Good day, and welcome to the Builders FirstSource Fourth Quarter 2022 and Year End Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by management and the question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Michael Neese, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead, sir.

Thank you, Brittney and good morning everyone. Welcome to our fourth quarter and full year 2022 earnings call. With me on the call are Dave Rush, our recently appointed CEO; and Peter Jackson, our CFO. Today, we will review our fourth quarter and full year results. 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 from 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 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 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. Before we get into the results, I'd like to thank the Board of Directors for the opportunity to serve as the CEO of Builders FirstSource and for trusting me to lead this great organization. I also want to thank all of the BFS field leaders and team members for their support which has been inspiring. I come from a background in finance having spent the first 18 years of my career in various financial roles from controller to CFO. Over my 23 years with BFS, I've been fortunate to have had a variety of operational roles including Regional Oversight, primary responsibility for both the ProBuild and BMC integrations and most recently leadership of our enterprise-wide initiatives as EVP of our Strategic Management Office. I believe my experience and industry knowledge will be a strong basis to build on our success of creating long-term value for shareholders. Now, let's turn to the business results. Macroeconomic factors will undoubtedly continue to create headlines this year. However, with our exceptional and seasoned team, strong balance sheet and industry leading platform, we are in a great position to win in any environment. We have a field leadership team with over 30 years average experience in the industry. They have been through similar macroeconomic environments to the one we are currently facing today, which gives me great confidence in our ability to manage business changes with quick and decisive action as required. We have maintained very low leverage providing us with maximum flexibility to deal with any scenario and we continue to leverage our footprint, our scale, and our product portfolio to outcompete in the market. Let's turn to our long-term strategic priorities on Slide 4 for a moment. As we navigate a changing landscape, we see no need to alter our long-term strategy, and we remain focused on 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 5, you can see our continued emphasis on the strategic priorities was key to our record full year 2022 net sales of $22.7 billion, and adjusted EBITDA of $4.4 billion. Top line growth, value-added product mix improvement and disciplined cost management resulted in our adjusted EBITDA margin increasing 390 basis points to 19.3%. The combination of increased profitability and share buybacks supported 81% growth in full year 2022 adjusted EPS. On Slide 6, you can see that we delivered a 6.6% increase in core organic sales, including nearly 21% growth in our higher margin value-added products. We're extremely pleased to deliver $123 million in productivity savings for the year, exceeding our $100 million target as we drive improvement across a variety of projects and leverage our BFS One Team Operating System. We remain focused on the importance of controlling SG&A and other expenses. This includes efficiency, efficient cap capacity utilization, ongoing optimization of our footprint, and balancing the need for variable cost reductions and future capacity. Importantly, we have rationalized over 30 locations during the last year while main maintaining coverage and not exiting any markets. I'm extremely proud of how we continue to demonstrate our high performing culture through improved safety by lowering our recordable incident rate by approximately 22% year-over-year, which marks the second consecutive year of improvement. We also continue to invest in training enhanced DEI initiatives and improved employee benefits to better attract and retain high performing talent. Turning to M&A on Slide 7, in addition to our focus on profitable core organic growth, we continue to execute tuck-in acquisitions aligned with our strategy completing six acquisitions in 2022. Although the M&A pipeline has slowed in the current macro environment, we continue to be acquisitive while remaining disciplined in our approach. We are committed to expanding our geographic footprint in key markets with a particular emphasis on enhancing our value-added portfolio to better serve our customers, diversify our end market exposure, and leverage our technological capabilities. This is evidence by our recent acquisitions including Pima Door & Supply in the fourth quarter, which expands our millwork footprint in the Phoenix area and earlier this month, we acquired Noltex Truss, a five location truss manufacturer providing building components to the single and multi-family markets throughout Texas. This tuck-in acquisition further extends our leading position in value-added products across the state. We are excited to welcome both Pima and Noltex with their longstanding customer relationships and track record of profitable growth to the BFS family. The still highly fragmented nature of our industry supports our ambition to invest $500 million in M&A per year on average for the next several years. Moving to Slide 8 and looking at our capital allocation in aggregate for 2022, we deployed approximately $3.5 billion of capital towards organic growth investments, tuck-in M&A and share repurchases and remain on track to achieve the goal we established at our 2021 Investor Day of deploying $7 billion to $10 billion from 2022 to 2025. We will continue to closely monitor our customer sentiment, which currently suggests a challenging year ahead. During the fourth quarter, we saw a slowdown in average daily sales, which has continued into the first quarter. Higher mortgage rates and affordability challenge continue to be headwinds. On Slide 9, we outlined the benefits of our flexible business model for dynamic operating environments such as the one we're currently experiencing. As we have discussed, we are actively managing the business as conditions indicate, and we are acting decisively wherever we see decelerating demand. Our focus is on effectively managing costs through our variable expense structure to match costs with volumes. We are optimizing capacity and reducing discretionary spend without impairing our ability to maximize the recovery when this turns the corner. Stepping back, we realize affordability has been an increasing concern over the past several years as home prices and rates have increased significantly. We are working and making housing more attainable by investing in the value-added products, productivity and digital capabilities to reduce cycle times and make homebuilding more efficient. For example, in 2022, we invested approximately $125 million in CapEx supporting our value-added product growth and digital strategy. Going forward, we will continue to prioritize our investments in our fleet, value-added technology, and digital automations. Together, these initiatives will help lower total costs, improve affordability, and allow more people to buy homes. We are committed to strategically accelerate our leading market position and deliver on our overall value proposition, and we will continue to execute while keeping our focus on providing the best possible service to our customers. Now, let's turn to Slide 10 to discuss our pioneering role in the digital transformation of the homebuilding industry. We have a long-term commitment to investing in digital innovations and technologies that we believe will drive greater efficiency across homebuilding and enhance our product offerings. On the homebuilders software side, we are executing our development plan and integrating that with our BFS operations through our digital sales teams. myBLDR.com: myBLDR.com: Last month at our national event, we announced our inaugural BFS Hall of Fame Class for 2022, the culmination of our annual employee recognition program and a highlight of our people first culture. These distinguished individuals represent the best of our frontline team members, but there is one person I would like to highlight today, Frank Gloria. Frank is a Fleet and Compliance Manager out in Southern California who has been with the company and its predecessors for an impressive 45 years. He oversees our fleet and machinery across 11 locations. Frank takes great pride in keeping everything running consistently and with minimal downtime. His manager emphasized quote, Frank's knowledge of everything mechanical is simply unrivaled. On behalf of the leadership team, I want to thank Frank and the other hall of fame inductees for their tremendous contributions. I will conclude by saying that we have the best team to win in a challenging environment. I am confident in our strategies and our ability to deliver long-term results for our shareholders. I'll now turn the call over to Peter to discuss our fourth quarter financial results in greater detail.

Thank you Dave and good morning everyone. I want to congratulate Dave on his appointment as our new CEO. I've worked with him for many years and couldn't be happier for him and for this company. I know he will lead us to continued growth and success. I also want to join Dave in thanking our team members for delivering a record year of performance. We sincerely appreciate your hard work and dedication to delivering excellent service to our customers day in and day out. I'm proud to report that we delivered solid financial results in the fourth quarter to cap off a record year of the business. We continued to manage through the complex operating environment with a proactive mindset and a disciplined approach. We expect that the structural enhancements we have made in our business over the past decade will help us mitigate the impact of softer housing demand and inflationary headwinds. Our ample liquidity, low leverage and disciplined cost management provides significant financial firepower to continue to strategically and opportunistically grow our business. I will cover three topics with you this morning. First, I'll recap our fourth quarter results. Second, I'll provide an update on capital deployment, and finally, I'll discuss our first quarter guidance and lay out illustrative full year scenarios. Let's begin by reviewing our fourth quarter performance on Slide 12. We delivered $4.4 billion in net sales. Core organic growth decreased by 8% attributable to a nearly 14% decline in single-family as slowing demand compared to strong fourth quarter 2021 led to difficult comps. Both multi-family and repair, remodel, and other increased by almost 15%. Multi-family was driven by a strong rental market and resulting backlog. R&R and Other growth was mainly attributable to increased sales focus and capacity versus prior year. Two fewer selling days had an unfavorable impact of roughly 3% on net sales. The cumulative effect of our acquisitions over the past year contributed approximately 8 percentage points of growth to net sales. Value-added products saw another quarter of growth compared to total fourth quarters starts, which decreased by 16%. Core organic sales in the category increased by 0.6%, reflecting the macro trend of value-added product adoption and our success in the category. I'm very happy to highlight value-added products represented over half of our revenue in the quarter, a great proof point of success towards our goal of being the supplier of choice for these valuable high growth products. During the fourth quarter, gross profit was $1.5 billion or roughly comparable to the prior year period. Gross margin increased 200 basis points to 34.1%, mainly due to the increased mix of value-added products. SG&A grew 11% to $958.7 million, mainly due to additional operating expenses from companies acquired in the last year inflation and other costs. Acquisitions represented over 60% of the increase in SG&A. As a percentage of net sales total SG&A increased by 340 basis points to 22%. We remain focused on disciplined cost management and are taking appropriate actions in response to volume dynamics on a market by market basis. These actions include footprint rationalization, discretionary spending reductions, and cutting headcount and overtime. As we have stated in the past, approximately 70% of SG&A expense is variable. Within that 70% roughly 20% of sales is driven by volume based formulas, things like commissions and bonuses. The remaining 50% of sales is where we are actively managing our operations. We are striking the right balance between resizing operations based on changes in volume and protecting capacity for future growth. Adjusted EBITDA was approximately $700 million, a decline of $97 million, primarily due to declines in core organic sales and commodities partially offset by M&A. Importantly, adjusted EBITDA margin was 16%. This represents the second fast fourth quarter adjusted EBITDA margin in our history reflecting our focused execution and expense control. Adjusted net income was $470.8 million, down from an adjusted net income of $532.4 million in the prior year quarter, attributable to a decrease in net sales and higher SG&A expense. Adjusted earnings per diluted share was $3.21 compared to $2.78 in the prior year period. The increase reflects our more than $650 million in accretive share repurchases investments during the quarter. To put this in perspective, the repurchase equates to $0.21 or nearly half of the $0.43 change. Now let's turn to our cash flow, balance sheet and liquidity on Slide 14. Our fourth quarter operating cash flow was approximately $971 million, mainly attributable to increased profitability due to effective pricing and cost management, as well as disciplined working capital management. Generally, we see working capital as incremental or decremental of approximately 10% of sales. Capital expenditures were $131 million. All-in we delivered robust free cash flow of approximately $840 million. For the year we generated record free cash flow of approximately $3.3 billion, representing a free cash flow yield of 30.6% operating cash flow. Return on invested capital was 41.1% for the year ended December 31. Our 2022 net debt to adjusted EBITDA ratio was approximately 0.7 times and approximately 1.3 times our estimated 2022 base business EBITDA, well within our stated target of 1 to 2 times. Excluding our ABL, we have no long-term debt maturities until 2030. At quarter end, our total liquidity was $1.5 billion consisting of $1.4 billion in net borrowing availability under the revolving credit facility and approximately $100 million of cash on hand. Moving to capital deployment, during the fourth quarter, we repurchase approximately 10.2 million shares for $651 million at an average stock price of $64.17 per share. In addition, we have repurchased approximately 900,000 shares so far in the first quarter of 2023 for $61 million at an average stock price of $65.94. During 2022 we repurchase almost 42 million shares for $2.6 billion [ph], and we have more than $900 million remaining in our authorization. In total, we have repurchased more than one third of our outstanding shares in the last 18 months. We remain disciplined stewards of capital and we'll continue to look for inorganic growth opportunities and to repurchase shares at an attractive value. We maintain a fortress balance sheet, which will help us withstand a slower housing environment and keep us well positioned for long-term growth. Turning to Slide 15, we continue to believe it is important to assess our results using a base business methodology. During 2022, base business revenue grew 13% while base business adjusted EBITDA increased 28% year-over-year. This approach showcases the underlying strength and profitability of our company by normalizing commodity volatility. As a reminder, our base business definition assumes normalized commodity margins and static commodity prices at $400 per thousand board feet. Overall, I'm proud that we delivered solid results in the fourth quarter despite slowing housing starts. Additionally, our record results for the full year reflect our differentiated platform, talented team members, and intense focus on execution. I'm confident that through our leading footprint, investments in value-added products, and ongoing efficiency initiatives, that we can continue to gain share, grow our value-added products, and deploy capital. Now, I would like to discuss our guidance on Slide 16. Given the current challenging conditions in the housing market, amid elevated mortgage rates and general uncertainty in economic conditions, we are amending our guidance disclosures at this time to align with our public customers. Customers of all types and sizes have expressed their uncertainty about starts in the year ahead. As a result, we have decided to only provide guidance for the first quarter of 2023 as shown on Slide 16. We will reassess full year guidance for actual end base business as the year progresses. For the first quarter, we expect net sales to be in the range of $3.4 billion to $3.7 billion, and adjusted EBITDA to be in the range of $400 million to $440 million with an adjusted EBITDA margin in the range of 11.7% to 11.9%. I would also note that the first quarter guide assumes gross margins to be in the 30% to 32% range. In addition, given the 2022 starts profile, we expect comparisons to prior year will be most difficult in the first two quarters. Our guidance includes the following full year assumptions, which are also outlined in the earnings release, and on Slide 17. We expect total capital expenditures in the range of $300 to $350 million. This includes continued investments in value-added products, and we continue to invest in our technology and infrastructure, and we will migrate to one integrated ERP platform in the coming years. I'll remind you that the related increases in CapEx and OpEx are included in our guidance and our 2025 financial projections from our December 2021 Investor Day. We expect interest expense in the range of $150 million to $170 million, an effective tax rate between 23% and 25%. Depreciation and amortization expenses in the range of 525 million to $550 million, no change in the number of selling days, and we expect to deliver between $90 million and $110 million in productivity savings. We recognize that it's important to think about potential outcomes for the full year, so on Slide 18, we provide a scenario analysis to demonstrate how we are positioned to generate resilient financial performance across a range of potential housing markets and commodity conditions. I will reiterate that we are not providing full year guidance here, but this scenario analysis should help clarify our range of performance expectations and demonstrate the capability of our business to achieve strong adjusted EBITDA margins in 2023. To summarize, we are exceptionally well positioned to withstand a slowdown in housing while continuing to drive our strategic goals forward. We have a strong balance sheet and no long-term debt maturities until 2030. We are operating in a proactive fashion and are taking the necessary steps to manage through this downturn with a relentless focus on execution. I'm confident our best-in-class operating platform will continue to generate solid free cash flow, which provides further financial flexibility. We will also diligently deploy capital and work to maximize long-term shareholder value. With that, let me turn the call back over to Dave for his closing remarks.

Thanks Peter. Let me provide a few final thoughts. Having spent the greater part of my career with BFS, I firmly believe in our differentiated platform, which is the strongest it's ever been and will enable us to outperform in any environment. We have a clear strategy that we're continuing to execute. We generated strong cash flow, and we have significant opportunities to invest that cash to expand our value-added products and solutions, execute strategic acquisitions and return capital to shareholders. Through it all we remain focused on operational excellence to continue to drive increased safety, productivity, and profitability. 2023 will be a challenging year for our industry, but I'm confident in our talented team members who have clearly demonstrated their ability to execute and win in any market. Thank you again for joining us today. Operator, let's open the call now for questions.

[Operator Instructions] We'll take our first question from Trey Grooms with Stephens. Your line is now open.

Hey, good morning everyone. Dave, congrats on your new role. Look forward to working with you.

Hi Trey. Thanks, Trey.

Sure. So I guess first, multi-family and R&R very strong in the quarter. Can you talk about how these two segments, the multi-family and R&R are trending through 1Q and, and how you're thinking about these business lines kind of as we progress through 23?

Thanks, Trey. That's a great question. I'll start with R&R. R&R if you expand it in the current year primarily because we had capacity constraints in 2021 and 2022 just taking care of our existing business. Once those capacity constraints waned, our ability to focus on that segment again allowed us to go after new customers and try to generate more R&Rs business. But multi-family, it's been primarily through acquisition.

Perfect. Thanks for that. And I guess my next question you'd laid out Peter, you laid out expectations for over $1 billion in free cash flow if memory serves me right, and I think it that was in kind of this 800,000 single-family start environment. First off, is that still the expectation? And then how does free cash flow or how do you expect free cash flow to, to move relative to that sensitivity table you gave us in the deck?

Yes, no, thanks, Trey. So that's a good question. There's a lot going on in the market and so we've stayed away from the cash flow including it in the full year scenarios, but yes, the short answer to your question is we still think it's north of $1 billion in free cash flow, assuming about a 20% starts down scenario and a reasonably steady commodity environment. As you know, those, both of those things can move our working capital quite a bit. Generally speaking, we still believe that that roughly 10% incremental or decremental working capital with sales is a good way to think about us. So given the dynamics around what commodities are doing, kind of what starts are doing, as well as the core underlying business' ability to generate cash, we do think that north of $1 billion number is still right.

Got it. Okay, perfect. That's good and encouraging. If I could sneak one last one in, you know, the value-added piece now over half your sales in the quarter, that's super impressive. As the single-family business likely slows further in the coming quarters, how would you expect the value-added mix to change? Would there be or would you expect there to be more or less appetite from homebuilders to utilize these products?

Yes Trey, I appreciate that question. It makes sense for you to ask it. The value-added has shown incredible resiliency even as we've had headwinds and starts and the market has turned a little bit, at least especially on the component side. They're just such a nice offset to the labor challenge and the labor challenge is going to be consistent even in the current housing environment we're in. So we haven't seen people move away from components even as their starts have gone down. We have achieved over a 50% of our sales in total value-added in Q4, which has been a nice buoy to our overall sales mix, and we think through growing through our recent acquisitions that we're going to be able to continue to maintain that pace.

Got it. Thanks for taking my questions.

Yes and probably the only thing I'd throw in, the only thing I'd throw in there, Trey, is that it does correlate to some degree the starts, right? I mean, yes, they're still using it and they're not going away from it like Dave was saying, but we don't want to somehow argue that Truss is going to maintain its volumes when starts are down there. There is a correlation there, but we are seeing growth, we're seeing secular growth, and so that's certainly a strong area for us, and I think you heard it in my comments, right? So fourth quarter value-add, we were still favorable even though starts were down more than 16%.

Yep. Got it. Makes sense. Thanks for taking the question. I'll pass it on. Good luck.

Thanks Trey.

Thank you. We'll take our next question from Matthew Bouley with Barclays. Your line is open.

Hey, good morning guys. Thanks for taking the questions and welcome Dave to the earnings call. So first question on, you know, still kind of seeing that gross margin above 30% for the Q1 guide. When we look at the midpoint of your scenarios of that kind of 10% to 11% EBITDA margin for the year, what does that imply about the gross margin beyond Q1? How quickly does it normalize and any color on sort of commodity versus non-commodity gross margins as well would be helpful? Thank you.

Thanks, Matt. The storyline for that gross margin number continues to be one of good progress. We're pleased with what we've seen so far, but certainly an open question in terms of where it gets to. So as you highlighted, things have stayed strong in the gross margin line. It is beginning to retrace what we've discussed in the past, right, beginning to normalize as the supply chain normalizes. We certainly have performed well. I mean our 30% to 32% gross margin guide for Q1 is certainly well north of what we've said historically is our normalized roughly 27% plus gross margin. We're continuing to see really nice performance and mix up from the value-add component of our business, which we hope for and which we're expecting. But as the year progresses, we do anticipate that continuing to trend back towards a normalized level. You know, we're pretty optimistic about what that looks like, but for now I'm not ready to provide any real guidance in terms of the full year.

Yes, the only other thing I'd add Matt is, part of how we've managed margin is actually through some of our cost improvement initiatives around manufacturing. We've actually improved our board foot per man hour by 22% since the merger. That productivity in Truss allows us and will allow us to compete effectively for share even in a challenging environment. So we're kind of going at it from all angles and trying to maintain the margin the best we can.

Got it. Okay, that's very helpful. That makes sense. Second one, on the value-add you had the 16% decline in manufactured products over the quarter. Clearly that's more tied to the front end of construction. And I think you had the windows, doors and millwork growing 22% reflecting completions. My question is, how should we think about the timing of those converging? Kind of at what point do you see this sort of tale of completions beginning to more closely resemble what we've seen in starts? Thank you.

Yes, Matt, that's a good question. I think we've pretty much already seen that convergence as we get farther into the quarter. Our door and millwork sales have somewhat normalized, but we still believe in the value-added segment as a positive for the overall business. And the Truss component, as I said, has been really resilient. We haven't seen people move away from Truss, granted, because there's fewer starts. We're going to have fewer sales in Truss, but the fact that we can maintain that percentage of our overall business is very encouraging to us and we believe it will continue.

Got it. All right, thanks Dave. Thanks Peter. Good luck guys.

Thanks Matt.

Good, thank you. We'll take our next question from Ketan Mamtora with BMO Capital Markets. Your line is now open.

Thank you. First question, recognizing that there's still a lot of uncertainty around, can you give us some sense of how you guys are thinking about the multi-family business and R&R? It seems like that is becoming a greater focus area for y'all.

Yes Ketan. I appreciate the question. Multi-family will certainly be a buoy for us in 2023. We are not quite sure how 2024 is going to play out. I was at the Harvard Housing Conference and there was some concern that multi-family in 2024 may start seeing some headwinds. What we're seeing in the amount of bid activity for 2024 has not tremendously waned though. So we're still slightly optimistic there. On the R&R front, again, the thing that made that difficult for us in prior years was capacity and the supply chain constraints that we were facing. It was hard to fully explore that opportunity and go after new business when we were having struggles with supply chain taking care of existing customers. So we will rededicate our focus on growing that share now that those kind of conditions have lessened.

Got it. That's helpful. And then my second question, either Dave or Peter, it seems like there is some investor concern about your sort of ability to hold onto price gains on the manufactured component side, with engineered wood pricing also starting to fall quite sharply, obviously single-family is down. Can you talk at a high level, sort of at least philosophically, how you'll approach that?

Yes, that's a great question. I think for us we did invest significantly almost $100 million and our ability to gain productivity through automation in all our plants; that has created a cost advantage for us in the marketplace. We believe we're the low cost provider for Truss in the marketplace. That gives you a little bit of flexibility to go after share where that's the answer, and to be able to hold on to a little bit of margin for a little longer time where that's available. Anything you want to add there, Peter?

Yes and I think we've talked a lot about the amount of investment we've made in pricing management and pricing rigor and pricing discipline. That's certainly an important part about how we expect to manage this business on a go forward basis and combine with this point about how efficient we are, we think that puts us in a great position to offer a total cost benefit to our customer, while at the same time getting a fair margin and being able to hold on to what we worked so hard for. So we're certainly optimistic right now, especially as you see each quarter's numbers come through.

I do believe normal margins for product that the margin ran up simply based on supply and the demand dynamics, that will normalize first and we're already seeing that. You've definitely seeing it, for example, with lumber and sheet goods as an example. The other products in our industry won't respond as quickly and as deeply as lumber and sheet goods have, but we should see some of that. But as far as what we can control, I think what we're going to try to do is, is win by providing better customer service, better reduced cycle times for our customers, allow them to win on cycle time costs, and then we'll be able to hold on to some of the margin that we've tried to create.

That's helpful perspective. Good luck in 2023. I'll jump back in the queue.

Thanks, Ketan.

And thank you. We'll take our next question from David Manthey with Barclays. Your line is, I apologize, with Baird. Your line is now open.

Yes, thank you. And let me add my congratulations to you, Dave.

Thanks.

First question, could you discuss your comfort level with the debt in a downside 2023 scenario? I assume you delever a lot from the balance sheet unwinding, but is there any change in your views at all on M&A or share repurchase as we move through this downturn yet or potentially in the future?

Yes, thanks Dave. That's a great question. So the short answer is, we feel really good about the balance sheet and we think that our priorities around capital allocation are still the right ones. We're going to lean in on it. You know, we've got no really, no structured debt till 2030. The ABL is, we just reran that one from a timeline perspective. So we've got new maturity start, plenty of liquidity. We feel very good about the strength of the balance sheet. You layer on the fact that, as you noted, we would expect to release some working capital in the event of a further sort of slowing in the market. So that will be a nice tailwind in terms of available cash. The business is still generating cash, so feel good about that, even in some of these more aggressive downside scenarios. And then the overlay of all that is, we do expect there to be opportunities, right? While M&A has certainly been a source of growth for us, and it has slowed down in terms of total number of opportunities on the market, we still see nice targets at reasonable multiples as evidenced by the Noltex deal that we think should be part of the BFS family. And we're going to continue to execute those. So we're going to -- as we stay disciplined, we think there's really going to be, there are going to be nice opportunities for us to continue to do that. And as we've demonstrated up through now, we think there's real intrinsic value in the repurchase of shares. So to the extent we're not seeing good targets in M&A or we don't have the capacity internally to do more M&A, we'll continue to leverage that as well.

The only, the only thing I'd add on the M&A front is we are still at or above our plan that we laid out on Investor Day of $500 million per year dedicated to M&A. So even as it slows now over the long-term, we don't have any concern over hitting that target.

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Okay, thank you.

Thanks, Dave.

We will take our next question from Keith Hughes with Truist. Your line is open.

Thank you. On the guidance for the first quarter, can you give us any kind of breakout how much the revenue decline is from commodity deflation versus units, and the kind of value-added comment within that would be nice as well?

Well, and then in terms of the breakdown, the commodity prices have pretty well, I would say leveled out based on what we're looking at been pretty stable. So the decline year-over-year in commodities is meaningful. It will get worse on a comp basis as we go through the second quarter. Last year it peaked in Q2, so certainly a lot of headwind from commodities. And you know, what we've seen is sort of that trend down on a year-over-year comp basis that trend down started probably Q3, Q4 last year, probably the best way to describe it. So comps will be most difficult in Q1 and Q2 and get a little easier in the back half of the year. We won't break down the guide in those sub components, but hopefully that gives you good context.

Yes, that's directly what I was looking for. And I guess the question on cash flow, you've played out some M&A targets with the stock where it is now, would you consider buying in excess of free cash flow on other borrowing as we go through this downturn on shares or are you going to be limiting yourself on share repurchase with cash you're generating?

Well, I mean, I think the way we think about deploying capital broadly, right, is that we have an appropriate balance sheet. We're well structured. As long as we're in kind of our range of one to two times base business, we're extremely comfortable. Certainly not intimidated by the idea of being a little below or a little above for a window of time. I think that's just good management. But we certainly are committed to continuing to deploy capital. We think it's a responsibility of management. We think it's a responsible thing to do. We think it's good for shareholders, so we're going to continue to stay committed. And we'll look for opportunistic moments, right? Where in each one of those categories, we think there'll be times when it might make sense to lean in. But we're never going to put ourselves in a position where we put ourselves at risk. We've got a lot of confidence in our ability to sort of see what the business is capable of and manage that liquidity and we're confident we can work well in that range.

Okay. Thank you.

Thanks Keith.

We'll take our next question from Adam Baumgarten with Zelman. Your line is now open.

Hey, good morning everyone. Just a question on the mix of business. Is there any meaningful impact on margins, either positive or negative from a higher mix of multi-family and R&R revenue?

Yes, Adam, that's a good question. In 2023 multi-family will be a tailwind for our margin. It only creates a little bit of a tailwind though, because it's still only about 15% of our overall business. R&R traditionally has been a higher margin product as well and we expect a favorable result from R&R on our margin maintenance. It will help us hold on to margin. Again, the combination of those two products is a smaller percentage of our overall business and generally our margin profile follows single-family, but they will be helpful in us maintaining as we normalize in other areas.

Okay, got it. And then just on digital solutions, you guys said you are on track to deliver $1 billion in revenue by 2026, can you maybe give us an update on where you ended in 2022?

Yes, Adam I'd love to talk about our digital milestone. So 2022 is a year of development. We really weren't trying to monetize the concept in 2022, and actually even through 2023 it would only be a marginal revenue opportunity. We're playing end game here with the digital solution. What we're focused on in 2023 is the full development of the platform and we believe by the end of the year, we will have achieved all the development milestones. We're piloting it in 40 with 40 customers across four markets. We're going to learn a lot from that. We're going to go back, we're going to refigure, we're going to redevelop, we're going to change what we need to. Because at the end of the day, the full recognition of value in this solution is through pull through sales by making us easier to do business with. We believe fully in that concept still. We believe we are light years ahead of any of our competition as it relates to where we stand in the development process. And we still believe in our goal of $1 billion of incremental sales by 2026, primarily through pull through business. Anything you want to add there, Peter?

You nailed it. Perfect.

Okay, great. Thanks, best of luck.

Thank you.

We will take our next question from Steven Ramsey with Thompson Group. Your line is open.

Hi, good morning. Maybe to start with, on CapEx, the last couple of years, it seems like there, the delay of delivery has caused some push out on CapEx spend, supply chain and labor is a little bit better now. Do you feel like you can deliver on all the CapEx this year are more likely to deliver than prior years? And is there any delay embedded in this current guidance?

Yeah, no thanks, Steven, you're right. We struggled to get what we've wanted. It's gotten a little better. There has not been nearly the relief in things like rolling stock that there have been in certain other categories. So that's still a source of, I would say strain. It's getting better. So my sense is this year's CapEx will be more achievable than last year. There's certainly a lot we want to do, and we're still optimistic that that will continue to free up as the year progresses.

Okay, helpful. And then another question somewhat related to CapEx and labor as you plan for a downturn, but also want to be prepared for taking advantage of longer-term strength in housing, how do you think about holding on to labor for the long-term and building out capacity even if it's not fully soaked up in the next 12 or so months?

Yes, so the capacity question is a good one. But we firmly believe in investing in the long-term. So we aren't changing our priorities as it relates to investments and capacity, specifically around value-added products. And in fact, we're trying to address kind of labor concerns a little bit through some of these investments. We have fully robotic lines in Georgia and Texas that we're still working through and trying to make sure and having some success with. And I think we have six to seven more on the books that we're going to add over the next two to three years. So we're seeing investments in technology and investments in automations as a way to really address both labor concerns we have today and in the future. So that will definitely not stop. As it relates to the core business, we've been really diligent about protecting our A and B players out in the marketplace and that's not going to change either because we see that as and what we're experiencing now is somewhat of a short-term scenario and over the long-term we want to come out of this guns and blazing on the other side with our best people. So that's kind of how we're approaching it right now.

Excellent. Thank you.

Thanks you.

And we will take our next question from Jay McCanless with Wedbush. Your line is open in

Thanks. Good morning. Congrats Dave.

Thank you, Jay.

Yes, you bet. So Slide 18, kudos on this new EBITDA presentation, very useful. But when you talk to your single-family builder customers, where do you think they're falling right now on this, these three ranges, negative 15 to negative 25 seems to be what we hear from a lot of people. But would love to hear what feedback you've been getting from your single-family customers on where they think 2023 falls out.

Yes, I'll start on that one and Dave can jump on. So the short answer is, they're all over the place. There's a lot of differential depending on what market you're in, the type of house you're selling, your exposure to customer versus SPAC. We talked a lot about east to west, how much harder this market has been, how rapid the downturn has been in certain markets. So it really is all across the board with people quite pessimistic and quite optimistic being, I would say equally common. So what we try to do is account for a few of those scenarios playing out, trying to think about what they balance out in our numbers to give you some sense of if we lean one way or lean the other, right? If Powell [ph] got leaning one way or leaning the other what might potentially play out. So it's, as you can imagine, that's been a tough one for us.

Yes, I mean it's the reason you have three different scenarios there to pick from, right? You saw it as recently as coming out of the year in December, most builders were really pessimistic. Mortgage rates dipped down a couple 20, 40 basis points and all of a sudden the light turned on and everybody started showing up again. So it was really hard to just try to narrow it down to one narrow range and that's why we gave you the different scenarios. But the good thing is, we do know underlying demand remains strong, evidenced by how quickly people returned to the marketplace once they realized mortgage rates were at a rate that they felt like they could execute on the home purchase that they were after. So it was just additional proof that over the long-term home, underlying home demand is there. We've just got to make sure that we balance that affordability against that demand.

Got it, thank you. And then my second question in terms of M&A activity slowing down a little bit, kind of surprised by that because we've been hearing that the banks have been tightening up on land lending and tightened up generally on anything related to housing or are you just, or the potential target you're looking at, are they not feeling that pinch right now or did everyone have such a good two or three years that they can hold off for a little bit? May be a little more depth on that?

I think it's more of what you just said, the latter part. I think they had a good couple year run. They're looking at fairly uncertain environment now and they're just not ready to get off the fence. I think as the year plays out and as we see more certainty as the year plays out around interest rates and mortgage rates and people can evaluate what the next 12 to 18 months look like, I think they'll jump back in and of course we're looking continuously throughout the time that we're there.

Okay, great, thanks. And then the last one I had, just, if you think about whatever metric you want to use, bid activity, quote, request, et cetera, you know, because we did see kind of a tale of two cities of mortgage rates in January and February. Can you talk about how business was in January of what it, what February looked like compared to January just given the spike higher that we did see in rates?

Yes, I mean, I think what you described is accurate. It has been a bit erratic ups and downs. I don't know that there's a trend there broadly other than to say it's slower than last year and it's certainly a market that's trying to find its own. Yes, I don't think breaking it down at this point is going to help anybody, but it's certainly a market we're staying very close to operationally to ensure we are responding correctly to whatever is dealt.

Yeah, they only, the only thing I'd add is this is not a 2008, 2009 scenario, right? Demand over the long-term is still extremely positive and that demand is not speculative. It's for houses that they want to live in. So over the long haul we still feel pretty good, even though it's going to be a little choppy until we get our footing.

Sounds great. Thanks for taking my questions.

Thank you.

Well, we will take our next question from Reuben Garner with The Benchmark Company. Your line is now open.

Thanks. Good morning everybody, and congrats Dave on the new role.

Thanks.

So I had some technical difficulties, so I'm just going to ask one question, so I don't repeat anything and hopefully this one's not repetitive, but the reiteration of the $7 billion to $10 billion in deployable capital from the Investor Day, I think starts are probably likely off in the 30% range and I kind of looked at that deployable capital as kind of a free cash flow equivalent. And maybe that's wrong, but I just wanted to, I guess, clarify if that 7 to 10 is kind of the cash generation of the business. And if so, what kind of, what is the biggest thing that gives you confidence that you can still do that even though the star environment has clearly moved against you in such a big way?

Yes, no, that's a good question. So 2021 guide for those of you who don't remember, was $7 to $10 billion of deployable capital. And the way that was, think about that is 7 was at a onetime leverage at the end and 10 was at a two times leverage at the end. So that's one to two times the, the base business EBITDA from a leverage perspective. The short answer is, we've talked about this a lot and I'm not sure everybody gets it, but commodities for us is an important part of our business, but we make money regardless. We make a lot more money when the price is very high. So it becomes a bit of an option where if you have a high future price, you get a lot more cash flow into the business. And that's exactly what we experience in year one of our execution against our Investor Day targets. We had an incremental amount of cash that has put us far ahead of the pace necessary to make our number, even though you're right currently the forecast of where 2023 is going to be for starts as well below what we have built into our forecast, we talk about low single growth is being, or low single digit single family starts growth is being embedded into the model. But we're certainly in a very strong position with the start that we've had to be able to deliver on that regardless. And as I mentioned, we still expect to see healthy free cash flow delivery throughout the remaining years on top of that nice strong head start.

Thanks Peter. Congrats on the strong results guys and good luck on board.

Thanks.

And we'll take our next question with Collin Verron with Jefferies. Your line is open.

Good morning. Thank you for taking my question. I just wanted to start at the, the fiscal year 2023 scenario of single family starts down 15% to 25%. The sales range there is $15 billion to $17 billion, which is only about a 10% decline in sales versus the 2022 base business sales of $17.7 billion you reported. Can you just talk about the factors there that would get you to that outperformance versus your largest end market?

Yeah, yeah, yeah. So I think that's a -- I'm glad you're asking the question that way. I think it's the right way to think about it. The variables obviously are starts. Starts in single-family being the biggest impact on us, the other being the impact of M&A right? We've been acquisitive and the year-over-year growth from those acquisitions are certainly impactful in terms of how we're performing versus the prior year numbers. There's a bit of growth margin in there. The normalization will be a bit of a headwind, but we are also seeing some share growth that we've embedded in that as well. So that's an offset. So, but you know, across the board being able to offset a share, a portion of that single-family decline through the strength of our core business and, and the differentiated model is a healthy thing for us and we're certainly quite proud of it.

Great. That's helpful color. And I guess my last question here is just on the productivity savings, you guys are expecting that $90 million to $110 million. Can you just give some examples of those productivity improvements that you're executing on here in 2023 and just how achievable those are in these different volume type environments?

It actually, it goes hand-in-hand with what we need to do from a standpoint of competitiveness related to slower housing starts and increasing our customer service reducing cycle times. So a lot of it is around synergies that we realized from new M&A we've done over the last 18 months. Some of it is related to payroll productivity, getting more for less specifically within our delivery initiatives and some of our truck turnaround initiatives. Some are around manufacturing productivity as I mentioned since the merger board foot per man hour has gone up 22%. That is a combination of best practices across plants as we continue to acquire value-added plants from other parts of the country and integrate them into the BFS way of doing things. There's productivity savings there. We're always constantly reviewing our indirect spend. There's opportunities there. So we, we, we've probably got six to eight different initiatives that will fund that $90 million to $110 million and we're very confident in our ability to get there.

Great, thank you for the color.

Yes.

And we will take our next question from Michael Dahl with RBC Capital Markets. Your line is now open.

Good morning. Thanks for taking my questions, Dave. Congrats on the new role. Thanks Mike. A couple follow ups. On the on the first quarter guide, the slide has a comment saying, there's a bullet point saying that sales and adjusted EBITDA include the expected benefit of price, commodity and margin impacts for the quarter. You know, I think Peter, as you articulated earlier there is a sharper commodity headwind from a top line standpoint in one queue. So can you just elaborate maybe a little bit on what that comment means and if it's possible to then split out if there is still some benefit on margins, what your base business for 1Q would be estimated at versus that 400 to 440 total?

Yes, so I think probably the biggest challenge in this is, that there's no base business at a quarterly level that's, that's not a, it doesn't actually exist, so I'm not holding out on you in terms of talking about that number. You're right, there is a, there is a lot going on in the year-over-year comps and the ability to break out those pieces. Unfortunately it is generally driven by some detailed analytics. We have some top side assumptions, but I don't think they're particularly helpful to you in terms of insight. A lot of the year-over-year comparison from a commodities perspective is negative in the first half or far more negative in the first half than the second. Unfortunately just from a, the ability to break those pieces apart, so starts comp. So I think that our guide or our comment when we were given the guide saying that the first half is going be harder from a comparisons perspective unfortunately it's probably my best insight to offer for the, for the numbers this year.

Yes, okay. Yes, I guess it was just, since that comment says there's still benefits in there, but maybe that speaks to the margin, margins haven't quite normalized yet in 1Q.

Yes, I've got…

We have a footnote that is really just trying to say it's all in, that was all.

Yes, I got you. Okay. And, and so my second question is, is kind of somewhat related, but just a two-parter on the full year scenarios. And so as a point of clarification, when you say commodity price my sense has been that a blend of lumber in OSP [ph], but can you correct me if I'm wrong there and, and hit the starting point. Okay. So then just for a frame of reference if we're looking at a blended price year to date, you know, it, it seems like that's kind of in the mid three hundreds, maybe oscillating between mid-300 s and high 300 s. Is that a fair characterization of where you're at year-to-date on that blend?

Yes, I mean, if I just talk to Randall Langs, I think that's right between 350 and 400 is the range a little bit below our base business assumption in terms of how the year has started, but it's early.

Yes, lot of changes on, on that on a week-to-week or day-to-day basis. Okay. And, and then, so when we think about the range of scenarios. Obviously you've spoken to the gross margin dynamics a bit and SG&A is going to flex up or down a decent amount depending on if you're like, down 10 versus down a 30, right? But when you think about putting this range together in terms of how you get down to the ultimate EBITDA number, which part is the bigger swing factor in in your models? Is the gross margin line pretty steady normalizing down and the swing factor in EBITDA margin is mostly SG&A flexing or is there a different mix as you get kind of progressively lower on the scale of these scenarios?

That's a really good question. You know, we're in the mid-20s, or sorry, low 20s for SG&A as a percent of sales and it's about 70% variable. You're talking about 6% that's in that fixed bucket. You probably think about the impact of margins, obviously that falls like price all the way through the bottom line, so that's very impactful. I guess off the top of my head they seem pretty comparable. I actually don't have a hard answer for you on that, but I think you're right. Those are two of the major components. What happens when sales decline and how much the leverage can we offset with, you know, rescaling the business. And then how does pricing fall through you know, the more aggressive any potential downturn might end up being. We do expect it to be harder on both margins and commodity prices.

Got it, okay. Thanks Peter.

Sure, thanks Mike. Good. We will take our last question from Alex Rygiel - B. Riley. Your line is now open.

Thank you. You referenced a slowdown in the average daily sales sort of in December and January. Can you quantify that?

Well, I mean there's two pieces to it. One of them is the normal seasonality. We do see generally speaking about 20% less sales in the depth of winter than we do in the peak of summer. It's a lot more than that obviously in the seasonal markets, but we're also seeing the down trend of sort of orders generating starts, generating sales from us on new houses. So that decline has been pretty consistent as one might expect, we would expect to lap the peak probably Q2.

And then excluding commodity products are you seeing suppliers reduce their prices yet?

More rumors than actions, but there are a couple of categories where they're, it looks like it's probably going to happen and will stick. For the most part though, it's been less increases or no increases.

Yes, they're still struggling as well with labor and what they're having to pay for costs of labor. But at the end of the day, the normal dynamics around supply and demand are going to run out and people are going to go after share, they're going to do it with whatever availability they have. It just hasn’t been widespread at this point.

Thank you very much.

All right, thank you.

This does conclude today's conference call. Thank you for your participation. You may disconnect at any time.