Good morning, and welcome to Builders FirstSource Fourth Quarter and Full Year Conference Call. [Operator Instructions]. Today's call is being recorded and will be available at www.bldr.com. It is now my pleasure to introduce Mr. Binit Sanghvi, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Kerry. Good morning, and welcome to the Builders FirstSource Fourth Quarter and Full Year 2019 Earnings Conference Call. With me on the call today are Chad Crow, Chief Executive Officer; and Peter Jackson, Chief Financial Officer. A copy of the slide presentation referenced on this call is available on the Investor Relations section of the Builders FirstSource website at bldr.com. Before we begin, let me note that during the course of this conference call, we may make statements concerning the company's future prospects, financial results, business strategies and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from expectations. Please refer to our most recent Form 10-K filed with the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The company undertakes no obligation to publicly update or revise any forward-looking statements. The company will discuss adjusted results on this call. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release and detailed explanations of non-GAAP financial measures in our Form 8-K filed yesterday, both of which are available on our website. I will now turn the call over to Chad Crow.

Thank you, Binit. Good morning, and thank you for joining us. In January, we announced my planned retirement. This was a very tough personal decision after 20 years of serving Builders FirstSource alongside such an extremely talented team. On the heels of record 2019 results, I fully expect this team to continue delivering exceptional performance for many years to come, and I'm confident that the combination of our talented employees and value-creation initiatives will elevate the company to even greater heights. I also want you to know that I am assisting the Board in the search for my replacement. And while the Board is making great progress, there is nothing significant to report as of yet. But we will keep you updated as appropriate. Moving to full year highlights. We delivered another strong financial performance and further built on our record of success. Our 16,000 team members once again executed on our strategy and delivered value to our customers while also generating value for our shareholders. Our gross margin percentage improved 230 basis points, allowing us to achieve record annual EBITDA of $516 million, up 3% year-over-year. Our unrivaled platform showed its strength throughout the year, as value-added sales volume grew by an impressive 9%. We continue to make strategic investments in our growth capacity and align our services with customers to streamline their construction processes. Our exceptional team accomplished these results while implementing working capital initiatives that helped generate a record $391 million of free cash flow for the full year. We were especially pleased to have funded our acquisitions while reducing our net leverage by more than 0.5 turn to 2.5x as of year-end. We completed 5 tuck-in acquisitions in key growth markets, including Las Vegas, Phoenix, Florida and the Carolinas, which have added approximately $240 million in…

Thank you, Chad. Good morning, everyone. I'm proud of our team's work in delivering another quarter of strong results and focusing on the controllable aspects of our business, stellar fourth quarter performance built on our year's -- full year's work to produce above-market growth and expand margins and generate outstanding cash flow, all in line or ahead of our expectations. We had a $1.8 billion in net sales in the fourth quarter, down 2.9% due to anticipated commodity deflation with decreased sales -- which decreased sales by 10.6%. The commodity headwind offset estimated sales volume growth of 7.7%. Our value-added product categories again led the way with a 9% increase over the fourth quarter of 2019, reflecting the execution of our strategic plan and the emphasis of our business on those key products. Gross margins of $476.6 million decreased by $16.2 million or down 3.3% due to the impact of lower year-over-year commodity prices on net sales. Our gross margin percentage remained strong at 27% as a direct result of an improved product mix, driven by our team's continued focus on delivering higher-margin, value-added solutions to our customers. Year-over-year pricing and commodity cost dynamics impacting the fourth quarter were consistent with what we have discussed on our prior calls. Commodity cost deflation causes short-term gross margin percentage expansion when prices drop rapidly relative to our short-term pricing commitments that we provide customers. We experienced this benefit during the fourth quarter of 2018. In the second half of 2019, this benefit did not recur. Commodity prices remained essentially stable relative to our fixed-price contracts in the fourth quarter of 2019, producing a gross margin percentage closer to our long-term normalized levels. Our SG&A as a percentage of sales increased by 60 basis points on a year-over-year basis, driven largely by the…

[Operator Instructions]. And our first question will be from Matthew Bouley with Barclays.

This is actually Christina Chiu on for Matt this morning. My first question is on kind of the outlook for value-added product sales growth in the first quarter. I know you've mentioned 6% to 10% net sales per day growth. But how much of this is going to be from the value-added segment?

Yes. So we don't generally break that out on the guide. But we do expect to see continued outperformance. It's an area that we've committed to. We certainly see it growing faster than market. And it's an area where we will continue to benefit from both the market growth as well as the additional capacity that we've added.

Okay, makes sense. And then just on the future pipeline for kind of more tuck-in acquisitions in 2020, I know you'd mentioned a framework. Can you provide any more details in terms of how those acquisitions are expected to track throughout the year and then geographically, if there are any markets that you're targeting specifically?

Yes. So I won't get too specific, to be honest. I mean I want to be able to keep a little bit of surprise factor for the future and for obvious competitive reasons. But we certainly have talked a lot about where tuck-ins are going to be an advantage for us in the growth of our value add, particularly in markets where maybe we either haven't played at all or haven't played as much in the past. Around the country, we're in 77 of the top 100 MSAs, but clearly some MSAs where we don't play. There are certainly markets where we are, but we believe that we could be a better competitor, a better provider for our homebuilding customers. And frequently, tuck-in acquisitions are a good way to execute growth in those markets, particularly when you're balancing the desire to grow with the available capacity in the market. We're not interested in coming in and adding a bunch of unneeded capacity. We don't think that's healthy for us or the market. So like we've talked about in the past, we certainly like markets where there are a lot of starts. We've engaged in Florida, Phoenix, Las Vegas. I think those are healthy markets, but we're certainly not limited to those. Unfortunately, the timing is pretty tricky. We -- they sort of come as the opportunity presents itself. And the desire to be thorough in our due diligence and thoughtful in our valuation sort of spreads those out to a degree. But we certainly have a significant pipeline. We're very pleased with the opportunities that are being presented at this point. And we're continuing to hunt those down.

Your next question will be from Mike Dahl with RBC Capital Markets.

My first question is on SG&A. So based on the 1Q guide, it still looks like you may not be leveraging SG&A year-on-year. And just wanted to get a sense of how we should think about the moving pieces. It seems like there's a lot going on between the new acquisitions layering in, maybe the commodity-based gross margin incentive being a little lower this year, some of your underlying initiatives kind of blended all up. How should we think about SG&A leverage for the year in those pieces?

Yes. No, fair question. I think that probably the most important thing to point out is that, that fourth quarter number, I know it -- from a percentage basis, shows a deleveraging. But if you look at it on a year-over-year expenditure basis, we did quite well. It's a flat number and going into Q1, certainly another healthy performance. It will move, of course, year-over-year. We'll see increases in terms of wages and inflation that you would expect to see. But our performance is far more steady and attributable to volume from a pure spending perspective. What we're still working through, and what I think as everyone is seeing, is the lapping of the deflationary tailwind that we experienced in the fourth quarter of '18 and then in the first quarter off '19. I'd say that's the biggest part of the story. Core business, running great, excited about the growth. I think we're in a position to continue our outperformance. But that outperformance, that exceptional margin from the benefit of that deflation in Q1 of '19 will be lapped. There's no way around it. It was good news then, certainly pleased we got it, but it's gone. The good news, I would say, is that it will be pretty much the last of it. In our estimation, that will be in the rearview mirror after Q1. So going Q2 forward, we're looking at more normalized performance.

Okay. And I assume that last comment related to gross margin. But I guess just back to the SG&A for a second. So should we still think about this then with everything normalizing out that you're still roughly 70% variable, 30% fixed?

Yes. That's a fair estimate.

Yes. That's a good look-forward.

All right. My other question, you mentioned taking Raney to the next level. And so just wanted to get a little more color on that about how much is expanding Raney within Florida versus rolling out some of that vertical integration framework to some of your other existing markets and businesses there and a sense of kind of what we should expect from a timing perspective there.

I would say we're still kind of in the learning phase on the Raney acquisition. As you know, we already had a pretty healthy footprint in the Orlando area. And so right now, we're still kind of in the integration phase and talking with customers that we both served and making sure that all that's going to work out smoothly. But the longer-term plan, as you mentioned, is certainly to continue to evaluate, whether it's expanding the Raney model or through other tuck-in acquisitions, adding to the -- to our value-add product and services offering, which will likely include some sort of vertical integration, like we saw with Raney. I would say the next step with Raney would be to expand it just to a broader geographical area within Florida. He doesn't reach up towards Jacksonville a whole lot, for example. And clearly, we have a nice footprint there. And so I think there's going to be opportunities to expand that model into Jacksonville in the near term. But it's not something that's going to happen overnight, and we want to make sure we're thoughtful about it.

Okay. And Chad, enjoy the retirement.

Yes, thanks.

Our next question will be from Trey Morrish with Evercore.

I guess the first place I want to start is back into your 1Q organic volume guide. It seems like it's a number like around 2.5% or so at the midpoint of your range, which seems a bit low considering all the housing tailwinds we're seeing from a macro front, from build-to-order front. So I'm just wondering, is there something going on in 1Q that makes that number seemed a little or bit low? Or just how to, in general, think about all the high demand we're seeing elsewhere and you putting out a number that seems a little bit light.

Yes. I guess I'm a little bit off. I mean our guide of mid-single digits is, I think, the right underlying number. There is some offsetting impact there. We do account for the shrinking size of the home, a couple of points on deflation for commodities -- or sorry, inflation for commodities. So I think there's many puts and takes there. What I'll tell you though is at this stage, we are absolutely excited about what the market is indicating. We're confident that we're going to be able to take our fair share and then some in terms of our performance versus the market. So I guess my takeaway on that is whatever the market brings, we're going to be -- we'll be participating in it fully and then some. Our, I would say, rollout of guidance for Q1 is certainly focused on kind of the preliminary numbers that we saw coming into the year, which I think is fairly modest, it's one of the smaller obviously quarters of the year. So we're going to start with a reasonable point and then we'll grow from there as the market shows itself.

And then clearly, it was a pretty easy comp year-over-year on the housing starts number, Q4 '19 versus '18, and a bit of a head scratcher. To me, there seems to be a little bit of noise in those numbers. And as Peter indicated, as these starts, assuming they are real rollover into units under construction, I fully expect we're going to get our fair share of that. There's no reason we wouldn't. But I think this time of year, especially as the slower time as far as the pace of construction, given the typical weather delays. So I would expect that, as Peter said, that's a great indicator of things to come. And we'll get our fair share when those do become units in construction.

Okay. Well, I'll try and follow up more on that on a later call. On the gross margin front, clearly a big -- another big benefit this quarter from lumber. And you ended up 40 bps above the high end of your previous guide. So I'm just wondering, what kind of drove that improved delta in 4Q? And is the entire step-down from 4Q to 1Q entirely due to lumber -- the lumber deflation falling away?

Yes. So I want to be careful about sort of breaking this into two pieces. On a year-over-year basis, the EBITDA dollars and the margin change is certainly because of that deflation tailwind we had last year and not seeing this year. In terms of the level of margins where we are today, I think that, that has a lot more to do with the mix that we've seen and sort of the pricing disciplines that we've experienced. But I think we've been pretty open about our expectation that there's a certain amount of normalization that's still happening in the marketplace as it comes to -- when it comes to certain categories of product and prices. And we do see it returning to a more normalized level. That's why we keep talking about this sort of 26% to 26.5% being a more normalized level, assuming commodities don't move in a material way. Now we've seen some indications that there could be some pretty interesting moves in terms of commodities going up, saw that over the past few weeks. Just to reiterate, we like higher prices in commodities. We think that's a benefit to us. We will pass those along as appropriate. So while there might be a near-term pinch on some of our gross margin percentages, we certainly are pleased with the general trajectory in what commodities have been doing lately. Assuming they sort of keep on a reasonable pace, we think we'll do well with it.

Our next question will be from Trey Grooms from Stephens Inc.

And first off, Chad, I want to congratulate you on your retirement as well.

Appreciate it, Trey. I'm not out here yet, you may not be done with me just yet.

Okay. Well, so first off, I want to touch first on that comment, Peter, that you just made. So you've been saying over the last several quarters, you've seen some pricing disciplines. And I guess the question I have is you just mentioned something about things kind of returning to more normal, not sure if you were kind of pointing to those -- the market maybe not being as disciplined on some of these things as it had been before. I guess is the -- has that pricing discipline continued? Or has it kind of gotten to reverting back to a little bit more competitive market out there?

I would say it's uneven, depending on where you are in the country. But there have been certain markets that have gotten more aggressive again and more competitive again. I would say it's -- the question has never been what is the market likely to do, it's when is the market likely to do it. And so in our mind, in the fourth quarter, it hung on a little longer than we thought. So we felt good about it, and I think our guidance in the first quarter indicates what we've seen. As we've moved into the 2020 bids, people have tried to make sure they got their fair share. I know it's not a shock to anybody on this call that when you take as much share as we did in 2019, people fight back. And we're in the trenches every day bidding it out. And it's a competitive market out there. And I'm proud of our team. I think we're doing a great job. And I also think that our guide for Q1 in terms of margins is a fair one.

Not lose sight of the fact that 26% to 26.5% is well above our long-term average margin. And as you know, Trey, that has a lot to do with our investment and value-add products and services. So I think we guided pretty well along the way. But this is where we were going to bottom out. And I think it took a little longer than we thought to bottom out, which was nice, but still a very healthy spot to be right now.

Absolutely. And I guess that kind of leads to the next question. And I don't know if you may have kind of answered this earlier. But the new kind of normal of 26% to 26.5%, as you mentioned, still well above what we've seen historically as a normal. But the 1Q guide kind of puts you towards the lower end of that range of 26% to 26.5%, not by much. But just as we look through the rest of the year with the guidance that you've given, the EBITDA guidance you've given us, should we see opportunity to see that kind of creep up a little bit towards maybe the mid- or higher end of that range? Or is the kind of lower end of the range the place we should be thinking about for the full year?

Yes. So I think it's fair to say that, as we get into the busier months, our leverage and our capacity utilization increases, which is a good result for us on that gross profit margin line. So I think it's fair to say there is some seasonality to that number with the winter months being the lowest capacity and the lowest margins as a result. And I think the other question is just working through the commodities, we'll have to wait and see what that does.

Right, absolutely. Okay. And then last one for me. I know there's been some -- outside of lumber, there's been increases announced with other products that you guys sell. I know gypsum is not a big piece for you guys. But wallboard had an announcement out there. The door industry and players there, looks like they're pushing for increases as well. Can you give us an idea of kind of what you're seeing out there for kind of other products outside of lumber and what your kind of expectation is for inflation there and how you expect to kind of push that through or how that's going to work out?

Well, certainly on the high end of the spectrum would be the price increases on doors. I do think all or substantially all of that is going to stick. You mentioned wallboard, who knows, that's always a bit of a wildcard, and as you said, not a big part of our business. In between there, it's really just been kind of normal price increases that we've come to expect and our customers have come to expect. And you get a bit of an advanced notice when those are coming and you communicate them and pass them on to your customers, and they're typically a nonevent.

Our next question will be from John Baugh with Stifel.

And my congrats as well, Chad, well deserved.

Thank you, sir.

I think you mentioned, Chad, I don't know whether there's more attractive acquisition opportunity. I know you, as a company, are in a better position with your balance sheet. I was curious, are you seeing something from the potential targets that's making you more excited? Or is it more just your internal capacity?

Well, certainly we're in a better place now than we have been in recent years just from a balance sheet flexibility standpoint. So that's encouraging. We've always been an acquirer. And so I'd lie if I'd say we weren't getting a little antsy over the years to -- we've seen a lot of stuff in the pipeline that we really just couldn't even take the time to evaluate because we were busy finalizing the ProBuild integration and getting our balance sheet back in order. So that part is exciting. Just as far as the pipeline though, there's a lot of companies out there, but I will say most of them are very small. You're talking $50 million in revenue and less, typically. But nonetheless, there's some good value-add opportunities out there. And so we've always got a handful of them we're looking at. Some are going to work out, some won't. But I think just in general, we're really pleased with the deleveraging we've accomplished in the past few years. And it's fun just to be able to look at the pipeline again and take some of these serious.

Yes, for sure. I guess what I was trying to get at a little bit is, are you seeing, in some cases, targets you're approaching recently or maybe approached them a long time ago, where they're may be a little more willing to acquiesce because of what you've been able to do with the ones you buy? Or do they view you as an increasing threat if they don't partner up with you? Is there any kind of examples of that?

Well, there's a handful of those. A decent chunk of the ones we did in '19, we had been kind of cultivating those relationships for a while. And clearly, we had to wait until our balance sheet was in order. And those worked out. And so we have a few of those. But no, beyond that, I wouldn't say the landscape has changed all that much.

The one thing we've noticed is that it appears that there was some pretty frothy valuations out there for a period of time. And I think people were quite excited about what they might potentially get for their business, even small tuck-ins. And that seems to have settled down a little bit. I think there seems to be a little bit more rationality in terms of valuation. So that part is exciting for me, at least.

And you mentioned some noise in the latest housing numbers. And of course, we're in a seasonally low period and we're going up against some year-over-year easy compares, as you mentioned. I wonder if you could -- I'm a little worried that some investors just look at these percentages -- and of course, some of the units are smaller, as you've talked about. I just wondered if you could put into a real context of what -- you mentioned single -- I think, mid-single-digit increase for single family. So I guess we're going to see completions up pretty nice year-over-year in the first half of the year, then I guess the back half is a little bit unknown. But wonder if you could put any little more color around the housing data and the macro backdrop for '20.

For me, it's a bit of a head scratcher because at the end of '18, we saw some year-over-year decreases. And to be honest, we really didn't feel it in our business. Our volumes held up and we just kind of powered right through it. And now you're coming off that and you've got an easy comp this year and, as we said earlier, business feels good. I don't -- right now, I don't see a 15% surge in volume coming because of the starts numbers we saw in Q4. So this -- to me, it just feels like there is a little noise in there. And of course, you've always got the lag you have to deal with. We don't sell to a start. We sell to a unit under construction. And so there's just different ebbs and flows throughout the year. We try not to get too hung up on it. I mean to me, the bigger picture is we beat considerably for the full year '19. And I think looking over a broader period tells a better story. When you try to isolate it down to a couple of months or a quarter, you'll just drive yourself crazy.

Our next question will be from Keith Hughes with SunTrust Robinson Humphrey.

I've got a couple of questions. First, a clarification, there was some discussion of gross margin beyond the first quarter, which you've given us discrete guidance on. What rough range are we looking for in this guidance for 2020, I think, are 26% to 26.5%?

Yes. I mean I would say for the broad guidance for us is, yes, that's the best range at this point.

Somewhere in that range would be the number for the year?

Yes.

Okay. And if we look specifically in the first quarter, with -- we've seen frame and lumber move up here in the last really couple of months, although at a fairly orderly pace. Is there any kind of pass-through lag that you've assumed in the first quarter guidance?

Yes. Well, I mean I'd say always, the nature of the business is we don't -- the prices don't move the day that the random blank quote changes. So I think what we said in the past is it takes about a quarter or 2 for those prices to work through, depending on the market. Some markets, it's within 30 days. Other markets, it might take to the end of the second quarter out, depending on the price locks. So it will take time to work through. Like you said, it's been fairly orderly, which we like. But any time you have a run-up in commodities, we'll perform like we have, right? We'll continue to increase prices. We'll get that gross margin dollars. And during that intervening exposure period, we'll have a little bit of pinch on a gross margin percentage line.

Okay. And then switching a little bit longer term on the guidance or the numbers you talked about on Slide 10, we've seen those for a while now. If you look at 2020, you've done some acquisitions. Do you -- I assume you expect value-added to grow faster than the rest of the business as was the case in '19. Do you think that's going to accelerate in '20 to an even faster number? Or will it be more orderly in '20 and beyond?

Is the question, will the rate of acceleration or the rate at which value-added is outperforming?

Yes. It's really like a tipping point, where you hit where you can all of a sudden grow that even faster as you -- particularly given all the capacity you're adding and things of that nature, is that just a little too much to expect?

My gut would say it's going to grow as fast or slightly faster. It should grow a little faster, given the investments we're making in both our internal capacity and the acquisitions that we've made. So that's where I'd put my bet as faster or slightly faster. I don't see it shrinking at this point.

Our next question will be from Seldon Clarke with Deutsche Bank.

So you guys saw some pretty impressive market share wins in 2019. I understand some of that government data may have been unreliable from earlier in the year. But how are you thinking about market share wins relative to starts on a go-forward basis? And if starts wind up exceeding your mid-single-digit outlook, how comfortable are you from a capacity and labor standpoint that you could efficiently scale alongside this type of growth?

Yes, I think we feel really good about it. Looking at the capacity numbers internally, aligning that with the investments we're making and the CapEx investments in the year as well as the new facilities and the acquisitions, I think we're lined up very well to take advantage of the market growth. I think our teams have been doing a good job competitively. I think there's every reason to believe that the product offering, the product portfolio, combined with the quality of our team, means that we're going to keep gaining share. I'm not going to go out of limb and give you a point prediction on it. But we feel good about it. I think there's every reason to believe we're going to be able to grow with the market in 2020. And so like I said, we've got a mid-single-digits number there in starts and happy to have the market prove us wrong. I think we've been pretty well served at taking a rational and reasonable forecasting approach on starts. It's been a slow grind to get back. So we think we can do quite well in that market and even better if it accelerates more quickly.

Okay. That's helpful. And then you talked a lot about just the shrinking footprint of homes and how that impacts. I guess could you talk about how that impacts your volume growth across the various product groups? So I would imagine the relationship for things like doors and windows isn't as linear as something like lumber. So could you just give a little bit of color on the relationship there?

Sure. Yes. I mean the way we've talked about it in the past is really around the sort of the obvious variables. I think you hit the nail on the head. If the Census department says we're down 1% in the average square footage of the home, you'll have a mix of impacts, depending on what it is that you're selling. Generally speaking, there is a fairly linear number and when it comes to linear board feet of lumber. However, there is -- there are oftentimes offsets in terms of the amount of value add used, the amount of prefabricated or offsite components used. There are some step function changes. I mean I think you hit the nail on the head again. It's that windows and doors, depending on -- it's more dependent on rooms rather than necessarily the square footage. So it's a little inconsistent in that regard. And in many cases, a movement to a starter home, they make a few things, a few components in the home simpler or indicate that the economics are changing. So you may have a bit less millwork, obviously some of the finishings may be a bit less high end. But generally, for us, we feel pretty good about it. I mean we want more starts. We are firm believers that, that's the leg of this recovery that is still lagged. We certainly don't see the expansion or the increase in single family starter homes as being somehow detrimental to the rest of the market. We think it's certainly an addition, so feeling good about it overall.

Yes. That's just a natural progression to get back to the historical building averages, in my opinion. You're going to have smaller homes in order to get back over that 1 million single family start number.

Our next question will come from Steven Ramsey with Thompson Research Group.

I wanted to think about the long-term plan, just about how much of the plan depends on overall sales growth? How much of it depends on stronger value-added growth? And does it contemplate acquisitions?

So yes, there you go, question answered. The reality is as we look at the business, it's become so integrated in terms of the impact of value add and the opportunity is sort of represented by the acquisitions. And any time you do these acquisitions, clearly there's a focus on the value add. But almost inevitably, you end up with a stand-alone business. So you may have some lumber in there. You may have some ancillary parts of the product portfolio that you've added when you've done this addition. And you think about the growth of the overall market and the relative expansion of value add, just in general, faster than starts, it becomes really, really difficult to carve it out and to give you discrete categories. And so the logic of putting those together is not to be somehow opaque or to hide from you. I just don't think I'd serve you well by trying to give you those buckets independently. I think that what we've done here by calling out 2022 is that we've given you some confidence that this $750 million number is real. We have a line of sight to it. And candidly, there are a couple of different pathways we can take to get there. And we feel good about whichever way we get to that, that's a number that we feel good about putting out there for you to anchor us on.

Great. And then thinking about a goal to penetrate deeper into existing markets and expand the product portfolio, maybe thinking about the product portfolio, does that mean you would contemplate making acquisitions of distributors that focus on more specific product categories outside of your more broad product category focus? Maybe just go into a little deeper color on that initiative.

I would say we're -- that's not an assumption we have baked into our long-range model. Could it happen? Sure. But that's not kind of the underpinnings of our longer-range model. It's more, hey, where there are markets where we may have already have a presence, but we don't offer our full offering of products and services, it's enhancing that. It's picking up additional truss capacity or additional millwork capacity. So again, not to say it couldn't happen, but that's not part of that growth strategy that we've outlined.

Our next question will be from Ryan Gilbert with BTIG.

First question, just a point of clarification on the first quarter '20 guidance. I understand that the 6% to 10% sales growth is a sales per day number, so excluding the impact of the extra sales day that you're getting. Is that $90 million to $100 million of adjusted EBITDA inclusive of the extra sales per day? Or is that also excluding the extra day you're getting?

Yes. That is all-in.

That's all-in. Okay, great. And then I hear what you're saying about the housing starts grow through in the fourth quarter. But we did see new home sales accelerate in the fourth quarter and public builder orders were good as well. And I think in particular, December, January, the strength of demand for housing caught a lot of people by surprise. And maybe the production capacity hadn't ramped up to meet that demand yet. Are you -- as you look at the quarter, so January, February, we're 2/3 of the way done with the quarter here, are you seeing builder production ramp in the field? Or is that something you think it's still to come in the months ahead?

Well, I mean this time of year, you're always starting to see the ramp in the markets where you can. The problem is you're not building houses where there's snow on the ground. And the reality is while there's been healthy performance, and I would say all the markets have been very positive, I think the mood is good, it's just too soon to say.

Okay. I understand. And then last one for me. We saw a large public homebuilder vertically integrate into offsite manufacturing earlier this year. Can you talk about just what that means for your business in Florida? And are other builders considering vertical integration versus buying offsite components directly from you?

I'll answer that a couple of ways. One, I think it validates our thesis that investing in offsite manufacturing is something that should pay off and something our customers are looking for. We've seen this before. As a matter of fact, gosh, 21 years ago or so, the first acquisition BFS ever made was a spinoff of a similar situation with Pulte Homes back in 1998 or so. The challenge you see there, when it's one homebuilder getting into, say, truss manufacturing, for example, at some point, it's hard to sustain that long term because at some point, if that plan is dependent on only one builder's production needs, at some point, the market gets saturated or built out and all of a sudden, you're delivering these trusses a really long way and it makes it become less economical. So we'll see how it plays out. It doesn't surprise me. And again, it's -- I think that's where the industry is heading, to more vertical integration, offsite manufacturing. And if it doesn't work out for them, then maybe we buy that business in a couple of years from them. I guess we'll see.

Our next question will be from Reuben Garner with The Benchmark Company.

And congrats, Chad. Good luck in retirement if we don't hear from you again.

Appreciate it.

So most of my questions have been answered, just a quick clarification for me and then a question. So clarification on Q1, going back to that question about your volume embedded in that guidance is -- the way I'm reading it is more of a -- it looks like 2% at the midpoint for inflation and then it would be 6% volume growth embedded in the first quarter. Is that -- am I seeing that correctly? Or did I miss another piece?

No. I think you've got the gist of it. Yes.

Okay. And so your outlook for the full year, I know you didn't guide specifically, but it looks like somewhere in the low to mid-single digits is kind of what you're expecting from a volume standpoint just given your end markets, maybe a little bit better than that with your outperformance. But is the way to think about that seasonally that you guys may do a little better than that in the first half if your comparisons are a little easier, but as we move into the back half, barring some sort of acceleration in the end markets that it might slow a little bit just because you're up against such difficult comps, you guys had a great second half of this year?

That's a good question. I think that the performance throughout all of 2019 was pretty solid. I think that once we lap past the last of the deflation, things are going to stabilize obviously depending -- assuming commodities doesn't do anything kooky. But the overall performance and the results of the starts coming through this year, I think there's reason to believe we see pretty stable performance as we get through the back half of the year as well. I don't think we anticipate a significant tail-off because our -- I think our performance in '19 was pretty solid throughout the year as well.

Okay, great. And then I'll sneak one more in. That Slide 9, where you guys break down the 2019 EBITDA kind of contributors, I know you're combining 2 of them. But can you give us any color on what's kind of embedded in your full year guidance from an OpEx perspective -- operational excellence or savings perspective versus what you're including from just core growth and value-added business growth...

For '20?

Yes, for '20.

Yes. We're in that 14% to 16% band again. That's what, I think, is the right number for '20, had a great year in '19.

Thank you. At this time, Mr. Crow, I'll turn it back to you for closing remarks.

Thank you. Really appreciate everyone joining our call today, and we look forward to updating you on our first quarter results. And if you have any follow-up questions, please don't hesitate to reach out to Binit or Peter. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.