BlueLinx Holdings Inc. Q2 FY2022 Earnings Call

Greeting, and welcome to the BlueLinx Holdings’ Second Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Taylor, Vice President of Investor Relations.

Thank you, Operator, and good morning, everyone. And welcome to the BlueLinx Holdings’ second quarter 2022 earnings call. Presenting today are Dwight Gibson, President and CEO of BlueLinx; and Kelly Janzen, our Chief Financial Officer. Our second quarter news release and Form 10-Q were issued yesterday after the close of the market along with our webcast presentation. These items are available in the Investors section of our website. We encourage you to follow along with the detailed information on the slides during our webcast. Today's discussion contains forward-looking statements; actual results may differ significantly from those forward-looking statements due to various risks and uncertainties, including the risk described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'll turn the call over to Dwight.

Thanks, Ryan, and good morning, everyone. Thank you for joining us on the call today. Before I get started, I want to acknowledge Leroy Diggs, a material handler at our Richmond branch, and congratulate him on celebrating 50 years of outstanding service to BlueLinx. Leroy exemplifies our core value of teamwork and we thank him for his commitment and dedication to the company. It is people like Leroy who make BlueLinx a great place to work. It continues to be an exciting time for BlueLinx and a dynamic period for the US housing industry. Our first half financial results are the best combination of first half results in our company's history. We delivered $2.5 billion of sales, $314 million of adjusted EBITDA and $97 million of free cash flow. As compared to the first half of 2021, a period of historically strong demand, we grew sales by 9% and adjusted EBITDA by 15% while generating operating cash about five times greater than the prior year period. This represents our most profitable first half ever. In Q2, we delivered our third highest quarter ever in three key metrics, with diluted EPS of $7.48 per share, adjusted EBITDA of $112 million and $101 million of operating cash. We delivered a strong level of profitability and cash generation despite greater than 50% decline in wood-based commodities and increased market uncertainty due to rapidly rising interest rates. Following two years of strong growth in the building products industry underpinned by low housing supply and fueled by the global pandemic, the first half of 2022 marked a turning point as several key indicators are pointing towards a slowdown. Moderation from the high demand we experienced since the onset of the pandemic could lead to an easing of supply chains and a more stable environment in which to operate our business. We are closely monitoring the end market environment and analyzing a variety of potential scenarios so that we are prepared to capitalize on any opportunities. I'm confident BlueLinx is well-positioned to drive profitable growth based on the improved execution we've demonstrated and the strategy we outlined at our Investor Day in June. We believe the operating improvements we've made to this point are enduring and that we have ample opportunity to further improve our performance. We are still early in our journey to transform BlueLinx into North America's preeminent building products distributor. Our strategy is focused on accelerating growth in our specialty products, optimizing productivity and driving world-class performance. And our balance sheet is as strong as it has ever been giving us the financial flexibility to accelerate our strategy in a disciplined manner. We are well positioned to take advantage of attractive investment opportunities as we execute our growth strategy. We are confident that this strategy, along with the talented team we have assembled and the performance-based culture we are establishing, provides us a significant opportunity to deliver compelling value to our stakeholders. Looking specifically at Q2 2022. During the second quarter, we successfully navigated a dynamic macroeconomic environment and rapid deflation in wood-based commodity prices while continuing to prioritize growth in our higher-value specialty products, progress in our productivity initiatives, and strategic investments to build our team and capabilities. Our second quarter performance is a testament to our team's focus, discipline, and execution. We delivered $1.2 billion of sales, $201 million of gross profit, and $112 million of adjusted EBITDA, the third highest adjusted EBITDA we’ve delivered in any single quarter. Q2 2022 sales and adjusted EBITDA were only exceeded in Q1 of this year and Q2 of 2021, two periods with very strong demand for building products and significant inflation in wood-based commodity prices. On a standalone basis, our Q2 results demonstrate our disciplined approach to structural inventory management and the strength and stability of our specialty products business, which comprised 64% of sales and more than 85% of gross profit. Specialty product sales grew 17% year-over-year to $788 million with gross profit up 9% year-over-year and gross margin up 23%. The growth in specialty products was driven by continued focus on strategic value-based pricing, which more than offset a modest decline in volume. And from a product line perspective, our specialty growth was led by engineered wood, millwork, siding, and industrial products, which is consistent with our growth strategy. In contrast, sales of structural products declined by 29% year-over-year, largely due to the dramatic decline in wood-based commodity prices. Sequentially, composite lumber and panel prices dropped 57% and 52% respectively from peaks in mid-March to lows in late June. Despite this headwind, we achieved a respectable structural product gross margin of about 7% before considering a $9.8 million lower of cost or market adjustment, which resulted in a reported gross margin of approximately 5%. Kelly will provide more details on that later in the call. We generated $101 million of operating cash in the second quarter, our third highest level on record. And free cash flow was $97 million, which is 86% conversion of adjusted EBITDA. Our cash generation strengthened our financial position. We ended the quarter with net leverage below 1 turn and available liquidity of just over $450 million, our highest level ever. During the quarter, as previously announced, we also increased our share purchase authorization to $100 million and entered into a $60 million accelerated share purchase program. With our share purchase actions through the first half, we are on track to repurchase approximately 9% of our outstanding shares this year. Based on the future cash and adjusted EBITDA profile of our business, even in a slowing economic environment, we believe BlueLinx is an incredibly compelling investment. Our share purchases demonstrate confidence in our long-term growth strategy, continued improvement in our execution and a commitment to delivering shareholder value through disciplined capital allocation. Taking a closer look at the US housing industry. Following two years, where demand has outpaced supply and fueled explosive growth, we are starting to see a softening in the market. During the first half of 2022, broad-based inflation, the rapid rise in mortgage rates, and home price appreciation have reduced home affordability for many buyers and slowed new home starts. While these developments did not have an immediate impact on demand in our business, we anticipate they will lead to a slowdown in the US housing industry over the coming quarters. That said, we believe the under-supply of homes, demographic shifts, repair and remodel activity, and high levels of home equity will continue to support demand in the second half of 2022 and beyond. Other factors supporting long-term housing demand include low unemployment and wage growth. Additionally, double-digit increases in rental rates over the past year may influence renters to consider home purchases, even with higher mortgage rates. In the repair and remodel market, we believe that high levels of home equity, housing turnover, and aged housing stocks will continue to support growth. The most recent estimate from the joint center for housing studies supports this view, with remodeling activity expected to maintain a double-digit growth rate over the next four quarters. As a point of reference, we estimate 45% of our annual sales are tied to the repair and remodel market, with 40% tied to residential new home construction and about 15% related to the commercial industry. Given our assessment of the demand outlook, we continue to invest in our business and execute our strategy. Our key strategic priorities include shifting our sales mix over time to a goal of 80% plus specialty product sales. To accomplish this, we are prioritizing growth in five key specialty product categories and partnering with strategic suppliers and national account customers. From an operations perspective, we are driving procurement excellence and focusing on optimizing productivity throughout our distribution centers. We also continue to rigorously manage our working capital. And from a people perspective, we are fusing high caliber capabilities into the organization and driving a performance-based culture. We're confident that this strategy along with our disciplined approach to capital allocation provides us a significant opportunity to create compelling value for shareholders. And our strong balance sheet enables us to continue to invest in growth while maintaining a prudent financial position. We will continue to proactively evaluate investment opportunities that will drive profitable growth and generate attractive returns on invested capital. To summarize, our record first half and strong second quarter performance is a testament to our team's focus, discipline, and quality execution. We delivered historically strong financial results in a volatile environment and made good progress in our long-term strategy. I'm proud of the entire BlueLinx team for their efforts and contributions to the quarter. That concludes my opening remarks. At this time, I'll turn the call over to Kelly for a more detailed discussion of our financial results and capital structure.

Thanks, Dwight and good morning, everyone. As Dwight just mentioned, historically speaking, our financial results for the second quarter of 2022 mark one of our strongest performances on record despite significant headwinds from the wood-based commodity deflation. Net sales were $1.2 billion, down 5% year-over-year in total. Specialty product sales grew 70% over the prior year. This growth was offset by a 29% reduction in structural product sales, which was primarily caused by the steep declines in wood-based commodity prices during the period. Gross profit was $201 million, and gross margin was 16.3% for the quarter, and over 85% of our gross profit was from specialty product sales. Taking a closer look at specialty products for the second quarter. Net sales were $788 million, up 17% or $113 million year-over-year. This growth was primarily driven by our disciplined value-based pricing offset partially by a modest decline in volume as compared to the second quarter of 2021, which was a difficult comparison given the exceptionally strong demand for building products the industry experienced during this period last year. The modest decline in volume was primarily related to specialty treated lumber and panels. And within that, however, was a nice increase in siding volume. On a sequential basis, sales of specialty products increased 3%, including 1% volume growth. Gross profit on specialty product sales was $180 million, up $15 million or 9% year-over-year. Specialty gross margin was 22.9%, a strong margin from a historical perspective but down 150 basis points from 24.4% in Q2 of last year, which was an all-time high. Through July, specialty product gross margin was in the range of 22% to 23%. And sales volumes were consistent with Q2 levels. Now moving on to structural products. Net sales were $452 million, a 29% decrease compared to the prior year period. This decrease was primarily attributable to deflation in lumber and panel pricing with structural product volume down modestly year-over-year. Per random length, the average price in the second quarter of 2022 for framing lumber was $797 per thousand board foot, down 36% year-over-year, and the average price for panels was $874 per thousand square foot, down 44%. Gross profit was $21 million, down $65 million or 75% year-over-year, and gross margin was 4.7%. In June, lumber prices fell to around $600 per thousand board foot and panel prices to about $650 per thousand square foot compared to much higher prices earlier in the quarter. Given this, we recorded a $9.8 million lower of cost or net realizable value reserve to adjust our structural inventory value to reflect the reduction in market pricing as of the end of the quarter. This is the same methodology we used in Q2 of 2021 when we recorded a similar adjustment of $16.7 million. Based on the pace at which we cycle out of structural inventory and the increase in lumber and panel pricing through July, we anticipate the full value of the lower of cost per net realizable value reserve booked in Q2 to reverse in the third quarter, and we have reflected that in our month-to-date July structural margin ranges. However, we will continue to monitor commodity pricing and evaluate whether future adjustments are required. Excluding this reserve, the structural gross margin for Q2 was 6.9%. A solid result given the rapid and steep decline in commodity prices during the quarter. Our team continues to do an exceptional job managing structural inventory through leveraging consignment and utilizing centralized purchasing and pricing decisions to keep structural inventory levels low and mitigate risk. Thus far in the third quarter through the first four weeks of July, daily volumes for structural products were trending up slightly higher than second quarter levels, and structural gross margin was in the range of 18% to 19%. However, this includes about 900 basis points of benefit from the expected reversal of the reserve I just mentioned. We will continue to evaluate market pricing for wood-based commodities and adjust accordingly at the end of each period. SG&A was $91 million, which is flat to the first quarter of 2022. On a year-over-year basis, SG&A increased approximately 5% due mostly to higher delivery costs along with strategic investments in our workforce. These increases in SG&A were partially offset by a lower level of variable incentive compensation, which includes sales commissions and incentives. As a percent of sales, SG&A was 7.4% in Q2 of 2022, a very good outcome given the inflationary environment. Net income was $71 million, and diluted EPS was $7.48 per share. Diluted shares outstanding were $9.5 million, down from $9.8 million in the prior year period. The lower share count reflects the shares we have repurchased in the first half of 2022, which resulted in a $0.33 benefit to diluted EPS in the quarter. Our tax rate for the quarter was 23.1%, in line with our expectations. For Q3, we anticipate our tax rate to be slightly higher in the range of 24% to 28%. Adjusted EBITDA for the second quarter of 2022 was $112 million or 9.1% of net sales. As Dwight mentioned, this is the third highest level of adjusted EBITDA we've delivered in any quarter. Turning now to cash flow and working capital. During the second quarter, we generated operating and free cash flow of $101 million and $97 million respectively. Our cash generation was supported by receivable collections, which benefited from wood-based commodity deflation during the period. We ended Q2 with $578 million of inventory, of which more than 85% related to specialty products. Capital expenditures were $4.4 million in the second quarter and related primarily to upgrades and enhancements at our distribution branches. For the full year, we still anticipate investing up to $30 million in capital expenditures with a significant increase expected in the third quarter. These investments will be focused on continued facility improvements, upgrading our fleet of rolling stock and enhancing our digital and technology capabilities. Looking now at our balance sheet. As of the end of the second quarter, cash on hand was $105 million, total debt was $571 million, and net debt was $466 million. Net leverage was less than 1 times, flat sequentially and down from 1.5 times at the end of the second quarter of 2021. When considering our cash on hand and undrawn revolver capacity of $346 million, available liquidity was $451 million, the highest level of available liquidity we have had at any point in our history. Given this, we are in a strong financial position with ample liquidity to invest in strategic growth. As a reminder of our guiding principles for capital allocation, we intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles, while maintaining a long-term target net leverage of at or around 3 times. As we invest for growth, we will evaluate both organic and acquisition opportunities that yield a risk-adjusted return above our weighted average cost of capital and are consistent with our strategy to increase our mix of specialty products. We will maintain a disciplined approach to all growth investments, comparing those opportunities against the value of returning capital to shareholders. To summarize, we delivered very strong sales, net income, adjusted EBITDA, and operating cash in the second quarter of 2022, which resulted in the first half of 2022 being the best half on record. We are on track to repurchase approximately 9% of our outstanding shares this year. And our balance sheet is in excellent shape with low leverage and all-time high liquidity. We are focused on executing our strategy, maintaining a strong financial position, and delivering long-term value to our shareholders. At this time, I'll turn the call back over to Dwight for closing remarks.

Thanks, Kelly. In closing, we delivered our best first half on record with $2.5 billion in sales and $314 million of adjusted EBITDA, representing 9% sales growth and 15% adjusted EBITDA growth over a very strong first half of 2021. We continue to grow our specialty products while driving continuous improvement throughout the business. Our financial position is as strong as it has ever been, and we are investing in our business to drive efficiency and increase our capacity to deliver profitable growth. We remain laser-focused on the things within our control, accelerating growth in specialty products, optimizing productivity and driving world-class performance. Our aspiration is to be the preeminent building products distributor in North America, and we believe we have the scale, products, and service offerings to continue to expand relationships with our best customers and key suppliers. We're confident that our strategy will create long-term value for all stakeholders, and we are steadfastly committed to that goal. That concludes our prepared remarks. At this time, we're happy to answer any questions.

Our first question is coming from Greg Palm with Craig-Hallum.

I guess a couple of items more strategy-wise, lots changed over the last few months. And I'm just wondering how that's maybe changed your view of the business, whether you're approaching strategic investments any differently, capital allocation. Just curious if there's any areas of the business where you're becoming either more conservative or more aggressive, just given what's going on in the macro?

We really like where we are. We feel very confident in the strategy that we communicated. We're focused on driving mix in the right direction, building scale in the right markets, and we think we're well positioned to lean into that strategy. As always, we're going to continue to look for opportunities to make the business more efficient from a process perspective and from a people perspective, and that doesn't change. But we think there are opportunities, particularly to take share organically and, as always, looking at the right opportunities to accelerate strategies.

Are you able to shift maybe more focused towards let's say the R&R market if it holds up better than new builds, or maybe areas like manufacturing housing or even some of the non-housing areas like commercial? I mean, are you able to shift more focus in some of that if traditional housing continues to slow here?

If you think about our mix, 60% of our business is non-new home construction driven. So the R&R and those other areas you mentioned, and as we think about the products we're excited about, the products we're leaning into, they play well in those spaces. So we think there's a natural connection in terms of us leaning into the markets that have still fairly healthy dynamics around it, and we're going to continue to focus on that.

And then last one, thinking about the specialty segment and the tailwind from pricing that the business has gotten over the last, I don’t know, 18 months or so. How much of that is sticky in a slowing housing environment, how much would need to normalize if overall housing demand starts to come in?

So I'll start us here and Kelly can add some color. Clearly, there's been supportive pricing environment across the business, a little bit more volatile on the structural side but definitely a little bit more stable on the specialty side that we've been able to take advantage of. But let's be clear, the team has also done some intentional things around our pricing capabilities from an analytics perspective, from an execution perspective, which we believe is going to allow us to enjoy better specialty margins than we've had historically. And we are continuing to emphasize that and lean into that from a governance perspective and from a margin floors perspective, all of the things we think are going to allow us to continue to perform well on the specialty side. And we believe there's absolutely more opportunity to continue to do that.

I would echo Dwight's comments and just add to that that we continue to do analysis that supports the numbers that I've mentioned in the past. We think that 19% to 20% specialty margin is a good margin to think of as a normalized margin in a relatively downturn environment, which I think is the macro that we're looking at right now. So I feel really comfortable with all the discussion we've had around that previously, and we wouldn't change our view on that at this time.

Our next question is coming from the line of Kurt Yinger with D.A. Davidson.

Kelly, I just wanted to start off in your prepared comments on specialty. You noted, I think, 1% volume growth. Was that just siding itself or kind of the collective focus growth areas in specialty?

We generally experienced a modest decline overall, but we did notice some positive developments, particularly in siding. This highlights a few areas where we observed growth despite the overall impact.

And over the last couple of quarters, you've talked about some of the material availability challenges and how I guess that's kind of played in to the volumes on the specialty side. Has anything changed there in any categories that gives you confidence you could start seeing, I guess, improved volume trends on the specialty side, notwithstanding the end markets? And what are you focused on in terms of positioning the business to potentially pick up some share into 2023?

So it's a mixed bag, to be honest. We still see some challenges from a supply perspective in a couple categories. EWP remains constrained for some of our industrial products, as well as siding. But we have seen some easing in other areas around millwork and some outdoor living categories and some of the imported products. And so we are really focused on just continuing to run our strategy. So our national accounts, we think there is an opportunity to continue to grow share of wallet with, and we are putting together programs and building sales efforts to drive that. We are also looking at expanding availability of some of these products across our branches and across our network. So we are really excited about that. We see some opportunities to do more of that, particularly as it relates to outdoor living products, siding products, east region and the west region and parts of the south. So it's again, how do we drive great service levels for our best customers so we can earn more of their business, how do we make these products available in more parts of our network and how do we continue to focus on really executing at a high level and delighting our customers while continuing to operate as efficiently as we can.

And you mentioned that commodity volumes were, I guess, through July running ahead of Q2 levels. Does that represent any sort of shift in strategy in structural, given perhaps a lower level of risk with prices where they sit today?

It really doesn't reflect that. We always experience fluctuations in commodity volume, and I think it just shows a slight opening of the markets as prices begin to rise. When prices drop, people tend to hold back, and we've seen some increase in demand over the last few weeks as prices have started to recover. However, nothing has changed in our strategy. We continue to keep inventory as low as possible while still serving our customers and managing risk appropriately. Overall, we expect volumes to remain around where they have been, which is still lower than what we experienced a couple of years ago.

I'll emphasize that we are pretty convicted in our approach. We are looking to really manage structural business as tightly as we can, and really make sure that we have just what we need for our core customers. Our emphasis, our priorities, and what we see investment over time is going to continue to be driving our specialty business and particularly our mix, on those five core categories that we talked about, no change.

No, I understand that. And obviously, the specialty strategy is quite important. But I mean, if we look into 2023 and we do get a much more challenging demand environment. I guess, is there a downside to perhaps leaning more into the structural side where you walked away from business and I guess what would hold you back from doing that?

No. Again, I think we spent a lot of time and energy thinking about how do we maximize the value creation for our business and how do we position ourselves in a way that we can continue to be a key partner for our key suppliers and our key customers. We are really convinced that the play we are running is the right play. It’s how do we make sure that the things we provide provide value around it, how do we make sure we're connected to the parts of their business, both suppliers and customers, that they care about the most, allow them to service their needs the best. We believe that's our specialty business. Continuing to create capability there, investing there, and supporting and wrapping value around that is the right way to run. Structural plays a role, but we want to make sure we're very clear on that role and it's complementary to what we do. It is, again, an area that we want to kind of continue to manage and keep inventory at a really good level, and we think even in a softer market environment that will still hold.

Just my last one on working capital. From where you sit today, do you expect that to be a use or source of cash this year?

We had a strong quarter in terms of cash flow when considering both earnings and working capital. This was largely driven by deflation and our emphasis on managing working capital. We remain committed to this focus and expect that deflation will likely continue throughout the year, leading us to anticipate positive cash flow for the remainder of the year.

Our next question is coming from the line of Reuben Garner with The Benchmark Company.

So on the specialty side, Kelly, appreciate the normalized 19% to 20%. I guess my question is how volume dependent is that? In other words, is that 19% to 20% just kind of normalization in the supply chain and things kind of loosening up and so therefore pricing changes, or is that normalization, meaning going back to the single-family starts we saw kind of pre-COVID? Can you just kind of clarify what that means and what would lead to downside to that level?

It essentially refers to a return to levels seen before COVID. We have been continuously updating our analysis while considering that as supply chains improve, we expect more volume to be available. This adjustment in supply will likely create some pricing pressure. We believe this is where we will settle, given the changes we've made to our strategic pricing. Any downward pressure would likely require a significant shift in the macro environment, one that would be worse than what we currently anticipate. While I cannot predict all potential pressures, I have confidence in our analysis thus far, and we do not currently see any potential risks on the horizon, though it is always possible.

And then question on SG&A and how to think about that kind of in that same normalization with lumber prices coming in, maybe volume normalizing. The last couple of quarters, I think north of $90 million pre-COVID that was kind of mid-70s. What would that dollar amount look like in a kind of normalized environment on a quarterly basis?

Well, if you remember around the time of COVID, we pulled in SG&A very tightly. We did a reduction-in-force; we also pulled in all of our discretionary spending and that brought us down into the 70s. Since then, we've been very targeted around adding certain costs back to invest in our workforce, and then we've also had some of the discretionary spend come back for us to be able to serve our customers like travel and entertainment. Additionally, we've seen some inflationary impacts in fuel and third-party freight, and those types of things are in recent times related to our delivery costs that we mentioned. That is probably the most volume-dependent type of cost. So as we see volumes increase, we would see some SG&A increase probably related to that, and that would be not a terrible thing. But of course, we're being as efficient as we possibly can around those costs. So we monitor it closely. And we were at $91 million, we were in the 80s last year. So I think we're still doing a great job containing our cost, considering our strategies that we want to employ going forward and the fact that we've had such a significant increase in profitability.

And the other element I'd add to that is we're focused on the efficiency for SG&A. As we think about it on a relative basis to our volume, that's one of the things we think about to ensure that we're getting the right return from our SG&A investment, and we feel pretty good about that. Kelly and the broader team are really focused on maintaining that discipline in a good market and in the down market. If you look at our SG&A as a percentage of sales, I think that's an area that we're going to continue to stay focused on.

And then last one from me, if I could sneak one more in, is the M&A pipeline. Any commentary about maybe how that's kind of evolved over the last few months, or is it increasing the likelihood that you guys are going to find a deal in this kind of choppy environment? Or is it making it more difficult and less likely to see something come to fruition?

So we remain very engaged in evaluating opportunities that fit with our strategy, again, allow us to serve our core customers better in certain markets, provide opportunities to continue to mix up on the specialty side and things that would kind of accelerate our sales down our journey. It's an interesting time; you've seen particularly as rates come up that financial sponsors are maybe a little bit more reticent. Given where we are from a balance sheet perspective, we think we're well positioned to move opportunistically if we see some good opportunities. So we remain very engaged, evaluating things again, leveraging the framework that we shared and talked about to create value greater than our risk-adjusted cost of capital, and we're continuing to stay active there and we'll see what happens.

Our next question is coming from Jeff Stevenson with Loop Capital Markets.

So just do you still plan to maintain normalized specialty products inventory levels in the back half of the year given the continued supply constraints you're seeing in a number of categories, or would you expect at some point to run lower segment inventories due to an uncertain residential outlook moving forward?

We want to turn our inventory as quickly as we can. We look at the velocity of that as a key element of how we are performing. So we are going to continue to work with our teams, our sales teams, our product teams, and our purchasing teams to ensure we have the right balance between supply and demand, and that's an area of focus for us. We have done a really good job with that on the structural side, and we are starting to lean into that as well on the specialty side. So we look to continue to drive inventory velocity, not only in the second half this year but as we move through 2023.

And then my second question is just on kind of your visibility into new residential volumes at the moment. I know you cited, you expect things to slow down at some point. But right now there is still elevated new housing backlogs given the dislocation between starts and completions over the past year. I just wonder how much of a backlog you have right now and how long that could kind of last into the end of the year or early next?

So I think you captured a lot of key elements. A lot of the builders, if you listen to their earnings and conversations I've had, still have a fair amount of backlog they are working through in 2022, and obviously, some of our products support that. We are continuing to make sure we are in a position to do that, and everyone is expecting to see some pullback in starts in 2023. Again, that's 40% of our exposure. We continue to manage that fairly tightly and we’ll be prepared for that. But we also see there’s an opportunity quite honestly, as some supply comes on to really drive some targeted selling and focus on some accounts that we have access to that we think we can do more of and potentially some new ones as well. So we feel okay as it relates to the second half of 2022, as it stands today. But we are going to stay flexible and focused to ensure we can adjust in either direction.

And then, Dwight, you talked about once supply normalizes in specialty that you'll be able to out pursue share gains moving forward. You talked about EWP and fiber cement becoming less constrained. Would you expect to start seeing share gains here in the back half of the year based on your strategic initiatives, or how should we think about that moving forward?

That's our intent. That's what the teams are focused on, and that's what their compensation aligns to, and that's what we talk about all the time. Obviously, we got to do that in an environment that's fairly uncertain and volatile. Our focus is on understanding where the opportunities are for share gain, making sure our value proposition is strong, and leaning into that commercially and operationally. Our expectation is overtime that gains in these categories will be the result. Will that happen in the next 90 days or next 180 days? TBD, but that's where we are steadily focused.

Thank you. It appears we have no additional questions at this time. So I'd like to pass the floor back to management for any closing comments.

All right. Thanks, everyone. We appreciate your interest and the questions from our analysts. We will be around the rest of the day and throughout the balance of the week; if there are any other follow-ups, please feel free to reach out to us. Thanks for joining us. We'll talk to you next time.

Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.