Builders FirstSource, Inc.

Good day and welcome to the Builders First Source third 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 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 First Source. Please go ahead, sir.

Thank you, Todd. Good morning, and welcome to our third quarter 2022 earnings call. With me on the call are Dave Flipman, our CEO, and Peter Jackson, our CFO. Today, we will review our third quarter results for 2022. The third quarter press release and investor presentation for today's call are available on our website at investors.bldr.com. We will refer to several slides from the investor presentation during the call. 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 or 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 our call. Our strong third quarter results reflect the fundamental strengths of our business, including our value-added products and services that resonate with our customers and our consistent execution. We are winning new business and strengthening existing customer relationships by consistently providing customers tailored solutions and excellent service, which collectively make us a partner of choice. In the third quarter, we delivered a 6.9% increase in core organic sales, including nearly 20% growth in our higher margin, value-added products. That performance, combined with our investments in core operations, our relentless focus on cost controls, and acceleration of productivity helped us produce record-adjusted EBITDA. On slide three, I would like to remind you of our long-term strategic priorities. Expanding organically in value-added products and services, driving operational excellence, continuing to build our high-performing culture, and growing through strategic tuck-in acquisitions. On slide four, we outline how we continue to execute against our strategy this quarter. Specifically, we delivered record results in the quarter by increasing our value-added product sales. We leveraged our BFS one-team operating system, leading to $33 million in productivity savings in the quarter. We deployed additional capital toward tuck-in acquisitions, as highlighted by our recent purchases. Since the BMC merger, we have now deployed $2 billion of capital to strategic M&A. Through October, we have repurchased $2 billion in common stock this year. We still have slightly more than $500 million remaining on our current $2 billion share repurchase authorization, and we will continue to look for favorable opportunities to repurchase shares, considering market dynamics, and our ongoing commitment to maximize long-term value creation. Since we launched our buyback program 15 months ago, we have invested approximately $3.8 billion in repurchasing roughly 61 million shares, retiring nearly 30% of our common shares outstanding. Let's turn to our third quarter results on slide five. We delivered approximately $6 billion in net sales. Core organic sales and value-added products grew by nearly 20%, while single-family sales increased almost 2%. Repair, remodel, and other increased over 30%, and multifamily increased 16%. R&R and other growth was mainly attributable to a weaker prior year when supply constraints limited our ability to support growth in this segment. Multifamily was driven by solid organic growth and a strong backlog of projects. Once again, value-added products drove our growth story, further validating that we are well-positioned to be the supplier of choice for these products. During the third quarter, we generated $1.2 billion of adjusted EBITDA with a margin of 20.3%. These results were driven by our strong execution, share gains, ongoing productivity initiatives, and pricing discipline in a market that has been supply constrained but is returning to normal. Turning to M&A on slide six. In addition to our focus on profitable core organic growth, we continue to execute tuck-in acquisitions that are aligned with our strategy. Since the start of the quarter, we have completed four acquisitions that collectively advance our objective of expanding our geographic footprint in key markets, enhancing our value-added portfolio to better serve our customers, and diversifying our end-market exposure. In September, we closed our acquisition of Trustway, which expands our footprint in multifamily trusses, accelerating our growth in the Southwest and Southeast. We also acquired Fulcrum Building Group in September, providing us with pro-contractor-focused lumber yards, millwork facilities, and additional resources in the high-growth markets of the Gulf Coast. In July, we closed our acquisition of Homeco Lumber and Hardware, which enhanced our footprint in Flagstaff, Arizona. Then in October, we acquired Pima Doran Supply, which provides us with dedicated millwork capabilities in Phoenix. These acquisitions represent our ability to acquire high-return assets that will boost our long-term value proposition. We're excited to welcome the HomeCo, Trustway, Fulcrum, and Pima teams with their long-standing customer relationships and track records of profitable growth to the BFS family. We have spent approximately $630 million on M&A so far this year. The highly fragmented nature of our industry supports our ambition to invest on average $500 million per year for the next several years while deploying capital in a disciplined manner. As we navigate near-term market dynamics, we will continue to be acquisitive where valuations make sense. We remain vigilant stewards of capital to ensure we continue to drive long-term value creation for our shareholders. Now let's turn to slide seven to discuss our pioneering role in the digital transformation of the homebuilding industry. The end of the third quarter marks just over one year since the completion of our Paradigm and Apollo acquisitions. The original Paradigm business continues to perform exceptionally well, and we are investing in the long-term growth of that business. On the homebuilder software side, we remain committed to executing our development plan to build out of our digital sales team and integration with BFS operations. As we highlighted last quarter, we successfully integrated our structural design, material takeoff, and visualization models into one streamlined process for our pilot customers. We now have 18 new digital sales representatives in place, with more than 330 customer meetings held during the third quarter. And we are excited to tell you about a new technology that we will be introducing to the marketplace at the beginning of 2023, our new myBLDR.com website, which will provide our small builder customers easy to use digital tools to virtually design and build their next home and engage with key operational functions, including planning, specifying products, ordering materials, and budgeting. We believe our launch of this platform will help us grow the BFS brand and build on our momentum as the supplier of choice in the home building industry. Turning to productivity, in addition to the $55 million of carryover synergies, we have delivered $73 million in savings so far in 2022 and we expect to exceed $100 million in productivity savings for the full year as we drive improvement projects and leverage our BFS one-team operating system. Last quarter, we outlined the increased resilience of our business model, and we believe these are important points to reiterate in this current environment of macro uncertainty. In a scenario of a challenged market where housing starts are down significantly, we have many levers to pull, as shown on slide eight, that will allow us to quickly respond, including effectively managing costs through our variable expense structure to flex expenses with demand, optimizing capacity and further streamlining our footprint, reducing discretionary spend, accelerating productivity projects, and taking appropriate workforce action. Our scale, combined with these initiatives, allow us to operate in a much more proactive and effective manner compared to the last recessionary cycle 15 years ago. As we have all seen in the public builder announcements, the commentary has suggested a 30% to 40% decline in order rates on average. While we had very strong third quarter results, we have begun to see a slowdown in average daily sales as higher mortgage rates, and declining consumer confidence are weighing on demand and commodity prices. Our September and preliminary October volumes were down low double digits versus a year ago amid a significant decline in early stage bill products. As such, we quickly pulled a few levers to curb our costs, including bringing our inventory in line with evolving sales levels, putting a moratorium on nonessential travel, reducing headcount and overtime to align with volumes, and rationalizing facilities. This work is never easy, and these are difficult decisions with respect to our affected team members, but we must be responsive to the market deceleration and best position the company to navigate this environment. We are proactively managing into the downturn, and we are prepared to act decisively to protect and resize the business as necessary. We anticipate that the operating environment will remain challenging for the foreseeable future, but we are committed to strategically accelerating our leading market position, allocating capital towards value-generating organic and inorganic growth opportunities, and delivering on our overall value proposition. We are confident that no matter the operating environment, we will continue to execute well, outpace the market, and create long-term value for our shareholders. As laser-focused as Builders First Force is on making fundamentally sound business decisions that drive value for our shareholders, we are equally devoted to supporting the communities where our team members and customers reside, especially in times of need. The past several weeks have been difficult for many due to the devastation caused by Hurricane Ian. Our hearts go out to all the individuals and families who have been impacted. We were relieved to learn that our team members are safe, but saddened that a few of them suffered catastrophic damage to their homes. We stand behind each of them as they work to rebuild. In recent weeks, We've donated over $500,000 to humanitarian organizations supporting the Hurricane Ian relief efforts. The organizations Builders FirstSource has made contributions to include the American Red Cross, Samaritan's Purse, and BFS Cares, the company's emergency assistance program that helps team members who are facing hardship immediately after a natural disaster. Moreover, I want to recognize our countless With special gratitude, going to our team members in Wausau, Wisconsin, who partnered with our local community to send a semi-truck filled with supplies and essentials more than 1,500 miles to Fort Myers, Florida. It's times like these that leave me truly humbled to lead such a caring and supportive organization. I extend my heartfelt appreciation to these exceptional team members and to all those individuals and organizations offering support on the ground and assisting with the relief efforts. We stand ready to support these communities and help them rebuild. I will now turn the call over to Peter to discuss our third quarter financial results.