Good day, and welcome to the Doman Building Materials Group Ltd. Third Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ali Mahdavi. Please go ahead. Thank you, operator. Good afternoon, everyone, and thank you for joining us for our third quarter 2022 financial results conference call. Joining me this afternoon are the company's Chairman and Chief Executive Officer, Amar Doman, and Chief Financial Officer, James Code. If you have not seen the news release, which was issued after the close of market yesterday, it is available on our website as well as on SEDAR, along with our MD&A and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight on November nineteenth. Following the presentation of the third quarter results, we will conduct a Q&A session for analysts only. Instructions will be provided at that time for you to join the queue for questions. Before we begin, we are required to provide the following statements regarding forward-looking information, which is made on behalf of Doman Building Materials Group Ltd. and all of its representatives on this call. Remarks and answers to your questions today may contain forward-looking information about future events or the company's future performance. This information is subject to risks and uncertainties that may cause actual events or results to differ materially. Any information regarding forward-looking statements is made as of the date of this call, and the company does not undertake to update any forward-looking statements. Please read the forward-looking statements and risk factors in the MD&A as these outline the material factors which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or interim communications with investors. I'll now turn the call over to Amar. Thanks, Ali, and good day, everybody, and thanks for joining us on today's call. On the back of the second quarter, which was impacted by macroeconomic headwinds and pricing volatility stemming primarily from rising interest rates, inflationary pressures and concerns around the risks of a recession, the third quarter started off as expected. Our expectations were that we would see some pricing normalization in a tighter range than the second quarter as a result of the market adjusting to the evolving supply-demand dynamics in light of consumer behavior in reaction to inflationary cost pressures and overall consumer sentiment, which I would qualify as cautious. Given the continued pressure and volatility on pricing in the third quarter, we continued to closely manage our inventories to protect and improve gross margin to the extent possible, with positive results when compared to the second quarter. During the third quarter, we saw signs of pricing stabilization at levels which remain healthy for our business, which combined with steady consumer demand, provides us with cautious optimism going into the fourth quarter with what seems to be less price volatility, leading to normalized margin levels and continued reasonable market demand in our key markets on both sides of the border. Despite the continued pricing trends and concerns caused by the global macroeconomic environment, I am pleased with and very proud of our financial performance during what I continue to consider a challenging quarter, where we were extremely responsive to industry-wide price volatility while ensuring that our first-class level of service remained on point. As a result of our collective efforts, our revenues amounted to CAD 744 million. Gross margin improved compared to our previous quarter, however, continued to be challenged per my earlier commentary on inventories and pricing dynamics at 12.3% or just under CAD 92 million. Adjusted EBITDA amounted to CAD 40 million and our net earnings came in at just over CAD 11.6 million. Lastly, of course, we paid a quarterly dividend totaling CAD 0.14 per share, our 50th consecutive dividend. While we are on the subject of financial performance, I am also very pleased with our steadfast and relentless focus on balance sheet management and optimization. To this point, during the last 12 months, while working through some of the aforementioned challenging market dynamics, we were able to reduce our debt by CAD 103 million, thanks to the strength of our free cash flows. Looking ahead, we remain excited and cautiously optimistic as we believe that the pricing environment and market demand has reached an equilibrium at healthy levels while we continue to manage our costs and always look for growth opportunities. However, we are cognizant of the external pressures which may come into play not only for our industry but any others that touch similar end customers. A little bit of color on how the fourth quarter has started off so far. We are feeling optimistic based on a tighter pricing environment, inventories, and importantly, the demand profile we are seeing, as mentioned on both sides of the border. End markets and users who may have been on the sidelines remain cautious but active. As always, we remain confident in our ability to work through volatile markets diligently while serving our customers' needs with the highest level of service. We remain excited about our growth profile and the overall prospects of the business. With that, I'd like to ask Jay Code, our CFO, to take over and provide a review of the company's third quarter 2022 financial results in greater detail. Then we look forward to opening the call for your questions. Thanks very much. Jay? Thank you, Amar. Good day, everyone. Sales for the quarter ended September 30, 2022 were CAD 744.1 million compared to CAD 625.3 million in 2021, representing an increase of CAD 118.8 million or 19%. The increase in revenues was largely due to the impact of construction materials pricing, which remained relatively consistent through the third quarter of 2022, compared with sharp pricing declines experienced during the prior year's third quarter. The company's sales by product group in the quarter were made up of 72% construction materials compared to 66% last year, with the remaining balance resulting from specialty and allied products of 24% and other product sales of 4%. Gross margin dollars increased to CAD 91.5 million dollars in the quarter compared to CAD 80.7 million in 2021, an increase of CAD 10.8 million dollars. Gross margin percentage was 12.3% in the quarter, a slight decrease from the 12.9% achieved last year. Expenses for the quarter were CAD 68.4 million dollars compared to CAD 63.5 million in 2021, an increase of CAD 4.9 million dollars or 7.7%. As a percentage of sales, expenses were 9.2% in the current quarter compared to 10.2% last year. Distribution, selling and administration expense increased by CAD 5.3 million or 11.5% to CAD 51.5 million in 2022 from CAD 46.2 million last year, mainly due to recent inflationary pressures contributing to higher operating expenses during the quarter, as well as increased sales resulting in higher personnel costs. As a percentage of sales, these expenses were 6.9% in the quarter compared to 7.4% in 2021. Depreciation and amortization expenses decreased by CAD 464,000 or 2.7% from CAD 17.3 million to CAD 16.9 million this quarter. Finance costs for the third quarter were CAD 9.8 million compared to CAD 8.7 million in 2021, an increase of CAD 1.2 million or 13.5%, largely due to higher interest rates on the company's variable rate loan facilities, which was partially offset by lower average loans and borrowings balances. EBITDA for the third quarter was CAD 40 million compared to CAD 33.2 million in 2021, an increase of CAD 6.8 million or 20.6%. EBITDA for the comparative third quarter of 2021 was impacted by non-recurring, directly attributable acquisition-related costs of CAD 1.3 million. Adjusted EBITDA before these non-recurring costs for the comparative quarter was CAD 34.5 million. This quarter's increase in adjusted EBITDA was CAD 5.5 million or 16.1%, was mainly due to increased sales and gross margin dollars, which were favorably impacted by the previously discussed changes in construction materials pricing. As a result of these factors, net earnings for the third quarter were CAD 11.6 million compared to CAD 7.7 million in the same quarter of 2021, an increase in earnings of about CAD 4 million. Turning now to the statement of cash flows. The significant comparative factors affecting operating activities for the first nine months of 2022 were largely related to lower earnings as a result of the previously discussed construction materials pricing declines and strong working capital management. Operating activities before non-cash working capital changes generated CAD 126.2 million in cash compared to CAD 144.2 million during the same period in 2021. During the nine-month period ended September 30, 2022, changes in non-cash working capital generated CAD 27.8 million in cash compared to consuming CAD 128.4 million in the same period in 2021. This significant improvement was largely due to management's recent efforts to reduce inventory volumes in anticipation of potential slowing of market activity, along with the construction materials pricing declines during the current year and its impact on the company's average unit cost of inventory as at September 30, 2022. The overall change in working capital in the current nine-month period was comprised of an increase in trade and other receivables of CAD 34.3 million, a decrease in inventory of CAD 51.2 million, a decrease in prepaid expenses of CAD 2.1 million, and a net increase in trade and other payables of CAD 8.8 million. The revolving loan facility decreased by CAD 99 million this year compared to increasing by CAD 144.3 million in 2021. The significant year-over-year decrease in net advances from the revolving loan facility is partly a result of the previously discussed decrease in cash consumed by working capital changes. Additionally, the prior year comparative period included partial financing for our 2021 business acquisitions. Shares issued, net of share issuance costs, generated CAD 1.3 million of cash compared to CAD 82 million in 2021, with the prior year comparative period including proceeds from our public share offering in May of 2021. The company also returned CAD 36.4 million to shareholders through dividends paid during the nine-month period compared to CAD 32.2 million in 2021. The company updated its dividend policy during the fourth quarter of 2021, resulting in a dividend increase beginning with the dividend paid on January fourteenth, 2022. We also note that the company was not in breach of any of its lending covenants during the nine-month period ended September thirtieth, 2022. Investing activities consumed CAD 3 million of cash compared to CAD 501.8 million in 2021, representing this year's purchases of property, plant and equipment net of proceeds from disposition, whereas the prior year comparative period included consideration paid for our 2021 acquisitions. This concludes our formal commentary, and we'd now be happy to open the call to any questions that you may have. Thank you. Operator? Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. Our first question comes from Hamir Patel with CIBC Capital Markets. Your line is open. Hi, good morning. Mark, could you tell us how much of your sort of annual sales come from Lowe's Canada and, you know, what impact you would expect, if any, from the sale of their Canadian business? Yeah, we won't disclose our customer volumes publicly, but certainly, they're an important piece of our business. We see this as a lateral move and someone that will take Lowe's Canada, probably rebrand it and be more focused as Lowe's divested Mexico, Orchard Supply in California and finally Canada. Lowe's just kind of going back to U.S.-centric and of course they're being a large customer of ours in the United States. Okay. Fair enough. Just a question for Jay. I noticed you have the CAD 60 million unsecured notes maturing in October 2023. How are you thinking about, you know, refinancing that or would you potentially just cover that with the revolver? Yeah. Thanks. Thanks, Hamir. Yes, we would definitely have the excess availability on our revolver to cover that. At this point we're gonna take the approach that we'll monitor that and if we choose to let that go right out to October 2023, we'll do that, and we'll use the revolver to pay that off. Okay, great. Thanks. That's all I had. I'll get back in the queue. Thanks. The next question comes from Zachary Evershed with National Bank Financial. Please go ahead. Good morning, everyone. Congrats on the quarter. Thanks, Zach. How loose is the supply chain generally at this point? Anything hard to source or that you're expecting to be hard to source? No, not really. You know, supply chain, with the exception of rail, has caught up. Trucks are, you know, kind of back in order, if you will. You know, the only items that are hard to find are some of the upper grades for some of our pressure treated lumber programs, but we're not hitting any panic button. There's just, you know, there's still a lot of activity out there. Despite what you kind of read in the papers, construction is very busy all over the place and still trying to finish off some projects I think that were started in the last 18, 24 months. It's just active. You know, you can see by our sales, you know, number on lower commodity pricing, you know, how much volume we did. It's still very busy out there. It's active, but supply chain appears to be back in order. Good color. Thanks. You're feeling optimistic heading into Q4. Thus far would you say it's been conforming to usual seasonal patterns? Yes. In fact, a little bit stronger than normal. Yeah, we're feeling okay here as we've begun November now and, yeah, you know, as long as the volatility and pricing you know remains sort of out of the picture and those big up and downs are hopefully well behind us, things look pretty steady here in the fourth quarter. That's a great segue actually. In your outlook in the MD&A, you seem to have struck a bit more cautious of a tone. What's your view on commodity pricing going forward? Is it still anyone's guess at a dartboard, or do you think we're honing in on a floor here? Yeah, you know, I believe we are honing in on a bit of a floor. I think that's a good term to use. Again, no crystal ball here at the office, but certainly, we think that we're kind of going back into more normal patterns, just because the availability is there. I think we all know that, you know, 7% mortgages in the U.S. aren't a great thing. You know, there'll be some slowdown at some point, but certainly, you know, that's why we've been very cautious with our inventories. We've got our balance sheet in the best shape it's ever been. You know, we're prepared for whatever comes at us, and we're turning our inventories a bit quicker. Our operations teams are doing a heck of a job there. We're in good shape, just no matter what comes at us in the next couple of years. Just one last one. Could we get an update on how you're balancing M&A opportunities with commodity pricing coming off? How do you view your leverage ratio versus debt in dollar terms when you're evaluating opportunities? Yeah, no change there, Zach. We certainly you know, value the acquisitions the same whether the market is strong or weak. You know, evidenced by whether it was Hixson, California Cascade, Honsador, you know, Fontana Wood Treatment. We certainly don't get out of our strike zone, so to us it doesn't really matter what's going on in the macroeconomic world. We're obviously not gonna over-lever. We pay attention to our balance sheet. But certainly, we do see a lot of opportunities there. We need, I think some of the valuation metrics to simmer up a little bit coming off the COVID bump that our industry experienced. But certainly the M&A is on the front burner, but you know, currently nothing that would be on the front lines, if you will, currently. We're just busy working hard and making good cash. That's helpful. Thanks. I'll turn it over. Our next question comes from Paul Quinn with RBC Capital Markets. Please go ahead. Yeah, thanks very much. Morning, Doug. Morning. Maybe just some color on the treated market. It's an area that I don't get a lot of exposure to, except for you guys. Maybe you could just help us understand how that market has done over the last year and your expectations for 2023 in treated. Yeah. We thought this year would be a little bit slower than it was and especially in the U.S., it certainly has been strong, too, up on volumes in the U.S. 2022 over 2021. Canada, a little bit slower in the east just because there was an inventory overhang that all of us treaters are working through. Paul, very, very pleased with the volumes. You know, after kind of a new home surge, the decks and fences, which we play heavy in, you know, certainly start to appear once that, you know, homeowner has built or finished the new home, then they finish the backyard. We see some good runway ahead of us on the treated sector. Okay. Maybe, I mean, I'm not sure how much engineered wood products that you handle, but what are you seeing in that market? It seems to be running flat out. Yeah. Engineered wood's been super strong. Again, that one is tied directly to new housing construction. We, you know, finally have come off allocation, so that is saying that the wheels are slowing down a little bit, but it's been a great category for us. Of course, we were with Louisiana-Pacific. They sold their engineered wood division recently to Pacific Woodtech based in Washington State, just down the street here. We're very pleased with the new owners and our new five-year agreement with them. Looks very positive for us to continue to grow in the engineered wood category. Great. That's all I had. Best of luck, guys. Thank you. Thanks. Our next question comes from Steve Hansen with Raymond James. Your line is open. Yeah. Thanks, guys. Just curious how we should think about the margin profile here, against the backdrop of a, you know, a slightly slower market, but also less volatility with some of the commodity lumber. Should we expect something to be a little bit more consistent going forward, or how do you think about it? Yeah, you know, it's. We've kind of given up guessing on this, so what we've elected to do as a company is run with less inventory, faster turns. I mean, hey, that's what you wanna do anyway, but certainly that's been a bigger focus for us, especially on the price sensitive materials. I think we're kind of, you know, the once bitten, twice shy thing, after those huge ups and downs that we saw during the pandemic. We're looking at, you know, you know, lumber forecasts, you know, maybe $450-$500, kind of, you know, it's kind of what we think it's gonna be. Again, we don't know, Steve. Right in that range, you know, and our gross margins will continue to recover. Still doing decent, but I think we can come up a little bit more as well as we, you know, go into a nice, just hopefully steady down of lumber pricing and OSB and plywood. Okay. That's helpful. Thanks. I apologize if I missed it in your opening remarks. I was struggling to get on, but just curious about your CapEx profile over the next little while. You've got some time now with your U.S. operations having beefed up. Are you through a lot of the capital projects you had planned post-acquisition, and where do you stand there? Yeah, we're actually, you know, underspent this year. We implemented technology at Hixson. We put in the DMSI system. It's now live at all 19 locations. Actually, Jay and I were there yesterday down in Texas, at a couple of our mill sites and checking in on that technology, and everything's running well there, right on budget. So the CapEx spends are, again, a little bit underspent this year. Some of that, we need to replace some trucks, some in Hawaii and some in California. The issue there has been supply chain trying to get trucks, but that should start to appear in the first quarter of next year. On the CapEx side, everything's in good shape. Okay, that's great. That's it from me, guys. Appreciate it. Thanks, Steve. The next question comes from Ian Gillies with Stifel. Morning, guys. Morning. One of the things that looked encouraging in the quarter, the U.S. revenue came in a bit ahead of where we were thinking. I'm just wondering if would you qualify that as being due to a continued R&R market that remains to be healthy or, is it the long tail on new home builds and you guys just continuing to plug away and as these homes get finished up? Yeah, I'd say it's a bit of both. You know, we were surprised at how the volumes held sort of summer and fall even till now. You know, kind of in the Midwest and Texas, those markets were pretty heavy, and now even the West, California hasn't missed a beat. Hawaii's been strong. Yeah, we're pleasantly surprised, but again, we did our job on inventories and cleaning up the balance sheet, just in case things do slow down. Again, right into the fourth quarter here, we just haven't seen that slowdown happen yet. Yeah. Amar, that's a good lead into my next question. The inventory has been much better and/or much tighter in recent quarters. Are you kind of targeting that 50-55 days of inventory moving forward? Pretty much, yeah. You know, we think we can, you know, improve that a little bit more, as time goes on as well, but that's kind of the zone and target that we're very happy with. Yeah. Okay. Then last one for me, following on some previous questions, you've obviously done a pretty good job managing the working capital here for the past few quarters. Are you hearing anything or are there any signs of distress yet in the private market for some of your peers there that may create an opportunity, or is it still too early to say? Still too early to say. You know, it's interesting because, you know, if we read a lot of media, you know, you want to slit your wrists, what's going on, but the activity is strong. We're busy, and that means our competitors are busy and our acquisition targets are busy. Everybody's still, you know, rolling along here pretty well. You know, that makes a bit of a disconnect for us on valuation of what we like to acquire businesses on and run our models internally and how we can glue those companies into our models. So certainly, you know, right now we're letting the circus go by a little bit and then hopefully some, you know, value transactions will come to us in the next 24 months. Yeah, that's fair enough. Sorry, one last follow on there. Would it be fair to say that private equity has largely left the market, right now as competition just given what's transpired with interest rates? You know, hard to answer that with honesty, Ian, but I would say that, you know, evidently, we were a little surprised that private equity took out Lowe's Canada yesterday. Stepping into the space when it looks like things are gonna slow down due to, you know, the cold water that the federal government is putting on with interest rates. Interesting to see that. No, we're not really seeing a lot of private equity competition on the acquisition targets that Jay and I are looking at in our office. Yeah, fair enough. Okay. Thanks very much, guys. I'll turn it back over. Thank you. It appears there are no further questions at this time. I'll turn the call back to Ali Mahdavi for any additional or closing remarks. Thank you, operator. On behalf of the Doman team, I'd like to thank you for joining us for today's call, and we look forward to speaking with you again on the back of our Q4 and year-end results. That concludes today's call. I'll ask the operator to close things up. Have a great weekend. This concludes today's call. Thank you for your participation, and you may now disconnect.