Q4 2022 Builders FirstSource Inc Earnings Call

Good day and welcome to the filters first source Fourthquarter 2022, and your earnings Conference call. Today's call is scheduled to last about one hour, including remarks by management and a question and answer session in order to ask a question. Please press the star key followed by the number.

One on your Touchtone phone at any time during the call.

Now I would like to turn the call over to Mister Michael lease Senior Vice President Investor Relations for builders for source. Please go ahead Sir.

Thank you Brittany and good morning, everyone welcome.

Welcome to our fourth quarter and full year 2022 earnings call.

With the only color Dave Rush Ah recently imported CEO and Peter Jackson are CFO .

Today, we will review, our fourth quarter and full year results.

<unk> press release, an investor presentation are available on our web site and investors Dot <unk> Dot com.

We will refer to several slides from the investor presentation during our call.

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

We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures you can find the reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable in a discussion of why we believe they can be useful to investors in our earnings press release said.

Filings and presentation.

Ah remarks in the press release presentation and on this cough contains 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 then our SEC filings for various factors that could cause our actual results to differ from forward looking statements and projections with that I'll turn the call over to Nick.

Thank you Mike good.

Good morning, everyone and thanks for joining our call before we get into the results I would like to thank the board of directors for the opportunity to services builders for source and for trusting me to lead this great organization.

Also want to thank all of the <unk> build leaders and team members further support which has been inspiring a.

I come from a background in finance, having spent the first 18 years of my career and various financial Rolls from controller to CFO over my 23 years would be best I've been fortunate to have had a variety of operational roles, including region of oversight primary responsibility for both.

<unk> BMC integrations and most recently leadership of our enterprise wide initiatives as GBP of our strategic management office.

Believe my experience in industry knowledge will be a strong basis to build on our success of creating long term value for shareholders.

Now, let's turn to the business results.

Acro economic factors will undoubtedly continue to create headlines. This year, however, with our exceptional seasoned team strong balance sheet and industry leading platform. We are in a great position to win in any environment. We have failed leadership team with over 30 years.

Average experience in the industry.

Have been through similar macroeconomic environment to the one we are currently facing today, which gives me great confidence in our ability to manage business changes with a quick and decisive action is required.

We have maintained very low leverage providing us with maximum flexibility to deal with any scenario and we continued to leverage our footprint or scale at our product portfolio to out compete in the market.

Let's turn to our long term strategic priorities all slide for for a moment.

As we navigated changing changing landscape, we see no need to alter our long term strategy and we remain focused on expanding organically and value added products and services.

Driving operational excellence continuing to build our high performing culture and growing through strategic tuck in acquisitions.

Slide five you can see a continued emphasis on the strategic priorities was key to our record full year 2022, net sales of $22.7 billion and adjusted EBITDA, a $4.4 billion top line growth.

Value added product mix improvement and disciplined cost management resulted in our adjusted EBITDA margin, increasing 390 basis points to 19.3% the combination of the increase profitability and share buybacks supported 81 per.

Saint growth and full year 2022 adjusted EPS.

On slide six you can see that we delivered at 6.6% increase in core organic sales, including nearly 21% growth in our higher margin value added products. We are extremely pleased to deliver $123 million a pro.

Activity savings for the year exceeding 100 million dollar targets as we drive improvement across a variety of projects and leverage our BFS what team operating system.

We remain focused on the importance of controlling SG&A. Another expenses. This includes efficiency efficient cap capacity utilization.

All going optimization of our footprint in balancing the need for variable cost reductions in future capacity importantly, we have rationalized over 30 locations during the last year, while maintaining coverage and not exiting any market.

I'm extremely proud of how we continue to demonstrate our high performance culture through improved safety by lowering a recordable incident rate by approximately 22% year over year, which marks the second consecutive year of improvement. We also continued to invest.

And training enhanced dei initiatives and improved employee benefits, the better attract and retain high performing talent.

Starting to M&A on slide seven in addition to our focus on profitable for organic growth, we continue to execute tuck in acquisitions alive with our strategy completing six acquisitions in 2022.

Although the M&A pipeline has slowed and the current macro environment, we continue to be inclusive while remaining disciplined and our approach we are committed to expanding our geographic footprint in key markets with a particular emphasis on enhancing our value added portfolio to better serve our.

Customers diversify our in market exposure and leverage our technological capabilities.

This is evidenced by our recent acquisitions, including payment door and supply in the fourth quarter, which expands our millward footprint in the Phoenix area and earlier. This month, we acquired <unk> Trust, Bob location Trust manufacturer, providing building components to the single of mulch.

Family markets throughout Texas.

This tuckey and acquisition further extend our leading position and value added products across the state.

Excited the wealth of both Pima adult text with their longstanding customer relationships and track record the profitable growth to the BFS family.

There's still highly fragmented nature of our industry supports our ambition to invest $500 million in.

Mmk per year on average for the next several years.

Moving the slot eight and looking at our capital allocation an aggregate for 2022, we deploy approximately $3.5 billion of capital towards organic growth investments tuck tuck in M&A and share repurchases and remain on track.

To achieve the goal we established at our 2021 Investor day of deploying $7 billion to $10 billion from 2022 to 2025.

We will continue to closely monitor our customer sentiment was currently suggested challenging year ahead.

During the fourth quarter, we saw a slowdown in average daily sales, which has continued into the first quarter.

Higher mortgage rates and affordability challenge.

Continue to be headwinds.

On slide nine we outlined the benefits of our flexible business model for dynamic operating environments, such as the one we're currently experiencing.

As we have discussed we are actively managing the businesses conditions indicate.

And we are acting decisively wherever we see decelerating demand.

Our focus is on effectively managing costs through our variable expense structure to match costs with volumes were optimizing capacity and reducing discretionary spend without impairing our ability to maximize the recovery when this turns the corner.

Stepping back we realized affordability has been an increasing concern over the past several years as home prices and rates have increased significantly.

We are working to make housing more attainable by investing in a value added product productivity, indeed digital capabilities to reduce cycle times and make homebuilding more efficient.

Example, in 2022, we invested approximately $125 million in Capex supporting our value added product growth and digital strategy.

Going forward, we will continue to prioritize our investments in our fleet value added technology and digital innovations together. These initiatives will help lower total costs improve affordability and allow more people to buy homes.

We're committed to strategically accelerate our leading market position and deliver on our overall value proposition and we will continue to execute while keeping our focus on providing the best possible service to our customers.

Now, let's turn to slide 10 to discuss our pioneering role in the digital transformation of the home building industry.

We have a long term commitment to invest in digital innovations and technologies that we believe will drive greater efficiency across homebuilding and enhanced our product offerings on the homebuilders software side, we're executing our development plan and integrating that with our BFS operations through our does.

<unk> sales teams.

<unk> decided to have reached a significant milestone in launching the pilot of our new Bob B L. D. R Dot com platform.

This platform will introduce our homebuilder customers to easy to use digital tools to virtually design and build their homes. These include T capabilities, such as plan and say get marked up palm configuration conflict identification material estimating and ordering and <unk>.

Besides scheduling.

In January we begin.

Getting this release too both at both are BFS national event, and the international builders show at both events. We received overwhelmingly positive feedback affirming the need for this innovative technology in our industry. We are launching the current my B L. D R dotcom capabilities.

To 40 pilot customers across four markets. This will allow us to assess collaborate with and provide new solutions to our customers in a way that the lines are be upset sales and operations teams. We will add new features with monthly releases throughout winning twenty-three as we.

Build in scale alright in the end digital homebuilding platform.

The overall digital strategy remains on schedule and we are on track to gain an incremental $1 billion in sales by 2000 2006.

Last month at our National events were announced our inaugural be upset Hall of Fame class for 2022.

Culmination of our annual employee recognition program and a highlight of our people first culture.

Distinguished individuals represent the best of our frontline team members, but there is one person I would like to highlight today, Frank Lauria, Frank is a fleet and compliance manager out of Southern California, who has been with the company and its predecessors for an impressive 45 years.

He oversees our fleet and machinery across 11 locations.

Brian takes great pride in keeping everything running consistently and with minimal downtime is manager Emphasised quote <unk> knowledge of everything mechanical is simply on rival.

On behalf of the leadership team I Wanna, Thank Frank and the other hall of Fame and ducked fees for their tremendous contributions I.

I will conclude by saying that we have the best team to win in a challenging environment I'm confident in our strategies and our ability to deliver longterm results for our shareholders I'll now turn the call over to Peter to discuss our fourth quarter financial results in greater detail.

Thank you David and good morning, everyone.

Want to congratulate gave on his appointment as our new C. E. O I worked with him for many years and couldn't be happier for him and for this company I know he will lead us to continued growth and success.

I also want to join David banking, our team members for delivering a record your performance.

She really appreciate your hard work and dedication to delivering excellent service to our customers day in and day off.

I'm proud to report that we delivered solid financial results in the fourth quarter to cap off a record year the business.

We continued advantage through the complex operating environment with a proactive mindset and a disciplined approach <unk>.

We expect that the structural enhancements we've made in our business over the past decade will help us mitigate the impact of soft or housing demand and inflationary headwinds.

Our ample liquidity low leverage and disciplined cost management provide significant financial firepower to continue to strategically and opportunistically grow our business.

I will cover three topics with you. This morning first I'll recap our fourth quarter results.

I'll provide an update on capital deployment, and finally, I will discuss our first quarter guidance and lay out the last for the full year scenarios.

Let's begin by reviewing our fourth quarter performance on slide 12.

We delivered $4.4 billion in that savings or.

Organic growth decreased by 8% attributable to a nearly 14% decline in single family at slowing demand compared to strong fourth quarter of 2021 lead to difficult comps.

Both multifamily and repair remodel and others increased by almost 15%.

My family was driven by a strong rental market and resulting backlog.

Barnard other growth was mainly attributable to increase sales focusing capacity versus prior year.

Two fewer selling days had an unfavorable impact of roughly three per cent on Netflix.

Cumulative effect of our acquisitions over the past year contributed approximately eight percentage points of growth to Netflix.

Value added products, so another quarter of growth.

Compared to a total of four quarters start which decreased by 16% organic sales in the category increased 5.6%.

Lucked into macro trend a value added product adoption and our success in the category.

I'm very happy to highlight value added products represented over half of our revenue in the quarter, a grapefruit point of success towards our goal of being a supplier of choice for these valuable high growth products.

During the fourth quarter gross profit was $1.5 billion or roughly comparable to the prior year period.

Gross margin increased 200 basis points to 34.1%, mainly due to the increased mix of value added products.

SG&A grew 11% to $958.7 million, mainly due to additional operating expenses from companies acquired in the last year inflation and other costs.

Acquisitions represented over 60% of the increase in <unk>.

As a percentage of net sales total SG&A increased by 340 basis points to 22%.

We remain focused on disciplined cost management and are taking the appropriate actions in response to volume dynamics on a market by market basis.

These actions include footprint rationalization discretionary spending reductions and cutting head count and overtime.

S D. A stayed in the past approximately 70% of SG&A expenses variable.

Within that 70% roughly 20% of sales is driven by volume based formula like commissions and bonus.

The remaining 50 per cent of sale is where we are actively managing our operations. We are striking the right balance between re sizing operations based on changes in volume and protecting capacity for future growth.

Adjusted EBITDA was approximately $700 million a decline of $97 billion, primarily due to declining core organic sales and commodities, partially offset by everyday.

Importantly, adjusted EBITDA margin was 16%.

This represents the second best fourth quarter, adjusted EBITDA margin in our history, reflecting are focused execution and expense control.

Adjusted net income was $478 million down from an adjusted net income of $532.4 million in the prior year quarter.

Your beautiful to a decrease in net sales entire SG&A expense.

Adjusted earnings per diluted share was $3.21 compared to $2.78 in the prior year period.

Increase reflects or more than $650 million and accretive share repurchases investments during the quarter.

To put this in perspective, the repurchase equates to 21 cents or nearly half of the 43 cents change.

Now, let's turn to our cash flow balance sheet and liquidity on July 14th.

Our fourth quarter operating cash flow was approximately $971 million, mainly attributable to increase profitability due to affect your pricing them cost management as well as disciplines working capital.

Generally we see working capital is an incremental or detriment.

Approximately 10% sales.

Capital expenditures for $131 million <unk>.

All in we delivered robust free cash flow of approximately $840 million.

For the year, we generated record free cashflow, approximately $3.3 billion, representing a free cash flow yield of 30.6 per cent.

Operating cash flow return on invested capital with 41.1% for the year ended December 31st.

R 2022, <unk> two adjusted EBITDA ratio was approximately 0.7 times.

And approximately one three times are estimated 2022 based business, even though well within our stated target of one to two times.

Excluding R. A D. L. You have no longterm debt maturities until 2003 at.

At quarter end, our total liquidity was $1.5 billion, consisting of $1.4 billion in net borrowing availability under the revolving credit facility and approximately $100 million with cash on hand.

Moving to capital deployment.

During the fourth quarter <unk> be repurchased approximately 10.2 billion chairs for $651 million at an average stock price of $64.17 per share.

In addition, we have repurchased approximately 900000 shares so far in the first quarter of 2023 for $61 million at an average stock price $65.94.

During 2022, we repurchased almost 42 million shares for $2.6 billion and we have more than 900.

Million dollars remaining in our authorization.

In total we repurchased more than one third of our outstanding shares in the last 18 months.

We remained discipline stewards of capital and we will continue to look for inorganic growth opportunities and to repurchase shares at an attractive value.

We maintain a <unk> balance sheet, which will help us withstand a slower housing environment and keep us well positioned for long term growth.

[laughter].

Turning to slide 15, we continue to believe it is important to assess our results using a face business methodology.

During the 2022 based business revenue grew 13%.

Well based business adjusted EBITDA increased 28% year over year.

This approach showcases the underlying strength and profitability of our company by normalizing commodity volatility.

As a reminder are based business definition as soon as normalised commodity margins and static commodity prices at $400 per thousand <unk>.

Overall I'm proud to be delivered solid results in the fourth quarter, Despite slowing housing stone.

Additionally are record results for the full year reflect our differentiated platform talented team members an intense focus on execution.

I'm confident that throat, beating footprint investments and value added products and ongoing efficiency initiatives that we can continue to gain chair grow our value added products and deploy capital.

Now I would like to discuss our guidance on slide 16.

Given the current challenging conditions in the housing market.

Located mortgage rates in general uncertainty and economic conditions, we are amending our guidance disclosures at this time to align with our public customers customer.

Customers of all types and sizes have expressed their uncertainty about starts to the year ahead.

As a result, we have decided to only provide guidance for the first quarter of 2023 as shown on slide 16.

We will recess pull your guidance for actual and base business as the year progresses.

But first order, we expect net sales to be in the range of $3.4 billion to $3.7 billion and adjusted EBITDA to be in the range of $400 million to $440 million with an adjusted EBITDA margin in the range of 11.7% to 11.9%.

I would also note that the first quarter guide assumes gross margins to be 30% to 32% range.

In addition, given to 2022 starts profile, we expect comparisons to prior year will be most difficult in the first two quarters.

Our guidance includes the following full your assumptions, which are also outlined in the earnings release and on slide 17.

We expect total capital expenditures in the range of $300 million to $350 million. This includes continued investments and value added products.

We continue to invest in our technology and infrastructure and we will migrate to one integrated European platform in the coming years.

I'll remind you that the related increases in Capex and Opex are included in our guidance and our 2025 financial projections from our December 2021 Investor Day.

We expect interest expense in the range of $150 million to $170 million.

Effective tax rates between 23 and 25%.

Depreciation and amortization amber towards amortization expenses, and the range of $525 million to $550 million.

No change in the number of selling days.

And we expect to deliver between 90 and $110 billion in productivity savings.

We recognize that it's important to think about potential outcomes for the full year <unk>.

One slide 18, we provide a scenario analysis to demonstrate how we are positioned to generate Brazilians financial performance across a range of potential housing market and commodity conditions.

I will reiterate that we are not providing a full year guidance.

But the scenario analysis should help clarify our range of performance expectations and demonstrate the capability of our business to achieve strong adjusted EBITDA margins in 2023.

To summarize we are exceptionally well positioned to withstand a slowdown in house, while continuing to drive our strategic goals for.

We have a strong balance sheet and no long term debt maturities until 23rd.

Operating in a proactive fashion fashion and are taking the necessary steps to manage through this downturn with a relentless focus on execution.

Confidence our best in class operating platform will continue to generate start with free cash flow, which provides further financial flexibility.

We will also diligently deploy capital and work to maximize longterm shareholder value.

<unk>, let me turn the call back over to Dave for his closing remarks. Thanks Peter.

Let me provide a few final thoughts having spent the greater part of my career would be up at Ah firmly believe in our differentiated platform, which is the strongest it's ever been and will enable us to outperform in any environment.

Have a clear strategy that we're continuing to execute regenerate strong cash flow and we have significant opportunities to invest that cash to expand our value added products and solutions execute strategic acquisitions and returned capital to shareholders do at all we remain focused on operation.

<unk> excellence to continue to drive increase safety productivity and profitability 2023 will be a challenging year for our industry, but I'm confident in our talented team members should have clearly demonstrated their ability to execute win in any market. Thank you again for joining us today.

Operator, let's open the call now for questions.

At this time, if you would like to ask a question. Please press the start Antoine and your <unk>.

Remove yourself from the queue at any time by pressing the start you too will want to get a start and why did he would like to ask a question that took our first question from tray cramps with Stephen can I understand okay.

Hey, good morning, everyone, Dave Congrats on your new row look forward to working with you.

Contract thank strike.

Sure. So I guess first you know multifamily and R&R very strong in the quarter can.

Can you talk about how.

These two segments the multifamily and are trending through one Q and how you're thinking about these business lines as the week progressed like twenty-three.

<unk>, that's a great question.

I'll start with R&R are not R&R expanded in the current year.

Primarily because we had capacity constraints in 2021, and 22, just taking care of our existing business once those capacity constraints waned.

<unk> ability to focus on that segment again allowed us to go after new customers and and tried to generate <unk> business, but multifamily. It's been primarily through acquisition. We did the trust way acquisition and even recently with all taxes. They have a good <unk>.

Multifamily segment as well as paddle trust from the prior year.

That has allowed us to grow in that segment at a time when most of our family is actually experiencing one of their stronger years. So it's a very nice compliment to the offset of single family, having a little bit of headwinds right. Now. So that's primarily how we grew in both those segments.

Perfect.

Thanks for that and.

I guess my next question.

He'd laid out Peter E laid out expectations for.

For over a billion dollars in free cash flow.

If memory serves me right and I think if that was in kind of this 800000 single family start environment first off is that still the expectation then and then how does free cash flow or how do you expect free cash flow to to move relative to.

That sensitivity table, you gave us in the in the deck.

Yeah, the banks right. So that's a that's a good question there is a.

A lot going on in the market and so we stayed away from the cash flow, including it in the full year scenarios, but yes. The short answer. Your question is we still think it's north of a billion dollars in free cash flow, assuming about a 20% starts down scenario and.

A reasonable bully steady commodity environment as you know those both of those things can move are working capital quite a bit generally speaking, we still believe that that roughly 10% incremental or detrimental working capital with sales is a good way to think about us so given the dynamics around.

What commodities are doing what starts are doing as well as the core underlying businesses ability to generate cash we do think that north of a billion dollars number is still right got it okay. Perfect. That's that's good and encouraging.

Could sneak one last one in the value added peace now over half your sales in the quarter, that's super impressive as the single family business likely slows you know further in the coming quarters. How would you expect the value added mix to change would there be or would you expect there to be more or less apt.

Type from homebuilders to utilize these products.

Yeah try it I appreciate that question it makes sense for you to ask it.

Value added has shown incredible resiliency, even as we've had to have my hands and starts and and the market has turned a little bit at least especially on the components side, they're just Ah such a nice all set to the Labour challenge and the Labour challenge is going to be consistent.

Even in the current housing environment. We're in so we haven't seen people move away from components, even as their starts have gone down.

We have achieved over a 50 per cent of our sales in total value added in queue for which has been a nice buoy to our overall sales mix and we think through going through our recent acquisitions that we're gonna be able to continue to maintain that pace.

Got it thanks for taking the question will I think I'd throw in another thing I'd throw in their tray is that.

It does correlate to some degree to starts right I mean, yes, they are still using it they're not going away from it like they were saying, but we don't want that somehow argue that.

Trust is going to maintain its volumes Winced charts are down there there was a correlation there, but we are seeing growth received secular growth and so that certainly strong area for us. Thank you already for my comments right. So four quarter value add we were we were still favorable even though starts were down for the 16th.

Yep got it makes sense. Thanks for taking the question I'll pass it on good luck.

Extra.

Thank you we will take our next question for Matthew Survey with Barclays. Your line is open.

Hey, good morning, guys. Thanks for taking the questions and welcome Dave to the earnings call.

So what about question on on you know <unk>.

Kind of seeing that gross margin above 30% for the key one guide.

You know when you look at the mid point of your scenarios of that kind of 10% to 11% EBITDA margin for the year, what does that imply about the gross margin beyond Q1, how quickly does it normalizes.

Any color on sort of commodity burst noncommodity gross margins while would be helpful.

Thanks, Matt.

The story line for that gross margin number continues to be one of <unk>.

Good progress pleased with what we've seen so far but certainly an open question in terms of where it gets too.

So as you highlighted things have stayed strong and the gross margin line. It is beginning to retrace, what we discussed in the past rag beginning to normalize as the supply chain normalizes.

We certainly have performed well let me know are 30 to 32 per cent gross margin guide for Q1 is certainly well north of what we've said historically as are normalized roughly 27% plus gross margin, we're continuing to see really nice performance and fixed up from the value add <unk>.

None of our business, which which we hope for and which were expecting but as the year progressed as we do anticipate that continuing to trend back towards Ah Ah Ah normalised level.

We're pretty optimistic about what that looks like but for now not ready to provide any real guidance in terms of the four year yeah. The only the only other thing I'd add Matt is part of how we manage margin is actually through some of our cost improvement initiatives around manufacturing uhm, we've actually improved our four foot <unk>.

An hour by 22%.

Since the merger that productivity and trust allows us and will allow us to compete effectively for sure even in a challenging environment. So we're kind of go on at it from from all angles and trying to to to <unk>.

Maintain the margin the best we can.

Got it okay that that's very helpful that makes sense.

One you know.

On the value add you had the 16% decline in manufacturing products over the quarter clearly that's more tied to the front end of construction.

Think he had the windows doors and millwork growing 22 per cent, reflecting completions. My question is how should we think about the timing of those converging kind of at what point do you see this sort of tale of completion beginning to more closely resemble what we've seen and starts. Thank you.

Yeah Man that's a good question I think we pretty much already seen that convergence as we get farther end of the quarter our door millwork sales are somewhat normalized.

But we still believe in the value added segment as a positive for the overall business at the trust component as I said, it's been really resilient and we haven't seen people move away from trust granted because there's fewer starts we're gonna have your sales and trust, but the fact that we can.

Maintain that percentage of our overall business is very encouraging to us and we believe it will continue.

Got it alright, thanks, Dave Thanks, Peter Good luck.

Okay.

Thank you we'll take our next question from Ken Ken mentor with the amount of capital market. Your line is now open.

Thank you next question I'm not <unk>.

Recognizing the <unk> can you give us some sense of how you guys that thinking about the multifamily business and not and not it seems like that is becoming a create a four C D out for Ya.

Yeah can you add I appreciate the question multi family will certainly be a bowie for us in 2023, we are not quite sure. How 2024 is gonna play out I was at the Harvard housing conference and there was.

I'm concerned that multifamily on 24 may start seeing some headwinds.

<unk>, what we're seeing in the amount of bid activity for 2024 has not tremendously lame, though so we're still slightly optimistic there on the R&R front again, but the the thing that made that difficult force in prior years was capacity and the supply chain constraints that we were facing it was hard to.

Fully explore that opportunity and go after new business. When we were having struggled with supply chain taken care of existing customers. So we will re dedicate our focus on growing that sure now that that is kind of conditions of lessons.

Got it that's helpful. And then my second question <unk> you know.

It seems like there is some and that's a concern about the.

The ability to hold onto the price came from the manufacturer component side.

<unk> <unk> engineered what pricing also starting to phone quite sharply always thinking that <unk> can you talk with a high level you know perfectly philosophy, how you approach that.

Yeah cause that's a great question I think for US, we did invest significantly almost $100 million and our ability.

To gain productivity through automation and all our plants that.

That has created a cost advantage for us in the marketplace. We believe we're the low cost provider for trust in the marketplace that gives you a little bit of flexibility to go after share where that's the answer and to be able to hold onto a little bit of March it for a little longer time, where where that is available.

Anything you want to add their Peter.

But I think we we've talked a lot about the amount of investment we've made in pricing management and pricing brigger pricing discipline. That's certainly an important part about how we expect to manage this business on a go forward basis and combined with data point about how efficient. We are we think that puts us in a great position to offer a toe.

It'll cost benefit to our customer while at the same time getting a fair margin and being able to hold onto what we work. So hard for so we're certainly optimistic right now, especially as you see each quarter's numbers coming through.

Do believe Norman margins for for product out the margin ran up some simply based on supply and demand dynamics that will normalized first and we're already seeing that you're definitely seeing it for example.

Hampel with lumbering cheap goods as as an example, the other products in our industry want respond as quickly and as deeply as laundry Chico's tab, but we we should see some of that but as far as what we can control I think what we're gonna try to do is is win by providing.

Better customer service better reduce cycle times for our customers allow them to win on cycle time cost and that will be able to hold on to some of the margin that we've tried to create.

That type of perspective, good luck and drank ready to jump back in the queue.

Thanks for your time.

Thank you we'll take our next question <unk>, David Manthey with Barclay, Sir Alright, apologize with a furniture line account okay.

Yeah, Yeah. Thank you and let me add my congratulations to you Dave.

Okay. First question could you discuss your comfort level with with the death in a downside 20 twenty-three scenario I assume you Delever a lot.

From the balance sheet unwinding, but.

Is there any change in your user all on M&A order of share repurchases, we move through this downturn, yet or potentially in the future.

Yeah. Thanks date, that's a that's a great question. So the the short answer is we feel really good about the balance sheet, and we think that our priorities around capital allocation or stole the right. One so we're gonna we're gonna lead in on it.

We've got no no.

No relation unstructured death till 2030. The ABL is we just re ran that one from a timeline perspective. So we got new maturity start plenty of liquidity, we feel very good about the strength of the balance sheet layer on the fact that as you noted we would expect to release some working capital in.

Event of a further sort of slowing in the market. So that will be a nice tailwind in terms of available cash the business is still generating cash so feel good about that even in some of these more aggressive downside scenarios and then the overlay of all that is we do expect there to be.

<unk> opportunities right weird, while M&A has certainly been a source of growth for us and it has slowed down in terms of total number of opportunities on the market, we still see nice targets at reasonable multiples as evidenced by the Noel picks no tax deal that we think should be part of the Villa best family and we're gonna.

Continue to execute those so we're good as we speak discipline, we think there's really going to be there are going to be nice opportunities for us to continue to do that.

We've demonstrated all through now we think there's real intrinsic value of the repurchase of share so to the extent we're not seeing.

<unk>, good targets and M&A or we don't have.

The the capacity internally to do more of an angle will continue to leverage that as well.

The only the only thing I would add on that emanate front is we are still at or above our our plan that we laid out on investor day of $500 million or your dedicated to them M&A. So even as it slows now over the long term, we don't have any concern over it hit that target.

Alright, Thank you for that and second Uhm, maybe we could just get an update on ready frame specifically you should talk about revenues number of locations in anything in terms of the capitol outlook or growth expectations not just this year, but over say the next one to three years.

Yeah. So you know ready frame as it is a valuable part of our our value added product portfolio.

Certainly not one of the bigger components, but unimportant area that we think allows people to enter into the use of the offsite fabrication ideas concepts, we think it dovetails really nicely with what we're doing a digital in terms of the precision that we are able to deliver out of that digital solution.

And then integrating really nicely into all the value added products, but that that ready frame offering in particular, we've looked at it post merger at at opportunities to expand we continue to put it into new markets, making sure we have capacity.

Make sure we're managing it growth is still positive and we feel good about it in the long term.

Okay. Thank you.

That's it.

Hopefully, we'll take our next question from <unk> your line or something.

Thank you I'm a goddess for the first quarter can you give us any kind of break out how much at the revenue climbed is from commodity deflation burst units and the debit kind of value added content with that that would be nice as well.

Well and then in terms of the breakdown the commodity prices have pretty well I would say leveled out based on what we're looking at been pretty stable. So you know but.

The decline year over a year and commodities is.

Meaningful it'll get worse on a cost basis as we go through the second quarter last year peaked in queue too. So certainly a lot of headwind from commodities and what what we seen as sort of that trend down.

On a year over year comp basis that trend down started probably cute.

Three Q for last year, probably the best way to describe it so cost will be most difficult in Q1, and Q2 and get a little easier in the back half of the year, while breakdown the guide and those self components, but hopefully that gives you can contact.

Yeah that directly or looking for can I get of course my cash flow.

And you played out some M&A targets.

With the stock where it is now would you consider.

Buying an excess of brick castle another borrowing as we go through this downturn on chairs or you gotta be lending yourself I'm sure repurposed what's actually generate.

Well I mean, I think the the way we think about deploying capital broadly right is that we have an appropriate balance sheet well structured as long as we're in kind of our our range of one to two times space business were extremely comfortable certainly not.

Intimidated by the idea of being a little below or a little above for window of time, but I think that's that's just good management, but we certainly are committed to continuing to.

Boy Capital you think it's a responsibility of management Rethinks. The responsible thing to do you think it's good for shareholders. So we're gonna continue to stay committed.

And we will look for opportunistic moments right in each one of those categories. We think there'll be times when it might make sense to lean in.

But we're never going to put ourselves in a position where we.

Put ourselves at risk, we've we've got a lot of confidence in our ability to just sort of see what the business is capable of advantage that liquidity and and we're confident we can work well in that range.

Alright, thank you.

Excellent.

Alright, we'll take our next question from Adam Dunn guarded <unk>, you're my next time okay.

Hey, good morning, everyone. Just a question on the mixing business.

Any meaningful impact on margins, either positive or negative from a higher mix of multifamily in our our revenue.

Yeah.

Yeah. That's a good question in 2023.

Both on family will be a.

Tailwind for our margin.

It only creates a little bit of a tailwind, though cause it's still only about 15 per cent of our overall business R&R traditionally has been a higher margin products as well and we expect a favorable result from our our on our margin maintenance it'll help us hold on the margin.

Again, the combination of those two products.

As a smaller percentage of our overall business are generally our March of a profile follows single family, but they will be helpful and us maintaining as we normalize of other areas.

Okay got it and then just just on digital solutions you guys said you're on track.

Over 1 billion in revenue by 2026th can you give us an update on where you ended in 2022.

Yeah, I'd love to talk about our digital milestone. So 2022 is a year of development, we really weren't trying to monetize the concept of 2022 and actually even through 2023, you will only be marginal revenue opportunity.

Play an in game here with the digital solution. What we're focused on in 2023 is the full development of the platform and we believe by the end of the year. We will have achieved all the development milestones where pilots in it and 40 with 40 customers across for markets.

We're gonna learn a lot from that we're gonna go back we're gonna Refigure, we're gonna redevelop we're gonna change what we need to because at the end of the day. The full recognition of value. In this solution is through polls pull through sales, Bob making us easier to do business with we believe fully in that concept still.

We believe we're light years ahead of any of our competition as it relates to where we stand in the development process and we still believe in our goal of 1 billion of incremental sales of 2026, primarily through pull through business anything you want to add there for Ya.

Okay, great. Thanks, that's a lot.

Thank you.

We will take our next question from city Ramzi <unk> Thompson grew up your line is open.

Hi, Good morning, maybe just start with on <unk>. The last couple of years. It seems like there the delay of delivery constant push out on Capex spin supply chain and labor is a little bit better now do you feel like you can deliver on all the the capex this year or more like.

<unk> to deliver in prior years and is there any delay embedded in this current guidance.

Yeah, no. Thanks to you and you're right we struggled to get what we wanted.

It's gotten a little better there has not been nearly the relief and things like rolling stock that there have been in certain other categories. So that's still a source of Oh, it's a strain it's getting better. So my sense is this year is capex will be.

More achievable than last year, there was certainly a lot we want to do and we're we're still optimistic that that will continue to free up as to your progress.

Okay helpful. And then another question somewhat related to Capex in labor as you plan for a downturn, but also want to be prepared for taking advantage of a longer term strength and housing how do you think about holding on to labor for the long term and build.

Being out capacity, even if it's not fully soaked up in the next 12 or so months.

Yeah. So the capacity question is a good one but.

But we firmly believe in investing in the long term.

So we are changing our priorities as it relates to investments and capacity specifically around value added products and in fact, we're trying to address kind of labor concerns a little bit through some of these investments we have fully robotic lines in Georgia, and Texas that we're still working through and trying to.

Make sure and having some success with and I think we have six to seven more on the books that we're gonna add over the next two.

Two to three years.

So, we're we're seeing investments and technology and investments in automation as a way that really <unk>.

Address both labor concerns we have today and in the future. So that will definitely not stop as it relates to the core business. We've been really diligent about protecting our AMB players out in the marketplace and that's not gonna change either because we see that that is a what word.

Experiencing now is somewhat of a short term scenario and over the long term, we wanted to come out of this guns ablaze and on the other side with our best people. So that's kind of how we're approaching it right now.

Excellent. Thank you.

Okay.

Oh, we will take our next question from J Mccandless quick quick question I, just how painful.

Good morning, Congrats Dave.

Perfect. Thank you check.

Yeah, you bet so.

<unk> 18, kudos on this new EBITDA presentations.

Very useful but when you talk to your single family builder customers, where do you think they're falling right now on this b three ranges.

Negative 15, a negative 25 seems to be what we hear from a lot of people, but would love to hear what feedback you've been getting from from your single family customers on where they think twenty-three falls out.

Yeah, I'll start on that one.

Can jump on the the.

The short answer is they are all over the place.

There, there's a lot of differential depending on what market you're in the type of house, you're selling your exposure to customer versus spec.

You know, we talked a lot about east to west how much harder. This market has been a rapid the downturn has been in certain markets. So.

It really is all across the board with people.

Quite pessimistic and quite optimistic being I would say equally common.

So what we tried to do was account for a few of those scenarios playing out trying to think about what they balance out in our numbers to give you. Some sense of if we lead one way or leave the other right a pile of got leaning one way or leading the other.

What might potentially play out so it's.

You can imagine that's been a tough one for US yeah. I mean, that's the reason you have three different scenarios <unk> right.

You saw it as recently as coming out of the year in December .

Most builders were really pessimistic.

Mortgage rates dipped down a couple 2040 basis points and all all of a sudden the light turned on and everybody started showing up again. So it was really hard to just try to narrow it down to one narrow range and that's why we gave you the different scenarios.

But the good thing is.

We do know underlying demand remains strong evidence by how quickly people returned to the marketplace. Once they realized mortgage rates were at a rate that they felt like they can execute on my home purchased set that we're after so.

It was just additional proof that over the long term home underlie and home demands. There. We just gotta make sure that we balance that affordability I guess that demand.

Thank you Uhm and then my second question in terms of M&A activities slowing down a little bit.

Kind of surprised by that because we've been hearing that the banks have been tightening up on land lending and tighten up considerably on the on anything related to housing or are you just are the potential target you're looking at a really not feeling that pinch right now or did everyone have such a good two or three years that they can hold off for a little bit maybe a little.

More deaths on that.

I think it's more of what you just said.

The latter part I think they had a good couple of your run they're looking at fairly uncertain environment, now and they're just not ready to get off the fence.

I think oh as the years.

Plays out and as we see more certainly as the your plays out around interest rate some mortgage rates and people can evaluate what the next 12 to 18 months look like I think they'll jump back in and of course, we're looking continuously throughout the time that we're there.

Okay, great. Thanks, and then the last one I had just if you think about whatever metric you will use did activity quote request et cetera.

Cause we did see kind of a tale of two cities with mortgage rates in January February can you talk about how business was in January .

February looked like compared to January just given that the spy card that we did seem rates.

Yeah, I mean, I think what you described as accurate it has been.

Updated radick ups and downs I don't know that there is a trend they're broadly other than to say, it's slower than last year and it certainly a market that's trying to find its own.

Yeah, I don't think breaking it down at this point is gonna help anybody, but it's certainly a market. We're staying very close to operationally to ensure we are responding correctly to whatever is dull.

The only the only thing I'd add is this this is not a 2008 2009 scenario right uhm demand over the long term is still extremely positive and that demand is not speculative uhm. It's four houses that they want to live in so over the long haul we still feel pretty good even though it's gonna be a little choppy.

<unk>.

Until we get our footing.

Sounds great. Thanks for taking my questions.

Okay.

Hopefully, we'll take our next question a favorite redfin gardener with the benchmark company. Your line is now open.

Thanks, Good morning, everybody and congrats table new rule.

Okay.

So I had some technical difficulties. So I'm just going to ask one question. So I don't repeat anything and hopefully this one's not repetitive, but the the the reiteration of the seven to 10 billion in deployable capital from the Investor Day, I think starts are probably likely off in the 30% range and I kind of looked at.

That deployable capital <unk> capital was kind of a freak.

Free cash flow equivalent and maybe that's that's wrong, but I just wanted to I guess clarify if that seven to 10 is kind of the cast generation of the business and if so what kind of what is the biggest thing that gives you confidence that you can still do that even though the starts environment is clearly moved against in such a big way.

Yeah No. That's a good question. So 2021 guide for those of you don't remember was $7 billion to $10 billion of deployable bathroom in a way that was just to think about that is seven was at one time leverage at the end and taboos that a two times leverage at the end. So that's one to two times the the base business.

<unk> from leverage perspective, the short answer is.

We've talked about this a lot and I'm not sure everybody gets it but commodities for us as an important part of our business, but we make money regardless, we make a lot more money when the price is very hot so it becomes a bit of an option, where if you have a high future price you get a lot more cash flow into the business and that's exactly what.

Are you experiencing you're one of our of.

Of our execution I guess, our Investor day targets got an incremental amount of cash that has put us far ahead of the pace necessary to make our number even though you're right currently the forecast.

A were twenty-three is gonna be for starts as well below what we have built into our forecast we talk about low single growth as being or low single digit single family starts growth is being embedded into the model, but we're certainly in a very strong position, but to start that we've had.

To be able to deliver on that required listed as I mentioned, we still expect to see healthy free cash flow delivery throughout for many years.

Top of that my strong head start.

Thanks, Peter Congrats on the <unk>.

That's right.

[noise] and we will take our next question with Collin Perrin with Jeffries. Your line is open.

Good morning, Thank you for taking my question.

I just wanted to start out the fiscal year twenty-three scenario single family starts down 15 to 25 per cent sales range. There is 15 to 17 billion, which is only about a 10% decline in sales versus the 2022 based business sale. The 17.7 billion. You reported can you just talk about the factors there that would get you to that.

Outperformance vs. Your luggage that market.

Yeah, Yeah. So I think that's it I'm glad you're asking the question that way it and it's the right way to think about it the the variables obviously you're starts.

It starts in single family being the biggest impact on us the other being the impact of M&A right we've been acquisitive.

Acquisitive in a year over year growth from those acquisitions are certainly impactful in terms of how we're performing versus the prior year numbers.

There's a bit of gross margin in there the normalization will be a bit of a headwind, but we're also seeing some share growth that we've embedded in that as well. So that's an offset so across the board being able to offset a share or a portion of that single family declined through the strength of our core business and.

And the differentiated model is a healthy.

Thing for Us and we're certainly quite proud of it.

Okay. That's helpful color and I guess my last question here is just on the productivity saving you guys are expected at 90, you 110 million can you just give some examples of those productivity improvements that you're executing on here in 2023, and just how achievable those are in the different volume type environments.

It actually it goes hand in hand, with what we need to do from a standpoint of competitiveness related to slower housing starts in increasing our.

Our customer service, reducing cycle times. So a lot of it is around set as synergies that we realized from new M&A, we've done over the last 18 months.

Some of it is related to payroll productivity getting more for less specifically within dark delivery initiatives and some of our truck turnaround initiatives. Some.

Around manufacturing productivity as I mentioned since the merger bore.

Four foot per man hour has gone up 22%.

That is a combination of best practices across plants as we continue to acquire a value added plants from other.

Parts of the country and integrate them into the B F S way of doing things, there's productivity savings there.

We're always constantly reviewing our indirect span there's opportunities there. So what we've probably got six to eight different initiatives that will fun that $90 million to $110 million and we're very confident in our ability to get there.

Great. Thank you for the color.

Mmm.

I'm Gonna wait we'll take our next question from my <unk> Duh with RBC capital markets for your line is still open.

Good morning, Thanks for taking my questions, Dave Congrats on the new role <unk>.

A couple of follow ups.

On the on the first quarter died the slide has a comment saying, there's a bullet point, saying that.

Sales and adjusted EBITDA include the expected benefit the price commodity in March and impacts for the quarter. You know I think Peter is articulated earlier, there is a sharper commodity headwind from our top line.

Sam Clinton one too. So can you just elaborate maybe a little bit on what that comment means and if it's possible, but then split out if there is still some benefit on margins you know what your.

Business for one two would be estimated at versus that 400 to 440 total.

Yeah. So I think probably the biggest challenge in this is that there's no base business at a quarterly level. That's that's not.

It doesn't actually exist so I'm not holding out on you in terms of talking about that number you're right. There is a there is a lot going on in the year over year comps and the ability to break out those pieces. Unfortunately is generally driven by some detailed analytics, we have some top side is.

Options, but I don't think they are particularly helpful to you in terms of insight.

A lot of the <unk>.

Year over year comparison from a commodities perspective is negative in the first half of a far more negative in the first half than the second.

Unfortunately, just from Ah the ability to break those pieces apart. So starts cough. So I think that the our guide or a comment when we were given the guy saying that the first half is going to be harder from our comparisons perspective. Unfortunately is probably my best insight to offer for the for the numbers this year.

Yeah, Okay, Yeah, I I guess it was just you know.

Since that comment because they're still benefits in there, but maybe that speaks to the margin margins.

Margins have been quite normalised, yet and one too yeah, I've got putting I was really just trying to say it's all in that was all I.

I gotcha, Okay, and so my second question is somewhat related but just a two parter on the.

Full year stint.

Scenarios and so as a point of clarification, when you say commodity price.

My son has been that blend of lumber and OSP, but can you correct me if I'm <unk>.

Wrong, there and.

And that's where I put the starting point.

Okay. So so then just for for a frame of reference if we're looking at a blended price you're the day it.

It it seemed like that's kinda in the mid 300, maybe oscillating between mid 300, then <unk>.

<unk> 300, <unk> is that a fair characterization of where you're at year to date on that Glenn.

Yeah, I mean, if I just talked to random <unk> I think that's right three 350, and 400 is the range, but a little bit below our our base business assumption in terms of how the year has started but you know it's early.

Yeah Yeah.

A lot of changes.

Wait can week or day to day basis, Okay, and and then so when do you think about that.

Range of scenarios [noise], you know, obviously, you've spoken to the gross margin.

That makes a bit and SG&A is gonna flicks up or down a decent amount depending on if you're like.

Downturn versus down 30, right, but when you think about putting this range.

Together in terms of how you get down to the ultimate EBITDA number which park is the bigger swing factor in in your models is the gross margin line pretty pretty steady normalizing down in the swing factor in EBITDA margin is mostly SG&A flexing or is there a different.

Mix as you kind of progressively <unk>.

Lower on the scale will be scenarios.

That's a really good question.

If we're in the mid twenties or sorry, low twenties for SG&A per cent sales. It's about 70 per cent variable you're talking about six per cent that's in that fixed bucket.

Probably think about the impact of margins, obviously that falls like price all the way through the bottom line. So that's very impactful.

Off the top of my head they seem pretty comparable I I I.

I'd actually don't have a hard to answer for you on that but I think you're right. Those are two of the major components what happens when sales decline and how much did you leverage can we offset with risk.

Re scaling the business and then how does pricing fall through the more aggressive any potential downturn might end up being.

We do expect it to be harder on both margins and commodity prices.

Got it okay.

Okay. Thanks for Ya.

Sure excellent.

And we will take our last question from Alex break out with be Riley. Your line is still open.

Thank you your reference to slow down and the average daily sales sort of in December and January can you quantify that.

Well I mean, there's two pieces to it one of them is the normal seasonality. We do we do see generally speaking about 20 per cent less sales and the depth of winter than we do in in the peak of summer it's a <unk>.

More than that obviously and the seasonal markets. What we're also seeing the.

Down trend of.

Sort of the orders generating starts generating sales for us.

On new houses so that that decline has has been pretty consistent as one might expect we would expect a lap the peak probably cute too.

And then <unk>.

Excluding commodity products.

Be seeing suppliers reduce their prices yet.

More rumors then actions, but there are a couple of categories, where there it looks like it's probably gonna happen and we'll stick for the most part, though it's been less increases or no acres.

Yeah, they're they're they're still struggling as well with labor.

And what they are having to pay for the cost of labor, but at the end of the day the normal dynamics around supply and demand are gonna went out and you know people are going to go after sure they're gonna do it with whatever availability. They have it just hasn't been widespread at this point.

Thank you very much.

Alright, thank you.

This does conclude today's conference call. Thank you for your participation you may disconnected anytime.

[music] [noise].

[music].

[music].

Good day and welcome to the builders first source fourth quarter 2022, and year end earnings Conference call. Today's call is scheduled to last about one hour, including remarks by management and the question and answer session in order to ask a question. Please press the star key followed by the number one on your touch.

Tom phone at any time during the call I would now like to turn the call over to Mr. Michael Neese Senior Vice President Investor Relations for filters for sourced. Please go ahead Sir.

Thank you Brittany and good morning, everyone.

Welcome to our fourth quarter and full year 2022 earnings call.

With me only call our day brush, our recently appointed CEO and Peter Jackson, our CFO .

Today, we will review, our fourth quarter and full year results.

The earnings press release, and Investor presentation are available on our website at investors <unk> Dot com.

We will refer to several slides from the investor presentation during our call.

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

We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures you can find a reconciliation of these non-GAAP measures to the corresponding GAAP measures, where applicable and a discussion of why we believe they can be useful to investors in our earnings press release SEC.

Pilings and presentation.

In our remarks in the press release presentation and on this call contain forward looking and cautionary statements within the meaning of the private Securities Litigation Reform Act and projections of future results.

Please review the forward looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ from forward looking statements and projections with that I will turn the call over to Nick.

Thank you Mike Good morning, everyone and thanks for joining our call before we get into the results I'd like to thank the board of directors for the opportunity to serve as CEO of builders first source and for trusting me to lead. This great organization also want to thank all of the BFS field leaders and team.

Members for their support which has been inspiring.

From a background in finance, having spent the first 18 years of my career in various financial roles from controller to CFO over my 23 years with DFS.

And fortunate to have had a variety of operational roles, including regional oversight primary responsibility for both the pro build in BMC integrations and most recently leadership of our enterprise wide initiatives as EVP of our strategic management office.

I believe my experience and industry knowledge will be a strong basis to build on our success of creating long term value for shareholders.

Now, let's turn to the business results.

Macroeconomic factors will undoubtedly continue to create headlines this year, however, with our exceptional seasoned team strong balance sheet and industry leading platform. We are in a great position to win in any environment, we have our field leadership team with over 30 years.

<unk> average experience in the industry.

They have been through similar macroeconomic environments to the one we are currently facing today, which gives me great confidence in our ability to manage business changes with quick and decisive action as required.

We have maintained very low leverage providing us with maximum flexibility to deal with any scenario and we continue to leverage our footprint, our scale and our product portfolio to out compete in the market.

Let's turn to our long term strategic priorities on slide four for a moment.

As we navigated challenging changing landscape, we see no need to alter our long term strategy and we remain focused on expanding organically and value added products and services.

Driving operational excellence continuing to build our high performing culture and growing through strategic tuck in acquisitions on slide five you can see our continued emphasis on the strategic priorities was key to our record full year 2022.

<unk> net sales of 22 7 billion.

And adjusted EBITDA of $4 4 billion topline growth value added product mix improvement and disciplined cost management resulted in our adjusted EBITDA margin, increasing 390 basis points to 19, 3%.

The combination of the increased profitability and share buybacks supported 81% growth in full year 2020 to adjusted EPS.

On slide six you can see that we delivered a six 6% increase in core organic sales, including nearly 21% growth in our higher margin value added products. We are extremely pleased to deliver a $123 million at <unk>.

Activity savings for the year exceeding our $100 million target as we drive improvement across a variety of projects and leverage our BFS one team operating system.

We remain focused on the importance of controlling SG&A and other expenses. This includes efficiency efficient cap capacity utilization.

Ongoing optimization of our footprint and balancing the need for variable cost reductions and future capacity importantly, we have rationalized over 30 locations during the last year, while maintaining coverage and not exiting any markets.

Training enhanced dei initiatives and improved employee benefits to better attract and retain high performing talent.

Turning to M&A on slide seven in addition to our focus on profitable organic growth, we continue to execute tuck in acquisitions aligned with our strategy completing six acquisitions in 2022.

Although the M&A pipeline has slowed in the current macro environment, we continue to be acquisitive, while remaining disciplined in our approach we are committed to expanding our geographic footprint in key markets with a particular emphasis on enhancing our value added portfolio to better serve our COO.

Customers diversify our end market exposure and leverage our technological capabilities.

Our family markets throughout Texas.

This tuck in acquisition further expands our leading position in value added products across the state.

We're excited to welcome both Pima adult texts with their long standing customer relationships and track record of profitable growth to the BFS family.

There is still highly fragmented nature of our industry supports our ambition to invest $500 million.

M&A per year on average for the next several years.

Moving to slide eight and looking at our capital allocation in aggregate for 2022, we deployed approximately $3 $5 billion of capital towards organic growth investments tuck in tuck in M&A and share repurchases and remain on track to.

During the fourth quarter, we saw a slowdown in average daily sales, which has continued into the first quarter.

Higher mortgage rates and affordability challenge.

Continue to be headwinds.

On slide nine we outlined the benefits of our flexible business model for dynamic operating environment, such as the one we're currently experiencing.

As we have discussed we are actively managing the business as conditions indicate and we are acting decisively wherever we see decelerating demand. Our focus is on effectively managing costs through our variable expense structure to match costs with volumes, we are optimizing capacity and reducing <unk>.

Discretionary spend without impairing our ability to maximize the recovery of this turns the corner.

Stepping back we realized affordability has been an increasing concern over the past several years as home prices and rates have increased significantly.

We are working and making housing more attainable by investing in value added products productivity in deep digital capabilities to reduce cycle times and may comp building more efficient.

For example in 2022, we invested approximately $125 million capex supporting our value added product growth and digital strategy.

Going forward, we will continue to prioritize our investments in our fleet value added technology and digital innovations together. These initiatives will help lower total cost improve affordability and lot more people to buy homes.

We're committed to strategically accelerate our leading market position and deliver on our overall value proposition and we will continue to execute while keeping our focus on providing the best possible service to our customers.

Now, let's turn to slide 10 to discuss our pioneering role in the digital transformation of the homebuilding industry.

We have a long term commitment to invest in digital innovations and technologies that we believe will drive greater efficiency across homebuilding and enhanced our product offerings on the homebuilder software side, we are executing our development plan and integrating that with our BFS operations through our digital.

<unk> sales teams, we're excited to have reached a significant milestone and launching the pilot of our new bot LDR Dot com platform.

This platform will introduce our homebuilder customers the easy to use digital tools to virtually design and build their homes. These include key capabilities such as plant intake that marked up pump configuration conflict, the densification material estimating and ordering and John .

<unk> sighed scheduling.

In January we began communicating this release to both at both our BFS National event and the international builder show at both events, we received overwhelmingly positive feedback.

The need for this innovative technology in our industry.

<unk> collaborate with and provide new solutions to our customers in a way that aligns our BFS sales and operations teams.

We'll add new features with monthly releases throughout 2023, as we build and scale our end to end digital homebuilding platform.

The overall digital strategy remains on schedule and we are on track to gain an incremental $1 billion in sales by 2026.

Last month at our National event, we are announced or not.

Euro BFS Hall of Fame class for 2022, the culmination of our annual employee recognition program and a highlight of our people first culture.

These distinguished individuals' represent the best of our frontline team members, but there is one person I would like to highlight today Frank Laurie.

Frank is a fleet and compliance manager out of Southern California, who has been with the company and its predecessors for an impressive 45 years.

Overseas, our fleet and machinery across 11 locations.

<unk> takes great pride in keeping everything running consistently and with minimal downtime is manage our emphasize quote.

<unk> knowledge of everything mechanical is simply unrivaled.

On behalf of the leadership team I want to thank Frank and the other hall of Fame inductees for their tremendous contributions I.

I will conclude by saying that we have the best team to win in a challenging environment I am confident in our strategies and our ability to deliver long term results for our shareholders I'll now turn the call over to Peter to discuss our fourth quarter financial results in greater detail.

Thank you, Dave and good morning, everyone.

Want to congratulate Dave on his appointment as our new CEO I've worked with him for many years it couldnt be happier for him and for this company I know he will lead us to continued growth and success.

I also want to join Dave in thanking our team members for delivering a record year of performance we sincerely.

I appreciate your hard work and dedication to delivering excellent service to our customers day in and day out.

I am proud to report that we delivered solid financial results in the fourth quarter to cap off a record year for the business.

We continue to manage through the complex operating environment with a proactive mindset and a disciplined approach.

We expect that the structural enhancements, we have made in our business over the past decade will help us mitigate the impact of a softer housing demand and inflationary headwinds.

Our ample liquidity low leverage and disciplined cost management provides significant financial firepower to continue to strategically and opportunistically grow our business.

I will cover three topics with you. This morning first I'll recap our fourth quarter results.

I will provide an update on capital deployment, and finally, I'll discuss our first quarter guidance and lay out the loss for the full year scenarios.

Let's begin by reviewing our fourth quarter performance on slide 12.

We delivered $4 $4 billion in net sales.

Core organic growth decreased by 8% attributable to a nearly 14% decline in single family as slowing demand compared to strong fourth quarter of 2021 led to difficult comps.

Both multifamily and repair remodel and others increased by almost 15%.

Multifamily was driven by a strong rental market and resulting backlog R&R and other growth was mainly attributable to increased sales focus and capacity versus prior year.

Two fewer selling days had an unfavorable impact of roughly 3% on net sales.

Cumulative effect of our acquisitions over the past year contributed approximately eight percentage points of growth to net sales.

Value added products, so another quarter of growth.

Compared to total fourth quarter starts which decreased by 16%.

Core organic sales in the category increased by 6%, reflecting the macro trend of value added product adoption and our success in the category.

Happy to highlight value added products represented over half of our revenue in the quarter.

Great proof point of success towards our goal of being the supplier of choice for these valuable high growth products.

During the fourth quarter gross profit was one 5 billion.

We're roughly comparable to the prior year period.

Gross margin increased 200 basis points to 34, 1%, mainly due to the increased mix of value added products.

SG&A grew 11% to $958 7 million.

Mainly due to additional operating expenses from companies acquired in the last year.

As a percentage of net sales total SG&A increased by 340 basis points to 22%.

We remain focused on disciplined cost management and are taking appropriate actions in response to volume dynamics on a market by market basis.

These actions include footprint rationalization, discretionary spending reductions and cutting headcount and overtime.

As we've stated in the past approximately 70% of SG&A expenses variable.

Within that 70% roughly 20% of sales is driven by volume based formula, it's like commissions and bonuses.

The remaining 50% of sales is where we are actively managing our operations. We are striking the right balance between recycling operations based on changes in volume.

And protecting capacity for future growth.

Adjusted EBITDA was approximately $700 million.

A decline of $97 million, primarily due to declines in core organic sales and commodities, partially offset by M&A.

Importantly, adjusted EBITDA margin was 16%.

This represents the second best fourth quarter, adjusted EBITDA margin in our history, reflecting our focused execution and expense control.

Adjusted net income was $478 million.

Down from an adjusted net income of $532 4 million.

In the prior year quarter.

Attributable to a decrease in net sales and higher SG&A expense.

Adjusted earnings per diluted share was $3 21.

Compared to $2 78 in the prior year period.

The increase reflects our more than $650 billion and accretive share repurchases investments during the quarter.

To put this in perspective, the repurchase equates to 'twenty one.

Nearly half of the 43 change.

Now, let's turn to our cash flow balance sheet and liquidity on slide 14.

Our fourth quarter operating cash flow was approximately $971 million.

Lee attributable to increased profitability due to effective pricing and cost management as well as disciplined working capital management.

Generally, we see working capital as incremental or decremental of approximately 10% of sales.

Capital expenditures were $131 million all in we delivered robust free cash flow of approximately $840 million.

For the year, we generated record free cash flow of approximately $3 $3 billion, representing a free cash flow yield of 36%.

Operating cash flow return on invested capital was 41, 1% for the year ended December 31.

Our 2022 net debt to adjusted EBITDA ratio was approximately <unk> seven times and approximately one three times, our estimated 2022 base business EBITDA well within our stated target of one to two times.

Excluding our ABL, we have no long term debt maturities until 'twenty three.

At quarter end, our total liquidity was $1 5 billion.

Consisting of $1 4 billion and net borrowing availability under the revolving credit facility and approximately $100 million of cash on hand.

Moving to capital deployment.

During the fourth quarter, we repurchased approximately 10 2 billion shares for $651 million at an average.

Average stock price of $64 17 per share.

In addition, we have repurchased approximately 900000 shares so far in the first quarter of 2023 61 billion at an average stock price of $65 94.

During 2022, we repurchased almost 42 million shares for $2 6 billion.

And we have more than 900.

<unk> remaining in our authorization.

In total we have repurchased more than one third of our outstanding shares in the last 18 months.

We remain disciplined stewards of capital and we'll continue to look for inorganic growth opportunities and to repurchase shares at an attractive value.

We maintain a fortress balance sheet, which will help us withstand a slower housing environment and keep us well positioned for long term growth.

Turning to slide 15, we continue to believe it is important to assess our results using a face business methodology.

During 2022 base business revenue grew 13%.

While base business adjusted EBITDA increased 28% year over year.

This approach showcases the underlying strength and profitability of our company by normalizing commodity volatility.

As a reminder, our base business definition assumes normalized commodity margins and static commodity prices at $400 per thousand board feet.

Overall I am proud that we delivered solid results in the fourth quarter, despite slowing housing starts.

Additionally, our record results for the full year reflect our differentiated platform talented team members and intense focus on execution.

I am confident that through our leading footprint investments in value added products and ongoing efficiency initiatives that we can continue to gain share grow our value added products and deploy capital.

Now I would like to discuss our guidance on slide 16.

Given the current challenging conditions in the housing market.

<unk> mortgage rates and general uncertainty in economic conditions, we are amending our guidance disclosures at this time to align with our public customers customers of all types and sizes have expressed their uncertainty about starts to the year ahead.

As a result, we have decided to only provide guidance for the first quarter of 2023 as shown on slide 16.

We will reassess full year guidance for actual and base business as the year progresses.

But first quarter, we expect net sales to be in the range of three four to $3 7 billion and.

And adjusted EBITDA to be in the range of $400 million to $440 million with an adjusted EBITDA margin in the range of 11, 7% to 11, 9%.

I would also note that the first quarter guide assumes gross margins to be in the 30% to 32% range.

In addition, given the 2022 starts profile, we expect comparisons to prior year will be most difficult in the first two quarters.

Our guidance includes the following full year assumptions, which are also outlined in the earnings release and on slide 17.

We expect total capital expenditures in the range of $300 million to $350 million. This includes continued investments in value added products.

And we continue to invest in our technology and infrastructure and we will migrate to one integrated ERP platform in the coming years.

I'll remind you that the related increases in Capex and Opex are included in our guidance and our 2025 financial projections from our December 2021 Investor Day.

We expect interest expense in the range of $150 to $170 million.

The tax rate between 23% and 25%.

Depreciation and amortization and work towards.

Amortization expenses in the range of $525 million to $550 million.

No change in the number of selling days.

And we expect to deliver between 90 and $110 billion in productivity savings.

We recognize that it's important to think about potential outcomes for the full year. So on slide 18, we provide a scenario analysis to demonstrate how we are positioned to generate resilient financial performance across a range of potential housing market and commodity conditions.

I will reiterate that we are not providing full year guidance.

But this scenario analysis should help clarify our range of performance expectations and demonstrate the capability of our business to achieve strong adjusted EBITDA margins in 2023.

To summarize we are exceptionally well positioned to withstand a slowdown in house, while continuing to drive our strategic goals.

We have a strong balance sheet and no long term debt maturities until 'twenty three.

We are operating in a proactive fashion fashion and are taking the necessary steps to manage through this downturn with a relentless focus on execution.

I'm confident our best in class operating platform will continue to generate solid free cash flow, which provides further financial flexibility.

We will also diligently deployed capital and work to maximize long term shareholder value.

With that let me turn the call back over to Dave for his closing remarks.

Thanks Peter.

Let me provide a few final thoughts having spent the greater part of my career with BFS are firmly believe in our differentiated platform, which is the strongest it's ever been and will enable us to outperform in any environment. We have a clear strategy that we're continuing to execute we generate strong cash.

Cash flow and we have significant opportunities to invest that cash to expand our value added products and solutions execute strategic acquisitions and return capital to shareholders through it all we remain focused on operational excellence to continue to drive increased safety productivity.

And profitability 2023 will be a challenging year for our industry.

Confident that our talented team members, who have clearly demonstrated their ability to execute and win in any market. Thank you again for joining us today, operator, let's open the call now for questions.

At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by Christina start you too will once again I'm going to start and what if he would like to ask a question. We will take our first question from Trey Grooms with Stephens. Your line is now open.

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

Thanks, Craig.

Sure So I guess first.

Multifamily and R&R very strong in the quarter.

Can you talk about how.

These two segments the multifamily in R&R trending through <unk>, and how youre thinking about these business lines.

We progressed through 'twenty three.

Thanks, Trey that's a great question.

I'll start with R&R R&R R&R expanded in the current year.

Primarily because we had capacity constraints in 2021 and 'twenty, two just taking care of our existing business.

Once those capacity constraints waned, our ability to focus on that segment again allowed us to go after new customers and try to generate more R&R business, but multifamily it's been primarily through acquisition.

We did the trustworthy acquisition.

And even recently with <unk> they have a good.

Multifamily segment as well as panel trust from the prior year.

That has allowed us to grow in that segment at a time when multifamily is actually experiencing one of their stronger years. So it's a very nice complement to the offset of single family, having a little bit of headwinds right now.

So that's primarily how we grew in both those segments.

Perfect.

Thanks for that and.

I guess my next question.

You'd laid out Peter you'd laid out expectations for.

For over $1 billion in free cash flow.

If memory serves me right and I think that was in kind of this 800000 single family start environment first off is that still the expectation and then how does free cash flow or how do you expect free cash flow to to move relative to.

That sensitivity table, you gave us in the in the deck.

Yeah. Thanks, great. So that's a good question there is a.

A lot going on in the market and so we stayed away from the cash flow.

Including it in the full year scenarios, but yes. The short answer to your question is we still think it's north of $1 billion in free cash flow, assuming about a 20% starts down scenario.

A reasonably steady commodity environment as you know those both of those things can move our working capital quite a bit.

Generally speaking, we still believe that that roughly 10% incremental or decremental working capital with sales is a good way to think about us so given the dynamics around.

While commodities are doing kind of what starts are doing as well as the core underlying businesses ability to generate cash we do think that north of $1 billion number is still right.

Got it okay perfect.

Good and encouraging if I could sneak one last one and the value added piece now over half of your sales in the quarter, but super impressive as the.

The single family business likely slows further in the coming quarters, how would you expect the value added mix to change would there be or would you expect there to be more or less appetite from homebuilders to utilize these products.

Yes Trey.

I appreciate that question it makes sense for you to ask it.

Value added has shown incredible resilience, even as we've had headwinds in starts and and the market has turned a little bit at least especially on the components side.

They're just such a nice offset to the labor challenge in the Labor challenge is going to be consistent even in the current housing environment. We are in so we haven't seen people move away from components, even as their starts have gone down.

We have achieved over 50% of our sales in total value added in Q4, which has been a nice boost to our overall sales mix and we think through growing through our recent acquisitions that we're going to be able to continue to maintain that pace.

Got it thanks for taking the question well I think I'd throw in the other thing I'd throw in there Trey is that.

It does correlate to some degree the starts right.

Yes, they are still using it they're not going away from it like Dave with sand, but we don't want to somehow argue that.

Trust is going to maintain its volumes when starts are down there is a correlation there, but we are seeing growth, we're seeing secular growth and so that's certainly a strong area for us I think you heard in my comments right. So for quarter value add we were we were still favorable even though starts were down more than $60.

Got it makes sense thanks for taking the question.

Pass it on good luck.

Thanks Sarah.

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

Hey, good morning, guys. Thanks for taking the questions and welcome Dave to the earnings call.

Yes.

So.

Question on <unk>.

It's still kind of seeing that gross margin above 30% for the Q1 guide.

When we look at the mid point of your scenarios.

Of that kind of 10% to 11% EBITDA margin for the year, what does that imply about the gross margin beyond Q1, how quickly does it normalize.

Any color on sort of commodity versus non commodity gross margins as well would be helpful. Thank you.

Thanks, Matt.

The storyline for that gross margin number continues to be one of.

Good progress pleased with what we've seen so far but certainly an open question in terms of where it gets too.

So as you highlighted things have stayed strong in the gross margin line. It is beginning to retrace, what we discussed in the past right beginning to normalize as the supply chain normalizes.

We certainly have performed well I mean, our 30% to 32% gross margin guide for Q1 is certainly well north of what we've said historically is our normalized roughly 27% plus gross margin, we're continuing to see really nice performance and mix up from some of the value add component.

Our business, which which we'd hoped for and which we're expecting.

But as the year progresses, we do anticipate that continuing to trend back towards that.

Normalized levels.

We're pretty optimistic about what that looks like but for now not ready to provide any real guidance in terms of the full year, yes. The only the only other thing I would add Matt is part of how we manage margin is actually through some of our cost improvement initiatives around manufacturing, we've actually improved our <unk>.

Foot per man hour by 22% since the merger.

That productivity and trust allows us and will allow us to compete effectively for share even in a challenging environment. So we're kind of going at it from from all angles and trying to maintain the margin the best we can.

Got it okay. That's very helpful that makes sense.

Second one.

On the value add you had a 16% decline in manufactured products over the quarter clearly that's more tied to the front end of construction I think you had the windows doors and millwork growing 22%, reflecting completions. My question is how should we think about the timing of those converging kind of at what point do you see this.

Sort of a tale of completions beginning to more closely resemble what we've seen in starts. Thank you.

Yes, Matt that's a good question.

I think we pretty much already seen that convergence as we get further end of the quarter.

Our doors millwork sales are somewhat normalized.

But we still believe in the value added segment as a positive for the overall business and the truss component as I said, it's been really resilient and we haven't seen people move away from trust granted because there's fewer starts we're going to have fewer sales and trust, but the fact that we can.

Maintaining that percentage of our overall business is very encouraging to us and we believe it will continue.

Got it alright, thanks, Dave Thanks, Peter Good luck guys.

Okay.

Thank you we'll take our next question from Ken 10 mentor with BMO capital markets. Your line is now open.

Thank you.

Last question.

Recognizing that there's still a lot of uncertainty around can you give us some sense of how you guys are thinking about.

Multifamily business or not or not it seems like that is becoming a greater focus on.

Yes Ted.

I appreciate the question.

<unk> family will certainly be up.

Bowie for us in 2023.

Not quite sure how 2024 is going to play out I was at the Harvard housing conference and there was some concern that multifamily in 'twenty four may start seeing some headwinds.

What we're seeing in the amount of bid activity for 2024 has not tremendously weighing those so were still slightly optimistic there.

R&R front again.

The thing that made that difficult for us in prior years was capacity and the supply chain constraints that we were facing it was hard to fully explore that opportunity and go after new business.

We were having struggles with supply chain, taking care of existing customers. So we will re dedicate our focus on growing that share now.

Those kind of conditions have lessened.

Got it that's helpful and then my second question.

They will be there.

It seems like there's some investor concern about <unk>.

Ability to hold onto price gains in the manufactured component side.

The engineered wood pricing starting to falling quite sharply obviously.

Don can you talk at a high level.

Philosophy, how you approach that.

Yes.

That's a great question I think for us.

We did invest significantly almost $100 million and our ability to.

Gain productivity through automation in all our plants.

That has created a cost advantage for us in the marketplace. We believe we are the low cost provider for trucks in the marketplace that gives you a little bit of flexibility to go after share where that's the answer and to be able to hold onto a little bit of margin for a little longer time, where where that's available.

Anything you want to add there Peter.

But I think we've talked a lot about the amount of investment we've made in pricing management and pricing rigor and pricing discipline. That's certainly an important part of how we expect to manage this business on a go forward basis and combined with data point about how efficient. We are we think that puts us in a great position to offer a toll.

It'll cost benefit to our customer while at the same time getting a fair margin and being able to hold onto what we've worked so hard for so we're certainly optimistic right now, especially as you see each quarter's numbers coming through.

Believe Norman margins for for product that the margin ran up some simply based on supply and demand dynamics that will normalize first and we're already seeing that youre definitely seeing it for example, with lumber and sheet goods as an example to other products in our industry want respond as quick.

And as deeply as Laura Chico tab, but we should see some of that.

But as far as what we can control.

Think what we're going to try to do is win by providing.

Better customer service better reduce cycle times for our customers allow them to win on cycle time cost and.

Then we will be able to hold on to some of the margin that we've tried to create.

That's helpful perspective, good luck and grain granite city I'll jump back in the queue.

Thanks for your time.

Thank you we'll take our next question from David Manthey with Barclays. Your line is I apologize with Baird. Your line is now open.

Yes, Thank you and let me add.

My congratulations to you Dave.

First question could you discuss your comfort level.

With the debt and the downside 2023 scenario I assume you de lever a lot.

From the balance sheet unwinding, but is there any change in your views at all on M&A or share repurchase as we move through this downturn, yet or potentially in the future.

Yeah. Thanks, Dave that's a great question. So the short answer is we feel really good about the balance sheet.

And we think that our priorities around capital allocation are still the right ones, we're going to we're going to lean in on it.

We've got no no.

Note relational structure that till 2030 the ABL.

Just reran that one from a timeline perspective, so we've got new maturity start plenty of liquidity.

We feel very good about the strength of the balance sheet you layer on the fact that as you noted we would expect to release some working capital in the event of a further sort of slowing in the market. So that will be a nice tailwind in terms of available cash the business is still generating cash. So we feel good about that.

And some of these.

More aggressive downside scenarios and then Oh.

Overlay of all that is we do expect there to be opportunities right.

While M&A has certainly been.

Source of growth for us and it has slowed down in terms of total number of opportunities on the market, we still see nice targets at reasonable multiples as evidenced by the <unk> deal that we think should be part of the BFS family and we're going to continue to execute those so.

As we stay disciplined we think there is really going to be there are going to be nice opportunities for us to continue to do that as we've demonstrated.

Through now we think there is real intrinsic value of the repurchase of shares so to the extent we're not.

<unk> seen good targets in M&A or we don't have.

<unk>.

The capacity internally to do more M&A will continue to leverage that as well.

The only the only thing I'd add on the M&A front as we are still at or above.

Our plan that we laid out on Investor day of $500 million a year dedicated M&A. So even as it slows now over the long term, we don't have any concern over it hit that target.

Okay. Thank you for that.

Maybe we could just get an update on ready frame specifically, if you could talk about revenues number of locations.

Anything in terms of the capital outlook of growth expectations, not just this year, but over say the next one to three years.

Yes, so ready frame is it is a valuable part of our value added product portfolio.

Certainly not one of the bigger components, but an important area that we think allows people to enter into the use of the offsite fabrication ideas concepts, we think it dovetails really nicely with what we're doing in digital in terms of the precision that we are able to deliver out of that digital.

And then integrating really nicely into all the value added products, but.

That's.

Got ready frame offering in particular, we've looked at it post merger.

Opportunities to expand we continue to put it into new markets and making sure we have capacity.

Make sure we're managing it the growth is still positive and we feel good about it in the long term.

Okay. Thank you.

Thanks, Dave.

We will take our next question from Keith Hughes with <unk>. Your line is open.

Thank you.

On the guidance for the first quarter can you give us any kind of breakout how much of the revenue decline as commodity deflation versus units.

The kind of value added comment was that that would be nice as well.

And then in terms of the breakdown the commodity prices have pretty well I would say leveled out based on what we're looking at that pretty stable. So.

The decline year over year in commodities.

Meaningful it'll get worse on a comp basis as we go through the second quarter last year peaked in Q2, so certainly a lot of headwind from commodities and what we've seen is sort of that trend down.

On a year over year comp basis that trend out started probably Q2.

<unk> Q4 last year, probably the best way to describe it so comps will be most difficult in Q1 and Q2.

And get a little easier in the back half of the year.

I won't break down the guide in those sub components, but hopefully that gives you a good context.

Yes, Directionally looking for I guess, a question on cash flow.

And it played out some M&A targets.

With the stock where it is now would you consider.

Buying in excess of free cash flow and other borrowing.

Go through this downturn on shares are you going to be lifting yourself on share repurchase that what cash you generate.

Well I mean, I think the way we think about that.

Deploying capital broadly right is that we have an appropriate balance sheet well structured as long as we're in kind of our range of 1% to two times base business. We're extremely comfortable certainly not intimidated by the idea of being a little below or little above for a window of time, but I think that's that's.

Just good management.

But we certainly are committed to continuing to.

Deploy capital when it gets a responsibility of management, we think it's the responsible thing to do we think it's good for shareholders. So we're going to continue to stay committed.

And we will look for opportunistic moment right into each one of those categories. We think there'll be times when it might make sense to lean in.

But we're never going to put ourselves in a position, where we can put ourselves at risk.

Got a lot of confidence in our ability to to sort of see what the business is capable of advantage that liquidity.

We're confident we can work well in that range.

Alright, thank you.

Thanks Kate.

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

Hey, good morning, everyone.

Question on the mix of business.

Any meaningful impact on margins, either positive or negative from a higher mix of multifamily and R&R revenue.

Yes.

Yes, that's a good question in 2023.

Multifamily will be a tailwind for our margin.

<unk>.

Only creates a little bit of a tailwind locals, there's still only about 15% of our overall business R&R traditionally has been a higher margin products as well and.

And we expect a favorable result from R&R on our margin maintenance it'll help us hold on the margin again, the combination of those two products.

As a smaller percentage of our overall business and generally our margin profile Paulo single family, but they will be helpful. In us maintaining as we normalize in other areas.

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

Yes.

Love to talk about our digital milestone. So 2022 is a year of development we.

We really werent trying to monetize the concept in 2022 and actually even through 2023 year to only be a marginal revenue opportunity.

Play an end game here with the digital solution.

We're focused on in 2023 is the full development of the platform and we believe by the end of the year. We will have achieved all of the development milestones, we're piloting that $40 with 40 customers across four markets, we're going to learn a lot from that we're going to go back we're going to re figure we're going to.

Redevelop we're going to change what we need to because at the end of the day. The full recognition of value. In this solution is through pools pull through sales by making us easier to do business with.

We believe fully in that concept still we believe we are light years ahead of any of our competition as it relates to where we stand in the development process and we still believe in our goal of $1 billion of incremental sales.

26, primarily through pull through business anything you want to add there.

Perfect.

Okay, great. Thanks best of luck.

Thank you.

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

Hi, good morning, maybe to start with on Capex. The last couple of years it seems like there.

The delay of delivery cost of pushing out on Capex spend.

<unk> and labor is a little bit better now do you feel like you can deliver on all the capex. This year are more likely to deliver than prior years and is there any delay embedded in this current guidance.

Yes, no thanks, Stephen you're right.

Struggled to get what we wanted.

It's gotten a little better there has not been the early the relief and things like rolling stock that there have been in certain other categories.

So that's still a source so I would say strain is getting better. So my sense is this year's capex will be.

More achievable than last year, there's certainly a lot we want to do and we're still optimistic that that will continue to free up as the year progresses.

Yeah.

Okay helpful. And then another question somewhat related to Capex in labor as you plan for a downturn, but also want to be prepared for.

Taking advantage of longer term strength in housing how do you think about holding on to labor for the long term and building out capacity, even if it's not fully soaked up in the next 12 or so months.

Yes so.

The capacity question is a good one.

But we firmly believe in investing in the long term.

So we arent changing our priorities as it relates to investments in capacity specifically around value added products and in fact, we're trying to address kind of labor concerns a little bit through some of these investments we have fully robotic lines in Georgia, and Texas that we're still working through and trying to.

Make sure.

And having some success with and I think we have six to seven more on the books that we're going to add over the next two to three years. So we're seeing investments in technology and investments in automation as a way that really.

Address both labor concerns we have today and in the future. So that we will definitely not stop as it relates to the core business, we've been really diligent about protecting our A&P players out in the marketplace.

And that's not going to change either because we see that that is a.

What we're experiencing now is somewhat of a short term scenario and over the long term, we want to come out of this guns a blazing on the other side with our best people. So that's kind of how we're approaching it right now.

Excellent. Thank you.

Thanks, Steve.

We will take our next question from Jay Mccanless with Wedbush. Your line is open.

Thanks, Good morning, Congrats Dave.

Thank you.

Yeah, you bet so.

Slide 18, kudos on this new EBITDA presentations.

Very useful.

When you talk to your single family builder customers, where do you think they are falling right now on this these three range is negative <unk> to negative <unk> five seems to be what we hear from a lot of people, but would love to hear what feedback you've been getting from from your single family customers on where they think 'twenty three folds out.

Yeah, I'll start on that one.

Dave can jump on it so the short answer is they are all over the place.

There is a lot of differential depending on what market you are in the type of house, you're selling your exposure to customers is spec.

We've talked a lot about east to west how much harder. This market has been how rapid the downturn has been in certain markets. So.

It really is all across the board with people quite pessimistic and quite optimistic I would say equally comment.

So what we tried to do was account for a few of those scenarios playing out trying to think about what they balance out in our numbers to give you some sense of if we lean one way or lead the other REIT at Powell got leaning one way or leaving the other one.

What might potentially play out.

As you can imagine that's been a tough one for US yes, I mean thats. The reason you have three different scenarios that are picked drop right.

You saw it as recently as coming out of the year in December .

Most builders were really pessimistic.

Mortgage rates dipped down a couple 2040 basis points and all the all of a sudden the light turned on and everybody starts showing up again so.

It was really hard to just try to narrow it down to what narrow range and Thats why we gave you the different scenarios.

But the good thing is we.

We do know underlying demand remained strong evidenced by how quickly people return to the marketplace. Once they realized mortgage rates were at a rate that they felt like that can execute on the home purchase that thereafter so.

It was just additional proof that over the long term underlying home demands. There. We just got to make sure that we balance that affordability against that demand.

Thank you.

Kind of surprised by that because we've been hearing that the banks have been tightening up on lamb lending and tightened up considerably on anything related to housing or are you. Just are the potential targets you're looking at are they not feeling that pinch right now or does everyone have such a good two or three years.

Can hold off for a little bit maybe a little more depth on that.

I think it's more of what you just said.

The latter part I think they had a good couple of year run Theyre looking at.

Fairly uncertain environment, now and they're just not ready to get off the fence.

I think as the year.

Plays out and as we see more certainly as the year plays out around interest rates and mortgage rates and people can evaluate what the next 12 months to 18 months look like I think they will jump back in and of course, we're looking continuously throughout the time that we are there.

Okay, great. Thanks, and then the last one I had just if you think about whatever metrics you will use bid activity quote request et cetera.

Because we did see kind of a tale of two cities with mortgage rates in January and February can you talk about how business was in January .

February looks like compared to January just given the spike that we did see in rates.

Yes.

I think what you described is accurate it has been.

A bit erratic ups or downs I don't know that there is a trend there broadly other than to say, it's slower than last year and it's certainly a market that is trying to find its own.

Yes, I think breaking it down at this point is going to help anybody, but it's certainly a market. We're staying very close to operationally to ensure we are responding correctly to whatever's dough.

Yes, the only the only thing I'd add is this is not a 2008 2009 scenario right.

Demand over the long term is still extremely positive and that demand is not speculative.

It's for houses that they want to live in so over the long haul, we still feel pretty good even though it's going to be a little choppy.

Until we get our footing.

Sounds great. Thanks for taking my questions.

Thank you.

We will take our next question from Reuben Garner with the benchmark Company. Your line is now open.

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

Thanks.

So I had some technical difficulty so I'm just going to ask one question. So I don't repeat anything hopefully this one's not repetitive but.

The reiteration of the $7 billion to $10 billion in deployable capital from the Investor Day I think.

Starts are probably likely off in the 30% range and I kind of looked at that deployable capital capital is kind of a free cash flow.

Equivalent and maybe that's wrong, but I just wanted to I guess clarify if that seven to 10 is kind of the cash generation of the business.

And if so what kind of what is the biggest thing that gives you confidence that you can still do that even though the starts environment has clearly moved against you in such a big way.

Yes, no thats a good question. So 2021 guide for those of you don't remember was $7 billion to $10 billion of deployable capital and the way that was just to think about that as <unk> was at a one times leverage at the end and 10 was at a two times leverage at the end. So that's one to two times to the base business.

<unk> EBITDA from a leverage perspective.

The short answer is.

We've talked about this a lot and I'm not sure everybody gets it but commodities for US is an important part of our business, but we make money regardless, we make a lot more money when the price is very high so it becomes a bit of an option where you have a high future price you get a lot more cash flow into the business and Thats exactly.

What we experienced in year, one of our of our execution I guess, our Investor day targets, we had an incremental amount of cash that has put us far ahead of the pace necessary to make our number even though youre right currently the forecast.

We're 'twenty three is going to be for starts is well below what we have built into our forecast we talked about low single growth as being low single digit single family starts growth is being embedded into the model, but we're certainly in a very strong position with the start that we've had.

To be able to deliver on that regardless and as I mentioned, we still expect to see healthy free cash flow delivery throughout the remaining years on top of that and a strong head start.

Thanks, Peter Congrats on the strong results guys and good luck going forward.

Thanks Seth.

And we will take our next question with Colin Marin with Jefferies. Your line is open.

Good morning, Thank you for taking my question.

Just wanted to start out the fiscal year 'twenty, three scenario or single family starts down 15% to 25% sales range. There is 15% to 17 billion, which is only about a 10% decline in sales versus the 2022 base business.

Sales of $17 7 billion you reported can you just talk about the factors there that would get you to that outperformance versus your largest end market.

Yeah, Yeah. So I think that's it I'm glad you're asking the question that way I think is the right way to think about it.

The variables obviously your starts.

Starts in single family being the biggest impact on the us the other being the impact of M&A right we've been.

Acquisitive in the year over year growth from those acquisitions are certainly impactful in terms of how we're performing versus the prior year numbers.

There's a bit of gross margin in there. So the normalization will be a bit of a headwind, but we are also seeing some share growth that we've embedded in that as well. So that's an offset so.

Across the board.

Being able to offset a share or a portion of that single family declined through the strength of our core business and the differentiated model is healthy.

I think for us and we're certainly quite proud of it.

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

It actually it goes hand in hand, with what we need to do from a standpoint of competitiveness related to slower housing starts and increasing.

Our customer service, reducing cycle times, so a lot of it is around the synergies that we realized from new M&A, we've done over the last 18 months.

Some of it is related to payer.

Payroll productivity that you're getting more for less specifically within our delivery initiatives and some of our truck turnaround initiatives.

Our around manufacturing productivity as I mentioned since the merger of.

More foot per man hours going up 22% that is.

Combination of best practices across plants as we continue to acquire.

Value added plants from other parts of the country and integrate them into the BFS way of doing things Theres productivity savings there.

We're always constantly reviewing our indirect spend theres opportunities. There. So we probably got six to eight different initiatives that will fund that $90 million to $110 million and we're very confident in our ability to get there.

Great. Thank you for the color.

Okay.

We will take our next question from Mike Dahl with RBC capital markets. Your line is now open.

Good morning, Thanks for taking my questions Congrats on the new role.

Thanks, Michael.

Couple of follow ups.

On the on the first quarter guide. This slide has a comment saying, there's a bullet point of saying that.

Sales and adjusted EBITDA includes the expected benefit price commodity and margin impacts for the quarter I think Peter is right.

You had it earlier there is a sharper commodity headwind from a top line.

Standpoint in <unk>. So can you just elaborate maybe a little bit on what that comment means and if it's possible, but then split out if there is still some benefit on margins what you're.

Business for <unk> would be estimated that versus that 440 total.

Yes, so I think probably the biggest challenge in this is that there is no base business at a quarterly level.

It doesn't actually exist so I'm not holding out on you in terms of talking about that number.

Youre right there is a.

There is a lot going on in the year over year comps and the ability to break out those pieces. Unfortunately is generally driven by some detailed analytics, we have some topside assumptions, but I don't think they are particularly helpful to you in terms of.

In sight.

A lot of the.

Year over year comparison from a commodities perspective is negative in the first half are far more negative in the first half than the second.

Unfortunately, just from a the ability to break those pieces apart so starts comp so.

I think that our guide our comment when we were given the guidance, saying that the first half is going to be harder from a comparisons perspective.

Unfortunately, it's probably my best insight to offer for the for the numbers this year.

Yeah, Okay, Yeah, I guess.

Since that comment because theres still benefits in there, but maybe that speaks to the margin, yes margins have been quite normalized yet.

<unk>.

Yeah.

And that was really just trying to say, it's all in that was all I.

Gotcha, Okay, and so my second question is kind of somewhat related but just a two parter on the.

Full year.

Scenarios and so as a point of clarification, when you say commodity price.

My sense has been that blend of lumber and OSB, but can you correct me if I am.

Wrong, there and.

And that's the starting point okay.

Okay. So then just for a frame of reference.

If we're looking at a blended price year to date.

It seems like that's kind of in the mid three hundreds maybe oscillating between mid three hundreds.

Alright, 300 is that a fair characterization of where you're at year to date on that Glenn.

Yes, I mean, if I just talked to random lengths I think thats right between $3 50, and 400 is the range.

A little bit below our our base business assumption.

In terms of how the year has started but it's early.

Yes.

Got it changes.

Good day to day basis, Okay, and then so when we think about the <unk>.

The range of scenarios.

Obviously, you've spoken to the gross margin dynamics, a bit and SG&A is going to flex up or down a decent amount depending on if you're like yes.

Downtown versus down 30, right, but when you think about putting this range.

Gather in terms of how you get down to the ultimate EBITDA number which part is the bigger swing factor in in your models is the gross margin line pretty pretty steady normalizing down and the swing factor in the EBITDA margin is mostly SG&A flexing or is there a different.

Mix as you kind of progressively lower on the scale of these scenarios.

That's a really good question.

We're in the mid Twenty's or sorry, low twenties for SG&A as a percent of sales and it's about 70% variable youre talking about.

6% thats in that fixed bucket.

I think about the impact of margins, obviously that falls like price all the way through the bottom line. So that's very impactful.

Yes off the top of my head they seem pretty comparable.

I actually don't have a hard answer for you on that but I think youre right. Those are two of the major components, what happens when sales decline and how much to deleverage can we offset with.

Re scaling the business and then how does pricing pull through.

The more aggressive any potential downturn.

<unk> ended up being we do expect it to be harder on both margins and commodity price.

Got it okay.

Okay. Thanks Peter.

Sure. Thanks, Mike.

And we will take our last question from Alex <unk> with B Riley. Your line is now open.

Thank you you referenced the slowdown in average daily sales sort of in December and January can you quantify that.

Well I mean, theres two pieces to it one of them is the normal seasonality. We do so we do see generally speaking about 20% less sales and the depth of winter than we do in the peak of summer.

Not more than that obviously in the seasonal markets. What we're also seeing the.

Down trend of.

Sort of the orders generating starts generating sales for us.

On new houses so that that decline is has been pretty consistent.

As one might expect we would expect to lap the peak.

Probably Q2.

And then <unk>.

Excluding commodity products.

We've seen some players reduce their prices yet.

More rumors than auctions, but there are a couple of categories, where there it looks like it's probably going to happen and will stick for the most part, though it's been less increases support no acres.

Yes.

They are still struggling as well with labor.

And what they're having to pay for the cost of labor, but at the end of the day the normal dynamics around supply and demand are going to let out.

We're going to go after share theyre going to do it with whatever availability. They have it just hasnt been widespread at this point.

Thank you very much.

Alright, thank you.

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