Builders FirstSource - Q2 2024

Executive Summary

• Q2 2024 net sales were $4.46B (-1.6% YoY), gross margin 32.8% (-240 bps YoY), GAAP diluted EPS $2.87 and adjusted EPS $3.50; adjusted EBITDA was $0.670B with a 15.0% margin (up 110 bps sequentially).
• Management lowered FY 2024 guidance: net sales to $16.4–$17.2B (from $17.5–$18.5B), adjusted EBITDA to $2.2–$2.4B (from $2.4–$2.8B), and adjusted EBITDA margin to 13.4–14.0% (from 14.0–15.0%), citing softer housing and commodity weakness; Q3 guide: net sales $4.3–$4.6B and adjusted EBITDA $0.575–$0.625B.
• The Board authorized a new $1.0B share repurchase plan after buying back ~$990M in Q2 (5.8M shares at ~$170.01 average), reinforcing capital return as a support for the stock amid guidance cuts.
• Core organic sales fell 3.8%: Single-Family +1.1%, R&R/Other +1.5%, Multi-Family -31.3%; mix shifted toward affordability (smaller/simpler homes, lower per-start dollar value) while margins remained resilient.
• Digital platform adoption continues to ramp (>$250M orders placed since late Feb; $45M incremental sales YTD), supporting share gains and medium-term growth targets ($1B incremental sales by 2026).

What Went Well and What Went Wrong

What Went Well

• Sustained margin resilience: adjusted EBITDA margin at 15.0% in Q2, up 110 bps sequentially, demonstrating operational leverage even as gross margin normalized.
• Strong cash generation: cash from operations $452.1M and free cash flow $366.7M in Q2; LTM adjusted EBITDA ~$2.71B with net debt/LTM EBITDA 1.4x supporting flexibility.
• Capital deployment: nearly $1B buybacks executed into price weakness and multiple tuck-in acquisitions completed; new $1B authorization underscores confidence in strategy.
  Quote: “Leveraging our fortress balance sheet and exceptional financial flexibility, we executed nearly $1 billion of share repurchases and made three tuck-in acquisitions…” — CFO Peter Jackson.

What Went Wrong

• Guidance cut across revenue and EBITDA reflecting softer-than-expected housing and commodities; FY net sales cut by ~$1.1B at the midpoint, adjusted EBITDA by ~$0.3B.
• Multi-Family normalization a significant headwind: -31% core organic sales YoY; management expects ~60 bps gross margin headwind in 2024 and ~50 bps in 2025 tied to Multi-Family.
• Per-start dollar value declined due to affordability-driven mix shifts (smaller/simpler homes, product substitutions like EWP vs trusses), dampening sales despite unit activity; Phoenix example: ~+45% homes supplied but only ~+15% dollar sales.

Transcript

Operator (participant)

Good day, and welcome to the Builders FirstSource Second Quarter 2024 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by management and the question and answer session. In order to ask a question, please press the star key, followed by the number one on your phone at any time during the call. I'd now like to turn the call over to Heather Kos, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead.

Heather Kos (SVP of Investor Relations)

Good morning, and welcome to our second quarter 2024 earnings call. With me on the call are Dave Rush, our CEO, and Peter Jackson, our CFO. The earnings press release and presentation are available on our website at investors.bldr.com. We will refer to the presentation during our call. The results discussed today 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 from the most directly comparable GAAP measures. You can find the reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable, and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and 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 these 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 from forward-looking statements and projections. With that, I'll turn the call over to Dave.

Dave Rush (CEO)

Thank you, Heather. Good morning, everyone, and thanks for joining our call. As we continue to operate in a complex environment, I am proud of our resilient second quarter results, highlighted by our mid-teen EBITDA margin, which demonstrates the strength of our differentiated business model and the hard work of our extraordinary team members. While we continue to see the expected affordability challenges and normalization in Multifamily, we are executing our strategy by controlling what we can control, investing in value-added solutions, and driving adoption of our industry-leading digital platform. Our ability to solve industry pain points with our best-in-class product portfolio and exceptional customer service makes us a trusted partner as our customers navigate this complex macro landscape.

While near-term market dynamics are challenging as starts have lost momentum, we remain focused on executing our strategy in the weeks and months ahead, and we are well positioned for growth as long-term housing tailwinds remain intact. Moving to our strategic pillars on slide 3. We continue to invest in value-added products, install services, and digital solutions... which are important for our customers. We are providing our customers with a more efficient and cost-effective way to manage home construction. This leads to increased customer stickiness, new business, and improved operational efficiency for BFS. We have a robust set of continuous improvement initiatives focused on leveraging our scale while delivering the highest quality products and services to our customers. Our highly experienced team members are delivering these critical initiatives while serving our customers with excellence and integrity every day.

Finally, we continue to allocate capital in a disciplined manner with a proven M&A strategy and a track record of buying back shares at attractive prices over the long term. Turning to our second quarter highlights on Slide 4. While navigating a market challenged by crosscurrents, we have seen softer than expected sales. However, we delivered strong gross margins of nearly 33% in Q2, and our adjusted EBITDA margin has remained in the mid-teens or better for 13 consecutive quarters. Our durable margin profile is a key proof point of our transformed business model and our differentiated product portfolio and scale. Given the strength of our base gross margin, we see opportunities to more aggressively go after profitable share. We have grown our mix of value-added products over the past 5 years, improved our manufacturing processes and efficiency, and positioned ourselves at the forefront of home building innovation.

Let's move to Slide 5, where we show how we're executing our strategy. Our full suite of value-added products and services remains a competitive advantage for BFS and continues to bolster our partnerships with customers. We're pleased with our progress on digital as we continue to hear great feedback from customers and see increasing levels of adoption each week. We demonstrated operational rigor by delivering $37 million in productivity savings in Q2 and have driven $77 million year to date, primarily through more efficient manufacturing and procurement initiatives. As I have spoken about in the past, we continue to use playbooks to drive growth in our install services business. I'm pleased that our install sales increased by 15% year-over-year as we focus on helping customers address labor challenges.

Our managers have best-in-class information to help them navigate this dynamic environment and make effective real-time decisions. We are also maximizing operational flexibility and have consolidated 7 facilities while maintaining our service levels to our customers with on-time and in-full delivery rate of over 90%. We will remain disciplined managers of discretionary spending, no matter the operating environment. We are continuing to take actions into the second half of the year to flex the business where appropriate. The Single-Family growth momentum occurring earlier in 2024 has stalled, as interest rate cuts have not materialized and starts have come in lower than expected. In addition, the value of a new start has fallen as the market has adapted to affordability challenges. Multifamily continues to be a headwind amid muted activity and relative to our record performance last year, which is creating an increasingly tough comparison.

This was expected and detailed on prior calls, as multifamily continues to normalize. Even at today's levels, multifamily continues to be a very profitable business for us. In the current environment, builders have employed specs, smaller and simpler homes, and interest rate buydowns to help buyers find affordable options. Builders of all sizes are having to navigate affordability issues along with regulatory, land development, and infrastructure challenges. Smaller builders have been especially impacted by the availability of land and limited options to buy down rates. We are partnering with our customers to help them lower the cost of homes for consumers, as well as maintain their margins. This includes balancing our product mix to address their needs while passing through lower material costs. For example, when engineered wood products, or EWP, was constrained, we supplied a larger number of higher-value floor trusses.

As EWP supply normalized and prices came down, we have been able to provide customers with more EWP and have sold fewer floor trusses, helping to specifically address the builders' biggest current challenge: affordability. We have what the builders want and do what's right by them. Although this trend means less sales and gross profit dollars, our margin profile remains strong. We have the operational and financial flexibility needed to partner with our customers to meet their needs and capture growth opportunities. Turning to M&A on slide 6, we continue to pursue attractive opportunities while remaining financially disciplined. In the second quarter, we completed three deals with aggregate 2023 sales of roughly $72 million. In May, we acquired Schoeneman's Building Materials, which we detailed on our Q1 call, and TRS Components, which establishes truss manufacturing within Metro Detroit.

In June, we acquired RPM Wood Products, which enhances our ability to serve high-end custom builders in Northeast Florida. Finally, in July, we acquired Western Truss and Components, adding truss capacity in Flagstaff, Arizona area, and CRI SoCal, a dealer and installer of high-end windows and doors in Orange County. We are excited to welcome these talented new team members to the BFS family. Our disciplined approach to M&A includes increasing our market position in desirable geographies, extending our lead in value-added and specialty solutions, and enhancing customer retention. Our M&A pipeline remains healthy, and we believe we can continue to acquire in a fragmented market. On slide seven, we provide an update on capital allocation. In addition to the three tuck-in acquisitions during the second quarter, we repurchased nearly $1 billion of shares.

I'm happy to announce that our board has authorized a new $1 billion share repurchase plan. As proven by our track record, we'll continue to buy back shares while allocating capital to high-return opportunities. We remain on track to strategically deploy $5.5 billion-$8.5 billion of capital from 2024 to 2026, as outlined at Investor Day last December. Now, let's turn to slides 8 and 9 for an update on our digital strategy. As the only provider of an end-to-end digital platform in our space, we believe BFS Digital Tools will be transformative for the industry and a substantial driver of organic growth. We have seen strong adoption and growth with our target audience of smaller builders, even as they endure a challenging operating backdrop....

We've had broad acceptance of the platform so far, including interest from multiple top 200 builders. Since launching in late February, we have seen the value of orders placed through the digital platform go from nearly zero to over $250 million. Year-to-date, through Q2, incremental sales have totaled $45 million. While we still have a long way to go, we remain confident in our ability to meet our target of $1 billion in incremental sales by 2026 as we grow wallet share and win new customers. I am thrilled to share a significant achievement that underscores our team members' commitment to making a positive impact in our communities. At our recent annual charity event, we successfully raised over $1 million on behalf of the Leukemia and Lymphoma Society.

This brings total contributions to nearly $12 million since first partnering with LLS in 2006. These funds are crucial to advancing research, patient support, and advocacy programs aimed at finding treatments and cures for blood cancers. I want to extend our heartfelt gratitude to our industry partners and sponsors, whose overwhelming support made this successful event possible. I'll now turn the call over to Peter to discuss our financial results in greater detail.

Peter Jackson (CFO)

Thank you, Dave, and good morning, everyone. We were able to effectively navigate a softer-than-expected housing environment during the second quarter by leaning into the pillars of our strategy and operating model. Leveraging our fortress balance sheet and exceptional financial flexibility, we executed nearly $1 billion of share repurchases into stock price weakness and made three tuck-in acquisitions to enhance and expand our footprint. We believe the sustainable competitive advantages in our extensive geographic coverage, value-added solutions, and strong financial position are enabling us to successfully manage market dynamics and deliver long-term value creation. I will cover three topics with you this morning. First, I'll recap our second quarter results. Second, I'll provide an update on our capital deployment, and finally, I'll discuss our revised 2024 guidance and related assumptions. Let's begin by reviewing our second quarter performance on slides 10 and 11.

Net sales were $4.5 billion, a decrease of 1.6%, as core organic sales declined 3.8% with the expected multifamily downward trend. The decrease in net sales was partially offset by growth from acquisitions of 1.9% and commodity inflation of 0.3%. The core organic sales decline was driven by a multifamily decline of 31%, partially offset by increases in single-family of 1%, amid higher starts and repair and remodel of 1.5%. I want to take a moment to discuss the variables impacting the disconnect between single-family starts and core organic sales. As a reminder, historically, there's a roughly two-month lag between a start and our first sale.

In the current environment, we are seeing that lag extend as the relative timing of permits, starts, and completions has shifted in response to the changing market. Second, we have seen a meaningful decline in the sales opportunity of a start in 2024 as the size, complexity, and value of the average home has fallen. These changes are logical given the affordability challenges in the market, but it means that we are seeing less dollars per start despite our strong operating performance. As an example, looking at the Phoenix market, we are supplying material to roughly 45% more homes, but our dollar sales are up only about 15%. To summarize, despite a market where starts are smaller, less complex, and cheaper, we remain the market leader and will continue to deliver superior results.

During the second quarter, as we signaled and expected, multifamily declined more than 31% as we lapsed the prior year's strong comps. R&R and other improved by over 1%, given our retail strength in the faster-growing West. Value-added products still represented approximately 49% of our net sales during the second quarter, despite the headwinds from multifamily. Gross profit was $1.5 billion, a decrease of approximately 8% compared to the prior year period. Gross margins were 32.8%, decreasing 240 basis points, primarily driven by ongoing normalization, particularly in multifamily. SG&A decreased $45 million to $973 million, primarily attributable to lower variable compensation, partially offset by acquired operations. As a percentage of net sales, total SG&A decreased 70 basis points to 21.8%.

The team has done an excellent job of managing SG&A, and we are well positioned to leverage our fixed costs as the market grows. Adjusted EBITDA was approximately $670 million, down approximately 13%, primarily driven by lower gross profit, partially offset by lower operating expenses. Adjusted EBITDA margin was 15%, down 200 basis points from the prior year. On a sequential basis, adjusted EBITDA margin was up 110 basis points, primarily driven by operating leverage, partially offset by lower gross margin. Adjusted net income of $420 million was down $78 million from the prior year, primarily due to lower gross profit, partially offset by lower operating expenses. Adjusted earnings per diluted share was $3.50, a decrease of 10% compared to the prior year.

On a year-over-year basis, share repurchases added roughly $0.22 per share for the second quarter. Now let's turn to our cash flow, balance sheet, and liquidity on slide 12. Our Q2 operating cash flow was approximately $452 million, an increase of $61 million, mainly attributable to a decrease in net working capital and more than offsetting, setting almost a $100 million decline in Adjusted EBITDA. This is a proof point of how our business generates a robust amount of cash in any environment. Capital expenditures for the quarter were $85 million, and free cash flow was approximately $367 million. For the last 12 months ended June 30, our free cash flow yield was approximately 10%, while operating cash flow return on invested capital was 24%.

Our net debt to Adjusted EBITDA ratio was approximately 1.4x, while Base Business leverage was 1.7x. At quarter end, our total liquidity was approximately $1.7 billion, consisting of $1.6 billion in net borrowing availability under the revolving credit facility and approximately $100 million in cash on hand. Moving to capital deployment. During the second quarter, we repurchased roughly 5.8 million shares for approximately $990 million at an average stock price of $170.01 per share. Since the inception of our buyback program in August of 2021, we have repurchased 45% of total shares outstanding at an average price of $76.65 per share for $7.1 billion.

As Dave mentioned, the board approved a new authorization for the repurchase of up to $1 billion of common stock. We remain disciplined stewards of capital and have multiple paths for value creation to maximize returns. Now let's turn to our outlook on slide 13, which we are lowering, given a softer than anticipated housing market and weaker commodities. For full year 2024, we expect total company net sales to be $16.4 billion-$17.2 billion versus our previous range of $17.5 billion-$18.5 billion. We expect Adjusted EBITDA to be $2.2 billion-$2.4 billion versus the previous range of $2.4 billion-$2.8 billion.

Adjusted EBITDA margin is forecasted to be in the range of 13.4%-14% versus the previous range of 14%-15%. We are updating our 2024 full-year gross margin guide to the range of 31.5%-32.5% from 30%-33%. This also remains in line with our long-term expectation of 30%-33% at normalized single-family starts of 1-1.1 million. Our long-term margin profile reflects a greater mix of value-added products, recent acquisitions, and disciplined pricing management. We expect full-year 2024 free cash flow of $1-$1.2, assuming an average commodity price in the range of $380-$400 per thousand board foot. Our 2024 outlook is based on several assumptions.

Please refer to our earnings release in slide 14 of the investor presentation for a list of these key assumptions. While we do not typically give quarterly guidance, we wanted to provide color for Q3, given ongoing housing uncertainty and multifamily normalization. We expect Q3 net sales to be in the range of $4.3 billion-$4.6 billion. Adjusted EBITDA is expected to be between $575 million and $625 million in Q3. Turning to slides 15 and 16. As a reminder, our base business approach showcases the underlying strength and resiliency of our company by normalizing sales and margins for commodity volatility. This helps to clearly assess the core aspects of the business, where we have focused our attention to drive sustainable outperformance. Our base business guide on net sales for 2024 is approximately $16.8 billion.

Our base business adjusted EBITDA guide is approximately $2.3 billion at a margin of 13.7%, which reflects a roughly net zero impact from commodities. For context, slide 16 shows that our 2020 base business adjusted EBITDA was roughly $1.1 billion at 991,000 single-family starts, and we are expecting better adjusted EBITDA at lower single-family starts this year. As I wrap up, I want to reiterate that our exceptional positioning and financial flexibility gives us the confidence in our ability to execute our strategy and drive long-term growth. The Investor Day goals we laid out in December remain achievable, assuming a return to normalized single-family starts at $1.1 million in 2026. With that, let me turn the call back over to Dave for some final thoughts.

Dave Rush (CEO)

Thanks, Peter. Let me close by reiterating that we continue to execute, as evidenced by our strong profit margins and cash flow generation. Our resilient business model allows us to win in any environment. In 2020, we had an 8.7% base business adjusted EBITDA margin at 991,000 single-family starts. This year, we expect a mid-teens adjusted EBITDA margin at a lower level of housing starts. This demonstrates the resiliency of our transformed business and is a strong base to build from as the housing market grows to meet demand. I am confident in the long-term strength of the industry due to the significant housing underbuild and favorable demographic trends. We are well positioned to take advantage of those tailwinds, which will help drive growth for years to come as we execute our strategy.

We believe we are the unquestioned leader in addressing our customers' pain points through our investments in value-added products, digital tools, and install services. Our proven playbook for growth and robust free cash flow generation will help us continue to compound long-term shareholder value. Thank you again for joining us today. Operator, let's please open the call now for questions.

Operator (participant)

Certainly. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Once again, that is star one to ask a question and star two to remove yourself. We will pause for just a moment to assemble a question queue. We'll go first to Matthew Bouley with Barclays. Please go ahead.

Matthew Bouley (Managing Director)

Good morning, everyone. Thank you for taking the questions. Maybe we'll start on the gross margin side. Kind of looking at the new margin guide and the cadence that you're implying for the second half. I'm curious as we kind of zoom into the fourth quarter, you know, what that would imply for kind of the exit rate around gross margins. And certainly what I'm getting at is as we think about 2025, you know, where your starting point on gross margins would be as you continue to highlight that the overall 30-33 guide, the long-term guide, is kind of at normalized housing starts.

Certainly begs the question, is if we're not quite at normalized housing starts yet in 2025, you know, where the gross margin could land if there's kind of an air pocket, given the starts outlook? Thanks, guys.

Peter Jackson (CFO)

Morning, Matt. Thank you for the question. Yeah, so, you know, margins has been an important factor for us. It's changed a lot over the years. We certainly get a lot of questions on it. We're pleased with how margins have performed so far, right? We knew normalization was going to happen. We saw it coming, particularly on the Multifamily side, but we're certainly pleased with how it's progressed. As you look into the future, into the second half of this year and into next year, you know, more normalization is what we've outlined, and I think that we've been pretty clear about that. Hopefully, no change in what expectations are. When it comes to 2025 and the exit rate, so I'm going to be real clear, right? We don't have a crystal ball. We don't know. This is not intended to be guide.

For 2025, we haven't done that work yet. But based on what we're seeing right now, right, we're coming out of this year at roughly 975 on starts, give or take. Based on that, we're kind of at that level of performance that we're guiding to, right in that 32% range. As you think about 2025, based on kind of what we're seeing right now, we think it's probably another 100 basis points at this level. Like, if you just extend the line out, you'd see another 100 basis points of headwind into 2025, made up of the two pieces you'd expect, right? About half of that is multifamily, and about half of that is core operations, based on kind of what we're seeing.

So we're definitely closer to the end than the beginning in terms of the normalization, based on what we see. You know, the multifamily is a story, no question. We think that, you know, if you look back to last year, we called out a little over 100 basis points of tailwind from multifamily. We'll give back 60, maybe a little, you know, right in that range, basis points in 2024, with the other 50 basis points coming in 2025. That's probably about $200 million worth of EBITDA headwind from multifamily. And we feel like the rest of the business is performing really well and we'll be in a strong position to overcome that as we get into 2025.

Dave Rush (CEO)

Matt, the only thing I'd add is, you know, our focus and continuing focus on doing more for the customer with install, doing more for the customer with value add. Those are higher margin profile products that we help offset any start variation.

Matthew Bouley (Managing Director)

Got it. Okay, that's a very helpful quantification and color, and that dovetails into my next question. So if I look at kind of the total EBITDA guide for the year, I guess it's down about $300 million at the midpoint... But the base business EBITDA guide is only down by $100 million. So I guess presumably the change in commodity prices is actually the largest change in the guide. I just want to clarify if that's the case, and if so, when we're talking about the kind of stability on the value add side, can you kind of speak to, you know, what has specifically changed in just the value add outlook? I mean, in terms of the growth side, starts, and specifically value add, margins.

Just kind of what's really driven that kind of piece of the guidance change there? Thank you.

Peter Jackson (CFO)

All right, so one question in 2026 parts. Let's see if I get them all.

Matthew Bouley (Managing Director)

Of course.

Peter Jackson (CFO)

God, we so overall, you're right, we have seen a shift in commodities, right? So the market's been weaker. The both lumber and OSB, OSB kind of ran up for a little bit, has absolutely reset and pulled back. That is the largest component of the dollar value change in sales that we've called out. So of the $1.2 billion, more than half of that is just the commodity valuation change. What that means to the business in terms of the rest of the output, the call down on EBITDA, the bulk of EBITDA call down is deleveraging. It's the vast majority of it, right? It's the smaller business absorbs less of the fixed overhead costs. You can see this quarter, we had some pretty substantial improvement just because we are busiest in the summer months.

We thought we'd be busier in the back half than we're gonna be, so we're giving some of that back. Value add, more specifically, you know, we continue to see strength, we continue to see the volumes moving very well. The demand is very strong. Customers have consistently stayed with the product. We haven't seen a shift away from value add broadly. What we are seeing and what, you know, we pointed out here, you know, what Dave pointed out in his remarks, was really this mixed dynamic, right? It goes to the customers focusing on affordability. How do they get cost out? One of the ways they're doing that is a shift within value add, shifting from open web truss to EWP. That's just it's a lower sales dollar value product, right? It's combined with a lot of other things.

They're shrinking the square footage of the house. They're taking out basements. They're reducing the number of garages and bonus rooms. All things that are not a surprise if you think about the affordability challenge, but that has had a broad pressure that's not unique to value add or not value add. I think where value add has seen pressure is really around the price pass-through and that type of mix. Volumes are still strong, margins are still strong on the core product categories.

Dave Rush (CEO)

One thing I would add on the value add component, specifically, Matt, is even as truss volumes decline, our ability to more efficiently manufacture increases. As we go from 2 shifts to 1 shift, our second shift is the least profitable for obvious reasons, but you put up with that because you leverage 100% of the fixed cost. When we go to 1 shift, that's our most profitable shift. So even as the top line may be less because of demand being less, the ability to maintain margins is actually easier because we're most efficient in that shift.

Matthew Bouley (Managing Director)

Great. Well, appreciate the call. Thanks, Dave, Peter. Good luck, guys.

Peter Jackson (CFO)

Thanks, Matt.

Operator (participant)

We'll hear next from Mike Dahl with RBC Capital Markets.

Mike Dahl (Managing Director of Equity Research)

Hi, thanks for taking my questions. Probably gonna just follow up on a couple of things there. Look, Peter, I know that it's not a practice of yours to give a pinpoint estimate on margins, or certainly not to give formal guidance a year out at this point in the year, but I just want to be crystal clear on your last comments about exit rate and 25% gross margin, just because there's been so much hand-wringing over this. When you're talking about it, it seems like you're saying, "Hey, if my midpoint is 32% for this year, maybe my midpoint or my starting point in 2025 is 31%," or said another way, maybe my exit rate in 4Q of 2024 is around 31% gross margin.

Was that the intended message, or could you clarify that a little bit more specifically on the 4Q gross margin here?

Peter Jackson (CFO)

Morning, Mike. In short, yes, you got it right. You heard it right. We think we're around 32% this year. We think our exit rate's around 31%, based on everything we're seeing today. This is not guide. It's not intended to be a crystal ball. It's just trying to give directionality. The short answer to that, and then I think you alluded to it and so did Matt, our long-range normalized margins, we're saying, are 30%-33% at 1.1 million starts. This would indicate that we're gonna be at 31%, at 975,000 starts. What does that mean? Well, that means right now, margins are strong. Margins are good.

Margins are better than we expected, which is great, but it also means we're under pressure in a market that's got extra capacity versus what we're all dialed in for, which is 1.1 million plus, right? So that's the, that's the tug-of-war going on right now and why we're not able to sort of put our, put our stake in the ground... claim it. We've got to see how this plays out. Pretty optimistic, like Dave said, about the overall market, the demos, the underbill, you know, it, it's good. We think the tone is playing out, maybe belatedly, but positively in terms of the interest rate environment right now. So we'll see. But it's, it's a strong business, it's really well positioned, and margins look good.

Mike Dahl (Managing Director of Equity Research)

Okay. Yeah, that's helpful. And look, I agree and appreciate kind of the zooming out and the perspective about the, hey, even if we're talking about 31, it's 31 at the depressed levels of volume, which is longer term, actually quite constructive. Just shifting gears, it all the stuff around the mix, the complexity, I... Yeah, this is, I think another part that's hard for all of us and investors to appreciate when we're kind of building out a model that tends to be kind of volume focused.

And so I guess, when you're all the moving pieces there, is there a way for you to articulate, "Hey, if all else equal, you know, what we're seeing on the mix changes and complexity changes to date were to hold, you know, here's how much of a delta we think it would drive relative to..." If I think my single family starts are up, low single, is it a low single-digit headwind against that? Is it a mid-single digit headwind against that? You know, any help you could provide on just kind of ballparking that and would be great.

Peter Jackson (CFO)

Yeah, so that's it, it's a great question. You know, we've spent a lot of time on this. As you know, we spend a lot of energy really trying to understand our business at a granular level. We have a lot of data. Unfortunately, it's a lot of data, right? So the ability to really understand the mix impact of hundreds of thousands of SKUs at 570 locations in 80 markets, it's, it's sometimes an adventure to really get through the noise to get the signal. I think earlier this year, you saw us reacting to what we were seeing, trying to understand it. I think the storyline around this whole value conversation is that the order of magnitude is bigger than we expected.

I think the storyline around the timing of starts versus permits is, again, order of magnitude a little bigger than we expected. You know, so Q2, if you use our roughly 2-month lag, we've got about a 20-point gap that we're tracking down, that we're saying: "Why aren't we up a lot more?" And it's broken down into a few pieces, right? The probably the single biggest piece is we think that the lag between permits and starts is a bit longer. We think the cycle time's a little longer. You saw large builders pulling large quantity of permits and doing it to beat code changes, doing it to beat the rush, but everybody thought the market was going up, and they haven't put those starts in the ground as quickly as the traditional custom builders would have.

And I think we all know the large nationals, the big guys are winning, right? They've got a bigger share of the pie, and we think that's causing a little bit of distortion in the starts number. That will settle out as the year progresses, but at least early on, it overstated starts a bit. The other pieces are pieces we've talked about, right? Maybe, you know, another third of it is probably related to the pricing changes. A lot of that is vendor. Vendors have cut. We talked about BWP, doors, millwork. There are a bunch of categories that have had to readjust to the current demand, and they have adjusted prices in response. So that's an important piece. And another roughly third is in that category of mix, right? It's what we're seeing in terms of...

You know, if you think about the traditional good, better, best, you're talking about best to better, better to good, good to let's not do it. It's the things we were talking about before with regard to going from basement construction to slab. May not sound like a big deal, but that percent is changing in the statistics, and that has a meaningful decline in the value of product that goes into the house. So rough categories, that's kind of how we think about it, but I'd be lying if I told you we had those numbers with precision. I think we've got good directionality, but we're going to have to see how that plays out. The interesting part of all of it, though, Mike, is it's so volatile, right? It moved quickly one way. There's no reason it can't move quickly the other.

We're just going to stay close to it and make sure we're serving our customers the best we can.

Dave Rush (CEO)

The only thing I would add, Mike, is it's primarily a, you know, a top-line scenario for us that we have to manage through. Our margins, regardless, have stayed very consistent and very strong, and we're appreciative of that. But, you know, another, the best example is the one that Peter gave in Arizona. 45% number of houses that we've started, 15% is the increase in revenue. You can do that math and say in Arizona, it's 30% impact. But at the end of the day, it varies depending on the market.

What we're seeing, though, is we have the levers that we can pull to get the sale, depending on what the customer chooses to use to solve their problem, and at the same time, we're able to hold our margins because of having that ability to provide an alternative solution that works for both.

Mike Dahl (Managing Director of Equity Research)

... That's all really helpful. Thank you both.

Peter Jackson (CFO)

Thanks, Mike.

Operator (participant)

We'll go next to Rafe Jadrosich with Bank of America.

Rafe Jadrosich (Director and Senior Equity Analyst)

Hi, good morning, it's Rafe. Thanks for taking my question. Peter, appreciate all of the color so far on how we should think about the margin progression here. Just following up on the earlier comments about 60 basis points of headwinds from multifamily in 2024 and another 50 basis points, roughly, in 2025. How much of that is normalization of the multifamily margins off of excess levels versus multifamily mix? And how do you think about the multifamily margins today? Like, how much have we seen a normalization off of the elevated margins you've had in the past? And how much more is there to go?

Peter Jackson (CFO)

Morning, Rafe. Thanks for the question. Yeah, so the, you know, the dynamic around the multifamily is a tricky one. We've tried to be really open and honest about what we're seeing, but it is not, it's not convenient in terms of how it's playing out. In other words, it didn't just stop on January 1st, and we didn't have a nice, clean turn, so I don't have nice, clean numbers last year or this year. So there's a little bit of this you're probably gonna poke at, but I can give you sort of my best sense of the directionality. We continued to see strong business in multifamily throughout all of last year that really began to turn in that Q1 window.

We are seeing meaningful declines in our margins, and what we're seeing starting in Q1 and stronger in Q2, kind of that 50-100 basis points in those periods, headwind driven by Multifamily, right? That's, that's sort of the combination of the mix shift, 'cause it's all value add, and that downward shift within the category. So with that in mind, we do expect it to continue this year. I think I mentioned from a dollar perspective, Q2 was gonna be a chunky one, right? That was gonna hurt a lot, and obviously it did.

But we will continue to see headwinds throughout the year, again, with that kind of rough average of around 60 basis points, 50-70, give me a band around it based on timing, but overall impact on the company from the full multifamily segment of our business.

Rafe Jadrosich (Director and Senior Equity Analyst)

Thank you. That's helpful. And then you had in the prepared remarks, there's a comment that I thought it was interesting, just talking about how given the strength of the base gross margin, you sort of see more opportunity to go after profitable share going forward. How do you think about how your market share trended kind of in the first half of this year? And do you expect any changes going forward? And does any of that have to do with, like, just some of the mix impacts that you're thinking about? Like, have you seen builders multi-source more? Has that been a headwind? And then going forward, do you expect to try to take market share? Like, what are your expectations there?

Dave Rush (CEO)

You know, Rafe, this is Dave. I would tell you what we're looking at is a disciplined approach, right? We want to identify opportunities where it's a volume where we have an opportunity to have a win-win with our customer, where we can leverage that incremental volume against our fixed costs, whether it be manufactured product or even distributed product, and offset you know, the volume incentive that we may use to go after that business. So it'll be a targeted approach. It'll be a disciplined approach. It will be only where the volume makes sense, and there has to be a win-win solution there. Thankfully, we had all the guys in in the first part of July, and that was the focus of the meeting, and they all had a plethora of opportunities they felt met that description.

You know, we're gonna execute that strategy in the back half.

Rafe Jadrosich (Director and Senior Equity Analyst)

Great. Thank you. Appreciate it.

Dave Rush (CEO)

Thanks, Rafe.

Operator (participant)

We'll go next to Trey Grooms with Stephens Inc.

Trey Grooms (Equity Research Analyst)

Hey, good morning, everyone. So I appreciate all the color you've given thus far. And this one's, I guess, on just on lumber, kind of the competitive pricing, you know, that we've seen on the commodity lumber side. Nothing new, but wondering if you're seeing this, you know, become, you know, more widespread or intense, given the kind of weaker environment. But also, you know, on the trusses and value add, with multifamily pulling back, which was clearly taking up a lot of that supply, are you seeing any more competitive behavior on the truss side or value add side now that multifamily has started to normalize?

Dave Rush (CEO)

Hey, Trey, thanks, thanks for the question. On the commodity part of the question, we always see the players in the marketplace that take commodities too low because it's all they have to offer, and we're not choosing to play in that game. What we will do, though, is partner with our customers that, you know, commodity becomes part of a package, and we value the overall packaging and create incentives to buy all products from us, whereby, through the value add piece of that package, we can earn back a level of whatever volume incentive we provide. So, you know, our focus on building share is still got to be a win-win. It's not gonna be only a win for the customer or only a win for BFS.

It won't work or it won't be sustainable if that's the way, the way you approach it. With specifically the value add, where we still and will maintain an advantage, is over our efficiencies. We have continued to drive efficiencies, and I said in the earlier comment, if we're in one shift, we're as, we're as efficient as we can possibly be when we're one shift. So we have the ability to leverage incremental volume in that idle capacity, and again, create a more profitable net, net number for us, even as we provide an incentive to customers for the incremental volume. So, you know, that's kind of how even as we've managed and tried to pick opportunities to drive the top line, we've been able to hold on to the margin.

Trey Grooms (Equity Research Analyst)

Yep. Okay, that's helpful. I just... I heard Peter mention something about price pass-through, and I think it was when you were talking about the value add side. Just trying to make sure-

Dave Rush (CEO)

Actually-

Trey Grooms (Equity Research Analyst)

I understand what that comment meant.

Dave Rush (CEO)

I don't want to... I'll answer it, then I'll let you follow up. That's actually when we get a cost reduction from our vendors on products, and we immediately pass that through. It is again impactful on the top line because now we're selling a lower cost product, but our margin profile is not impacted and, you know, we're kind of operating under the same model for from a profitability standpoint. Is that right?

Peter Jackson (CFO)

Yeah. Yeah. So just to echo that same thought, we do stay very focused on making sure we're acting in a disciplined manner with our customers in key categories. As you know, commodities, we pass it all through. A little color on that, I guess, I'm a bit disappointed. I would have expected, I would have hoped to have seen, a lumber industry be a little more intentional about making money. Not everyone is bad and is a bad actor in that category, but I remain, I continue to be surprised at how many players are willing to sustain loss or losing, mills, business units, whatever you want to call it, longer than I would have expected.

There, there's an awful lot of weeping and gnashing of the teeth out there, but not a lot of behavior that would indicate that we're moving in the right direction. Hopefully, we will, but that's disappointing, and I think what you see are weaker lumber numbers that we absolutely pass through to our customers. What I was referring to before are certain price cuts that we've seen, right?

Trey Grooms (Equity Research Analyst)

Yep.

Peter Jackson (CFO)

Specific actions taken by EWP players, doors players, millwork players, and some others, where we've seen, you know, low to mid single digit reductions in overall sales attributable to nothing else than-

Trey Grooms (Equity Research Analyst)

Right

Peter Jackson (CFO)

... customer, you know, Sorry, the prices we give our customers are adjusted because of the prices we're charged by our vendors.

Trey Grooms (Equity Research Analyst)

Yep. Okay, got it. And then just a quick one for my follow-up. You know, there's very, I guess, differing views on kind of the multifamily outlook and, you know, maybe how quickly that could take to kind of normalize. I'd love to maybe get your thoughts on that. I think you mentioned there may be a little bit more headwind to come in 2025, but any color on maybe the timing of how, you know, when we might see that stabilization in multifamily? And then, you know, I know it's hard to say, but, you know, directionally, you know, do you think we could see maybe a pretty quick rebound there once after it does find some stabilization?

Or do you, do you feel like we could tread water there at that kind of much lower level there for a while?

Dave Rush (CEO)

Yeah, Trey, what we've seen—I'll tell you the dynamic we've seen in 2024 is in addition to people hesitant to start new projects, we've actually seen existing projects get delayed and pushed, you know, pretty consistently throughout the year. The project's still on the board, project's still gonna get done, but it's getting pushed, which, quite frankly, was part of the top line headwind in the first half, even though the multifamily is a small piece of the overall. New projects take so long to get underway that I think the order of that has to happen is we have to have the cost of capital come down. Then there's gonna be new projects that come out of the ground, but they're gonna take a while to get going.

The one thing we are seeing, though, is a gap currently that is in favor of multifamily, where rental rates are now less than mortgage rates for essentially the same type of living arrangement. So a lot of the excess capacity that we feel like we came into the year with, with multifamily, we do believe will burn off during the rest of this year, which will encourage a quicker rebound in multifamily in 2025. The problem is it just takes so long.

Trey Grooms (Equity Research Analyst)

Yep. Okay, thanks for the color, Dave. I really appreciate it.

Dave Rush (CEO)

This is still a very profitable business for us at these levels, and will continue to be at the levels we expect to have through 2024 and into 2025.

Trey Grooms (Equity Research Analyst)

Great. Thank you very much.

Dave Rush (CEO)

Thanks, bud.

Operator (participant)

We'll go now to Adam Baumgarten with Zelman.

Adam Baumgarten (Equity Research Analyst)

Hey, good morning, everyone. Just on the value of new starts declining, I guess, could you give us a sense for—I know you gave the Phoenix example, but maybe overall, what it's down and how much of that's from smaller square footage, and how much of it is that lower mix of value add?

Peter Jackson (CFO)

Morning, Adam. Honestly, to know that answer with precision, I'd probably call you guys. We know there are data points that prove our point, what we don't have is confidence in the individual buckets. It's way too volatile and way too customer specific, it's regionally influenced for us. But again, if we're missing, you know, 20 points in terms of where, where is that sale, I think directionally, you know, the biggest third is, is on the extended time it's taking between permit and sale. We know another chunk of it is on the value, just the prices charged, and the rest of it is, is that mix component. It's, it's square footage, it's smaller, it's cheaper, you know, 5-7? I don't know. It's. I'm guessing, to be honest.

Adam Baumgarten (Equity Research Analyst)

Okay, got it.

Dave Rush (CEO)

We've done enough proof points to know that it's a thing, right? It's harder to decide what part of what aspect is... You know, for example, we took a bid for a national builder from last year and compared the exact same house, the exact same model this year, and it was down mid-teens in overall sale opportunity, and the exact same house. So, you know, we don't have that in every market and every builder, but at the end of the day, again, it was another proof point that what we suspected was happening is actually happening. And directionally, we know what we're dealing with. And, you know, again, as that changes, the encouraging thing is the margin profile is not also changing.

That's, you know, I'd love to have all the volume that we could possibly get, but at the end of the day, I at least want to keep the balance between what we're selling and what we're making, and what we're selling in check along the way.

Adam Baumgarten (Equity Research Analyst)

Okay, got it. Thanks. And then just a couple more. Just on the digital sales, the incremental sales you expect in 2024, I think you've talked about $200 million in the past. Is that still expected for the year? And then just on M&A, any change to the strategy there, given the increase in the share repurchase activity and the authorization?

Dave Rush (CEO)

Yeah. Let me talk a little about digital. As we've started to roll out the digital and the adoption, I think it probably isn't a surprise that we've gone first to our own employees, and we've gotten them up to speed on the benefits of digital so they can more fully explain to their customers. The customers that we've gone to initially have been existing customers. So it's why we give you that stat of orders through the system of $250 million. Now, we expect fully that existing customers pushing orders through the system, that's business we probably would have already had, we would have still gotten had we not had digital. But we still want to track it. It's an indication of acceptance.

So the incremental business we get is going to come more from new customers, and as we continue to get existing customers more comfortable, incremental wallet from those guys. But that, obviously, is going to be more in the form of a hockey stick. So no, we're not giving up on the $200 million for this year at this point in time. It is, admittedly, you know, a tougher point to get a little bit to the hockey stick, but we still know that hockey stick is going to be there. And the acceptance we're getting, even as it is from existing customers, is really encouraging. I'll let Peter talk to the M&A piece.

Peter Jackson (CFO)

Yeah. I 100% agree on digital. It is encouraging, the momentum is good. On the M&A, the momentum is good there, too. I think you've seen the increasing number of acquisition targets that we're closing on. Still, you know, a little bit smaller, but we really like the pace. The pipeline still looks very good. We're still pleased with the potential targets out there and the way that negotiations are going. Certainly very optimistic about our ability to continue to grow the business in a healthy way, with really, really nice assets like the ones we added this quarter.

Adam Baumgarten (Equity Research Analyst)

Great, thanks. Best of luck.

Peter Jackson (CFO)

Thank you.

Operator (participant)

We'll hear next from David Manthey with Baird.

David Manthey (Senior Research Analyst)

Hi, everyone. Good morning. Peter, on your non-guidance, the 31% gross margin exiting the year, when you talked about 2025, you said 100 basis points of headwind, 50 from multifamily makes sense, but then the other 50, you said core operations. I was just wondering if you could explain that a little bit more? Is that just lower operating leverage because of the lower levels of starts and overall demand, or is that something else?

Peter Jackson (CFO)

Morning, Dave. Yeah, thanks for the question. So that's simply the normalization we've seen in the core business. It's running at 975,000 starts, which is sort of the rough estimate for the 2024 results. We are seeing pressure, right? The battle is on in markets, particularly where you have what I would consider to be, you know, tougher, more competent competitors, sometimes competitors that have less of a margin threshold, right? They're willing to drop their margins in order to try and capture the sales volume. So this is the same business as the other, right? When you have aggressive competitors in matched markets, you're gonna see some price erosion, and that's a bit of what we're seeing.

A little bit of mix in there, here and there, but that's the bulk of that half point.

David Manthey (Senior Research Analyst)

Got it. Okay, and then on the EBITDA margin in the base business, which you raised by 20 basis points to 13.7, could you share with us the source of your increased confidence, despite the kind of lackluster macros here? And also, I assume that your 2026 ranges and that 14.4 midpoint is intact as well. Is that right?

Peter Jackson (CFO)

So the second half of the question, yes, our 2026 is still intact. You know, we would need volumes to rebound, but we feel good about the core business, and I think that informs where we're dialing in on the EBITDA number. For that base business calc, we're getting better and better clarity around what our margin profile looks like in a healthy market, what our profile looks like in the current market, and being able to dial in, you know, the breakout from commodities. Kinda seeing the full year really leveling out right around that $400 level without a ton of volatility. A bit, but not a ton, is giving us the ability to kinda just dial it in a little bit more to what we think is a real, sort of neutral commodity level of performance.

Core business is still very healthy. You know, as much as we want it to be bigger, I think what you're seeing here and what the Base Business chart lays out, is a business that's really been transformed based on what we sell and how we service our customers, and the stability of that core business, even though you've seen some kind of ups and downs in the starts performance of the overall market.

David Manthey (Senior Research Analyst)

Sounds good. Thank you very much.

Peter Jackson (CFO)

Thank you, Dave.

Operator (participant)

We'll go now to Reuben Garner with The Benchmark Company.

Reuben Garner (Managing Director and Construction Research Analyst)

Thanks. Good morning, everybody. I hate to harp on the multifamily, but I do have a quick follow-up about the top line for next year. I think your business is... Well, multifamily starts are a little over 40% off of the peak levels. I think your business is in the 25%-30% range. Does that imply that at this current kind of run rate for starts, we have another 10-15 points of top line pressure within your multifamily business in 2025?

Peter Jackson (CFO)

So that's a tough question. It's very specific. Greetings, Reuben. Thank you for the question. Appreciate it. The question is very specific, and I'm not sure I can go all the way down. What I will say is, we do expect there to be the rest of the sort of lapping of the rest of the decline in multifamily. So certainly expect there to be continued headwinds on the sales line, kind of in that, you know, maybe $400ish range, based on what we're seeing now, and around $200 of headwind on the EBITDA line for multifamily. But remember, multifamily is all in. You've got the full portfolio of multifamily products when we're talking about multifamily. I know in the past I've thrown out some color around truss only.

I'm gonna try not to do that anymore 'cause I think I just muddy the waters. But when we're talking about the total nut, you know, based on what we're seeing today, I would say that's the, the trend out. You know, certainly some headwind, but Multifamily is only 11% of our business this year. Gonna decline a little bit further next year and be an even smaller percentage. It's just a declining impact on the overall as it shrinks back and kinda normalizes. Does that answer your question?

Reuben Garner (Managing Director and Construction Research Analyst)

Yep, it does. Thank you. That's helpful. And then, can you update us, you know, pre-2020, the way it would work is the builders would set up a contract for you guys. I think at the time it averaged somewhere between 60 and 120 days for their framing package, and during the last few years, that shrunk significantly. Are we still... Are the length of those contracts still in the kinda 30-day range and lined up with inventory, or have you seen that move at all with kind of the reset of the commodity markets?

Dave Rush (CEO)

It's still in the range with how we buy our inventory, which is what we've always tried to do. As long as we have the ability to cover what we sell, we're willing to work with our builders however we need to match that up also with how they price their homes. And it hasn't gotten to the point where it was 90+ or whatever, but we're generally in a 45-day exposure rate, but that's exactly how much inventory we hold and how we carry it.

Peter Jackson (CFO)

Yeah, there's certainly been some pressure back in the market. There are certain players that have been less disciplined. We've definitely tried to hold the ground on what we think is a good, smart way of quoting in the market.

But to Dave's point, we've tried to increase it. Those 30-day numbers we talked about were back during sort of the busyness of the supply chain issues, where you really had to move it quick. Now that we're back into a more normal cadence, where we've got that 45-day-ish line of sight, if you will, between what's on the ground and what's on order, it's a lot easier to work with customers and tie it together and use some 60-day terms, that sort of thing. We're still absolutely opposed to 90 and 120-day terms, because we think that's the wrong discipline and the wrong way of approaching the market.

Dave Rush (CEO)

Well, at that point, we actually do take market risk. I mean, and, you know, what we're trying to do is mitigate their risk and mitigate our risk. We work with them to try to find that middle ground and make sure that they're covered and we're covered. And, you know, we'll adjust off of that a touch, market-specific if it helps solve a problem for our customer. But in general, we're in that 45-day range.

Reuben Garner (Managing Director and Construction Research Analyst)

Exactly where I was getting at. Thanks, guys. Appreciate it, and good luck going forward.

Peter Jackson (CFO)

Thanks, Reuben.

Operator (participant)

We'll go now to Jay McCanless with Wedbush.

Jay McCanless (Equity Research Analyst)

Morning, everyone. Thanks for taking my questions. The first one I had, when, when you think about lumber prices and, and the, the way you guys look at it, I get- you know, talking about $400 kind of being the base assumption. Could you talk about what deflation you've seen in, in 2Q 2024 versus where it was, 2Q of 2023?

Peter Jackson (CFO)

We called it out. In terms of what went through COGS, it was just basically zero, right? Like 0.3 or whatever, you know, small 3% headwind. That is something that does move a little out of sequence in sync with what you see in random lengths. It is going to be a headwind in the second half versus the first half, which is how you get to that sort of full year number that's a little below the $400 level.

Jay McCanless (Equity Research Analyst)

Okay. Thanks, Peter. And then the other question I had, if you look at... I can't remember which slide it's on, but commodity lumber was up, I think, 13% in sales for the second quarter. That's almost double the rate of single-family starts growth that the census numbers had for the national readings as well as the South readings. I guess, with things in general slowing down a little bit, are you trying to outgrow and take even more market share on the commodity side, until value add maybe comes back a little bit? Because those were pretty impressive numbers relative to where the rest of the market was.

Peter Jackson (CFO)

Well, Jay, we always want to take all the share, brother. Come on, man. No, in all honesty, in all sincerity, we saw—we always see a couple month lag, and if you think about the Q1 starts number, that was up in the 20s, so you're just seeing that slosh over a little bit into Q2. We are seeing, you know, a comparable performance in the business. We'll certainly stay aggressive, like Dave said. We think when there's opportunities to lean in and take share, we're gonna keep doing it. But that's not really the explanation for Q2.

Jay McCanless (Equity Research Analyst)

Okay, great. Thanks for taking my question.

Peter Jackson (CFO)

Thank you.

Operator (participant)

We'll go now to Steven Ramsey with Thompson Research Group.

Steven Ramsey (Senior Equity Analyst)

Good morning. Maybe, just to wrap my two questions into one here, the VAPS mix at 49%, pretty impressive, even with the complexity headwinds that you have. Clearly, a lot of dynamics here, but do you think the housing market normalizes towards complexity going up from current levels over the next couple of years to reach your plan, or do you need it, that complexity level, to move up? Or can the current complexity level, allow for VAPS to allow you to reach your long-term targets? Thanks.

Dave Rush (CEO)

Yeah, thanks for the question. Keep in mind, the value-added products, the movement is within the category, right? It's still engineered wood products are still value-added. So as you go from truss to engineered wood, we're not leaving the value-add product category, we're moving within it. The sales opportunity is less, but again, our margin profiles are held in there. And we're doing what we can to keep our customers addressing affordability and at the same time maintaining their margins as well. So I don't see the shift in incremental value-add products will come as the market returns to normal, but there will be a higher demand for those products in general. And right now we offer the full spectrum.

We will send you sticks if you don't want value add, but then we go from READY-FRAME to panel, to panel and truss, to fully installed framing packages, all which, you know, would funnel into the value-added product category in total. And we would expect it to maintain for sure, and incrementally grow as the housing starts return to normal, normal levels.

Steven Ramsey (Senior Equity Analyst)

Excellent. Thank you.

Dave Rush (CEO)

Thank.

Operator (participant)

Ladies and gentlemen, that will conclude today's question and answer session and the Builders FirstSource second quarter 2024 earnings conference call. Thank you for your participation. You may disconnect your line at this time, and everyone, have a wonderful day.