Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2021 UFP Industries Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a Q&A session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker Mr. Dick Gauthier, Vice President of Communication and Investor Relations. Please go ahead, sir.

Welcome to UFP Industries, Fourth Quarter 2021 conference call. Hosting the call today, our CEO Matt Missad, and CFO Mike Cole. Matt and Mike will offer prepared remarks and then answer questions. This conference call is available simultaneously and 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 Friday, February 18th, 2022. Before I turn the call over to Matt Missad, let me remind you that today's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include but are not limited to those factors identified in the press release and the filings with the Securities and Exchange Commission. I will now turn the call over to Matt Missad.

Thank you, Dick, and good afternoon everyone. Well, 2021 is over and like the Super Bowl of Champion Los Angeles Rams, the UFP team leave the mantra, we will win. And unlike the nail-biter that the Rams experienced, the UFP team was strong the whole year and shattered its previous records. I would like to give the UFP family a virtual standing ovation for the amazing year. They deserve all the accolade and the recognition for the company's performance. Some quick highlights, we had record net sales for the quarter were $2.02 billion and $8.65 billion for the year, record PBOP for the quarter was $239.7 million and $911.5 million for the year, record gross profit dollars were $371.5 million for the quarter and $1.41 billion for the year, and finally, record EPS was $2.21 for the quarter and $8.59 for the year. If you say the numbers fast enough, it might not seem as incredible as the performance really was. Net sales were up over 65% and earnings per share more than doubled while putting us well ahead of our strategic growth plan. Now, do we slow down when we're ahead? Of course, we don't. We just keep pushing harder and set new, more ambitious targets. As we think about the future, let's recap the segments and explore some key items from the business units. In the Retail Solutions segment, retail sales were $3.42 billion for the year, although profits were down from the record set in 2020. The segment was impacted by the following lumber market through October, resulting in substantially lower margins in treated lumber products, which negatively impacted our ProWood and Sunbelt units. The lumber market solidified in Q4 and has remained at elevated levels through the first several weeks of 2022, and this has helped…

Thanks, Matt. And good afternoon, everyone. Our consolidated results this quarter are highlighted by strong Growth and profitability improvements, headlined by 25% inc -- unit Growth and 89% adjusted EBITDA growth. Operating cash flow of $512 million, $176 million ahead of last year. A strong balance sheet with only $50 million of net debt and liquidity over $800 million. And the return on invested capital for the year of nearly 27%. Now, I'll review the financial statements for the quarter in more detail, starting with our sales by segment. Sales and Retail segment increased 39% and consisted of a 3% increase in selling prices, unit growth from acquisitions of 34%, and organic unit growth of 2%. We anticipated a challenging organic growth comparison in Q4 when unprecedented demand in the fourth quarter of 2020 helped us grow unit sales by 38%. The Organic unit increased this quarter varied by business unit as increases in UFP-Edge and Retail building products were offset by declines in Deckorators and Outdoor Essentials. The results of our Deckorators business unit varied by product category with accessories reporting a decline of 21% while our decking unit sales increased by 11%. Capacity expansion contributed to our unit increases in Deckorators, decking, and UFP-Edge. Looking forward, the investments we made in these business units should add planned sales of nearly $100 million to Retail in 2022. Sales in the Industrial segment increased 67%, which includes a 42% increase in selling prices as we continue to improve our value-added product mix, execute value-based selling initiatives, and maintain pricing discipline. Our unit sales increased 29% as a result of our PalletOne acquisition. Organic unit growth declined 4% this quarter due to capacity constraints and as we continue to be selective in the business retake in order to focus on higher…

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

Thank you. [Operator Instructions] Please stand by while we compile the Q&A roster. Our first question will come from Ketan Mamtora with BMO Capital Markets. Please go ahead.

Thank you and good afternoon, and a big congratulations of the entire year.

Thank you.

Maybe first question, just taking on that point, can you talk about two things or three things that you guys have done over the last couple of years that have really helped navigate such extreme volatility in lumber prices that we've seen? I know in the past it used to be a bigger short-term issue, but over the last two quarters or three quarters we've seen very high lumber prices. We saw a sharp drop and then we've seen a rally, but you guys have delivered there. So just talk of two key points or three key points, Matt or Mike.

Sure, Ketan. I think I got to give all the credit to our experienced operations team. Both our purchasing group, as well as the segments for really working together well to help balance their inventories, to anticipate the changes in the market. I think their ability to manage through it is the number one reason behind the success. I would point also to our balanced business model. We talk a lot about fixed price products, variable priced products, and how we have a natural hedge, and I think you've seen that very apparently over the last couple of years where you saw times where Retail was running very, very well, and the other units struggled a little bit more, and this past year you've seen the reverse of that, but overall the balance in the business has really helped us to perform exceptionally well.

Got it. That's helpful. And then maybe switching to Deckorators. Can you talk a little bit about -- just unpack it a little bit for us in terms of the accessories being down 21% yet decking up 11%? What drove that kind of a divergence? And then, what is your expectation for volume growth in 2022 in Deckorators?

Yeah. I think Ketan, the challenge for the Lattice in particular and some of the other accessories is, if you look at it on a full-year basis, year - over-year it's a little different depending on how the original stocking orders went. We're pretty heavy in the first half of the year in '21 and then not much in the second half. So I think there was a little bit of bumpiness in those particular numbers. I think overall demand is still strong with respect to the Deckorators, decking products, we've had some capacity constraints there, which we're doing our best to alleviate and the good news is, is that there's just a really strong customer demand out there that we're trying to fill. And as I've said before, I think our mineral-based composite technology is the best thing out there, and we're really looking forward to growing that and adding new products as well.

Understood. And then, Matt, as you look at your broad Retail portfolio, how do you see channel inventories at this point, especially the ones that go through the big box channel?

I think it's always a little bit challenging, Ketan, to figure out how much inventory is in the channel, and our purchasing people, again, do a very good job of sorting through that information and I think there's -- people are well-stocked and the takeaway during the first quarter and early second quarter will determine how the year shapes up, but I would say right now the market's fairly balanced and we just need to see how -- what the takeaway looks like.

Understood. And Mike on share repurchases, out of that $2.6 million authorization, can you just remind us how much -- how many shares you've already repurchased?

Oh, that's the -- that -- $2.6 million is the total amount that we have available. So any amount that we've previously repurchased has already been backed out of that amount.

Understood. Got it. That's very helpful. I'll turn it over. Good luck.

Thank you, Ketan.

Thank you.

Thank you. Our Next question will come from Stanley Elliott with Stifel, please go ahead.

Hey, everybody. Thank you guys for taking the question.

Hi, Stanley.

Hi, Stanley.

And congratulations. Quick question. On a lot of investments you guys are making on the automation side to improve the productivity, curious what push-back you're getting from the machine orders and things of that nature just given how jumped up some of these supply chains are being and what impact, if any, do you think that's going to have on your ability to push through some of these high return projects this year?

That is a great question, Stanley. I think you're dead on. I think the ability to implement all of the things that we want to do this year is going to hinge very tightly on what these manufacturers were able to provide for us so we expect there to be some spillover. We won't be able to get everything done that we have hopes to get done this year, so it will probably spill into '23. But we're definitely committed to continuing on this journey and making ourselves stronger, and helping our employees make their lives a little easier.

And you -- on the new product piece, you tightened the criteria, maybe a little bit more color on that. My math was -- and then also just help me. Looks like that that business you think it's going to grow double-digits in the coming years. I just want to make sure that I was thinking about it correctly and what led to the timing of that criteria.

Your calculation is exactly right, we're looking at double-digit growth. And one of the things, when we first started on this new products path, we recognized that we wanted to really get everyone involved in participating in driving new products that we created a fairly broad net in order to qualify as a new product. Now we've added margin targets, length of time in other production metrics that we're looking at to make sure that all of the new products are, in fact, really going to help drive our bottom line performance. So it's tougher to get in as a new product going forward, but we're very confident that we'll have enough, and they're going to be really strong products.

Perfect. That's it for me. I'll turn it over. Congratulations and best of luck.

Thank you Stanley.

Thank you.

Thank you. Our next question will come from Reuben Garner with Benchmark Company. Please go ahead.

Thanks. Good afternoon, everybody and congrats again. I know everyone has already said, but congrats on the year very impressive results.

Thanks Reuben.

[Indiscernible] Reuben.

The -- more on the investments you mentioned, expanding geographical reach and a couple of various, can you elaborate on that UFP-Edge and then the company -- I'm sorry, the site-built operations, is that expanding into entirely new markets with your capabilities there or is that just kind of broadening your reach in an existing geographical region that you are in?

Sure. Yes. On the UFP-Edge side, as you recall, that's more of a newer business unit for us and we're very excited about the growth pattern there. We've completed out our first major facility improvements just in Q4. And now we're driving for additional capacity in the Southwest this year. And then next year it will be probably more in the Northeast market or somewhere in the East area. So that's really just a geographical spread to help with distribution. With respect to the sit-built group, we're looking there at, I'll call, adjacent geographies that we feel have good long-term growth potential. And it's not that we're going into radically new territories, but we're going to areas that we believe will have a good solid run and are not overvalued. So consistent with where we are in our other markets.

Okay. Great. And do you -- I mean, is that an area where -- is that one of the items that may get pushed out into '23? I've heard that it can be difficult to get the equipment that you need for those operations. Is that fair to assume that's one of the tougher ones?

If I could answer that question for you, Reuben, I would. I don't know for sure if -- which particular equipment manufacturer is going to be a problem. And I don't know how we can leapfrog to the front of the line with the other companies that you're covering, but if we can, we'll try to sneak in front of them.

Got it. Let's see. And then you mentioned UFP-Edge is a relatively new business line. I wanted to ask about the targets I think each business unit is in time supposed to get to a $500 million revenue number? Is there a time horizon on that? And then, would some of the categories like UFP-Edge, and the Home and Decor ones. Would those be the most likely areas that we would see M&A help to make that happen? I guess how much of it would be organically driven, and some of the new products you launched at the builder show versus bolting on M&A to your existing portfolio?

Yeah. That's a great question. So yes there is a time horizon, and no we haven't told you what it is yet. But believe me, we are pressing our business unit leaders to drive that as quickly as possible. I would tell you that the strategy is maybe slightly different. We are looking more in organic model with UFP-Edge. We talked about the additional facilities and the plans there. Fairly easy for you to diagram how we get to our targets that way. With the hand print home and decor stuff, a little more challenging to try to draw that pathway. And I would think that acquisitions might be part of that, as well as in the protective packaging space, that's more likely to require additional acquisitions as well.

Perfect. I'm going to sneak one more in if I can, the calling of business, I don't know if that's the term you've used, but maybe focusing on your most profitable areas given how tight your capacity is. Have we gotten past the vast majority of that, and maybe we start to see unit growth again particularly in the Industrial side, or is there more of that to go?

Yeah, I think it's probably a little bit mixed and it's tough to give you a good read on that. So Mike, as I discussed, sticks and panels, converting those to actual designed engineered manufactured product using mixed materials, that probably ends up being a different kind of unit change so it doesn't compare well, but it's actually a better sale for us and it's better for the customer. So that's -- it's difficult to talk about unit sales Growth there because it's a -- they're little apples and oranges.

Okay. Congrats again, guys and good luck on setting a new bar.

All right. Thanks, Reuben.

Thank you. And our next question will come from Kurt Yinger with D.A. Davidson. Please go ahead.

Great. Thanks. And good afternoon, Matt and Mike.

Hey, Kurt.

Hey.

It's been a really strong last couple of months for lumber, coinciding with when I think you're typically building some inventory on the pressure treated side. Could you just talk about how you're approaching that? And if there's any actions you're taking, or how you're thinking about maybe trying to mitigate any risk associated with a correction that may or may not come in lumber prices in the spring?

Well, you had such a great question you actually gave the answer in your question. So I'm not sure how much more you need for me. But we're trying to follow your advice there, Kurt. We're trying to be cautious about it. We are obviously well aware of the situation there. And again, I'm leaving it to our real talented leadership teams to help drive that. But your observation is correct. There wasn't a big opportunity to take a huge position early on. And so I think as we look at the tea leaves here, we're using our programs that we have had in place for a while to help mitigate any downside risk. And again, we rely on our balanced business model to help us through it.

Okay. And thinking back to the third quarter, I think Spartanburg and Sunbelt were particularly hit hard when lumber rolled over and I believe at the time, part of that was perhaps them taking a heavier inventory position than you typically would. Have there been any changes to that or is that just structurally how those businesses run versus how you approach ProWood?

No. I think, Kurt, working together with our teams, I think they have positioned themselves differently and they're in a better position than they were before, and as we get to know each other better and evaluate the synergies we have as a company, I expect that to continue to get better. And they can utilize some of our strategies and programs to help mitigate some of the variations in the lumber market as well.

Okay. All right. That's helpful. And then I guess switching to the fixed product side, I mean, typically you think sharp inflation Lumber can create some pinch on margins there, but you had a really good Q2 are really good Q4, maybe you could just help us think about what's been most impactful there in Construction and industrial in terms of your ability to offset or avoid that headwind with the kind of inflationary trend that we would expect to maybe be problematic.

I think it's tough to say that, Kurt, but that's all to the management's credit in terms of how they manage through it. I think there are -- been some absolute shifts in our product mix and other things that have helped us, and I think, frankly, a very high level of demand has helped to drive it as well. So I would say as long as that high level of demand continues, we will be in good shape, if that tapers off and then you may see some impacts. But right now, it appears to be fairly strong demand portfolio and the continued improvement in some of the strategies that each the Industrial and the Construction teams are doing will help us enhance it.

Okay. That makes sense. And then just on the price impact this quarter on the top-line, Lumber itself was pretty flat year-over-year in Q4. So is that just you passing along all these other areas of inflation, or is it really all mix? Maybe you could just help walk us through what's going on there and how we should think about that separate from whatever we're assuming on the lumber side going forward.

Yeah. I consider that to be heavy mix changes, but also inflation impacts in labor in particular, and passing those transportation costs, and other one, making sure we pass those along. But then also value-based pricing, especially on the -- I think in the industrial side, we provide a lot of value to our customers. And I think the structure change has helped us understand that and modify our pricing models to make sure we get paid for that value that we had. So all of those things I think contribute to the price increases that you see in the numbers.

Got it. Okay. Thanks for that, Mike. And Mike, sticking with you, I think you talked about a 10% EBITDA margin which you were close to in '21, but other buys isn't something I think we've really seen from the business. So is that an explicit hurdle that you expect to achieve or exceed going forward, and if so, maybe you could just talk about some of the structural changes of why the business is different from a margin perspective today than what we've seen over the last couple of years.

Yes. As we've talked about before, we've been on this transformational journey to become more and more value-added, continue to make sure we're focused on solutions for our customers and enhancing our capabilities to rely those solutions for a long time. And frankly, we've internally, we've had 10% EBITDA margin in -- on our mind for years, and now we're getting close. And so we wanted to make that a public goal and it's not necessarily a goal we think we'll complete right away, but it's a long-term goal and it's our goal to get there, sustain it, while still continuing to focus on return on investment and all the other important metrics that we think drive shareholder value.

Got it. Okay. Well, I appreciate all the color, guys, and good luck here in 2022.

Thanks, Kurt.

Thanks for it.

Thank you. Our next question will come from Julio Romero with Sidoti. Please go ahead.

Hey, good afternoon, Matt, Mike, Dick. Thanks for taking the questions.

Hi, Julio.

Hi, Julio.

Hey. You guys are two years into the change in organizational structure. Maybe just talk about how big of a driver that's been near results in '21 and what you've learned two years in, and maybe any unexpected takeaways, whether good or bad, that the structure has revealed, so to speak.

Yeah, Julio, I guess, from my perspective, I've been pleasantly surprised. And again, I think you see it in the segments you see how they've been driving change. We all expected it to -- things to move faster, whether that was new products or changes in the business. But again, I give the credit to the segment leads, the business unit leads, for really jumping on board and driving this change. And that we can see it and you can see it as well, the results of what happens when they are able to focus

on specific areas and devote all their talents and their energy to it. That part to me has just been incredible. They've done a terrific job on that. I think at the operational level, each of the plants is -- has jumped right in. They have driven their business at the local level. They produced the products, shipped them, delivered them, especially in these crazy COVID times. And those local management teams have done an outstanding job as well. And obviously, for us the backbone for these past two COVID years has been the people who are willing to come in and make the products and ship them and get them delivered. Those production leaders as well as the production employees and teammates, they've really been outstanding and that's why we're so pleased to be able to give them the big bonuses they deserve.

Got It. And then here's my second question. It's certainly been a really strong year performance-wise, I guess, what keeps you up at night? What do you see as the biggest risk or variables as you head into '22? Matt, I think you've talked about labor, freight, and even interest rates. I guess, what do you see as your biggest near to medium-term risk operationally?

Yeah. From an operations perspective, it is -- as I called out the challenges, I think we have strategy to try to deal with those challenges. It's the things that we don't control that are the things that we have to figure out how to react to. And from my perspective, there's not much we can do about that. And we count on the experience that we have with our leadership team to deal with those types of issues. But inflation, interest rates, what kind of policy decisions are being made, those are the things that challenge us and those are things that it's difficult to prepare for because we're just not sure which way people are going to go with that.

Got it. Thanks for taking the questions and best of luck in '22.

Thank you.

Thank you. Our next question will come from Jay McCanless with Wedbush Securities. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking my questions. I got several, I'm swinging -- just rattle right through these. I guess the first one, what are you all seeing in terms of absenteeism at the plants due to COVID, has that started to improve yet or any color you can give there?

Yeah, I can't really give you that information on a local level because I don't have it. But I can tell you anecdotally that I would say our teams have done a tremendous job of working through that. While it's been problematic, I'm sure for each facility at one-time or another, they've really done an incredible job of managing through it. So I don't think that's had a huge impact.

Okay. And then I guess we think about since the beginning of the year, you said that backlogs were good and full for both MH and site-built at year-end. Have been able to work those down? Or get the days shortened on those as you move through the first six weeks of '22?

Yeah. I haven't gotten any additional information on that, Jay, from where we were at year-end, anecdotally, again, is all I can tell you, and I think they are still very strong.

Okay. And then the next question, Mike with the -- I know that there were some one-time bonuses, but what was with the new Acquisition this past year? What do you think the run rate quarterly SG&A, what should be the best number there?

Yeah, Jack. So as we've talked about before, if you pull -- you need to pull bonuses out of the SG&A number and that was a little over $50 million in Q4. And that's going to be about 20% of pre -bonus operating profit. That's what we'd accrue and that tends to be where we land. The rest of the SG&A then I think should remain pretty consistent from this quarter to the next, $124 million or so, except -- February is the time when we give annual reasons. So I think maybe 50% or so of our SG&A cost is wage related. And then you'd want to put a wage increase on top of that. So with that, I think that would be a pretty good place to start.

Great. And then -- so my next question, your competitors in Deckorators have talked about their belief that market share for composite has moved up into the low 20s, I guess -- would you guys say that that is accurate from your standpoint, and also, you look at Deckorators decking was up 11% in the quarter versus ProWood being up only 1% in sales. And I don't -- is that real market share gains or is that just ProWood having a much larger base to grow to get to that 1%?

Yeah. I think there may be some market share gain, Jay, but I think your latter point is the more correct one. If you just look at total volumes of each, the treated lumber volume, for us anyway, is substantially greater than the composite market. But we still look at it long-term. I think the area that we look at in terms of market share gains comes in what I'd call the lower end of the composite space. And we called out Trailhead, which is our entry-level wood plastic composite product. We're seeing growth there. And if Lumber prices are very high than the exchange between the high-priced lumber and the low price composite is not as great.

Got it. I mean the -- are you're already starting to take some shelf space away from Lumber what this Trailhead brought up?

I think the way you look at it in terms of store space, I don't think that's -- it's certainly not that drastic of a market share change. So you're talking in 1% or 2% to 3% share shift, which is -- Okay. Big volumes, but in terms of store space, it's not significant.

And then my last question, so on Industrial and knowing that organic growth was down year-over-year, we've heard a lot more complaints lately about domestic freight laying issues, about a lack of drivers like you talked about, the lack of railcars in Canada was a new one, but I guess if we can get some of these supply chain hurdles domestically fixed and or improved, should that be a tailwind organic unit volumes for Industrial?

Yes, we would certainly hope so. I think the impact of COVID on the manufacturers who are our customers, I don't have a great handle on what that is. But I know there's -- we called out some appliance makers that have very long lead times. And if they are constrained by labor, that's probably not going to do a whole lot to help those lead times, even if transportation gets fixed. But I don't know that for certain.

Okay. Great. Thanks, again.

Alright. Thank you.

Thanks, Jay.

Thank you. And we do have a follow-up question from Ketan Mamtora with BMO Capital Markets. Please go ahead.

Thank you. Just a couple of quick ones. Matt, one, on the site-built side, when you talk about getting into maybe new geographies, in the past, you've talked about staying away from some of these boom and bust markets. As you look at how the housing demand is evolving, is there any change in thinking around that?

There isn't any change in me not wanting to go into boom and bus markets. And the expansion that we're talking about are not going into historical boomer bus markets. I think what we are looking at is transformational shifts in population, in demographics, and trying to make sure that we're in those areas that have really good long-term Growth prospects. So I think that's probably a difference, it's not a shift in our strategy.

Got it. That's helpful. And then Mike, Deckorators sales in 2021 in sort of dollar millions.

Deckorators ' a business unit. So that's more than just -- the decking was $260 million, I think, roughly

Got it. That's perfect. That's all I had. Thank you, guys.

Okay. Thanks, Ketan.

And speakers, I'm showing no further questions in the queue at this time. I'll turn the call back over to you for any closing remarks.

Well, thank you. We're off and running in 2022 and we're very excited about what the future holds, as you can tell. As we look ahead, we see more and more opportunities. Our new segment structure has made us faster and deeper, and we're going to build on this foundation to create even more value. And in 2022, we will innovate. Our interests are aligned with the shareholders because we are shareholders. We look forward to meeting the challenges head on and breaking more records in the future. Thank you for your time today, and thank you for your investment in us. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.