Builders FirstSource, Inc.

Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero. Good day and welcome to the Builders FirstSource second quarter 2023 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 phone at any time during the call. I'd now like to turn the call over to Mr. Michael Neath Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead, sir.

Thank you, Angela. Good morning, and welcome to our second quarter earnings call. With me on the call are Dave Rush, our CEO, and Peter Jackson, our CFO. Today, we will review our results for the second quarter of 2023. The earnings press release and investor presentation are available on our website at investors.bldr.com. We will refer to several slides from the investor presentation during our 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 for 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 meeting 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. Thank you, Mike. Good morning, everyone, and thanks for joining our call. Entering 2023, we prepared for a challenging and dynamic year. During the first half, we had better than anticipated performance, driven by the strength of our value-added product portfolio, continued outperformance in multifamily, and a more stable housing environment than originally projected. Multifamily is an area we identified as providing strong growth potential and in-market diversification over the long term. We are truly seeing the differentiated platform we have put together over the past few years generate results. We continue to exceed our near-term targets through contributions from operational initiatives instilled over the last few years and by executing our strategic priorities which is a testament to the unwavering commitment and dedication of our amazing team members. We are focused on delivering exceptional customer service and always strive to be the easiest company in the industry to do business with. We are driving mixed improvement through value-added share growth while continuing to expand through tuck-in acquisitions. Our acquisitions in recent years have allowed us to enhance our value-added offerings and also extend our reach to a more diverse customer base in attractive markets. Moreover, these acquisitions have proven to be immediately accretive to our earnings. We continue to consistently generate robust free cash flow and prudently deploy capital, making two tuck-in acquisitions and repurchasing over $700 million of shares in the second quarter alone. Despite the headwinds posed by elevated mortgage rates and affordability challenges, our resilient results in the first half of 2023 give us confidence that we have the right strategies in place with a customer-centric approach and an incredible team that is executing at the highest level to successfully navigate this dynamic economic environment. Many single-family builders are showing stabilizing demand partially due to widespread shortages of existing homes for sale, driving healthy new construction. Public builders have been reporting a stream of stronger than expected results and taking proactive steps, such as interest rate buy-downs, to help get prospective buyers off the sidelines. With home prices normalizing in many places, our focus on value-added solutions, digital innovations, and customer service is helping builders improve their construction efficiencies. We are helping our customers lower cycle time, which is highlighted by our continued improvement on in-full deliveries from 93% last year to 96% during the second quarter. On-time and in-full deliveries ensure our customers have the right material at the right time. Looking at our second quarter highlights on slide four, our gross margin percentage increased 40 basis points to 35.2% due to stronger mix and value-added products overall, largely driven by our multifamily segment and the related positive impact from commodity cost timing. We maintained a healthy double-digit adjusted EBITDA margin. showcasing our ability to execute effectively from an operations perspective in a challenging environment. This execution is a reflection of our talented field leadership team, which averages 30 plus years of industry experience. Turning to slide five, we drove strong productivity across the business by delivering $50 million in savings during the quarter. Our BFS one team operating system continues to generate robust efficiencies focused on manufacturing and delivery improvements. Our recent acquisitions in multifamily contributed an increase of 4% on the top line and 9% to EBITDA compared to the prior year quarter. Multifamily was an exceptionally strong tailwind this quarter, and we expect this streak to continue for the remainder of 2023. While we expect multifamily to normalize around the first or second quarter of next year, we remain optimistic that single-family starts will be on stronger footing in the same period compared to the first half of 2023. As it relates to our cost structure, controlling SG&A and other expenses remains a vital focus for us. This includes the ongoing optimization of our footprint and balancing the need for variable cost reductions against future capacity needs. We are focused on our discretionary spending, and our team has done a great job on managing costs in the short term while executing our strategy over the long term. Turning to M&A on slide six, we continue to target attractive opportunities with a disciplined approach. Thus far in 2023, we have completed four deals, and are still committed to our goal of investing an average of $500 million in M&A per year for the next several years. During the second quarter, we added millwork capabilities through the acquisitions of J.B. Millworks and Builders Millworks Supply. And earlier this week, we acquired Church's Lumber, which expands our presence and scale in the Detroit market. We're excited to welcome our talented new team members to the BFS family. Our M&A and organic investments have substantially increased our value-added product mix and diversified our in-market since Q4 2021, as shown on slide 6. We have seen the fruit of this growth in recent quarters, as we have driven our gross margins higher even in a downed housing starts environment. Moving to slide 7, I would like to provide an update on capital allocations. In the second quarter, we deployed over $850 million of capital towards organic growth investments, tuck-in M&A, and share repurchases. We have cumulatively deployed approximately $5.3 billion since the end of 2021 and remain on track to achieve our 2025 goal of $7 to $10 billion communicated at our investor day in 2021. Now let's turn to slide eight for an update on our digital strategy. We firmly believe our long-term commitment to new digital innovations and technologies will deliver greater efficiency across home building and enhance our product and service offerings. We continue to play a pioneering role in the digital transformation of the home building industry and have made a significant investment in growing our digital platform. We have made it a priority to ensure digital adoption is integrated across our operations as we seek to create a platform that will lead to building better, more affordable homes. MyBLDR.com serves as the entry point to our collaborative project management platform. It is designed to create efficiency for both BFS and our customers by offering improved transparency and engagement in the home building process. It combines Paradigm's next generation estimating technology with our 3D home configuration model. Together, these tools allow our customers more control over their design, cost estimating, and building process ultimately saving both our customers and their clients time and money. We are still in early innings and have more to come as we continue to roll out these digital solutions to our end users, but we remain confident in our ability to gain an incremental $1 billion in product sales by 2026. We believe our sustained commitment to investing in digital innovations and technologies will extend BFS's lead as the partner of choice in the market, and we look forward to providing more detail on our long-term strategy at our investor day in December. Before I turn the call over to Peter, I want to say how grateful I am to our team members for continuing to execute in a challenging environment and providing excellent service to our customers on a daily basis. At BFS, we keep our high-performing, people-first culture at the heart of all we do. That's why we like to recognize team members in our organization that embody the true spirit of our be more, do more, build more, together philosophy. Perla Hover is an inventory control supervisor in Houston, Texas, who has made a huge impression on her managers and colleagues. In May, she was honored as one of our first team MVPs for exemplifying our core values. Perla's attitude, positive attitude, her willingness to jump in and help, and her pursuit of excellence really makes a difference on the team. Her supervisors appreciate how she embraces learning new skills and mentoring others, especially young women due to our industry. Employees like Perla make me proud to lead this great organization. Without the full effort of our team, we would not have had the outperformance that we achieved during the first half of this year. I'll now turn the call over to Peter to discuss our second quarter financial results in greater detail.