Welcome to UFP Industries Third Quarter 2022 Conference Call. Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks and then answer your questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at ufpi.com. A replay will also be available at that website. Before I turn the call over to Matt Missad, let me remind you that today's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in the filings with the Securities and Exchange Commission.

Thank you, Dick, and good afternoon, everyone. Our top story this week, the Dodgers ousted the Buffalos who won their first game and Tennessee upset Alabama. Huge surprises that some gamblers might love. Meanwhile, it's never a gamble to expect the UFP team to work together to commit to excellence and to serve our customers to achieve a new record for sales and profits in the third quarter. With trailing 12-month sales of $9.7 billion, we are just short of our long-term target of $10 billion in sales. Since we plan to stay on offense, we will need to formulate new goals for 2023 and beyond. I'm extremely proud of the UFP teammates who love difficult challenges and historically exceed the target. In fact, we've built this company to challenge conventional wisdom and to prove doubters wrong. Over our history, we have found ways to perform in spite of obstacles in our path. We have simple goals at UFP. We don't have mission statements, just people on a mission, which is to provide a strong return on investment to all of our shareholders. The fact that thousands of our teammates are also shareholders keeps us all aligned in that goal. Our diverse end markets and balanced business model provide protection from market fluctuations and also reduce the impact of slowdowns in a single market. Over the last several years, we have steadily created more value with new products and services and more efficient operations. Our objective continues to be to expand innovation and move further up the value chain as we evolve from a product seller to a solutions provider. We focus on helping ease a customer challenge by providing a solution, which is a better value both for the customer and for us. Achieving this goal not only makes our performance better, it makes us more resilient in difficult markets. Our long-term target is to consistently exceed an adjusted EBITDA margin of 10%. And our third quarter performance once again demonstrates that this target is not just attainable, but repeatable. By working together with our customers to provide win-win scenarios, we also plan to improve areas where our returns are lagging. Now let's look at third quarter results as well as some examples of our progress towards our goal. Net sales for Q3 were $2.3 billion with units up a modest 5%. Net earnings were $167 million for the quarter and diluted EPS was $2.66, up 38% over the third quarter of 2021. Mike will fill you in on the rest of the financial information in a moment, but I would like to review the segments, starting with Retail Solutions. As expected, UFP Retail Solutions performed much better in Q3 than a year ago. The ProWood and Sunbelt teams reflected this trend despite having challenging cost increases that were not recouped in the third quarter. We cannot afford to work for practice, especially in this labor and cost environment, so the Retail team has been working diligently to pass along these increases in order to achieve a fair return. We expect to see cost increases come through in Q4 and recognize that we may lose some unprofitable business in the process. The ProWood FR fire retardant sales have seen a 27% unit increase from our internal capacity additions and in 2023, we will have a fully integrated fire retardant treating system using our own PFS proprietary chemicals. As chemical transportation and labor costs continue to rise, it will be important for us to stay ahead of the pricing curve. It is helpful to note that the customer market for treated lumber is surprisingly inelastic as demand during the pandemic showed that consumers are willing to pay higher prices than previously thought. Deckorators continues to increase capacity as the newly installed equipment is up and running, both for wood plastic and mineral-based composites. Because we primarily self-distribute, we haven't incurred the volume decreases from channel destocking that some of the larger companies in this space have endured. Our Cedar Poly acquisition earlier this year is helping our wood plastic component composite operations achieve a 90%-plus recycled product content on our newly installed equipment. We look forward to further improvements and more scalability of this operation. Moving to Construction. Construction had an incredible quarter with the site-built business unit performing exceptionally well. Our Western facilities have seen a slowdown from the recent overcapacity situation. With higher interest rates, some single-family customers are beginning to cancel orders as buyers get priced out of the mortgage market. However, our balance in our markets between single and multifamily, which continues to perform well, as well as growth in our alternative materials such as steel and aluminum, will continue to bring strong results in line with more typical housing markets. Unfortunately, as I fear, the Fed appears to be impatient with its approach to rate changes, not allowing them to work through the system before adding additional hikes. Using leading indicators instead of lagging ones may help affect a softer landing, and we will watch these moves carefully and adjust as needed to meet customer needs. We still expect at least single-digit percentage declines in housing starts over the next two years. With our business model and our geographic locations, which tend to be in areas where long-term growth is expected, this level of activity will still result in very good performance in our cycle of business. Factory built remains strong and the affordability that factory-built homes provide makes it an attractive option with rising interest rates and inflation. The affordability of factory-built will be a sought-after attribute in the Hurricane Ian rebuilding efforts. We expect a significant lift from these sales in Florida and Georgia over the next 18 to 24 months. Concrete forming services demand is solid, and we expect seasonal slowdowns in those areas of the country that can build year round. Value-added sales increased to 48% during the quarter. We have not yet seen any significant activity from infrastructure spending within the concrete forming group, although we're optimistic that will be forthcoming. The efforts to improve financial and operational performance in the commercial construction area are being well executed, and they operated at functional capacity in Q3. They expect to see a typical seasonal slowdown in Q4 but remain optimistic for continued improvements in 2023. Moving on to UFP Industrial. With the exception of the slowing in the Southwest, machine-built pallet demand is strong. Raw material is becoming more available, while labor and freight costs remain challenging. PalletOne continues to perform well as expected and is executing its strategy to improve sourcing and manufacturing while expanding geographically within the UFP footprint. The recent combination with Forest Products provides additional opportunity to create efficiencies in the supply chain. On the structural packaging side, our national sales team continues to gain business with national accounts. Some customers' businesses have slowed somewhat, while others remain strong and we are gaining customers as well as efficiencies in manufacturing. The supply chain overall is improving, which helps us produce lead times. Our outlook remains positive given our very diverse end markets in the industrial space, which provides consistency and stability. In the UFP Packaging, we have seen a slight weakening of demand in certain end markets as they generally mirror our overall customer mix in Industrial. We still see very strong growth opportunities in this business unit. On the International front, the Packaging Solutions business operations in Australia and India continued their solid performance. Mexico has performed well, and the housing-related products will likely follow the housing market as it changes in the U.S. Europe is being impacted by the war in Ukraine, as energy prices and raw material supply from the Eastern block countries present headwinds, although their results are not material to our overall company performance. In purchasing and transportation, we're seeing a less volatile, more normalized lumber and panel market in the near term, and watching mills manage supply to demand levels to protect their margins. Our internal transportation costs have increased due to fuel, labor, and regulatory cost increases. While fuel prices briefly retreated in Q3, they are back at or near record highs, so we expect costs to continue to rise with inflation. Enabling more oil and gas production domestically would certainly help with both energy costs and inflation. These cost increases are crippling the budgets of our hourly teammates, with inflation offsetting pay increases and bonuses. Unfortunately, these are all avoidable with more reasonable policy. Overall, inventories are high as late shipments continue to arrive while customer orders in some areas have fallen short of expectations. We will work this excess down while also looking for opportunities to stock up for 2023. Rail has been and will likely continue to be a concern through the third quarter and possibly the fourth. Labor and equipment shortages are still a challenge for our carriers. To enhance our own transportation capabilities, we are strengthening our UFP transportation company to add more capabilities internally and more efficiency for our transportation needs. We are very excited about improving the profitability of this business unit moving forward. New products for the quarter were $178 million and are now $564 million year-to-date. We are seeing new products come through our innovation accelerator, and we are exploring intellectual property, technology, and process improvement acquisitions and ventures through our newly announced innovation fund, which, again, is designed to acquire new products at an earlier stage of development and enable faster commercialization and scale. We're committing to disrupting our own businesses before others do by developing our own unique intellectual property, ensuring us a more profitable place in the value chain. On the labor front, labor supply in many areas has recently begun to loosen. As the demand for labor contracts, we will be better able to utilize our existing and available talent and reduce our dependence on temporary services. We are pleased to announce our third quarter profit-sharing payments at a record of $21.2 million, which will be paid to our hourly teammates in November. This represents a 54.7% increase over 2021. This profit-sharing bonus is in addition to the hourly bonus, which will be paid in March of 2023 as we share successes with all of our teammates. We will face current and future hurdles in the economy head-on by staying on offense and keeping our focus on protecting and enhancing long-term shareholder value. Marrying together the effective allocation of capital with an experienced and dedicated management team is the cornerstone of our company. We prioritize capital on growth, creating long-term value and providing a solid return to our shareholders. Our growth capital is directed to strategic acquisitions, new products and services, and expansionary and efficiency-focused capital expenditures. We have plenty of acquisition targets in the pipeline, but we'll keep our disciplined approach and adjust our model consistent with our view of the future. We have a great supply of dry powder to take advantage of opportunistic situations as they occur in our targeted runways. In addition to new products and services in all business units, we see opportunities with our industrial growth as we pursue our goal of becoming the global packaging solutions provider. We will continue to scale our recent acquisitions across our network. Our return on capital to shareholders takes three forms: share repurchases, cash dividends, and increase in share value. In addition to share repurchases, we believe that consistent and growing dividends add value to our shareholders, and we are pleased to report that our Board just authorized a dividend of $0.25 per share payable on December 15 to shareholders of record on December 1. This payment is 67% higher than the $0.15 per share paid in December of 2021. While the demand for capital is high, we will remain thoughtful in our approach and stay true to our return on investment focus. Now I'd like to turn it over to Mike Cole to share more information.

Thanks, Matt, and good afternoon, everyone. Our consolidated results this quarter are highlighted by a 5% unit growth, including 3% organic, with all three of our segments reporting unit growth; a 46% increase in adjusted EBITDA and related margin expansion of 280 basis points to 11.8% due to gross margin improvement; $535 million of operating cash flow, up $253 million over last year, resulting in a strong balance sheet with nearly $1.5 billion in liquidity and no net debt; and a healthy trailing 12-month return on invested capital of 35%. Now I'll walk through the financial statements for the quarter in more detail, starting with our sales by segment. Sales to the retail segment increased 21%, consisting of a 15% increase in selling prices and a 6% increase in unit sales. Acquisitions contributed 3% to unit growth. Taking into account the transfer of certain product sales from our retail to our Construction segment, our organic unit growth this quarter was 5%. As expected, our unit sales comparisons this quarter were more favorable as our ProWood, Sunbelt Edge, and Deckorators categories each experienced strong year-over-year organic unit growth. These increases were offset somewhat by decreases in handprint and outdoor essentials as customers reduced orders to address higher inventory levels. Sales to the Industrial segment increased 2%, primarily driven by acquisitions, which contributed 3% to unit growth and pricing, which was up 1%. Organic unit growth dropped by 2%. Consistent with prior quarters, our organic growth was impacted by capacity constraints and we continue to be selective in the business we take in order to focus on higher-margin, value-added products. This strategy continues to benefit our gross profits and margins, which I'll review shortly. The bridge of our change in organic unit sales includes gains from $12 million in sales to new customers, $22 million of sales to new locations of existing customers, and $12 million of new product sales. These gains were offset by declines in sales on other accounts as a result of the factors I just mentioned. Our sales for the Construction segment increased 8%, primarily due to a 6% organic unit growth and the transfer of certain product sales from retail. Organic unit growth was driven by a 36% increase in each of our concrete forming and commercial units and a 9% increase in factory-built housing. As you'd expect with higher mortgage rates, consumer demand for cycle housing began to soften and our unit sales to those customers decreased by 7%. Moving down the income statement, our third quarter gross profits increased by $123 million or 37%, outpacing our 5% increase in unit sales as our profit per unit improved. New products and enhancing our mix of value-added product sales to total sales continue to be key strategies to improve margins across all of our segments. An increase in new product sales contributed $10 million to gross profits, and gross profits on value-added product sales increased by $63 million for the quarter. By segment, Retail's gross profit increased by $67 million or 615% year-over-year. As expected, ProWood and Sunbelt units were well positioned for improvements in gross profits in Q3 given their inventory positions at the beginning of the quarter and more favorable trends in lumber prices than we experienced last year. We also experienced gross profit increases in Deckorators and Edge. Construction's gross profit increased by $46 million or 3%, led by a $39 million increase in and a $6 million increase in our commercial business unit. Value-added product sales increased to 81% of total sales this year from 74% last year in the Construction segment. Industrial's gross profit increased by $17 million or 14%, primarily due to our value-based selling initiative and more favorable changes in product mix, including new products. Value-added products increased to 74% of total Industrial sales this year from 69% last year. Continuing to move down the income statement, our SG&A expenses increased by $45 million, including nearly $5 million from recently acquired businesses. The remaining increase consisted of a $20 million increase in accrued bonus expenses and other incentives tied to profitability, a $7 million increase in bad debt expense, a $4 million increase in wages and benefits, a $3 million increase in amortization expense, and a $2 million increase in travel-related expenses. Sequentially, our SG&A decreased slightly from $215 million in Q2 to $214 million in Q3. Finally, our operating profits increased by nearly $69 million, driven by a $55 million increase in retail, a $26 million increase in construction, and a $7 million increase in Industrial. The decline in the corporate segment is primarily due to a $9 million gain on the sale of real estate we realized in Q3 last year. Moving on to our cash flow statement, our net cash flows from operating activities for the year-to-date was $535 million and consisted of net earnings and noncash expenses totaling $687 million compared to $474 million last year and a $152 million increase in net working capital since the end of last year compared to a $193 million increase in the prior year. We measure our cash cycle to assess our working capital management, and a decrease to 55 days this year is consistent with our historical experience and two days lower than last year, primarily due to a decrease in our days supply of inventory. Our investing activities for the year included capital expenditures totaling $115 million, including expansionary and efficiency CapEx of $52 million. Extended lead times on most equipment and rolling stock may cause us to fall short of our plan of $175 million to $225 million of CapEx for 2022 as delivery of some of these items is pushed to 2023. We invested $101 million on previously announced acquisitions. Finally, our financing activities for the year included $43 million of dividends and $93 million of share repurchases. With respect to our capital structure and resources, at the end of September, we had $135 million net cash compared to $182 million in net debt last year, and our total liquidity was nearly $1.5 billion, consisting of surplus cash of $456 million and availability of $536 million under our revolving credit facility and $500 million under a shelf agreement with certain lenders. Now I'll finish up with comments about our capital allocation plans. The strength of our cash flow generation and conservative capital structure provides us with plenty of capital to grow our business and also return to shareholders. We continue to pursue a balanced and return-driven approach across dividends, share buybacks, capital investments and M&A. Specifically, our Board just approved another quarterly dividend of $0.25 a share, representing a year-over-year increase of 67%, reflecting confidence in our future business outlook. We continue to consider our payout ratios and yields in determining the appropriate rate and are pleased once again to raise our year-over-year dividend. So far for the year, we've repurchased 1.2 million shares of our stock at an average price of $77. We have remaining authorization to repurchase up to an additional 1.4 million shares through the balance of the year and will continue to do so at times when the price hits our preestablished target. Moving on to growth investments, CapEx is likely to be at or below the low end of our targeted range of $175 million due to the extended lead times I mentioned earlier. Priority continues to be getting to projects that enhance the working environments of our plants, take advantage of automation opportunities and drive strategies that have strong long-term growth potential of new and value-added products. Lastly, we continue to pursue a healthy pipeline of acquisition opportunities of companies that are a strong strategic fit and enhance our capabilities while providing higher margin return and growth potential. That's all I have in the financials, Matt.

Thank you, Mike. Now I'd like to open it up for any questions you may have.

First question, on the retail side, Matt, can you talk a little bit about how the demand trended through the third quarter? Are there any product categories where demand was kind of more resilient versus product categories where you saw activity start to ease?

Yes, Ketan, I don't know that I have the granular detail on that. I know that it was a little bit slower at the start of the third quarter, but it kind of moved back to what I'd call a typical seasonal demand. So it would be more typical of years prior to the pandemic, and that's what we've seen overall. There hasn't been a specific product category. I know we have some discussions about fencing at the end of Q2. But I don't see that there's a particular product category of any significant scope for us that's drastically different from what the overall general trend has been.

Okay, that's helpful. Now, regarding inventory, particularly with a retail focus, many building product categories are experiencing inventory destocking. Can you comment on this? You mentioned Deckorators in your prepared remarks, but in general, are your channel partners becoming more cautious in their inventory management? What discussions are you having with them as they consider 2023?

Sure. Yes. I think part of it is trying to figure out the conservative piece. I think, Ketan, you're referring to is certainly on the independent side, they don't want to stock a bunch of different inventory items and composite decking tends to be one of those categories where you have multiple lengths and sizes and colors. So it's very difficult for them to stock a whole lot of that. I think that's one of the things you're seeing in the destocking and some of the other competitors' areas because we self-distribute and we're able to move product around a little easier than most. That's less of an issue for us. Overall, the customers that we have on the big-box side are still very optimistic for 2023. They are not looking at any increases over 2022, but they're looking at pretty solid performance. So from our standpoint, it's no real change in how they're doing it, although they tend to make different buying decisions at different points in time in the year. So it tends to be a timing issue as opposed to an overall annual issue.

Could you provide some clarity on the Retail segment? In the release, you mentioned expectations for more normalized demand. In the third quarter, revenue was approximately $850 million. While I understand that you're referring to unit volumes when discussing demand, could you walk us through whether units were mostly normalized in the third quarter? Do we just need to consider pricing for Q4 and beyond? Additionally, I have a question regarding the margin.

Yes. So the units, I think you're looking at it exactly right, Reuben. I would basically say the units for third quarter are what I would say are fairly typical of what we'd expect, and you have to make your pricing assumptions and apply those to the units.

Okay. And then the second one is kind of tied into the pricing. So last year, a big margin hit in retail in the third quarter. The pricing, at least directionally, has been pretty similar this year in that you started the year at a high level and it fell through the year, but your gross margin performance was much different. Is there more margin pain to come from the price declines? Or were you guys just able to handle it differently? The speed of the decline was different. Can you just talk about the retail margins, Mike?

Yes. Just big picture, let me just chime in on that, I want to give the appropriate credit to our purchasing teams and our operations teams for how they bought material differently in 2023 versus or, excuse me, 2022 versus 2021. So they deserve an awful lot of the credit for how they time that those buys that helped on the purchasing side. And then on the operations side, how they manage the inventory helped ease some of the pain that could have equally been suffered again in 2022. But because of the way they handled it, they did a really nice job. And Mike can kind of tie into the margin piece of that.

Yes. You described the markets really well, Reuben. They were very similar, but the timing is a little bit different. So last year, prices ran longer and were up for most of it. Then they dropped in June pretty severely, and they continued to drop through July and now into September. We ended up taking our lumps. We took most of those lumps in Q3 last year in retail. This area was different. Prices started falling much earlier, and we took most of our lumps in Q2. We enjoyed a pretty good Q1. But when prices fall in Q2, that's when we took our lumps, and the market has been more stable, I guess I'd say, in Q3 this year, and that's why the improvement. So similar markets directionally, but the timing is a little different. Moving into Q4, yes, prices now seem to be pretty normalized. Last year, we had a little bit of a run-up in prices in Q4, so that could be a difference. After this year, we'll see.

Okay. Perfect. And I want to sneak one more bigger picture question if I could. So you guys have talked a lot. The company has a history of operating profitably in a lot of different economic environments. I don't hear you guys talking or see any signs of any kind of cost-cutting in any of the businesses right now in this kind of what seems to be a somewhat concerning macro backdrop. Can you just talk about what you guys are seeing or how you're thinking about it there? Is the company just positioned differently today than it's been in the past and you don't necessarily need to? Is it too early? Or I guess, just walk through your thought processes?

Sure. The company is definitely different from how we were during the Great Recession. I believe we are much more resilient now, thanks to our model. Additionally, our management and leadership teams regularly take actions to ensure we are appropriately staffed for our needs and orders. This is an ongoing process for us. We don't want to experience another major downturn. Hopefully, that won’t happen, but our leadership and management teams at all locations have the authority to respond quickly to market conditions. Therefore, it’s not something we need to focus on extensively; they will adjust as necessary, which illustrates the advantage of the variable cost structure we have in place.

Great. Congrats on another strong quarter, guys, and good luck going into the end of the year.

Congratulations. On the industrial piece, you all mentioned kind of PMI and GDP as drivers. Things seem to be hanging in here right now, but obviously look to be slowing into next year if you read some of the forecasts out there. Curious, you guys have made a lot of expansion into new products. You've expanded the portfolio. Do you think that this business will really track like PMI and GDP? Do you think you'll be able to outgrow it? Just curious how you're thinking about all the moving parts there.

That's a great question, Stanley. I think our plan would be to outgrow it because we want to be able to continue to take share. So I think if you just want to look for markers in terms of what the overall market going to look like, that's why we put those data points in there for you to consider. But yes, I think the way that we're going about it and the outstanding job that the industrial team has been doing by selling solutions and creating mixed material products for the customer base and adding those new products you mentioned, that should allow us to grow faster than the general overall market, and that's our plan.

Yes. I think we don't have any amounts necessarily to provide at this point. But I'd say the appetite for capital investment is still high. We still have strategies we're looking to drive in the machine-built pallet side and the structural wood packaging side, effective packaging materials as well as other strategies in the Construction and Retail segments. So I think the appetite is going to be high, and the challenge will be to continue to work through those supply chains.

Great. I just wanted to start out on the Site Built business, and I was hoping you could talk about where backlogs stand today relative to maybe three to six months ago. And Matt, I think in the prepared remarks, you talked about a little bit of weakness in the West. Is that cancellation dynamic something that's pretty isolated at this stage? Or do you think that's going to spread to some of the other regions over the next few quarters?

That's a great question, Kurt. I don't have a definitive answer for you. From what our customers are saying, some are committed to continue building, while others are taking a different approach. The challenging aspect to measure is that, although there are contracts included in the backlogs, rising interest rates can definitely reduce participation. Additional interest rate hikes and increases in mortgage rates will likely lead to more cancellations. I want to clarify that we don't have specific insights on that. We've experienced markets that were extremely overheated, and by slowing down, they're returning to what I would consider more normalized levels. If we estimate about 1.3 million to 1.35 million starts for next year, our balance in both single and multifamily allows us to address both markets. We still believe in the need for housing; it’s just uncertain how significantly rate hikes will affect that.

Right. Okay. That makes sense. And Mike, I think you mentioned that site-built gross profit was up almost $40 million this quarter despite units being down 7%. I mean, given the softening that we're seeing, are you starting to see that weigh on pricing power and by extension, the margins you expect to roll through that business? Or I guess, any thoughts around that dynamic over the next couple of quarters?

Yes. I think that's our expectation. At some point, that does have an impact on pricing depending on the magnitude of the slowdown. When you think about the increase in gross profits there, it is two components, right? So it's one is just pricing generally, but it's also one of the market trends. The cycle area is enjoyed more of a fixed price product. As lumber prices fall when you have your prices fixed and you get to the next reset point, they have enjoyed that benefit for a couple of quarters now. So there is that as well.

Got it. And so presumably, in Q4, we see a more stable lumber market at least that component of I guess the pricing and margin story probably will come out.

Yes. That's exactly my point.

Okay. Cool. And then just switching to Industrial, I mean, you've been talking about it for several quarters now, but there's been a lot of noise around lumber and pricing. Could you maybe just give us a few examples of the value-based selling initiatives you've referenced? And how much opportunity do you feel like is still there ahead of you versus just improving mix and moving up the value chain?

Yes, I'll be happy to share some examples without giving any customer names. What we've seen is a multifactor approach. As you look at certain customers that we may have been selling over in one part of the company, being able to have one of our industrial engineers and specialists go in with our sales team and solve a problem for one location of that customer. We've been able to expand that to all the national locations at that customer. PalletOne, that acquisition has been working very, very well with our team, and they have been able to share different customers and provide additional solutions that neither one of us was able to provide before. On the mixed materials side, it's just the whole design and engineering. We've talked a little bit about our Strip Pak product, coming up with better solutions that are less expensive for the customer, but they're more value-add for us. We've seen several examples of that throughout. To answer the second part of your question, which is where are we on the pathway or journey, we're still in the early innings on that. We have a lot of conversion to do, and I think we have tremendous opportunity to grow. The solution piece changes every time there's a product change from the customer. This will be a constant area we think of advantage for us.

Got it. Okay. That's helpful. I appreciate it. And then just sneaking one more in. You talked about some of the profit-sharing agreements and you changed the bonus payout last quarter. Mike, as we think about SG&A sequentially into Q4 and into 2023, are there any big variables we should be aware of or I guess, kind of one-off seasonal elements that we should be factoring into the model?

No, I think it's more of the usual factors. Generally, Q4 tends to be a bit lighter sequentially compared to Q2 and Q3. Additionally, a significant portion of our incentives is linked to profitability. As we've mentioned before, sales incentives account for approximately 5% of gross profit. Since gross profits typically decline from Q3 to Q4 due to the slower season, that needs to be considered, along with bonus expenses. Bonus expenses are roughly 17.5% of pre-bonus operating profit, so Q4 would naturally be lower than Q3 as is usual, and that should be taken into account as well. Those are the standard considerations we would highlight. I can't think of anything that would be a one-time adjustment or change.

Got it. Okay. Well, I appreciate it and I'll turn it over.

Hey. Good afternoon. I've a broader question. You guys have really shown off the balanced business model over the last 1.5 years, but it feels like we're getting off the commodity price for roller coaster, so to speak. Do you think this third quarter is more reflective of true profitability across all three segments, or at least the closest we're going to get to normalized that we kind of use as a baseline for how to think about go-forwards?

Yes. I would say, Julio, that industrial is roughly where I expected it to be. They can improve as they focus more on high-value products instead of just ticks and panels. Retail has room for improvement and should be performing better. Construction is likely to be a bit weaker. Considering all of this, I think the third quarter provides a clearer view of the lumber market factors and follows a general trend. I believe Retail will improve, while Construction will be somewhat lower.

Matt, thank you for the shoutout on my balls. It was a very satisfying win. So other people around the country really like it, too.

Glad you like it.

So not to beat a dead horse, but just to repeat what you said, you think 4Q construction is going to be a little bit softer. Retail is going to be a little bit better, I guess following on that question, geographically, you guys are pretty well positioned in the single-family residential because you deemphasized the West years ago. When you think about the existing customers you're selling now, are you seeing them try to take floor plan sizes down or try to get with smaller builds? Has there been any shrink in terms of square footages that we need to think about when we're modeling out for construction?

I think, Jay, that's going to be a natural evolution as they try to target affordability. We're definitely seeing that on the factory-built side. We've seen that for a while there. On the site-built side, what I would point to is multifamily versus single-family. As you tackle affordability, you can't afford a house, you're probably likely to rent. Probably be easier to rent apartments. I still think the multifamily market, it's been strong and it surprised me, quite frankly, because I predicted a few years ago that it would slow down as it's historically done but that's been strong, and I think it's due to the affordability factor. We expect that to remain strong. Because we serve both single and multifamily, it works out well for us. I just want to point out that the answer I was giving to Julio was more of a general longer-term answer, not just limited to Q4. I don't want to mislead anybody that certainly the retail piece is going to be more in line with what Q4 has historically done in terms of sales. The profile from a margin standpoint will be better in retail, and it will be worse in construction somewhat.

Okay. Multifamily was my next question. Completions, according to the census, have been mid-single digits most of the year, but there was a nice positive increase in September. Is this an advantage as you see more completions? I would assume you are at the beginning of the build cycle with multifamily. As more ongoing projects get finished and that cash becomes available, could this potentially act as a tailwind for you on the multifamily side?

Yes, I think that's a good observation, Jay. It actually should be. I think you correctly pointed out, most of the products that we sell are more early stage in the framing piece, and we do some now on the exterior solutions with some of our new acquisitions. Most of the holdups have been things like appliances and other things. It should actually be helpful for us as there's more completions and more money flowing into the market. I think the counter to that might be higher interest rates, what's the impact they have in the future. But for right now, we see it as being very strong.

Good. And then on manufactured housing, I thought it was very interesting in your comment about there being a potentially 18- to 24-month tailwind there. I guess maybe have we seen a new FEMA order? Are you all hearing potential around a FEMA order for the manufacturers? Just any additional depth you could give around that comment would be appreciated.

Yes. And I think, again, from my perspective, what's going to happen if I follow previous trends of previous hurricanes, there's a belief that things happen immediately and within the first three to six months or something that it's going to be a big boon somewhere. My point was really more about it takes a little longer to get in to get financing. Even if there's orders, they have to be built and shipped and all that stuff. That's why I'm giving more of a longer-term feel as opposed to an immediate hit because I don't think we're going to see an immediate bump. It takes three to six months just to kind of get the cleanup, and I've been down there and seen some of the destruction. It will take a while before they're able to even be ready for stuff.

Okay. All right. And then last one, I'll turn it over. The improving labor availability, do you have the opportunity in this market to maybe start nudging that average hourly wage down a little bit? Or is it still pretty competitive from a wage standpoint?

Yes. I don't see wages going down almost regardless of what happens in the marketplace. I think I tried to allude to that with my inflation comment. When you have energy costs and inflation basically chewing up more than all the wage increases, it puts the employees in a very, very difficult position. We want to ensure that we're protecting our hourly employees, which is why we want to provide bonuses and try to increase wages as we can because they deserve it. What I would point out, however, is that as opportunities come up and there is more labor, we've tried for a long time to let our people work 40 hours and not have to work 50 or 60 hours. There's an overtime component to that, that likely would be reduced. Thank you. While my recent visits to our operations in Tennessee, Colorado and Southern California had nothing to do with their team's gridiron performances, my visit to South Florida was sobering. We at UFP are sending our thoughts and prayers to those who suffered in the path of Hurricane Ian in Florida, Georgia, and the Carolinas, and the UFP Foundation is exploring ways it can help provide relief. We're committed to helping with the rebuilding process. The scale of destruction spurs us to work harder with our customers to develop creative solutions for affordable housing, whether on a temporary or permanent basis. These solutions will not be limited to areas affected by the hurricane because they are needed in all areas of the country. We appreciate your investment in us as we continually build a stronger UFP excellence. Thank you, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.