Good day, welcome to the Builders FirstSource Second Quarter 2023 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by management and the question and answer session. In order to ask a question, please press the star key followed by the 1 on your phone at any time during the call. I'd 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, Angela. Good morning, welcome to our second-quarter earnings call. With me on the call are Dave Rush, our CEO, and Peter Jackson, our CFO. Today, we will review our results for the second quarter of 2023. 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, they should not be considered in isolation for 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 of 1995 and projections of future results. Please review the forward-looking statement 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. Entering 2023, we prepared for a challenging and dynamic year. During the first half, we had better than anticipated performance, driven by the strength of our value-added product portfolio, continued outperformance in multifamily, and a more stable housing environment than originally projected. Multifamily is an area we identified as providing strong growth potential and end-market diversification over the long term. We are truly seeing the differentiated platform we have put together over the past few years generate results. We continue to exceed our near-term targets through contributions from operational initiatives instilled over the last few years and by executing our strategic priorities, which is a testament to the unwavering commitment and dedication of our amazing team members. We are focused on delivering exceptional customer service and always strive to be the easiest company in the industry to do business with. We are driving mix improvement through value-added share growth while continuing to expand through tuck-in acquisitions. Our acquisitions in recent years have allowed us to enhance our value-added offerings and also extend our reach to a more diverse customer base in attractive markets. Moreover, these acquisitions have proven to be immediately accretive to our earnings. We continue to consistently generate robust free cash flow and prudently deploy capital, making two tuck-in acquisitions and repurchasing over $700 million of shares in the second quarter alone. Despite the headwinds posed by elevated mortgage rates and affordability challenges, our resilient results in the first half of 2023 give us confidence that we have the right strategies in place with a customer-centric approach and an incredible team that is executing at the highest level to successfully navigate this dynamic economic environment. Many single-family builders are showing stabilizing demand, partially due to widespread shortages of existing homes for sale, driving healthy new construction. Public builders have been reporting a stream of stronger-than-expected results and taking proactive steps, such as interest rate buydowns, to help get prospective buyers off the sidelines. With home prices normalizing in many places, our focus on value-added solutions, digital innovations, and customer service is helping builders improve their construction efficiencies. We are helping our customers lower cycle time, which is highlighted by our continued improvement in, on in-full deliveries from 93% last year to 96% during the second quarter. On-time and in-full deliveries ensure our customers have the right material at the right time. Looking at our second quarter highlights on slide four, our gross margin percentage increased 40 basis points to 35.2% due to stronger mix and value-added products overall, largely driven by our multifamily segment and the related positive impact from commodity cost timing. We maintained a healthy double-digit adjusted EBITDA margin, showcasing our ability to execute effectively from an operations perspective in a challenging environment. This execution is a reflection of our talented field leadership team, which averages 30+ years of industry experience. Turning to slide five, we drove strong productivity across the business by delivering $50 million in savings during the quarter. Our BFS One Team operating system continues to generate robust efficiencies focused on manufacturing and delivery improvements. Our recent acquisitions in multifamily contributed an increase of 4% on the top line and 9% to EBITDA compared to the prior year quarter. Multifamily was an exceptionally strong tailwind this quarter, and we expect this strength to continue for the remainder of 2023. While we expect multifamily to normalize around the first or second quarter of next year, we remain optimistic that single-family starts will be on stronger footing in the same period compared to the first half of 2023. As it relates to our cost structure, controlling SG&A and other expenses remains a vital focus for us. This includes the ongoing optimization of our footprint and balancing the need for variable cost reductions against future capacity needs. We are focused on our discretionary spending. Our team has done a great job on managing costs in the short term while executing our strategy over the long term. Turning to the M&A on slide six, we continue to target attractive opportunities with a disciplined approach. Thus far in 2023, we have completed four deals and are still committed to our goal of investing an average of $500 million in M&A per year for the next several years. During the second quarter, we added millwork capabilities through the acquisitions of JB Millworks and Builders Millwork Supply. Earlier this week, we acquired Church's Lumber, which expands our presence and scale in the Detroit market. We're excited to welcome our talented new team members to the BFS family. Our M&A and organic investments have substantially increased our value-added product mix and diversified our end markets since Q4 2021, as shown on slide 6. We have seen the fruit of this growth in recent quarters, and we have driven our gross margins higher even in a down housing starts environment. Moving to slide 7, I would like to provide an update on capital allocation. In the second quarter, we deployed over $850 million of capital towards organic growth investments, tuck-in M&A, and share repurchases. We have cumulatively deployed approximately $5.3 billion since the end of 2021 and remain on track to achieve our 2025 goal of $7 billion-$10 billion, communicated at our Investor Day in 2021. Now let's turn to slide eight for an update on our digital strategy. We firmly believe our long-term commitment to new digital innovations and technologies will deliver greater efficiency across home building and enhance our product and service offerings. We continue to play a pioneering role in the digital transformation of the home building industry and have made a significant investment in growing our digital platform. We have made it a priority to ensure digital adoption is integrated across our operations as we seek to create a platform that will lead to building better, more affordable homes. myBLDR.com serves as the entry point to our collaborative project management platform. It is designed to create efficiency for both BFS and our customers by offering improved transparency and engagement in the home building process. It combines Paradigm's next generation estimating technology with our 3D Home Configuration model. Together, these tools allow our customers more control over their design, cost estimating, and building process, ultimately saving both our customers and their clients time and money. We are still in early innings and have more to come as we continue to roll out these digital solutions to our end users, but we remain confident in our ability to gain an incremental $1 billion in product sales by 2026. We believe our sustained commitment to investing in digital innovations and technologies will extend BFS's lead as the partner of choice in the market, and we look forward to providing more detail on our long-term strategy at our Investor Day in December. Before I turn the call over to Peter, I want to say how grateful I am to our team members for continuing to execute in a challenging environment and providing excellent service to our customers on a daily basis. At BFS, we keep our high-performing, people-first culture at the heart of all we do. That's why we like to recognize team members in our organization that embody the true spirit of our "Be More, Do More, Build More Together" philosophy. Perla Jover is an inventory control supervisor in Houston, Texas, who has made a huge impression on her managers and colleagues. In May, she was honored as one of our First Team MVPs for exemplifying our core values. Perla's attitude, positive attitude, her willingness to jump in and help, and her pursuit of excellence really makes a difference on the team. Her supervisors appreciate how she embraces learning new skills and mentoring others, especially young women new to our industry. Employees like Perla make me proud to lead this great organization. Without the full effort of our team, we would not have had the outperformance that we achieved during the first half of this year. I'll now turn the call over to Peter to discuss our second quarter financial results in greater detail. Thank you, Dave. Good morning, everyone. Our performance during the quarter further highlighted the resilience of our business in the face of macro pressures. I'm particularly proud of our gross margin results, driven by our increased mix of value-added products and services. We are well-positioned in the marketplace with differentiated solutions and a healthy balance sheet. We continue to generate robust free cash flow and prudently deploy capital. I'm confident that the combination of our industry-leading scale, ongoing investments in value-added and digital products, and strong financial position will lead to a double-digit adjusted EBITDA margin this year and sustained growth in the years to come. I will cover three topics with you this morning. First, I'll recap our second quarter results. Second, I'll provide an update on capital deployment. Finally, I'll discuss our full year 2023 guidance. Let's begin by reviewing our second quarter performance on slide 10. We delivered $4.5 billion in net sales. Core organic sales decreased by 22%, which was better than expected, despite a 31% decline in single- family due to slower demand over the prior year. Multifamily continues to be a bright spot, growing by nearly 30%. As Dave mentioned, the strength in multifamily was driven by our recent acquisitions as well as favorable margins, largely attributable to the longer lead time for this end market. R&R and other grew by nearly 5%, mainly due to increased sales focus and capacity versus the prior year. The cumulative effect of our acquisitions over the past year contributed approximately four percentage points of growth to net sales. Importantly, value-added products represented 53% of our net sales this quarter versus 45% in the fourth quarter of 2021, reflecting our improving position as a supplier of choice for these higher-margin products. During the second quarter, gross profit was $1.6 billion, a decrease of 33.9% compared to the prior year period. Gross margin increased 40 basis points to 35.2%, driven primarily by a stronger mix in value-added products overall and with particular strength in multifamily value add. SG&A decreased $28 million - $1.02 billion, mainly due to lower variable compensation, partially offset by additional expenses from operations acquired in the last year. Acquisitions increased SG&A by $52 million in the quarter. As a percentage of net sales, total SG&A increased by 740 basis points to 22.5%, primarily attributable to decreased leverage on net sales. We remain focused on operating efficiently, containing costs, and effectively integrating operations and acquisitions. Adjusted EBITDA was approximately $769 million, a decline of 49%, primarily driven by lower net sales, including the decline in core organic products attributable to a slower housing market and commodity deflation. Adjusted EBITDA margin remained a robust 17%, up 70 basis points sequentially as we continue to execute and drive improved productivity across the business. Adjusted net income was $498 million, down from an adjusted net income of $1.07 billion in the prior year quarter. The 54% decrease in adjusted net income was primarily driven by a decrease in sales volumes and commodity deflation. Adjusted earnings per diluted share were $3.89, compared to $6.26 in the prior year period. The decrease in adjusted EPS was partially offset by our repurchase of nearly 7 million shares, which added roughly $0.20 per share during the quarter. Our second quarter results exceeded the guidance we provided in May, supported by our core business mix and gross margin strength amid outperformance in value-added products. We continue to gain confidence in the strength and durability of our margin performance, and we believe our long-term normalized gross margin percentage is now at 29%+, versus our previous expectation of 28%+. Now let's turn to our cash flow, balance sheet, and liquidity on slide 12. Our second quarter operating cash flow was approximately $391 million, down $556 million compared to the prior year period, mainly attributable to commodity deflation and a reduction in single-family starts. Capital expenditures were $121 million. All in, we delivered healthy free cash flow of approximately $270 million. For the trailing twelve months ended June 30th, our free cash flow yield was 17.7%, while operating cash flow return on invested capital was 41.4%. Our net debt to adjusted EBITDA ratio was approximately 1.1x, while base business leverage was 1.6x. Excluding our ABL, we have no long-term debt maturities until 2030. At quarter end, our total liquidity was approximately $900 million, consisting of $800 million in net borrowing availability under the revolving credit facility and $100 million of cash on hand. Moving to capital deployment. During the second quarter, we repurchased approximately 7 million shares for $723 million, at an average stock price of $103.68 per share. In total, we have repurchased approximately 41% of our outstanding shares since August of 2021. We have approximately $600 million remaining on our most recent $1 billion share repurchase authorization from April 2023. We remain disciplined stewards of capital and will continue to look for organic and inorganic growth opportunities while maintaining our fortress balance sheet. Let's turn to our outlook on slide 14. Our July sales trends are encouraging and fuel our confidence in the resilience of our industry. Several of our national customers have begun to provide full year guidance, providing us with better visibility and greater confidence in the strength of the market. As a result, we are establishing our full year base business and total company guidance as we enter the back half of 2023. Our base business approach showcases the underlying strength and profitability of our company by normalizing for commodity volatility. As a reminder, our base business definition assumes normalized margins and static commodity prices at $400 per thousand board feet. This is helpful to clearly assess the core aspects of the business, where we have focused our attention to drive sustainable outperformance in our industry. Our base business guide on net sales is $16.6 billion. Our base business EBITDA guide is $2.2 billion, at a margin of roughly 13.3%. At this time, we are also providing total company guidance for full year 2023, including total net sales, gross margins, adjusted EBITDA and adjusted EBITDA margin. For full year 2023, we expect total company net sales to be $16.8 billion-$17.8 billion. We expect adjusted EBITDA to be $2.6 billion-$2.9 billion. Adjusted EBITDA margin is forecasted to be 15%-17%, and we are guiding gross margins to a range of 33%-35%. Our recent above-normal margins reflect a greater mix in value-added products, along with disciplined pricing required to offset our increases in operating costs from inflation. As we move through the second half of the year, we expect both our gross margins and multifamily business to continue to normalize. We expect full year 2023 free cash flow of $1.6 billion-$2 billion. Our free cash flow forecast assumes average commodity prices in the range of $400-$450. Our 2023 outlook is based on several assumptions. Please refer to our earnings release in slide 15 of the investor presentation for a full list of these assumptions. As I wrap up, I want to reiterate that we are exceptionally well positioned to drive our strategic goals. Our guidance illustrates our belief that we will deliver a double-digit adjusted EBITDA margin this year and sustain that momentum in the years to come. As we continue to reap the benefits of our transformed business, we are positioned to achieve an upwardly revised, long-term normalized gross margin of 29% or higher. I'm confident that our best-in-class operating platform will continue to generate substantial free cash flow, providing further financial flexibility on top of our already healthy balance sheet. Importantly, we will continue to diligently deploy capital and maximize long-term shareholder value. With that, let me turn the call back over to Dave for some final thoughts. Thanks, Peter. Let me close by saying that we feel better about the current building environment today than we did at the beginning of the year. We're executing our strategy and continuing to invest to drive future growth. Our results in the first half reflect our hard work over the past few years to build a differentiated platform that has BFS set up to win in any environment. I am proud of our operational excellence, which is driving increased safety, productivity, and profitability despite market headwinds. We are in great position today, and as end markets further stabilize, we are positioned for an even stronger future. We'll continue to be at the forefront of technology with our digital strategy, which I am confident will be a game changer for the industry. We are exceptionally well positioned to drive shareholder value this year and in years to come. I'm excited to share more details at our upcoming Investor Day on December 5th in Atlanta, and look forward to seeing you there. Thank you again for joining us today. Operator, let's please open the call now for questions. At this time, if you would like to ask a question, please press star one on your touchtone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. We will pause for a moment to allow questions to queue. Our first question today comes from Matthew Bouley with Barclays. Please go ahead. Good morning, everyone. Thanks for taking the questions, and congrats on the results. I'll start with a question on the long-term gross margin guide, which you've now raised twice consecutively. My question is: what's changed in the past 90 days that's kinda given you that incremental confidence? Then, of course, to take another step forward, you know, given your gross margin of 33%-35% this year, what are the signs you'd be looking for to kinda give you step and or confidence in yet another step higher from that 29%? I'll pause there. That's the first question. Well, first of all, thanks, Matt. We appreciate it. We're excited about the business and, and certainly pleased with the way gross margins have been continuing to evolve. You know, we've, we've talked about it for, well, well, a couple of years now, actually. The strength of the core business, particularly post-merger and what we've been able to do to grow value add as a mix of our business, has been very impactful. What we've continued to look for, particularly, particularly this year, is the, the normalization, right? With the supply chain getting back to normal, the reset and the level of starts. We were really, you know, concerned about what that would mean in terms of the overall market's ability to sustain, sustain margins. I don't, I don't think we were alone in that. What we've looked for this year is the performance, being at a stable level. While we're not quite there yet, we've certainly seen stability be established in a lot of parts of the market, a lot of regions, a lot of product categories, where we've seen things sort of get to normal and level out. You know, when we, when we talk about gross margins, it, it can be a little bit misleading. Again, this quarter, we saw a substantial tailwind due to multifamily, what I would describe as sort of transitory tailwinds. At least a couple hundred basis points this quarter was really just due to the way the commodity timing, that, you know, the costs of commodities played out versus some of our contracts. We're pleased with it. Obviously, we'll take it, but we don't want to signal to anybody that that's permanent. We still have certain areas of the market where things continue to normalize, and we're not quite sure where things will end up, but we know the pressure is down. We've certainly seen that. You know, we're up 40 bps overall on gross margins, but certainly, that indicates, if you take out multifamily, some pretty decent step down in the core. That's what we thought was gonna happen, and that's pretty much how it's played out, and we'll continue to look for that. Even with all of that said, it's better than we expected. We certainly have gained a lot of confidence in the strength of our business, the strength of value add, which continues to be really, really desirable for, for our builder customers, and, and we're continuing to invest in it and feel good about what that means for normal margins going forward. We'll continue to monitor it. I mean, we left the plus at the end because we think obviously we're performing better than that now, and we're just gonna wait and see where things normalize over time. Hey, Matt. Thanks again. This is Dave. I would just add, you know, since the merger with BMC, we've invested over $100 million in, in upgrading and automating our manufacturing capabilities, and we're starting to see the fruits of that. You know, we're getting a better feel of how that's gonna contribute to margins over the, the longer period as well. Got it. Th-thanks, guys, for that comprehensive answer. Very helpful. I, I guess, some of what you mentioned, Peter, on the multifamily side is, is gonna address this next question. Kind of zooming into the base business, you know, it, it looks like you're saying there's, I don't know, maybe some rounding, but roughly $600 million of earnings above the base this year. You know, how, how much of that is that multifamily commodity cost timing, you know, other commodity, you know, maybe OSB? Could you break down if there's anything else in there, besides commodity that's kind of above the base business? Thank you. Yeah, no, good question, Matt. you know, just the, the basic reminder, the base business is really just trying to take out any commodity fluctuation in two ways, right? Anything that's not $400 lumber, we normalize for, and we also normalize for margins attributable to those same commodities. We don't normalize for margins anywhere else, but it does have the impact within that 600 that you mentioned, and yes, there's some rounding. Within that 600 that you mentioned, that's attributable to margins. And this particular year, it's mostly margins. The, the vast majority of what has flowed through is the normalization of those outperforming margins over the course of the year. There is certainly a component of that that is from the multifamily, right? Because a piece of the commodities flows into our manufactured products, including roof and floor trusses, as well as wall panels, which obviously have a significant component of commodity in them, so we take an adjustment for that. That, that is the primary driver, is the margins attributable to the commodity change this year. Got it. All right. Well, thank you, Peter. Thanks, Dave. Good luck, guys. Thanks, Matt. The next question comes from Trey Grooms with Stephens. Please go ahead. The congrats on the outstanding work in the quarter. Thanks, Trey. Appreciate it. Sure. you know, on multifamily, I, I think you mentioned, you know, that you expect that to remain strong through this year. you know, but, you know, so are you seeing anything in your backlog or, or hearing anything from your customers about their backlogs in multifamily that, that would suggest that, you know, this slowdown is kind of coming around that time, or, or anything on the timing there? is that more just kind of a, you know, kind of high-level expectation at this point? Hey, Trey. Thanks. Yeah, we are seeing evidence from our customers, that at the tail end of this year, there's gonna be a lot of supply that comes online, all at around the same time, and that, in a typical year, would have to be digested before a lot of these other new projects come online. That's one factor. The other factor is the cost of capital, and being able to make sure that the rents that they're gonna generate versus the cost of capital, that equation has to work out exactly right as, as well. Until some of that backlog or some of that glut of openings that comes online at the end of the year gets, digested, those kind of dynamics, have a little bit of time to work themselves out. What we're hearing is there might be a little bit of a delay in the first and second quarter, and then things start picking back up again. The problem, as you know, is these projects are so long in, in time from plan to execution, that we feel like there's gonna be a lag in the first half of next year. Overall, we believe multifamily will be a great segment for us to be in, and it'll be a temporary scenario, not necessarily something long-term that we gotta worry about. Right. Got it. Okay. You know, Peter, you mentioned you're expecting gross margins to, to moderate through the year. Sorry if I missed this, but, you know, you're calling out, you know, 33%-35% for the year. You've been running at the, the 35% range, so are you, are you seeing any change or, you know, any more normalization in the, in the margin thus far in the third quarter? Or is it still kind of holding in at that high end of the range for now? Yeah. No, good question. We continue to see again, it goes to the countervailing trends. We continue to see some erosion in the core market gross margins. Less than we expected, but it, it has continued, and I think we'll continue to see that through the back half of this year. We know pretty with pretty reasonable accuracy how multifamily will play out, just because of the timing of the contracts that were related to the current purchase price of commodities and kind of where we're at. We've got a pretty decent look. Certainly, there's, there's been good performance in, in gross margins throughout the year, and, and I think July is significantly different, but the trends remain the same with the overlay of multifamily's normalization being pretty significant over the next year. Great. Thank you. If I could sneak one more in at a little bit more higher level. you know, $100 billion or so invested in automation over the last few years, which, you know, you said is bearing fruit, which is pretty clear. Where are you in that process? Or, or maybe how should we think about, you know, the amount of plants that you have that you would classify as automated and, you know, where would you like that to be kind of over time? Yeah, I would tell you, we feel really good about the level of automation we have, where every plant has some level of automation. Obviously, there's more opportunity, and we have a pretty long runway there to continue to improve. We're, and we're excited about that, prioritizing those projects. As you know, as we do acquisitions, typically, there's a, there's a level of automation that we go back in and upgrade those acquisitions with, and we'll have that plan, ongoing. We're a good customer for our automation vendor. As much as we're always excited about talking about digital, we're also on our front foot when it comes to technology in this manufacturing space as well. Yeah, we're excited about where this can continue to go. Great. Thanks for taking the questions, and good luck with the rest of the quarter. Thank you. Thanks. The next question comes from Ketan Mamtora with BMO Capital Markets. Please go ahead. Thank you, and, and congrats on a strong quarter. You know, couple of things. Just curious, one, now, how do you What is the M&A pipeline looking at this point? Given sort of, you know, housing has, has held in better than what, you know, people expected at the start of the year, has there been any sort of change, in, in your approach to M&A or, or seller expectations? Thanks for the question. Yeah, the M&A pipeline actually has improved. I think just the, you know, the fact that things were changing at the beginning of the year and people weren't sure exactly how the year was gonna play out, kept people on the sideline for the first half. We're seeing more opportunities now in the second half and a couple that, you know, we feel like are, are really good to look at. You know, we, we're excited about how we'll continue to, to, you know, invest in M&A in the future. Got it. Is it possible at all, you know, Peter, you talked about sort of July has started off quite well. Is there any way to sort of, you know, quantify what the July trend has been like, even relative to sort of Q2, or, or, or, you know, maybe year-over-year? Yeah. You know, it's, it's been a, I don't know how to describe it other than refreshing year. You know, where for all of the concerns that we came into the year with, due to interest rates, due to affordability, it has been a surprisingly and refreshingly normal year. We've seen good progression throughout the year, the normal seasonality that we would expect to see with busier months in the summer. We've seen good utilization of our, of our capacity. Nothing's been overwhelmed. We've gotten quite busy in certain areas, but nothing has been catastrophic, like during the big run around COVID. Same on behalf of our vendors. They've performed very well. A few spots here and there, where it's gotten a little tight, but by and large, the market has adjusted to the new volumes and, you know, really sold through quite well. As we alluded to with our customer base, there's confidence in a lot of areas with regard to how consistently they've been able to sell through what they've been building. It seems pretty obvious that the demand is still out there, and with the, with the reluctance to move out of an existing home, new construction has really been a bright spot, and we're excited to be leaning into that quite well. That's helpful perspective. I'll jump back in the queue. Good luck in the back half. Thank you. The next question comes from Adam Baumgarten, with Zelman & Associates. Please go ahead. Hey, good morning, guys. Great results. Just a question on the environment. With the ramping starts we've seen year-to-date, are you, are you hearing about any supply chain strains? Maybe not for you guys specifically, but for the industry or, or maybe even an extension in construction cycle times for the builders? Yeah, I think the supply chain has normalized to a great extent. I think versus when you saw the COVID-related issues, we're, we're not seeing anything of that magnitude out there. There's a couple product categories where lead times are, are slightly extended. Premium windows is an example, but still things are normalizing. Now, you know, with the uptick in demand, there, there is some adjustments by a lot of our vendor partners on staffing and, and getting staff back up to the new normal of demand, but those look to be very temporary and very slight. I would say, all in all, from a supply chain perspective, we're in pretty good shape. Okay, got it. Good to hear. Just switching gears to the R&R business, I think you had mentioned increased capacity being a tailwind, maybe just some more color around that. Were there any product categories that really stood out as particularly strong in, in the R&R channel in, in the quarter? Yeah. R&R, the way we service R&R, there are a few markets where we're very focused on it, with specific cases, but for the most part, we serve both the Pro new construction and the Pro R&R markets through the same channel. You end up with certain timelines where you've got pretty heavy demand from one or the other, and obviously, over the past two years, the bulk of it has come from the new construction side. With that pulled back a bit, it just opened up more capacity, that Pro R&R business. As I said in the past, the Pro R&R contractor would generally prefer to use us if we're available because of all the incremental services and expertise we provide versus a traditional big box or smaller player. You know, the categories, the product categories, you know, I would say we performed well across the across the outline of products or the family of products within Pro R&R. You know, I would say just stepping back for the whole business, we've continued to see really nice performance in the windows, doors, and millwork category. That's been an outperformer for us all year, and we're pretty excited about that. Got it. That's helpful. Thanks a lot. Best of Best of luck. Thank you. The next question comes from Mike Dahl, with RBC Capital Markets. Please go ahead. Morning. nice results. Thanks for taking my questions. Morning, Mike. First question. Morning. First question is, kind of back on the multifamily side. You know, obviously, there's been a few big moving pieces. You've made some investments, both organically and inorganically in that space, and then multifamily as a mix of percentage, mix of the overall market has increased. You know, you look at the permit activity that's now dropping off, and you alluded to some normalization in, in multifamily, I think sales, not just margins, looking out to next year. Maybe can you help kind of quantify what you think has been, you know, internal versus market shifts? And I don't know if it's best framed as, you know, what you think your new normal mix of multifamily would be when you sort through kind of the ebbs and flows, maybe a little more quantification there or color? Yeah. Yeah, no, your point is right on. We've had a lot of change in that multifamily category. We've invested a lot, and we've been very successful, even in the core business, in terms of how we've competed in the marketplace. You know, I think that the... The overall impact of our kind of leaning into this has been a, a, a big change in the market and a big change for us. It's increased that multifamily mix, but it's a mix that's attributable largely to truss, right? We're not in skyscrapers, we're not in, you know, shopping malls or, or certain large-scale apartment complexes, right? We're in four-story and below wood frame structures. That's sort of our, our, our operating arena and our sweet spot. That has been doing remarkably well, and I think we have been able to improve our positioning in the market and be seen as a serious, reliable competitor. You know, we've got the ability to withstand sort of ebbs and flows. We can be counted on to deliver, even if there are some capacity constraints versus through our network of facilities around the country. We do think we've gained share. We know we've bought share, and we think that that has all sort of come together to really give us some nice momentum, and that momentum is true even though we're really in the middle of integration. This is still early days for us in terms of getting all those teams to work together. We're really excited about what the future holds. Now, you are right about the reset. We, we think that as we get into, probably back half of next year when we're seeing things normalize, maybe, maybe beyond that, it's probably closer to 10%. Directionally, we'll dial that in for you, but it's probably 10% of sales in an environment like we're in today in a normal world. Yeah, I would just add, you know, we were purposeful when we added that acquisition and, and entrance into that multifamily segment, knowing that it would be a diversification play from single-family and vice versa. What we're expecting is, as multifamily normalizes, we're expecting single-family to remain on stable footing. In addition, in the truss world, what makes it so such a good investment for us is we can run single-family jobs out of a multifamily truss plant. We do that today. When we have multifamily plants that are maxed out, we run multifamily jobs out of our single-family plants and vice versa, when, when each side has more work than they have capacity. We've got a plan in place to manage through all ebbs and flows of both sides of those businesses, and we did so intentionally. Got it. Yeah, that's very helpful. Thank you. Then my second question, you know, you, you've spent a lot of time kind of dissecting the, the margins, maybe at a high level, just, you know, between commodities, between the multifamily lags. When you're now talking about the 29% + on normal, can you just kind of help us simplify this at a high level in terms of, of margin differentials, by, you know, not necessarily every product category, but high level? You know, just where do you think your new value add margin will be? Is it kind of like a low- 30s value- add and a 20 on lumber? Just what, what's kind of driving, at a high level, the, the blended 29%? Yeah. If you think about the, the historical kind of guidances that we've had, we, we were running, we were running gross margins, kind of 25%-27%. We talked about how the commodities were, were generally kind of, high- teens to low -20s for gross margins. We talked about how, you know, value add was 800-1,000 basis points higher than that. I, I would tell you kind of where we are today with some of the noise, in it, we're substantially higher than that on the value add. We've also seen sort of increases across the board. You know, the, the increases across the board, we've talked about it a lot. Just to reiterate, we've seen some inflation, right? If the cost of delivery is higher, the margins need to be higher in order to pay for the increased cost. We've seen some incremental, margin increase across the board to cover that. Then the, the two things that have impacted it the most is you've seen increased productivity and what we've talked about in multifamily, some displacement causing the margins to be higher, full stop. You've seen overall a pretty substantial mix shift away from the commodity side of the business, which used to be half of what we did back in the old days, to, you know, closer to 25, to a third, 25% to a third of our business now. That has allowed that normalized gross margin to really drift further and further up, the more our mix swings. Sort of all of those components are feeding in: the productivity, the inflation, the overall mix shift to allow us to see that higher amount. Again, going from 35, 34 for the full year is what we're, what we're signaling, right, for the midpoint down to the 29%+, that is the multifamily, that is the continued normalization. We're gonna continue to watch that play out, and, and we'll dial in that guidance as we get more confident. Great. All right, thanks, Peter. Stay safe. Thank you. The next question comes from Steven Ramsey with Thompson Research Group. Please go ahead. Hi, good morning. Wanted to continue the base EBITDA conversation along with the productivity. If I'm connecting the dots, you're saying this year's sales and base EBITDA go down $100 million each, and then the productivity savings midpoint is $130 million. Backing out that midpoint of savings, incremental margins look like a low- 20% range, if my math is correct. I mean, with the productivity flowing in, is the dollar level of productivity in future years going to be as strong as this year? Well, it's certainly what we're shooting for. You know, internally, we have a lot of projects that we think we can leverage to continue to improve our operations, continue to offset the impacts of inflation. You know, whether it be the way we buy, what we buy, how we deliver it, how we process it internally, back office, those are all things that we're pretty confident that we can continue to improve, and those are the goals we're setting for ourselves. You know, will every year be exactly this year or better? Well, we'll see, but certainly, we're where we're headed. We, we believe there's a huge opportunity there, given our platform of 570+ locations and our ability to take best practices from, you know, we're, we're a product of multiple acquisitions, and we've learned how to take the best practice from 1 of those acquisitions and leverage it across the platform. We've built a continuous improvement culture. We have people dedicated to it in each of our divisions for that very purpose, because we believe that the part that the benefit of our scale is to be able to, you know, do it the best way across, you know, 570 locations versus just in one area or one market. We're confident that we can achieve at the current levels of continuous improvement that we've set for ourselves each year, for, for, you know, a, a long period in the future. Okay, helpful. Then to make sure on the productivity savings, how much of that is coming from the distribution side of the business, how much of that is more on the manufacturing side, and maybe how much of that is automation driven versus other general improvements? Yeah, it's, it's probably, you know, half and half in terms of what we're getting on the, on the sort of the inbound versus the operating sides. We're doing a lot in both. It's a bunch of individual projects that sort of accumulate to contribute, directionally, it's probably right. Helpful. Thank you. Thank you, Steve. The next question comes from Joe Ahlersmeyer with Deutsche Bank. Please go ahead. Thanks, good morning, everybody. Good morning. I just wanted to, just based on the, you know, the visibility you may have into your inventory and your multifamily backlogs for this quarter, just maybe any help on the phasing of the gross margin and even just the overall sales and EBITDA third quarter versus fourth quarter? I think normally we would perform a bit lower in the fourth quarter, just as a seasonal representation. Qs two and three are always better than Qs one and four. This year, and I think is, based on what I said before, we think it's likely to be more normal, so we would expect Q4 to be a bit weaker. Certainly, as always, that's the, the weaker part of my forecasting confidence is, you know, one quarter out, we feel pretty good. Two quarters out, gets a little more murky. Maybe the right way to think about it. Understood. Then on the inventory balance, that's come down as commodity costs have come down and rolled through the P&L. Is there additional productivity you're looking to gain on the inventory balances? Given what we've seen in the market, could we actually see it go the other way, where you're preparing, I guess, for a stronger spring in 2024, making sure that you have inventory on hand to service the market? Yeah, probably more the latter. I'll start by saying your observation is absolutely correct. We've had great performance. The operating teams have done a fantastic job of sort of continuing to clean up post, the craziness of the supply chain over the last couple of years. You know, clearing out, you know, excess that we feel we had on hand, tightening up, whether it be windows or millwork or whatever. You know, the teams have done a great job of really, managing on, in, in a very streamlined, just-in-time way, the inventory that we've got rolling in and out of our facilities. You're right, when we grow, we absolutely have more working capital, inventory included. You know, coming into the future where we do see, at least based on what we're seeing right now, growth on the horizon, we would expect working capital to stop being a tailwind and start being a usage into that growth. All right. Thanks, Peter. Take care, everyone. Thanks, Joe. The next question comes from Collin Verron with Jefferies. Please go ahead. Hi, good morning, and thank you for taking my questions. You highlighted the acceleration in orders from the public builders and the Census Bureau data really bouncing off the bottom here. I was just hoping you guys could talk about any differences you're seeing between your customers, with the large production builders and the smaller builders, and then comment on this, at this point, do you see the bottom in single- family being behind BLDR at this point, particularly, from a single- family sales perspective? Well, we, we were certainly really encouraged by both, the results that our public builders were reporting and, you know, even more about the projections for the rest of the year. We feel really confident that, again, I'm not calling this robust, but it's certainly better than everyone expected, over the second half of the year and stable to up, over the back half of the year. That gave us the confidence that we have for, for being able to project what we feel like we can do in that environment. Great, that's helpful. Then you guys provided some good color on the digital adoption, providing some, takeoff figures. Can you just quantify those, maybe in terms of revenues, and talk about where you guys are in your journey in reaching that $1 billion, sales opportunity? Yeah, we're excited about digital. It's continuing to move along. The technology is coming together, the pilots are going well, and we've given sort of a few hints about some metrics and what that looks like internally. It's all very, very early days, to be honest. We've got some revenue, but it's pretty modest. It's not the focus. The, the focus is not really growing that right now, it's tuning. It's completing the technology, tuning what we have built, making sure the technology is sort of stable and capable of running at the scale that we intend to put through it. That's this year's goal. We're certainly expecting pretty significant increases in 2024 and beyond. We'll have some more information on the timing of that and the layout of that as we get into our Investor Day in December. Great. Thanks for the color, and, good luck. Great. Thanks, Colin. The next question comes from Reuben Garner with The Benchmark Company. Please go ahead. Thanks. Good morning, everybody, and congrats again on the strong quarter. Hey, Reuben. I guess I had, I had some connection issues earlier, so if I repeat anything, sorry in advance. First question is on inventory. Can you talk about where your inventory stands from a volume perspective relative to kind of historically normal times? We've heard from both the kind of two-step distributors and some manufacturers that the dealer channel is kind of thin and hesitant to add. I'm just curious how you guys are viewing, you know, inventory. Is that something where you're stocking and it's an advantage you have product over some of your smaller peers, or, or are you the folks that are running thinner than usual now? I, I would say we're running normal, right? I think we're not seeing the same kind of supply challenges we did just after COVID. It's more of a normal operating environment. Our guys have done an unbelievable job coming through that and getting back to normal for us. We're, we're where we would be normally with just seasonal fluctuations now. We'll see a buildup of inventory during the third quarter, and it'll start to wane in the fourth quarter as we head into the seasonal months. We're, we're kind of business as usual at this point. Okay, great. Then I, I'm not sure if this one was asked, but an updated way to think about sensitivity to lumber. I know you've got the base business number out there, but, you know, if we're, we're continuing to run $100 higher, you know, how much of an impact does that have on, on revenue and profit? Yeah, that's a good question, Reuben. You may have noticed we brought back the base business guidance and estimate, but we did not bring back that sensitivity chart in the back. Candidly, I, I think that caused as much confusion as clarity, so we're going to try a different approach. What I can tell you, and this is really based on what we're seeing today, if lumber goes up or down by $100, $1,000, we think it's worth between $175 million and $225 million in annual EBITDA. You know, if I use 200 as the midpoint, it's, it's in that range, but there are two things that I need you to just keep in mind, right? There are a number of assumptions that go into that type of a, a rule of thumb metric. The two most important are, one, that's assuming normalized margins. It's the normalized margin impact of that up and down, specific to commodities. Then please keep in mind, it takes three, four months, sometimes a little bit longer, of lag before that change in commodity will show up in our results, right? You think about the inventory on the ground, the order time, the delivery, and then the pricing change impact as that flows through. Just keep in mind, those two assumptions are very critical to that rule of thumb. Again, $100 lumber worth between $175 million and $225 million of annual EBITDA. A quick clarification, Peter. Is that lumber and OSB altogether commodity? Correct. We assume a 70/30 lumber OSB mix. Perfect. That's very, very helpful. Thanks, guys, and congrats again. Good luck on down the rest of the year. Thanks, Reuben. The next question comes from Kurt Yinger with D.A. Davidson. Please go ahead. Great, thanks, and good morning, everyone. Just given the strength in value add and, and what you've talked about in terms of, I guess, the widening kind of margin differential versus traditional distributed products, are, are you seeing competitors, I guess, invest behind the category to a greater extent or, or lean in more there? I guess over the long term, how do you think about your ability to kind of differentiate with some of those solutions? Yeah, I think, you know, we're the clear leader in this space, first of all, and, you know, we have made the most, we've put the most emphasis on finding ways to increase our productivity, specifically in our manufacturing truss and door shops, to extend that lead. We believe the investment required to do those type of improvements is not insignificant. You know, we believe our commitment to us has made a difference, and we see that in the marketplace. We especially saw it coming out of COVID, where it was tough for people to find a truss manufacturer that wasn't that didn't have a significant backlog, and people had to pick and choose who they wanted to do business with. We saw where our customers wanted to do business with us in that environment. We feel good about our position. I think anywhere where you see opportunity, people are going to make investment. I just think we've got such a nice lead on our competition today. It'll be tough for us for them to catch us. Got it. Okay, that's helpful. Then just second, I, I was hoping you could just kind of frame, you know, how you would characterize your volume performance over the first half, relative to what we've seen on the single-family start side, and I guess in, in manufactured products as well. I mean, it seems like the core organic sales there trailed single-family starts a bit. Curious if that's, you know, footprint, maybe some pricing in there, and just how you'd kind of reconcile those different data points. Yeah. No, that's a fair question. It's something we look at pretty regularly, as you know. What, what I think it boils down to, most simply, is starts are the best indicator and the best sort of measuring stick for our performance over time. I don't think it's accurate at a quarter, and what we've seen is, you know, sort of as the market turned down, we didn't go down as much as the market. As the market has turned up, we haven't gone up as much as the market, and there's, there's a, a, a little bit of product mix to do with that, right? We've, we've said in the past, we're probably two-thirds that's leveraged towards the beginning of the start, one-third towards the end of the start. That's one piece. Another of it is that, you know, we're probably not at the start, or we know we're not at the start. We're anywhere from, you know, 30, sometimes 60 days later when our first product starts to hit the job site. Little bit of shifting around that in terms of timing of when our orders hit. Based on the trends we're seeing right now, we feel pretty good. You know, we, we may have given up a little bit of share in our estimation, you know, $200 million worth. We talked a lot during the timeline of the big supply chain disruptions about how advantaged we thought we were by having more product and being more, you know, effective at meeting customer needs where others struggled. We're probably giving back a little bit of that as we anticipated. That's kind of in the numbers you're seeing now. Feeling pretty good about where we are versus the overall market. Got it. Okay, appreciate the color, Peter, and good luck here in Q3, guys. Thanks. The next question comes from Jay McCanless with Wedbush. Please go ahead. Hey, good morning, guys. Thanks for taking my questions. The first question I had, you know, we've seen lumber prices, especially framing lumber, move up sequentially for the last couple of months. I guess, is that starting to flow into your pricing, not only on commodity goods, but are you also starting to be able to take some price on the value-add goods? Like always. Sure. I mean, it'll take some time to fully feather in, but it has started to move modestly. We certainly follow it on a consistent basis. The one point I'll make on that, though, is that one of the big movers has been OSB. I'm personally a little bit skeptical on the durability of that, only because we hear so much about incremental capacity coming online over the next year. We'll see. We'll see where it pans out, but that certainly is something to keep an eye on. Okay. That's good to hear. Just the second question, M&A phrased a different way. Are you starting to see some of this tightening in terms of bank lending standards and underwriting on some of your potential acquisition targets? Is that freeing up or making some people maybe more willing to sell than they might have been at the beginning of the year? That, that makes reasonable sense that we would start to see that. I would say on what we've been looking at lately, that hasn't been a factor. Okay. Okay, great. Thanks, guys. Appreciate it. Thanks, Jay. The next question comes from David Manthey with Baird. Please go ahead. Yeah. Hi, this is Quinn Fredrickson on for Dave. I'll just ask one question here. Peter, your earlier comment made it sound like the competitive environment has, has remained pretty benign in, in value add and better than you expected. Do you think that's due to the same dynamic among competitors with the commodity price lags in, in their contracts, or is there a structural change and, and improvement there? Then are you assuming an uptick in competitiveness in the expectations for the slight back half gross margin moderation? I guess, I need to be a little careful how I answer that. On the first hand, we have seen incremental competition and margin erosion in core business. Period. Full stop. Now, it's not as much as we expected, it's not as much as we forecasted, hence the outperformance in that area. I would say that there's been a lot of strength in the volumes within the value add, which gives us increasing confidence, you know, that we're, we're meeting a need, that our customers see value in it, that they're leveraging it to improve their cycle times, their job site efficiencies, their job site safety, and that we're at a price point that's competitive, that allows them to do, you know, what they need to do better. We're, we're certainly pleased with all of that and have been seeing the competition. Now, the components of cost, the investments that, that, you know, we've made, but also the inflation we've seen, certainly, I think that has had a structural impact on the overall market, us included, but others as well, where you've got to make a little more gross margin if you want to cover those incremental wage costs or, or truck costs or whatever it is. Then lastly, we've done a lot of work. We're much more efficient, and that self-help has allowed us to earn more on the same equipment year-over-year because of our efficiency improvements, you know, whether it be, you know, new automation that layers on the same equipment in facilities. Sometimes it's new equipment, but sometimes it's just better process. All of those things are, are why that strength we've seen is, is sustainable. I think that helps, to Dave's point, us be more competitive, right? We can still make good money where others are struggling. If we can do it by being more reliable, you know, our On-Time In-Full being better, then our quality is better, then we're always gonna be the partner of choice for these builders who want to make sure their houses are high quality and on time. I would just add a, a real-life example. In a major market, we, we had a customer try someone else for 50 houses on truss for a lower price. They came back to us less than a month later at our price for those same 50 houses, which we, by the way, delivered inside of 10 days. The stickiness we generated for... by being able to do what we do best for our customers, they recognize that value proposition, and, you know, that's allowed us to make money for them and us, and that's where we want to be. Helpful. Thank you. Thank you. This does conclude today's question and answer session. I will now turn the program back over to our presenters for any additional closing remarks. Thank you very much. Have a great day. Thanks, everyone. This does conclude today's program. Thank you for your participation. You may disconnect at any time.