Builders FirstSource, Inc.

Good morning, and thank you for joining Builders FirstSource First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. Michael Neese, Senior Vice President of Investor Relations for Builders FirstSource, will now provide the company's opening remarks. Please go ahead, sir.

Thank you, Brad. Good morning, and welcome to our First Quarter 2021 Earnings Call. I hope you and your families continue to remain safe and well. With me on the call are Dave Flibman, our CEO, and Peter Jackson, CFO. Today, we will provide an overview of our record first quarter results, discuss the integration highlights, and share how we are well positioned for continued success in 2021 and beyond. We have provided GAAP results, which include BMC in Q1 of 2021 and standalone BFS in Q1 of 2020. We also provided proforma results as if we own BMC in Q1 of 2020. A slide deck and this morning's press release are available on our website at investors.bldr.com. The results discussed during the call will include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. The reconciliation of these non-GAAP measures to the corresponding GAAP measures were applicable, and a discussion of why we believe they are useful to investors can be found at the back of the earnings press release and in the presentation. Our remarks in the press release, presentation, and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the forward-looking statement section in today's press release. and our SEC filings for various factors that could cause our actual results to differ materially from forward-looking statements and projections. With that, I'd like to turn the call over to Dave.

Thanks, Mike. Good morning, everyone, and thanks for joining us. The positive momentum in our business continued with our record first quarter results. I very much appreciate the efforts of our more than 26,000 team members who are working tirelessly to provide best-in-class service for our customers in these unprecedented market conditions. They continue to grow our business while meeting the needs of our customers in a highly constrained supply environment. We are working closely with our customers and suppliers to reduce cycle times amid material availability constraints and capitalize on our nation's very strong demand for single-family residential housing. And in that context, the power of our platform is evident as we are seeing rapid growth across all product lines, and I could not be more pleased with our team's results. I'll cover five important topics on today's call. First, the positive macro and residential housing environment. Second, our record first quarter results and what drove our outperformance. Third, our excitement about how we think about our core business and a brief word on commodities. Fourth, an update on our latest acquisition and the strength of our M&A pipeline. And finally, an update on the integration of BMC which is running ahead of our plan. I'd like to take just a minute and share why I remain bullish on our industry and our company. First, let's look at residential housing. According to Freddie Mac, the U.S. housing market is 3.8 million single-family homes short of what is needed to meet the country's demand, representing a 52% increase in the nation's home shortage compared with 2018. The gap has widened significantly over the past two years as builders have struggled to keep up with demand in part due to labor and material supply constraints. These challenges play to our strengths, including our structural component and value added offerings. In recent years, we have seen accelerating success in these areas, and we believe there remains a tremendous opportunity for demand and demographically fueled growth ahead of us. In terms of demand, According to the US Census Bureau, total housing starts jumped 19.4% in March, to a seasonally adjusted rate of 1.74 million. The National Association of Home Builders reported that this is the fastest pace for combined single family and multifamily construction in 15 years. There were only about 1 million existing homes for sale at the end of February, a nearly 30% drop compared with February of 2020. That is the largest annual decline ever and the lowest supply on record. This should bode well for a strong construction pace of new housing starts as we move into the summer season. Improving housing starts, historically low mortgage rates, and a shift towards single-family living are all positive trends that remain tailwinds for our products and services. We now operate in 47 of the top 50 and 86 of the top 100 MSAs. many of which are not only among the largest, but also some of the fastest growing MSAs in the country. Our ability to manufacture and assemble structural components at our offsite facilities provides an integrated, one-stop solution that helps solve the most challenging needs for our customers, labor availability and job site productivity. As a result of this area of strength and innovation, we expect to continue to outpace market growth for many years to come. Now let's turn to our record first quarter results. We delivered another very strong top and bottom line quarter, and importantly, our organic growth again outpaced the market as we continued to gain market share. On slide three of our investor deck, on a combined basis for BFS and BMC, total sales grew 54% to $4.2 billion. Our core organic sales growth increased 22%. Gross profit increased more than 50%. And adjusted EBITDA increased an impressive 187% to $455 million. These record results reflect the favorable housing market, our industry-leading position, our ability to deliver value, and a continuation of our disciplined approach to cost management. We firmly believe our core organic sales growth is sustainable for the long term, and we are positioned for outperformance through economic cycles. We have received questions from analysts and investors over the past quarter about commodities, wondering what our underlying growth would look like in recent years if we normalized the commodity side of our business. Floating commodities flat at $400 per 1,000 board feet, Our estimates show we have outpaced market growth by 20% from 2018 through 2020, resulting in a roughly 8% revenue taker. And that momentum continues to accelerate in the first quarter of this year. Said another way, we have consistently demonstrated our ability to far outperform the market and take advantage of our differentiated product platform. Now, as a combined entity, we have the geographical presence and even stronger platform to further advance our strategy. Turning to M&A, we announced today that we closed on our most recent acquisition earlier this month, Johns Lumber, a premier building materials supplier serving the largest housing market in Michigan. The acquisition provides enhanced scale that will benefit our existing 14 locations in the state. The company generated approximately $49 million in net sales for the trailing 12 months ended March 31st, 2021. We're excited to welcome the Johns Lumber Team members to the BFS family. With our very strong balance sheet and robust free cash flow generation, we will continue to reinvest in our business while actively pursuing M&A opportunities. As you can see on slide five, we have identified over 500 targets, and we will continue to be a consolidator in this industry for a long time to come. Finally, I'd like to update you on the BMC integration. Our efforts are ahead of schedule, and we remain highly confident in achieving three-year cost synergies of $130 to $150 million. For 2021, we expect to meet or exceed $60 to $70 million in realized savings. We saw merger-related cost savings begin to accumulate in the first quarter and are accelerated in the second quarter. We continue to drive our internal operating system, which will allow us to accelerate productivity, improve processes, and continue to grow our margins while servicing our customers more competitively. We believe we can continue to help offset cost escalation with our offsite manufacturing processes and other value-added products, including truss, millwork, wall panels, and ready frames. We are also seeing positive momentum in our growth efforts. as our teams work together to leverage our scale and product strengths. The early returns are reflected in our exceptional first quarter results. These are exciting times, and we are continuing to build our world-class home building distribution platform that positions us as a partner of choice. Before I turn the call over to Peter, I would like to highlight one of our many valued team members. May is Military Appreciation Month. Throughout the month, Builders First Horse is celebrating our many veterans and profiling several of their success stories. One such story focuses on Jason Bennett, the general manager of our De Pere, Wisconsin lumber location. He joined BFS five years ago after serving for 23 years in the U.S. Army. As a first sergeant, Jason was responsible for 200 soldiers. He ensured their safety, welfare, and training while in active duty roles. And he learned key management skills that would last long after his military career. When it was time to retire from the military, Jason looked for a company that shared the values instilled in him by the Army. And he found that in Builder's First Source. Jason joined BFS as a delivery manager in Colorado Springs and immediately fit right in. He worked his way up to operations manager and then general manager. He led his team in adopting new logistics technology. specifically our delivery and dispatch management system, and was able to increase delivery efficiency by 20%. Jason is now a general manager in Wisconsin, where he focuses on the safety of his team members and customers. His location continued at Accident Free Street and recently hit four years without a single recordable incident. We are proud to be a place where veterans feel valued and where their skills and experience translate into a rewarding civilian career. We're grateful for veterans like Jason and how they served our country and are pleased to have them as part of the BFS family. With that, let me turn the call over to Peter to go through a detailed look at our Q1 results and our 2021 updated financial guidance.