Builders FirstSource, Inc.

and welcome to the Builders FirstSource first quarter 2022 earnings conference call. Today's call is scheduled to last about one hour, including remarks by management and the question and answer session. In order to ask a question, please press the star key followed by the number one on your touchtone phone at any time during the call. I'd now like to turn the call over to Mr. Michael Neese, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead, sir.

Thank you, Priscilla. Good morning, and welcome to our first quarter 2022 earnings call. With me on the call are Dave Flitman, our CEO, and Peter Jackson, our CFO. Today, we will review our record first quarter results for 2022. As a reminder, our adjusted EPS calculation excludes amortization of intangibles. The first quarter press release and our investor presentation for today's call are available on our website at investors.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 our presentation. Our remarks in the press release presentation or 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 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 entered the first quarter of 2022 building on that strong momentum and delivered another quarter of record net sales, gross margin, and adjusted EBITDA. We produced strong core organic sales growth of 15%, marking our fifth straight quarter of double-digit growth. Along with our strong start to the year, we continue to invest prudently in our operations and work hard to deliver outstanding service to our customers in the face of significant supply chain constraints that persist throughout our industry. The success we've achieved is directly attributable to all 28,000 of our hardworking and dedicated team members who go above and beyond every day to help us maintain our position as the industry leader. I'll cover four key topics on today's call. First, I'll provide a quick update on our base business and our record first quarter results. Second, I'll provide an update on our acquisition success that continues to strengthen our premier market position, including our most recent tuck-in deals. Next, I'll provide an update on our digital strategy, and finally, I'll discuss our view of the current state of the housing market. On slide three, I've highlighted this important point for several quarters and would like to share it again. As we discussed during our investor day last December, we believe it is important to assess our results using a base business methodology to better appreciate the underlying growth and profitability of our company by normalizing for commodity prices. As a reminder, our base business definition assumes static commodity prices at $400 per thousand board feet. Turning to slide four, 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 point per year improvement in adjusted EBITDA margin for a total of 200 basis points of improvement by 2025. And our expected full year 2022 base business performance is ahead of these targets. As a result of this performance, we expect to have $7 to $10 billion of capital to deploy through 2025. That includes this year's planned capital investments in innovation and organic growth, along with M&A and share repurchases. Turning to our first quarter results on slide five, we delivered strong core organic growth of 15%. Commodity price inflation added 13%, and acquisitions added 8%. Our single-family core organic growth was nearly 17%, once again exceeding the single-family starch growth, which was about 4%. And our single-family core organic growth was double digits across all three of our operating divisions. Our multifamily and R&R segments each grew approximately 10%. Core organic sales and value-added products grew by 31% compared to the prior year period, and value-added products were the key growth driver across all customer segments, accounting for nearly 80% of our organic growth in the quarter. This is another strong data point that confirms our strategy is working. We delivered record sales of nearly $6 billion in the first quarter and generated $1 billion of adjusted EBITDA with an adjusted EBITDA margin of 17.6%. These exceptional results were driven by robust demand for housing, internal productivity, and ongoing pricing discipline in a volatile, supply-constrained environment. Let's turn to M&A. We remain focused on executing tuck-in M&A that delivers a high return. As you can see on slide six, there are more than 1,000 potential opportunities with revenue less than $100 million, clearly highlighting our future opportunity for growth. On slide seven, last year we completed seven acquisitions for $1.2 billion. This year, we expect to invest approximately $500 million in accretive M&A, and we're off to a great start. On April 1st, we acquired Panel Trust, a multi-location provider of building components to single and multi-family markets, with seven locations throughout Texas, Georgia, and South Carolina. The additional component capacity expands our value-added solutions offerings in several key high-growth markets. Panel Trust had approximately $138 million in sales last year. Also on April 1st, we acquired Valley Trust, a single location provider of building components to single and multifamily markets in Boise, Idaho. Boise's active housing market is seeing an influx of national home builders rushing in to meet a rise in local demand, and we're excited to partner with builders to meet their ambitious goals. Valley Trust sales were approximately $26 million in 2021. I want to welcome the team members from Panel Trust and Valley Trust to the BFS family, and I look forward to providing future updates on how Builders First Source will continue to lead the way in consolidating our fragmented industry. Next, I'll provide a brief update on our digital strategy on slide eight, as we continue to accelerate our pace of digital transformation. During our fourth quarter earnings call, I highlighted the deployment of Paradigm Estimate, which we continue to roll out across our operations to provide faster and more accurate customer quotes. Year to date, we have completed 2,000 estimates on customer plans across nine states, and that adoption will continue to accelerate. In addition, this process provides a foundation for our configurable visualization technology and improved design and construction efficiency for home builders. Regarding our visualization technology, I'm pleased to announce that we have signed an agreement with Hayden Homes, a builder in the Pacific Northwest, for the use of our HomeBuilder Omni platform. With their plans of approximately 2,000 starts, Hayden Homes will become the largest builder currently using our digital solutions. We believe we are making the necessary investments to revolutionize our industry and that our digital strategy is on track to capture an incremental $1 billion growth opportunity by 2026. Turning to productivity. we expect to deliver over 100 million dollars in productivity savings in 2022 by continuing to leverage our bfs one team operating system which we've highlighted at our investor day in december we're off to a strong start as an example our component manufacturing efficiency metric shows that our board fee produced per hour has improved by 19 versus the first quarter of last year as our teams work aggressively to maximize the throughput of our existing facilities to meet demand. Over the long term, we are targeting 3-5% of annual productivity improvement as our teams work together to leverage best practices and technology, allowing us to become more efficient and productive in serving our customers. Lately, many industry headlines have expressed uncertainty and concern. From what we have seen across the thousands of customers and home sites that we serve, I can affirm that this industry remains strong, underbuilt, and resilient. I believe the home building industry will continue to grow this year and that we will outperform our peers as our platform delivers for our customers and our shareholders. Despite persistent supply chain challenges and rising interest rates, we are not expecting a significant downturn in housing because we are a far healthier and more prepared industry than the last time we saw a significant downturn. Our beliefs are supported by three key facts. First, the significant underbuilding of homes that has occurred over the last 12 plus years. Next, the improvement in underlying demographic demand. And finally, the credit quality of that demand. We continue to believe that the U.S. housing market is significantly underbuilt. And while I acknowledge higher mortgage rates will likely represent a near-term headwind to satisfying that demand, we continue to see tremendous momentum and long-term growth for the industry. In the first quarter, single-family homes under construction increased 27.5% versus the prior year to 789,000 units. As a result of this underlying demand and ongoing supply chain challenges, total units under construction hit 1.6 million in March. The last time this occurred was in the summer of 1973. Also, the cancellation rates have remained low at approximately 8% during the first quarter, essentially unchanged from last year, indicating customer demand remains durable. Turning to demographic growth, we see a clear favorable trend in the most populous age cohort of 25 to 34-year-olds. This swell of young adults is moving into their early 30s, a time of life when many people start to buy their first homes or move from apartments to single-family homes. And we are seeing household formations reflect this demographic shift. And last month, according to the U.S. Census, the home vacancy survey revealed that all major age cohorts younger than 50 years old posted year-over-year increases in home ownership, the first time this has occurred since 1994. This data indicates the overall financial strength and creditworthiness of today's buyers are far healthier and more resilient than in the last cycle, as evidenced by the strong consumer balance sheet She's resulting from the trillions of dollars in COVID relief measures and the low 3.6% unemployment rate. So the homebuilding industry remains well-positioned with significant tailwinds given the historic underbuilding, favorable demographics, and consumers with strong finances. As a company, we have a long track record of successful execution, gaining share and driving efficiencies through innovation for our customers. We significantly overachieved our BMC synergy commitments and are ramping up productivity and operational excellence across the entire organization. We will continue to focus our efforts on accelerating our growth in higher margin, value-added products, and investing further in our digital solutions platform to advance our goal of transforming the home building industry. For 2022, we have increased our outlook and expect strong double-digit-based business growth and significant free cash flow generation. We remain committed to deploying capital into high-return internal investments, accretive bolt-on M&A, and share repurchases. I'd like to spend a couple of minutes highlighting Military Appreciation Month and its importance to Builders FirstSource. At BFS, we are honored to be a military-friendly employer and to be part of the journey for those who have served our country. One veteran we are particularly proud of is Rodney Hatch, who served as a Marine and is now a safety coordinator for multiple locations across our Alabama and Mississippi geographies. Rodney honors and celebrates those who have bravely served our country by creating veteran walls at our locations, showcasing those who are now growing their careers with BFS. His spirit of community doesn't stop with his coworkers. Rodney gives back to local neighborhoods by maintaining Blessing Boxes, an honor system food pantry where people in need can take food and necessities. And when Hurricane Ida hit the area last year, Rodney jumped into action, collecting donations from his fellow team members and delivering them to Louisiana himself. He does all of this on top of his vital role of keeping our people safe, a responsibility he excels at day in and day out. His safety-first mindset and teachings have helped his six locations achieve zero recordable injuries so far in 2022. People like Rodney are the reason we continue to see year-over-year reductions in our recordable incidents as part of our never-ending drive to zero. We are fortunate to have Rodney on our team and I thank him for his service to our country and the communities we serve. And I'm grateful to all of our veterans and each of our 28,000 plus team members who embody our core values, putting people first and showing our customers why BFS is the most valuable partner in our industry. With that, let me turn the call over to Peter to go through a detailed look at our Q1 results and provide an update on our improved 2022 financial guidance.