Floyd F. Sherman - Chief Executive Officer, President and Director M. Chad Crow - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Member of Proxy Committee

Trey Grooms - Stephens Inc., Research Division Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research Daniel Downes David Neil Williams - Williams Financial Group, Inc., Research Division Robert J. Kelly - Sidoti & Company, LLC Matthew Dodson Ethan Steinberg - SG Capital Management LLC Shawn Boyd

Good morning,, and welcome to the Builders FirstSource First Quarter 2013 Earnings Conference Call. Your host for today's call is Mr. Floyd Sherman, Chief Executive Officer. [Operator Instructions] And as a reminder, this conference call is being recorded today, April 26, 2013. The company issued a press release after the market close yesterday. If you don't have a copy, you can find it on our website at bldr.com. Before we begin, I would like to remind you that during the course of this conference call, management may make statements concerning the company's future prospects, financial results, business strategies and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from expectations. Please refer to our most recent Form 10-K filed with the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The company undertakes no obligation to publicly update or revise any forward-looking statements. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents and our earnings press release and detailed explanations of non-GAAP financial measures in our Form 8-K filed yesterday, both of which are available on our website. At this time, I will turn the call over to Floyd Sherman. Floyd F. Sherman: Thank you and welcome to our first quarter 2013 earnings call. Joining me today from our management team is Chad Crow, Senior Vice President and Chief Financial Officer. I'll start by giving a recap of the first quarter and then turn the call over to Chad, who will discuss our financial results in more detail. After my closing comments regarding our outlook, we'll take your questions. Sales for the first quarter of 2013 were $319.7 million, an increase of 45.7% when compared to prior year's first quarter sales of $219.4 million. In addition, we reported first quarter 2013 adjusted EBITDA of $5.4 million, a $7.5 million improvement over 2012 first quarter adjustment EBITDA loss of $2.1 million. I'm very pleased to have started our fiscal year with such strong financial results. We were able to achieve top line growth of greater than 30% for 6 consecutive quarters. Even adjusted for commodity inflation, our current quarter sales increase, once again, exceeded the increase in residential construction activity as actual single-family housing starts in the south region increased 27.4% and single-family units under construction increased 23.2%. From a sales per start perspective, we ended the current quarter with $4,047 per south region single-family start, up significantly from $3,539 per start in the first quarter of 2012. As mentioned in yesterday's press release, though our sales growth for the quarter was very positive. The commodity lumber price inflation we experienced during the quarter once again played significant downward pressure on gross margins. Subsequent to setting first quarter customer pricing in late December, commodity lumber prices increased approximately 20% through the end of the first quarter. While we were able to obtain price increases from our customers during the quarter, they were not enough to offset the continued commodity price inflation. For the quarter, we estimate commodity lumber inflation negatively impacted gross margin by 1.8 percentage point. I'll now turn the call over to Chad who will review our financial results in more detail. M. Chad Crow: Thank you, Floyd. For the current quarter, we reported sales of $319.7 million compared to $219.4 million for the first quarter of 2012, an increase of $100.3 million or 45.7%. We estimate sales increased 29.7% due to increased sales volume and 16% due to price. Breaking down our sales by product category, Prefabricated Components were $60.8 million, up from $43.5 million in the first quarter of 2012. Windows & Doors were $63.6 million, up approximately 28%. Lumber & Lumber Sheet Goods were at $116.8 million, an increase of $50.4 million. Our Millwork category increased $7.7 million to $29.1 million. And Other Building Products & Services were $49.4 million, up 29%. From a sales mix perspective, Lumber & Lumber Sheet Goods were 36.5% of total sales, up from 30.3% of total sales in the same quarter last year due primarily to commodity lumber price inflation. Excluding the impact of price inflation, Lumber & Lumber Sheet Goods were down slightly as a percent of total sales, while Prefabricated Components in millwork were up slightly. Windows & Doors and Other Building Products & Services were relatively flat as a percent of total sales. Our gross margin percentage was 19.5% in the current quarter, down from 20.6% in the same quarter last year. We estimate price negatively impacted gross margins by 180 basis points, largely due to commodity lumber inflation during the quarter relative to fixed customer pricing commitments and was partially offset by a 70 basis point improvement due to increased sales volume. We estimate the commodity lumber inflation during the quarter combined with our limited ability to adjust intra-quarter customer pricing had a negative impact on gross margin dollars of over $5 million. To give you a specific example of one of our main commodity lumber products, at the beginning of the quarter, on average, across the entire company, we were selling this product at a gross margin of 14%. By the end of the quarter, we had raised our prices on this product, 20%. Unfortunately, by the end of the quarter, market prices for this product had increased 30%. So in spite of raising our sales prices 20% during the quarter, we could still not keep up with inflation, and by quarter end, we're selling this product at low single-digit margins. We have seen inflation subside in recent weeks, but only time will tell if this is just a temporary reprieve. Our selling, general and administrative expenses were $61.1 million, up $10.2 million or 20.2% from the same quarter last year, despite a 45.7% increase in sales. As a percentage of sales, SG&A expense decreased to 19.1% in the current quarter from 23.2% in the same quarter of 2012. For the first quarter of 2013, our salaries and benefit expense, excluding stock compensation expense, was $37.7 million or 11.8% of sales compared to $31.1 million or 14.2% of sales in the first quarter of 2012. This increase is primarily related to higher sales commissions and additional staffing needs to service our increased sales volume. Delivery expense increased $1.4 million and other general and administrative expense increased $1.2 million, both a result of increased sales volumes. Interest expense was $12.5 million in the current quarter, a decrease of $600,000 from the first quarter of 2012. The decrease was primarily related to a $2.7 million reduction in the noncash fair value adjustment related to stock warrants issued in connection with our term loan, offset by the incremental interest on the additional term loan borrowed in December of 2012. We recorded $300,000 of income tax expense in the first quarter of 2013 compared to $200,000 in the first quarter of 2012. We recorded an after-tax noncash valuation allowance of $4.4 million and $7 million in the first quarters of 2013 and 2012, respectively, related to our net deferred tax asset. Absent the valuation allowance, our effective tax rate would've been 36.3% in both the first quarter of 2013 and 2012. As of the end of the first quarter, our gross federal income tax NOL available for carryforward was approximately $245 million. Loss from continuing operations was $11.6 million or $0.12 loss per diluted share compared to a loss of $19.1 million or $0.20 loss per diluted share in the same quarter last year. Excluding the fair value adjustment for stock warrants and the tax valuation allowance, our loss from continuing operations was $0.07 per diluted share for the current quarter compared to a $0.09 loss per diluted share in the first quarter of 2012. Our net loss for the first quarter of 2013 was $11.8 million, $0.12 loss per diluted share compared to a loss of $19.2 million or $0.20 loss per diluted share in the first quarter of 2012. Adjusted EBITDA was $5.4 million for the first quarter of 2013, and as Floyd mentioned earlier, is a $7.5 million improvement over an adjusted EBITDA loss of $2.1 million in the first quarter of 2012. Our cash used for the current quarter was $26.8 million. Of this amount, $18.9 million was due to a build in working capital related to our higher sales volume. The remainder of cash used was related to $1 million of capital expenditures, $10.9 million of cash interest offset somewhat by positive EBITDA during the quarter. We ended the quarter with liquidity of $102.7 million, which included $117.7 million of cash reduced by the $15 million minimum cash requirement contained in our amended loan agreement. During the current quarter, we amended and reduced our existing $20 million standalone Letter of Credit facility to $10 million. In addition, we transferred the $12.4 million of LCs outstanding under the standalone facility to our new $15 million LC sub facility. this transfer eliminated the cash collateral requirement for our outstanding LCs, and thus increased our overall liquidity at the time by $13 million. As of March 31, 2013, we had $12.6 million of LCs outstanding under our sub-facility and no LCs outstanding under our standalone facility. I'll now turn the call back over to Floyd for his closing comment. Floyd F. Sherman: Thank you, Chad. We are excited about the prospects for the homebuilding industry and the outlook continues to suggest favorable opportunities for Builders FirstSource. The National Association of Home Builders is now predicting a 24.2% increase in single-family housing starts for 2013 and an additional 28.8% increase in 2014. We believe Builders FirstSource is well positioned to take advantage of this recovery. Our strategy remains focused on increasing our market share and improving our operating margins as we move into the spring and summer building season. I'll now turn the call over to the operator for Q&A.

[Operator Instructions] And we'll take our first question from Trey Grooms with Stephens. Trey Grooms - Stephens Inc., Research Division: First question is on inventory ticking up a little bit. I guess, with the recent pullback in lumber prices, I mean, I would expect you guys are probably continuing to maybe build a little bit there. First off, is that an accurate assumption? And then secondly, if so, is -- how do we kind of think about that as we look forward in the impact to margins that you guys could expect over the next quarter or so, understanding the impact that the higher prices had on your margins here in the first quarter? Floyd F. Sherman: I would say inventory levels are up, obviously, since year end, some of that's due to inflation. We are trying to make opportunistic buys, as they become available. As you said, prices have pulled back a little bit the last couple of weeks. We'll see what the future holds as to whether they stay at these levels or start to run up again. The buys we've made the last few weeks have certainly helped our inventory and cost position. But really, it's going to -- our margins in the next couple of quarters are going to be more determined on what lumber prices do over the next couple of months. And we'll just have to wait and see. Trey Grooms - Stephens Inc., Research Division: Okay, I appreciate that. And then also kind of on the same topic here, just kind of -- and I know it's -- you don't have a crystal ball, but just with a little bit of capacity looking like it's going to come on from -- in the mills here, looking out over the next several months, I mean, do you think that we could be getting into a situation where we could start to see at some point on the horizon, start to see lumber prices settle down as a result of that? Or how do you see the kind of supply demand dynamics within the industry kind of playing out as we look through this year? Floyd F. Sherman: We don't really see any new lumber mills coming on stream, we see 3 OSB mills that will probably be opening and have already been announced to be open and start production this year. Trey Grooms - Stephens Inc., Research Division: Yes, OSB, that's what I meant. Floyd F. Sherman: It's anticipated that those 3 OSB mills this year will probably add somewhere in the neighborhood of -- on a combined basis, somewhere around 700 million square feet. If you look at it, for every 100,000 new homes that are added, it requires over 1 billion square feet of 7/16 OSB to cover that -- the housing increase. The mills were operating close to capacity last year. The combined output of the OSB was about 17.5 billion square feet. So with the increased housing of this year, the new mills opening really aren't going to have much of an effect that we can see on bringing down the price of OSB. I think we have seen the major inflation in both OSB and lumber. And I think we're starting to get a point -- and I think both products are trying to find a point, where they could be more stabilization of pricing in the market. And I think we're going to see that. But I think suppliers are going to still continue to be tight for the rest of the year. Hopefully, those 3 mills will ease some of that, but I really don't think it's going to have a heck of a difference for us this year anyway. Maybe next year, that will begin to get some relief. Trey Grooms - Stephens Inc., Research Division: Great. And then the dollar per start moved up a little bit, it looked like. Is that just a function of higher lumber prices? Or are you guys seeing more share gains there as well? Floyd F. Sherman: No, because we still took market share gain, if you look at it, even on the -- on a straight volume basis. And you looked at either from -- based on the single-family starts in the southern region, or if you looked at units under construction. The -- probably, I will say, our market share gain, if we probably slowed down a little from what we had experienced in previous quarters -- and most of that is being due. We are trying to be more selective in our pricing. We are trying to get better pricing in the marketplace and, obviously, there's trade off. It's still a very, very competitive market out there. Housing, while it still is much better than what it was in the past, 2012 was still a worst year on record for housing. Still, pricing is still a very competitive part of the market, and but we still have been able to really continue to increase that market share anywhere from, I guess, depending on what side of it you want to look at units, under construction which is a true measure for us or starts. It's still single -- low single- to high single-digit through market share gain. Trey Grooms - Stephens Inc., Research Division: Great. And one last one, and just kind of a housekeeping for Chad. The SG&A kicked down a little bit as percent of rev, is that a good run rate or should we expect to see that kind of move back up to the kind of 20% range as we kind of look out here for the balance of the year? M. Chad Crow: I think that's probably a pretty good run rate. Trey Grooms - Stephens Inc., Research Division: You're not seeing the 19.5% or... Floyd F. Sherman: Yes.

And we'll take our next question from Seth Yeager with Jefferies Investment Bank. Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research: So can you give us a sense right now on where your gross margins are maybe across the segment? I understand if you don't want to get into too much detail, but particularly on the prefab business, where are you now versus, say the 2006, 2007 time period? And have you been able to sort of push pricing on the builders, particularly, in that segment? Floyd F. Sherman: We have made up a lot of ground since the low point, which was probably back in 2010. Still have some ground to make up in that product category. That category does get impacted a little bit by inflation as well, not as significant as the Lumber & Lumber Sheet Goods category. But we are starting to get better pricing, and then some margin improvement there. Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research: Maybe just at a high level how -- peak to trough, where are you guys kind of sitting right now? Like halfway back, 3/4 of the way? Floyd F. Sherman: I would say, Chad, we're maybe 1/3? M. Chad Crow: We're not quite halfway there yet. Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research: Okay, that's helpful then. Okay. And then just maybe a follow-up on a prior question. Now that you're close to $1.2 billion in revenue, incremental cash SG&A at this point? And I recall, if you guys had some additional lease expense that might run through with some further top line improvement, are you going to hit that number? And where is that going to run through your P&L? So if you could maybe just remind us. Floyd F. Sherman: Any of that would run through -- it would run through SG&A, but that's a very small number. We don't have that many leases that have contingent lease payments based on rev. Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research: Okay. And just your incremental cash at this point, maybe on SG&A? I know at a certain level, it kind of ramps up a little bit. But just to kind of get a sense right now? Floyd F. Sherman: Are you referring to the variability of it? Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research: Yes. M. Chad Crow: No. On sales volume, we're our probably going to be somewhere 50% to 60% variable on just sales dollars. It's going to be less than that if we keep seeing some lumber inflation and our ability to pass on price increases. Obviously, we can leverage our SG&A even better in that environment. So I would say it's kind of a blended rate. It's probably 50% variable. Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research: Okay, that's helpful. And then just on cash flows, are you guys going to still spend, plus or minus $10 million or $11 million this year? Was first quarter sort of a timing issue on CapEx? And is it going to be a little more back end loaded this year? M. Chad Crow: Yes, I still think CapEx will be probably in the $8 million to $9 million range for the year. Seth B. Yeager - Jefferies & Company, Inc. Fixed Income Research: Okay, perfect. And then just last one, can you remind us what make-whole and your term loan is currently, and just what the schedule looks like going forward? Floyd F. Sherman: The make-whole right now, I believe, is about $41 million, $42 million. It comes down around $7 million a quarter. It comes down evenly through the end of December '14.

We'll take our next question from Daniel Downes with B.C. Holdings.

The -- was wondering, have you seen any noticeable divergence between buying patterns in large homebuilders versus small homebuilders? It seems kind of a perception that the large homebuilders are taking share and doing much better? Floyd F. Sherman: From our standpoint, our mix has remained very, very consistent the last year, 1, 1.5 years, between the larger builders and the smaller builders. So while we are growing alongside the large builders, we're certainly adding a lot of new customers and growing our share with the small guys as well. So for us, it's been remarkably consistent.

Okay. You know you're volumes were great, up 30% in the quarter. I was just wondering, did you guys see any distinguishable -- was there any cadence in month-to-month activity, where January was up and February was not up as much? And also any commentary on how business momentum is, and volume's kind of thus far into April? Floyd F. Sherman: We continue to accelerate the -- on our average daily shipments, all the way starting through January. February was better than January. March was much better than February. And this pace is continuing on through the April. So we are seeing a steady escalation in our business.

Would you attribute that escalation just to normal seasonality or was it kind of -- was it escalating as far as the percentage growth on the year-over-year basis? Floyd F. Sherman: I think it's more than seasonality. So long as we are continuing to take and gain positive market share gain, I think that -- and, obviously, seasonality does figure into it, but still, on a month-to-month comparison, quarter-over-quarter comparison, all those are up and accelerating.

We'll take our next question from David Williams with Williams Financial Group. David Neil Williams - Williams Financial Group, Inc., Research Division: I wanted to ask, we had talked a little bit about you seeing some share gains and just your dollar cost per start, but I wondered if you could give us an idea maybe of if you're seeing anything, any trends in the size of homes or maybe the dollar per -- maybe a package that you guys are shipping out. And is there any contribution maybe from that as opposed to actual market share gains? Floyd F. Sherman: I really haven't seen any stats that would say that there's been a significant change in the average square footage of home being built. They -- everything we're seeing is still saying it's pretty close to where it was a year ago. David Neil Williams - Williams Financial Group, Inc., Research Division: Okay, very good. So you feel pretty confident that, that number is moving maybe in lockstep with market share gains and not some other maybe sizing issues or other maybe outside issues? Floyd F. Sherman: Yes. And we really haven't seen, David -- we have not really seen a major change. We're hopeful that this will come, because we're reading a lot about how builders are starting to sell more upgrades and put a lot of extras into the home and -- but we haven't really started seeing it that much. And that will certainly impact us favorably as we go forward, should that trend take place. We're still seeing -- the builders are still very concerned about the pricing of the home, keeping it, making sure that it's affordable and the -- but there's been a lot of talk that the consumer is again starting to turn and look for a more upgraded home. And that will be very positive for us. David Neil Williams - Williams Financial Group, Inc., Research Division: Got it. Thanks. And then secondly, I wanted to just see if maybe you could talk a little bit about what's going on in the prefab component part of the business. You said that it was up a little bit, and on an inflation-adjusted basis, I guess, against the Lumber & Sheet Goods. That was down a bit. But what are you seeing as far as trends? Is it maybe increased adoption rates? Or is it just simply a function of increased volume sales? Floyd F. Sherman: Yes. We are -- we're definitely seeing an uptick in our component sales. We believe this trend will continue. Right now, our backlog for those items is the largest it's been in -- going back to the '06 -- '05, '06 period, and that's continuing to grow. So I think there very definitely is one of the factors that's impacting that is the labor issues that we have out in our industry. And that then helps the component side of the business. And I think the labor situation is not going to rectify itself very quickly and as that particular problem continues, I think there'll be a conversion more and more to the use of components. David Neil Williams - Williams Financial Group, Inc., Research Division: Sure, sure. And then lastly, if I could, we've talked a lot about not being able to change your pricing strategy intermediately during the quarter. But in talking with a few of your peers over the last couple of months, it seems like some of those guys, at least on a regional basis, are doing maybe shorter lock periods, 30 days to 45 days, even with their larger customers. And so I wanted to see, are you seeing anything maybe in that trend? Have you been able to bring any of that pricing back or those contract locks into a shorter timeframe? Floyd F. Sherman: No. I would like to say that I believe what they are saying, we certainly are not seeing it. We compete with all of the majors for -- especially for the business with the large national builder, and I can say we have not seen that taking place. Hopefully, it will. Because in these highly inflationary times, that certainly is a better approach to pricing than extended pricing. And we certainly have been trying to get it. And we've really been -- put a lot of effort into it. But unfortunately many of our competitors they didn't go along with it and we ended up having to change our approach. So with that said, I'll leave it at that. David Neil Williams - Williams Financial Group, Inc., Research Division: That's very Interesting. And like I said, it was really more of a regional, I guess, phenomenon where there were a couple of folks that we talked to that said, yes, we're really targeting 30 days to 45 days on extreme cases 60 days. So I assume if that was anything you're seeing, or maybe that was very specific case in the regional market. Floyd F. Sherman: Yes. I haven't seen that in any of our regions.

We'll take our next question from Robert Kelly with Sidoti Research. Robert J. Kelly - Sidoti & Company, LLC: A question -- a point of clarification. Someone had asked earlier about the SG&A run rate and you kind of okayed it. What was it the percent of sales run rate or the kind of like the year-over-year increase? Or was it the dollar level? I guess, that wouldn't makes sense? Floyd F. Sherman: He was asking the percent of sales. Robert J. Kelly - Sidoti & Company, LLC: Percent of sales and the 19% range reached for the full year? Floyd F. Sherman: Right. Robert J. Kelly - Sidoti & Company, LLC: You'd be in the 19% range? Floyd F. Sherman: I certainly think that's achievable, yes. Robert J. Kelly - Sidoti & Company, LLC: Right. I would just think it would be -- just given, what you have in 1Q and what you probably have common in 2Q that you could probably do better than that on the full year. M. Chad Crow: We will certainly be trying to do that. Floyd F. Sherman: I don't think it's going to go higher, let's say that. Robert J. Kelly - Sidoti & Company, LLC: Okay, fair enough. As far as the 90-day price locks, were you able to secure additional pricing when you went to your customers at the end of 1Q? I mean, basically, have you caught up to the inflation you saw thus far in 2013? Floyd F. Sherman: We've certainly put a big dent in it. With a lot of the pricing, you do have some bleed over into the next month following a quarter, especially if a customer turned a PO in, say, at the end of March and we didn't ship until April. So we do have some bleed-over pricing, but we certainly put a dent in it. Robert J. Kelly - Sidoti & Company, LLC: Some of the builders in the 1Q calls were talking about intentionally kind of slowing down the pace of sales to focus on price and margin. It seems like they've been doing a great job getting their selling prices up, which would help you guys get your pass through. Has the conversation changed at all as far as them being accepting of price increases? M. Chad Crow: I would say it's never easy getting price increases, but we are having success. It's a battle. Every time you go out there to price, it's still a battle. Like Floyd said, it's still a very competitive environment. We're still building at historically low levels of housing. So I'm not going to sit here and say it's easy by any means, but we are having some success, and we'll keep pushing. Floyd F. Sherman: I was going to say, you're always going to have -- in a competitive pricing environment, you're going to have some people who think the market's going to fall and work to their favor and you have other people who believe otherwise. And it affects then, obviously, your pricing strategy. So you're continually contending with those forces out there. And I do believe that the commodities are beginning to maybe level out to where it becomes a more predictable level of pricing. And that certainly will help us, as we go forward in the quarter. We set our pricing at the beginning of the quarter, and we obviously take into account what we think replacement costs are going to be and what our costs and inventory are, and then set that pricing. And hopefully, the inflation that occurs during the next quarter doesn't exceed what has been -- than what we've set in our pricing like it did in the first quarter. These had been very, very unusual times. I've never experienced anything like what we've gone through over the last several quarters as far as market inflation, and -- but it's becoming now more predictable. And I really think it's going to be a lot more controllable. And I think we're going to have a lot better pricing success. And I think our margins are going to reflect it in the coming quarters. Robert J. Kelly - Sidoti & Company, LLC: Right, so based on all that, should we expect gross margin compression year-over-year for the balance of 2013? Or should we be thinking more along the lines of the 19.5% you booked in 1Q, will we start to see expansion of that rate as we move forward into the year? Floyd F. Sherman: I would certainly like to think that going to be our low watermark for the year. M. Chad Crow: Right. Robert J. Kelly - Sidoti & Company, LLC: That's a good place to think about 2013 being -- in assuming lumber stays where it is? Floyd F. Sherman: I would expect to see improvement on that in subsequent quarters. Robert J. Kelly - Sidoti & Company, LLC: Okay. Okay, fair enough. And then just as far as the CapEx that you are spending this year. I believe you said $11 million was the number. What exactly are we talking about for CapEx? Is it just retooling? Is it your maintenance CapEx? M. Chad Crow: It's probably going to be $8 million to $9 million, and it's going to be primarily related to expanding our delivery equipment. Robert J. Kelly - Sidoti & Company, LLC: Right, okay. But there's no expansion of footprint? M. Chad Crow: No, there's no new facilities in that number. Robert J. Kelly - Sidoti & Company, LLC: At what point do you need to do capacity expansion? M. Chad Crow: I think we could push $2 billion in revenue with our current footprint. Robert J. Kelly - Sidoti & Company, LLC: $2 billion with the current footprint, and with the current fleet? M. Chad Crow: Not with the fleet, but with the facilities. Robert J. Kelly - Sidoti & Company, LLC: Whats the next step up for the fleet as far as your revenue level? Floyd F. Sherman: It's going to be every year. M. Chad Crow: It's going to grow as long as our revenues grow, and it'll keep growing. To the extent we can, we generally lease that equipment, but there are some -- there's some specialized equipment in some situations where it just makes more sense to buy. And that's the part you're seeing on the CapEx side. Robert J. Kelly - Sidoti & Company, LLC: Okay. And just one final one. The assumption is that the lumber inflation, you kind of get hurt from a timing perspective in the commodity products, but there's a detriment to the prefab product right, that's a set price kind of product. What is the competitive pricing landscape in prefab? I mean, we've heard for so many years now, excess capacity and kind of predatory pricing from the guys at the lower end trying to hang onto business. Is that still the case? Or has the rising tide of lumber cost instilled a little discipline in the components business? Floyd F. Sherman: It has instilled a little more discipline, but there's still -- it still is a very competitive environment, but we are not seeing the -- some of the craziness that we saw 1 year or 1.5 years ago. And I think that the industry is no longer, especially with the labor situation, is no longer fighting that, the issue that you had when you had low material costs and low labor cost. It made it very, very difficult. And people like ourselves, you had to put so much business through your plants in order to absorb the fixed cost that you had in the plant. And so there were some very, very aggressive pricing. But that certainly has improved noticeably over the last 6 months in particular.

And we'll take our next question from Matthew Dodson with JWest LLC.

Just one quick question for you. On your prefab, can you talk about your utilization right now. And then you talked about your backlog being as big as it is, how that will kind of matriculate through the year? Floyd F. Sherman: Right now, I would say across the board, we're probably operating at about 60% of our capacity or utilization of our facility. We -- in one particular area, we have had to open one of our mothballed facilities in order that we could take care of the demand, and that has already been put in place. And we have now opened that facility and ramping it up, so -- but across the board, we're probably about a 60% utilization.

And as you get to say 80% utilization, can you kind of help us understand the incremental margins? M. Chad Crow: I think on an overall basis, you'd probably be looking at anywhere from 50 to 150 basis points margin expansion. Floyd F. Sherman: The vast majority of our margin enhancement is going to come from pricing. M. Chad Crow: For that particular product category, it will be greater, obviously, but on a consolidated basis, that's probably a good estimate.

[Operator Instructions] We'll take our next question from Ethan Steinberg with SG Capital. Ethan Steinberg - SG Capital Management LLC: So I just -- I'm a little confused on a couple of things. I want to make sure I understand. If you set the price at the end or at the beginning of the month, a lot of these prices have come down, at least, in the spot market in this past month. I guess as you cycle through the rest of April, I assume May we'll start to see a cleaner sense of what your gross margin should be? M. Chad Crow: That's correct. Ethan Steinberg - SG Capital Management LLC: Okay. So I think through 180 basis points of pressure that created in the first quarter, which was sort of a perfect storm if you look at what lumber input costs did, this is the first time in a couple of years it seems like lumber has started to stabilize and listening to a lot of the folks that make it this quarter, they seem to think it is leveling out, whether it bounces a little from where it is now. I guess, I want to understand a little more what that gross margin for you all should do as we start -- if we do see that input level out. It seems like there's quite a bit of a room from the 19.5% or 20% level? M. Chad Crow: Yes, there is. And there's, obviously, other factors that impact our margin, the competitive landscape and the pricing competition. But if you look at the first quarter, our margins were relatively strong the first 2 months of the quarter, and then we got slammed in March because of the inflation, and we were out having to replenish inventory. As I said earlier, we had the bleed-over pricing in April. So April started out rough as well, but it had started to improve. And so in your scenario, if lumber prices stay relatively flat the rest of the quarter, then we should see some very nice margin improvement in May and June. And so given the fact that the first quarter had one bloody month in it and the second quarter is starting out that way and should recover, then you could look at the math and say, "Well, if it cost is 180 bps in Q1, maybe we can recover the majority of that in Q2." We'll just have to wait and see how things play out. Ethan Steinberg - SG Capital Management LLC: And I guess can you help us understand, if, let's say, prices held where they are today, where do you think that normal gross margin would be for you? M. Chad Crow: If we were selling the commodity lumber products, what I would call a normal historical margin, if you go back over the years in a healthy housing environment, what we could expect to get on those products, I think we could have been around 22% margin in Q1. There's a lot of what-ifs in that. But in a normal environment and normal pricing environment, that's what I would have expected. Ethan Steinberg - SG Capital Management LLC: Yes, and I guess on -- okay. And if lumber is down now, then you get -- you might actually swing above that for a little, for a month or 2 as you get the other side of that pendulum? M. Chad Crow: Well, again, I wouldn't call this a normal environment. We're still at very low levels and still very competitive. So I wouldn't go out on a limb, and say it's going to get that strong, that quick. We still need help from the overall housing environment. Ethan Steinberg - SG Capital Management LLC: Okay. If we -- in today's environment, you don't think it could be a 22% run rate by the end of this quarter, just on stuff that you're buying and, I guess, selling? M. Chad Crow: No. I think that would be a tad optimistic. Ethan Steinberg - SG Capital Management LLC: Okay. And then I just jumped off the Weyerhaeuser. call. And I think they said that the engineered wood products business saw the most improvement, I guess, in pricing or strength through the quarter. It was coming off a pretty weak point. Does that have implications for you guys? Or does that -- does it feel like that is happening for you as well? Floyd F. Sherman: That certainly is a major product item for us, and we are a very good Weyerhaeuser customer. They have been able to push through some price increases, but unfortunately, they don't sell to the builder. And we have to sit and sell the product to the builder and fight with whether it be Boise or LP in competition for that business. And while Weyerhaeuser might be doing a lot better with a product, we aren't. And it's -- we've been able to get some of that price increase, but when you are divorced from having to deal with the builder and when it's a -- when you're in a position, you take it or leave it, and it's -- you have so much of your sales program built around the product, that makes it a lot tougher. Ultimately, I expect that we're going to be able to get it. But we can't move as quickly as Weyerhaeuser does. Ethan Steinberg - SG Capital Management LLC: Okay. And sorry, just last question. That volume being 30% I thought was great in the quarter. And it sounded like the gentleman who asked the cadence of that was some acceleration on a year-over-year basis, sort of through the quarter through today? M. Chad Crow: Yes.

We'll take our final question from Shawn Boyd with Next Mark Capital.

Just two, and if I could, I want to go back to a comment, Floyd, that you made earlier. Can you elaborate a little bit on -- it sounded like you said you did test a different pricing strategy and it kind of didn't work to well, and you had to reverse that. Was that in a particular region, was it just a small point in time, and just tell us a little bit more about that? Floyd F. Sherman: That was, if we wanted the business, we were going to have to give our 90-day price. And the -- we tried to go, and we had been hearing that the competition in the fields were going with shorter pricing and 30-day and 45-day pricing. We obviously, didn't find that to be the case, and we had to make adjustments in that. And we lost, in fact, to some of the people who are claiming that they are 30-day and 45-day. We walked away from some business, because the pricing was just wasn't acceptable to us. And it was still 90-days, and they were still insisting that they're only given 45. So I have a little bit of a jaundiced view of -- when it comes to listening to what people say versus what they do.

I get it, okay. And so that's where the market is? Is that where you're seeing -- is that what the large public builders and the smaller privates are demanding? Or is it really dependent upon scale... Floyd F. Sherman: For the most part, it's the large -- national large regional builders who are looking for longer pricing periods. We do, I guess, probably 1/3 of our business -- 30% of our business is probably on less than that 90-day. And we always have done a lot of 30-day, 45-day pricing. There are some large builders who still will price on 30-days and always have, because they feel that they can catch enough variations in the commodity markets that over the long term, that works to their advantage. And I would have to agree with them. I personally think that the 30-day pricing is the better pricing strategies for all of us in the industry. But you have to react to what the customers want and try to accommodate the customers and we do that.

I got it, okay. And the only other question on that is has there been any sort of -- I want to say like a test program. Or could you take a particular region of the country or even a particular state and sort of say, "Okay, I know I'm going to give up x amount -- 20%, 25% of the business. What am I going to see in margins though? And what am I going to see from a cash flow standpoint?" Floyd F. Sherman: We look at that on an -- and almost all businesses continually -- you are continually evaluating what you walk away points, what are the tradeoffs, and so forth. I can tell you in the first quarter we walked away from in excess of $20 million worth of business because the pricing was just not acceptable to us. I suspect from what I have seen already in the second quarter that, that number will probably be closer to $30 million worth of business. But you can, as business conditions improve, you can be more price selective, and you do have an ability to get better pricing. But the -- we look at it by individual markets and on -- and across regions when we're making those determinations. But I can't -- had we taken that business, almost all of that business would have been low single-digit margin for us, as the quarter played out, had we taken it. So I can't say well, what would the margins have been had we taken it. You can go back and calculate that, but it would've cost us probably somewhere between close to 70, if not 100 basis points.

Right, right, okay. And going back to the comments about the OSB capacity. You want to do some really helpful math, Floyd, in terms of the incremental capacity that's coming on from the 3 mills and what that is relative to the improvement in housing starts kind of on, I think you said,per 100,000 basis. We're seeing these prices level off to correct -- lumber prices level off to come in a little right now. But quite -- to be quite frank with you, given that math that you laid out, it sounds like you don't you really expect them to stay down that long. Is that fair? M. Chad Crow: Yes. That's fair. I do not expect the prices -- right now, there have been some conditions, because of bad weather in the Midwest, bad weather in the Northeast. It really has slowed down the pace of building in certain parts of the country. Extreme wet weather in the Southeast has also affected it. Some of the mills have temporarily built up an inventory. You had people starting to sit on the sidelines, who normally would've been ordering on a regular basis. We're kind of waiting, because they were saying, "Hey, I can't get the prices at where they -- from my customer, where the market pricing is, so I'm going to sit and see what happens." And the mills have finally have to get to point where they've got to move that excess out. And that's when you get this temporary fall on pricing as they attempt to do that. And I think that has been done. I really anticipate that we are going to see the prices come back up to somewhere near the level of where they were. But I think that will be on a more stable basis and is comparable to where we were back in '05 and '06. And it's from all of our research, and we do very close research on both the lumber industry, as well as on the OSB industry. Right now, these industries are operating, at current level of housing, they're in that 80% to 90% capacity range. They've taken a lot of mills off stream, and they're going to be very slow to add them, and what they're trying to do, I believe, is get to a stable pricing environment. And I think we will see that in during the summer months.

Got it. Last question for me. Chad, in terms of the cash usage, the $26 million that we saw in the quarter, it was certainly a bit of an eye-opener. I understand the working capital constraints. Do you expect to burn a similar amount this quarter? And does this pull in your thinking at all in terms of doing something longer term on the liquidity? And I guess, we have to caveat that with the issues with the make hold. Anything you can give us on that would be helpful? M. Chad Crow: It's really hard to predict what lumber prices are going do and how much our working capital is going to grow, and our sales continue to increase at a rapid pace. I don't think we'll see as much burn in the second quarter or the third quarter. I'm hoping that the working capital build will start to slow, but we'll see. In any event, I still think we have ample liquidity in the near term. I would still expect in the year with at least $90 million of cash, maybe closer to $100 million. So from a liquidity standpoint, we have no immediate concerns. As far as the refinancing, certainly the refinancing market is still very favorable, and we continue to take a hard look at our options there and what might be available. But for the near term, I'm not concerned about our liquidity needs.

At this time, there appear to be no more questions. Mr. Sherman, I'll turn the call back over to you for any closing remarks. Floyd F. Sherman: Okay. We appreciate your dialing in and following our company. And we certainly are looking forward to a continuation of the improved financial performance for the company.

This concludes today's conference. Thank you for your participation.