the organization. And in our quest to be the employer of choice in the communities we serve, we are honored to share bonuses and extra compensation with our hourly employees. These bonuses totaled over $53 million in 2023 as we continue to share performance rewards with all of our full-time teammates. In the marketing space, as we continue to grow our value-added product categories, we recognize a need to refine, enhance, and measure the effectiveness and efficiency of our marketing spend to ensure that we are driving sales in the most efficient manner possible. We are creating a small central marketing team to provide a more robust process, to provide data-driven and timely results to our leadership teams, and to better leverage costs with the marketing teams in our business units and segments. We have developed a five-year strategic plan which sets targets for sales of over $10 billion, not including material acquisitions. It also charts a path to higher EBITDA margins with a stretch goal of 12.5% EBITDA margin. Now I'd like to turn it over to Mike Cole to review the financial information.