Q2 2025 Builders FirstSource Inc Earnings Call

Operator: Please stand by. Your program is about to begin. Good day, and welcome to the Builders FirstSource second quarter 2025 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 phone at any time during the call. I'd now like to turn the call over to Heather Kos, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead.

Please stand by your program is about to begin.

Good day and welcome to the Builder's. First Source, second quarter 2025 earnings conference. Call. Today's call is scheduled to last about 1 hour, including remarks by management and the question and answer session in order to ask a question, please press the star key followed by the number 1 on your phone. At any time during the call, I'd now like to turn the call over to Heather costs senior vice president, investor relations, for Builders First Source. Please go ahead.

Heather Kos: Good morning, and welcome to our second quarter 2025 earnings call. With me on the call are Peter Jackson, our CEO, and Pete Beckmann, our CFO. The earnings press release and presentation are available on our website at investors.bldr.com. We will refer to the 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 the reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable, and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and presentation.

Good morning and Welcome to our second quarter 2025 earnings call.

With me, on the call are Peter Jackson, our CEO and Pete Beckman. Our CFO, the earnings press release and presentation are available on our website and investors. Bldr.com, we will refer to the presentation during our call.

Heather Kos: 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 result to differ from forward-looking statements and projections. And with that, I'll turn the call over to Peter.

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 the reconciliation of these non-gaap measures to the corresponding Gap, measures where applicable and a discussion of why. We believe they can be useful to investors in our earnings press release SEC filings and presentation.

Peter Jackson: Thank you, Heather, and good morning, everyone. Our durable results in the second quarter reinforce the advantage of our differentiated product offerings and commitment to execution. In this challenging market environment, we are prioritizing what's within our control, serving customers with excellence, leveraging technology, and managing the business with discipline. These efforts are strengthening our position in the industry and laying the foundation to emerge stronger as market conditions improve. As shown on slide three, we continue to execute against our strategy as we operate in a dynamic environment. This morning, I want to drill down on three key focus areas within our strategy: our customers, operational excellence, and capital allocation, what we refer to internally as smart investments. Delivering exceptional customer service is a core value as we drive for growth.

Our remarks in the press release presentation. And on this, call 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 in our SEC filings for various factors that could cause our actual results to differ, from forward-looking statements and projections. And with that, I'll turn the call over to Peter.

Thank you, Heather. And good morning, everyone.

Our durable results in the second quarter, reinforce the advantage of our differentiated product offerings and commitment to execution.

In this challenging market environment, we are prioritizing what's within our control: serving customers with excellence, leveraging technology, and managing the business with discipline.

These efforts are strengthening our position in the industry and laying the foundation to emerge stronger as market conditions improve.

As shown on slide 3, we continue to execute against our strategy as we operate in a dynamic environment.

This morning, I want to drill down on 3 key, Focus areas within our strategy.

Our customers operational excellence and capital. Allocation, what we refer to internally as smart Investments.

Peter Jackson: We strive to be trusted partners to home builders by providing best-in-class service every day and working together to solve the industry's most complex challenges. We are expanding our value-added solutions and leveraging technology, including our end-to-end BFS digital tools, to help create a differentiated customer experience while empowering our teams to serve more effectively. The next focused area, operational excellence, is crucial to how we run the business. It's about developing talent, improving agility, and embedding technology into our operations with the implementation of a single ERP system. As we talked about previously, moving to SAP will unlock further opportunities for growth and efficiencies, including how we make decisions, streamline operations, and manage costs. Finally, we remain disciplined in how we deploy capital. A consistent, strong free cash flow through the cycle gives us the flexibility to invest in organic growth, pursue strategic M&A, and return capital to shareholders.

Delivering exceptional customer service is a core value. As we drive for growth, we strive to be trusted Partners to home builders by providing best-in-class service every day, and working together to solve the industry's most complex challenges.

and leveraging Technology including our end-to-end BFS digital tools to help create a differentiated customer experience while empowering our teams to serve more effectively,

The next focused area, operational excellence is crucial to how we run the business.

It's about developing Talent, improving agility and embedding technology into our operations with the implementation of a single Erp system.

As we talked about previously, moving to sap will unlock further opportunities for growth and efficiency, including how we make decisions, streamline operations, and manage costs.

Peter Jackson: These investments are strengthening our competitive position and driving long-term value creation. Let's turn now to our second quarter performance on slide five. Our sales were impacted by a softer than expected housing market due to ongoing affordability concerns and rising home inventories as completions outpace sales. While we readily acknowledge that we are experiencing lower margins as we support our customers, I'm pleased that we are maintaining healthy profitability in a low starts environment, a testament to the operational discipline that is part of the fabric of BFS. Slide six, we highlight key areas where we've been executing our four strategic pillars. In the second quarter, we invested more than $35 million in value-added solutions as we build for the future. This included opening a new millwork location in Florida and expanding or upgrading plants in seven states.

Finally, we remain disciplined in how we deploy Capital our consistent, strong free cash flow through the cycle. Gives us the flexibility to invest in organic growth, pursue strategic, m&a, and return Capital to shareholders these Investments are strengthening our competitive position and driving long-term value creation.

Let's turn now to our second quarter performance on slide 5.

Our sales were impacted by a softer than expected housing market, due to ongoing, affordability, concerns and Rising home inventories as completions outpace sales.

While we readily acknowledge that, we are experiencing lower margins. As we support our customers, I'm pleased that we are maintaining healthy profitability. In a low starts environment, a testament to the operational, discipline that is part of the fabric of BFS.

Slide 6. We highlight key areas where we've been executing our 4, strategic pillars in the second quarter, we invested more than 35 million in value, added Solutions, as we build for the future.

Peter Jackson: We generated $5 million in productivity savings in Q2, primarily through targeted supply chain initiatives. We are focusing on optimizing processes, utilizing new tools, and partnering with suppliers to grow share. Turning to slide seven, we remain disciplined stewards of discretionary spending, and we are continuing to maximize operational flexibility. In response to lower volumes over the last year, we have taken meaningful steps to align capacity across our facilities, manage headcount, and control expenses. Year to date through June, we have consolidated eight facilities while maintaining a non-time and in-full delivery rate of 92%. With our industry-leading scale, experienced leadership team, and a track record of operating proactively through the cycle, we are confident that we can continue to deliver exceptional customer service. Single-family starts remain soft as builders manage the pace of construction. As expected, we've experienced a muted sales pace that is below the normal seasonal levels.

This included opening a new Millwork location in Florida and expanding or upgrading plants in 7 States.

We generated 5 million in productivity Savings in Q2, primarily through targeted supply, chain initiatives. We are focusing on optimizing processes, utilizing new tools and partnering with suppliers to grow share.

Starting to slide 7. We remain disciplined stewards of discretionary spending, and we are continuing to maximize operational flexibility in response to lower volumes over the last year, we have taken meaningful steps to align capacity across our facilities manage headcount and control expenses.

Year to date through June we have Consolidated 8 facilities while maintaining a non-time and in full delivery rate of 92%.

With our industry-leading scale, experienced leadership, team, and a track record of operating proactively through the cycle. We are confident that we can continue to deliver exceptional customer service.

Peter Jackson: Given customer feedback and our understanding of land development trends, we expect single-family starts to decrease through year-end. Builders are working to help buyers find affordable options by offering smaller and simpler homes, as well as incentives such as interest rate buy-ins. We are marching in lockstep with builders through our comprehensive product portfolio, enabling them to optimize their costs while maintaining quality. Multifamily also remains muted, driven by higher input and financing costs. However, with a substantial mix of value-added products and attractive long-term fundamentals, multifamily remains an appealing and profitable business for us. Turning to M&A on slide eight, we remain focused on pursuing higher return opportunities that expand our value-added product offerings and advance our leadership position in desirable geographies. Over the years, we have developed substantial and proven muscle memory to grow through M&A and have a track record of successful integration.

Single family starts remain soft as Builders manage the pace of construction as expected. We've experienced a muted sales Pace that is below the normal seasonal levels.

Even customer feedback and our understanding of Land Development Trends. We expect single family starts to decrease through year end.

Builders are working to help buyers find affordable options by offering smaller and simpler homes, as well as incentives such as interest rate buyers.

We are Marching In lock step with Builders through our comprehensive product portfolio.

Enabling them to optimize their costs while maintaining quality multi-family also remains muted driven by higher input and financing costs. However, with a substantial mix of value, added products and attractive. Long-term fundamentals, multi-family remains an appealing and profitable business for us.

Turning to m&a on slide 8, we remain focused on pursuing higher return opportunities, that expand our value, added product offerings and Advance our leadership position in desirable geographies.

Peter Jackson: In the second quarter, we acquired Truckee Tahoe Lumber with aggregate prior year sales of roughly $120 million. Truckee Tahoe's reputation of excellence as a leading supplier of lumber and building materials extends our presence in the Northern California and Nevada markets. We have made 35 acquisitions since the BMC merger in 2021, yet our industry remains highly fragmented. Today's market volatility makes price discovery difficult. But despite the current slower M&A environment, we are confident that inorganic investments will remain an important driver of long-term growth. Turning to slide nine, our disciplined capital allocation strategy focuses on maximizing shareholder returns through organic growth, M&A, and share repurchases. In the second quarter, we deployed over $500 million towards return-enhancing opportunities aligned with our priorities. Now, let's turn to slide 10 and discuss the latest updates on our digital and technology strategy.

Over the years, we have developed substantial and proven muscle memory to grow through m&a and have a track record of successful integration.

The second quarter, we acquired Truckee Tahoe, Lumber with aggregate prior year sales of roughly 120 million.

Trucking, Tahoe's reputation of Excellence as a leading supplier of lumber and building materials extends our presence in the northern California and Nevada markets.

We have made 35 Acres since the BMC merger in 2021 yet. Our industry remains highly fragmented, today's market volatility makes price Discovery difficult but despite the current slower m&a environment, we are confident that inorganic investments will remain an important driver of long-term growth.

Turning the slide 9, our disciplined Capital allocation strategy focuses on maximizing shareholder returns through organic growth m&a and share repurchases.

Deployed over 500 million dollars towards return enhancing opportunities aligned with our priorities.

Peter Jackson: In June, we announced Gayatri Narayan as our new president of technology and digital solutions. Gayatri brings over two decades of global technology leadership experience, having held senior roles at Amazon, Microsoft, and PepsiCo. Her proven track record of driving innovation and growth through digital transformation will be instrumental as we leverage technology to enhance connectivity across our industry. We are accelerating the integration of our digital source systems and deploying scalable, customer-centric solutions that will strengthen our operational agility and support long-term growth. Our BFS digital tools deliver meaningful benefits to our home builder customers and align BFS as a key technology partner. Despite the challenging market, we have seen continued adoption with our target audience of smaller builders. Since launch in early 2024, we have seen more than $2 billion of orders and $4 billion of quotes placed through our BFS digital tools.

Now, let's turn to slide 10 and discuss the latest updates on our digital and Technology strategy.

In June, we announced Gaia tree narian as our new president of technology and digital Solutions.

Gaia tree brings over 2 Decades of global technology leadership experience having held senior roles at Amazon, Microsoft and PepsiCo,

For proven track records of driving Innovation and growth through digital transformation will be instrumental as we leverage technology to enhance connectivity across our industry.

We are accelerating the integration of our digital Source systems and deploying scalable, customer Centric solutions, that will strengthen our operational agility and support long-term growth.

Our BFS digital tools deliver meaningful benefits to our home builder customers and align BFS as a key technology partner.

Despite the challenging Market we have seen continued to adoption with our target audience of smaller. Builders

Peter Jackson: These metrics are up more than 400% and nearly 300% year to date, respectively, compared to 2024. We continue to refine our new adoption roadmap and will roll out our new thinking around benefits and timing later this year. I'm pleased that we continue to make progress on our implementation of SAP with the launch of two pilot markets earlier this month. Although these conversions are never easy, we are working through the details and are excited about the growth and efficiency opportunities to come with this new software. I remain deeply grateful for the opportunities to lead such a skilled and dedicated team that makes a difference every day. This quarter, I want to highlight Jim Henry, a load builder in our Burbank yard, who recently celebrated an incredible 40 years with BFS. Jim is known for his efficiency, flexibility, team-first attitude, and his love of cycling.

Since launch and early 2024, we have seen more than $2 billion in orders and $4 billion in quotes placed through our BFS digital tools. These metrics are up more than 400% and nearly 300% year to date, respectively, compared to 2024.

We continue to refine our new Adoption roadmap and we'll roll out our new thinking around benefits and timing later this year.

I'm pleased that we continue to make progress on our implementation of sap with the launch of 2 pilot markets earlier this month. Although these conversions are never easy. We are working through the details and are excited about the growth and efficiency opportunities to come. With this new software.

I remain deeply grateful for the opportunities to lead such as skilled and dedicated team, that makes a difference every day.

This quarter, I want to highlight Jim Henry, a load builder, in our Burbank yard who recently celebrated, an incredible 40 years with BFS,

Peter Jackson: He's had a lasting impact on operations and is someone his teammates look to as a model of how to get the job done right. I'm proud of Jim and the many others across our organization whose hard work and commitment drive BFS forward. I'll now turn the call over to Pete to discuss our financial results in greater detail.

Jim is known for his efficiency. Flexibility team first attitude and his love of cycling. He's had a lasting impact on operations and is someone his teammates look to as a model of how to get the job done, right?

I'm proud of Jim and the many others across our organization, whose hard work and commitment to drive, BFS forward.

I'll now turn the call over to Pete to discuss our financial results in Greater detail.

Pete Beckmann: Thank you, Peter, and good morning, everyone. We continue to benefit from the strength and adaptability of our operating model. By executing consistently through the cycle, we are generating strong free cash flow and preserving financial flexibility. Our scale, operational rigor, and talented team give us confidence in our ability to deliver solid results and compound value into the future. We remain disciplined in our capital deployment with a focus on maintaining a healthy balance sheet and investing in high return opportunities. I'd like to pause for a moment to highlight our operating model, a core differentiator that continues to set us apart in the industry. At BFS, we have a disciplined enterprise-wide approach that unites our teams across functions, geographies, and product categories.

Thank you, Peter and good morning everyone.

We continue to benefit from the strength and adaptability of our operating model.

By executing consistently through the cycle. We are generating strong free, cash flow and preserving Financial flexibility.

Our scale, operational rigor, and talented team give us confidence in our ability to deliver solid results and compound value into the future.

We remain disciplined in our Capital deployment with a focus on maintaining a healthy balance sheet and investing in high return opportunities.

I'd like to pause for a moment to highlight our operating model, a core differentiator that continues to set us apart in the industry.

Pete Beckmann: We conduct granular performance reviews that track market trends and key productivity metrics, such as trust, board footprint, labor hours, and utilization rates of manufacturing and fleet capacity. These insights enable us to identify opportunities, address challenges early, and drive continuous improvement across the business. What truly reinforces this discipline is the active oversight of our executive steering committee. This cross-functional leadership group meets to review operational KPIs, challenge assumptions, and confirm alignment with our strategic goals. Their involvement ensures that insights from the field translate into action at the highest levels of the organization, enabling us to respond quickly and adapt as needed to evolving market dynamics. Let's begin by reviewing our second quarter performance on slides 11 through 13. Net sales decreased 5% to $4.2 billion, driven by lower organic sales and commodity deflation, partially offset by growth from acquisitions.

At VFS, we have a disciplined enterprise-wide approach that unites our teams across functions geographies and product categories.

We conduct granular performance reviews at a track market trends and key productivity metrics.

Such as trust board foot for labor hour and utilization rates of manufacturing and Fleet capacity.

These insights enable us to identify opportunities address challenges early and drive continuous Improvement across the business.

But truly reinforces. This discipline is the act of oversight over our executive steering committee.

This cross-functional leadership, group needs to review, operational, kpis challenge assumptions, and confirm alignment with our strategic goals.

Their involvement ensures that insights from the field, translate into action at the highest levels of the organization.

Enabling us to respond quickly and adapt as needed to evolving market dynamics.

Let's begin by reviewing our second quarter performance on slide 11 through 13.

Net sales decreased by a percent to 4.2 billion driven by lower organic sales and commodity deflation

partially offset by growth from acquisitions.

Pete Beckmann: We continue to experience commodity deflation, attributable largely to lower OSB prices. While pending duties and capacity rationalization have contributed to a more stable lumber market, OSB capacity additions have continued to create downward pricing pressure. The core organic sales decrease was driven by a 23% decline in multifamily, with muted activity levels against stronger prior year comps. Additionally, single-family declined 9%, attributable to lower starts activity and value per start, while repair and remodel increased 3%, driven by strength in the Mid-Atlantic and South Central regions. As we've noted on recent calls, there are a few key factors reconciling single-family starts to our core organic sales. First, as a reminder, there is a roughly three-month lag from a start to our per sale. Second, the value of the average home has fallen as size and complexity have decreased over time.

We continue to experience commodity deflation attributable, largely to lower OSB prices.

While pending duties and capacity. Rationalization have contributed to a more stable Lumber Market, LSB capacity. Additions have continued to create downward pricing pressure.

additionally single family declined, 9%

Attributable to lower starts activity and value per start, while repair and remodel increased 3%, driven by strength in the Mid-Atlantic and South Central regions.

As we've noted on recent calls, there are a few key factors reconciling single family, starts to our core organic sales.

First, as a reminder, there is a roughly 3-month lag from a start to our first sale.

Pete Beckmann: Third, margins remain pressured throughout the supply chain as affordability concerns continue to be paramount. Despite these challenges, we continue to lead the building products market and serve as a trusted partner to our customers. For the second quarter, gross profit was $1.3 billion, a decrease of 11% compared to the prior year period. Gross margin was 30.7%, down 210 basis points, primarily driven by single and multifamily margin normalization, as well as a below-normal starts environment. Adjusted SG&A of $818 million increased $4 million, primarily attributable to acquired operations, partially offset by lower variable compensation due to lower sales. On an annual basis, adjusted SG&A is approximately 30% fixed and 70% variable with volumes, enabling flexibility during challenging periods. As Peter touched on previously, we are focused on carefully managing our SG&A and are well-positioned to leverage our costs as the market grows.

Second, the value of that average home has fallen as size and complexity have decreased over time.

Third margins remain pressured throughout the supply chain as affordability, concerns continue to be Paramount.

Whitley's challenges. We continue to lead the building products market and serve as a trusted partner to our customers.

For the second quarter, gross profit was 1.3 billion. A decrease of 11% compared to the prior year period.

Gross margin was 30.7% down. 210 basis points, primarily driven by single and multi-family margin normalization as well as a below. Normal starts environment,

Adjusted sgna of 818 million dollars, increased 4 million, primarily attributable, to acquired operations, partially offset by lower variable compensation due to lower sales.

On an annual basis. Adjusted sgna is approximately 30% fixed and 70% variable, with volumes enabling flexibility during challenging periods.

As Peter touched on previously, we are focused on carefully managing our sgna and are well, positioned to leverage our costs as the market grows.

Pete Beckmann: Adjusted EBITDA was $506 million, down 24%, primarily driven by lower gross profit. Adjusted EBITDA margin was 12%, down 300 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage. Adjusted EPS was $2.38, a decrease of 32% compared to the prior year. On a year-over-year basis, share repurchases, enabled by our strong free cash flow generation, added roughly 18 cents per share for the second quarter. Now let's turn to our cash flow, balance sheet, and liquidity on slide 14. Our second quarter operating cash flow was $341 million, a decrease of $111 million, mainly attributable to lower net income. We generated free cash flow of $255 million. Our trailing 12 months free cash flow yield was 9%, and operating cash flow return on invested capital was 18%.

Adjusted Evo is 506 million down 24%.

Primarily driven by lower growth profit.

Adjusted ebit a margin was 12% down 300 basis points from the prior year, primarily due to lower gross profit margins and reduced operating Leverage.

Adjusted EPS was $2.38, a decrease of 32% compared to the prior year.

On a year-over-year basis. Share repurchases enabled by our strong free cash, flow generation, added roughly, 18, cents per share for the second quarter.

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

our second quarter, operating cash flow was 341 million, a decrease of 111 million, mainly attributable, to lower net income,

We generated free cash flow of 255 million.

Our trailing 12 months, free cash flow. Yield was 9% and operating cash flow. Return on invested Capital was 18%.

Pete Beckmann: Our net debt to adjusted EBITDA ratio was approximately 2.3 times, while our fixed charge coverage ratio was roughly six times. In May, we completed a $750 million offering of 6.75% senior unsecured notes due 2035 to pay down the balance on our ABL. Additionally, we upsized our ABL facility by $400 million to $2.2 billion. We have no long-term debt maturities until 2030. Our maturity profile enables us to remain operationally and financially disciplined while preserving a flexible balance sheet for accretive capital deployment. Moving to second quarter capital deployment, capital expenditures were $86 million. We deployed $61 million on acquisitions, and we repurchased 3.3 million shares at an average price of $118.27 per share for $391 million. We currently have $500 million remaining on our share repurchase authorization. While our 2.3 times leverage ratio is slightly above our target range, we remain comfortable with our net debt levels.

Our net debt to adjusted ibido ratio was approximately 2.3 times.

While our fixed charge coverage ratio was roughly 6 times.

In may, we completed a 750 million offering of 6.75%, senior unsecured notes due to 2035 to pay down the balance, on our abl.

Additionally, we upsized our abl facility by million dollars to 2.2 billion.

We have no long-term debt maturities until 2030.

Our maturity profile enables us to remain operationally and financially disciplined. While preserving a flexible balance sheet for a creative Capital deployment.

Moving to second quarter Capital deployment.

Capital expenditures were 86 million.

We deployed 61 million on Acquisitions and we repurchased 3.3 million shares at an average price of $118.27 per share for 391 million.

We currently have $500 million remaining on our share of purchase authorization.

Pete Beckmann: We will continue to execute our capital allocation priorities and remain disciplined stewards of capital in the path to maximizing value creation. On slide 15 and 16, we show our 2025 scenarios and outlook. Given the dispersion of potential housing market and commodity outcomes for the rest of the year, we have laid out a scenario analysis to demonstrate how we are positioned to generate resilient financial performance. As you can see, the bottom of our guidance range corresponds to lower assumptions for single-family starts and commodity prices. Our latest forecast assumes single-family is down 10% to 12% for the year. We continue to expect a multifamily headwind to sales of $400 to $500 million and a headwind to EBITDA of less than $200 million, with most of the drag already coming in the first half of the year. We also expect R&R end market to be flat.

While our 2.3 times, leverage ratio is slightly above our target range. We remain comfortable with our net debt levels.

We will continue to execute our Capital, allocation priorities, and remain disciplined stewards of capital on the path to maximize and value creation.

On slide, 15 and 16. We show our 2025 scenarios and Outlook.

Given the dispersion of potential housing market and commodity outcomes for the rest of the year. We have laid out a scenario analysis to demonstrate how we are positioned to generate resilient financial performance.

As you can see, the bottom of our guidance range corresponds to lower assumptions for single-family starts and commodity prices.

Our latest forecast assumes single family is down 10 to 12% for the year.

We continue to expect a multi family headwind to sales of 400 to 500 million and the headwind ibida of less than dollars.

with most of the drug already coming in, in the first half of the year,

It to be flat.

Pete Beckmann: As a result, we are guiding net sales in the range of $14.8 to $15.6 billion. We expect adjusted EBITDA to be $1.5 to $1.7 billion. Adjusted EBITDA margin is forecast to be in the range of 10.1% to 10.9%. Given the below-normal starts environment, we expect our 2025 full-year gross margin to be below long-term normalized levels and in a range of 29% to 30.5%. We expect free cash flow of $800 million to $1 billion. Our revised guidance assumes average commodity prices in the range of $375 to $425 per thousand board foot. Please refer to our earnings release and presentation for a list of key 2025 assumptions. Additionally, we want to provide color for Q3 because of our ongoing macro volatility and to align with builder expectations. We expect Q3 net sales to be between $3.65 and $3.95 billion, given a weaker than normal building season.

As a result, we are guiding that sales in the range of 14.8 to 15.6 billion dollars.

We expect adjusted ibida to be 1.5 to 1.7 billion.

Adjusted ibida. Margin is forecast to be in the range of 10.1 to 10.9%.

Given the below normal starts environment. We expect our 2025 full year, gross margin to be below long-term normalized levels, and in a range of 29 to 30.5%,

We expect free cash flow of $800 million to $1 billion.

Our revised guidance assumes average commodity prices in the range of 375 to 425 per thousand foot.

Please refer to our earnings release and presentation for a list of key 2025 assumptions.

Additionally, we want to provide color for Q3 because of our of ongoing macro volatility and to align with Builder expectations.

Pete Beckmann: Q3 adjusted EBITDA is expected to be between $375 and $425 million. In closing, we are closely monitoring the current environment and remain agile to mitigate downside risk in the near term, while also investing strategically for the future. I'm confident in our ability to drive long-term growth by executing our strategy, leveraging our exceptional platform, and maintaining financial flexibility. With that, I'll turn the call back over to Peter for some final thoughts.

We expect 23, net sales to be between 3.65 and 3.95 billion dollars, given a weaker than normal building season.

Q3 adjusted. Eva is expected to be between 375 and 425 million.

In closing, we are closely monitoring the current environment and remain agile to mitigate downside risk in the near term while also investing strategically for the future.

I am confident in our ability to drive long-term growth by executing our strategy leveraging. Our exceptional platform and maintaining Financial flexibility

Peter Jackson: Thanks, Pete. I want to close today by emphasizing the transformation of BFS. Today, we are an exceptionally improved organization, one powered by differentiated product offerings, including our value-added solutions, our relentless focus on operational excellence, and disciplined capital deployment strategies. This evolution is illustrated on slide 18, which highlights how our performance in a challenged starts environment is substantially better today than in 2019. Our business is positioned to accelerate when starts increase and current headwinds begin to subside. Our customer relationships are deepening, our operational efficiency is improving, and our technology platform is creating real value for the business. By controlling what we can control and leveraging our competitive advantages, we will continue to compound long-term shareholder value. Thank you for joining us today, operator. Let's please open the call now for questions.

With that, I'll turn the call back over to Peter for some final thoughts.

Thanks, Bea. I want to close today by emphasizing the transformation of BFFs.

Today we are an exceptionally improved organization 1 powered by differentiated product offerings including our value added Solutions. Our Relentless focus on operational, excellence and disciplined Capital deployment strategies.

This evolution is illustrated on Slide 18, which highlights how our performance in a challenging environment is substantially better today than in 2019.

Our business is positioned to accelerate when starts increase and current headwinds begin to subside or current. Our customer relationships are deepening. Our operational efficiency is improving, and our technology platform is creating real value for the business.

By controlling what we can control and leveraging, our competitive advantages. We will continue to compound long-term shareholder value.

Thank you for joining us today. Operator was pleased over the call. Now for questions.

Operator: Certainly. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. In the interest of time, we ask that you please limit your questions to one question. Once again, that is star and one to ask a question. And we will take our first question from Matthew Booley with Barclays. Please go ahead.

Certainly. And at this time, if you would like to ask a question, please press star and 1 on your telephone keypad. You may remove yourself from the Queue at any time by pressing star 2 and the interest of time we ask that you please limit your questions to 1 question once again, that is star and 1 to ask a question and we will take our first question from Matthew bully with Barclays. Please go ahead.

Matthew Bouley: Good morning, everyone. Thank you for taking the questions. So whether we're talking installation, digital, the value-add investments you're making this year, I'd be curious if you can speak a little more where, I guess, specifically, or even provide examples of how you are strengthening your competitive position and partnering with your builder customers in this type of, I guess, disappointing starts environment and sort of what those tactics might mean for your growth and profitability in the future when we eventually get to that environment where starts were to stabilize or improve. Thank you.

Good morning everyone. Uh, thank you for taking the questions. Um,

So whether we're talking um installation digital uh the value, add Investments, you're making this year, um, be curious, if you can speak a little more where I guess specifically, or even provide examples of how you are strengthening your competitive position, uh, and partnering with your Builder customers, uh, in this type of, I guess, disappointing, starts environment, and sort of what those tactics might mean for your growth and profitability in the future when we eventually get to that environment where starts were to stabilize or improve. Thank you.

Peter Jackson: Morning, Matt. Thank you for the question. Yeah, happy to. So, you know, a couple of key areas. I think the most basic one is improving our on-time and in-full performance to ensure that our builders are able to be as efficient as possible. I would I would argue nobody is better at it than we are. We're well over 90%, and we are known in the industry as the trusted partner to be able to ensure that consistent performance over time. If you think about some of the things we're doing to align more closely with builders, it's figuring out ways to achieve the goals that they have. And their primary goal, as stated to us and broadly, is affordability. So what are the products that are going to most directly allow them to build a high-quality, cost-efficient home? In some cases, there are product substitutions.

Morning, Matt. And thank you for the question. Um, yeah. Happy to so, you know, a couple of key areas, I think the, the most basic 1 is improving our on-time and in full

Performance to ensure that our Builders are able to be as efficient as possible. I would, I would argue. Nobody is better at them. We are um we're we're well over 90% And we are known in the industry as the trusted partner to be able to ensure that consistent performance over time.

Peter Jackson: In some cases, there are new applications. The pace of the build and the alignment of the build process with what we're doing, we continue to enhance the integrations with our customers, looking for ways to pass data and align scheduled and forecasts in a very, very efficient and highly reliable way. A big piece of that is around technology, both in the core systems, but as well as digital. Digital is another way where we have seen customers benefit in terms of utilizing both online tools, but also the three-dimensional digital twin to optimize their build process, to find pockets of waste that can be removed, and to create efficiencies in terms of communication and process improvement. All of that is really linked back to our role as connector between builders and vendors, right?

The past data and aligned uh scheduled and forecasts in a very, very efficient and highly reliable way.

A big piece of that is around technology. Um, both in the core systems, but as well as digital digital is another way where we have seen customers benefit in terms of utilizing, um, both online tools. But also, the 3 dimensional digital twin to optimize their build process to find pockets of waste. That's that that can be removed um and to create efficiencies in terms of communication and process Improvement,

Peter Jackson: So our ability to operate effectively in a highly efficient digital environment, to link our trusted vendor partners with our customers is really that way that we're reinforcing and strengthening, and at the same time, ensuring that we're learning from past cycles and having the right capacity on the ground in the right markets. That's a big piece of where we talk about building for the future and being ready. So all of that basically boils down to, as the turn starts, and we believe it will come, not quite yet, but we believe it's on its way, we are going to be better positioned than anybody to really grow and take advantage of highly efficient relationships with customers, trusted relationships with customers, and massive capacity to be able to truly create value for shareholders and be more of a trusted partner in this space.

All of that is, is really linked back to our role as connector between Builders and vendors, right? So our ability to operate effectively in a highly efficient digital environment to link our trusted vendor partners with our customers is really that way that we're reinforcing and strengthening and at the same time ensuring that we're learning from past cycles and having the right capacity on the ground in the right markets. That's a big piece of where we talk about building for the future and being ready. So all of that basically boils down to as the turn starts and we believe it will come not quite yet but we believe it's on its way. We are going to be better positioned than anybody to really grow and take advantage of Highly efficient relationships with customers trusted relationship.

Ships with customers and massive capacity to be able to truly create value for shareholders and be more of a trusted partner in this space.

Matthew Bouley: Excellent. Well, that's great color, Peter. Really appreciate that. Secondly, maybe diving into the near term and the gross margins. Correct me if I'm wrong, but I think this was the first quarter where your gross margins were actually higher sequentially, perhaps since 2023, which at least surprised us. Maybe not you, but you know what actually drove that? Why did the margins improve in Q2 sequentially? Kind of what's that imply about the Q2 exit rate? And you know maybe what are you assuming in that margin within the kind of Q3 and second half guide? Thank you.

Excellent. Well that that's a great caller Peter, really, really appreciate that. Um

Secondly um maybe diving into the near-term and and the gross margins. Um, correct me if I'm wrong but I think this is the first quarter where your gross margins were actually higher sequentially. Uh perhaps since 2023 um which at least surprised us. Um maybe not you. But um you know what? What actually drove that why? Why did the margins improved in Q2 sequentially? Kind of what's that imply about the Q2 exit rate and you know may maybe what are you assuming in that margin uh within the kind of Q3 and and second half guide, thank you.

Pete Beckmann: Thanks, Matt. Great question. We're actually very pleased with that margin performance for Q2. As we had noted on the last call that we were going to see margins drifting down sequentially through the year, it was a drift down. And we were very pleased with the performance as we had a little better than expected in the multifamily and R&R space that contributed to that margin outperformance. And just to contextualize it, that 20 basis points increase over Q1, that's worth about $8 million. So it's pretty small in the grand scheme of things, but we're very pleased with the outperformance.

Thanks Matt. Great question. Uh, we're actually very pleased with that margin performance for Q2. Um, as we had noted last on the last call that we were going to see margins drifting down sequentially through the year. Um it was a drift down and we were very pleased with the performance. Is we have um a little better than expected in the multi family and RNR space that contributed to that margin outperformance.

And just to contextualize it that 20 basis points, increase over q1 that's worth about 8 million. So it's it's pretty small in the grand scheme of things, but we're very pleased with the outperformance.

Matthew Bouley: Got it. Yeah. And any color there on what was assumed in kind of Q3 and second half?

Got it. Yeah. And and any color there on what was assumed and kind of Q3 in the second half.

Pete Beckmann: Again, we're looking at sequential normalization or declines through the balance of the year to our stated full-year forecast or full-year guidance of margin. But it's very consistent with what we said in the prior quarter, given the competitive landscape and the softer than normal starts environment is going to continue to put that pressure on margins.

again we're uh, looking at sequential, um,

Normalization or declines through the balance of the year, uh, to our stated, uh, full-year forecasts or full-year guidance of margin. Um, but it's very consistent with what we said in the prior quarter. Given the competitive landscape and, uh, the softer than normal, uh, starts environment, it is going to continue to put that pressure on margins.

Matthew Bouley: All right. Well, thanks, Pete. Thanks, Peter. Good luck, guys.

Pete Beckmann: Thank you.

All right. Well thanks Pete. Thanks Peter. Good luck, guys.

Operator: Thank you. And our next question comes from Mike Doll with RBC. Please go ahead.

Thank you.

Thank you and our next question comes from Mike doll with RBC please. Go ahead.

Michael Dahl: Morning. Thanks for taking my questions. Maybe just to pick up on that last point, I guess you did a 30.6% gross margin in the first half of the year. You said there with the high end effectively being kind of flat to the first half, the low end implying a really sharp step down. And it seems like the 3Q guide does imply some sort of step down. So just to press a little more on, you know, status quo, given what you're experiencing in the market today, a little better direction on, or fine-tuning on where where in that range things are under kind of the status quo environment. And more broadly, just as you think about all these dynamics, any updated views on how you're balancing or looking to balance share and margin in the current environment?

Morning. Thanks for taking my questions.

Um,

Maybe just to pick up on that last point. I guess you did a 30.6% gross margin in the first half of the year so

Out there with the the high-end effectively being kind of flat to the first half.

The low end implying a really sharp step down and it seems like the 3Q guy. Does imply some sort of step down? So just to press a little more on, you know, status quo given what you're experiencing in the market today, a little better Direction on um, or fine-tuning on where, where in that range things are under kind of the status

Quo environment and, more broadly, just as you think about all these dynamics, any updated views on how you're balancing.

Or or looking to balance share and margin in the current environment.

Peter Jackson: Morning, Mike. Thanks. Yeah. So, you know, part of the dynamic here is what is what's being said broadly. Obviously, there are a lot of public home builders that have released over the past couple of weeks, versus kind of our signal here that it's a bit worse than what people are thinking. You know, as you know, we spent a lot of time with customers. We spent a lot of time digging into the data. what I think you're seeing is a little bit of a bifurcation, a little bit of a difference in terms of the profile of who we are versus what the builders are doing in terms of their annual cycle. Just to put a finer point on it, we've talked about it before. We're about two-thirds to the start and one-third to the completion.

Signal here that it's a bit worse than what people are thinking. You know, I do as you know, we spent a lot of time with customers. We spent a lot of time digging into the data.

Um, what I think you're seeing is a little bit of a bifurcation, a little bit of

Peter Jackson: As the builders get towards the back end of their year, they're looking at completing and selling homes. but given the inventory environment and what we're seeing in terms of the the land market, what we're hearing about, the takedowns and the contracts, our sense is builders are slowing on the start side. And without a clear, indicator that interest rates are going to move anytime soon, I think in the best-case scenario, it's going to be a little while and probably won't help this year. our sense is that that slowing, that resetting to a lower rate in order to manage those completed home inventory levels, that's what's going to flow through. so that's the slowing indication that you've got from us. The higher end of our of our scenarios that we laid out for you is a flatter version based on kind of where we are now.

A difference in terms of the profile of who we are versus what the builders are doing in terms of their annual cycle, just to put a finer point on it, we've talked about it before. We're about 2/3 to the start and 1/3 to the completion. Is the builders get towards the back end of their year, they're looking at completing and selling homes. Um, but given the inventory environment, and what we're seeing in terms of the, the land market, what we're hearing about. Um,

Peter Jackson: So you think about it that way. but there's a, you know, it not exactly, but directionally, I would say that's the band that we should think about. You know, the competitive environment, as Pete mentioned, it's pretty stable, right? It's a tough market. There's a fight out there. you know, in terms of what we're seeing, when when we're quoting and looking at what's going on with, with share according to our calcs, we think things have pretty well, stabilized on the share side. And and the signaling of what that took in order to stabilize is what Pete's got laid out in terms of the margins and the results for the rest of the year. You know, ultimately, I just go back to we're performing exceptionally well in a challenging market. it's not easy. We're focused on affordability, but the team's doing a phenomenal job.

The takedowns and the contracts, our senses Builders are slowing on the start side and with without a clear um indicator that interest rates are going to move anytime soon. I think in the best case scenario, it's going to be a little while. It probably won't help this year. Um, our sense is that that slowing that resetting to a a lower rate in order to manage those completed home, Inventory levels, that's what's going to flow through. Um, so that's the slowing indication that you've got from us. The higher end of our of our scenarios that we laid out for you is a flatter version based on kind of where we are now. So you think about it that way um but there's a you know it it not exactly but

Peter Jackson: We're staying focused on the disciplines necessary to do this business the right way and to prepare it for the future. And we're ready to go when it turns. We just need some cooperation from the external factors.

Directionally, I would say that's the band that we should think about, you know, the competitive environment, as Pete mentioned, it's pretty stable, right? It's, it's a tough Market. There's a, there's a fight out there. Um, you know, in terms of what we're seeing when when we're quoting and looking at what's going on with, um, with share. According to our accounts, we think things are pretty well, um, stabilized on the share side and and the signaling of what that took in order to stay alive, is what people's got laid out in terms of the margins of the results for the rest of the year, you know, ultimately, I just go back to we're performing exceptionally well, in a challenging Market, uh, it's not easy, we're we're focused on affordability, but the team's doing a phenomenal job. We're we're staying focused on the disciplines necessary this business the right way and to prepare it for the future and we're we're ready to go. When it turns we just need some some cooperation from the external factors.

Michael Dahl: Yeah, thanks for that, Peter. That's really helpful. And I guess similar vein, a lot of the concern or pushback that we get from investors is, you know, around trust specifically, where there is excess nameplate utilization out there. And you hear all the builders to this conversation talking about how, you know, they they are asking for and aggressively asking for help from from all their partners to to reduce costs. Can you just help us understand from your perspective the trust capacity environment, the differences you see on kind of nameplate versus effective utilization? And maybe if you could talk about kind of your your trust margins, at least directionally, you know, how those have been performing or expected to perform within within the balance of the year and your guidance, I think that might help.

Yeah, thanks for that Peter. That's really helpful. And I I guess similar similar vein a lot of the the concern or push back that we get from investors is you know around trust specifically where there is excess name plate, utilization out there and you hear all the builders to this conversation talking about how you know they they are asking for and aggressively asking for help from from all their Partners to to reduce costs. Can you just

Help us to understand from your perspective that trust capacity environment. The differences you see on kind of name plate versus effective utilization and and maybe if you could talk about kind of your your trust margins at least directionally um you know how those have been performing or or expected to perform within within the balance of the year and your guidance, I think that might help.

Peter Jackson: Sure. Yeah. I mean, I know it's not going to come as a surprise to anybody. We're underutilized from a capacity perspective and trust, right? Given where starts are, of course, we've got access. I think what we're particularly good at, though, is making sure we're running the business driving off of the correct metrics. So, for example, every location is absolutely focused on board foot per labor hour metrics to ensure that, you know, the biggest expense that we have, our people, are producing in a way that makes sense for the operation. That's how you cover the overhead. That's how you ensure, that we have a stable business.

Peter Jackson: In those instances where we don't have enough volume to absorb that fixed overhead, that's where we do things like you see in the materials, where we mothball operations or close operations or consolidate in order to ensure that the remaining facilities do have enough to stay stable. It's one of the many advantages of our network of operations, and something that that our team is exceptionally good at. So that's an example of how we manage it. you know, broadly in the space, we're very confident that we are, as efficient or better than anybody else in this space. In certain markets, certainly, it's hand-to-hand combat. No hesitation in saying that we've competed to weigh some of the excess margins that we've seen over the past few years.

Um, sure, yeah, I mean I, I know it's not going to come as a surprise to anybody. We're under utilized from a capacity perspective, and Trust, right? Given where it starts. Our, of course, we've got access. Um, I think what we're particularly good at though, is making sure we're running the business driving off of the correct metrics. So, for example, every location is absolutely focused on board foot per labor hour, metrics to ensure that, you know, the the biggest expense that we have are people are producing in a way that makes sense for the operation. That's how you cover the overhead. That's how you ensure, um, that we have a stable business in those instances, where we don't have enough volume to absorb that fixed overhead. That's where we do things, like, you see in the materials, um, where we want ball operations for closed, operations, or consolidate. In order to ensure that the remaining facilities do have enough.

Peter Jackson: you know, I think all of us have strived very hard to make sure we're getting a fair return on what we do. But that said, it is a competitive environment that that hopefully isn't a surprise based on everything we've said in the past. But with all of that, we're still doing well. It is a very nice product line for us. It's something that, again, we will have and will continue to invest in to ensure that we're aligned with our customers when when their need increases, and it will. so not shy at all about where we are and and continue to do it, continuing to invest in those key areas where that capacity is going to be needed, even if it's not needed as desperately today.

Margins that we've seen over the past few years. Um, you know, I think all of us subscribe very hard to make sure we're getting a fair return on what we do but that said it's it is a competitive environment that that hopefully isn't a surprise based on everything we've said in the past. But with all of that we're still doing well, it is a very nice product line for us. It's something that again, we will have and we will continue to invest in to assure that we're aligned with our customers when when they're needed and it will. Um, so not shy at all about

Where we are and and continue to do continuing to invest in those key areas, where that capacity is going to be needed, even if it's not needed is desperately today.

Matthew Bouley: Okay, great. Thank you.

Okay, great. Thank you.

Thanks Mike.

Operator: Thank you. And our next question comes from John Lovallo with UBS. Please go ahead.

Thank you. And our next question comes from John lavallo with UBS. Please go ahead.

Michael Dahl: Morning, guys. Thanks for taking my questions as well. The first one is just on the commodity outlook that you guys laid out there. You know, just within in mind the Canadian lumber tariffs, the anti-dumping and countervailing going from 14 and a half to 27% as of a couple of days ago and set to go up to 34 and a half on August 8th with probably a little chance of that changing. Just curious, you know, what you think kind of the knock-on impact might be to lumber and, you know, how does that kind of fit in the context of your of your forecast?

Good morning guys, thanks for taking my questions as well. Um, the first 1 is just on the commodity Outlook, um, that you guys laid out there. You know, just within in mind, the Canadian, Lumber tariffs, the anti-dumping and countervailing going from 14 and a half to 27% as a couple days ago, and set to go up to 34 and a half on August 8th, with probably a little chance of that changing just curious. You know what? You think, kind of the knock on impact might be the lumber and you know how

Is that kind of fit in the context of your of your forecast?

Pete Beckmann: Thanks, John. Good morning. We have factored in the duties and increases into our guidance for the lumber side. And we think the lumber right now has been more stable. I think the duties have helped that to remain at a pretty healthy level above $400 per thousand as you look at the composite of the lumber category. The impact from the duties, I don't think will hit us really in our numbers for at least three to four months, given the lead time of what we already have on the ground, what we need to work through on, and what's already been ordered and in the pipeline versus when we will receive that new wood with the duties on it and then be able to churn it out. So it'll really have a minimal impact on our financial results in 2025.

Thanks John. Good morning. Um,

We have factored in the duties in, um, increases into our guidance for the lumber side. And we think the lumber right now has been more stable. I think the duties has helped that to remain at a a pretty healthy level of about 4 hundred dollars per thousand as you look at the composite of the lumber uh, Lumber category.

um,

Pete Beckmann: And we'll continue to assess that as we go into 2026. The big drag, as I mentioned in the prepared remarks, was on OSB. And OSB is something that continues to drift down. It's pressured because of oversupply. And we're going to have to just work through that as we try to find, as an industry, where that balance is. Yeah, OSB is bad right now. There's nobody is happy with where OSB is except for maybe people buying it at the end point.

the the impact from the duties. I don't think we'll hit us really in our numbers for at least 3 to 4 months given the lead time of what we already have on the ground. What we need to work through on what's already been ordered and in the pipeline versus when we will, we will receive that new wood with the duties on it and then be able to turn it out. So it'll really have a minimal impact on our financial results in in 2025 and we'll continue to assess that as we go into 2026.

The, the big drag, as I mentioned, in the prepared, remarks was on OSB and OSB is, uh, something that continues to drift down. Uh, it's pressured because of, uh, over Supply and we're going to have to just work through that. As uh, we, we try to find as an industry where that balance is

Yeah, always, always be sad right now.

There's it's there's nobody is happy with where OSB is except for maybe people buying it at the end point.

Matthew Bouley: Got it. Okay, that's helpful. And then, you know, in terms of your net leverage, it's at, you know, I think 2.3 times. It's above the high end of the one to two times. You know, you lowered the EBITDA forecast for the second half. I mean, how does this sort of influence the ability for you guys to buy back stock through the remainder of the year?

Got it okay that's helpful. And then you know in terms of your your net leverage. It's at you know I think 2.3 times it's above the high end of the of the 1 to 2 times. Um, you know, you you lowered the IBA forecast for the second half. I mean, how does this sort of influence the ability for you guys to buy back stock through the remainder of the year?

Pete Beckmann: Well, so our capital allocation priorities remain the same. We're going to continue to focus on maintaining a healthy balance sheet, a fortress balance sheet. Some of the debt activities we did during Q2 helped continue to position us from a liquidity standpoint, which we feel very confident in at this time. We're managing our capital expenditures or organic growth to make sure that it's right-sized for the business that we're operating currently. We're evaluating inorganic growth through acquisitions. And right now, it's just a softer M&A environment. And then lastly, we'll look at stock buyback. As you probably saw in the prepared remarks and in the information that we've provided, we haven't done any since April when we announced the Q1 results.

Well, so our Capital allocation priorities remain the same. We're going to continue to focus on, maintaining a healthy balance sheet, worth a fortress, balance sheet, some of the, uh, debt activities. We did during Q2 help continue to position us from a liquidity standpoint, uh, which we feel very uh, confident in at this time,

We're managing our capital expenditures or organic growth to make sure that it's right-sized for the business. Um, that we're operating currently, we're evaluating inorganic growth through acquisitions, and right now it's just a softer M&A environment. Um,

And then lastly, we'll look at stock buybacks, as you probably saw in the in the

Prepared remarks. And in the information that we provided, we haven't done any since the April, when we announced the q1 results.

Matthew Bouley: Got it. Thank you, guys.

Got it. Thank you guys.

Operator: Thank you. And our next question comes from David Mantey with Baird. Please go ahead.

Thank you.

Thank you. And our next question comes from David manthy with beard. Please go ahead.

Michael Dahl: Yeah, thanks. Good morning, guys. I'm hoping just I can ask you a very high-level question here. Could you discuss the revenue and margin bridge as you think about from the report you just reported into that third quarter guidance that you gave? Essentially, just what are the main drivers of a sequential change from 2Q to 3Q?

Yeah, thanks. Good morning guys. Um hoping just I I can ask you a very high level question here. Could you discuss the revenue and margin Bridge as you think about from the court? You just reported into that third quarter um guidance that you gave essentially just 1 of the main drivers of the sequential change for 2 2 to 3 Q.

Pete Beckmann: So the sequential driver changes for revenue from Q2 to 3Q is really the starts environment that continues to weaken as we go through the quarter. Single-family starts, excuse me. A little bit of the continued normalization in multifamily, as we said, largely was behind us in the first half of the year. There's still a little bit left in Q3, as I mentioned, last quarter. And the commodity deflation. So we're seeing a softer commodity environment than what we had projected from last quarter. And that's going to have an influence on the revenue in Q3.

Q3 is really, uh, the starts environment that continues to weaken as we go through the quarter. Um, single-family starts, excuse me, um, a little bit of the continued normalization of multifamily, as we said, largely was behind us in the first half of the year. There's still a little bit left in Q3, as I mentioned last quarter.

And the commodity deflation. So we're seeing a softer commodity um, environment than what we had projected from last quarter and that's going to have an influence on the revenue and Q3

Michael Dahl: Okay, thank you. And just setting aside the 30-year conventional mortgage rate for right now, could you discuss the impact on BFS if short rates come down by, say, 50 basis points as we exit the year and into 2026?

Okay, thank you. And

Just setting aside the 30-year conventional mortgage rate for right now. Um could you discuss the impact on BFS? It's short rates come down by say 50 basis points as we uh exit the year and into 2026

Peter Jackson: Well, it's certainly a tailwind. You know, I think there are a number of different reasons why that's true. While I do think it will likely have an impact on mortgage rates, the multifamily side of the business, I will tell you, has a tremendous amount of promise right now. There are a lot of jobs that are sort of on the cusp, and I think 50 bps would help. I think that there's also sort of this uncertainty on the consumer side that even those who can handle a mortgage in this vicinity are so unsettled by what they don't understand or what they don't trust yet that they've backed off. So I think a sense of lower rates and a little bit more stability could absolutely be a release in terms of demand activity. I think those are the key pieces of where it could help.

Well, it's certainly a Tailwind. Um, you know that I think there are a number of different reasons why that's true. But while I do think it will likely have an impact on mortgage rates, the multifamily side of the business. I will tell you has a tremendous amount of promise right now. Um, there are a lot of jobs that are sort of on the cusp and I think 50 B would help.

um, I think that there's also sort of this

Uncertainty on the consumer side that even those who who can handle a mortgage in this vicinity are are so unsettled by um, what they don't understand or what they don't trust yet that they've backed off. So I think a sense of lower rates and a little bit more stability. Um could absolutely be a release in terms of demand activity. Um I I think those were the key pieces of where it could help.

Michael Dahl: All right. Thanks, guys. Appreciate it.

All right. Thanks, guys. I appreciate it.

Thanks David.

Pete Beckmann: Thank you.

Operator: Thank you. And our next question comes from Charles Ferrum-Peach with the Goldman Sachs. Please go ahead.

Thank you. And our next question comes from Charles for MP with the Goldman Sachs, please go ahead.

Charles Perron-Piche: Thank you. Good morning. I guess first I would like to talk about the reduction in productivity savings expectation that you held for this year. Can you talk through the reasons behind that decline? And more broadly, when you think about the opportunity for further cost takeout actions over time to build on the initiatives that you've completed year to date in terms of footprint?

Thank you. Good morning. Um,

I guess first, I would like to talk about the reduction in productivity savings, expectations that you have for this year, can you talk through the reasons behind that Decline and more broadly, when you think about the opportunity for further cost, takeout actions over time, um, to build on the initiative that you've completed here today in terms of footprint?

Peter Jackson: Yeah, I can start it out and Pete has comments to add on. Please do. In short, productivity is still core. We're still doing a tremendous amount of continuous improvement work. The reality is with about 30% of our SG&A being effectively fixed and not variable with sales, we're seeing some deleverage that's offsetting. So our productivity metrics are driven by P&L outcome. As fun as it is to tell stories about how we can save money with X or Y project, if it doesn't show up on the P&L, we don't count it to be true. So while there are certainly a lot of things going on, the offsetting headwinds are sort of eating that benefit. We're going to continue to press. The organization, I think, is still aligned very well and performing very well. Just the reality of that deleveraging is what's to account for the slower performance.

Yeah, I can start it up, and if he has comments to add on, please do. In short, productivity is still core. We're still doing a tremendous amount of continuous improvement work. The reality is, with about 30% of our SG&A being effectively fixed and not variable with sales, we're seeing some de-leverage that's off.

Off setting.

So our productivity metrics are driven by P&L outcomes.

As fun as it is to tell stories about how we can save money with X or Y project. If it doesn't show up on the p&l, we don't count it to be true.

So while there are certainly a lot of things going on, the offsetting headwinds are are sort of eating that benefit. We're going to continue to press the organization I think is is still aligned very well and and perform

Peter Jackson: But certainly, a lot of effort there. Did I miss anything, Pete?

Pete Beckmann: I think the second part of this question was regarding the closures that we've executed this year. So the eight locations, that's part of our ongoing management process that we evaluate the performance of our locations. We evaluate the capacity in our markets. We continue to make the prudent choices on what's best for the company and how do we maximize our ability to to service the customer as well as, generate the right returns. As a reminder, we closed 30 locations last year. so this is just part of who we are and part of how we run the business, making sure that we have everyone operating at an expectation.

Very well. Um just the reality of that deleveraging, is the account is what's to account for the slower performance. Um, but certainly a lot of effort there, then there's something to

I think the second part of this question was, regarding the closures that we've executed this year so that the 8 locations, that's part of our ongoing management process that we evaluate the performance of our locations. We evaluate the capacity in our markets, we continue to make the prudent choices on, what's best for the company. And how do we maximize our ability to, to service the customer as well as, uh, generate the right returns as a reminder, we close 30 locations last year. Uh, so this is just part of who we are and part of how we run the business. Uh, making sure that we have everyone operating at a at an expectation.

Charles Perron-Piche: Got it. That's a very good caller, Peter and Pete. And then I guess second, moving on to digital, you've know, you've talked about continued progress against your initiatives earlier this year, and you know, in your prepared remarks as well today. you know, when you think about the, you know, continued progress over time, and you know, you highlighted a $200 million target initially. It sounds like you're revising the timeline. But when you think about, you know, the adoption of digital tools and your product across the markets, what basically are the biggest pushback or inherent problems that are limiting the adoption? Is it really just driven by the market or any other things that you could adjust to really help your go-to-market strategy there?

Got it. That's very good color, Peter and Pete. And then I guess second moving on to digital, um, you know, you've talked about continued progress against your initiatives earlier this year, um, and you know and your prepared remarks as well today. Um, you know, when you think about the, you know, continued progress over time and you know you highlighted a hundred million dollar Target. Initially it sounds like you're you're revising the timeline. But when you think about you know the adoption of digital tools and and your product across the markets, what basically are the the biggest push back or or inherent problems that are limiting, the adoption, is it really just driven by the market or any other things that you could adjust to really help your go to market strategy there?

Peter Jackson: Yeah, that's a great question. Thank you. you know, I remain incredibly excited about the opportunity of digital and leveraging technology. whether it be core systems or the new AI, you know, the agentic AI that we think is going to be really impactful. The reality is increasingly the realization is that digital isn't a tool. Digital isn't a product. Digital is very much the fabric of who we are. we like to think about these tools as being, you know, super suits that our employees can put on to better compete in the market. makes us faster, makes us smarter, makes us more agile. the reality is it's not easy to do, and it takes a lot of investment. And unfortunately, it takes more time than I'd like for it to take. But we are seeing improvement.

Um, whether it be core systems or the new AI, um, you know, the agentic AI that we think is going to be really impactful. The reality is,

Increasingly, the realization is that digital isn't a tool, digital isn't a product digital is very much the fabric of Who We Are.

Peter Jackson: The core of the tools are delivering on the promise of finding and eliminating waste, improving communications with our customers, improving the efficiency and the effectivity, most importantly, of our internal teams. we're still 100% convicted that that's the right way for our business to win in the long run and that we're better positioned than anybody to do it. The reality right now is with our target customer today being the smaller customer and there being a tough market to adapt to, there's a piece of this that's, development-related and a piece of this that's customers are very focused on staying alive and managing affordability. And sometimes new ideas are, slower to be adopted than at other times. We're still seeing adoption. We're still seeing it pick up. We're still developing.

Um, we like to think about these tools as being, you know, super suits that are employees can put on to better compete in the market, um, makes us faster makes us smarter makes us more agile. Um, the reality is, it's not easy to do and it takes a lot of investment and, and unfortunately, it, it takes more time than I'd like for it to take, but we are seeing Improvement. The core of the tools are delivering on the promise of finding and eliminating waste improving Communications with our customers, improving the efficiency and and the effectivity most importantly of our internal teams. Um, we're still 100% convicted. That that's the right way for our business to win, in the wrong, in the long run, and that we're better positioned than anybody to do it.

the the reality right now is with our Target customer today, being the smaller customer in there, being a, a tough Market to adapt to there's a piece of this that's um, development related and a piece of this, that's customers are very focused, on staying alive and managing affordability and sometimes new ideas are um, slower to

Peter Jackson: I don't, I don't feel bad at all for for the success that we've had, but it has been a little bit slower than we were anticipating. We're still seeing incremental growth. It's still going in the right direction, just not at the right pace yet.

Be adopted then at other times we're still seeing adoption. We're still seeing it pick up. We're still developing. Um, I don't I don't feel bad at all for for the success that we've had. But it has been a little bit slower than we were anticipating. We're still seeing incremental growth, but it's still going in the right direction, just not the right pace yet.

Charles Perron-Piche: That sounds good. Thanks for the caller, and good luck with everything.

That sounds good. Thanks for the color and good luck with everything.

Peter Jackson: Thank you.

Thank you.

Operator: Thank you. And our next question comes from Rafi Jadrosic with Bank of America. Please go ahead.

Thank you. And our next question comes from Rafi Jad rosich with Bank of America, please go ahead.

Pete Beckmann: Hi. Good morning. It's Rafi. Thanks for taking my questions. If looking ahead, if starts stay where we are today for for an extended period of time just because of the macro, are there levers that you could pull from a cost perspective? And then how do you think about balancing market share and margin?

Hi, good morning. It's it's Rafe. Thanks for taking my questions.

Is um, looking ahead if starts to stay where we are today for for the extended period of time, just because of the macro are there, levers that you could pull from a cost perspective. And then how do you think about balancing market share and margin?

Peter Jackson: Yeah. I guess the first thing I'll highlight in going into this is we've already, the levers have been pulled in terms of just how we run the business, right? With 70% of our SG&A and obviously all of the COG stuff being driven by volumes, in order for us to perform the way we've already performed, given the reset and sales and starts, you've already seen a lot of that being executed in real time. The larger chunky stuff on the fixed side, sure, there's absolutely some of that that we'll do. We'll continue to assess. We're already focused on the areas of discretionary spending and timing of certain investments. We're trying to be smart with all of that. We're being thoughtful about today, but also not losing sight of the strategic vision and where we want to go.

Um, I guess the first thing I'll highlight and going into

This is, we've already.

The levers have been pulled in terms of just how we run the business.

Right, with 70% of our SG&A and obviously all of the COG stuff being driven by volumes, in order for us to perform the way we've already performed to get in the reset and sales and starts. You've already seen a lot of that.

Being executed in real time.

Peter Jackson: So I think that's an important part of all of the analysis. You know, when it comes to the competitive environment and margins, it's a balance, right? I think that ultimately we know we are invested and positioned in a way that it is appropriate for us to get a fair return for what we're providing in the marketplace. Certainly, with the pressure on affordability, everybody wants it to be less. Everybody, I think in general, would prefer that we just gave away free houses and then everybody could have one. But that's not how it works. And we are maintaining the right disciplines to ensure we've protected our position while making a fair margin. We absolutely walk away from business where that's not true. And so that sort of balance is one that we've continued to maintain.

The the larger chunky stuff on the fixed side. Um, sure there's, there's absolutely some of that that we'll do, we'll continue to assess where, you know, we're already focused on the areas of discretionary spending and and, um, timing of certain Investments. We're trying to be smart with all of that, where we're, you know, being thoughtful about today. But also not losing sight of the Strategic vision of where we want.

So I think that's an important part of, um, all of the analysis, you know, when it comes to the the competitive environment in margins. It's a balance, right? I think that ultimately, we know we are, um,

We are invested in a way that it is appropriate for us to get a fair return for what we're providing in the marketplace.

Certainly with the pressure on affordability. Um,

Everybody wants it to be less everybody. I think in general would prefer that. We just gave away free houses and then everybody could have 1. But that's not how it works. And we are maintaining the right disciplines to ensure we've protected our position while making a a fair margin. We absolutely walk away from business where that's not true. Um,

And so that sort of balance is one that we've

Peter Jackson: And I think in the current environment, we feel like there's some equilibrium being found. You know, limits are being reached, but it's not quite over yet. We'll have to see. It really is dependent on this idea of does it get a little worse from here or is it stable where it is?

Continued to maintain and I think in the current environment we feel like there's some equilibrium being found.

um, you know

Events are being reached.

But it's not quite over yet. We'll have to see it. Really is dependent on this idea of does it get a little worse from here or is it stable where it is?

Pete Beckmann: That's really helpful. And there's a slide that you guys included in the deck that just shows we're back to 2019 starts level, but your EBITDA margins, 300 basis points above where you were in 2019. Can you, it'd be helpful if you could just talk about like how much of that is mix, productivity, scale, like what's sort of the bridge to the much higher margin today?On

That that's really helpful. Um, and there's a slide that you guys included, um, in in the deck that just shows what we're back to 2019 starts level, but your ibida margins. 300 basis points above

Operator: the same startup level.

Like, what sort of the bridge to to the much higher margin today on the same starts level?

Heather Kos: No, I don't know. I don't know if I have that specific bridge off the top of my head, but our, our, the IR strategy deck has a bridge. I don't think it's in the current release for the quarter, but there is a bridge that that shows you that directionality. But for the for those who haven't seen it yet or are flipping through it right now, it's a couple of pieces and you hit on them. mix is an important one. We have substantially moved the business towards value add based on both M&A and organic growth in terms of new capacity and expanded sales in those key categories. the other bit is what I alluded to earlier, which is really the continuous improvement focus.

I don't know. I don't know if I have that specific bridge off the top of my head, but our, um,

IR strategy deck has a bridge. I don't think it's in the current release for the quarter, but there is a bridge that that shows, you that directionality. But for the, for those who haven't seen it yet, or are flipping to it right now, it's a couple of pieces and you hit on them.

Heather Kos: We have gotten better at our trade by working together as a team, by leveraging our scale, by coordinating learnings and execution, the way that we partner with customers, everything from closest point of shipment to how we work with vendors to ensure we've got the right product in the right place to win. but those are the two big factors. Those are things we feel good about protecting. We think are real and durable, and have tremendous opportunity for leverage, as we get into an expanding market.

Um, mixes an important 1, we have substantially moved the business towards value ad based on both m&a and organic growth in terms of new capacity and expanded sales in those key categories. Um, the other bit is what I alluded to earlier, which is really the continuous Improvement Focus. We have gotten better at our trade by working together as a team, by leveraging, our scale, um, by coordinating learnings and execution. The way that we partner with customers, everything from closest point of shipment to how we work with vendors to ensure, we've got the right product in the right place to win, um, but those are the 2 big factors. Those are things we feel good about protecting we think are real and durable, um, and have tremendous opportunity for leverage, uh, as we get into an expanding Market,

Operator: Thank you. That's very helpful.

Thank you, it's very helpful.

Operator: Thank you. And our next question comes from Keith Hughes of Truist. Please go ahead, Keith. Your line is open.

Thank you.

And our next question comes from Keith Hughes with Truist.

Please go ahead.

Operator: Can you hear me? Can you hear me now?

Your line is open. Can you hear me now?

Heather Kos: We can.

Operator: Okay. Sorry about that. So in the slide, you talk about manufactured products being down about 10%. Could you talk about the influence acquisitions had on that and also what units and price look like amongst those products?

We can.

Okay, sorry about that. Um so in this slide you talk about manufactured products being down about 10% to talk about the influence Acquisitions had on that and also what units in Price look like amongst those products.

Heather Kos: Yeah. So I mean, acquisitions have continued to build the the trust, profile to a bigger part of the business. in general, no question that it's been comparably impacted to the downside. you know, starts have been have absolutely flowed through to the trust space. And I think we've talked about it in the past. While initially, I think all of the effort around affordability and management, quoting, and all of that was really focused on the, the, the simpler products, as time has gone on, builders certainly have gotten more aggressive at quoting everything, including, trusts and EWP, which are the two primary categories, product subcategories in that manufactured products bucket. you know, EWP is a is a meaningful decliner. I think that's been pretty commonly discussed in the market where, you know, prices went up pretty substantially during the supply-constrained days of COVID.

Um, yeah, so I mean acquisitions have continued to build the trust profile to a bigger part of the business. Um,

In general. No question that it's been comparably impacted to the downside. Um, you know, starts have been absolutely flowed through to the trust space and I think we've talked about it in the past while initially, I think all of the effort around affordability and management quoting and all of that was really focused on the the uh, the simpler products as time has gone on. Builders certainly have gotten more aggressive at quoting, everything including, um, trusts and ewp, which are the 2 primary categories of product, subcategories, and that manufacture products.

Bucket.

Heather Kos: and EWP was a was a major benefactor. A lot of that has pulled back and it continues to to erode. but there's certainly been pressure on the on the core business as well. you know, the core trust business. Pete, did you want to add?

Um you know, ewp is a is a meaningful decline or I think that's been pretty commonly discussed in the market where, you know, prices went up pretty substantially during the supply constrained days of coid. Uh and ewp was a was a major benefactor a lot of that has pulled back and it continues to to erode. Um but there's certainly been pressure on the on the core business as well. Um,

You know, the core trust business.

Operator: Yeah. And just to remind, the multifamily is very heavy in the manufacturing. That's seen a lot of normalization. So that was down 28% in the quarter. So it's a pretty significant impact on that overall for the company in that category.

Did you want to add?

Yeah, just to remind uh the multi-family is very heavy in the manufacturing, that's seen a lot of normalization so that was down. Um,

Heather Kos: Okay. Is that so the majority of this is unit declines that we would have seen?

28% in the quarter. So it's, it's a pretty significant impact on that. Overall, for the company, in that category,

Okay. Is that? So the majority of this is unit declines, that we would have seen

Operator: Yes. I think directionally, that's correct.

yes.

Heather Kos: Directionally. Okay. All right. That's what it is. Thank you.

I think directionally, that's correct.

Correct. Correct. Okay, all right, that's what I did. Thank you.

Operator: Thanks.

Thanks.

Operator: Thank you. And our next question comes from Trey Grooms with Stevens. Please go ahead.

Thank you. And our next question comes from trade. Grooms with Stevens. Please go ahead.

Peter Jackson: Hey, good morning, everybody. Thanks for taking my questions. so maybe for Pete and maybe a little housekeeping here, but on the the new ERP rollout, maybe could you update us on, you know, how that's progressing and the maybe the associated costs? I think it was expected to be a, you know, about $140 million impact to SG&A in the back half, if I remember correctly. So, you know, and I guess it would be offsetting some productivity gains that you guys had talked about in the first quarter. Any update there, on the cost side of things, timing of when the rollout could be complete, or anything you could, any color you could give us on the ERP system?

Hey, good morning everybody. Take, thanks for taking my questions. Uh, so maybe for Pete and, and maybe a little housekeeping here, but on the, the new Erp, uh, roll out. Uh, maybe could you update us on, you know how that's progressing and the maybe the associated costs, I think it was expected to be a, you know, about 140 million dollar impact sgna in the back half, if I remember correctly. So, uh, you know, and I guess it would be offsetting some productivity gains uh, that you guys had talked about in the first quarter. Uh, any update there? Uh, on the cost side of things, uh, timing of when the rollout could be complete or anything, you could, uh, any color you could give us on the Erp system.

Operator: Yeah. Thanks for your trust question, Trey. I'll start and I'll hand it over to Peter for some additional color. so the 140 million that we outlined last quarter is still the number, but I want to clarify that 140 million is really a cash expense that we expect to incur in 2025. As it relates to SG&A, there's a schedule in the back of our earnings presentation, the RIGG, that reconciles net income to adjusted net income. We have a line in there that is.

Pete Beckmann: Technology implementation expense.

Operator: Technology implementation expense that isolates the cost. it is excluded from our adjusted SG&A as we think about that 30% or 70% split. but we don't see any change in that, projection for 2025 at this time.

The 140 million that we outlined. Last quarter is still the number, but I want to clarify that 140 million is really a cash expense that we expect to incur in 2025 um as as it relates to sgna. There's a schedule in the back of our earnings presentation, the rig G, the reconciles, net income, to adjusted net income. We have a line in there. That is technology. Implementation expense, technology, implementation expense that isolates the cost. Um, it is excluded from our adjusted sgna as we think about that 30% or 70% split. Um, but we don't see any change in that, uh, projection for 2025 at this time.

Heather Kos: Yeah. And in terms of the the project, we we had to go live, July 1st. So we're, you know, about 30 days in. it's 22 locations in two markets. We are up and running. We certainly had speed bumps and issues. you know, any any ERP implementation will. We're working through it. We've got a really dedicated team, both on the ground locally and in the field support center headquarters here, along with support from Accenture and SAP. So we're, everybody's diligently working through the issues, and we're still excited about what it represents in terms of enhanced functionality, modernization, interconnectability. I'm not sure if that's a word, but if it isn't, I just made a good one. but yeah, we're getting through it.

Yeah. And in terms of the, the project we we had go live uh, July 1st. So we're, you know, about 30 days in. Uh, it's 22 locations into markets, we are up and running, we've certainly had speed bumps and issues. Um, you know, any any Erp implementation will, we're working through it. We've got a really dedicated team both on the ground locally and in uh field support center uh headquarters here along with support from Accenture and sap. So we're uh, everybody's diligently working through the issues and we're still excited about what it represents. In terms of enhanced functionality. Modernization interconnect

Interconnect ability. I'm not sure if that's a word, but if it isn't, I just made a good 1 but yeah, we're getting through it, you know.

Peter Jackson: Okay. Perfect. Thanks for the clarifying there. And, maybe one last one. multifamily, you know, clearly, it's been an awful headwind for you guys, but when do you guys expect to see some stabilization there? you know, any uptick in the starts that we've seen, you know, when when that might actually start to flow flow through for you guys? I know there's a a pretty massive lag there, but you know, just in general, maybe a general rule on on how to think about the the lag and when you guys might be able to see some stabilization on the multifamily side of things.

Okay, perfect. Thanks for the clear there and uh, maybe 1 last 1, uh, multifamily, you know, clearly it's been an awful headwind for you guys. But when do you guys expect to see some stabilization there? Um, you know, any uptick in the starts that we've seen, you know, when when that might

Actually start to flow for flow through for you guys. I know there's a a pretty massive lag there but, you know, just in general, uh, maybe a general rule on on how to think about the the lag. And when you guys might be able to see some stabilization on the multi, family side of things,

Operator: Yeah. Thanks for the question. I think multifamily has been stabilizing. It's been more consistent sequentially from quarter to quarter, consistent with what we shared last quarter. so we're seeing that within our numbers, with the backlogs that are leveling out. Obviously, they're a little lower than, where they had been in the in the past and the history, and we've been right-sizing that side of the business as well to align with the the volumes. as a reminder, we have about, 9 to 18 months lead time on multifamily projects, depending on, the size and complexity of what it is and then the duration in which they run. So, we are looking at the multifamily starts positive number as a, good indicator that things are leveling off, and we expect to see that continue to build into 2026, and we look for that.

Yeah, thanks for the question. Um,

I think multi-family has been stabilizing. It's been more consistent. Sequentially from quarter to quarter consistent with what we shared last quarter. Um, so we're seeing that within our numbers, uh, with the backlogs that are leveling out. Obviously, they're a little lower than, um,

Where they had been in the in the past and the history and we've been right sizing that side of the business as well to align with the the volumes.

Uh, as a reminder, we have about, uh, 9 to 18 months lead time on multi-family projects, depending on, uh, the size and complexity of what it is and then the duration in which they run. So, um,

Operator: we'll provide that information when we give guidance, probably in the next couple of quarters.

we are looking at the multi-family starts positive number as a good indicator, that things are leveling off, and we expect to see that continue to build into 2026 and we look for that. Um,

We'll provide that information when we give guidance, probably in the next couple of quarters.

Peter Jackson: Okay. thank you both, and good luck.

Okay.

Uh, thank you both uh and good luck.

Operator: Thank you. And our next question comes from filling with Jefferies. Please go ahead.

Thank you. And our next question comes from Filling with Jeffrey's. Please go ahead.

Peter Jackson: Hey, guys. Pete, appreciate the great color. Peter and Pete, great color and why. The back half, your single-family starts sales could be weaker with the destock. Probably impossible question to answer. But when you kind of think through this, does that destock get flushed out by this year and you're in a better spot for next year? I'm mostly just trying to gauge, you know, obviously, hard resetting expectations for '25, your ability to grow next year with some of this destock kind of getting flushed out. Maybe multifamily is a good guy. And perhaps any self-help flowers you have at your disposal that we should be thoughtful about.

Hey guys, uh, Pete. Appreciate the great color, uh, Peter and Pete. Uh, great caller and wide the back half, uh, your single family starts sales could be weaker. Oh, the dto, uh, probably impossible question to answer. Um, but when you kind of think through this, uh, does that dto, get flushed out by this year and you're in a better spot for next year. I'm awfully just trying to gauge, you know, obviously hard reset and expectations for 25. Your ability to grow next year with some of this dto kind of getting flushed out. Maybe multi family is a good guy and and he, perhaps any self-help flowers you have at your disposal that we should be thoughtful about.

Heather Kos: Morning, Phil. Yeah, man, I love impossible questions. We need possible questions for Breakfast. Yeah, you know, the reality is there's been a lot of effort, I think, on the builder side to clear out or at least stabilize that inventory level. And unfortunately, it's run away from them a little bit, I think, on the ground. And that, you know, is evidenced by the the below normal seasonal, performance, right? You didn't see the summer run this year that any of us were expecting. That adjustment, I think, is is already being made and is already being accounted for and does have a pretty strong opportunity to to stabilize through the rest of this year. I think you couple that with, I think it was David's question earlier about, you know, what if we start seeing rate cuts?

Um Martinville, yeah man. I I love impossible questions. We possible questions for breakfast.

um,

Yeah, that, you know, the the reality is there's been a lot of effort, I think on the Builder side to clear out or at least stabilize, that inventory level and unfortunately, it's run away from them a little bit, I think on the ground and that, you know, is evidenced by the the below normal seasonal uh performance, right? It didn't see the summer run this year, that any of us were expecting.

Heather Kos: I think that does set up pretty well for ' for 26. Obviously, way too early to say, but you know, it's not as if the inventory levels are catastrophic. Certainly, worse in condos per the Wall Street Journal article this morning than it is in single-family homes, but it's still, I would say, manageable given the overall environment, particularly if you consider existing home sales being at such a low level. So I think we're okay. I don't think we're that far off of where, growth is a realistic expectation for '26, but it, you know, the trajectory, obviously, for the back half of this year is is necessary to burn off that inventory and keep things back or get things back to a a more stable level.

Was David's question earlier about, you know, what, if we start seeing rate Cuts, I I think that does set up pretty well for for 26, um, obviously way too early to say. But, you know, I, it's not as if the inventory levels are catastrophic, um, certainly worse in Condos for the Wall Street Journal article this morning than it is in single family homes. But it's still, um, I would say manageable given the overall environment, particularly if you consider existing home sales, being at such a low level. So, I, I think we're okay. I don't think we're that far off of where, um, growth is a realistic expectation for 26, but it, you know, the trajectory obviously for the back half of this year is is necessary to burn off, that inventory and keep things back or get things back to a a more stable level.

Peter Jackson: Okay. Super. That's great color. on the M&A front, you guys mentioned inorganic as a means to kind of drive growth. any color on the pipeline? Last quarter, you kind of commented that the pipeline's kind of dried up a little bit. so color on that front. And then the buildings distribution industry, we're seeing a handful of players get bigger and do a lot more consolidation tackling different verticals. When you kind of think about your M&A strategy, any view of how that may evolve just given the industry is looking to broaden it out and be more horizontal?

Okay. Super, that's great color uh on the m&a front. Uh you guys mentioned inorganic as a means to kind of Drive growth. Um, any color on the pipeline last quarter, you can kind of comment at, you know, uh, the pipeline's kind of dried up a little bit. Um, so color on that front and then the buildings distribution industry. Uh, we're seeing handful of players, get bigger and do a lot more consolidation. Tackling different verticals. When you kind of think about your MMA strategy, any do you of how that may evolve just giving the industries looking to broaden it out and be more horizontal?

Heather Kos: Yeah. Well, it's funny. And unless you're doing a multi-billion dollar deal, it's been pretty quiet.

Peter Jackson: Indeed.

Heather Kos: There's a number of deals. You know, there's a half a dozen floating around. I think the biggest problem, and I know this this won't come as a surprise to you, if people are uncertain about where normal is, it's tough to get comfortable with the transaction price, right? Whether it be, you know, basing off of a high or or expecting things are going to get a bit better in the near future, so I'll just wait for that to happen, or or one of those situations. It's just limited the number of assets coming to market, in in I would what I would describe as the bite-size, scale. As you mentioned, it has gotten to be a more interesting dynamic more broadly in our space. you've got some big and, very, communicative players out there talking a lot about what assets it could be.

Yeah, well, it's funny and unless you're doing a multi-billion dollar deal, it's been pretty quiet, you know. Indeed the number of you

Uh, you know, there, there is a half a dozen floating around. I, I think the the biggest problem and I know this, this won't come as a surprise to you.

Um, if people are uncertain about where normal is it's tough to get comfortable with a with the transaction price.

Right? Whether it be, you know, basing off of a high or or expecting things are going to get going to get a bit better in the near future. So I'll just wait for that to happen or or 1 of those situations. It's just limited the number of assets coming to Market. Um, in in I would what I would describe is the bite size, um, scale. As you mentioned it, it has gotten to be a more interesting, Dynamic, more broadly in our space. Uh, you've got some big and um, very uh, communicative players out there, talking a lot about

Heather Kos: you know, I I think where we have been able to demonstrate meaningful value for shareholders is in that, in that core, in that, strike zone of servicing builders and the R&R space, around complex projects and pros. So I think that's where we will continue to outperform. I think that's where we continue to be, a competitor that is a force to be reckoned with. and we're going to continue to deliver on that that promise. I do think there's still tremendous opportunity to do more there. As we mentioned in the past, we're not going to stop looking in that window. We continue to scan the horizon for good opportunities with quality shareholder return. but we don't feel like it's burning a hole in our pocket either.

it, it could be, um, you know, I I think where we have been able to demonstrate meaningful value for shareholders is in that, um,

In that core in that.

Heather Kos: You know, I think we will continue to be prudent and we'll, we've, I think, have a tremendous track record of shareholder value creation, and we intend to continue that.

Strike zone of servicing Builders and the RNR space, um, around complex projects in prose. So I think that's where we will continue to outperform. I think that's where we continue to be. Um, a competitor that is a force to be reckoned with, um, and, and we're going to continue to deliver on that, that promise, I do think there's still tremendous opportunity to do more there, as we mentioned in the past, we're not going to stop looking in that window. We, we continue to scan the Horizon for good opportunities with quality, shareholder return. Um, but we don't feel like it's burning a hole in our pocket either. You know, I, I think we will continue to be prudent and we'll we've I think have a tremendous track record of shareholder value creation and, and we intend to continue that.

Peter Jackson: Super. That's a great playbook and appreciate all the great color. Thank you so much.

Heather Kos: Thank you.

Super that, that's a great play, Playbook, and appreciate all the great color. Thank you so much.

Operator: Thank you. And our next question comes from Colin Varron with Deutsche Bank. Please go ahead.

Thank you, thank you. And our next question comes from Colin Veyron with Deutsche Bank. Please go ahead.

Matthew Bouley: Good morning. Thanks for taking my question. Just one for me. You've outlined, the difference between BLDR single-family revenue underperforming single-family starts for several quarters at least now. I just wonder if you can talk about where you think we are in that trend and how much more downside there is, to BLDR's revenue per start, given what you're seeing or hearing from customers in terms of their new home footprints or floor plans. Just curious if you think we're approaching a bottom here on that metric, or do you think this will be ongoing?

Good morning. Thanks for taking my question. Just 1 for me. You've outlined uh,

The difference between Builders FirstSource's single-family revenue is underperforming, as single-family starts have been slow for several quarters at least. Now, I just wonder if you can talk about where you think we are in that trend and how much more downside there is to Builders FirstSource's revenue per start. Given what you're seeing or hearing from customers in terms of their new home footprints or floor plans, are we approaching a bottom here on that metric, or do you think this will be ongoing?

Operator: Hey, Colin. This is Pete. thanks for the question. So the way that we look at it, and I try to outline that in the prepared remarks, is we evaluate our single-family sales versus single-family starts on a lag basis. And I know in the past, we've typically, shared some structural, adjustments to how the starts have behaved or the value per start itself. so as we look at that for Q2, our our single-family sales were were down, relative to the lag starts by about, 2 to 3 percent. And with the shrinking home size, it's really leveled off. We're not seeing much of a difference on the the home size from year over year. So as we indicated last quarter, the leveling off of the smaller home is is certainly there.

Hey Colin, this is Pete. Um, thanks for the question. So the way that we look at it and I try to outline that in the prepared remarks, as we evaluate our sales, single family sales versus single family, starts lag basis and I know in the past, we've typically um, shared some structural, uh, adjustments to how the starts have behaved or the value per start itself.

uh, so as we look at that for Q2 um,

Operator: We continue to see some of the costs and price reductions from manufacturers and included in some of our price normalization as an adjustment. and then the decontenting is is, becoming smaller as well. So all those things considered, we're pretty much on on par with where we should be. we're not losing ground. We don't see this, gaining a lot of ground, but we're kind of right down the middle at this point. So that gives us an indication that we're we're leveling off and we're where we should be, and we're in a great position to accelerate growth as it turns.

Heather Kos: And it's to lose a little bit to the comment flyer about, you know, where does pricing go and how do you feel about that balance between share and margin? That's where we get the confidence from that you've you've leveled out. We're starting to hit that equilibrium, and we'll just have to see where it goes from here.

2, 3%. And with the shrinking home size is really leveled off. We're not seeing much of a difference on the, the home size from year-over-year. So as we indicated last quarter, the leveling off of the smaller home is, is certainly there. We continue to see some of the costs and price. Uh, reductions from manufacturers and included in some of our price normalization as an adjustment. Uh, and then the decontent team is is, uh, becoming smaller, as well. So all those things considered, we're pretty much on on par with where we should be. Uh, we're not losing down. We don't see this uh, gaining a lot of ground but we're kind of right down the middle at this point. So, that gives us an indication that we're, we're leveling off and we're where we should be and we're in a great position to accelerate growth. As it turns,

And it's got to lose a little bit to the comment prier about you know, where does pricing go and how do you feel about that balance between share and margin? That's where we get the confidence from that. You you're you're leveled out. We're starting to hit that equilibrium and we'll just have to see where it goes from here.

Matthew Bouley: Great. Thanks for the call. I'll pass it on.

Great, thanks for the call or pass it on.

Operator: Thank you. And our next question comes from Jay McCandless with Wedbush. Please go ahead.

Thank you. And our next question comes from. Jay McCanless with wet Bush. Please go ahead.

Michael Dahl: Hey, good morning, everyone. So the first question, Peter, you talked about on time and full at 92%. I guess what's the what's something we should benchmark or look for going forward as kind of a goal for the company?

Hey, good morning everyone. Um, so the first question Peter you talked about on time in full at 92%, I guess. What's the what's something we should Benchmark? Or look for going forward is kind of a goal for the company.

Heather Kos: Higher. Yeah. I mean, we have internal goals that we set in terms of improvement each year. Obviously, the better you get, the harder it is. There's a couple of different ways that we see executing against that improvement. And, you know, the the obvious one is partnering with our vendors to ensure that our distribution network is as efficient and aligned as possible. So that's improving communication. that's aligning around inventory locations, just-in-time transactions, all those good things. so that's a big piece. And then on the other side, it's really around the alignment with the customer, getting clarity around where they're headed, working with customers and information sharing and alignment around detailed level, needs. Again, a lot of that can be benefited if we're working through the digital environment.

Higher.

Goals that we set in terms of improvement. Um, each year obviously the better, you get the harder. It is uh there's a couple of different ways that we see executing against that Improvement. And and you know the the obvious 1 is partnering with our vendors to ensure that our distribution network is as efficient and aligned as possible. So that's improving communication. Uh that's aligning around inventory locations just in time transactions all those good things.

Heather Kos: that is another way where our prediction capabilities improve, especially when you're leveraging what we're implementing, which is a a more modern ERP with a granular level of visibility that I think is superior than what we've had historically. Well, not bad historically. I think this is a step even better that would allow us to improve on time and in full. But the team does a great job no matter which system we're in. but it's it's not easy.

Um, so that's a big piece and then on the other side, it's really around the alignment with the customer getting Clarity around where they're headed, uh, working with customers and information, sharing, and Alignment around detailed level, um, needs again, a lot of that can be benefited if we're working through the digital environment.

Um, that is another way where our prediction capabilities improve, um, especially when you're leveraging. What we're implementing, which is a, a more modern Erp with a granular level of visibility that I think is superior than what we've had historically. Well, not bad. Historically, I think this is a step even better. That would allow us to improve on time and in full, but the team does a great job no matter which system we're in. Um, but it's it's not easy.

Michael Dahl: Got it. Okay. Thanks. And then, second question I had, it sounds like the the you factored in the SLA into the lumber guidance, but I guess it's probably hitting it a little later than we thought it would. I guess, you know, without giving guidance for '26, but maybe talking directionally about what happens to gross margins when you have to start taking on those higher prices. And then, I guess, more importantly, how long do you guys think it will take to pass that out to the market and start to recoup that that little higher cost that you're going to be paying?

Got it. Okay. Thanks. And then um, second question I had sounds like the the you factored in the SLA into the lumber guidance, but I guess it's probably hitting it a little later than we thought it would. I guess, you know, without giving guidance for 26, but maybe talking directionally about what happens to gross margins when you have to start taking on those higher prices and then, I guess more importantly, how long do you guys think it will take to pass that out to the market and start to recoup that that little higher cost that you're going to be paying?

Heather Kos: Yeah. I mean, if I think we're going to treat the new lumber price like we treat prices in general. you know, we're a distributor. We don't make a tremendous amount of money on distributing lumber. Nobody does. and so the reality is we're not eating a 20-point increase in lumber. Facts. It's just, it's not possible. So it will be passed through. The market will adapt. Now, the reality of it, though, is there is a rebalancing that's occurring. There's there's substitution. There's, you know, behavior by individuals within the market to compete at that break-even level. so I I think that while there's certainly going to be an impact on the Canadian side, there is some shifting that'll have to happen in order to digest. And remember, the amount of demand that is coming from new construction is still dwarfed by the R&R space.

I mean it I I think we're going to treat the new Lumber price. Like we treat prices in general. Um, you know we're a distributor, we don't make a tremendous amount of money on Distributing Lumber nobody does.

um, and so the reality is, we're not eating a 20 point increase in

Lumber facts. It's just, it's not possible.

So it will be passed through.

Market will adapt now. The reality of it though is there is a rebalancing that's occurring.

There's there's substitution there's uh you know Behavior by individuals within the market to compete at that break even level. Um so I I think that while there's certainly going to be an impact on the Canadian side, um there is some shifting that will have to happen in order to digest and remember

Heather Kos: So with the weakness in R&R, you're just looking at a at a space where it's going to be hard to get a ton of price in general, but there's a threshold of performance. There's a cost threshold that isn't going to be able to be crossed for very long before the whole thing resets. So it'll be interesting to see how it plays out. You're right. If it's a little slower than I think we're expecting, but given the demand profile, I'm not horribly surprised. I think staying stable where it is on the lumber side is a is a pretty maybe decent performance given everything else considered. OSB is just a different story.

the amount of demand that is coming from new construction is still dwarfed by the RNR space.

Lower than I think we're expecting, but given the demand profile. I'm not horribly surprised. I think staying stable, where it is on the lumber side is a is a pretty, maybe decent performance, given everything else considered. Uh OSB is just a different story.

Michael Dahl: Okay. Great. Thank you. Appreciate you taking my question.

Okay, great. Thank you. Appreciate you taking my question.

Heather Kos: Thanks, Jeff.

Thanks J.

Operator: Thank you. And our next question comes from Ruben Gardner with Benchmark Company. Please go ahead.

Thank you. And our next question comes from Ruben Gardner with Benchmark Company. Please go ahead.

Michael Dahl: Thanks for taking my question, guys. Most of them have been answered. I just have one quick one. your starts forecast, I know it's it's typically in your geographies. Can you just talk about, what specifically you're seeing geographically? I know Texas, for instance, is a big market for you and has been in the news, headlines lately. do you have any markets that you're over-indexed to that are outperforming? Do you feel like your that kind of 10 to 12 percent decline will kind of actually be in line with the broader market?

Thanks for taking my question, guys. Most of them been answered. I just have 1, quick 1. Um, your starts forecast. I know. It's it's typically in your geography is can you just talk about, um, what specifically you're seeing in geographically? I know, Texas, for instance, it's a big market for you and has been in the news or headlines lately. Uh, do you have any markets?

That you're over indexed to that are outperforming. Do you feel like you're that kind of 10 to 12%? Decline will kind of actually be in line with the broader Market?

Heather Kos: Let me try and add some color and you can re-steer me if you think I'm off base. But in general, in general, I would tell you that we're exposed to where new starts are. So when people talk about how rough it is in Florida and how challenging it is in Texas, I'm going to say, "Yes, that is correct." The dynamics in those markets, given the scale of new construction over the recent years and the impact of some of the new cost profiles, in particular in Florida, the impact is meaningful, and that's where we've seen the biggest impact. Now, that said, we are in 43 states, so you know certain parts of the country are far more stable. We've got, you know, parts of the country, you know, the Northwest has just been healthier.

Um, all right, let me try and add some color and steer me if you think I'm off base. But in general, it it in general. I would tell you that we're exposed to where new starts are. So when people talk about how rough it is in Florida, and how challenging it is in Texas, I'm going to say yes, that is correct.

Um, the the the Dynamics in those markets given the scale of new construction over the recent years, and the impact of some of the new cost profiles in particular in Florida at the impact is Meaningful. And and that's where we, where we've seen the biggest impact. Now that said we are in 43 States. So you know, certain parts of the country are far more stable, we've got, you know, parts of the country. Um,

Heather Kos: It's just not gone as far, I would say, either direction, and they're chugging along. You know, sometimes New England will make the make the headlines because, you know, they'll have a big percentage change, but candidly, they just don't have a lot of starts. It's just a much smaller market for us. and so it has less of an impact. But you know, broadly, a lot of red on the map, a little bit of green, but it's, it's those core and traditional starts markets where you'd expect us to to be talking that that's accurate for us.

You know, the Northwest is just been healthier, it's just not gone as far I would say either direction and and they're chugging along. Um, you know, sometimes New England will make the make the headlines because, you know, they'll have a big percentage change but candidly, they just don't have a lot of starts. It's just a much smaller market for us. Um, and so it has less of an impact but, you know, broadly, a lot of red on the map, uh, a little bit of green but it's, um,

It's those core and traditional starts markets where you'd expect us to to be talking, that that's accurate for us.

Michael Dahl: Thanks. That's helpful, guys. Good luck going forward.

Makes us helpful guys. Good luck. Going forward.

Heather Kos: Thank you.

Operator: Thank you. And our next question comes from Keaton Mantora with BMO Capital Markets. Please go ahead.

Thank you.

Thank you. And our next question comes from Keaton. Manura with BMO Capital markets, please go ahead.

Charles Perron-Piche: Thank you. And thanks for taking my question. Peter, maybe to start with, on your point of substitution, in in lumber, are you seeing more signs of Southern Yellow Pine being used in new residential construction, maybe for trust applications? Because historically, our understanding has been builders tend to prefer the spruce grade, which comes from Canada.

Uh, thank you, and thanks, thanks for taking my question. Um, we do maybe to start with on your point of substitution uh, in in Lumber, are you seeing more signs of Southern yellow pine being used in new residential construction? Maybe for trust applications? Because historically our understanding has been Builders tend to prefer this proof straight which comes from Canada.

Heather Kos: Yeah. I think historically, spruce, SPF in general, is considered a superior product. It's, you know, preferred by the building community in most markets. It's simply the massive availability of the Southern Yellow Pine. Without getting into too much of the detail, it's still preferred, but if the cost differential is big enough, people will make decisions to manage affordability in in ways that may be detrimental to them in other aspects of the build.

Yeah, I think historically, Spruce SPF, in general, is considered a superior product. It's, um, you know, preferred by the building community in most markets. It's simply the massive availability of the Southern Yellow Pine.

you know, there without getting into too much of the detail, it's still preferred, but if the cost differential is big enough, people will make decisions to manage affordability in in ways that may be detrimental to them in other aspects of the bill.

Charles Perron-Piche: And have you started to see that happen yet with the price differential that we have today or not yet?

And and have you have you started to see that happen yet and with the price of differential that we have today or not, yet?

Heather Kos: Oh, yeah. We've seen that for years. That's been a, I would say, a modest trend for a long time. The question is whether or not this markup is enough to create a step function change in the pace. At this point, I would say no. It continues to be measured, but I'd hesitate to predict where that might go.

Oh yeah, we've seen that for years. Um, that's, that's been a, I would say a modest trend for a long time. The, the question is, whether or not this markup is, um, enough to create a, a step function change in the pace.

um, at this point I would say no, it continues to be um, measured but

I I I I hesitate to predict where that might go.

Charles Perron-Piche: Got it. Okay. That's helpful. And then, Peter, one more on trust margins. Just order of magnitude, how do they compare today versus what they were in 2019?

Okay, that's helpful. And then um Peter 1 more on on trust margins.

Just order of magnitude, how do they compare today versus what they were in 2019.

Heather Kos: Better.

Better.

Charles Perron-Piche: Got it. Okay. Perfect. Thanks very much.

Very much.

Heather Kos: Thank you, Don.

Thank you. Thank you.

Operator: Thank you. And our next question comes from Alex Rangel with Texas Capital. Please go ahead.

Thank you. And our next question comes from Alex ryel. With Texas Capitol. Please go ahead.

Michael Dahl: Thank you. Good morning, Peter. Have you seen any competitors pull back and/or suppliers take notable actions to reduce supply?

Thank you. Good morning, Peter and Pete. Have you seen any competitors? Pull back into our suppliers? I've taken notable actions to reduce Supply.

Heather Kos: Not really. You know, don't get me wrong. Everybody's managing it. And I think we've talked a lot about the downturn and the impact and the deleveraging that everybody's experiencing, but I don't think anybody's done anything dramatic. Probably the most dramatic that I can think of are a couple of milk loom.

Um, not really, you know, it it don't get me wrong, everybody's managing it. And I think we've talked a lot about the the downturn and the impact and the deleveraging that everybody's experiencing, but I don't think anybody has done anything. Dramatic, probably the, most dramatic that I can think of are a couple of million.

Michael Dahl: And then as it relates to your guidance, you trimmed it a little bit. What changed from your prior plan?

and then, as it relates to your guidance, in terms of a little bit, uh, what changed from your prior plan,

Heather Kos: It's really the market. The market is weaker than we had originally forecasted, both in the single-family starts in particular, but also in the OSB model. So those are the two main ones.

Uh, it it's really the market.

The market is weaker than we had. We had originally forecasted, um, both in the starts, single family starts in particular, but also in in the OSB. So those are the 2 Main

Charles Perron-Piche: Thank you.

Thank you.

Heather Kos: Thank you.

Thank you.

Operator: Thank you. And our last question comes from Brian Buros with Thompson Research Group. Please go ahead.

Matthew Bouley: Hey, good morning. Thank you for my questions. One quick one here. On the R&R side, I guess the outlook still calls for flat, and I think you've seen growth there so far through the first two quarters here. Does that apply a drop into negative here in the back half, or is that kind of still steady and you're just outpacing the flat outlook for R&R? Thank you.

Thank you. And our last question comes from Brian. Viros with Thompson, C. Research group, please go ahead.

Hey, good morning, thank you. My questions, 1 quick, 1 here on the, on the RR side, I guess, the Outlook still calls for flat, and I think you've seen growth there. So far through the first 2 quarters here, does that apply a drop into negative here in the back half? Or is that kind of still steady and you're just outpacing the flat outlook for RNR. Thank you.

Operator: It's really the latter, just outpacing the flat outlook for R&R. The flat R&R is really for the market, not necessarily our sales.

Uh it's really the ladder just outpacing the flat outlook for RNR. Um the flat RNR is really for the market, not necessarily our sales.

Matthew Bouley: Got it. Thank you.

Got it. Thank you.

Heather Kos: Yep. Thank you.

Yep, thank you.

Operator: Thank you. And there are no further questions at this time. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.

Thank you. There are no further questions at this time. This concludes today's presentation. Thank you for your participation. You may disconnect at any time.