Builders FirstSource, Inc.

Good day, everyone, and welcome to the Builders First Source First Quarter 2024 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 telephone at any time during the call. I would now like to turn the call over to Heather Koss, Senior Vice President, Investor Relations for Builders First Source. Please go ahead.

Good morning, and welcome to our First Quarter 2024 Earnings Call. With me on the call are Dave Rush, our CEO, and Peter Jackson, our CFO. The earnings press release and presentation are available on our website at investors.bldr.com. We will refer to the presentation during our call. The results discussed today include gap and non-gap results adjusted for certain items. We provide these non-gap results for informational purposes, and they should not be considered in isolation from the most directly comparable gap 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 statements section in today's press release And then 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, Heather. Good morning, everyone. Thank you for joining our call. Our resilient first quarter results reflect our differentiated product portfolio and scale. Our team members' consistent focus on executing our strategic priorities and our operational efficiency initiatives. As we expected, a weakening multifamily market and higher mortgage rates driving affordability challenges were headwinds to start the year. Despite these micro challenges, we built on our successes and drove growth through our value-added products portfolio and our industry-leading digital platform. We are committed to advancing innovation and delivering exceptional customer service as a trusted and preferred partner to our customers. We are focused on executing our clear strategic pillars as shown on slide three. Our investments in value-added products, install services, and digital solutions are driving organic growth, delivering greater efficiency, and empowering the next generation of home building. For those who are new to the BFS story, value-added products include manufactured components such as trusses, ready frame, and wall panels, as well as windows, doors, and millwork. Through our value-added products and install services, we help meet our customer needs, such as reducing cycle times, addressing labor constraints, and improving home construction quality. With our digital tools, we are providing our customers with a more efficient and cost-effective way to manage the construction of their homes that will increase existing customer stickiness, win new business, and improve our operational efficiency. We remain committed to innovation and continuously seeking to do things better. We have a robust set of operational and productivity initiatives and are focused on leveraging our scale and fixed cost while delivering the highest quality products and services to our customers. We are deploying capital in a disciplined manner with a proven M&A strategy and a track record of buying back shares at competitive prices. Working alongside the best team in the industry, I am confident that we will continue to compound long-term shareholder value and achieve our strategic priorities. Let's turn to our first quarter highlights on slide four. We continue to deliver strong margins in Q1, reflecting our in-segment diversification, focused execution, and differentiated product portfolio and scale. Our gross margins of more than 33% reflect a higher mix of value-added products, including multifamily trusts, and our ability to manufacture more efficiently. We expect the multifamily end segment to progressively normalize over the course of this year, and we continue to see some normalization in core margins. Moving to slide five, we're off to a strong start on our strategic initiatives. Our full digital product launch at the International Builders Show in February was an exciting milestone. At a high level, our digital tools do three things. solve customer pain points, two, make it even easier to partner with us and our suppliers, and three, help us gain incremental business from new and existing customers. It's a win-win, and we're excited about how everything is going so far after the launch. We've focused on operational excellence and innovation and using playbooks of proven best practices to increase our safety, efficiency, and wallet share with customers. One area where we're using Playbooks is with our installed services business. Our installed sales increased by 17% year-over-year as we leveraged our capabilities to help customers address labor constraints. Additionally, we drove $40 million in productivity savings in Q1, primarily through procurement and SG&A initiatives. We believe prudent expense management leads to maximum operational flexibility. This includes optimizing our footprint and balancing cost reductions against future capacity demands. We will remain disciplined managers of discretionary spending no matter the operating environment. Early momentum in single family has slowed as persistent inflation has cooled short-term expectations for interest rate reductions. However, low existing home inventories and pent-up demand provide an environment where growth has continued to build. Builders across the board are having to navigate affordability issues and challenges with the regulatory environment, land development, and infrastructure. It's evident that the large national have done a good job of utilizing specs, reducing home sizes, and providing interest rate buy-downs to assist buyers with affordable options. Smaller builders are more likely to benefit from rate cuts. We are staying close contact with our customers of all sizes to maximize our business in the current environment. As we have detailed on prior calls, multifamily became a headwind in Q1 as our activity levels and record backlogs have declined versus the prior year. It is important to note, however, that multifamily remains a strong contributor to gross margins and EBITDA even at current levels. Turning to M&A on slide six, we continue to target attractive opportunities while remaining financially disciplined. In the first quarter, we completed two deals with aggregate 2023 sales of roughly $36 million. In early February, we acquired Quality Door and Millworks, a leading distributor of millwork doors and windows in southern Idaho. In March, we acquired Hanson Trusts, which further strengthens our value-added position in northern California and Nevada. And last week, we acquired Shutterman's Building Materials. Shutterman's manufactures, trusses, and distributes building materials in the Sioux Falls, South Dakota area. We are excited to welcome these talented new team members to the BFS family. M&A and organic investments have increased value-added products as a percent of our overall mix by 700 basis points over the past two years and by 1,000 basis points if you go back to 2019. Our success with this strategy has been a core component of our improved margin profile through the cycle. We believe there is a long runway of M&A targets in our fragmented market, and we are pleased with recent improvements in the pipeline. Our disciplined approach to M&A includes increasing our market position in desirable geographies, extending our lead in value-added and specialty solutions, and enhancing customer retention. On slide seven, we provide an update on capital allocation. During the first quarter, we completed a $1 billion note offering, which brought us additional financial flexibility to grow organically and remain acquisitive while maintaining a strong balance sheet. In addition to the two tuck-in acquisitions, we repurchased $20 million of shares. As proven by our track record, we'll continue to buy back shares while allocating capital to high return opportunities. We remain on track to strategically deploy $5.5 to $8.5 billion of capital from 2024 to 2026, as outlined at Investor Day last December. Now let's turn to slides eight and nine for an update on our digital strategy. As the only provider of an end-to-end digital platform in our space, we believe BFS digital tools will be transformative for the industry and a substantial driver of organic growth. Our easy-to-use portal, myBLDR.com, seamlessly delivers our full digital capabilities to our customers. It is designed to create efficiencies for our team members and improve service for our customers by offering increased transparency and engagement in the home building process. Combined with our proprietary estimating and configuration tools, our customers will have more control over the entire building process. This will save time and money for both our customers and their clients while making the home building process more personalized. We were proud to highlight the full digital product capabilities at IBS in February. Our customers told us the new tools addressed an unmet need, and they were excited to use them in their businesses. Since launch in late February, we have seen orders on the digital platform go from nearly zero to over $60 million. In Q1, we had incremental sales of over $10 million. We remain confident in our ability to meet our targets of $200 million of incremental digital revenue by the end of this year and $1 billion by 2026 as we grow wallet share and win new customers. One of our digital tools, Build Optimize, uses advanced 3D modeling to identify construction clashes and resolve mechanical design conflicts before breaking ground. It ensures architects, builders, and trades are coordinated and building to the same plan. As a proof point of the advantages of using this transformative tool, we've seen interest from four large builders. One of these customers has used it in three markets and 13 communities across 34 plans. On average, we have identified 150 conflicts per plan. Resolving those conflicts before construction leads to job site time and cost savings. One of my favorite initiatives at BFS is acknowledging team members who go above and beyond. Ira Banks in Atlanta, Georgia personifies this quality. Ira began with BFS in 1996 as a driver helper and rose through the ranks to operations manager and now oversees our new Atlanta millwork facility in Dukula. Ira has the respect of his team members because he's willing to do whatever it takes to solve problems and add value for our customers. Recently, when there was no available drivers for an urgent customer delivery that had to arrive that day, Ira drove the box truck himself to take care of the customer. I'm grateful for Ira's drive to lead by example a quality we find consistently in leaders across BFS. I'll now turn the call over to Peter to discuss our financial results in greater detail.