Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2021 Earnings Conference Call for UFP Industries. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Dick Gauthier, Vice President of Business Outreach. Please go ahead.

Welcome to the first quarter 2021 conference call for UFP Industries. Hosting the call today are CEO Matt Missad and CFO, Mike Cole. Matt and Mike will offer prepared remarks and then the call will be opened for 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 through April 24, 2021. Before I turn the call over to Matt Missad, let me remind you that the April 21 press release, yesterday's quarterly filing and today's 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. Now, I would like to turn the call over to Matt Missad.

Thank you Dick and good afternoon everyone. It is hard to find me at a loss for words to describe our team especially superlatives. Awesome is accurate but doesn't go far enough. Unbelievable was just used and if you need to use it twice it is no longer accurate. To appeal to the younger crowd I can say that the first quarter was lit which it was. Let's just go with exceptional performance by my outstanding teammates. When the first quarter which is historically a slower quarter becomes the all-time record quarter for 66 years of UFP we know that positive transformative changes are happening. I am exceedingly proud and grateful for all of the hard work, focus and financial results of our UFP team members. While it would have been easy to succumb to all of the challenges impacting their daily personal and business lives they continue to excel by working safely, focusing on the customer and making our company stronger. Their performance reinforces my strong conviction that no matter the challenges and obstacles they face in the long run we will win. With the acquisition of PalletOne contributing nicely to our overall performance and a high level of the lumber market we posted a record sales of over $1.8 billion for the quarter. Even more impressive was the bottom line improvement to a record earnings per share of $1.67. While the extraordinarily high level of the lumber market certainly drove top line performance, more impressive was unit sales growth of 33% with 23% coming from acquisitions and the balance coming from organic growth. And our goal of growing new product sales continues as new products accounted for $159.4 million of sales in Q1. We are on track for our annual target in new product sales. Mike will share…

Thanks Matt and hello everyone. Our results this quarter are highlighted by unit sales growth of 33% including 10% organic growth. Operating profit growth of 134%, four times our unit growth and over $260 million invested in acquisitions this quarter. We're happy to report that transactions we've completed since last April have contributed $245 million in net sales, $14 million in operating profit, and $19 million of EBITDA this quarter. Now I will provide some additional color on the quarters starting with our income statement and sales by segment. Net sales grew 77% comprised of a 44% increase in selling prices due to the lumber market, 10% organic unit growth and 23% unit growth from acquired businesses. Sales to the retail segment increased 116% consisting of a 56% increase in selling prices, 19% organic unit growth and a 41% unit increase resulting from acquisitions. Organic growth was driven by a 64% increase in Deckorators, a 30% increase in Handprint, a 28% increase in outdoor essentials and a 24% increase in Edge. New product sales for the retail segment were also strong growing over 58% for the quarter. Sales to the Industrial segment increased 75% consisting of a 38% increase in selling prices, 5% organic unit growth and a 32% unit increase resulting from recent acquisitions. Organic growth was driven by a new customer and new product sales. Finally, our sales to the Construction segment increased 47% consisting of a 39% increase in selling prices and 8% unit growth. The unit growth was driven by our site built in factory-built housing business units which achieved 21% and 15% unit increases respectively. These increases were offset by a 9% decline in our commercial business unit. Moving down the income statement our first quarter gross profits increased by $119 million over 71%. By…

Thank you Mike. Now I'd like to open it up for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Ketan Mamtora with BMO Capital Markets. Your line is now open.

Thank you. Good afternoon Matt and Mike and congrats again. It's becoming a habit for you guys but again a very strong quarter.

Thank you Ketan.

Maybe to start off on the Deckorators side maybe just remind us kind of how much capacity you all added in 2020 and what is more to come in 2021 and perhaps elaborate a little more on kind of what you are seeing with demand the industry. On the composite side there's a lot of capacity that's come online. So maybe kind of talk about what you see out there from your customers in terms of demand and then just related to that obviously we've seen this huge run in lumber prices. Are you seeing any acceleration of share gains on the composite side because of that?

Well, that's a lot of questions to unpack there Ketan. I will do my best to remember what they were but. So let's kind of start out with what our expansion plans are and what the capacities will end up being. So in 2020 our capacity really didn't come back online until probably late Q4. So we figure that will add between 30% and 35% capacity. The plan for this year which will probably come online in 2022 will be for our mineral composite product. That should increase our capacity by about 25% maybe as high as 30% and then continued plans in 2022 for both of those operations will include another 30% or so in our wood-plastic composite and roughly an equal amount another 25% to 30% on the mineral composite products. And you kind of look at your next question which I think is about the high level of lumber market are we seeing consumers shift over to more wood-plastic composite products and I'd say certainly at the low end of the wood-plastic composite space and the high end of the lumber space there is definitely some conversion that would occur given the similarity or the closer similarity in pricing. We still think that the composite market is strong and the wood market is obviously very strong too. So I just think there is more overall consumption but certainly on the edges there has to be some conversion going on but still lots of consumers are buying wood.

That's helpful.

Okay.

And then, I mean for this is just in terms of kind of looking at how lumber prices have an impact on your performance. In the past a spike in lumber prices like the ones that we saw in Q1 and in the back half of 2020 usually in the past it has had a bigger impact on your results but it seems like you're doing a much better job kind of managing that. I'm curious kind of what has changed in terms of how you are managing that and perhaps this ties into where you mentioned in the release better pricing model in number. So maybe touch on that a little bit?

Yes. I think I have to really give a shout out to our purchasing team who has done just a remarkable job of sourcing material, finding the right level of supply and our operations teams who have done a terrific job of basically preparing the product and making it available for sale. As you think about overall structurally I don't know that there is been a lot changed. I think it's just a very focused effort and I'd like to give some credit to the new structure as well where we have business unit leads very focused on what their needs are taking a much different look at how products are being costed and sold and making sure that we're staying current with the market. I also think there is some benefit from the tailwind of higher lumber prices but as we said we think long term our strategy is to have those be more of a pass-through cost and try to get more efficient. I think one other factor I'd point out is I think our manufacturing efficiencies clearly have improved as a result of a high level of capacity utilization.

Got it. That's very helpful. I'll turn it over. Good luck for the rest of 2021.

Thank you Ketan.

Thank you. Our next question comes from the line of Julio Romero with Sidoti. Your line is now open.

Hey, good afternoon everyone.

Hi Julio.

Hi Julio.

First question is just on the pricing environment. I mean you're obviously seeing very strong demand but maybe can you speak to the elasticity of demand and how much more price can be driven in the current environment.

Yes. That's a terrific question. So I think obviously we still see a strong demand even at the current pricing levels. I don't think long term that's a necessarily where anybody wants the market to be. I think if you start looking in terms of projects there is a lot of other price increases and a variety of other commodities as well. So we anticipate that once supply kind of catches up with demand that will help alleviate some of the high price levels in the lumber market. So we expect that to trend in a more normal direction for the balance of the year. In terms of the elasticity at least right now I guess the proof is in the consumer and they continue to buy but we definitely hear more complaints about the high prices and the price increases throughout the supply chain.

Got it. And you mentioned in the prepared remarks that your inventory levels are adequate to meet your demand for the next 90 days. How about on a relative basis I don't know if you have any sense of what your closest competitors have in terms of inventory and if they have adequate levels and if they don't you do you benefit I guess on a relative basis for the next one to two quarters.

Yes. I don't know that we necessarily have good insight to what our competitors’ inventory positions are. Certainly our non-public ones we don't. So I would say we're well positioned. We do have some shortages in some areas that I mentioned such as panel goods where it's a little bit more challenged but I do know even though we haven't been perfect in terms of filling every order completely where our customer satisfaction levels are very high right now relative to others. So I think that's a big plus for us.

Great. I'll turn it over and I'll hop back in with any follow-ups.

Thank Julio.

Thank you. Our next question comes on the line of Reuben Garner with Benchmark. Your line is now open.

Thank you good afternoon everyone and congrats Matt on your lit quarter.

Thanks Ruben.

So maybe on the Retail side what are your customers telling you to expect sort of as you progress through the year or I guess if they aren't what are you sort of expecting as we progress through the year just I think a lot of folks are looking at the comps last summer. A lot of people at home doing projects that took them to the lows and home depots of the world. Do you anticipate to be able that the industry will be able to grow on top of what happened last year just because of changing dynamics and secular strength or should that be something to keep in mind and maybe if you do see growth it's more from things within your control new customers, new products that sort of thing?

Yes. So for our public companies we tend to follow what they're trying to tell the street which is they're not really making predictions. I guess what I would say is that we have been told to make sure that we have ample product available. So I think from our standpoint that's our goal. We want to make sure we can supply more than we did last year but I couldn't tell you for sure if that's all going to materialize or not but the trend lines today are very good.

Okay and then the Industrial business is obviously snapped back pretty quickly. There has been some good indicators I think ABI had a good reading out today on the Commercial side. Should we expect that will start to improve as we move through the year or is there a bigger delay there and that might be more of a 2022 type recovery?

No, we're seeing very positive results in the industrial segment and I don't see any reason why those won't continue. I know a year ago they were probably one or more impacted areas as a result of the lockdown. So we're optimistic that as long as things stay open and running that they will be able to outperform.

Okay and then I'm going to sneak one more in if I can. Mike, anything that can help us on the seasonality of SG&A this year? Any reminders there and maybe in that same realm how the acquisitions might impact that if at all?

Yes. The acquisitions are fully baked in for the quarter. So if you take the $150 million of SG&A for the quarter $32 million I believe, no, excuse me $36 million of that SG&A was bonus six months and so if you pull that out that's how we think about kind of the core SG&A. That number is fairly fixed over the course of the year from quarter to quarter and then as you know, we accrue for bonus expense at about a 20% rate of pre-bonus operating profit. On that core SG&A line I would say it can flex up a little bit with volume and which is typically higher in Q2 and Q3. So that would move up a little bit from the Q1 number and then as we look forward the Spartanburg transaction I think we talked about in February in our year-end release, EBITDA margins for that business run at low, low 3% or 4% EBITDA margins, it's a lower margin treated numbers of lower margin category, single digit gross margin and then the SG&A is a pretty modest number as a percent of sales. So hopefully that gives you enough remodeling.

Perfect. Thanks and congrats again guys.

Thank you.

Thank you. Our next question comes from the line of Stanley Elliott with Stifel. Your line is now open.

Good afternoon everybody. Thank you guys for taking the questions.

Hi Stanley.

On the composite decking piece, I mean very strong numbers. I mean you get a sense that that's just to fill in the inventory or do you think that that's kind of the in demand that's coming along or we've had an early buy program or stock some and you think that's just kind of additional sell through; just trying to get a sense for that business being up 64%.

Yes. I think part of that might be a year-over-year comparison but the way I'm looking at it is it's still the demand is very strong and order files are strong as I mentioned through Q2 or we've got strong customer commitment. So for me I think there is a change. I know that people are recognizing our mineral composite product. They're really drawn to it. It's a terrific product. So I think that's true and our wood-plastic composite is still got an outstanding following. So I'd like to think that I know others are also seeing increased sales in their wood-plastic composite line. So we want to outperform the market there and so far I think we're doing that.

And then in terms of the labor shortage, should we think about, well I guess how quickly can you address that? Is that something that would be a drag in terms of kind of the revenue numbers that you guys could put up and then kind of what sort of positions are you looking to bring on?

Yes. So if you kind of look overall we're probably looking at positions in all areas of the company. Our biggest challenges in the production facilities and more on the entry level side. So we are finding people but we're not finding enough people and we're not finding people that really want to work and grow their career with us. So when we do find those individuals they do a terrific job and they continue to move up the ranks in our company. So that's a continued challenge. I think right now we can kind of handle the volumes we have today but it puts a lot of stress on the people in the organization. So we want to make sure that we give them some relief and try to bring on more folks and we've got our outreach finding new sources of talent for us and as I mentioned with recruiting and trying to find different ways to make the job easier for people to do through automation and we also are looking at automation at replacing some of those more physically exertion type roles. So the combination of all those things we plan to be able to keep growing and hopefully being able to utilize the people we have and put them in positions of higher authority and responsibility and maybe using the option with automation to eliminate some of those entry level positions that we have a hard time filling.

We had definitely high class problem but that kind of brings me to my next question you kept CapEx flattish. At what point do you decide to kind of put the a little more of the accelerator on some of these automation programs that you guys have in place or in the works to try to kind of solve some of that?

Yes. I think that's a great question. I think we're willing to do it. I think the challenge you have is trying to find the equipment manufacturer's capability to fulfill orders. So that's probably the limiting factor right now.

Great guys. Thank you very much. Appreciate it. Best of luck.

Thank you.

Thank you. Our next question comes from the line of Kurt Yinger with DA Davidson. Your line is now open.

Yes, thanks and good evening Matt and Mike.

Hey Kurt.

Hey. So I mean it looked like really strong gross profit growth in the Construction segment, kind of despite a more modest increase in unit sales. Is it fair to think that a good chunk of that is associated with costs you've already been able to take out from the commercial business?

Certainly a part of it I think that plays a role but I also think kind of how they're executing at the individual plant level has improved and trying not to hold pricing for as long of a period of time as we have historically is making a difference as well. So I think the constant vigilance on the market, staying in tune and working with the customer to make sure we can provide them product at a fair price is really what's driving that improvement.

Got it. And I guess to your second point typically I kind of think of at least the site built portion as having come some of those longer lag times as far as I guess catching up to commodity prices. It sounds like maybe that's shortened a bit and so perhaps you don't get squeezed to the same extent there. Is that kind of a fair characterization of what's going on?

Yes I think that is a, it's a very fair characterization and I think if you reduce the period of time at which you keep your quotes open for the customer it really helps that process.

Got it. Okay. That makes sense. All right and then just switching gears to the Industrial segment. Could you just talk about what you're seeing in terms of sales synergy opportunities between PalletOne and the legacy platform and then just the ability to maybe cross-sell other packaging solutions or include more mixed material kind of full solutions as opposed to components and how that's kind of playing in I guess the better than expected growth we've seen here in the last couple quarters?

Well, Kurt I couldn't say it any better than you just did in your question. I mean you hit exactly what our strategy is and what I will tell you is we think that on the protective packaging material side we have a tremendous upside that we haven't really tapped yet and we do expect to attack that very vigorously this year and we're already in that process of doing that but that's one of the key things that we think we can do with the combination with PalletOne. They bring different customers to the mix and more opportunities and we're excited about watching the whole thing you talked about which is mixed material solutions and ultimately our goal of being the global packaging solutions provider is really what drives the whole process.

Got it. Okay. That makes sense and then just within retail I mean obviously a lot of exciting stuff going on with Deckorators but it sounds like you're making some pretty sizable investments at least on the pre-finishing side and UFP-Edge. Could you just talk about what you kind of see as some of the most exciting growth opportunities within retail maybe excluding Deckorators over the next one or two years?

Sure, I think the new product development process is probably most pronounced in the Retail environment. So things like UFP-Edge, things like pre-finishing products, developing new products whether that's siding pattern and trim items which we're obviously working on all the time; again different materials more I'll call it exotic hardwood opportunities, railing systems and other ancillary outdoor essentials type items; those are areas where we think we can utilize the customer base we have and drive more of that value-added product that consumers are looking for and really help ramp up our overall returns.

Got it. Okay. All right. And then a couple of times you guys have touched on automation investment opportunities. Could you just help us I guess visualize what that would kind of look like from a process standpoint whether it's by kind of a facility or by segment? What is kind of that big automation opportunity as you guys see it?

Yes. It's kind of two-fold. Some of it is just kind of helping with automation on in-feeds and out-feeds and helping from a safety perspective. The other part of it is really helping the process so that we can use more automated equipment. So from a standpoint of not needing as many new employees we're able to eliminate the need for new employees and allow our other employees to move up in their roles. So if you took a look at the pallet operations or other operations that produce a like product on a very consistent basis those opportunities are pretty significant for us to create a work cell that drives a number of employee efficiencies as well as manufacturing efficiencies.

Okay. That makes sense and just my last one going back to everyone's favorite topic, I mean could you just I guess at a high level talk about the risks you see here in the near term associated with the lumber market just given how heavy a quarter Q2 typically is for treated volume? And I imagine it's probably pretty difficult but are you doing anything differently this year just given where prices are to mitigate that risk at all?

Yes. I think there is a number of things that I would point to on that Kurt. If you kind of look at our percentage of inventory as a percent of sales you'll see that it's down from a year ago and I think overall what we have is we're probably managing it a little more tightly than we have. We have ample inventories. We're using our managed inventory programs and other things to help perhaps hedge against price falls but as you know, absent some kind of a fall off the table pricing event as long as the demand and supply remain relatively consistent with where they are right now we're very comfortable over the next 60-90 days but the one caveat with that is some kind of a sudden change in the market that we don't foresee at the moment.

Right. well if the first three weeks of April or any indication it shouldn't be too bad. So all right. Well, appreciate the color and good luck here in Q2 guys.

All right. Thank you Kurt.

Thank you. Our next question is from Jay McCanless from Wedbush. Your line is open.

Hey good afternoon guys. Thanks for taking my questions.

Hey Jay.

Hey Jay.

Hey. So first question for you Mike, if lumber prices finish the quarter where they are now should we expect a similar percentage tailwind in terms of revenue growth or could you maybe give us a range if lumber prices stay around where they are now?

I don't recall what Q2 lumber prices were on average but looking back at what I would do is look at the current lumber price look at back at Q2 lumber prices on average last year and then I would, we're not going to move exactly with the market. So usually we're about maybe 40% to 50% of whatever the actual lumber price is and that's just because of mix and then also because lumber is only 40% to 50% of the sale price of our products. So that's how I take a look at it Jay.

Okay. That's great. Very helpful, thank you. And then I guess the second question I had and it may not really matter because of the acquisitions all made but could you just remind us how long if at all you guys were shut down and felt the impact at the beginning of COVID and the length of time and how much potentially of a sales tailwind you're going to see from that this year versus last year?

Yes, I think Jay if you kind of look at it as a different by segment and actually different by business unit so and its geographic. So I think I mentioned before that industrial probably was more of the hardest hit a year ago because some of their markets were locked down for a longer period of time and while we were deemed essential business some of our customers were not in some of the other markets factory-built, site built. There were certain areas where we just couldn't perform. So it's a little bit of a kaleidoscope of different opportunities that we have to improve over a year ago and again retail was essential and was quite strong. So I would say our opportunities tend to be more in some of the industrial spaces and the construction spaces when you're looking at year-over-year.

Yes, putting some numbers to that Jay. In Q2 of last year Retail was up 22%. So they had a pretty good quarter but Industrial was down 27%, construction was down 16% and our International group was down 11%. So for the Industrial, Construction and International groups there is some really easy comps there. So --

Got it. Yes. That's exactly what I was after and then the last question I guess in terms of, I know you talked Matt about ramping up M&A. Is the M&A talks going a little bit easier because of the high cost of lumber? I mean I got to think some of these smaller operators just don't have the bank facilities to manage this high price of lumber. So any insight you can give me there would be appreciated.

Yes, I don't know that it's necessarily easier. We're trying to be a little more selective and trying to find good quality companies with good teams both in operations and in their leadership group. So there are plenty. I think each of our business unit leaders is finding targets in their strategic runways to grow but I do agree with your apprentice that there are some companies out there giving the high price of lumber are just having a hard time playing at that level.

Got it. Okay. Great. Thanks for taking my questions.

Thank you.

Thanks Jay.

Thank you. And this ends our Q&A session for today. I will turn the call back to Matt Missad for his final remarks.

Thank you [Carmon]. Thank you again for joining us today. In business as in life it is important to celebrate the victories and after the celebration it's equally important to keep building for the future and working on the areas of improvement. Tonight I'd like to toast all of the team members of UFP for their tremendous accomplishments in the first quarter. I'd also like to toast our board of directors for their wise counsel and our shareholders for your investment. Please celebrate this success tonight and know that the UFP team will continue our quest to set new records tomorrow morning. Have a great evening.

And this concludes today's conference call. Thank you for participating and you may now disconnect.