Good morning, and thank you for joining Builders FirstSource Fourth Quarter and Full Year 2020 Earnings Conference Call. Michael Neese, Senior Vice President of Investor Relations for Builders FirstSource will now provide the company's opening remarks.

Thank you, Keith. Good morning, and welcome to our fourth quarter and full year 2020 earnings call. I hope you and your families continue to remain safe and well. With me on the call are Chad Crow, CEO; Dave Flitman, President; and Peter Jackson, our CFO. Today, we will provide an overview of our record fourth quarter results and full year performance, discuss merger and integration highlights as Builders FirstSource and BMC come together as one culture and company and how we are positioning the company for continued success in 2021 and beyond. Since we closed the BMC merger on January 1, 2021, the results reported today reflect standalone BFS' record results for both the fourth quarter and full year. On the last page of the earnings release, we have provided select pro forma financial information to show the record results for the combined company as though they operated as one entity in 2020. A slide deck and this morning's press release are all available on our website at investors.bldr.com. The results discussed during the call will include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation for the most directly comparable GAAP measures. A reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable and a discussion of why we believe they are useful to investors can be found at the back of the press release and in the slide presentation. Our remarks in the press release, presentation and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the forward-looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ materially from forward-looking statements and projections. With that, I'll now turn the call over to Chad.

Thanks, Mike. Good morning, everyone, and thanks for joining us. I wanted to start by saying our thoughts remain with all those affected by the COVID-19 pandemic. We remain diligent in keeping our associates, suppliers, customers and community safe. Safety will continue to guide our operating strategy. Our thoughts are also with our fellow Texans. It has been a challenging time over the past 2 weeks, and we wish everyone a fast recovery. BFS and BMC together had an incredible and transformational year in 2020. We cannot have done it without all our dedicated team members. They are a true testament of excellence to driving growth while still meeting the needs of our customers in an unprecedented environment. I want to congratulate and thank them for everything they accomplished last year. We closed our merger on January 1 and have formed the nation's premier supplier of building materials and services with tremendous opportunity for continued growth. The transaction allows us to expand our footprint and enhance our local relationships in many of the nation's largest and fastest-growing markets. We are well positioned for long-term growth underpinned by a resilient and expanding housing environment as well as a significant capital base for M&A. We expect to deliver above-market growth through our shared commitment to growing our value-add offerings which allow us to closely partner and integrate with customers to streamline the construction process. In addition, this larger platform strengthens our ability to create and invest in best-in-class innovative solutions that deliver significant benefits to our customers. Our increased scale, combined with substantial synergies will help drive EPS accretion and robust cash generation, providing even greater resources to invest in innovation, technology and operational excellence. We expect this housing environment to fuel profitable growth and value creation for all stakeholders for the…

Thank you, Chad, and good morning, everyone. This is truly a very exciting time for our combined company. And I want to start by thanking Chad for his dedication, guidance and support during this transition. It's been a real pleasure working with you, Chad. Although you'll be around for a few more weeks, I wish you all the best as you enter retirement and embark on your next journey. I will, however, keep your number handy. As Chad said, we continue to keep those affected by the COVID-19 pandemic in our thoughts. The safety of our team members, suppliers and customers is our number 1 priority, and we remain vigilant in this regard. As a combined company, we started the year with strong momentum, closing out 2020 with record fourth quarter and full year results at both BFS and BMC. I want to personally thank all of our team members for their hard work and relentless determination during this unprecedented year, which led to those outstanding results. I'll cover 3 important topics on today's call that we believe will ensure that our already very strong performance continues well into the future. First, I'll provide an update on why we remain bullish on the macro backdrop in our industry and our even stronger position in the industry following the completion of our merger. Second, I'll share our new mission, vision and values, which are critical ingredients to our strong culture and I'll unveil the updated strategy of our combined company. Finally, I'll bring you up to speed on our integration efforts as well as the value capture opportunities we are seeing across the combined organization. The homebuilding market remains strong, resilient and growing. And an improved economic outlook for 2021 bodes well for our customers. We are bullish on the pent-up…

Thank you, Dave. Good morning, everyone. I would like to start by thanking our team for the incredible results and focused execution during this unprecedented time. I will cover 3 topics with you today. First, I'll review BFS' stand-alone fourth quarter results, then I'll discuss free cash flow, provide you with an update on our upsized revolving credit facility and discuss our pro forma leverage. And finally, I'll give you the roadmap for how we see the market and our outlook for 2021. Standalone Builders FirstSource had $2.5 billion in net sales in the fourth quarter, a 43.5% increase compared to a year ago. Core organic sales increased by 15%, while commodity price inflation added 26.5% to net sales. Our latest acquisitions completed during the year contributed to a net sales growth of 2%. Value-added core organic sales grew by an estimated 10.8%, led by 16.9% growth in our manufactured products category and 5.3% growth in our windows, doors and millwork category. We continued to experience accelerated and stronger-than-expected demand across the country throughout the fourth quarter. As a reminder, the fourth quarter is typically a slower part of the homebuilding season. Our gross profit of $669.2 million was an increase of 40% year-over-year. Gross margin of 26.4%, while slightly better than expected, decreased 60 basis points compared to the prior year period, primarily due to an inflation driven shift in product mix towards our lower-margin commodity products. SG&A as a percentage of net sales decreased 480 basis points to 18% amidst cost leverage on commodity price inflation, higher core organic sales and continued strong expense control, which more than offset higher variable costs related to the increase in net sales. Adjusted EBITDA grew $147.8 million to a quarterly record of $257.1 million, an increase of 135%. The increase was…

[Operator Instructions]. We'll take our first question from Mike Dahl with RBC Capital Markets.

First question is really around -- I am thinking through capital allocation, just given -- it sounds like the integration so far progressing smoothly albeit early days between the combined balance sheet, already having relatively low leverage and then the cash flow guide you're providing, from the slides in here your commentary make it seem like, yes, there's obviously still a long runway for growth via M&A. And in some ways, maybe even more programmatic than it has been in the past. So I guess I'm just thinking about how we should view kind of cadence of tuck-in M&A while you're integrating these 2 companies and then also, given the excess cash flow, how you think about returning capital to shareholders?

Great question, Mike. This is Dave. We're excited about the balance sheet, as you point out. And as you heard Peter say, we have a lot of opportunities to invest capital inside the company to support our growth. I love a lot of things about the culture of the 2 companies. The millwork business that we have combined, the trust and offsite component manufacturing. Both companies were investing heavily in those. We will continue to do that, including automation of our facilities. You'd heard me talk at BMC about that over time. Chad and Peter had also talked about that. So a very good alignment around that. And as you think about just from a legacy BMC standpoint, the 150 locations, which are now 550, I get excited about that. I get excited about things like READY-FRAME penetration. And the opportunity to take that across the country and 3 times the number of facilities that we have. So a lot of exciting internal investment opportunities. To your point around M&A, we've got one of the strongest balance sheet here inside the industry. And that wasn't by accident, as you know, from both legacy companies' perspective. And you heard me say in my comments, as excited as I am about our platform and our growth potential, we still have a relatively small share. And this, this industry remains highly fragmented. As Peter said, we've got a strong M&A pipeline. And we're 57 days into the integration. So we've got a lot of work ahead of us here. But you will see us continue to be an aggregator in this industry over time because there's a lot of opportunities to do so, and we're well positioned for that.

Okay. And the second question or kind of a two parter on the lumber environment. First, I guess I'm curious, your margin performance, the margin guide, it's very strong and clearly a number of things playing into that. But I'm wondering, just given the tightness in the lumber supply chain as well as the backlog that these builders are trying to work through. Has the relationship between commodity inflation and margin changed in a way that even in a more inflationary environment, you're able to achieve higher margins than you'd normally expect just given the bottlenecks and kind of the urgency from the customers to get product on the job sites. The second part is just a clarification when you talked about normalization. I think there's a lot of different views on what normal may or may not be, given what's transpired. So any sense of just when you say normal, is that true long-term trend line price? Or how do you think about what that normalization looks like in the second half?

Yes. Another great question, Mike. I'll put it to Peter here in a minute, but let me just say, as you've watched both legacy companies execute in what was a high inflationary environment and in '18 and then that deflation in '19 and just unprecedented inflation and supply constraints in 2020. We're -- we've got a lot of expertise around that. And I have the utmost confidence that whatever the market brings our way in terms of the inflation and deflation that we're going to do a great job of managing through that. And I think because of those challenges in the market over the past couple of years, I think we've sharpened our toolkit, and we've got even better at doing that, which is what you see represented in the way we've executed on a margin basis here over the last couple of years. Peter?

And exactly right, the work that we've been talking about over the past few years on pricing management and training within the organization. I think it was true in BMC, just like it was for BFS. It really has come into play as you've seen such dramatic increases in the price of commodities, right? Our ability to react has gotten better. Our disciplines around the management of that has gotten better. And I think you've seen that in the gross margin results. I would also say that there's some truth to the idea that a move that dramatic has forced everyone in the industry to take stock of pricing more aggressively, right? I mean you're -- this isn't something you could ever hope to protect your customer from when you're up 100-plus percent in some products. So certainly a respect for the need to change pricing quickly and we participated in that. And I think we did, as you mentioned, far better than usual as a combination of those 2 factors. As for the long-term estimate, you're right on. We did revert to a long-term average. There's certainly a lot of debate about whether or not there's going to be a new normal. I think that's fair. There are some legitimate questions out there. But at the end of the day, the game of prognosticating commodity prices is not one we really like to participate in. We've proven an ability to make money on the way up. We've proven an ability to make money on the way down. And for us, we think, a modest forecast on normalization in the back half of the year is just a smart and prudent way to communicate the business. And we're just excited about the core, but we think we've got a great platform here and the growth we have for the year looks really fantastic.

So we'll take our next question from Matthew Bouley with Barclays.

I'd like to offer my congratulations to everyone. And to Chad as well in retirement. So I guess, first question, the -- I guess, on the guide, the core organic outlook. It seems like based on all the pieces you've given, you're implying kind of mid- single-digit organic growth within the 9% to 14% total. Peter, you mentioned completions and units under construction, really ramping. I think you said 17%. And you even gave a little bit of view into '22, just in terms of confidence of having some builder backlogs driving that. So I'm just trying to reconcile that versus the mid-single-digits. And is the expectation, I guess, cadence wise that the growth should be sort of flat or even down into the second half of the year?

Great question, Matt. And I'll just say to Peter's comments earlier during the prepared remarks, there's been an increasing challenge here to go from start to completion based on what's been going on in the supply chain. As you look at lumber, we just talked about lumber, OSB is as tight as it's ever been, even getting windows and doors, and we've all talked about a lot of those challenges in the past. And the result of that has been just extension of the time from start to completion of the home. Now having said that, we're projecting starts in the mid upper single-digits. We are going to capture absolutely as much of the core organic growth that can possibly be had here. We're well positioned for it. Our customers have large backlogs, which underscores the confidence that Peter outlined in terms of our performance throughout 2021 and even into 2022, given the reality of where we are in the market. And many of these product categories not improving from a capacity standpoint anytime soon. So we've got a lot of confidence in our performance. As you've seen, you heard Peter talk about double-digit core organic growth here to start 2021. And we're going to outperform the market regardless of what's going on.

And like you said, the comps do get more challenging in the back half of the year, but I just want to reiterate, our assumptions around both commodities and single family starts are but our attempt to give you a modest and reasonable, a thoughtful look at what we think the market can do, given the dynamics at play. If the market does better than that, we're going to do better than that. No hesitation in saying that. We're just trying to give you what we think is a thoughtful view. We're certainly very bullish on the overall strength of demand. This is not a demand commentary. We think consumers are strong. Trends are solid. We like what we're seeing, and that's sort of the hint you saw for 2022. The inability to deliver on the products that demand is asking for. Is really just an extension of the build cycle, and we think that bodes very well for us and for the industry.

Perfect. No. And I appreciate the assumption there around normalization and commodity and even the market as well as potentially leaving some room for upside if things stay elevated. So that is helpful. I guess the second question is on value-added and manufactured products, in particular, you talked about the really strong organic results there. It did accelerate after the past couple of quarters. And then Dave, you even just mentioned the expansion of READY-FRAME across the BLDR footprint. So I guess the question is just kind of linking those together. What's -- what are you seeing in manufactured products today? And then now that you've hit the gas pedal on the integration, what are some of the things we should look for in terms of expanding products nationally?

A great question. I'm excited about it. As you watch both legacy companies performed here over the last couple of years, you saw continued penetration in leading the market down the value-added path. And I think in large part, driven by the needs of our customers. They're continuing to look for ways to get more efficient and productive, and that plays perfectly into our value-added offerings. And I think that was only exasperated here in the past 6 to 9 months based on the strength of the market, some of the supply chain challenges. So these builders need to get more effective of what they do, and we're pleased to have the offerings that we do. So we expect continued strong organic growth and penetration of the markets and especially in markets that haven't historically been a component market. We think the time is right now, labor constraints are still very real, and I think we'll continue to fight those sort of challenges. And to your question around what to expect going forward, I think we've talked about our first priority here going forward is to invest in the strong growth opportunities that we have inside the company. And I'm not any more excited about any of that than on our value-added offerings, including READY-FRAME. And so that's what I think you can expect going forward, which is a lot more of the same and the wherewithal to continue to accelerate that growth.

We'll take our next question from Ketan Mamtora with BMO Capital Markets.

Congrats on a strong start. Maybe just coming back to READY-FRAME. Is there a way to kind of -- and I'm not looking for exact numbers, but is there a way to kind of size what kind of opportunity you have there to grow. And would that require any additional investments from your side to be able to capture that growth?

Yes, great question. And I can talk about READY-FRAME for a long time because in legacy BMC we were continuing to invest in it, and we're excited about the growth, which, as we've talked about over the past couple of years have been from a house penetration standpoint in the double-digit growth arena. I would just tell you, in legacy BMC in the fourth quarter, that house penetration was nearly 20% as we continue to grow strength and momentum. And really exciting part about READY-FRAME and that investment to your question is it's a relatively minor investment. We're talking about saws and some computer aided design and capability. But it's a relatively minor investment to extend that across the markets. And it is in large part driven by the know-how of our people, right, to not only design the homes and put that in a READY-FRAME model, but also how we deliver it to job sites and unload it in a way that's very effective for the framer, so they can do their work most efficiently. So a minor investment as we expanded to new markets, and we will continue to be aggressive at doing that.

Got it. That's helpful. And then maybe can you talk about sort of any disruptions from some of the recent storms that you've had in Texas? How you are kind of managing, given what has happened?

Yes. No, that's a great question. It's been a difficult time, obviously, not just for us, for the whole state. We had some interruption. As you might imagine, we had some shutdowns. The initial read is that it's probably around $40 million in sales that were delayed as a result of those shutdowns. We'll see how it plays out through the rest of the quarter. For a company of our scale, obviously, that's not material, but it's impactful to the folks in the state. So we've done some work with our employees to make sure we're supporting them and those that were impacted, and we're continuing to bring all of our facilities back up and candidly, they're running quite well. Now as you can imagine, there's a lot of pent-up demand. There was any way in a very, very busy market and they're rolling hot right now. It's fun.

Got it. Understood. I'll turn it over. Good luck through 2021.

Do we think it's going to last through 2021? Is that your question?

All I said was good luck as we move through the year.

Oh, good luck. I apologize. Yes, thank you so much.

We'll take our next question from David Manthey with Baird.

So we are guiding to approximately $135 million in total quarterly depreciation and amortization. I assume that most of that resides in SG&A in your combined P&L. Is there a piece of that depreciation that resides in cost of goods sold first off?

There is a little bit, yes, attributable to the manufacturing facilities.

And breaking their bread box, less than 10% of it?

That's a great question. I don't know we've ever broken that out before. I don't have it handy on me.

Okay. And what I'm getting at here is, I'm thinking about total SG&A with or without D&A as a fixed component of your operating expenses, could you remind us what percent of the combined company SG&A is fixed versus variable in the very short-term?

Yes. I mean we generally talk about it is about 70% variable. So most of that cost moves with the increasing and decreasing volumes. It's a bit less than that when we talk about the commodity influence component of growth, but certainly, the bulk of what we do is moved by the volumes.

Okay. And D&A would be a portion of that 30%?

Yes, yes. And as we finish the purchase accounting, we'll have some updates for you on sort of what the dollars are going to be in those buckets. But as it stands, that's still a work in progress.

Okay. We're just trying to work through the pro forma this year. And then in terms of working capital, is your goal still to remain in that 12% to 13% of sales range? And here, too, just to be clear, could you give us how you define working capital for that calculation?

Yes. So that 12% to 13% is not familiar to me. Maybe that was on the BMC side. The number we've used in the past is closer to 8% to 9%. That's a number that includes the receivables, inventory and payables amounts. Now obviously, that's gone down over time. And we'll move as we look at the valuation of commodities in the current numbers. But just as a rule of thumb, that 8% to 9% as an incremental percentage vis-à-vis sales is the right way to think about it.

We'll take our next question from Collin Verron with Jefferies.

So I just wanted to start on the EBITDA margin expansion. The guidance implies about 100 basis points of EBITDA margin expansion. I was just hoping you can walk us through how this might show up on your P&L, gross profit or SG&A? And just given where lumber is now and the capturing of synergies, can you just talk about the cadence of this improvement throughout the year?

Sure. Yes. So the -- generally speaking, we talk about the fall-through on our incremental sales in that 12% to 15% range. Obviously, you'll see certain movements that will go above or below that. But there's a good rule of thumb for how our business grows over time. So that fall through, as you see the expansion, both in the underlying volume and in the commodities throughout the year, this year will fall through, and you'll see that gross margin then translate as we talk about the volume -- impact on SG&A will translate down into that EBITDA number. So to think about it more broadly, we like high prices. As a distributor, this is certainly a very good season for us, if you will, in terms of the prices we're seeing and the growth, the leverage of our business is quite strong, as you can imagine. So that's the reason that's driving that fall-through to those very high numbers. We also do expect to see an increasing generation of synergies throughout the year as well as an increase in generation of productivity savings and improvements throughout the year. I don't know if I would say it's a straight-line increase, but for the purposes of this discussion, that's a reasonable way to look at it.

Okay. Great. And just on the lumber prices being at all-time highs, there's been a lot of headlines just about the impact on home prices and the ability of buyers to get appraisals. It doesn't seem to have an impact in the near term, but have you heard from any of your customers that things could slow down as we start to look out like 6 months to a year if lumber prices don't normalize? Or do they just think that the low interest rates and the underlying fundamentals in the industry from a demographic standpoint can really sustain this even in this high lumber price environment?

Yes. I think it's far more the latter. The demand is so strong. The problem is our ability to build the homes that people want as an industry. So while there could be on the edges, some headwinds, but framing really isn't anywhere near an important part -- an important part of the cost of the home as many other factors. So sure, there's a component there is inflation in a couple of other areas that in the long term, may drive demand down. But at this stage, I'm not sure we're going to be able to see it and as time passes, I think we'll be able to fix some of the constraints in the industry that will normalize that as well, which I think will then feed back into a stronger demand profile as well.

We'll take our next question from Keith Hughes with Truist.

On the D&A estimate you have for the year, the $540 million to $550 million, how much of that is deal amortization? How much of it is just more traditional depreciation?

Yes. Well, I mean, like I mentioned, it's still a work in progress, but a pretty substantial step-up on the purchase accounting, as you can imagine, right? That will burn off over a few years. But as it relates to the valuations that we'll do as part of that purchase accounting, we'll see a pretty substantial step up.

Okay. And the -- this was sorted out earlier, but I just wanted to bear down a little bit more. With the EBITDA expansion you have versus the pro forma numbers projected here for '21. Do you expect to see EBITDA margins up in every quarter? Or were there -- the comp in the fourth quarter so tough that we might see some degradation there?

Yes. You know what, that's a fair question. We do anticipate seeing increasingly difficult comparisons as you get through the year, right? You're looking at the beginning of the year last year, pretty modest numbers across the board. And by the end of the year, looking at record commodities, record starts, a lot of records in there, which have been pretty fun, I could admit. But yes, the comps will get harder in the back half of the year. The real question is what happens with commodities and starts. There's the numbers that we've got laid out here would indicate some tough comps, but if things stay elevated, it will stay good. But overall, the year looks great, a lot of confidence in both the overall industry and our performance.

We'll take our next question from Trey Grooms with Stephens.

And congrats to everybody on getting the deal done and Chad, on your retirement and best of -- best of luck to you. So on the first question that I have is, I know your guidance hasn't included, historically hasn't included any sales synergies between the 2 companies. But like the rollout of READY-FRAME to more branches, more of the Builders FirstSource branches. Examples like that, where do you see potential opportunity for some benefits to the top line, sales synergies or whatever you want to call them, where you can benefit from the combined company. Just areas. If I like to say, I know it doesn't -- you're not including it in the guide or in the synergy guide, but it seems like there could be some opportunities. If you could just maybe update us on where you think there might be some low-hanging fruit?

Yes. Thanks, Keith. And as I mentioned, we've got -- -- Trey, sorry about that. We've got 9 work streams on our transaction here focused on integration. And one of those is growth, as you might expect. And we talked about READY-FRAME, that we're seeing a lot of opportunities. And as we talked about when we announced the deal, one of the exciting parts about the deal is the fact that we will have a broader offering. And even in the local markets where we're individually very strong, one of the other legacy companies might have been stronger in millwork versus components. And as we brought this thing together, we're very excited about half in that full breadth of offering across the footprint. So we're seeing a lot of opportunities like that in terms of growth potential across our value-added segments with several others. But it's early days. The team is working hard on it, and we're very excited about it.

Thanks, Dave. And then last one for me is there's -- you mentioned earlier in the comments that there could be some inflation in some other areas. And of course, there's tightness in a lot of the different products out there outside of lumber. And a lot of manufacturers of these products are out with price increases from wallboard to interior doors and roofing and insulation. How are you guys looking at the inflation outside of lumber for this year relative to what we've seen in the last couple -- do you expect that to accelerate? Just what are you baking in there?

Yes, we do. There's certainly been enough increases across the board from different vendors that I think to think otherwise would be misinformed. There are a lot of reasons for it. Some of it is inputs. Some of it is cost of doing business. The other is, I think, just the recognition that we're chasing a nice strong number and capacity in the market is struggling to keep up, so people are trying to balance that price capacity, that price volume metric. But it's certainly something that we -- I won't say we're happy about, it's part of what we do. We perform well in markets with strong pricing. So we are participating in that. We're making sure we stay disciplined about it, communicating with our vendors where we think it's maybe out of line. But for the most part, trying to be supportive to make sure we have an industry that can grow and continue to respond to the demand.

And then last one. Sorry, I said last one earlier, but actually did want to sneak one more in. You guys talk about commodity normalizing in the back half. And you've got a range here with your EBITDA range with the margins there. How would that look? This commodity has surprised everybody, I’d say, well, maybe not everybody, but most folks, the way that it's as resilient stayed up as high as it has through the winter and then has accelerated. So if we don't see -- if the commodity doesn't normalize in the back half, how does that change your outlook?

Hey, Trey, good and important question. Let me start, and then I'll flip it over to Peter. But I think for a number of reasons, I think the lumber questions here are starting to become less and less important, especially in our combined company. First of all, as we've talked about, we're both expert in managing through this cycle. And as you heard us say earlier, we're real confident in our ability to do that regardless of what the market throws at us. And a lot of the things that we talked about that we're excited about here being -- having the largest footprint in our industry. Here a broadest portfolio of products. The geographical reach with 550 locations, 85 of the top 100 MSAs and importantly, as you look at our millwork and components business, that's more than $5 billion of the combined company revenues right now, and they're the fastest-growing in the company. So linked back to our strategy, growing those value-added components will be an important part of how we grow the company and how we continue to improve profitability, not that lumber won't be an important part of what we do, and it always will be. But it's going to have less and less of an impact than what we do over time, right? And so I just want to get everybody's head calibrated. That's one of the most exciting parts about this merger. And I would just say, we've got to stop thinking about what we're building here as a lumber distributor, right? We are a growth company and a fast-growing one at that. And I think time will prove that out as we go forward and drive this growth in areas that are non-commodity related. But Peter, go ahead.

Yes, no, great point. And we're -- we do pretty well at lumber too which is, I think the right way to think about it, right, maybe will be the core of where we're headed, but we do well at it. And the short answer to your question, Trey, is you're right on. It is going to be a really nice tailwind if it stays high, based on the guide that you would get because the math will show, right? You got a first half growth, second half headwind. If you look at just the math of the commodities, I mean, you take away the second half headwind, that's a great story. We'll look forward to enjoy that business, if you're right.

We'll take our next question from Reuben Garner with Benchmark Company.

Most of my questions have been answered. I guess just one kind of more macro level picture. In the past, BMC has been one to highlight the kind of falling footprint and the size of homes that are being built whether it's because of new entry homes or just smaller homes in general. And I think there have been some signs, but that might be reversing. Are you guys seeing anything there? What's kind of baked in your guidance if I missed it, apologies, but any color you could give on that, that would be great?

Yes, we can tag the team. I mean as you point out, that Reuben, I mean the average square foot of the home has continued to fall. And I think that's accelerated over the past couple of years just based on the entry-level or first time step up buyers. I think we're somewhere around 2,300 square feet at this point for the average home size. But as you've heard me say in legacy BMC, I don't really get concerned about the size of the home as long as it continues to fuel growth, right, in the industry. And I haven't met a start. I don't like yet at this point. So as long as that holds up and continues to fuel growth, we're going to continue to penetrate with our value-added offerings.

Yes. And I think what you might be alluding to is the rumor and the rumblings that people are -- that might turn, right? We're seeing folks that are more committed to the homes that they're sort of stuck in, right. So they like it a little bit bigger, they want that office where they can close the door, for example. So there's, I think, reason to believe that we may see the end of that shrinking of the home. I've seen no data yet, but I think it's reasonable to think that's a real thing. And that will just sort of take away one of the little headwinds we were seeing in the industry and be a stabilizing factor. To Dave's point, though, we could still see an average decline just because I think the growth of the single-family starter home has been so strong, which is great for us, right? It's just a win for everybody.

Perfect. And then actually, I might sneak one more in. The cash flow that you're generating is obviously very strong, and the balance sheet is in great shape. I think you kind of touched on this earlier, but can you just maybe emphasize what -- if you're not able to get enough deals done, I guess, as a use of cash, what you might do with the excess as you move forward, do you continue to build a fortress? Or do you think you'll get more aggressive in other ways to either return cash to shareholders or invest in the business?

Yes. We've got a really nice position, like you said. Our debt, as the leverage ratio based metric is quite low. We feel very good about the strength of our balance sheet and tend to maintain that as a priority. Moving into the investment opportunities, Dave alluded to it, and I think we all feel good about it. As we get to the cash generation point in our year we’ll have gotten through a lot of the initial stress of the integration and be in a stronger position to really be aggressive on some of those M&A opportunities that are out there, we really like the portfolio. I think we have a lot of runway in front of us to consolidate the industry. And the short answer, if for whatever reason, all of those things don't use up the cash. Sure, the options are open, right? You've seen both companies buy back shares in the past, and we'll look at it. But right now, we feel like we've got -- the sites are full with great targets.

We'll take our next question from Jay McCanless with Wedbush.

And Chad, all the best, enjoy your retirement. Peter, on the lumber guidance. I'm just wondering, are you guys thinking that revenues -- total revenues first half may actually be a little bit higher this year than revenues in the second half as lumber prices start to fall back down? And then also, are you hearing or seeing capacity increases or, I guess, capacity utilization getting better at your suppliers to have that kind of confidence for lumber just to be up 0% to 10% this year?

Yes, I don't think the commodity is strong enough to skew sales from second half to first half. I think, I mean, second half is historically stronger, so I think we should continue to see that. I mean the answer on the commodity capacity question, it's a good one. I mean, I'm up 2 minds, right? On one hand, some capacity coming online doesn't appear to be enough to pull the rug out from under it. But the counter to that argument of sort of bullishness on prices is that historically, this is not an industry that's held price. Just isn't. So I don't know that I want to be the guy to put my foot down and say, yes, this time, it's different. I haven't seen any evidence to prove that. So we're going to continue to put that sort of modest sort of reasonable number out there. And if it's better, then it will be good.

Got it. And then another question I had, very strong results in multifamily in the fourth quarter, but then you're calling for multifamily to be down in '21. Is what we saw this quarter, just kind of finishing out some of those larger projects that were started in '19, and that project activity is going to flow from here?

Yes. I mean, in context, multifamily is about 6% of our business. So it's pretty specifically focused on certain geographies and certain projects. There is a bit of exactly what you described, projects that sort of are concluding, and the pipeline will still good. Looks to be maybe not as much of a positive a contributor as it was last year where the team really sort of did a really nice job of expanding our capacity, that gets a little harder in this environment. I think we've all seen multifamily struggle a bit. We feel good about the business. We think there's still a growth opportunity there, but just sort of line of sight thinking it’s going to moderate a bit.

We'll go next to Alex Rygiel with B. Riley.

Real quick question. As it relates to your free cash flow forecast, which is fantastic, how should we think about working capital changes relative to the anticipation of commodity prices coming back down to sort of normalized levels. I guess the question here is, how much did that free cash flow forecast vary depending on commodity prices?

Yes. You nailed it, that's a great question. The short answer is our business being distribution based is going to generate a tremendous amount of cash as sales decline, and that includes the value of commodities and any sales decline associated with that. So certainly do expect, given our stated belief or stated forecast, rather, that the commodity prices are going to come down. There is a component in there. It's unfortunately, it's a little bit hard to put your finger on it. But to put it in context, we talked about the increase in working capital usage in 2020. And being about $260 million in our prepared remarks. So just to kind of put it in context that, that's directionally the types of numbers you'd expect to see when extrapolating that to the larger entity for a full switch back to sort of historical.

We'll take our next question from Kurt Yinger with D.A. Davidson.

Just one quick one on the capital spending side. Could you talk about any kind of notable projects you have slated for 2021 here? And as you think about your capacity at present, particularly on the manufactured product side, how do you feel about your ability to supply increasing levels of demand as the market grows and perhaps those products continue to gain adoption?

Yes. You -- I think you've been peaking into my ops reviews. So that's a good one there. We've got obviously a lot of facilities around the country right now that are focused on meeting the increased demand. A couple of factors there, obviously, hiring, being an important one, making sure we're running all the ships we can, utilizing equipment fully and in markets where even that's not enough, making sure we're bringing in the increased capacity on the equipment side that we need. So we talked a little bit earlier about the ability and the willingness and the desire to invest in organic growth for the company. That's the sort of tip of the spear, right? It's how do you react to make sure you've got the right trust equipment, door machines, saws, computer equipment to be able to chase that expanding use of value-add while continuing to invest in the trucks and the core operations that we need. But you're absolutely right. We're focused on making sure we're reacting in those markets that are white hot to have the capacity that we need. And it's a high-quality challenge, right, a high quality problem.

We'll take our next question from Steven Ramsey with Thompson Research Group.

Quick question on the margin guide, maybe a misunderstanding. It looks like the high end implies margins not stepping up with increased sales. If we're matching the high end of both sales and EBITDA guidance, new to lumber, are there any other factors there driving that?

I don't know if I can point to a specific driver. I think you might be just seeing the impact of multiple variables and low end of the range. Commodity is absolutely growth in various regions and the variables we put around that. So I don't know that I have a hard answer for you.

Okay. Great. And then one other thing. Not trying to get into specific guidance, but just qualitatively, starts time extending between starts to completion. Is it factored into revenue generation for 2021, but maybe help support demand out into 2022 if this dynamic continues through the year?

That's right. Yes. We generally tell everyone that the best proxy for our long-term growth is that single-family starts metric, and it's true. The challenges with an extension of that build cycle, you start to get a little bit of wiggle, right, that look is coming and it’s a little harder to draw the line. So we just wanted to point that out everybody to say it's still the right number, but it will extend the time that we'll be able to enjoy the upside if that expansion of homes under construction continues out for a while, we think that that’s going to happen. So '21 into '22 and then as things -- as we expect, continue to be strong, that gives us a nice runway. So yes, you're right.

Our final questions from Ryan Gilbert with BTIG.

First question, Dave, I really appreciate your comments earlier about, over time, lumber being no less important component of BFS' story as the value-add piece of the business grows. But for the -- I think for the time being, it's still a relatively important piece of the story. So my first question is on lumber. And just given the strength of demand that we've seen from homebuilders as you're writing fixed-price contracts with the builders, are you noticing the length of time, that you're fixing lumber prices compressing in the fourth quarter and so far in '21?

So one of the things that has been a discussion in both fixed-price contracts and the appropriateness of them in light of the market and the market dynamics. Our observation is those appear to be falling as a percentage of the total, just given the way the market has evolved over the years. There's certainly something that, as you can imagine, we manage very closely to make sure people are living up to their commitments. We live up to ours as a partner in this industry. We've got the financial wherewithal to do what is right, no matter what, but also making sure that both sides are living up to it. So that's something we're careful with. But more broadly, it's about the relationship with the customer and working with them in a way that's obviously good for the end customer and mutually beneficial and watching the evolution of the industry, it appears that, that is something that's declining overall, but still an important material part of our business.

Second question is just digging into sales synergies a little more. I guess, one dynamic that I've noticed in the field is that a builder would buy like a wall package from BMC or BLDR and buy trusses from a different distributor. And with the combined company, have you seen an ability, are you able to take advantage of, or are you going after I guess, your new ability to sell both framing packages and trusses to homebuilders? Or do you think that's a future opportunity for the combined company?

Well, as you rightfully point out, I mean it's early days, right? But as we talk about that growth work stream earlier, we're excited about it. We see nothing as a deterrent in that. We've not had pushback. And in fact, our customers are equally excited about our combined offering in a lot of these markets. And so time will play out. But we're excited, see no roadblocks, and we think the future is very bright to continue to penetrate those markets with our offerings.

Ladies and gentlemen, this concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Chad Crow for any additional or closing remarks.

Thank you. We appreciate everyone joining the call today and for the continued support of our company. I'm personally looking forward to watching what this new management team and all of our incredible team members will accomplish in the years ahead. As you heard throughout the call today, there is a lot of excitement around the future of our company. I certainly share that excitement and truly believe BFS is in the strongest position it has ever been. I am proud to have been a part of this amazing journey over the past 2 decades. If you have any follow-up questions, please reach out to Peter or Mike. Thank you. Stay safe, and adios.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.