Builders FirstSource, Inc.

Please stand by, we're about to begin. Good day and welcome to the Builders First Source second 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 phone at any time during the call. I'd now like to turn the call over to Heather Koss, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead.

Good morning and welcome to our second 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 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 in these non-GAAP measures to the corresponding GAAP measures where applicable in a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and presentations. 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 these forward-looking statements 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, Heather. Good morning, everyone, and thanks for joining our call. As we continue to operate in a complex environment, I am proud of our resilient second quarter results, highlighted by our mid-teen DA margin, which demonstrates the strength of our differentiated business model and the hard work of our extraordinary team members. While we continue to see the expected affordability challenges and normalization in multifamily, we are executing our strategy by controlling what we can control. investing in value-added solutions and driving adoption of our industry-leading digital platform. Our ability to solve industry pain points with our best-in-class product portfolio and exceptional customer service makes us a trusted partner as our customers navigate this complex macro landscape. While near-term market dynamics are challenging as starts have lost momentum, We remain focused on executing our strategy in the weeks and months ahead, and we are well positioned for growth as long-term housing tailwinds remain intact. Moving to our strategic pillars on slide three. We continue to invest in value-added products, install services, and digital solutions which We are providing our customers with a more efficient and cost-effective way to manage home construction. This leads to increased customer stickiness, new business, and improved operational efficiency for VFS. We have a robust set of continuous improvement initiatives focused on leveraging our scale while delivering the highest quality products and services to our customers. Our highly experienced team members are delivering these critical initiatives while serving our customers with excellence and integrity every day. Finally, we continue to allocate capital in a disciplined manner with a proven M&A strategy and a track record of buying back shares at attractive prices over the long term. Turning to our second quarter highlights on slide four. While navigating a market challenged by crosscurrents, we have seen softer than expected sales. However, we delivered strong gross margins of nearly 33% in Q2 and our adjusted EBITDA margin has remained in the mid-teens or better for 13 consecutive quarters. Our durable margin profile is a key proof point of our transformed business model and our differentiated product portfolio and scale. Given the strength of our base gross margin, we see opportunities to more aggressively go after profitable share. We have grown our mix of value-added products over the past five years, improved our manufacturing processes and efficiency, and positioned ourselves at the forefront of home building innovation. Let's move to slide five, where we show how we're executing our strategy. Our full suite of value-added products and services remains a competitive advantage for BFS and continues to bolster our partnerships with customers. We're pleased with our progress on digital as we continue to hear great feedback from customers and see increasing levels of adoption each week. We demonstrated operational rigor by delivering $37 million in productivity savings in Q2 and have driven $77 million year-to-date, primarily through more efficient manufacturing and procurement initiatives. As I have spoken about in the past, we continue to use playbooks to drive growth in our install services business. I'm pleased that our install sales increased by 15% year over year as we focus on helping customers address labor challenges. Our managers have best-in-class information to help them navigate this dynamic environment and make effective, real-time decisions. We are also maximizing operational flexibility and have consolidated seven facilities while maintaining our service levels to our customers with on-time and in-full delivery rate of over 90%. We will remain disciplined managers of discretionary spending no matter the operating environment. We are continuing to take actions into the second half of the year to flex the business where appropriate. The single-family growth momentum occurring earlier in 2024 has stalled as interest rate cuts have not materialized and starts have come in lower than expected. In addition, the value of a new start has fallen as the market has adapted to affordability challenges. Multifamily continues to be a headwind amid muted activity and relative to our record performance last year. which is creating an increasingly tough comparison. This was expected and detailed on prior as multifamily continues to normalize. Even at today's levels, multifamily continues to be a very profitable business for us. In the current environment, builders have employed specs, smaller and simpler homes, and interest rate buy-downs to help buyers find affordable options. Builders of all sizes are having to navigate affordability issues along with regulatory land development and infrastructure challenges. Smaller builders have been especially impacted by the availability of land and limited options to buy down rates. We are partnering with our customers to help them lower the cost of homes for consumers, as well as maintain their margins. This includes balancing our product mix to address their needs while passing through lower material costs. For example, when engineered wood products, or EWP, was constrained, we supplied a larger number of higher value floor trusses. As EWP supply normalized and prices came down, we have been able to provide customers with more EWP and have sold fewer floor trusses. helping to specifically address the builder's biggest current challenge, affordability. We have what the builders want and do what's right by them. Although this trend means less sales and gross profit dollars, our margin profile remains strong. We have the operational and financial flexibility needed to partner with our customers to meet their needs and capture growth opportunities. Turning to M&A on slide six, we continue to pursue attractive opportunities while remaining financially disciplined. In the second quarter, we completed three deals with aggregate 2023 sales of roughly $72 million. In May, we acquired Shoneman's building materials, which we detailed on our Q1 call, and TRS components, which establishes truss manufacturing within Metro Detroit. In June, we acquired RPM Wood Products, which enhances our ability to serve high-end custom builders in Northeast Florida. Finally, in July, we acquired Western Truss and Components, adding truss capacity in Flagstaff, Arizona area, and CRI SoCal, a dealer and installer of high-end windows and doors in Orange County. We are excited to welcome these talented new team members to the BFS family. 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. Our M&A pipeline remains healthy, and we believe we can continue to acquire in a fragmented market. On slide seven, we provide an update on capital allocation. In addition to the three tuck-in acquisitions during the second quarter, we repurchased nearly $1 billion of shares. I'm happy to announce that our board has authorized a new $1 billion share repurchase plan. 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. We have seen strong adoption and growth with our target audience of smaller builders, even as they endure a challenging operating backdrop. We've had broad acceptance of the platform so far, including interest from multiple top 200 builders. Since launching in late February, we have seen the value of orders placed through the digital platform go from nearly zero to over $250 million. Year-to-date through Q2, incremental sales have totaled $45 million. While we still have a long way to go, we remain confident in our ability to meet our target of $1 billion in incremental sales by 2026, as we grow wallet share and win new customers. I am thrilled to share a significant achievement that underscores our team members' commitment to making a positive impact in our communities. At our recent annual charity event, we successfully raised over $1 million on behalf of the Leukemia and Lymphoma Society. This brings total contributions to nearly $12 million since first partnering with LLS in 2006. These funds are crucial to advancing research, patient support, and advocacy programs aimed at finding treatments and cures for blood cancers. I want to extend our heartfelt gratitude to our industry partners and sponsors His overwhelming support made a successful event possible. I'll now turn the call over to Peter to discuss our financial results in greater detail.