Welcome to the Universal Forest Products Inc. Second Quarter 2018 Conference Call. Hosting the call today are CEO Matt Missad and CFO Mike Cole. Matt and Mike will offer prepared remarks, and then the call will be opened up for questions. This conference call is available simultaneously and in its entirety to all interested investors and news media through our webcast at www.ufpi.com. A replay will also be available at the website through August 19, 2018. Before I turn the call over to Matt Missad, let me remind you that yesterday's press release and today's presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in its filings with the Securities and Exchange Commission. At this time, I would like to turn the call over to Matt Missad.

Thank you, Nicole, and good morning, everyone. Welcome to our second quarter 2018 investor call. As you know, our challenge this year is to be greater than before, and I'm very happy to announce that the UFP team was, in fact, greater than before both in the second quarter and year-to-date. We've had a quarterly growth sales record of more than $1.3 billion and topped it off with a quarterly net earnings record of $44 million or $0.71 per share. Once again, I am privileged and proud to be part of the great family of companies and people at UFP. They overcame the unpredictable lumber market and the increased cost of operations to post these record results. The lumber market played a key role in the quarter with lumber prices accounting for 13% of the sales increase. And unit sales growth was good, accounting for 8% of the sales increase. For much of April and May, the lumber market was climbing, and both bottom and top line results were very good. Shortly after the Memorial Day weekend, and at least one holiday before what we consider to be normal, the market started a rather steep decline, and June results were impacted. From mid-June until this week, the Southern Yellow Pine lumber market has dropped over $50 per 1,000-board feet. The Southern Yellow Pine market is still significantly higher than last year's level, roughly $140 per 1,000 higher. Moving forward, we expect the market to continue to find the equilibrium at lower level and function on a more typical basis for the balance of the year. Our inventory levels are at 125% of sales versus 127% a year ago, and we expect that they will be declining through the next quarter. As expected, we felt the gross margin squeeze on the variable priced products due to higher level of the lumber market, which is $140 above 2017 levels. Gross margins for the quarter were 12.8% versus 13.8% a year ago. Other factors contributing to the reduced margins were the higher transportation costs during the quarter. Rail carriers had reliability and delivery issues, and a shortage of trucks and flatbeds together with higher prices generally for fuel caused price spikes for over-the-road hauls. While we expect the price spikes to abate, one of our objectives is to recoup these higher transportation costs in the coming months. When talking about inventories and cost, we would like to address the current situation on tariffs. For our wood products, which comprise a vast majority of our purchases, the Canadian duties have the biggest tariff, and those have been in place for nearly a year. While Canada is appealing the duties to lower them, we certainly don't see them increasing. Other materials such as steel, aluminum, copper and similar items, some of which we purchase from countries who will be subject to tariffs, do not make up a large portion of our total purchases. While tariffs will impact prices on some of these components, we believe we will be able to pass most of these costs along or convert to domestic or nontariff products, albeit at higher price levels. We are also mindful that tariffs, in general, may have the effect of increasing prices too high and slowing the overall economy. We haven't yet seen that indication. On the SG&A expense side, we incurred a sequential increase of more than $6 million for the quarter, with a significant portion of that being onetime expenses, which Mike will detail later on this call. We have increased spending for developing, marketing and selling our new products and services, creating more design, engineering and testing capabilities and experimenting with enhanced production methodologies, including more automation and the use of recycled products. While these SG&A spends give us a higher normalized cost, they bring a better product mix, more value-add to our customers and more value to our brands. The good news is that, in spite of these costs, we were able to post earnings growth of 31% and EBITDA growth of 14%, both of which were well above our unit sales growth of 8%. New product sales were $153 million for the quarter, up from $123 million a year ago. While we were behind our year-to-date target in Q1, we have jumped ahead of our target after Q2. Our year-to-date new product sales are now $262.2 million versus $211.1 million in 2017. For the market overview, the repair and remodel market is still robust and continues to fuel our retail sales growth. Our retail unit sales growth of 6% was in line with our expectation and was entirely attributable to organic growth. The construction market was very strong in the markets we served. We also had good growth in our commercial construction and concrete forming products and installed our first cross-laminated timber products in the Northeast. Unit growth in construction was 10%. Our industrial customers appear to be gaining strength too, which, again, creates more opportunities for us. Unit growth in industrial was 8%, of which 3% was acquisition-related. Our recently completed acquisition of North American Container Corp. was exciting. While it did not have a meaningful impact on our second quarter earnings, we look forward to utilizing their excellent design and engineering teams and expanding the mixed materials they use to our other locations where it makes sense. We also look to automate and improve their manufacturing processes to gain efficiencies and garner more share in the markets they serve. In the other new products categories, UFP-Edge products are up 45% over last year. Our Deckorators Vault decking sales are up almost 75%, and we continue to grow our hardwood business and manufacture-grade import and furniture parts. By combining these different materials together with our laminating capabilities, we see strong opportunities in the interior decor markets for commercial, office and residential applications. On the international front, our operations continue to grow. We're expanding sales efforts of U.S.-produced products overseas as well as sourcing new and existing products in other countries for sale to the U.S. and elsewhere. And, of course, we're still committed to our growth plans both organically and via acquisition. On the organic growth side, we continue to invest more in automation in our industrial operations and are expanding our packaging capabilities. We are also in the final planning stages for our new South Florida location, which we plan to open at the end of 2019. We are adding capabilities in the Southeast and Northeast through expansion at existing sites and have acquired a newer facility in Northern Nevada to serve our existing customers in that market more economically as well as to grow business in that region. We are very active in the acquisition arena and have maintained our focus on acquisitions where we can earn a reasonable return on investment that exceeds our cost of capital. Even with all the excitement about growth and market opportunities, we have some operations that aren't meeting our targets. While we have been able to break records in spite of these operations, we remain committed to getting all of our family of companies to their target performance levels. Among our companies that are currently falling short of expectations is idX. They are behind budget on sales and profits for the quarter as some jobs have been pushed to Q3, but still believe they will reach their target performance by year-end. They have a strong order file and are positioned for a strong back half of the year. In the interim, we have captured synergies and their back office functionality have been able to utilize their ahead-of-trend design and their worldwide manufacturing and sourcing capabilities in our other operations and in our product development initiatives. By getting idX and others to meet or exceed their targets, our bottom line results can be significantly improved. Other general -- excuse me, other general areas of improvement we are working on include facility rationalization and reduction in nongrowth SG&A costs as a percentage of unit sales. Nongrowth SG&A spend excludes our strategic spending increase on product development, research and testing, e-commerce and trading and automation. We have implemented new cost models to make our corporate services more efficient while giving our internal customers more flexibility to eliminate unnecessary or non-value-added work. While we are very focused on controllable spends, we are still subject to market conditions, such as rapidly rising health costs and other benefit costs. We will be looking to provide better ways to give our employees choice in their benefits while providing incentives to better control the overall costs. As you can see, great results are an expectation, and so is the desire to be better tomorrow than we are today. Now, I'd like to turn this call over to the birthday boy, Mike Cole, to provide other details on our financial performance.

Thanks, Matt. I'll start by reviewing the impact of recent lumber price trends. Overall lumber prices increased about 19% from the end of Q1 until June before dropping the balance of the quarter. This is in contrast with last year when lumber prices peaked in April and then fell steadily through the end of the quarter. As a result of these trends, and because our mix of sales is more heavily weighted toward products with variable selling prices in Q2, we experienced a significant improvement in our gross profit per unit this quarter. With regard to the overall level of lumber prices, average prices were up about 31% year-over-year, which increased our costs, selling prices and investments in working capital. Moving on to the income statement. Our overall sales for the quarter increased 21% resulting from an 8% increase in unit sales to go along with a 13% increase in selling prices. Organic growth contributed 7% to our unit sales increase, while acquisitions contributed 1%. Breaking down our sales by market. Sales for the retail market increased 19% resulting from an increase in selling prices of 13% and an organic unit increase of 6%. We were pleased to see the rebound in organic growth this quarter from 3% in Q1 when sales were impacted by inclement weather. We were also pleased to see our new product sales growth continue to climb since this is a key strategy to achieve continued margin improvement. Our new product sales to the retail market increased over $18 million or 23.5% in Q2. Our sales to the industrial market increased 19% driven by an 8% increase in unit sales and an increase in selling prices of 11%. Acquisitions contributed 3% to unit growth and include sales from our recent acquisition of North American Container. Organic unit growth was about 5% and was driven by adding over 400 new customers, 122 locations of existing customers and $7 million of new product sales growth as our efforts to improve market shares continue to gain traction. Our overall sales for the construction market increased 26% due to a 9% organic increase in unit sales and 1% increase in unit sales due to acquisitions and a 16% increase in selling prices. Within the construction category, our unit sales increased by 9% in manufactured housing, 10% to residential construction and 13% to commercial construction customers. Our acquisition of Great Northern Lumber earlier this year contributed to our commercial construction growth. Moving down the income statement. Our second quarter gross profit increased by $17 million or nearly 12%, surpassing our 8% growth in unit sales as our profit per unit improved. The overall gross profit increase was comprised of an increase in our retail gross profits of almost $7 million, a $4 million improvement in industrial, a $4 million increase in construction, while acquisitions contributed about $2 million to gross profit. As I mentioned earlier, the impact of the rising lumber market throughout most of Q2 on products with variable selling prices contributed to our improved profit per unit and helped offset the impact of higher transportation and labor costs. Continuing to move down the income statement, SG&A expenses included $14.5 million of accrued bonus expense, up nearly $2.4 million from last year, resulting from an increase in operating profit. The remaining core SG&A expenses totaled $90 million compared to $84 million last quarter and was about $4 million over our internal plan. The increase over plan was primarily due to a lease termination accrual of $1.5 million associated with an idX operation we've relocated to a much lower-cost facility, a higher-than-expected increase in employee benefit costs, including health care, and higher-than-expected sales incentive costs driven by an increase in our gross profits. The relocation of the idX plant is expected to result in $2.5 million in annual cost savings. Operating profit increased by $6.7 million or 12.5% during the second quarter to $60.6 million. Likewise, our EBITDA for the quarter increased by $9.2 million or nearly 14%, surpassing our unit growth of 8%. Finally, our effective tax rate this quarter was almost 23% compared to 34% last year and our planned rate for the year of approximately 25%. Our rate is running below plan due to certain tax deductions and a mix of where income is generated in various tax jurisdictions. In light of these factors, we now anticipate a rate for the year of about 23.5%. Moving on to our cash flow statement. Our cash flow used for operating activities was $36 million for the year and was comprised of net earnings and noncash expenses totaling $103 million, offset by $139 million increase in net working capital since year-end, driven by the seasonality of some of the markets we serve and peak lumber prices. As I've mentioned on previous calls, we measure our cash cycle to assess our working capital management, and we're pleased to report our cash cycle for the second quarter decreased to 49 days compared to 50 days last year due to a decline in our days supply of inventory. Investing activities consisted of capital expenditures totaling $54 million, net proceeds from the sale of our Medley facility in Q1 totaling over $35 million and $38 million spent this year to acquire Spinner Wood, Great Northern Lumber, Expert Packaging, Fontana Wood Products and North American Container. Financing activities primarily consisted of $57 million in net borrowings on our revolving credit facility and $75 million in senior notes issued under our existing shelf facility. We also repurchased about $1.8 million worth of our stock this year at an average price of $33 and paid over $11 million of dividends at a semiannual rate of $0.18 a share. With respect to our balance sheet, our net debt was about $283 million at the end of Q2 compared to $205 million last year, including about $116 million on our revolving credit facility. We anticipate that the amount outstanding on our revolver will be paid off by October as we move beyond our peak investment period for working capital. Overall, our balance sheet remains strong, and we believe we could add $250 million to $300 million in debt to continue to grow our business, and still feel comfortable with our leverage and capital structure. As we've discussed on previous calls, our highest priorities for use of cash continue to be capital expenditures and acquisitions. That's all I have in the financials, Matt.

Thank you, Mike. Now, I'd like to open it up for any questions you may have.

[Operator Instructions]. Our first question comes from the line of Ketan Mamtora of BMO Capital Markets.

Mike, happy birthday. First question on lumber. You talked about lumber pricing coming under pressure on the last 4 to 6 weeks. So when we think about the third quarter, are falling lumber prices a net positive for UFPI for -- in third quarter kind of given your mix between variable and fixed price contracts in Q3?

Yes. I think that's right. I think our natural shift in our product mix tends to be heavier to fixed priced products as we go later in the year. So I think you've hit that exactly right, Ketan.

All right, that's helpful. And then can you provide us with more color on idX? Is this just some contracts slipping into Q3? Or are you seeing kind of people just postponing their decisions? Just give us a little more color on what you are seeing and kind of why Q3 is falling behind.

Yes. Q2 fell a little behind, Ketan. And I think what we're hearing from the customers is that it is a very short-term push. We just did certain things they couldn't get done. And so it's a highly project-oriented business. So we do expect that those projects will be completed in Q3 and Q4. So it's not like it was a 1.5 year ago where they said, "Hey, we're just putting things on hold while we figure out what we're doing." These are committed projects and just is a timing issue. That's what we're being told.

All right. So you still think at this point, based on what you know, that you'll be able to hit the $290 million target for 2018?

Yes. That's our expectation today.

Got it. And then, Mike, can you -- on the SG&A part, so can you just walk me through when we think about kind of core going forward, is that in the $84 million, $85 million range or is that higher?

Yes. Our plans for Q2 is about $86 million. And so, when I look to Q3, I look to try to get back to plan. The areas that I've called out were a bit unusual, right? The lease termination, the health care cost, these -- we're self-insurers, we had a handful of large claims come through. So I look for SG&A cost to come back to plans on that $86 million range or so.

Got it. And then how much was a drag was freight and logistics in the second quarter?

Let me see. Transportation costs. When I go back and I kind of restate sales dollars based on last year's lumber prices, they were off about 40 basis points as a percentage of sales in the dollar amount.

And in terms of EBITDA?

Pardon? In terms of...

In terms of EBITDA? Is there an any way to quantify?

That will be $4 million.

I'm sorry?

That will be about $4 million.

$4 million? Okay. That's very helpful.

Our next question comes from the line of Steve Chercover of D. A. Davidson.

So I guess the first question is, what do you think the spread between gross profit and unit growth will trend given the volatility in lumber? And I guess given that lumber is expected to retrench a little bit?

If I had to restate that question so I understand it a little better, Steve, you're talking about the impact on gross margin?

Well, as I understand, the gross margin should expand as lumber falls.

Right. Yes.

Sounds like you're asking if we think that our gross profit dollar growth will exceed our unit growth in Q3. Is that...

Yes.

And if so, by how much? I can't give you a forecast on that, Steve, but I do think that falling lumber prices, as Matt said earlier, it should be a positive based on our mix in Q3. And I think idX's performance and expectations are on Q3, and sales being pushed there is another positive to the gross margin. So let's see how that all plays out, but right now, I'd say we're optimistic about that.

Okay. And just to clarify, on idX, it sounds like the slippage was on the customer front, not on your ability to execute. Is that correct?

Correct.

Okay. That's encouraging. And then, what did drive the strength in commercial construction?

I think, again, without getting too specific about it, our concrete forming business is improving. There's a number of projects that are ongoing, and we're seeing more growth in that entire area for us. So I would say that's the biggest part of it. And as Mike pointed out, we did pick up a little bit of growth via acquisition. So that helped us as well.

Yes. And Great Northern Lumber added about 4% to unit sales growth to commercial.

Good. Okay. And then, if I understood you properly, the revolver should be paid down by October. You've got dry powder to consummate $250 million to $300 million in acquisitions, presumably. If you -- and I know that you're disciplined. If you can't find the right deals, will you kind of, I guess, give a bit back some more to shareholders via either a repurchase or another dividend lump?

Yes. I think those are all very good options, Steve. As I look at it, I think there's 2 ways we can grow. One is via acquisition, the other is organically. We have a number of projects on the organic growth side that we can implement more quickly if acquisitions don't look like a viable alternative. But again, we like our capital allocation model today. And ultimately, all of what we do is designed to provide the best return to our shareholders over the long term. So if we can find the right investments via either acquisition or organic growth, that's going to be our first priority.

Okay. And then I realized we're only three weeks into Q3, but can you tell us about the July trend? And is there any reason to think that the fourth falling midweek is going to have any impact? Because it kind of destroyed a whole week, it's like a five-day weekend for most people.

Well, I think overall, Steve, and you know this, and probably everyone on the call understands this, the holiday week's generally cause an impact. And it's nothing that's unusual for us, but the holiday weeks are what they are and that's generally what happens. So we see sales still very strong. So we're encouraged by where we are.

Our next question comes from the line of Dan Jacome of Sidoti & Company.

Happy birthday as well, Mike. Just a couple of questions here. First, I think on the recent acquisition, you mentioned there was -- the mixed material, where there might be an opportunity there to leverage in the next couple of quarters. Can you talk a little bit about that?

Absolutely, Dan. And I wouldn't limit it to the next couple of quarters. I think it's -- probably it's a little longer-term process throughout. But one of the things that North American Container Corp. brings to us is, they've got an excellent design and engineering group. They're really good at providing solutions to their customer base and they're good at using mixed materials, of which steel and corrugated are part of that. So the integrated packaging model for them is very effective, and we see a lot of opportunities where they can help us in our locations. We also, in looking through their facilities, believe that we can provide them with a lot of help on the manufacturing side and maybe help get some more efficiencies on the manufacturing side of things. So a lot of positives on each side of that equation. And we'll be aggressively going after those over the next several quarters.

Okay. Terrific. That helps. And then my second question was just on idX. You said the order file at the moment seems to be in good shape. Can you talk a little bit more about maybe what products are in there, what end markets? Because I know they served kind of a large basket of markets or customer types. If you can talk about that, that will be great. That's all I have.

Yes. I think I can just kind of give you a broader stroke view of it. I really can't give you individual customers or individual markets. But as you know, they've shifted a lot of their focus away from retail apparel to a bunch of other industries. And we're seeing that come through in the order files is that there's much less dependence on retail apparel and more growth in a lot of other end customer markets. So that is encouraging for the long-term trend. And so, that's probably about all the detail I can give you there, Dan.

Our next question comes from the line of Ketan Mamtora of BMO Capital Markets.

Just following up on Steve's question earlier. How does your M&A pipeline look right now, kind of relative to what it has been in the past? Do you still see kind of enough opportunities in the pipeline?

Yes. I think there are plenty of opportunities in the pipeline. And I think we see a lot of activity, a lot of requests of us to take a look at different companies as well. So I think overall, the pipeline is very strong. It's really going to be a question of valuation, right, and us trying to be disciplined in our approach.

Got it. And so if valuation is kind of the biggest stumbling block, as you turn to organic opportunities, how do you think about CapEx for the back half of the year and even 2019? I'm not asking you to give sort of a specific target on CapEx, but at a high level, kind of how do you think that could kind of evolve?

Yes. That's a good question, Ketan. And I think what you'll see is that we need to goose-up our CapEx expenditure numbers a little bit really to aggressively attack this organic growth piece. So a very good observation, and that's definitely what we're doing.

Okay. That's helpful. And then last question. June housing stocks numbers that came out yesterday were quite weak given the building permits numbers are not too impressive. And I realize 1 month doesn't make a trend so I don't want to overreact. But I mean, what are you seeing in the housing markets right now? Have you seen any change from -- in the last couple of months? What are you seeing out in the market?

I think it's still generally been very good in the markets that we serve. And as you know, we're not countrywide in our site-built operations. We have tried to stay in the areas where there's a little more stability in the markets. So as our results show, it's still very strong out there. We still believe we have good order files. So we're not seeing it yet, it doesn't mean something can't change in the future, but we're not seeing it today.

And I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Matt Missad for any closing remarks.

Once again, we'd like to thank you for joining us on our call this morning. We truly appreciate your interest and investment in our company. And now that the 2018 Major League Baseball All-Star Game is history, we will be hard at work to make sure that UFP is an all-star investment for our shareholders. Thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.