Q2 2021 Builders FirstSource Inc Earnings Call

[music].

Please standby.

Good morning, and thank you for joining of builders first or second quarter 2021 earnings Conference call. Today's conference is being recorded Michael Neese Senior Vice President of Investor Relations for builders for stores will now provide the company's opening remarks. Please go ahead.

Or.

Thank you Sir.

Morning, and welcome to our second quarter 2021 earnings call.

I Hope you and your families continue to remain safe and well.

With the increase of the COVID-19 Delta strength, our Covid Task Force continues to closely monitor the developments, we will continue to follow CDC guidance and protocols.

A few of our team members customers suppliers and communities.

With me on the call today are Dave <unk>, CEO and Peter Jackson, our CFO.

Today, We will review our second quarter results and provide an update on our base business momentum.

The ongoing integration progress and achievements as well as our recent M&A.

We remain bullish on the housing sector and believe we are well positioned to continue to capture double digit single family starts growth.

We have provided GAAP results that include the AMC in the second quarter of 2021, and Standalone BFS and the.

The second quarter of 2020.

We have also provided pro forma results as if we own BMC and the second quarter of 2020.

Our adjusted EPS calculation excludes amortization of intangibles.

The second quarter press release, and the supporting presentation for today's call are available on our website at investors thought.

The LDR dot com.

The results discussed today include GAAP and non-GAAP results adjusted for certain items.

And providing superior customer service amid robust demand and a very tight supply environment.

I want to start by thanking them, because I couldn't be more proud of their efforts.

And in the second quarter, we delivered core organic sales growth of about 35%.

Along with record gross profit adjusted EBITDA and margin.

Our performance accelerated in the second quarter as we continue to expand our value added offerings.

Executed disciplined pricing strategies and.

Rated merger related integration savings.

I'll cover 3 key topics on today's call for.

First I.

I'll provide an update on the residential housing environment, which remains very strong.

Review, our second quarter results and given the unique demand and supply dynamics share some insights into the strength of the underlying growth and are based business.

Second.

I'll provide an update on a recent M&A transactions that further strengthen our market position in advance of our digital strategy and.

And highlight are very strong pipeline of potential tuck in acquisitions.

And finally, I will provide an update on the BMC integration, which is progressing exceptionally well and running ahead of plan.

Let me start with the current state of the residential housing environment.

We continue to see strong demand across the country.

Specifically single family housing demand as robust and our entire supply chain is working hard to keep up with that strength.

Regardless of short term fluctuations, we believe the nation's homebuilding sector is growing today and they're of sustained growth in store for the next several years.

Freddie Mac stated earlier this year that the use of undergrowth by approximately 4 million homes.

The National Association of Realtors believes we are 5 and a half million homes underbuilt.

Whichever number of you believe there is a significant shortage of housing in this country that will take many years of above normal starts to overcome.

According to the any Hv's second quarter of 2021 housing trends reported.

Almost 20% of American adults are considering the purchase of of home within the next year.

The statistics at increased for 5 consecutive quarters and is nearly double the 10% and Q1 of 2020.

Additionally, 64% of these potential buyers are first time buyers, which is the highest share in history.

The millennial generation, some 82 million strong will continue to provide support and growth and new housing construction for many years.

There is also an extremely tight supply of existing homes for sale.

We have averaged 1.1 million units of inventory of 2021, which is 20% below the 5 year average and well below the high of 3.5 million units of inventory in 2007.

This date of further support our strong belief in the need for new home construction.

Single family starts increased 41.7% in the second quarter, which we outpaced by approximately 240 basis points with our single family core organic growth.

In addition, adjusting for the effects of the pandemic in the second quarter of last year single family starts this quarter grew 27% when compared with the second quarter of 2019.

Housing under construction also increased 29% in the second quarter.

There are now 439000 more single family homes under construction than there were at this time last year and 396000 more than at the same time in 2019.

Some industry observers of raising the call of the top of the cycle.

For the data tells US there will likely be continued strong momentum and new home construction.

Which will bode well for us.

And the industry of the whole.

Recently, we've heard from several of our homebuilder customers that they are tapping the price on starts for a few reasons.

Namely labor material and land availability, even though demand remains strong.

These challenges coupled with the growth we've seen in the first half of the year suggest builders are exceeding their growth forecast for this year and are pushing some new home construction into next year supporting our belief the growth will continue for some time.

And are 58% core organic growth in our structural components business underscores or belief that our value added offerings will be increasingly important to builders as they continue to navigate material and labor challenges and look for ways to get more efficient.

Housing starts showing significant growth.

Mortgage rates remaining at historical lows and the continued shift the homeownership are all significant tailwinds.

As a reminder, we are in 84 of the largest and fastest growing msas in the country.

Our team is poised to continue to capture a disproportionate share of the growth as we have done for the past several years and as evidenced by our most recent 260 basis points outperformance over the last 6 months.

I am confident we will outperform the market in any environment and what we're experiencing now is exactly what we envisioned when we put our merger together.

The best in class operations located in the top of markets in the country.

Focused on serving customers with the best portfolio of products and services and solving their construction challenges.

We have a season cycle tested management team.

And we are just getting started.

Now, let's turn of our records second quarter results.

We delivered another strong quarter of top and bottom line performance.

And importantly for organic growth of 40 for 1% and are single family segment, and 58% and manufactured components again outpaced the market as we continued to gain share.

Turning to slide for I'll review are pro forma results for the quarter.

Total sales grew 91% the $5.6 billion.

For organic sales increased 35%.

Gross profit expanded more than 105%.

And adjusted EBITDA increased a remarkable 232% to $836 million with adjusted EBITDA margin expanding by 640 basis points to a record 15%.

Turning to slide 5.

We have received many questions from analysts and investors regarding the impact of commodities on our business results.

In response, we are providing of overview of the underlying top and bottom line growth of our base business on a normalized basis, assuming a static commodity price of $400 per thousand morphine.

For the full year of 2021 versus 2020, we expect our base business net sales to grow the $15.3 billion from $12.5 billion for 22%.

And adjusted EBITDA to growth of $1.6 billion from $1.1 billion for 45%.

Given consistent single family starts we believe our $10, 1% EBIT margin on our base business is sustainable and can grow over time as evidenced by our 240 basis points of growth since 2019.

That's a 31% of improvement in profitability in 2 years.

Peter will go into further detail in his prepared remarks, but I want to point out the everyone that are based business as large it's growing and it has the sustained double digit EBITDA margin profile.

Now, let me spend a bit of time on M&A and our recently announced transactions allow.

The alliance longer which closed on July 1st and paradigm for which we signed a definitive purchase agreement in late June.

Turning to slide 6 alliance longer does the largest supplier of building materials in Arizona, primarily serving the fast growing greater Phoenix, Tucson, and Prescott value of metropolitan areas.

The Phoenix Metro area of alone is expected to add more than 100000 jobs of 2022. So we're excited about our increased presence in the state.

Arizona is the number 3 ranked single family MSA in the U S encompassing the nation's fastest growing county mericopa.

This acquisition of the line with our strategy of investing organically and through M&A to grow our portfolio of high value and faster growth categories.

Alliance has an estimated 45% market share with the top home builders and catapult us to a leading position in the state.

It's geographic footprint and component manufacturing capability as an excellent strategic fit in.

And the limited overlap of our existing coverage enables us to expand our product offerings in the previously untapped regions.

Alliances margin accretive.

And we have an opportunity to embed our millwork capability into their operations.

With deep longstanding customer relationships and a reputation for offering outstanding customer service.

Alliances and established and trusted advisor to leading homebuilders and contractors across single family multifamily and commercial and markets.

Founder and CEO true car and this team of built a fantastic company with strong leadership and value for the lines for our own.

In a similar culture of growth.

We are thrilled to have a lot of the alliance team members as part of the BFS family.

Now turning to the 5.7 I want to spend a few minutes on our strategy in recent emanate in the digital space, which has been a priority and focus for us over the last several years.

Based on the third party research the homebuilding market is lagging almost every other industry and digital transformation.

As the new generation of builders of emerges the generation that grew up with the digital technologies, which is the accelerated given the impact of Covid.

We are seeing a shift in how our customers want to do business and.

And we see this trend having a long tail as the adoption accelerates.

Digital is a significant growth opportunity for for yet BFS as the industry goes through of shifts.

The digital execution.

Given the scale of our platform, we feel we are well positioned to help shape important outcomes for our industry, including.

Including improved efficiencies and productivity through digital technologies.

Our digital strategy includes 3 main areas.

First of focus on our internal processes and productivity by investing in technology to drive operational efficiency and excellence.

Net.

Health streamlines interactions with our vendors and customers and.

And finally, a focus on external innovation and investment for the offer value added digital products and services that support our customer of success and growth.

On June 29th we announced a major step forward on our digital strategy with our intent to acquire a paradigm and innovative software solutions company that is transforming the way new construction and renovation of his tongue.

Over the past 20, plus years paradigm has grown to over 300 employees, serving more than 250 customers spanning homebuilders lumberyards manufacturers retailers and distributors with an expanding list of 70000 end users.

From home visualization for material take off of technology to drafting services and estimated paradigm software platform helps increase sales and operational efficiencies for new construction and renovation businesses.

The addition of paradigm offer several comparing compelling strategic benefits to builders first source.

Specifically.

We will scale paradigms platform from the current 250 customers to a broader base of 70000 customers.

Paradigms platform will help us for I've internal productivity in our team of over 700 designers and estimators.

Paradigm provides the another value added capability to reduce inefficiencies and costs for our homebuilder customers strengthening our current partnerships.

And finally, and most impactful Lee we believe we can capture of more than $1 billion of incremental sales over the next 5 years by utilizing our digital assets to accelerate the adoption and capture rates of value added products.

To be clear neither of alliance, nor paradigm signal of change in our emanate strategy.

We will continue to reinvest in our business, while actively pursuing accretive tuck in M&A opportunities to improve our myths and build scale and key growth markets.

As you can see on slide 11, we have identified more than 460 targets in the 15 to of $100 million revenue range.

Are strong balance sheet and cash flow of generation will allow us to the discipline consolidator in this industry for a long time to come.

Finally, I would like to update you on the DMC integration, which is going very well.

Synergies are tracking 1 year ahead of plan and are projected to exceed our initial expectation.

For the second quarter of this year, we have already captured $36 million in cost savings.

Based on our progress to date, we are increasing our synergy targets spit.

Specifically.

We are raising our year, 1.2021 projected savings to between 8 and $100 million from the $60 million to $70 million, we had previously communicated.

And now we expect to achieve total synergies between 142 of $160 million by the end of 2022.

Allowing us to overachieve in just 2 years versus our original 3 year commitment of between $130 million to $150 million.

These increase synergy targets underscore the success of the BMC integration to date.

In addition, our teams are working closely together to leverage our scale and product offerings.

Specifically, we've been able to agree additional capacity for our component facilities and overlap markets accelerating growth and the key category.

We have also been able to use our combined relationships to divert more national builders and attractive markets accelerating growth and structural components right brain and our millwork offerings.

These are exciting times and our outstanding results reflect the strong housing market in underlying demand for new homes.

Our industry leading platform.

Coupled with our ability to deliver value for our customers and a continuation of our disciplined approach to cost management.

An operational excellence.

And we are confident in our ability to consistently execute at a very high level.

In conclusion, I would like to highlight 1 of our many valued associates.

Nothing is more important and safety of our team members here of DFS. It.

It takes hard work and commitment to build and maintain a strong safety culture.

I wanted the spotlight someone who's going above and beyond to leave that culture and per location.

Kelly roads as of regional safety manager in Oklahoma and.

She and her team invited Osha to voluntarily visit the north of Oklahoma City lumber and nowhere of location to further improve their safety and health program.

While the or the Ocean Representatives were so impressed that they gave Kelly a special special Osha commemorative coin as a token of appreciation for a successful inspection and for their outstanding training documentation.

Dedicated team members light Kelly of reinforce our safety culture, and we're glad to have her on our team in Oklahoma.

With that let me turn the call over to Peter to go through a detailed look at our queue to results and our 2021 updated financial guidance.

Thank you day and good morning, everyone.

I want to thank all of our team members for delivering incredible results your execution is rock solid.

I will cover 3 topics with you. This morning first I'll review, our second quarter results compared to combines pro forma results from the prior year quarter.

I'll discuss our financial position supported by strong operating cash flow and third I'll provide some color on our guidance race for the full year 2021.

Starting with our queue to results, we had net sales of $5.6 billion for the first quarter, which increased approximately 91% compared to the combined pro forma prior year period.

Turning to slide 13 value added core organic sales increased by 35% led by 58% growth and are manufactured products category and 17% growth in our windows doors and millwork category.

Commodity price inflation benefited net sales by 52% and acquisitions contributed 3.5 per cent.

We experienced stronger than expected demand and Q2 single family starts across the country and we we're well positioned to support this demand and take market share.

R Q too gross profit of $1.6 billion increased 105% year over year, while our growth market expanded 210 basis points to $28, 4% above our stated more than 26% long term target.

Primarily driven by disciplined cost and pricing management and of dynamic supply of constrained marketplace.

SG&A was $902.9 million, an increase of approximately $324 million compared to the combined pro forma prior year period drill.

Driven primarily by expenses related to the BMC merger and other acquisitions, including intangible amortization in 1 time charges.

Variable compensation was also higher due to the increase in net sales and profitability.

Excluding acquisition related 1 time charges underlying SG&A increased by 18.9%.

As the percentage of net sales total SG&A decreased by 360 basis points to 16, 2% due to higher sales and continued expense control.

Adjusted EBITDA increased 232% to $835.8 million.

Adjusted EBITDA margin improved to a record 15% an increase of 640 basis points compared to the year over year pro forma period, driven primarily by higher sales at strong margins and cost management, including synergy sales.

And Q2, adjusted EPS was $2.76 per share compared to combined pro forma of 64 cents a share in the prior year period.

The $331, 3% increase.

Was primarily driven by the increase the net sales and gross margin offset by higher tax and higher SG&A expenses due in part of the normalization of Covid expense.

Adjusted EPS excludes amortization and 1 time expenses related to merger and acquisition activity.

Let's turn to cash flow or.

Of our second quarter operating cash flow with an outflow of $3.3 million in free cash with an outflow of $56 million for.

Romero the due to the impact of commodity inflation on working capital.

Turning to slide 15 at the end of the second quarter are pro forma net debt to EBIT of ratio was approximately 1 times.

We have no long term debt maturities until 2027, and our total liquidity was approximately $750 million, providing us with significant financial flexibility.

Last month, we successfully completed an opportunistic offering of $1 billion of aggregate principal amount of 4% to 5% unsecured senior notes due in 2032.

Further strengthening our balance sheet.

We use the net proceeds from the offering to repay the credit facility with remaining proceeds to be used for general corporate purposes.

Our strong second quarter and the first half performance are the result of superior execution from our field teams. They are meeting the demands of the strong market momentum, while delivering excellent service to our customers.

While the impact of increased commodity costs is evident in our results are structural focus remains on profitable growth in our basement.

As Dave mentioned are based business EBITDA is expected to grow 45% of this year.

We will continue to focus on growing the higher margin specialty in value add products and services in our portfolio.

At the $400 per thousand commodity level, our value added mix is roughly 43% of our total sales.

From 2019 to 2021 are based business net sales are projected to grow at composite annual growth rate of $15 for percent.

While our EBITDA is projected to growth 32%.

That exceptional base growth is expected to be further augmented by commodity tailwind.

And the appendix of the Investor presentation on Slide 20, we've also provided the sensitivity analysis with various commodity cost of assumptions and the corresponding profits. If you assume static commodity prices at those levels.

Please keep in mind that shorter term price fluctuations can result in materially different results and and of static commodity environment.

Most importantly, the base business perspective provides a sharper view of our run rate, regardless of where commodity prices. Ultimately settled we believe we can continue to grow our base business next year, while sustaining of double digit EBITDA of March.

Let's turn to our 2021 full year outlook on slide 16.

Are differentiated platform is delivering above market growth and strong results, which we expect to continue.

We are seeing strong underlying demanded both do housing construction and remodel.

As we anticipated builders are seeing such strong demand that they are limited sales in certain communities to maintain backlog debt prudent levels, given material and labor constraints.

Based on our stellar first half performance are positive conversations with customers are accelerated integration synergy capture a better view of our inflation environment.

And our continued strong organic sales through July we are increasing our full year 2021 hour.

We expect net sales in the range of $18 billion to $19 billion, representing growth of approximately 41% of 48% over 2020 combined pro forma net sales of $12.8 billion.

This is driven by an increase in new starts is the key catalyst for our base business growth.

The benefit of robust, but receding commodity prices.

We anticipate the adjusted EBITDA as of the inner range of 2.2% of $2.4 billion for approximately 105% of 124% over 2020 combined pro forma adjusted EBITDA of $1.7 billion.

We expect the deliver significant free cash flow over the next 6 months based on the normal seasonal flows declining commodity prices and the App active working capital management.

Or 2021 free cash flow guidance increases by $100 million to approximately $1.5 billion at the increase EBITDA is partially offset by higher working capital from higher sales as well as well at higher taxes and interest.

Our outlook is based on several assumptions, which are outlines of the earnings release, including the.

Made the high percentage growth in single-family stars.

R R&R growth and the low to mid single digits.

And multifamily starts growth in the high single digits.

As discussed earlier are a commodity assumption provides an 18% to 28% lift to our base business sales growth.

Commodity cost of come down over the past several months. So we expect OSB in particular to continue to come back during which time, we will remain vigilant as we sell through our higher commodity cost materials.

Despite the commodity price volatility, we feel confident and hitting our full year guidance.

As Dave mentioned the integration with the <unk> is ahead of our initial expectations. We now expect to deliver cost synergies of $18 million to $100 million. This year and in addition, we remain focused on accelerating our operational excellent condition.

Turning the capital allocation since the merger of Bfs's DMC 7 months ago. We have spent considerable time focused on our strategic alignment in the analysis of the best way to deliver value to our shareholders over the long term.

As a result of our priorities for balanced capital deployment are in order, maintaining the strong balance sheet reinvesting in our business to drive growth and productivity.

Continuing our tuck in M&A strategy to grow our capabilities and desirable markets across the country with the specific focus on value added capabilities and returning capital to shareholders is appropriate.

As part of our balanced capital deployment of strategy, we're setting our leverage target in the 1 to 2 times range of recognizing that we will appropriately adapt that range to the economic cycle.

We remained well positioned to deploy capital of effectively after executing multiple value enhancing transactions, given a robust balance sheet and strong M&A pipeline.

Overall, the financial results for the first 6 months of been extraordinary or.

Our base businesses robust and we believe there was a long runway for growth in the years ahead.

We are focusing on creating value for our stakeholders and are continuing to build our world class distribution network founded on the operational excellence and delivering exceptional value to our customers.

Let me turn the call back the day of for his closing remarks, thanks per year in summary demand and single family housing remains exceptionally strong and we continue to capitalize on this positive trend.

By ensuring we meet the needs of our customers.

The date.

And in the future.

The BMC integration continues to progress extraordinarily well.

And a realisation of cost synergies of the year ahead of schedule.

Looking forward we.

We remain focused on executing our strategy of investing both organically and through emanate to continue to align our portfolio with high value and faster growth categories.

While simultaneously improving efficiencies.

Productivity and our digital capabilities and the value chain.

Our future is sprint and our ability to execute in our hungered the entity have never been stronger.

And we will continue going above and beyond for our customers and partners provide best in class homebuilding solutions.

With that Sara let's open the call for questions.

<unk>, if you would like to ask a question. Please take the hell bypassing scar climbing on the telephone keypad, if you're using a seeker from please thanks for your immune function is turn doctor value of your signal to reach our equipment again.

For 1 traffic of question and we will pass the test to freeze primary to allow everyone and opportunities techno for question.

And we will take our first question.

From the revenge.

Gardner words.

Thanks for our company.

Thank you the morning everybody.

More of of <unk>.

So.

First of all thanks for all of the the detailed in the Dec I think that's all going to be very helpful for folks.

Seeing how much of your business is not really driven by the the slumber market.

So maybe if I could start you mentioned your visibility in the next year.

How much.

Now did you guys how much.

The visibility do you have in other words, how much business. You think this year is going to be pushed out for next year for you guys. I mean, you are putting a big growth numbers and you are manufactured.

Business despite.

Despite the any any color in the what what's going to get pushed out in the 2022.

They are moving as I mentioned in my comments, we've been in contact with our customers quite regularly and the.

Almost without exception you've seen them kind of slow of the starts for this year with the intent of pushing the demand into next year and almost 2 of person. They said this is the strongest environment they've operated in many through their careers.

Given the state of the demand.

Which is much much different than the spin in a very very long time interest rates, we expect the.

Continuation of of what we've seen this year at the next year and I would also point out our focus on our value added.

Portions of our business or just continuing to gain momentum and I said in the script and I'll say it again I've got confidence in our ability to continue to drive growth and take share in any market environment.

Perfect very helpful and then secondly.

On the free cash flow.

It's a little I guess.

Maybe if you could help us out what what.

Free cash flow of your generated thus far.

In the year, how much working capital investment is.

Get the embedded in that number I'm, just trying to figure out kind of what's left the go what sort of of the normalized number.

There and where your balance sheet will stand as we kind of enter 2022, congrats on the results guys and thanks for for your health.

Yeah. Thanks for even in Great question, there has been of dynamic gear for cash flow as you.

As you highlighted we've seen the investment of.

Over $1.1 billion per year to day and are working capital of space right, where we are not yet of while the market is certainly turning.

We're not yet done burning through the.

Either of the summer build of normal inventory or of the higher prices that we walk through all year.

So year to date are free cash flow is by the use right around $300 million, we do expect to generate the the remainder.

So the bout of 1 billion a between now and the end of the year.

Of already starting to see that generation in the third quarter third quarter overview of very good year as you would expect as the market turns.

And still significant amount of cash generation into the fourth quarter. So.

Certainly see of clear line of sight of of where that will take us.

A billion 8 of additional cash from now for the end of the year is certainly going to put us in a very strong position to deploy capital.

Way that will back the shareholders.

Thanks, again and good luck moving forward.

Thank you.

The airline next from Irvine current and Mike Doll.

Doll with RBC capital market.

Good morning, and thanks for taking my questions of theirs.

The great day.

Peter I wanted to pick up on the cash flow and also the.

Jason Day of Peter Thank you have a more technical and colorful term for how much cash is coming in the next 6 months.

Little restrained here.

[laughter].

But.

Hi, Karen Karen leveraged currently that's clearly going to come down when you're kind of net out the cash in the second half of the M&A is the.

The wind up close to zero net debt, so that kind of checks off the box.

Box 1 of maintaining strong balance sheet. When you think about the 3 other priorities I know at the end border here from kind of of medium for longer term standpoint, but when you are thinking more near term in nature.

The next couple of quarters in the quarter.

Is there any any bias.

The 3.

The weather 3 investing internally for the touching M&A of returning capital of that last 1 hasn't been apart.

Of the pro forma companies yet so the any color on the kind of more of your term how that balance safe zone.

So a couple of comment obviously really excited about the strength of the balance sheet R. R.

Our action too.

Put structural.

Very favourable debt out there the 2032 notes.

For in a quarter unsecured of something we're very proud of.

1 of the agencies gave are secured notes and investment grade rating. We certainly are proud of of what we've done in the balance sheet and excited about what that means to your point, we put our priorities out there I think we are we are.

The excited about what the pipeline looks like for opportunities to continue to grow and M&A, where we're going to remain disciplined we're not going to get out of over our skis on valuations.

We are very clear eyed about what commodities do overtime that can't be a driver.

And we think that that.

That way, we will certainly yield opportunities.

Your comment about not having done share buybacks buybacks as the pro forma Andy is absolutely correct. Both prior any of these had done share buybacks.

So I don't think anybody's necessarily opposed the concept, it's more a matter of making sure. We're looking at the situation each month, each quarter and making the absolute right decisions for the long term for our shareholders. So we're going to stay committed to that.

And we will continue the messages as things develop.

Got it.

Tough.

My second question is just on the on the manufactured products I mean that is the.

Exceptional growth even in a.

Even against the strong market backdrop and sort of clearly there is some share gains there.

I know, it's probably difficult, but is there any way that you can kind of talk to her.

How much of that growth.

Was effectively seeing increase the adoption or conversion within your existing customer base versus potentially the.

Added.

The capacity that you've brought on and or just.

A higher customer accounts in your in your manufactured products segment.

Yeah My for my business day.

We had both legacy of companies as you know had strong underlying momentum at a strong focus on manufactured components for a lot of time and both of US were continuing to gain share. When we put this team together, we knew particularly the overlap markets there will be increased opportunities for us to accelerate that growth both internally base.

On what we were doing 1 of our assets and where we saw opportunities for the extend capacity, which has been very tight in some markets, where we've had rapid adoption, but importantly, continuing to convert customers at a higher rate.

Both new customers, but I would say more importantly, and probably more accurately as accelerated growth with customer we've already had relationships of certain geographies.

And our merger help them get more comfortable and accelerating and extending that across their footprint.

That's great to hear thanks, Thanks Peter.

Thank you.

Hearing X heartache nasty of Bali.

<unk>.

Good morning, everyone.

Thanks.

Hey, Dave Thank you for taking the questions.

Sure and happy birthday, Matt.

We appreciate your spending your birthday of warning with US I think you ought to get a bigger size piece of cake for that.

It is exactly what I imagine for my birthday, so much I appreciate it.

Or thrill.

So yes.

You provided of gift here so.

A lot of things to ask about the.

Let me ask about the the digital opportunity the.

$1 billion.

Dave you mentioned at the top that you're going to part of this is using if I heard you correctly paradigm to accelerate value at adoption.

Then you list on 1 of the slides that there's like 4 of 5 kind of drivers of the $1 billion and what I'm wondering is kind of.

If you could kind of bucket that out how much comes from.

Scaling the paradigms software versus how much comes from that litany of of internal drivers and across the wallet share and driving value at adoption. Thank you.

Well the the internal fees.

I appreciate the question of the internal piece of software internally that we feel strongly about where we can gain some efficiencies of just where are internally today very manual processes. As we go from design for estimating for our customers and there are 2 key things that you're going to help us accelerate for the $1 billion and obviously these are early days and we still have a lot to figure out of.

Oh by the way, we haven't closed the transaction yet.

But in our early thinking we see opportunities to to extend their platform more broadly across our customer base, which Nathan his team of done a great job to get the customers that they've gotten but we've just got a bigger platform and the ability to scale.

But if you think also about long term being able to automate our design and take offs and actually provide our customers with an estimate of our for full capability, including our manufacturer components and ready for him even further down our millwork capability, which is of the core of the paradigm does today, we just see that the ability and.

The ease with which will be able to do that over the long term being a great value proposition for our customers and the ability to get our value added products in front of them in a more seamless way.

Wonderful Okay. That's helpful and yes, we'll look for that.

Additional color upon the deal closure.

But that is very helpful.

The second 1 of the margin side, you made a comment at the top of the.

The base business margin the $10, 1%. This year is something that you see is sustainable.

With the potential for further expand for.

I am doing the math right with a little bit of rounding it looks like your core base business incremental margin and the guide. This year is right around 18% give or take an correct me if I'm wrong, but so high level of of the question is.

Is it that you can further expand structural gross margin this or is it that you're shifting 2 additional SG&A leverage and I think 1 thing that would be helpful to address of common question, we get from investors as if any of the base business margin that 10%. If you think any of that may have also been.

Primarily benefited by extreme lumber prices of the prices and shortages there for the long question, but would appreciate any color. Thank you.

Yeah, there's a lot of that let me try to unpack it a little bit and then Peter from over the top of any further color, but I am confident in our ability to continue to expand that margin of over the long haul I think for your last question No. I don't think there was any outside of impact based on longer than that and as you think about our court.

Business of Peter highlighted 43% of that day, roughly as our value added areas with the growth that we see the continued improvement and mix.

We just the accelerated are of synergy capability here.

We're going to capture that over the next 6 to 12 months and in addition to that you think about our ability to drive operational excellence of this combined company, which were just starting to think about and get after over the long haul we see the ability to continue to improve our margins overtime. So the combination of growth and internal work that we see going on the.

We will continue will enable us over the long haul to expand those market.

Yeah, So just a little bit of color on that mat, we have seen a couple of.

Call it leakage of the impact and the acceleration of price in the marketplace into other bucket.

Bucket, we tried to normalize for that and here. We tried to look at the the margins that we thought were sustainable over the long term we've talked in the past about sort of of normalized motto of gross margin. We tried to account for that and this and allow the rest of it the slosh over into the into the commodity.

The will pricing bucket. So I think that is an important 1 and like that said, we have a lot of different ways to drive the performance of this business out of go forward basis, and I think it's all of the above its it staff expanded value add the efficiency and that of gross margin line is the efficiency and SG&A a lot of operational.

<unk> <unk>.

A lot of the improvements that we think we still have in front of us as we continue to solve problems for our customers and just growth.

Wonderful for all of that is very clear. Thank you Peter and thank you day, the best of luck guys.

Pretty good.

Inc. Caring X, we'll take our next question trying day vigilante with spirit.

Alright. Thank you good morning, everyone.

From day 1.

So lumber prices.

Clearly of an impact.

The effect leverage and the P&L and on the.

The gross margin itself the of mix, but as we look at the table in the appendix sort of top to bottom of.

Are we to assume that.

Behind that you're looking at SG&A dollars that are materially flat.

In every 1 of those states of being in that in that appendix table.

No our expectation is that about roughly 70% of SG&A remains variable. That's that's the rule of thumb the.

Used historically I mean this is based all day. So you have to sort of exclude that commodity price fluctuation component.

Okay.

And then secondly, as it relates to the table as well.

Note here that these are the.

Constant lumber prices for the full year and I am just.

Just the level of says can you talk about the dynamics in real life as you move from tiered of <unk> across the table just what are some of the moving parts that that we should look for is the sort of chase lumber prices up and down and the impact of the P&L.

Sure Yeah, I think it's consistent with what we have said in the past about commodities, we certainly want investors and view the analyst community to have a clear understanding of how our business works as you deal with.

The increases and decreases in commodities there are certain characteristics of certain parts of the country that are in.

Impactful on the results when you have inflation, where you've got longer fixed price contracts, whether it be 60 days and the smaller percentage of the slap better the 90 days or 90 days plus you inevitably will see of compression and the gross margin percentage of that inflation occurs and that ends of reverse.

As you will see the expansion in the gross margin percentage.

Inversely, you'll also see in the markets with very very fast.

Pricing turns where everything is very short, sometimes you'll see the exact opposite whereas you will see the.

Expanding margins on the way out and declining margins on the way down as your pricing off for a replacement in the very fast turnaround environment.

By and large we of course want to make sure. We're turning the inventory quickly so that whatever of those impacts are they happen quickly right. They pass through very quickly.

The reemphasize this we're not in the game of predicting embedding on commodities. We're in the game of distributing commodities to the advantage of our broader business and I think the R. R demonstrated performance.

Historically shows that were pretty good at it we know how to make money and ups and downs, it's a matter of making sure you are running it.

And of disciplined and operationally excellent manner.

That's perfect. Thank you very much.

Thank you and the next from Manhattan.

Keith Q, let's check.

Question on the manufacturer of products number.

The it impacted by commodity in places so.

The way you can talk about how much the unit throughout the year over year.

Yeah. So that's the attempt that that 58% excludes what we believe to be the overlap from commodities.

That's actually at the new go for you in their teeth on slide 5.

In that footnote you can see we sort of called out it's about 4% of of that 22% that had some exposure to commodities as you think about the commodities are included in what we manufacturer.

Okay. So that does it gets closer we can get what you have numbers of what's the privacy.

Yeah, what we've communicated out closer based on our analysis of price volume mix, that's our best our best estimate yes, okay.

Second question on the on the guidance for the second half the.

Clouds EBITDA of up year over year.

Is that going to slant towards the third or fourth quarter.

Given commodity impact or any sort of directional guidance there would be helpful.

Well I wouldn't hesitate to say third quarter is always higher than the fourth quarter, just due to normal seasonality all of them are and I think the the impact of course, I am talking about hers.

I'm talking about the game year over year. The the Slant is they're going to be more of the gate and 1 quarter of Brazil.

The up based on the prior year comparison.

Yes.

I know that off the top of my head.

How about you get back of the on that front.

Yes, it's probably a little more waited the Q3 just by nature of of the seasonality is a little bigger than in the fall through would be a little bigger of that work.

Okay all right. Thank you.

Sure.

Inc. Hearing eczema takeout San from Stephen Ramsay constantly Harrison true.

Hi, Good morning, maybe you could start with on the defense to cure the key.

Get some operations.

Meaningful impact to the incremental margins that are non the lumber.

No it's not it's a fairly small business in total.

And the margins were below average.

Great and then thinking about private shortages.

You refer to for Windows doors Millward.

Ah network is that something I'm sure it's embedded in the guidance for 2 H, but.

The second half of that is that of major impact and then.

Or is it a greater impact as you get into next year.

While the images spend an impact all year I think of you as you look at the the.

The.

Although part of our business right. The other other part of our value added business Windows doors and go work, it's trail of a little bit in terms of growth still strong, but not where we think it should be.

Couple of pieces of that obviously of a chunk of that is the expansion of units under construction is just sort of how far along a lot of these homes are but some of the cause of them being as.

They are being as many units under construction is there are is that we've just struggled lead times are longer day.

Been longer for.

Gosh coming up on the 9 months plus so this is not do this is not new news I think we just consistently fight it in the channel.

Think it's 1 of those areas, where we would see faster completions and faster cycling of.

Sort of the growth in our market, if we could relieve that I know they're trying.

So on both fronts.

Excellent and then the last thing lumber pricing clearly on random links to are coming down, but some people, we talk to and channel checks that said the lumber transactions. The pricing is not coming down on the ground are you seeing that in your business.

Okay.

Yes, I mean, we do we do so much the commodity across the country I would say, we probably see everything in 1 place or another I think speculating on commodity prices and what it's going to do is.

And our world something where it is.

Net of a Fool's errand.

As demonstrated by my forecast last quarter. So I think we'll just maybe leave alloy.

Great. Thank you.

Thank you and next we will take our next question from Stanley Elliott.

Okay.

Hey, good morning, everyone. Thank you all for taking the question and congratulations could you all talk a little bit more about the alliance acquisition, if I remember correctly. They didn't do a whole lot of value add millwork like you all do.

Whats the opportunity set here for you all to put that through their channel and how quickly can you realize that.

Yes, we're excited about that I made a couple of comments there in the script of about that as an opportunity we had a relatively small footprint of the state as you know.

Half of dozen or so locations <unk> got great capability on the components side, which we're excited about but they have not had the millwork opportunity and we're very strong in millwork as you know and so we'll see how quickly we can get that ramped up the team is excited about it both of the alliance team as well as our team and we will get after that 1.

As quickly as we can there is obviously a clear need in that market given the growth of their experiencing and so we're excited about that.

And M&A, you've always had a very nice job of rolling up.

The markets does the shortage in some of the materials that you are seeing now does that change your thought process on on maybe moving into maybe adding some capacity on the value added side versus consolidating some of the smaller dealerships.

I don't think it materially changes and we're doing book, we're investing quite heavily in capabilities.

On value added both in the millwork signing of the component side as we see a long runway there of adoption of the growth.

In the markets and we're still looking in the markets to understand where it makes sense for us to augment our capability for the right M&A, which may help us expand our geographic footprint in the local market.

And so as we've talked about both of our capital allocation and just our overall strategy, we're going to continue to do both.

And just add on to that 1 thing that is exciting and some of these opportunities.

We've got the the efficiency of the skill sets to help them improve their performance to get more out of these businesses that they are managing.

I think that adds to our ability to meet the capacity constraints in the market and as far as being there for for our customers. We certainly believe debt increased scale.

And the partner shifts that that helps to create in the long run with vendors.

<unk>.

It is advantageous to us and puts us in a position to get at least if not more than our fair share as we deal with difficult supply environments.

Great guys. Thank you very much and best of luck.

Thank you.

Thank you and we'll take our next question from Trey Grooms with Stephens, Inc.

Alright, thanks, guys.

Yes, I wanted to echo on the on the deck as well Super helpful.

But.

A question I guess first off was the follow up back on 1 of the earlier ones around the.

The base business EBITDA margins.

And clearly the Incrementals are running high teens I think you did 10 for this this quarter.

And like you said, David the obvious theres potential for some upside here, but.

Where do you see the space business margin opportunity over time as you look at all of the moving pieces clearly it's higher.

But with these types of Incrementals, where can we see this going over time.

Yes, we're excited about it.

Both the top and the bottom line, we will continue to grow over time.

The project that this morning.

But I will promise you we are absolutely focused on it that is the focus of this company right now our base business of our value added capabilities, we're going to grow it we're going to continue to improve profitability and we're going to invest in it.

Alright fair enough I thought it was worth the shot.

And then.

And then Peter a minute ago you mentioned.

Some of the dynamics.

We've come to understand over the years with lumber price fluctuations.

Where.

This most recent spike in lumber you guys have kind of book the trend it hasnt been your normal kind of reaction as far as the to.

The the gross margin percentage.

So and you mentioned that when things move widely are wildly quickly.

Net debt the margin can react differently almost the opposite of what we see in a.

More normal kind of lumpy.

Lumber price movement kind of environment. So with that said is so you guys have been really outperforming we're actually seeing margins higher on the result of this spike up so is it the expectation per your comment earlier that debt.

A decremental on the way down that we should expect some kind of normalization of the gross margin just as these prices come down debt.

Did I read that right, excluding the core business, which obviously is the big focus and what we care about.

We still have to model the lumber piece too so.

Kind of what you were pointing to there.

Well im not signaling of a downturn I guess, what I wanted the upfront about the we've talked about a little bit on prior calls is the nature of those extended terms the.

Mix of those extended terms have materially changed.

So where there was a more extreme impact on the way up in a pretty extreme impact on the way down right alright headwind on the margin percentage of the way up strong tailwind on the market presented in the way that I think both of those are diminished.

I think the diminished because of the reduction in average days of price lock in our mix of sales.

Don't think it's signaling of downturn into the future I think of lot of the the.

The fall through the that we're dialing out of this analytics comes from other parts of the business and commodities and the pricing volatility of the nature of some buying that we did all of that is all Colombia gather in that number.

Don't think its going to be a real.

The big headwind for US anytime you have flush fluctuations, especially as massively as they are now there is always a little bit of uncertainty as to how it all builders through but based on what we're seeing in the detail of inventory levels of pricing levels. We think we can manage through it very effectively I just wanted to sort of signal that they are.

I don't think theres going to be as big of a windfall if there happened in the last cycle.

Great. Thanks for the clarity there Peter that was perfect.

Thanks again for taking the question and keep up the good work. Thank you.

Yes.

Thank you index move on 2 key can mentor BMO capital market.

Thanks for squeezing me in and let me add my congratulations.

Back to the the value at the side of the fees.

Obviously really strong results and I'm just curious are there any.

Particular regions or areas of the country that youre seeing.

More growth or is it more broad based.

Yes, the exciting part about it is we've seen that expansion of growth broadly across all geographies. So there is not 1 that I would point to that would be.

Outpaced strong.

Obviously, the strength that we have in the south and in Texas.

Kind of leads the way, but we've gained.

The option and accelerated penetration, it's really broad based.

Got it that's helpful. And then can you just remind us in terms of the capacity headroom that you have.

Both on the manufacturing side in the midst of upsides, particularly in light of the strong growth that you guys are seeing.

Yes, it's a challenge.

We were spent as I mentioned earlier, we've been spending quite a bit of capital to increase our capacity in key markets. In addition to that we're driving productivity and efficiencies to just gain any.

Any increment of capacity that we can.

I think given the strength of the market and the adoption rate of what we're seeing we're going to fight debt for a bit, but we're not losing sales today, because we can supply.

The challenge of it.

Peter talked about earlier has been at some of the upfront supply chain challenges of just getting materials. We are not the bottleneck currently but it's something that we've got to be diligent about stay on top of book.

Got it that's helpful I've done it but nothing in the back half of the year.

I appreciate it.

Thank you everyone again, ladies and gentlemen, if you would like to ask a question today you may do so by pressing star 1 on your telephone keypad.

And we will take our next question from James.

Ken Lewis with workplace.

Good morning, Thanks for taking my question.

Understood.

Good morning.

Given the velocity of the business now.

And the lower lumber prices.

Do you think third quarter of this year as gross margin is trending more towards what we saw in the first quarter.

Something closer to what we saw in the second quarter, just wondering with all of the turnover.

It seems to be a better outlook for multifamily on the phone.

Of the builders for source part just wondering how quickly that.

The change in lumber prices has kind of flowed through to the gross margin.

Well I think historically, we've talked about the timeline for the flow through of changes in commodities just being in that.

Quarter ish timeline, 1 to 2 quarters. So I think it's fair to say that there'll be of.

A bit of of fade, obviously Q2 had the lapping of the worst of Covid we've gotten.

A lot of good benefits year on year, So I think settling back as prices settle back over the next quarter or 2 is still appropriate guide.

And then could you maybe talk about multifamily it sounds like the demand from what's coming in has changed and you've gone to positive growth there from I think negative growth before.

Hey, what's going on there is this helping to offset maybe a little bit slower pace from from the single family builders.

Yes, that's been a nice.

The sort of surprise, a little ray of sunlight coming through in multifamily when we thought it would be pretty weak now just just to clarify and for those that maybe aren't as familiar with us our multifamily is a pretty <unk>.

Market specific focused business on.

Most of the country, it's for story and below wood structures. We are of a couple of businesses that do quite well in the high rise market, but they are fairly small so a lot of our work is project focus.

I think what you've seen is the the resurgence of a little bit of that multifamily housing market as people realize that the new homes aren't going to come out of the ground as fast as people maybe you would've hoped.

All of US maybe we would have hoped.

And those.

Those $3 million to $5 million under built or under served homebuyers are going to need someplace of live until we're ready.

What youre seeing is a little bit of a rebound there it's still pretty modest, but we're certainly pleased with it because it was as you know pretty grim there on the outlook for a while.

And my compliments on the new deck is relative to a lot of good detail. There. Thanks for thanks for taking my questions.

Thanks, a lot of thank you.

Your next for the common Zarin with Jefferies.

Hi, guys. Thanks for taking my question.

Most of my question is actually the answered already but I guess I'll touch on the new leverage target you sounded very bullish on demand for the next several years. So can you just tie together your bullish commentary maybe how many more years of growth you see in the cycle with that new 1 to 2 times leverage range that you put out there today.

Yes, I mean, I think that it's exciting times.

The and build the diverse source of what that blow of down 2 we've got.

We think of really strong positioning on the business in terms of what we've been able to do with the balance sheet the long maturities.

The low and declining interest rates.

And we're doing it in a way that makes the business.

Both of our focus of our recognition is to make sure. We have an incredibly strong balance sheet throughout the cycle. This is of great time in the cycle.

We think that there's more runway and we're going to continue to generate cash our job is to put it to work and maximize the shareholder benefit.

Benefit the business make sure were healthy that our stakeholders are satisfied and taken care of.

And provide a great return and I think we're lining it up in a way that we've got we've got a lot of firepower to do a bunch of different things and we're going to be disciplined about how we put that to work.

And the the math, we're doing around the return on.

Investment for.

Internal investments for M&A and for potential returning of capital to shareholders as disciplined and we're going to continue to work with with the board and management of make those decisions in the best possible way.

Great. Thank you for the color.

Thank you.

Thank you and we'll take our index colored our question from Kurt Yinger.

Great. Thanks, and good morning, everyone.

Good morning, just 1 quick 1 on the EBITDA incrementals it looks like in 'twenty, 1 on the commodities.

Margins of about 20% or so.

I guess the question is as we look ahead to 2022 and make whatever assumption, we want around lumber prices in the topline impact there is that the same type of incremental margin, we should be kind of looking for.

Presumably on the way down or do you of any thoughts around.

Anything youre doing internally around pricing or things like that that could kind of dampened that impact.

Yes, so I think the the way down.

The versus way of comment is exactly why we did slide 5 I think that was really our intent is to help people understand where we're at.

Where it wants to be when commodity prices are at that $400. So I think that's a really healthy way to look at it.

Just remind everybody how dynamic this year has been how volatile.

These words coming from the guide we thought we were going to defend gently from our roughly $900 of thousand commodity levels back when we the last time, we met on this call.

Been a heck of a ride and I think what youre seeing in these numbers is a lot of the.

The impact of that volatility in 1 way shape or form so that.

Expectation of it going back to the the <unk>.

<unk> 3 and the $1.6 number for 'twenty..1 we really wanted you to have that just to give you a sense of what we think the the base business really looks like and hopefully that answers your question appropriately.

Yes.

Helpful.

I guess, just 1 higher level question I mean, youre still relatively early in the process of combining the business.

A lot of things are going very well I'm, just curious from a pure scale perspective, and the relationships you have with your suppliers and your customers.

Which positive areas of the business that you are seeing right now do you feel like of I've really been.

Augmented by that increase scale, putting together BMC in BFS.

Yes, Im thrilled about a lot of things, but the results of that Youre seeing in the value added the areas of the business as I said earlier, we're exactly what we envisioned in the pro forma and it's great to see that playing out of our organization is focused on it.

We're continuing to provide innovation, we're continuing to invest in that part of the business and as I said, we've got a long runway ahead of us.

Yeah, I don't think of any of us at that forecasted number of 58% growth right. So of the ability of the teams of you've put together like they have been and execute at that level of really amazing source of the cultural alignment has been fantastic.

Okay, Alright, well I appreciate all the color guys and good luck here in the back half.

Thanks, a lot.

Okay.

Thank you and lastly, we will take Ryan Gilbert.

With the <unk>.

Hey, Thanks, guys.

Good morning, Washington.

First question on manufactured products I think over the last couple of quarters, we've talked about the growth.

The core organic growth in the manufactured product segment being driven primarily by existing customer relationships and I'm wondering as we move into the peak building season here.

And the really strong core organic growth you've put up in <unk>, if youre seeing the customer base.

Expand from from the last couple of quarters and then just if that has been the case your thoughts on the stickiness of that of that new customer base and.

How that influences your thoughts around the normalized gross margin if we can do better than 26 of 26, 5%.

Yes, very good question.

The.

That clearly is the focus of the organization and our value add we've seen great adoption I think I commented earlier that we're seeing really good adoption with customers who have.

We had experienced with our value added capabilities in 1 geography or another or maybe a few and are gaining more confidence based on what they've seen in those markets around what our value added capability to do the can do to help them, both with labor challenges and drive outpaced the efficiencies at the job site. So we see a long runway here.

Over time.

The other thing I would say and I think I said this in my prepared remarks.

Disproportionate amount of the new homes being constructed or those starter homes and that lends itself very well for the structural design work that we do in our components business and so given all of that backdrop and the focus that we have on it.

We will continue to see the adoption of increase.

Okay great.

Second question is on multifamily.

The legacy BMC.

Really nice multifamily operation that flow through.

Complemented the millwork doors and Windows segment of their business and as we see multifamily start to rebound I'm wondering the extent that.

<unk> been able to.

Take the take the legacy BMC multifamily operations and expanded to the entire pro forma business.

Yes, let me just comment and I'll flip it over to Peter here for any additional color you are right to portray the focus that we have the BMC being very strong, but I would highlight what Peter said earlier, even in the BMC legacy footprint. It was a very targeted approach to multifamily in key markets in the south of.

A little bit of up in the east and somewhat out in the in California, and the West Coast. It was not broad based and I think that.

Our targeted market focus is exactly why we had such success we knew of those markets, we're going to be strong for some period of time and Thats, where we have the capability and our team was just fantastic of driving growth.

Yes, and I think that the combined multifamily business has done well I think the partnered well.

Are seeing.

Strong performance, what we consider to the market taking market share of its a little hard to communicate that when we're talking about comparisons of national metrics, but we think we're doing really well with that business.

Anybody who.

As the the background of the multifamily recognizes the longer cycle times on those projects.

Cycle times that are particularly disrupted by extremely volatile commodity prices. So there has been especially net of all of the markets they've been as active as anybody.

But we certainly are still very pleased with the performance of that business, both top and bottom line.

Okay, great. Thanks very much.

Thank you.

Thank you.

And that does conclude today's question and answer session I would like to turn the conference back over to Mr. Michael Neese for any additional or closing remarks.

Thank you Sarah and thank you everyone for your time and interest in BFS, we are around all day to take your questions.

Of a great day. Thank you.

Thank you and that does conclude today's teleconference. We give I. Appreciate your participation you may now disconnect.

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Good morning, and thank you for joining of builders first or second quarter 2021 earnings Conference call. Today's conference is being recorded Michael Neese Senior Vice President of Investor Relations for builders for source will now provide the company for opening remarks.

Please go ahead Sir.

Thank you Sarah good morning, and welcome to our second quarter 2021 earnings call.

I Hope you and your families continue to remain safe and well.

With the increase of the COVID-19, Delta's strength, our Covid task Force continues to closely monitor the development. We will continue to follow CDC guidance and protocols for the <unk>.

Safety of our team members customers suppliers and communities.

With me on the call today are Dave <unk>, CEO and Peter Jackson, our CFO.

Today, We will review our second quarter results and provide an update of our base business momentum.

The ongoing integration progress and achievements as well as our recent M&A.

We remain bullish on the housing sector and believe we are well positioned to continue to capture double digit single family starts growth.

We have provided GAAP results that include the agency in the second quarter of 2021 and Standalone BFS.

The second quarter of 2020.

We have also provided pro forma results as if we owned the AMC and the second quarter of 2020.

Our adjusted EPS calculation excludes amortization of intangibles.

The second quarter press release, and the supporting presentation for today's call are available on our website at investors day.

The LDR dot com.

The results discussed today include GAAP and non-GAAP results adjusted for certain items.

We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures.

A reconciliation of these non-GAAP measures for the corresponding GAAP measures, where applicable and the discussion of why we believe they are useful to investors can be found of the earnings press release, our SEC filings and presentations.

Our remarks from the press release presentation and all of this call contain forward looking and cautionary statements within the meaning of the private Securities Litigation Reform Act and projections of future results.

Please review the forward looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ materially from forward looking statements and projections.

With that I'll now turn the call over to debt.

Mike Good morning, everyone and thanks for joining us.

Our record second quarter and first half earnings are the result of the hard work and strong execution by our more than 26000 team members, who have been relentless in providing superior customer service amid robust demand in a very tight supply environment.

I want to start by thanking them for as I couldnt be more proud of their efforts.

In the second quarter, we delivered core organic sales growth of about 35%.

Along with record gross profit adjusted EBITDA and margin.

Our performance accelerated in the second quarter as we continue to expand our value added offerings.

Executed disciplined pricing strategies and.

An accelerated merger related integration savings.

I'll cover 3 key topics on todays call for.

Yes.

I will provide an update on the residential housing environment, which remains very strong review, our second quarter results and given the unique demand and supply dynamics share some insights into the strength of the underlying growth in our base business.

Second I'll provide an update on our recent M&A transactions that further strengthen our market position and advance our digital strategy.

And highlight our very strong pipeline of potential tuck in acquisitions.

And finally I'll provide an update on the BMC integration, which is progressing exceptionally well and running ahead of plan.

Let me start with the current state of the residential housing environment.

We continue to see strong demand across the country.

Specifically single family housing demand is robust and our entire supply chain is working hard to keep up with that strength.

Regardless of short term fluctuations, we believe the nation's homebuilding sector is growing today and they're of sustained growth in store for the next several years.

Freddie Mac stated earlier this year that the U S is undergoing by approximately 4 million homes.

The National Association of Realtors, Oes were $5.5 million homes under Bill.

Whichever number you believe there is a significant shortage of housing in this country that will take many years of above normal starts to overcome.

According to the any HB second quarter 2021 housing trends report.

Almost 20% of American adults are considering the purchase of a home within the next year.

This persistent debt increased for 5 consecutive quarters and is nearly double the 10% in Q1 of 2020.

Additionally, 64% of these potential buyers are first time buyers, which is the highest share in history.

The millennial generation some $82 million is strong we'll continue to provide support and growth in new housing construction for many years.

There is also an extremely tight supply of the existing homes for sale.

We have averaged $1.1 million units of inventory of 2021, which is 20% below the 5 year average and well below the high of $3.5 million units of inventory in 2007.

This data further supports our strong belief in the need for new home construction.

Single family starts increased 41, 7% in the second quarter, which we outpaced by approximately 240 basis points with our single family core organic growth.

In addition, adjusting for the effects of the pandemic in the second quarter of last year single family starts this quarter grew 27% when compared with the second quarter of 2019.

Housing under construction of also increased 29% in the second quarter.

There are now of 439000 more single family homes under construction than there were at this time last year and 396000 more than at the same time in 2019.

Some industry observers of raising the call the top of the cycle.

For the data tells US there will likely be continued strong momentum in new home construction.

Which will bode well for us in.

And the industry as a whole.

Recently, we've heard from several of our homebuilder customers that they are tapping the brakes on starts for a few reasons.

Namely labor material and land availability, even though demand remains strong.

These challenges coupled with the growth we've seen in the first half of the year suggest builders are exceeding their growth forecast for this year and are pushing some new home construction into next year supporting our belief the growth will continue for some time.

And our 58% core organic growth in our structural components business underscores our belief that our value added offerings will be increasingly important for builders.

We continue to navigate material and labor challenges and look for ways to get more efficient.

Housing starts showing significant growth.

The mortgage rates remaining at historical lows and the continued shift of homeownership are all significant tailwind.

As a reminder, we are in 84 of the largest and fastest growing msas in the country.

Our team is poised to continue to capture a disproportionate share of the growth as we have done for the past several years and as evidenced by our most recent 260 basis point outperformance over the last 6 months.

I am confident we will outperform the market in any environment and what we are experiencing now is exactly what we envisioned when we put our merger together.

The best in class operations located in the top markets in the country.

Focused on serving customers with the best portfolio of products and services and solving their construction challenges.

We have of season cycle tested management team.

And we are just getting started.

Now, let's turn to our record second quarter results.

We delivered another strong quarter of top and bottom line performance.

And importantly for organic growth of 44, 1% and our single family segment, and 58% and manufactured components again outpaced the market as we continued to gain share.

Turning to slide for I'll review, our pro forma results for the quarter.

Total sales grew 91% the $5.6 billion.

Core organic sales increased 35%.

Gross.

<unk> expanded more than 105%.

And adjusted EBIT for that increase a remarkable 232% to $836 million with adjusted EBIT margin expanded by 640 basis points to a record 15%.

Turning to slide 5.

We have received many questions from analysts and investors regarding the impact of commodities on our business results.

In response, we are providing an overview of the underlying top and bottomline growth of our base business on a normalized basis, assuming a static commodity price of $400 per thousand board feet.

For the full year of 2021 versus 2020, we expect our base business net sales the growth of $15.3 billion for.

From 12.5 billion for 22%.

And adjusted EBITDA to grow to a $1.6 billion from.

From $1.1 billion or.

For 45%.

Given consistent single family starts we believe are 10, 1% EBIT margin on our base business is sustainable and can grow over time as evidenced by our 240 basis points of growth since 2019.

It's a 31% improvement in profitability in 2 years.

Peter will go into further detail in his prepared remarks, but I wanted to point out to everyone that our base business is large it's growing and it has a sustained double digit EBITDA margin profile.

Now, let me spend a bit of time on M&A, and our recently announced transactions.

Alliance longer which closed on July 1.

And paradigm for which we signed a definitive purchase agreement in late June.

Turning to slide 6 alliance 1 of our it is the largest supplier of building materials in Arizona, primarily serving of the fast growing greater Phoenix, Tucson, and Prescott valley of Metropolitan areas.

The Phoenix Metro area of alone is expected to add more than 100000 jobs in 2022. So we're excited about our increased presence in the state.

Arizona is the number of 3 ranked single family MSA in the U S encompassing the nations fastest growing county mirror Copa.

This acquisition is aligned with our strategy of investing organically and through M&A to grow our portfolio of high value and faster growth categories.

Alliance has an estimated 45% market share with the top homebuilders and catapult us to a leading position in the state.

Its geographic footprint and component manufacturing capability is an excellent strategic fit.

And the limited overlap of our existing coverage enables us to expand our product offerings in the previously untapped regions.

Alliance is margin accretive.

We have an opportunity to embed our millwork capability into their operations.

With deep long standing customer relationships and a reputation for offering outstanding customer service.

Alliance has been established and trusted advisor to leading home builders and contractors for <unk>.

Single family multifamily and commercial end markets.

Founder and CEO of Truecar and his team of built a fantastic company with strong leadership and value that aligns with our own.

In a similar culture of growth.

We are thrilled to have the alliance team members as part of the BFS family.

Now turning to slide 7 I want to spend a few minutes on our strategy and recent M&A in the digital space, which has been our priority and focus for us over the last several years.

Based on third party research the homebuilding market is lagging almost every other industry and digital transformation.

As the new generation of builders, who emerges of generation that grew up with digital technologies, which is the accelerated given the impact of Covid.

We are seeing a shift in how our customers want to do business.

And we see this trend having a long tail as the adoption accelerates.

Digital is a significant growth opportunity for PFS as the industry goes through of shifts.

The digital execution.

Given the scale of our platform, we feel we are well positioned to help shape the important outcomes for our industry <unk>.

Including the improved efficiencies and productivity through digital technologies.

Our digital strategy includes 3 main areas.

First I'll focus on our internal processes and productivity by investing in technology to drive operational efficiency and excellence.

The net.

<unk> streamlined interactions with our vendors and customers.

Finally, our focus on external innovation and investment for the offer value added digital products and services that support our customer success and growth.

On June 29, we announced a major step forward in our digital strategy with our intent to acquire paradigm and innovative software solutions company that is transforming the way new construction and renovation of this time.

Over the past 20, plus years paradigm has grown to over 300 employees, serving more than 250 customers spanning homebuilders lumberyards manufacturers retailers and distributors with an expanding list of 70000 end users.

From home visualization to material takeoff of technology, the drafting services, an estimated <unk> <unk>.

Paradigm software platform helps increase sales and operational efficiencies for new construction and renovation businesses.

The addition of paradigm offer several comparing compelling strategic benefits to builders first source.

Specifically.

We will scale paradigms platform from the current 250 customers to a broader base of 70000 customers.

Paradigms platform will help us drive internal productivity and our team of over 700 designers and estimators.

Paradigm provides another value added capability to reduce inefficiencies and costs for our homebuilder customers strengthening our current partnerships.

And finally, and most impactful we believe we can capture more than $1 billion of incremental sales over the next 5 years by utilizing our digital assets to accelerate the adoption and capture rates of value added products.

To be clear neither alliance, nor paradigm signal a change in our M&A strategy.

We will continue to reinvest in our business, while actively pursuing accretive tuck in M&A opportunities to improve our mix and build scale in key growth markets.

As you can see on slide 11, we have identified more than 460 targets in the 15% of $100 million revenue range.

Our strong balance sheet and cash flow generation will allow us the VA disciplined consolidator in this industry for a long time to come.

Finally, I'd like to update you on the BMC integration, which is going very well.

Synergies are tracking 1 year ahead of plan and are projected to exceed our initial expectations.

Through the second quarter of this year, we have already captured $36 million in cost savings.

Based on our progress to date, we are increasing our synergy targets specifically.

We are raising our year, 1.2021 projected savings to between 80 and $100 million.

From the 60% to $70 million, we had previously communicated.

And now we expect to achieve total synergies of between 142 of $160 million by the end of 2022.

Allowing us to overachieve in just 2 years versus our original 3 year commitment of between $130 million to $150 million.

These increased synergy targets underscore the success of the BMC integration to date.

In addition, our teams are working closely together to leverage our scale and product offerings.

Specifically, we have been able to create additional capacity for our component facilities in overlap markets accelerating growth in that key category.

We have also been able to use our combined relationships to convert more national builders in attractive markets accelerating growth in structural components ready frame and our millwork offerings.

These are exciting times in our outstanding results reflect the strong housing market and underlying demand for new homes.

Our industry leading platform.

Coupled with our ability to deliver value for our customers and a continuation of our disciplined approach to cost management and operational excellence.

And we are confident in our ability to consistently execute at a very high level.

In conclusion, I would like to highlight 1 of our many valued associates.

Nothing is more important than safety of our team members here of BFS.

It takes hard work and commitment to build and maintain a strong safety culture.

I wanted to spotlight someone who is going above and beyond the lead that culture.

Per location.

Kelly Rose as a regional safety manager in Oklahoma.

She and her team invited Osha to voluntarily visit the north of Oklahoma City lumber in Newark locations to further improve their safety and health program.

While there the Osha representatives were so impressed that they gave a special special Osha commemorative coin as a token of appreciation for a successful inspection and for their outstanding training documentation.

Dedicated team members like Kelly of reinforced our safety culture, and we are glad to have her on our team in Oklahoma.

With that let me turn the call over to Peter to go through a detailed look at our Q2 results and our 2021 updated financial guidance.

Thank you, Dave and good morning, everyone.

I want to thank all of our team members for delivering incredible results your execution is rock solid.

I will cover 3 topics with you. This morning first I'll review, our second quarter results compared to combined pro forma results from the prior year quarter.

I will discuss our financial position supported by a strong operating cash flow and third I'll provide some color on our guidance raise for the full year of 2021.

Starting with our Q2 results, we had net sales of $5.6 billion for the first quarter, which increased approximately 91% compared to the combined pro forma prior year period.

Turning to slide 13 value added core organic sales increased by 35% led by 58% growth in our manufactured products category and 17% growth in our windows doors and millwork categories.

Commodity price inflation benefited net sales by 52% and acquisitions contributed 3.5%.

We experienced stronger than expected demand in Q2 single family starts across the country and we were well positioned to support this demand and take market share.

Our Q2 gross profit of $1.6 billion Inc.

105% year over year, while our gross margin expanded 210 basis points to 28, 4% above our stated more than 26% long term target.

Primarily driven by disciplined cost and pricing management and of dynamic supply constrained marketplace.

SG&A was $902.9 billion.

An increase of approximately $324 million.

Compared to the combined pro forma prior year period.

Driven primarily by expenses related to the BMC merger, and other acquisitions, including intangible amortization and onetime charges.

Variable compensation was also higher due to the increase in net sales and profitability.

Excluding acquisition related 1 time charges underlying SG&A increased by 18, 9%.

As a percentage of net sales total SG&A decreased by 360 basis points to 16, 2% due to higher sales and continued expense control.

Adjusted EBITDA increased 232% to $835.8 million.

Adjusted EBITDA margin improved to a record 15% of increase of 640 basis points compared to the year over year pro forma period, driven primarily by higher sales at strong margins and cost management, including synergy savings.

In Q2, adjusted EPS was $2.76 per share compared to combined pro forma of 64 cents a share in the prior year period.

The 331, 3% increase was primarily driven by the increase of net sales and gross margin offset by higher tax and higher SG&A expenses due in part of the normalization of Covid expense cuts.

Adjusted EPS excludes amortization of onetime expenses related to merger and acquisition activity.

Let's turn to cash flow our.

Our second quarter operating cash flow was an outflow of $3.3 million and free cash was an outflow of 56 million per.

Primarily due to the impact of commodity inflation on working capital.

Turning to slide 15 at the end of the second quarter, our pro forma net debt to EBITDA ratio was approximately 1 times.

We have no long term debt maturities until 2027, and our total liquidity was approximately $750 million, providing us with significant financial flexibility.

Last month, we successfully completed an opportunistic offering of $1 billion of aggregate principal amount of for 2.5% unsecured senior notes due in 2032.

Further strengthening our balance sheet.

We use the net proceeds from the offering to repay the credit facility with remaining proceeds to be used for general corporate purposes.

Our strong second quarter and first half performance of the result of superior execution from our field teams. They are meeting the demands of the strong market momentum, while delivering excellent service to our customers.

While the impact of increased commodity costs is evident in our results are structural focus remains on profitable growth in our base business.

As Dave mentioned, our base business EBITDA is expected to grow 45% this year.

We will continue to focus on growing the higher margin specialty and value add products and services in our portfolio.

At the $400 per thousand commodity level, our value added mix is roughly 43% of our total sales.

From 2019 to 2021, our base business net sales are projected to grow at a compounded annual growth rate of 15, 4%, while our EBITDA is projected to grow 32%.

That exceptional base growth is expected to be further augmented by commodity tailwind.

In the appendix of the Investor presentation on Slide 20, we have also provided a sensitivity analysis with various commodity cost assumptions and the corresponding profit if you assume static commodity prices at those levels.

Please keep in mind that shorter term price fluctuations and result in materially different results than in a static commodity environment.

Most importantly, the base business perspective provide the sharper view of our run rate, regardless of where commodity prices ultimately settle.

We believe we can continue to grow our base business next year, while sustaining of double digit EBITDA margin.

Let's turn to our 2021 full year outlook on slide 16.

Our differentiated platform is delivering above market growth and strong results, which we expect to continue.

We are seeing strong underlying demand in both new housing construction and remodel.

As we anticipated builders are seeing such strong demand that they are limited sales in certain communities to maintain backlog that prudent levels, given the material and labor constraints.

Based on our stellar first half performance, our positive conversations with customers, our accelerated integration synergy capture of better view of our inflation environment.

And our continued strong organic sales through July we are increasing our full year 2021 outlook.

We expect net sales in the range of 18% to $19 billion representing growth of approximately 41% of 48% over 2020 combined pro forma net sales of $12.8 billion.

This is driven by an increase of new starts is the key catalyst for our base business growth plus the benefit of robust, but receiving the commodity prices.

We anticipate adjusted EBITDA for the in a range of $2.2 to $2.4 billion.

For approximately 105% to 124% over 2020 combined pro forma adjusted EBITDA of 1 point of <unk> 7 billion.

We expect to deliver significant free cash flow over the next 6 months based on the normal seasonal flows declining commodity prices and the App active working capital management.

Our 2021 free cash flow guidance increases by $100 million to approximately $1.5 billion as increased EBITDA as partially offset by higher working capital from higher sales as well as well as higher taxes and interest.

Our outlook is based on several assumptions, which are outlined in the earnings release, including.

Mid to high teen percentage growth in single family starts are.

Our R&R growth in the low to mid single digits and multifamily starts growth in the high single digits.

As discussed earlier, our of commodity assumption provides an 18% to 28% lift to our base business sales growth.

Commodity costs have come down over the past several of them. So we expect OSB in particular to continue to come down.

During which time, we will remain vigilant as we sell through our higher commodity cost materials.

Despite the commodity price volatility, we feel confident in hitting our full year guidance.

As Dave mentioned for the integration with EMC is ahead of our initial expectations. We now expect to deliver cost synergies of $18 million to $100 million. This year and in addition, we remain focused on accelerating our operational excellence initiatives.

Turning to capital allocation since the merger of BFS and BMC 7 months ago. We have spent considerable time focused on our strategic alignment and the analysis of the best ways to deliver value to our shareholders over the long term.

As a result of our priorities for balanced capital deployment or in order, maintaining the strong balance sheet reinvesting in our business to drive growth and productivity.

Continuing our tuck in M&A strategy to grow our capabilities in desirable markets across the country with a specific focus on value added capabilities.

Returning capital to shareholders as appropriate.

As part of our balanced capital deployment strategy, we are setting our leverage target in the 1 to 2 times range recognizing that we will appropriately adapt that range to the economic cycle.

We remained well positioned to deploy capital effectively after executing multiple value enhancing transactions, given our robust balance sheet and strong M&A pipeline.

Overall, the financial results for the first 6 months of been extraordinary or.

Our base business is robust and we believe there is a long runway for growth in the years ahead.

We are focusing on creating value for our stakeholders and are continuing to build our world class distribution network founded on the operational excellence and delivering exceptional value to our customers.

Let me turn the call back the Dave for his closing remarks, thanks, Peter and summary of demand in single family housing remains exceptionally strong.

And we continue to capitalize on this positive trend.

The ensuring we meet the needs of our customers both the date.

And in the future.

The BMC integration continues to progress extraordinarily well.

And our realization of cost synergies as the year ahead of schedule.

Looking forward, we remain focused on executing our strategy of investing both organically and through M&A to continue to align our portfolio with high value in faster growth categories, while simultaneously improving efficiencies.

Productivity and our digital capabilities and the value chain.

Our future is bright and our ability to execute and are hungry for innovation has never been stronger.

And we will continue going above and beyond for our customers and partners to provide best in class homebuilding solutions.

With that Sarah let's open the call for questions.

Thank you.

We would like to ask a question. Please signal by pressing star 1 on your telephone keypad Covid.

Using a speaker from please thanks for your mute function is turned off to a value of signal to reach our equipment again the star 1 to ask a question.

Pause for just a brief moment to allow everyone an opportunity for questions.

And we will take our first question.

From the Rubin.

Gardner with benchmark company.

Thank you good morning, everybody.

Moreover of rewarding.

So.

First of all thanks for all of the detailed in the deck I think that's all going to be very helpful for folks seeing.

Seeing how much of your business is not really driven by the lumber market.

So maybe if I could start you mentioned your visibility in the next year.

How much.

At least you guys how much.

Visibility do you have in other words, how much business do you think this year is kind of get pushed out for next year for you guys. I mean, you are putting up big growth numbers in your manufactured.

The business despite.

Despite this.

Any color into whats going to get pushed out in the 2022.

Yes, Ruben as I mentioned in my comments, we've been in contact with our customers quite regularly.

Almost without exception you have seen them kind of slow the starts for this year with the intent of pushing demand into next year and almost to a person. They've said this is the strongest environment they've operated in many through their careers.

Given the state of the demand.

Which is much much different than it's been in a very very long time interest rates, we expect the.

Continuation of what we've seen this year into next year and I would also point out our focus on our value added.

The portions of our business are just continuing to gain momentum.

<unk> said in the script and I'll say it again I've got confidence in our ability to continue to drive growth and take share in any market environment.

Perfect.

Very helpful and then secondly.

On the free cash flow.

Pete it's a.

The little I guess.

Maybe if you could help us out.

Free cash flow of your generated thus far.

In the year.

Much of working capital investment is.

The embedded in that number I'm, just trying to figure out kind of what's left to go what's sort of the normalized number.

There and where your balance sheet will stand as we kind of enter 2022, congrats on the results guys and thanks for your help.

Yes, Thanks, Ruben and Great question, it's been a dynamic year for cash flow as you.

As you highlighted we have seen the investment.

Over $1.1 billion year to date, and our working capital space right. We are not yet while the market is certainly turning.

We're not yet done earning through the.

Either of the summer build of normal inventory or the higher prices that we walked through all year.

So year to date, our free cash flow has been of use right around $300 million.

We do expect to generate the.

The remainder.

So the power of $1 billion between now and the end of the year.

We've already started to see that generation in the third quarter third quarter view of very good year as you would expect as the market turns.

And still a significant amount of cash generation into the fourth quarter. So.

Certainly see a clear line of sight of of where that will take us.

The $1.8 of additional cash from now so the end of the year is certainly going to put us in a very strong position to deploy capital.

Ways that will benefit shareholders.

Perfect.

Thanks, again and good luck moving forward.

Thank you.

Thank you and next we'll move on current Mike Dahl with RBC capital markets.

Good morning, Thanks for taking my questions.

1 of my life.

The great debt.

John.

Peter I wanted to pick up on the cash flow.

Dave Peter Thank you Ivo the more technical and colorful term for how much cash is coming in the next 6 months.

Little REIT stream here.

Yes.

Thank you.

Current leverage currently that's clearly going to come down when you kind of net.

Net out the cash in the second half of the M&A.

It's the lined up close to zero net debt, so that kind of checks off debt.

Fox 1 of maintaining a strong balance sheet.

When you think about the 3 other priorities I know at the end quarter here from kind of a medium for longer term standpoint, but when youre thinking more near term in nature, yes.

The next couple of quarters next few quarters.

Is there any bias.

The 3.

Whether it's investing internally for the tuck in M&A of returning capital of that last 1 hasnt been apart.

The pro forma company, yet so just any color on kind of more near term how that balances out.

So a couple of comments, obviously really excited about the strength of the balance sheet are.

Our action 2 to put.

Put structural.

Very favorable debt out there the 2032 notes for.

For the quarter unsecured is something we're very proud of.

1 of the agencies gave our secured notes an investment grade rating. We certainly are proud of what we've done on the balance sheet and excited about what that means to your point, we put our priorities out there I think we're we're.

We are excited about what the pipeline looks like for opportunities to continue to grow in M&A, but we're going to remain disciplined we're not going to get out of over our skis on valuations.

We're very clear eyed about what commodities do over time that can't be of driver.

And we think that that pathway will certainly yield opportunities.

Your comment about not having done share buybacks buybacks as a pro forma andi is absolutely correct.

The prior entities had done share buybacks.

So I don't think anybody's necessarily opposed the concept, it's more of a matter of making sure. We're looking at the situation each month, each quarter and making the absolute right decisions for the long term for our shareholders. So we're going to stay committed to that.

And we will continue the messages as things develop.

Got it.

That's helpful.

My second question is just on the on the manufactured products I mean that is <unk>.

<unk> growth even in a.

Even against the strong market backdrop.

Clearly there is some share gains there.

This is probably difficult but is there any way that you can kind of talk to.

How much of that growth.

Was effectively seeing increased adoption of our conversion within your existing customer base versus potentially.

The added.

The capacity that you've brought on and or just.

A higher customer accounts in your in your manufactured products segment.

Yes, Mike this is Dave.

We had both legacy companies as you know had strong underlying momentum and a strong focus on manufacture components for a long time and both of US we're continuing to gain share when we put this team together, we knew particularly in overlap markets. There will be increased opportunities for us to accelerate that growth both the internally.

Based on what we were doing 1 of our assets and where we saw opportunities to extend capacity, which has been very tight in some markets, where we've had rapid adoption and importantly, continuing to convert customers at a higher rate.

Both new customers, but I would say more importantly, and probably more impactful Lee is the accelerated growth with customers. We've already had relationships in certain geographies and our merger help them get more comfortable and accelerating and extending that.

Therefore sprint.

That's great to hear thanks, Dave Thanks, Peter.

Thank you.

Thank you and next we will take Matthew Bouley with Barclays.

Good morning, everyone.

Hey, David Thank you for taking the questions I Echo share and happy birthday, Matt.

We appreciate the spread on your birthday morning, with as I think of you ought to get a bigger size piece of cake for that.

It is exactly what I imagine for my birthday, so much appreciate it.

We're thrilled.

Yes.

So yes, you provided of gift here so.

Yes.

Lot of things to ask about.

Let me ask about the the digital opportunity the.

The $1 billion.

Dave you mentioned at the top debt Youre going to part of this is using if I heard you correctly paradigm to accelerate value add adoption.

You listed on 1.

1 of the slides that there is it looks like 4 of 5 kind of drivers of the $1 billion.

What I'm wondering is is kind of.

If you could kind of bucket that out how much comes from scaling the paradigm software versus how much comes from that litany of internal.

Drivers across wallet share and driving value at adoption. Thank you.

Well the the internal piece.

I appreciate the question of the internal piece of something internally that we feel strongly about where we can gain some efficiencies of just what our internally today is very manual processes as we go from design to estimating for our customers.

There are 2 key things that are going to help us accelerate towards the $1 billion and obviously these are early days and we still have a lot to figure out and Oh by the way, we havent closed the transaction yet.

But in our early thinking.

The opportunities to extend their platform more broadly across our customer base, which.

<unk> and his team have done a great job to get the customers as they've gotten but we've just got a bigger platform and the ability to scale debt, but if you think also about long term being able to automate our design in take offs and actually provide our customers with an estimate of our for full capability, including our manufactured components and ready for.

But even further down our millwork capability, which is at the core of what paradigm does today, we just see that ability and the ease with which we'll be able to do that over the long term being a great value proposition for our customers and the ability to get our value added products in front of them in a more seamless way.

Wonderful okay.

Helpful and yes, we'll look for that additional color upon the deal closure.

But that is very helpful.

The second 1 on the margin side.

You made a comment at the top the Bay.

The business margin the 10, 1% this year.

Something that you see as sustainable if not with the potential to further expand.

I am doing the math right with a little bit of rounding it looks like your core base.

Business incremental margin in the guide this year is right around 18% give or take and correct me if I'm wrong, but so.

The high level of the question is.

Is it that you can further expand structural gross margins or is it that you're shifting to additional SG&A leverage and I think 1 thing that would be helpful to address.

A common question, we get from investors.

If any of the base business margin that 10%. If you think of any of that May have also been temporarily benefited by extreme lumber prices the prices and shortages. There. So the long question, but would appreciate any color. Thank you.

Yes, Theres a lot in the let me try to unpack it a little bit and then I'll have Peter from over the top of any further color, but I am confident in our ability to continue to expand that margin over the long haul.

Thank for your last question no I don't think there was any outsized impact based on lumber in that and as you think about our core business and as Peter highlighted 43% of that today roughly is our value added areas with the growth that we see the continued improvement in mix.

We just accelerate of our synergy capability here, we're going to capture that over the next 6 months to 12 months and in addition to that you think about our ability to drive operational excellence of this combined company, which we're just starting to think about and get after over the long haul we see the ability to continue to improve our margins over time.

The combination of growth and internal work that we see going on that will continue to enable us over the long haul to expand those margins.

So just a little bit of color on that Matt we have seen a couple of.

I'd call it a leakage of the impact and the acceleration of price in the marketplace into other.

Bucket.

We tried to normalize for that and here, we try to look at the margins that we thought were sustainable over the long term we've talked to.

In the past about sort of a normalized model of gross margin. We tried to account for that in this and allow the rest of it for the swash over into the into the commodity unusual pricing bucket. So I think that is an important 1 and like that said, we have a lot of different ways to drive the performance of this business on a go forward basis.

And I think it's all of the above is it's that expanded value add the efficiency of nap more gross margin line is the efficiency in SG&A a lot of operational excellence.

Lot of improvements that we think we still have in front of us as we continue to solve problems for our customers and just growth.

Wonderful well that is very clear. Thank you Peter and thank you, Dave and best of luck guys.

I appreciate it.

Thank you and next we will take our next question from David Manthey with Baird.

Alright, Thank you and good morning, everyone.

From day 1 of them.

So lumber prices.

Nearly <unk> of an impact of.

The opex leverage in the P&L and on the gross margin itself via mix, but as we look at the table in the appendix sort of top to bottom of wheat.

The assume that.

Behind that Youre looking at SG&A dollars that are materially flat.

In every 1 of those states of being a net in that appendix table.

No our expectation is that about roughly 70% of SG&A remains variable.

The rule of thumb debt.

We've used historically I mean this is base all day, so you have to sort of exclude that commodity price fluctuation component.

Okay.

And then secondly, as it relates to the table as well.

You note here that these are <unk>.

Constant lumber prices for the full year and I'm just.

Just to level set of can you talk about the dynamics in real life as.

You moved from tier the tier across the table just what are some of the moving parts that we should look for as you sort of chase lumber prices up and down in the.

Impact on the P&L.

Sure, Yes, I mean, I think it's consistent with what we have said in the past about commodities.

Certainly want investors in view of the analyst community to have a clear understanding of how our business works as you deal with.

The increases and decreases in commodities there are certain characteristics of certain parts of the country that are in.

<unk> on the results when you have inflation, where you've got longer fixed price contracts, whether it's the 60 days and the smaller percentage of this lack of better than 90 days or 90 day, plus you inevitably we will see a compression in the gross margin percentage of that inflation occurs and then as it reverses.

Youll see an expansion in the gross margin percentage.

Inversely Youll also see in markets with very very fast.

Pricing turns where everything is very short sometimes youll see the exact opposite where you will see expanding.

The expanding margins on the way out and declining margins on the way down as you're pricing off of replacement in the very fast turnaround environment.

By and large we of course want to make sure. We're turning the inventory quickly so that whatever of those impacts are they happen quickly right.

Pass through very quickly.

And ill reemphasize that we're not in the game of predicting and betting on commodities. We're in the game of distributing commodities to the advantage of our broader business and I think the our our demonstrated performance.

Historically shows that we're pretty good at it we know how to make money and ups and downs, it's a matter of making sure youre running it.

And of disciplined and operationally excellent manner.

That's perfect. Thank you very much.

Thank you and next we'll move on to Keith Hughes with true.

Thank you.

On the manufactured products number.

If that does get impacted by commodity inflation. So.

Is there a way you can talk about units and how much the units were up year over year.

Yes, so thats the attacks that that 58% excludes what we believe to be the overlap from commodities.

That's actually a new go for you in there Keith on slide 5.

In that footnote you can see we sort of called out it's about 4% of that 22% that has some exposure to commodities as you think about the commodities are included in what we manufacture.

Okay. So that doesn't gets closer we get to a unit of or is that what's the private side.

Yeah, what we've communicated at the close based on our analysis of price volume mix, that's our best our best estimate yes, okay.

And second question on the on the guidance for the.

Second half the clause EBITDA up year over year.

Is that going to slant towards the third or fourth quarter.

Given the commodity impact or any sort of directional guidance there would be helpful.

Well I would hesitate to say third quarter is always higher than the fourth quarter, just due to normal seasonality volume risk.

And I think the impact of commodity Im talking about earnings.

Sorry about the gain year over year to the slab is there going to be more of the gain in 1 quarter versus the other.

Based on our prior year comparison.

Yes.

I know that off the top of my head.

Okay.

That's fine.

Yes, it's probably a little more weighted to Q3, just by nature of the seasonality is a little bigger and the fall through would be a little bigger in that quarter.

Okay alright, thank you.

Sure.

Peter.

Thank you and next we will take our question from Steven Ramsey Thompson Research group.

Hi, good morning, maybe to start with on the debt secure.

The gypsum operation is that a meaningful impact to the incremental margins that are non lumber.

No it's not it's a fairly small business in total.

And the margins were below average.

Great and then.

You about product shortages.

<unk> for Windows doors and millwork.

Is that something I'm curious embedded in the guidance for <unk>, but.

In the second half of that or is that a major impact and then.

Or is it a greater impact as you get into next year.

Well I mean, it has been an impact all year I think as you look at the.

The.

Although part of our business right. The other other part of our value add business windows doors and millwork its trail a little bit in terms of growth still strong, but not where we think it should be.

A couple of pieces of that obviously of a chunk of that is the expansion of units under construction and just sort of how far along a lot of these homes are but some of the cause of them being <unk>.

They're being as many units under construction is there or is it.

We've just struggled lead times are longer.

They've been longer for.

Cash coming up on the 9 months plus so this is not new this is not new news I think we just consistently fight it.

The channel.

I think it's 1 of those areas, where we would see faster completions and faster cycling of.

Sort of the growth in our market, if we could relieve that I know they're trying.

But it certainly continues I would say in a stable way it may be a little bit less bad than it was but still bad.

Yes, I'd say, we saw a little of acceleration in our organic growth there from Q1 to Q2, which kind of reflects with Peter just highlighted but our teams are just 1 of tremendous job for just.

Product for our customers.

As I mentioned, we've heard from our builders they've slowed starts.

It's not a demand problem.

The reason those starts have been slowed as exclusively because of the challenges of they've had around labor and materials.

We're doing our best the satisfy those needs on both fronts.

Thanks, a lot and then the last thing lumber pricing.

Nearly on random links to are coming down, but some people we talked to channel check that said the lumber transactions. The pricing is not coming down on the ground are you seeing that in your business.

Yes, I mean, we do we do so much commodity across the country I'd say, we probably see everything in 1 place or another I think speculating on commodity prices and what it's going to do is.

And our world something where it's a bit of a fool's errand.

As demonstrated by my forecast last quarter. So I think we'll just maybe with the alloy.

Great. Thank you.

Thank you and next we will take our next question from Stanley Elliott.

Hey, good morning, everyone. Thank you all for taking the question of congratulations could you all talk a little bit more about the alliance acquisition, if I remember correctly. They didn't do a whole lot of value add millwork like you all do.

Whats the opportunity set here for you all to put that through their channel and how quickly can you realize that.

Yes, we're excited about that I made a couple of comments there in the script of about that as an opportunity we had a relatively small footprint of the state as you know.

Half of dozen or so locations they've got great capability on the components side, which we're excited about but they have not had the millwork opportunity and we're very strong in the work as you know and so we'll see how quickly we can get that ramped up the team is excited about it both of the alliance team as well as our team and we will get after that 1.

As quickly as we can there's obviously a clear need in that market given the growth of their experiencing so we're excited about that.

And M&A, you've always had a very nice job of rolling up.

The markets.

Does the shortage in some of the materials that you are seeing now does that change your thought process on on maybe moving into maybe adding some capacity on the value added side versus consolidating some of the smaller dealerships.

I don't think of materially changes and we're doing book, we're investing quite heavily in capabilities.

On value added both in the millwork side and the component side as we see a long runway there of adoption of the growth.

In the markets and we're still looking in the markets to understand where it makes sense for us to augment our capabilities for the right M&A, which may help us expand our geographic footprint in the local market.

And so as we've talked about both of our capital allocation and just our overall strategy, we're going to continue to do both.

And just to add on to that 1 thing that is exciting and some of these opportunities.

We've got the the efficiency of the skill sets to help them improve their performance to get more out of these businesses that they are managing.

So I think that adds to our ability to meet the capacity constraints in the market and as far as being there for for our customers. We certainly believe that increased scale.

And the partnerships that that helps to create in the long run with vendors is certainly.

And it is advantageous to us and puts us in a position to get at least if not more than our fair share as we deal with difficult supply environment.

Great guys. Thank you very much of best of luck.

Thank you.

Thank you and we'll take our next question from Trey Grooms with Stephens, Inc.

Alright, thanks, guys.

Yes, I wanted to echo on the on the deck as well Super helpful.

But <unk>.

Question I guess first off was the follow up back on 1 of the earlier ones around the.

The base business EBITDA margins.

And clearly the Incrementals are running high teens I think.

You did 10 for this this quarter.

And like you said, David the obvious there is potential for some upside here, but.

Where do you see the space business margin opportunity over time as you look at all of the moving pieces clearly it's higher.

But with these types of Incrementals, where can we see this going over time.

Yes, we're excited about it we think.

Both the top and the bottom line, we will continue to grow over time, we're not going to project that this morning.

But I will promise you we are absolutely focused on it that is the focus of this company right now our base business of our value added capabilities, we're going to grow it we're going to continue to improve profitability and we're going to invest in it.

Alright fair enough I thought it was worth the shot.

And then.

Yes.

And then Peter a minute ago you mentioned.

Some of the dynamics.

We've come to understand over the years with lumber price fluctuations.

Where.

This most recent spike in lumber you guys have kind of Buck the trend it hasnt been your normal kind of reaction as far as the to.

The gross margin percentage.

So and you mentioned that when things move widely are wildly quickly.

Net debt the margin can can react differently almost the opposite of what we see in a.

More normal kind of lumpy.

Lumber price movement kind of environment. So with that said is so you guys have been really outperforming or actually seeing margins higher on the result of this spike up so is it the expectation per your comment earlier that that it's like a.

<unk> on the way down that we should expect some kind of normalization of the gross margin just as these prices come down.

Did I read that right, excluding the core business, which obviously is the big focus.

Care about but unfortunately, we still have to model the lumber piece too so.

Is that kind of what you were pointing to there.

Well im not signaling.

<unk> turn I guess, what I wanted the upfront about it and I think we've talked about a little bit on prior calls is the nature of those extended terms the.

The mix of those extended terms have materially changed right. So where there was a more extreme impact on the way up in a pretty extreme impact on the way down right alright headwind on the margin percentage of the way up strong tailwind on the market presented in the way that I think both of those are diminished.

I think the diminished because of the reduction in average days of price lock in our mix of sales.

I don't think it's signaling of downturn into the future I think of lot of the.

The fall through the debt we're dialing out in this at this analytic comes from other parts of the business and commodities and the pricing volatility of the nature of some buying that we did all of asphalt Colombia gather in that number.

I don't think its going to be a real big headwind for us anytime you have flush of fluctuations, especially as massively as they are now there is always a little bit of uncertainty as to how it all filters through but based on what we're seeing in the detail inventory levels pricing levels. We think we can manage through it very effectively I just.

Wanted to sort of signal that they are I don't think theres going to be as big of a windfall as theyre happening in the last cycle.

Great.

Thanks for the clarity there Peter that was perfect and thanks again for taking the question and keep up the good work. Thank you.

Yes.

Yes.

Thank you index from the line 2 key Ken Nims for BMO capital markets.

Thanks for squeezing me in and I'll, Let me add my congratulations.

Coming back to the the value added side of the fees.

Obviously really strong results and I am just curious are there any.

Particular regions of <unk> as of the country seeing.

The more growth or is it more broad based.

Yes, the exciting part about it is we've seen that expansion in growth broadly across all geographies. So there is not 1 that I would point to that would be.

Outpaced strong.

Obviously, the strength that we have in the south and in Texas.

Kind of of leads the way, but as we've gained adoption and accelerated penetration, it's really broad based.

Got it that's helpful. And then can you just remind us in terms of the capacity headroom that you have.

Both on the manufacturing side in the midst of upsides, particularly in light of the strong growth that you guys. The athene.

Yes.

Challenge.

We were spent as I mentioned earlier.

Spending quite a bit of capital to increase our capacity in key markets. In addition of that we're driving productivity and efficiencies to just gain any increment of capacity that we can.

I think given the strength of the market and the adoption rate of what we're seeing we're going to fight debt for a bit, but we're not losing sales today, because we can't supply.

The challenge of it.

Peter talked about earlier has been of some of the upfront supply chain challenges of just getting materials. We are not the bottleneck currently but it's something that we've got to be diligent about stay on top of book.

Sure.

Got it Thats held for like garnered over the last in the back half of the year.

I appreciate it.

Thank you once again, ladies and gentlemen, if you would like to ask a question today you may do so by pressing star 1 on your telephone keypad.

And we will take our next question is from James.

Can live with Wedbush.

Good morning, Thanks for taking my question.

The.

Good morning.

Given the velocity of the business now.

From the lower lumber prices in the EU.

Do you think the third quarter of this year as gross margin is trending more towards what we saw in the first quarter for.

Something closer to what we saw in the second quarter, just wondering with all of the turnover.

It seems to be a better outlook for multifamily on the home builders for source part just wondering how quickly that.

The change in lumber prices is kind of fluid due to the gross margin.

Well I think historically, we've talked about the timeline for the flow through of changes in commodities just being in that.

Quarter ish timeline, 1 to 2 quarters. So I think that's it's fair to say that there'll be of.

Update of of fade, obviously Q2 had the lapping of the worst of Covid we've gotten.

A lot of good benefits year on year, So I think settling back as prices fell of back over the next quarter or 2 is still appropriate guide.

And then could you maybe talk about multifamily it sounds like the demand from what's coming in has changed and you've gone to positive growth there from I think negative growth before.

Hey, what's going on there is this helping to offset maybe a little bit slower pace from from the single family builders.

Yes, that's been a nice.

But the sort of surprise, a little ray of sunlight coming through in multifamily when we thought it would be pretty weak now just just to clarify and for those that maybe aren't as familiar with us our multifamily is a pretty <unk>.

The market specific focused business on.

Most of the country, it's for story and below wood structures. We are of a couple of businesses that do quite well in the high rise market that they are fairly small so a lot of our work is project focused.

I think what you've seen is the the resurgence of of a little bit of that multifamily housing market as people realize that the new homes aren't going to come out of the ground as fast as people maybe you would've hoped.

All of US maybe you would have hoped.

And those.

$3 million to $5 million under built or under served homebuyers are going to need somebody for live until we're ready.

What youre seeing is a little bit of a rebound there it's still pretty modest, but we're certainly pleased with it because it was as you know pretty grim there on the outlook for a while.

And my compliments on the new deck is relative to a lot of good detail there. Thanks for.

Thank you for taking my questions.

Thanks, a lot of thank you.

Your next from Brian Coleman Zarin with Jefferies.

Hi, guys. Thanks for taking my question.

Most of my questions of action the answered already but I guess I'll touch on the new leverage target you said I'm very bullish on demand for the next several years. So can you just tie together your bullish commentary maybe how many more years of growth you've seen in the cycle with that new 1 to 2 times leverage range that you put out there today.

Yes, I mean, I think it's exciting times.

The and build the first source is what that boils down to we've got.

We think of really strong positioning on the business in terms of what we've been able to do with the balance sheet the long maturities.

The low end of declining interest rates.

And we're doing it in a way that makes the business.

Both of our focus of our recognition is to make sure. We have an incredibly strong balance sheet throughout the cycle. This is of great time in the cycle.

We think that there's more runway and we're going to continue to generate cash our job is to put it to work and maximize the shareholder benefit and.

Benefit the <unk>.

Business make sure were healthy that our stakeholders are satisfied and taken care of.

And provide a great return and I think we're lining it up in a way that we've got we've got a lot of firepower to do a bunch of different things and we're going to be disciplined about how we put that to work.

And the the math, we're doing around the return on.

Investment for.

Internal investments for M&A and for potential returning of capital to shareholders as disciplined and we're going to continue to work with with the board and management to make those decisions in the best possible way.

Great. Thank you for the color.

Thank you.

Thank you and we will take our index calmer for question from Kurt Yinger.

Great. Thanks, and good morning, everyone.

Good morning, just 1 quick 1 on the EBITDA incrementals it looks like in 'twenty, 1 on the commodities.

Margins of about 20% or so.

I guess the question is as we look ahead to 2022 and make whatever assumption, we want around lumber prices in the topline impact there is that the same type of incremental margin, we should be kind of looking for.

Presumably on the way down or do you of any thoughts around.

Anything youre doing internally around pricing or things like that that could kind of dampened that impact.

Yes, so I think the the way down.

The vs way of comment is exactly why we did slide 5 I think that was really our intent is to help people understand where we're at where it wants to be when commodity prices are at that $400. So I think that's a really healthy way to look at it.

I'd just remind everybody how dynamic this year has been how volatile.

These words coming from the Guy who thought we were going to defend gently from our roughly $900 of thousands of commodity levels back when the last time, we met on this call.

It's been a heck of a ride and I think what youre seeing in these numbers is a lot of.

Of the impact of that volatility in 1 way shape or form so that <unk>.

Expectations of it going back to the the <unk>.

<unk> 3 and the $1.6 number for 'twenty..1 we really wanted you to have that just to give you a sense of what we think the base business really looks like and hopefully that answers your question appropriately.

Yes.

Helpful.

I guess, just 1 higher level question I mean, youre still relatively early in the process of combining the business.

A lot of things are going very well I'm, just curious from a pure scale perspective, and the relationships you have with your suppliers and your customers.

Which positive areas of the business that you are seeing right now do you feel like of I've really been.

Augmented by that increase scale, putting together BMC in BFS.

Yes, Im thrilled about a lot of things, but the results of that Youre seeing in the value added the areas of the business as I've said earlier, we're exactly what we envisioned and pro for and it's great to see that playing out and our organization is focused on it.

We're continuing to provide innovation, we're continuing to invest in that part of the business and as I said, we've got a long runway ahead of us.

Yeah, I don't think of any of us at that forecasted number of 58% and bright growth right. So of the ability of the team to be put together like they have been and execute at that level of its really space of the source of the cultural alignment has been fantastic.

Okay, Alright, well I appreciate all the color guys and good luck here in the back half.

Thanks, a lot.

Okay.

Thank you and lastly, we will take Ryan Gilbert.

With the P I G.

Hey, Thanks, guys.

1 of Washington.

First question on manufactured products I think over the last couple of quarters, we've talked about the growth.

The core organic growth in the manufactured product segment being driven primarily by existing customers.

From a relationships and I'm wondering as we move into the peak building season here.

And the really strong core organic growth you've put up in <unk>, if youre seeing the customer base.

Expand from from the last couple of quarters and then just if that has been the case your thoughts on the stickiness of that of that new customer base and.

How that influences your thoughts around normalized gross margin if we can do better than 26 of 26, 5%.

Yes, very good question and as I have.

That clearly is the focus of the organization and our value add we're seeing great adoption I think I'd commented earlier that we're seeing really good adoption with customers who have.

We had experienced with our value added capabilities in 1 geography or another or maybe a few and are gaining more confidence based on what they've seen in those markets around what our value added capabilities to do the can do to help them, both with labor challenges and drive outpaced the efficiencies at the job site. So we see a long runway here.

Over time and the other thing I would say and I think I said this in my prepared remarks, a disproportionate amount of the new homes being constructed or those starter homes and that lends itself very well for the structural design work that we do in our components business and so given all of that backdrop and the focus that we have on it.

We'll continue to see the adoption of increase.

Okay great.

Second question is on multifamily I know legacy BMC.

Really nice multifamily operation that flow through.

Our complemented the millwork doors and Windows segment of their business and as we see multifamily start to rebound.

Wondering the extent that.

<unk> been able to.

Take the take the legacy BMC multifamily operations and expanded to the entire pro forma business.

Yes, let me just comment and I'll flip it over to Peter here for any of.

Additional color Youre right to portray the focus that we have the BMC being very strong, but I would highlight what Peter said earlier, even in the BMC legacy footprint. It was a very targeted approach to multifamily of key markets in the south a little bit of up in the east and somewhat out in California, and the West coast.

Not broad based and I think that.

Our targeted market focus is exactly why we had such success, we knew where those markets were going to be strong for some period of time and Thats, where we have the capability and our team was just fantastic the driving growth.

And I think that the combined multifamily business has done well I think the partnered well and are seeing.

Strong performance, what we considered to the market taking market share at the little hard to communicate that when we're talking about comparisons of national metrics, but we think we're doing really well with that business.

Anybody who.

As the the.

Background in the multifamily recognizes the longer cycle times on those projects.

Cycle times that are particularly disrupted by extremely volatile commodity prices. So there has been especially net of all of the markets they've been as active as anybody.

But we certainly are still very pleased with the performance of that business, both top and bottom line.

Okay, great. Thanks very much.

Thank you.

Thank you.

And that does conclude today's question and answer session I would like to turn the conference back over to Mr. Michael Neese for any additional or closing remarks.

Thank you Sarah and thank you everyone for your time and interest in BFS. We are around all day to take your questions have a great day. Thank you.

Yes.

Thank you and that does conclude today's teleconference. Thank you I. Appreciate your participation you may now disconnect.