Good day, and welcome to the Builders FirstSource First 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. I'd now like to turn the call over to Heather Kos, Senior Vice President, Investor Relations for Builders Resource. Please go ahead.

Good morning, and welcome to our first 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 a reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and presentation. Our remarks in the press release, presentation, and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the forward-looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ from forward-looking statements and projections. With that, I'll turn the call over to Peter.

Thank you, Heather, and good morning, everyone. Given the current environment, I'm proud of our resilient results for the first quarter, which reflect the strength of our differentiated product portfolio and our continued focus on driving operational excellence. While macro and industry dynamics continue to be unsettled, we remain confident in our ability to navigate any challenges. We are a cycle-tested team that has withstood economic uncertainty in the past. We will execute again by staying rooted in our strategy and focusing on the factors within our control. During these uncertain times, our role as a trusted partner is vital as we help our customers address affordability challenges and increase efficiency. We are focused on the near term while laying the groundwork for future growth. As the market recovers, I'm confident we will outperform. As shown on Slide 3, our strategy remains consistent. We are focused on organic growth, operational excellence, and disciplined capital allocation. We are committed to advancing our strong foundation and driving value creation for our customers through investments in innovation. Our significant investments in value-added products, digital tools, and internal systems are cementing our leading industry position. Let's turn now to our first quarter performance on Slide 4. Our team's ability to drive resilient results, despite external headwinds, reflects our focus on execution, operational rigor, and customer success. Pete will expand on our results more later in the presentation. On Slide 5, we highlight key areas where we've been executing our strategy. In the first quarter, we invested $23 million in our value-added facilities to prepare for future demand in key markets. This included opening one new millwork location, expanding another millwork plant, and upgrading a truss facility. Adoption rates for our industry-leading BFS digital tools are steadily climbing each week, and we are garnering consistent positive feedback from our growing customer base. I'm pleased that we realized $19 million in incremental digital sales for the quarter, bringing our total to $153 million since launch despite the challenging environment that has persisted for our target customers. We achieved $17 million in productivity savings in Q1, primarily through targeted supply chain initiatives, more efficient truss manufacturing, and fleet management. We are focused on optimizing processes, leveraging technology, and improving supplier relationships to enhance efficiency. We remain disciplined stewards of discretionary spending, and we are continuing to maximize operational flexibility. We increased our service levels to our customers with an on-time and in-full delivery rate of 92%. Single-family starts remain soft, as builders manage the pace of construction amid affordability challenges, inventory buildup, and increased economic uncertainty. As we expected and communicated previously, multifamily also remains a headwind compared to 2024. In response to lower volumes over the last year, we have taken steps to align capacity across our facilities, manage headcount, and control expenses. This continues to be an attractive and profitable business for us. Turning to single family, builders continue to employ specs, smaller and simpler homes, and interest rate buydowns to help buyers find affordable options. Our comprehensive product portfolio enables builders to optimize their costs while maintaining quality. And we continue to supply more lower-cost offerings in products like engineered wood, windows, and doors. We are standing alongside our customers to battle affordability challenges and grow with them through the investment in our people, technology, and innovation. While critical for the long-term health of the industry, these actions mean less near-term sales and gross profit dollars for BFS. Ultimately, this positions our company to accelerate when starts increase and current headwinds begin to subside. Turning to M&A on Slide 6. We remain focused on pursuing high-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. In the first quarter, we completed two acquisitions with aggregate prior year sales of roughly $565 million. As a reminder, in early January, we acquired Alpine Lumber, the largest independently operated supplier of building materials and value-added products in Colorado and Northern New Mexico. In February, we acquired O.C. Cluss, a leading supplier of lumber, building materials, and installation services with locations in Pennsylvania, Maryland, and West Virginia. In addition, we acquired Truckee Tahoe Lumber in early April after quarter end. Truckee Tahoe has built a reputation of excellence as a leading supplier of lumber and building materials in the Northern California and Nevada markets. We are excited to welcome these talented new team members to the BFS family. Our industry remains highly fragmented. And despite a slowing M&A environment, we are confident that our M&A capabilities will remain an important catalyst for our long-term growth. Turning to Slide 7. Our disciplined capital allocation strategy focuses on maximizing shareholder returns through organic growth, inorganic growth, and share repurchases. In the first quarter, we deployed over $900 million towards investing in the business, acquisitions, and share repurchases. Now let's turn to Slide 8 and discuss the latest updates on our digital strategy. With our BFS digital tools, we are focused on creating value for our homebuilder customers and, in doing so, further extending our industry leadership position and driving substantial organic growth. Despite the challenging market, we have seen continued adoption and growth with our target audience of smaller builders. Our sales team continues to increase digital tool usage, which will further drive customer adoption. Since launch in early 2024, we have seen more than $1.5 billion of orders placed through our BFS digital tools, of which $153 million were incremental sales from existing and new customers. We're pleased with our progress to date and expect an additional $200 million of incremental sales in 2025, bringing our total to $334 million at the end of the year. I'm incredibly grateful to lead such a talented and hard-working team that makes a difference every day. One great example is Delmar Littleview in Oklahoma City, who has been with BFS for more than 20 years. Delmar excels as a trusted partner to our customers who have relied on him both as a driver and now as a dispatcher to ensure that deliveries are accurate and on time. As a dispatcher, he has helped keep his location ranked among the best in the company for dispatch and delivery management efficiency. Beyond his technical skills, Delmar is a mentor to our drivers. The experience in the field allows him to guide them not just on routes and best practices, including safety, but also on ways to provide value to our customers. His leadership and calm demeanor help keep our team running efficiently, even on the most challenging days. I'm proud of Delmar and our countless other dedicated team members who continually raise the bar in service to our customers and each other. I'll now turn the call over to Pete to discuss our financial results in greater detail.

Thank you, Peter, and good morning, everyone. Our first quarter results were driven by our durable business model and unwavering commitment to executing our strategy. We have a proven track record of generating strong free cash flow through the cycle and deploying capital in a disciplined manner, in line with our capital allocation priorities. Our scale, differentiated platform, and talented team members give us confidence that we will continue to compound value now and into the future. Let's begin by reviewing our first quarter performance on Slides 9 through 11. Net sales decreased 6% to $3.7 billion, driven by lower organic sales, one fewer selling day, and commodity deflation, partially offset by growth from acquisitions. Although we expect higher commodity prices for the full year, we experienced commodity deflation in Q1 given the prior year spike in OSC prices. The core organic sales decrease was driven by a 33% decline in multifamily with muted activity levels against stronger prior year comps. Additionally, single-family declined 6%, attributable to lower starts activity, value per start, and weather, while repair and remodel increased 4%, driven by strength in the Mid-Atlantic and Southeast regions. As we have shared on recent calls, there are a few main variables reconciling single-family starts to work for organic sales. First, the value of the average home has fallen as size and complexity have decreased. Second, we have seen ongoing margin pressure as starts remain below normal. Third, extreme weather in the Southeast and California impacted the quarter by approximately $80 million in long-term deferrals. Although macro headwinds persist and there are fewer sales dollars available per start today, we are the market leader in building products and continue to be a trusted partner to our customers that start to remain below normal levels. For the first quarter, gross profit was $1.1 billion, a decrease of 14% compared to the prior year period. Gross margins were 30.5%, down 290 basis points primarily driven by single and multifamily margin normalization as well as a below normal starts environment. Adjusted SG&A of $771 million decreased $9 million, primarily attributable to lower variable compensation due to lower core organic net sales, partially offset by acquired operations. On an annual basis, adjusted SG&A is approximately 30% fixed and 70% variable with volumes, enabling flexibility during challenging periods. As Peter mentioned, we are investing in technology with a look toward the future despite ongoing headwinds. One big component of this is moving to a single, modern ERP platform. Our ERP investment is projected to incur approximately $140 million this year. This positions us to drive innovation, enhance efficiency, and support our long-term growth objectives. We are focused on carefully managing our SG&A and are well positioned to leverage our fixed costs as the market grows. Adjusted EBITDA was $369 million, down 32%, primarily driven by lower gross profit. Adjusted EBITDA margin was 10.1%, down 380 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage. Adjusted EPS was $1.51, a decrease of 43% compared to the prior year. On a year-over-year basis, share repurchases, enabled by our strong free cash flow generation, added roughly $0.11 per share for the first quarter. Now let's turn to our cash flow, balance sheet, and liquidity on Slide 12. Our first quarter operating cash flow was $132 million, a decrease of $185 million mainly attributable to lower net income. We generated free cash flow of $45 million. Our trailing 12-month free cash flow yield was 9%. Operating cash flow return on invested capital was 19%. Our net debt to adjusted EBITDA ratio was approximately 2 times. Excluding our ABL, we have no long-term debt maturities until 2030. At quarter end, our total liquidity was $1.1 billion consisting of $944 million in net borrowing availability under the ABL and $115 million in cash. Moving to capital deployment. Capital expenditures were $87 million in the first quarter. We deployed $828 million on two acquisitions. In Q1, we repurchased roughly 100,000 shares for $13 million. Additionally, in April, we repurchased 3.3 million shares for $391 million. As we announced this morning, our Board has authorized a $500 million share repurchase program inclusive of the $100 million remaining on the prior $1 billion authorization. This reflects our commitment to returning capital to shareholders while maintaining flexibility for strategic investments. With our current leverage ratio at approximately 2 times, we remain mindful of maintaining a leverage ratio of roughly 1 to 2 times at year-end. We remain disciplined stewards of capital and have multiple paths for value creation to maximize returns. On Slide 13, we show our 2025 outlook. For full year 2025, our forecast assumes a down mid-single-digit single-family market and continued weakness in multifamily. As a result, we are guiding net sales in the range of $16.05 billion to $17.05 billion. We expect adjusted EBITDA to be $1.7 billion to $2.1 billion. Adjusted EBITDA margin is forecasted to be in the range of 10.6% to 12.3%. In a lower starts environment, we expect our 2025 full year gross margin to be in a range of 29% to 31%. We expect free cash flow of $800 million to $1.2 billion. The change from the prior guidance is primarily due to a lower working capital assumption based on our lower sales outlook for the year. As we have stated previously, imports accounted for approximately 15% of our total raw material spend in 2024, comprised of roughly 11% commodities and 4% non-commodities. Given what we know today, we estimate a tariff cost impact of $175 million to $250 million annually. This impact reflects the products we import as well as potential U.S. supplier impacts. This range also assumes USMCA tariff exemptions on Canadian lumber. 2025 guidance assumes average commodity prices in the range of $400 to $440 per thousand board foot, an increase of $15 at the midpoint. Note that this is our best current estimate and subject to change. Our guide does not reflect potential tariff and duty impacts. Please refer to our earnings release and presentation for a list of key 2025 assumptions. Additionally, we want to provide color for Q2 given ongoing macro volatility. We expect Q2 net sales to be between $4.1 billion and $4.4 billion. Q2 adjusted EBITDA is expected to be between $475 million and $525 million. In closing, I am 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.

Thanks, Pete. Let me close by reiterating that we remain focused on controlling the controllables. Our resilient business model enables us to win in any environment, given our scale, breadth of product offerings, and our disciplined investments in technology. I'm confident in the long-term strength of our industry due to the significant housing underbuild across our core markets. We are well positioned to capitalize on this, driving growth for years to come as we execute our strategy. We continue to deepen our value proposition as a key partner to our customers by helping them solve problems through our investments in value-added products, digital tools, and install services. Our proven growth playbook, fortress balance sheet, and robust free cash flow generation through the cycle will help us continue to compound long-term shareholder value. In the meantime, we are closely monitoring the current environment and remain agile to mitigate downside risks in the near term while also investing strategically for the future. Thank you again for joining us today. Operator, let's please open the call now for questions.

Thank you. Your first question comes from Matthew Bouley with Barclays. Please go ahead.

Hi, good morning everyone. Thank you for taking the questions. So the question is on market share. If I look at single-family housing starts in Q1, they were down 6%. Your single-family was down 6%, even with presumably still being impacted by less dollar content per home. So however you look at it, it is a really notable change in terms of your growth versus the market from 2024. And what I'm getting at, of course, your thoughts on share, how your views on share have evolved over the past year? And in this declining market, are you actually looking to increase your market share going forward or simply maintain your share in this type of market? Thank you.

Hey Matt, good morning. Thank you for the question. So I will consistently say we are always trying to increase our share, no matter what the market is. I think the dynamic over the past year, we talked about a little bit, this below normal starts environment has changed some patterns of behavior, and we have had to fight the fight. So being in the market each day, acting and reacting to competitive dynamics, partnering with customers, and some of the strategic things they're trying to do, adapting to the affordability challenges in the marketplace, it's all part of what we do every day. I think the team is doing a fantastic job. Ebbs and flows every quarter. And I think what you're seeing here is the hard work, the kind of culmination of the hard work over the last year, the team to lean back in and drive behaviors at the local market level that allow us to continue to be consistent and competitive. We've done the right things to invest. Our cost positions are very good. We continue to run the operations very efficiently and focused on our customers. And I think that's why you're seeing the performance. We're going to continue to strive for it over time.

Understood. This brings us to the question of gross margin. In a market that requires balancing share with margin, your gross margin guidance is at 29% at the low end for this year. This raises the question of how far you are willing to go on gross margin. Is there a specific margin level where you would prioritize margin again, or should we expect share to be your main strategy? How far are you willing to adjust gross margin in this market? Thank you.

Matt, this is Pete. What I would say is our margins are still very strong. We're pleased with the performance. We are anticipating margins to drift lower through the year. Some of that is due to the margin normalization that we're experiencing with the multifamily as well as the single-family side. But as this market continues to present additional challenges, being below normal levels, now gone down about 5%, I think you're going to see continued competitive pressure, and we have to make that call every day on how to balance share versus margin. And as Peter mentioned, that's just part of running the business every day. And we know that we need to be in the game in order to continue to win and position ourselves to bundle the products where we're going to be more competitive.

And I think we are overall very pleased with the performance of margins. It's been a bit of a discovery process post the whole COVID push as to where normal is. We tried to talk about that with everybody. Hopefully, that's come through as an attempt to be transparent. What I think we're seeing now is a lot of that normalization is done. Now it's just hand-to-hand combat in given markets with specific competitors. So that dynamic is where our advantaged position from a cost perspective and from a coverage perspective allows us to have superior margins than the competition. Our pricing discipline and knowing exactly where we stand and what we're doing in each individual decision is a powerful advantage to some of our competitors. So we'll continue to balance it. It has to be a balance. You can't walk away from the table. But the reality is our continued success has led to that bundling ability. Our customers do see the value of the combined offering that we have in our product portfolio. The benefits of value-add have been very sticky even when there's some uncertainty and challenges in the market. And we still continue to sell to a wide variety of customers, both ups and downs in various markets. So we feel good, but no question, it's a time pressure, and we're happy to be smart about it.

Got it. Well, I appreciate the thoughts. Good luck guys. Thanks again.

Thanks.

Thank you. And we will take our next question from Mike Dahl with RBC Capital Markets. Please go ahead.

Good morning. Thank you for taking my questions. Could you clarify what you mean by a drift lower in gross margin throughout the year? You're starting at 30.5%, but it seems there’s still some near-term pressure as indicated in your guidance for Q2. Could you provide an estimate for the Q2 gross margin and explain if you expect sequential declines in each quarter moving forward?

Yes, thanks, Mike. So when we look at our results, excluding the multifamily, we really see margins flattening out for and slightly down if we continue to see a below normal source environment. So that's kind of what we've baked in. From a multifamily standpoint, we continue to have a little bit of that normalization. I think we're in our last leg of that. But when we look year-over-year, it's a much bigger step down. So it has an impact as we look at the overall year-to-year. So I would say we're getting pretty close to flat. Our competitive advantages with what we've invested in our manufacturing continue to support our margins with our value-added products, and we're very confident in our ability to deliver higher margins.

Thank you, Pete. My second question is about capital allocation. This has been a key aspect of the company for many years, particularly in how we've aggressively deployed capital on mergers and acquisitions as well as buybacks. We're at a stage where, due to the compression in EBITDA and cash flow, along with the capital already invested in acquisitions and the significant buyback in the second quarter, your adjusted leverage appears to be slightly above the 2x range in a challenging environment. How are you planning to balance this? While we appreciate the buybacks, this is a substantial amount to commit to this quarter given the current situation. Could you provide more detail on your plans for balancing these factors in the upcoming quarters?

Yes, that's a great question, Mike. Our capital allocation priorities remain unchanged. We will focus on safeguarding our balance sheet and ensuring we invest in our core operations. As for mergers and acquisitions and stock buybacks, we will continue to assess those as we progress, remaining committed to managing a leverage ratio of 1 to 2 times by the end of the year.

Yes, the other thing I would add. We have been very disciplined and thoughtful about building out our balance sheet, making sure our tenures, our rates, our liquidity position, all remains very strong. So none of that has really changed. All that's really evolved here is that we've seen a pullback in the EBITDA number for the basis of the math. And what I would say is we're targeting a year-end 1 to 2 times. It's always been the sort of the theme because of our seasonal borrowing fluctuations. It's pretty normal for us to have some changes across the year. And I think we're still in a position to be able to deploy capital in a very intelligent way to position the business for growth over time at the current level. And as each year passes, we'll have more opportunities. As we return to growth, we'll have more opportunities. So I think fair. I think your observations are on point, but it's a point in time.

Got it. Okay, thank you.

Thank you. And we will take our next question from Charles Perron-Piche with Goldman Sachs. Please go ahead.

Thank you, good morning everyone. First, I want to talk a bit about the commodity backdrop. Lumber prices have been trading higher through the spring and you obviously revise your guidance higher to reflect that. But can you talk about how you expect this to flow through your commodity inflation expectations for 2025? And how are those higher lumber prices impacting the mix of value-add? Are you seeing specifically increased elasticity of demand as builders are facing growing margin pressures?

Yes. Thanks for the question, Charles. So with commodities, we are seeing the impact of the year-to-date higher prices on lumber. But as a reminder, and I don't know if we've shared this with you specifically, both when we look at our commodity prices, it's 70% weighted to the lumber composite and 30% weighted to the OSB composite. So that's kind of the blend of what we see going into a normal home size. So with that, with OSB being super depressed, especially to where it was a year ago, we're seeing that pull the number overall down, but we are seeing the lumber composite year-over-year higher. So what we see for the balance of the year is kind of holding at this level, if not even drifting down a little bit as people digest some of the initial reaction to tariff concerns. And that's going to continue to benefit modestly in our results through the balance of the year as we pass that through. With respect to the value-added products, it is a portion of the truss and the wall panels that we produce and that will change the cost basis as we continue to design and engineer optimize those truss plants.

I think your point is right on, though, anything that grows commodities as a percentage will, by mathematical equation, reduce value-add as a percentage of total mix, but it's fairly modest overall. And to clarify a point, so lumber out of Canada is covered under USMCA for tariff reasons, meaning no tariff impact on what we've been up to lately, but the traditional duty regime is still in place. So there is expected to be an update to that duty regime later on this year that for the time being looks to be fairly substantial. The reality is, by the time it gets implemented, it will be kind of into the fourth quarter really before we start to see it hit. And as you know, the fourth quarter is a fairly small quarter for us overall. So some development, we think will play out although I'll be quite candid and tell you that given the amount of uncertainty around tariffs and duties in general, I wouldn't necessarily deposit that check on anything yet.

Got it. That's a very helpful color. And second, you talked about the progress of digital initiatives in your prepared remarks. I think that adding $90 million this quarter when you consider software housing backdrop, what factors lead your confidence to reaching that $200 million target in 2025? I think you mentioned last quarter you were adjusting your go-to-market strategy for those. How are you progressing against that?

Yes. No, that's a great question. So the reality is the tools are being really well-received. The customers that are engaging with them and using them like them a lot. They find it valuable in terms of their pace of build, their ability to understand the components, the ability to adapt to what they want to do on the ground more quickly, the interfaces, I think, are more seamless, more modern than anything that the industry has seen before. So the adoption has been good. I think our internal rollout is a lot more about training, dialing in some of the features and functions of the tool internally, and getting things re-platformed to be able to, I would say, accelerate the adoption by the customer. Now the one thing I will point out that came through, hopefully, in the materials is that our initial target audience for this tool is the smaller builders. So production build is between 50 and 2,000 homes a year until we get the tool really dialed in the way we want it. And that is a customer category that has been under a lot of pressure. I would say comparative to last year, they're pretty stable, pretty good, maybe even up a little. Some other customer categories are maybe down a bit versus last year, but that gives us confidence that we're on the right track, both the momentum we've seen in the initial reset internally as well as customer adoption and overall customer health. I think those are the sort of the three reasons we remain confident that digital is on the right track and going in the right direction.

Okay, thanks for the color guys. And good luck.

Thank you.

Thank you. And your next question comes from the line of John Lovallo with UBS. Please go ahead.

Good morning guys. Thanks for taking my questions as well. The first one is kind of working off of Matt's question at the onset here in terms of the competition. I mean, really, what does the competition look like today? And what I'm getting at is if you're expecting gross margins, call it, 29% to 31%, and your competitors, some of the smaller ones have higher cost, new capacity, I have to imagine that they're running closer to breakeven. I mean how sustainable is some of this newer competition that's come into the market?

That's a great question. It's an ongoing discussion. Based on some behaviors we've observed, the lowest prices aren't sustainable, and many are regretting their past decisions, and rightly so. Builders are understandably trying to minimize costs, which is part of business. However, they need actual partners to succeed, and that's our role in the industry. We need to supply products to job sites, which requires a sustainable business model. Some players in this space seem to be focused on short-term gains, looking to grow quickly and flip their businesses for quick profits. For larger builders, this may be tempting, but it can be harmful in the long run. A stable industry is crucial, one that looks to the future, becomes more efficient, leverages technology, and provides high-quality tools for builders. There are costs associated with this. Builders, like any good customers, often want everything at minimal prices. The market needs to find a balance. Some have been comfortable with lower single-digit margins but aren't willing or able to invest in the future of our industry that we all deserve. My challenge to my competitors is to improve and deliver better for this industry because we owe it to ourselves. We're committed to investing and supporting the top homebuilders in the country, solving their problems. Yes, there's a balance to be achieved regarding margins, and there will be challenges, but I believe we will ultimately succeed in making our business, our industry, and our country better in the process.

Yes. That makes a lot of sense to me. Okay. And then next question is on the productivity savings, $17 million in the quarter, targeting $70 million to $90 million for the full year. Curious how you kind of view the cadence of the remainder of those savings? And what sort of actions are you taking to drive those savings through the year?

So I'll let Pete talk to the cadence, but productivity for us is very core to who we are and what we do. Our expectation is every quarter, every day; really, our employees are looking for ways to get a little bit better. One-step better, one-step in the right direction, and that incremental progress as a team has had tremendous cumulative value for us as an organization. We're better, we're more profitable. We're faster. Candidly, the jobs are more fun because we take some of the garbage work out. So I think that's something that we have gotten comfortable with in this organization, and we're very good at as an organization. That's what you're seeing in terms of our performance. We do a little bit of pullback because of the diversion that some of our ERP work is requiring. We've got to be able to put hours in some of our best people to make sure that ramp-up goes well but the numbers in general continue to be a core part of what we do and are delivering that is critical to our long-term success. Pete?

Yes, as Peter mentioned, we've been delivering productivity for several years, and it's an ongoing process rather than something that starts and stops. We expect this productivity to continue throughout the year on a consistent basis, generally in a linear fashion. However, with the ERP rollout anticipated in the latter half of the year, we might see some of the impacts Peter discussed then, but for now, we are expecting a steady realization of productivity.

Great. Thank you guys.

Thank you. And we will take our next question from Rafe Jadrosich with Bank of America. Please go ahead.

Hi, good morning. It's Rafe. Thanks for taking the questions. First, when you look at the full year guidance, it implies second half growth over the first half, which is a little bit stronger than what you've done sort of historically. Can you just talk about some of the assumptions, specifically around like content per house, market share, or multifamily mix in terms of what's driving the stronger second half sequentially versus the first half?

What we're seeing for the full year is more of a normal seasonal pattern, where the first quarter is the lowest, followed by the fourth quarter. The build peaks through the second quarter and into the third quarter. Additionally, we are seeing stabilization in the multifamily segment projected for 2025, which means we don't anticipate the same downward pressure as before. Although it might seem stronger, we're actually just maintaining stability and benefiting from seasonal trends. We are also experiencing growth from the acquisitions we completed last year and early this year, which will have a positive impact in the latter half of the year compared to last year.

That's helpful. Following up on some of the changing patterns and behavior in the market, can you clarify if that is more prevalent in the commodity sector or in manufactured products? Are you observing this trend across the entire country, or are there specific markets experiencing more pressure than others?

Well, there's no question there's pressure across the board, right? I mean this is an affordability focused environment. You're getting a deep dive on everything. What I would say, though, is and I think maybe we've talked about this in prior quarters, is we've seen an evolution in a progression of how builders have looked at the various categories. Commodity is easiest, commodity is first, so commodity got attacked, I would say, the first. As you look at other categories, it's more complex. There are more pieces to be considered. The consequences are potentially more impactful. So it's been a little slower in terms of the review and the focused work. There's no question that there's some regional differentiation between profitability and the pressure. Some areas of the country, very high utilization, lots of competition, lots of capacity react very different than a smaller environment where maybe you're the only game in town. So all of them see pressure, but different levels of pressure depending on where you are and what the competitive environment looks like.

Thank you, that's helpful.

Thank you. And your next question comes from the line of Keith Hughes with Truist Securities. Please go ahead.

Thank you. Question's on your value-added products. Could you talk about in terms of the reported numbers, how much of that is units, and how much is price pressure in the work?

Good morning, Keith. I don't think we provide that level of information. But what I can tell you in the decline in the manufactured products. Just a reminder, in the multifamily space, we're much more heavily weighted toward the value-added products. So I think previously, we're about 75% to the value-add. What we're seeing in the declines, as we've indicated year-over-year, was a big headwind as we lapped that multifamily normalization. And our truss decline within the multifamily was down about 46%. So more than the 32 multifamily down that we communicated, so that's given you a disproportionate decline in that manufactured products. And there will be price and units included in the price and units in there.

And based on your comments about multifamily, are you expecting that number to start flattening out in the third quarter?

We're beginning to see it stabilize now. Year-over-year, we expect to reach parity by the fourth quarter, although we are still dealing with a headwind from the previous year.

Okay, great. Thank you very much.

Thank you. And your next question comes from the line of Trey Grooms with Stephens. Please go ahead.

Hi, good morning, Peter and Pete. I know you mentioned that your capital allocation priorities haven't changed. I'm wondering, what is your current appetite for additional acquisitions? Or put another way, when do you think you might ease up on M&A and buybacks?

Well, I mean, it's interesting because a piece of this is completely outside of our control and is dependent on the sort of the personality and the mood of the market. I will start by saying that the mood to the market has cooled significantly. I would say a year ago, there were a lot of deals out there, a lot of folks talking. As I see it today, I think uncertainty more broadly has contributed to a lot of uncertainty in the M&A space. So I'll start with that. The other is to say there's been a theme, and I think we've been pretty clear about it to say for the right deal in the right market for the right product categories, we would do something special but those are pretty rare. They're pretty few and far between. So I don't want to come out and say never, but at this stage of the game, I would say it seems pretty unlikely that there's anything big going to happen anytime soon. But we continue to look. Our M&A team is, I would argue, a finely-tuned weapon, and we are not shy about using it when it makes sense for shareholders in that long-term strategic lens.

Okay, sticking with the same theme, if things continue to remain at their current level or perhaps slow down more than anticipated, how do you view the potential regarding your branch network? Is there any prospect for streamlining your presence in certain markets if necessary, or do you believe you are currently in a stable position with your branches and footprint, feeling satisfied with that under any foreseeable circumstances?

Yes, that's a great question. The short answer is we're already doing it. We are a very disciplined organization when it comes to the variable cost and the way that we manage capacity into the market that we play in. Every market across the country has their operating metrics that they use to govern how they run their business. We look at every location and every market from a profitability perspective. So we're very disciplined about continuing to, I would say, maintain the right operating hygiene, managing capacity. Over the last year, we've closed 17, 20 locations. That dynamic is something that we will continue to manage to ensure that we've got the right footprint, putting our best people in the best locations. That's all part of what we do. We just don't really talk about it externally very much. The other piece that I would mention, and I know you've seen this, Trey, is the downturn playbook is certainly available for us if we need it, and we use it on a market level in terms of responding to the dynamics at play.

Yes, got it. Okay, thank you very much for that. And it's helpful. I'll pass on.

Thank you. And your next question comes from the line of Phil Ng with Jefferies. Please go ahead.

Hey guys, thanks for all the great color. I guess, implicit in your guide, you're calling for a second half earnings ramp. And Peter, it sounds like it's more seasonal in recent deals? Or does your guide actually assume some second half pickup in activity, perhaps maybe the production builders are kind of easing some of that destock as we kind of look out to the back half? Kind of give us a little more context what you're kind of assuming for the back half.

Got it. I was just going to say it's definitely not an assumed ramp and trying to use the word seasonality is we definitely have footprint across certain geographies that the spring summer selling season are the peaks when you're looking across Alaska and the Northern Hemisphere, the Lower 48. So it's disproportionate in that way for those markets, and we're seeing healthy activity currently, and we're expecting that to continue on a normal seasonal basis.

Yes, just to confirm that, right? It's mostly what you said. It's mostly M&A and the comps from a percentage perspective, the daily sales number in the core business is a gentle seasonal curve like you'd expect, but not expecting a recovery in the broader market or from key customers or any of that.

That's helpful, thank you. Some of the larger public builders have mentioned that they haven't experienced inflation from tariffs yet, and they don't expect much over the year. You mentioned a potential impact from tariffs between $175 million and $200 million. I’d like to hear your thoughts on your ability to pass that through, as your gross margin guidance seems to assume it will remain relatively stable from the first quarter levels. It may have dipped slightly, but still looks healthy. Can you provide some context on that?

Yes. It's going to be an interesting environment as those tariffs continue to make their way into the inventories and as we need to supply to our customers. Our intent is to pass it through, but we will work with our customer partners. We were going to continue to figure out the right approach in dealing with affordability challenges as the tariffs are coming through, but the expectation is that that's a cost that's increased and it will need to go through.

A lot of this is going to be passed through and focused in key categories, right? I mean China is the big player. We don't actually import, virtually anything from China ourselves. A lot of this is stuff that we buy and then we have to sell. So there's a limited opportunity for us to participate for the most part. The real question is how does the market respond? Are there substitutions? Is it a logical progression in terms of movement over time? Does it happen all at once? How much is done on the ground at a time? Where does the tariff get negotiated to? So everybody wants to know the answer to the questions. We've tried to take a pass at it. I'll put my hand up and tell you this is our best guess and the actual fall-through impact of this is an even bigger yet.

And when does that actually hit your P&L because there's an inventory balance dynamic?

Yes, that's correct. This figure represents a full-year estimated impact, so once it begins to take effect, you'll receive your proportional share. Even at this moment, there are delays based on the current situation. I don't think any of us fully grasp it yet. There have been some announcements from various parties, but as you saw from the GDP figures, there was a significant amount of inventory that arrived as people prepared for this. When it actually happens, I don't think any of us really know what to expect.

Okay, thank you.

Thank you. And our next question comes from the line of Collin Verron with Deutsche Bank. Please go ahead.

Hey good morning. Thanks for taking my questions. Just a point of clarity on the tariffs there. Does the guide or the debt tariff impacts assume any tariff mitigation in it? Or is that just the cost number flowing through 100%?

In our guidance, we did not factor in any effects from the tariffs. We created that estimate to provide an indication of the potential size or impact, which, as Peter mentioned, includes the minimal imports we handle directly and some effects on our suppliers who will ultimately be affected by tariffs based on their sourcing methods. This is a significant estimate at this point, and we are uncertain about the actual impact, so it has not been included in the guidance.

So I'm going to call them over the top and say two things on that. One, we don't lose money on stuff that we sell. And two, there is absolutely going to be an impact of some degree, but if you look at the band of our guidance, the dollar amount of the tariff impact, we are not talking about a change outside of our guidance. The question is how do you dial it in. Man, if I had a crystal ball, I would promise to tell you the right number, but this is our attempt to provide guidance in the face of what we consider to be massive uncertainty. So I don't know if that helps you or not.

That's very helpful information. Regarding the pricing challenges you mentioned for windows, doors, and millwork, I understand you don't typically provide specifics on this. However, could you share your thoughts on the extent of the impact from vendor price cuts and how you view this as a potential headwind for your top line throughout the remainder of 2025?

Yes. If we said under price cuts, it was unintentional. I think that the environment is stable to inflationary, but in particular, based on the tariffs, yes.

Thank you for the color.

Thank you.

Thank you. And your next question comes from the line of Ketan Mamtora with BMO Capital Markets. Please go ahead.

Good morning and thanks for taking my question. I'm curious, as you think about your 2025 guidance, can you sort of just at a high level, maybe two or three key buckets where you are sort of seeing incrementally more challenges than kind of what you had when you put out your prior guidance. Clearly, it looks like single-family housing starts, you've taken that down, but two or three sort of key big buckets would be helpful.

All right. So I'll just give you the high level. Starts are down. Single-family starts are down. Multis are up a little to offset it, and the margin pressure on single-family is a little tighter than we thought, not a lot, but a little. And part of it is because single-family starts are down. So there's a correlation. Puts and takes on other things, but those are the big drivers.

Got it. No, that's helpful. So fair to say that the multifamily piece that you had previously talked about, like, call it, $175 million, $200 million EBITDA impact, that's sort of still in line with how you guys were expecting?

It is.

Yes, directionally. And we're lapping most of it; 80% of what we're going to see in terms of the downturn is going to happen in the first half. There will be a tail on some little stuff still fading, but it's largely stable and largely what we anticipated coming into the year.

Understood. That’s helpful. I’ll jump back in the queue. Thank you.

Thank you.

Thank you. And our next question comes from the line of Adam Baumgarten with Zelman & Associates. Please go ahead.

Hey good morning guys. Can you talk about the trends you're seeing in the installation business? Has that been kind of trending in line with overall results or maybe outperforming a bit? Just curious what you're seeing there.

Yes, it's been good. The multifamily is a headwind against us. So that's broader macro. But install itself, I think it's something that builders continue to be attracted to ease of doing business, efficiency, being able to manage labor the labor market has eased up a little bit. I think you really can see that in the headlines. Still some question marks around what's going to happen with immigration, I don't think we're quite through that yet. But in general, the way we manage it, that we feel really good about our ability to be successful in that environment, and we think customers are continuing to adopt it and like it as an alternative.

Okay. Got it, thanks. And then just on digital. Just curious when you think you'll be moving to roll out the platform to some of the larger homebuilders. And is that a piece of getting to that $1 billion sales target that you guys have put out there?

Yes. We are considering collaborating with some of the larger builders regarding certain features of the tool. There have been many inquiries from these large builders, and our response has been positive, asking for a bit of time to ensure everything is in place. We are confident in our ability to execute, especially with smaller projects, but scaling up presents its own challenges. This is why we are taking a cautious approach. However, we are actively developing certain features and functionalities, and I am confident we will deliver on them. We don't believe this is necessary to reach the $1 billion target we have set, but it certainly reflects our focus and the importance of this initiative for the future of the industry.

Got it. Thanks.

Thank you. And your next question comes from the line of Brian Biros with Thompson Research Group.

Good morning. Thank you for your questions. I believe the R&R segment showed growth this quarter, with some regional strengths mentioned. Could you elaborate on what contributed to that performance? It seems like this might be a temporary situation, especially considering the updated guidance for R&R has shifted from a projected low single-digit increase to flat. Can you discuss your expectations for the rest of the year?

Well, expectations, as you just said. So we're calling flat for the full year, had a little bit of bump in the first quarter, really coming from some of the lumber and sheet categories where we're seeing strength in lumber and sheet.

That's a part of our business, while fairly modest in size, that's more stable. You do see the regional impact. One of the nice things about our size and scale is because we're in 43 states and magnitude of the top 100 MSAs, you do get a blend in a smoothing at the corporate level, less of that with R&R. So you do see a little bit of movement based on the mix of regions, but generally speaking, it's a more stable part of what we do. And a little bit of pops here and there can have an impact. But generally, we feel pretty good about estimating much on it.

Understood. And then maybe how are your, I guess, customers managing activity in orders here with this weaker demand, but prices may be rising? Are you seeing anything of pre-buy or forward activity in response to any of that? Thank you.

Not really. It's a good question. I think they just continue to stay focused on what I would call trade downs, but compromises that are necessary to stay within the price points they are targeting because builders are doing different things. Some are starter homes, others are move-up homes or similar custom projects. Depending on what you're doing, it will require you to adapt in a certain way. One common area of focus is whether there's a substitute that can do the job more efficiently or eliminate the need entirely. Those are the areas we've been partnering with our customers on. We explore where design can help reduce costs and how work in individual product categories can be adapted to meet their dynamics to achieve maximum efficiency. However, in terms of buying ahead, it's quite challenging for the customer in our space.

Thank you. And your next question comes from the line of Jeffrey Stevenson with Loop Capital. Please go ahead.

Hi, thanks for taking my questions today. I just wanted to follow up on install services. And I wondered if they were positive in the first quarter? And then Peter, you talked about some of the labor disruptions we've seen due to the administration's immigration policy and just wondered if you're continuing to lean into your third-party assembly and install capabilities and a competitive advantage with builder customers?

The core business remains strong, but we are facing challenges in the multifamily sector. Overall, our views remain consistent. We still support the installation services, and the third-party model is functioning well. The impact of recent immigration discussions will become clearer over time. If the focus remains solely on MS13, our operations won’t be affected. However, if there are wider implications for traditional legal immigration, that could influence our industry. Ultimately, we believe third-party contracting has a valuable role in our sector, and we will continue to leverage it where appropriate.

Okay. That makes sense. And then I wanted to shift to the M&A pipeline and wondered if during this period of market uncertainty, you're seeing any benefit from improved seller expectations or whether potential sellers are pulling back right now to manage through this period of market uncertainty?

Yes, I think it's the latter. Yes, what I was listening is we have certainly seen sellers pull back rumor deals that have been pulled off the table and then just a generally quiet space right now. It's a little, but it's pretty small and pretty wide. We're glad we're able to get Alpine into the family before things got too uncertain because we're excited about bringing them into the team and our team in Colorado and northern New Mexico is really ramped up to deliver incredible value to our customers. We're excited about it.

Great. Thank you.

Thank you. And it appears that 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.