Builders FirstSource, Inc.

Good morning, and thank you for joining Builders FirstSource Fourth Quarter and Full Year 2021 Conference Call. Michael Neese, Senior Vice President of Investor Relations for Builders FirstSource, will now provide the company's opening remarks.

Thank you, Brittany. Good morning, and welcome to our Fourth Quarter and Full Year 2021 Earnings Call. With me on the call are Dave Flipman, our CEO, and Peter Jackson, our CFO. Today, we will review our record fourth quarter and full year results for 2021. We have provided results that include BMC in the fourth quarter of 2021 and standalone BFS in the fourth quarter of 2020. We've also provided pro forma results as if we own BMC in the fourth quarter of 2020. As a reminder, our adjusted EPS calculation excludes amortization of intangibles. The fourth quarter press release and investor presentation for today's call are available on our website at investors.bldr.com. On behalf of the entire company, we want to thank everyone who attended our Investor Day in person or virtually and for your continued interest in and support of Builder's First Source. I would encourage you to visit our Investor Day slides and commentary on our IR website at bldr.com. The results discussed today 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. You can find the reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and 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 in our SEC filings for various factors that could cause our actual results to differ from forward-looking statements and projections. With that, I'll turn the call over to Dave.

Thanks Mike. Good morning everyone and thanks for joining us. 2021 was a phenomenal year for our company. We achieved four straight quarters of double digit core organic growth, delivering above market performance and record results. I want to thank our more than 28,000 team members for an incredible year. I'm extremely proud of their outstanding results despite the many supply chain challenges and strong demand that is impacting our industry. I'll cover three key topics on today's call, which speak to the strength of our business and the strategy that is enabling us to excel as a leader in our space. First, I'll provide an update on our record full year results, including our base business and our view of the current state of the housing market. Peter will discuss our fourth quarter results in his remarks. Second, I'll provide an update on our tuck-in acquisitions that continue to strengthen our industry-leading market position. And finally, I'll provide an update on our digital strategy which we laid out during our investor day in December. As you know, we are the nation's leading supplier of structural building and value-added products and services, primarily to the residential construction market. We are a consolidator in our industry with arguably the best balance sheet of anyone in this space. We have a long track record of successful execution combined with a very strong value proposition, a highly differentiated platform, and an unwavering commitment to customer-focused solutions. We are now 14 months into combining BFS and DMC with plenty of low-hanging fruit remaining for us to continue to harvest. as we look to accelerate growth, capture synergies, and drive new productivity. Before I review our full year results, I would like to highlight an important slide from our investor day. As we discussed during that event, we believe it is important to assess our results on a base business basis. to better appreciate the underlying growth and profitability of our company by normalizing commodity prices. As you can see on slide three, over the next four years, we expect our base business to deliver a 10% CAGR on the top line, a 15% adjusted EBITDA CAGR, and importantly, a 50 basis points per year improvement in adjusted EBITDA margin for a total of 200 basis points by 2025. Given the strength of our cash flow and the leverage target that we laid out last year of between one and two times adjusted base business EBITDA, we expect to have $7 to $10 billion of capital to deploy through 2025. And we will put that capital to work through continued investments in innovation and organic growth, accretive tuck-in M&A, and returning capital to shareholders as evidenced by the recent announcement of our third $1 billion share repurchase program in the last seven months. Turning to slide four, on a pro forma basis, we delivered impressive single-family core organic growth of approximately 28% in 2021, meaningfully exceeding the single-family starts growth of 13.6%. We produced record sales of nearly $20 billion to deliver $3.1 billion of adjusted EBITDA and a record adjusted EBITDA margin of 15.4%. As you can see on slide five, our base business is strong as we grew sales by 26% to $15.2 billion in adjusted EBITDA by an outstanding 63%, while our adjusted EBITDA margin increased 250 basis points to 11.2%. Our momentum carried through the fourth quarter in which we delivered $4.6 billion of revenue and an adjusted EBITDA margin of 17.1% on the strength of robust demand for housing, pricing discipline, and our continued focus on serving our customers with our value-added offerings. Last month, we attended the International Builders Show in Orlando. Based on our conversations with many customers and suppliers, We believe demand for single-family housing will remain strong headed into the spring homebuilding season. We are encouraged from these anecdotal conversations, but more importantly, by the double-digit, top-line increases that we have seen in our results so far this year. The number of single-family homes under construction increased 27% in 2021 versus 2020. One fact I'd like to remind you of is that there are currently more single-family homes under construction across the country than there have been in more than 14 years. And the home builder backlog is currently at the highest level it's been in the last 15 years. Backlogs, in fact, were an estimated 145,000 single-family units authorized but not yet started as of last month of 32% year-over-year, an encouraging sign of continued demand strength. On slide six, you will see that we also remain focused on executing our strategy of investing in inorganic growth. We have completed seven acquisitions for $1.2 billion since we closed on the BMC merger. And we believe we can invest at least $500 million each year in accretive M&A to augment our organic growth strategy. And as such, we will remain a disciplined consolidator in our industry for many years to come as we continue to focus on expanding in attractive high-growth markets and product categories. On December 31st, we closed on our most recent acquisition of National Lumber, the largest independent building materials supplier in New England. National Lumber operates 16 facilities and employs more than 700 people across Massachusetts, Connecticut, and Rhode Island with a diverse mix of products and end markets. This acquisition adds to our value-added portfolio and provides a favorable R&R mix in the New England area where we previously did not have a presence. We're excited to welcome the National Lumber team members to the Builders First Source family. Now, let me provide a brief update on our digital strategy on slide seven. As a reminder, during our investor day, we provided in-depth commentary on Paradigm and how they anchor our digital strategy. Our teams are working with our customers to pilot our technology, aiming to improve the pre-construction process, create more accurate material lists, bring our supply partners into a digital workflow, and better engage homebuyers. We are actively pursuing several initiatives to advance our digital transformation. Among them, we continue to deploy paradigm estimates across more markets to accelerate customer quotations. And we are working on a specific pilot with a customer in South Carolina to improve our understanding of how to connect a homebuilder's front-end sales process utilizing paradigm visualization technology to enable a full BIM execution model and enhance home building efficiency. We're making investments and executing projects that we believe will put us at the center of the home building ecosystem. While these concepts may be basic relative to other industries, they simply do not yet exist at scale in residential home building. We believe we're on a path to revolutionize our industry for the benefit of our customers. And to us, this represents an incremental $1 billion growth opportunity over the next five years. Next, on slide 8, I'm pleased to announce that we delivered $32 million in BMC merger-related cost synergies during the fourth quarter, for a total of $108 million for the full year of 2021. I can also announce that we have achieved a synergy run rate of $160 million as we exited 2021, well in excess of our $130 to $150 million commitment at the announcement of the merger. And we captured those synergies two years faster than what we initially projected. I couldn't be more pleased with the outcome of our merger integration. With our merger-related synergy capture now officially completed, we have turned our attention to ramping up our internal productivity efforts. In 2022, we expect to capture total P&L productivity and synergy savings of $150 million and will provide updates on our progress as the year proceeds. I believe great companies, and we are one, drive productivity on an ongoing basis and reinvest a portion of those savings to fuel future growth. We unveiled our BFS One Team operating system at our investor day. And the best way to think about that is continuous improvement in three key areas of our business. The first two are building people and building excellence. And as we do those two well, we will deliver the third, which is driving growth. Long term, we are targeting 3% to 5% of annual productivity improvement through our BFS One Team operating system. Looking at our progress as a combined company, we are clearly leveraging the strength of our industry-leading product portfolio, national network, and disciplined operating model alongside the robust demand environment to deliver exceptional growth, profitability, and free cash flow. We continue to execute on our strategic priorities to invest both organically and with M&A while returning capital to our shareholders through share repurchases. With a thoughtful and disciplined approach to deploying our capital, we are transforming the homebuilding industry through our investments in digital, expanding value-added offerings for our customers, and making strategic acquisitions that bolster and extend our industry leadership position. For 2022, we expect a continued strong execution by our team combined with our diverse portfolio of value-added offerings, will enable us to deliver double-digit net sales and adjusted EBITDA growth in our base business. Our team members continue to impress me at every turn, from the sales floor to the yard and everywhere in between. Their commitment to excellence is what keeps this company moving forward, and I love to highlight their collective and individual progress. For example, Alonzo Christian, the delivery manager at our Williamsburg, Virginia, lumber location, gets his team started at 5 a.m. to ensure that Builder's First source trucks are the first out every morning to maximize seeing our customers each day. Not only does this give us a strategic advantage, but it shows our customers that DFS will be there for them when they need it, especially as they confront supply chain and labor challenges. With Alonzo's leadership, the yard runs efficiently and safely with no recordable injuries over the past five years, coupled with remarkably low operating expenses and team member turnover. In total, we've made great progress in keeping our people safe. And last year, we delivered an 18% reduction in recordable injuries across the company, beating our 10% reduction target, and we have another 10% improvement targeted for this year. It's a journey that never ends, and we're getting better, but we're not going to stop. Our goal is zero. I'm grateful to team members like Alonzo who embody our core values, putting people first and showing our customers why BFS is the most valuable partner in the industry. With that, let me turn the call over to Peter to go through a detailed look at our Q4 results and provide an update on our new share repurchase program and our 2022 updated financial guidance.