Hello and welcome to Builders FirstSource Third Quarter Fiscal 2007 conference call. Your host for today is Mr. Floyd Sherman, Chief Executive Officer. Any reproduction of this call in whole or in part is not permitted without prior written authorization of Builders FirstSource. As a reminder this conference is being recorded today, October 26, 2007. I would like to turn the call over to Kaydee Murphry, Builders FirstSource Director of Financial Reporting who will begin the call. Please go ahead.

Good morning and thank you for joining us for the Third Quarter 2007 Financial Results. We issued a press release after the market closed yesterday. If you don’t have a copy, you can find it on our website at www.bldr.com. Before we begin, I would like to remind you that during the course of this conference call, management may make statements concerning the company’s future prospects, business strategies and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties which could cause actual results to differ materially from expectations. Please refer to our most recent form 10K filed for the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The company undertakes no obligation to publicly update or revise any forward-looking statements. We’ve provided reconciliations of adjusting items in non-GAAP financial measures in our earnings press release and detailed explanation of non-GAAP financial measures in our Form 8K filed yesterday, both of which are available on our website. At this time, I will turn the call over to Floyd Sherman.

Thank you, Kaydee, good morning and welcome to our Third Quarter Fiscal Year 2007 earnings call. Joining me from our management team are Kevin P. O'Meara, President and Chief Operating Officer and Charles Horn, Senior Vice President and Chief Financial Officer. I’ll start with an overview of the third quarter. I’ll then turn the call over to Charles who will discuss our third quarter financial results in more detail. After my closing comments regarding our outlook, we’ll take your questions. We continued to face challenging market conditions during the third quarter, which are reflected in our operating results. Housing starts in our markets were down nearly 32% while market prices for lumbar products declined less than 3%. Despite the challenges of the current operating environment, we’ve grown profitably our market share. Market shares had an estimated 6% positive effect on sale during the quarter and 10% year-to-date. Going forward, we will have to balance market share gains with maintaining gross margins as we are focused on profitable market share gains not growth for gross sake. We’ve generated incremental sale through new facilities. New facilities added 1.9% sales growth in the current period and 1.4% year-to-date. We’ve managed margins. Gross margins were 24.1% for the current period. We’ve also maintained a clear focus on reducing operating cost and improving operating efficiencies. We reduced selling general and administrative expenses by 15.7% as compared to Q3’2006. To date, we have reduced our headcount by approximately 32% since the housing corrections began. Finally, we reduced capital expenditures by $4.8 million or 76.1% as we endeavoured to maximize our cash flow. Our cash on hand was $132 million at quarter end, even after acquiring Bama Truss. Our cash flow oriented management approach has given the company a strong balance sheet, positioning us well for the challenges of the current operating environment. In addition, we will use our strong liquidity to take advantage of growth opportunities. In this environment, we are managing our operations on a daily basis and reacting as quickly as possible to changing customer demand. I’m proud of the ongoing effort of companywide to seek new business opportunities and to operate as efficiently as possible while still providing outstanding customer service during extremely difficult period in home building industry. I’ll now turn the call over to Charles who’ll review the financial details further.

Good morning everyone. We reported sales of $413.9 million, a decrease of 27.4% compared to $569.9 million for the same 2006 period. Breaking down our sales drivers for the quarter, first we estimate that housing starts within our markets declined approximately 32% compared to the same period in 2006. We lagged permits within our markets for one month to estimate an assumed start. Second, lower price in our lumber and lumber sheet goods negatively impacted our sales by 3.5%. This decline in total sales include a 0.5% negative impact related to lower market prices with the rest attributable to competitive pressures within our markets. Conversely, market share gains added approximately six percentage points to our sales and new operations added an estimated 1.9%. We felt the negative impact to decrease housing starts across all product categories. In addition, our lumber sheet goods and prefabricated components categories were slightly impacted by commodity price deflation. However, our efforts transition to higher margin, value-added products and services continue to be successful as shown by the increased sales percentages in the windows and doors, millwork and other building products and services category. We believe our value added product mix gives us a distinct competitive advantage to attract new business during this downturn. Breaking down our sales categories further, lumber and lumber sheet goods declined by 36.5% to $109.9 million and fell to 26.6% of total sales compared to 30.4% of total sales in the year ago quarter. We estimate that $42.9 million of the decrease is due to lower to volumes and $20.2 million due to lower prices. Prefabricated components decreased 27.8% from the prior quarter due to a combination of lower volume and lower raw material price and declined slightly to 20.6% of total sales for the quarter. Windows and doors were down…

Thank you, Charles. National housing starts on the trailing 12-month basis are now down almost 31% from the peak in March 2006. Unfortunately, the housing environment continues to worsen due in part to the tightened credit standards in the mortgage industry. We cannot predict how long the downturn in the housing industry will continue, but we generally do not expect recovery until late 2008 or early 2009. To help guide you through the market uncertainties, we’ll continue to provide updated housing permit and commodity price data on our website each month. This data is summarized and based on publicly available information. We’re not pleased with these results, so we continue to seek opportunistic ways to counteract the non-controllable macro economic factors impacting our business. We will persistently strive to grow our market share and flex our cost structure while still providing exemplary customer service. Our constant goal is to maintain our market leadership and financial strength in order to deliver long-term shareholder value. I’ve a great deal of confidence in the abilities of our entire Builders FirstSource team to accomplish this goal. I believe our current operating strategy positions us well for the challenges of the current operating environment and to take advantage of growth opportunities. I’ll now turn the call over to the operator for Q&A.

(Operator instructions.) Your first question comes from Keith Hughes with Suntrust.

Thank you. First question, did you site earlier that the gross margin compression was primarily from what occurred in the lumber segment, is that correct?

That is correct, Keith.

Why are you seeing more pressure you think in the lumber which is basically a commodity item versus the value-added items that you also sell which compressing more margin associated with them.

Keith, I think it just boils down, there’s more competitive pressures on that category and more people offering that product offering.

Okay, now Charles, you had talked about the revolver availability that there could be some covenants that come into play if you were to tap the rest of the availability. Is there a certain balance that you have to get above where covenants start to apply or would the metrics on the covenants just work out that way?

We do have a cash flow credit facility. There is an EBITDA interest coverage provision within it. That is the covenant that’s increasingly getting tighter. So as we move forward based upon how that covenant calculates, as it gets more restrictive, it could limit the use of our facility, but before we ever get there, Keith, we will look to go out and change the agreement, amend the agreement. We had several bits of alternatives to make sure we maintain our liquidity and we’ll certainly address it before that ever comes into play.

And there are no covenants on the floating rate notes, is that correct?

That is correct.

And fourth quarter, I assume which should be a working capital source of cash quarter?

I would normally anticipate that, yes.

Okay. And if you did not tap the $108 million availability discussed, but you really started bumping up against the covenants, would you just pay off to roughly $40 million on the term loan and just with floating rate notes, that would be option, would it not?

That is one of the alternatives, yes.

Okay, thank you.

And your next question comes from Michael Rehaut with J.P. Morgan.

Hi this is Jen Consoli on the line for Mike. I just wanted to ask a quick question on the share gains with them coming in at 6% this quarter, it’s a little bit below your 8%-10% goal and I’m assuming that’s because you wanted to hold to your margins a little bit, but given the more protracted housing downturn, I was wondering if we should be looking more for like 6-8% type growth from share gains and also if you could give us a little bit of color on what category you feel good about your share gains and you had mentioned multi-family a couple of quarters ago and perhaps which categories came in a little bit below your expectations. Kevin O’Meara: To your first question on the growth of market share gains to 6-8%, I think that’s fair and yes, you’re correct, it is a balance between market share gains and end gross margins and we’re fighting that everyday in the market place. In terms of where we are able to grow, the install sales certainly is an area that continues relative to the housing starts and to our product mix that continue to grow as Builders still seek to use that service. I think that’s probably the single biggest area where you’ll see us continue to increase market share.

Okay, and then given obviously deeper downturn in the housing environment, have you given any thought to mothballing any facilities, or are there any plans in the works? Kevin O’Meara: That’s something that we continue to look at on a regular basis. We don’t have any firm plans at this point in time, but just in the normal course of running our business, that is something that we look at from time to time.

Okay, thank you.

And next, we’ll go to Nishu Sood with Deutsche Bank.

Thanks, question on the Bama Truss acquisition on the kind of strategic rationale. Was that mainly for the component manufacturing capability, translating that into kind of a typical residential environment or more of a diversification type acquisition because of its light commercial and multi-family exposure.

It’s more of that later. Really a couple of things, one is they do steel trusses which we don’t do anywhere else in the company and so it gave us a new competency in the products. The history we have at manufacture, it did open up to a greater extent light commercial and multi-family, in greater strength than what we have done in the company historically, the parts of our operations has done multi-family business. And then lastly, and this is longer term, I don’t think we’ll see this anytime soon, it did position us strategically within Alabama and there is plenty of real estate there if we decide that we want to use it as a jumping off point in the future to build a distribution center that potentially could serve Birmingham and potentially even Montgomery.

Will you be pursuing more diversification type acquisitions or on the other hand, I would imagine there would be a lot more distressed opportunities now as well?

I think it’s going to be consistent with what we have said in the past, we’re just going to be opportunistic. I mean, this Bama came available. It was an attractive opportunity having the strategic rationale that I just discussed, and so we went ahead and made the acquisition. It totally depends on what becomes available and what makes sense to the company.

And longer term question for Charles here. You’re EBITDA margins, whichever way you want to talk about them increased a lot obviously during the housing boom and as you kind of filled out your operating platform of 2003 to early 2006, now obviously with the worse housing recession that we’ve had in a long time and pretty severe contraction, what should we be modeling on a longer term basis you think for a normalized margin for Builders FirstSource?

There are really two factors you have to keep in mind. The first will be, what are your expectations for 2008-2009 or what are your expectations for recovery? Obviously, fixed cost is still an element within our COGS as well with as within our SG&A. it definitely can influence what EBITDA percentages should be. That’s the first thing you have to consider. The second thing you have to consider is if you presume that recovery does come in ’09, ’10, or ’11, we continue to migrate to a higher value-added product mix which traditionally carries higher EBITDA percentages. So let’s assume that we continue on that route and we do see recovery down the road which takes some of the pressure off of our fixed cost and the deleveraging event against the lowering sales volume, I think you could see some upside to the EBITDA percentage in the long term.

Are you able to give us any kind of range that you folks tend to look at internally?

No, we tend to avoid doing that. I think right now, just with the liquidity and of the fluidity of what’s going on and how, then I don’t think its very good for us to do that, but we do think that we’ll continue to migrate the business toward value-add, deemphasize the lower gross margin commodity product and really position ourselves for a very strong EBITDA percentage in the future.

Okay, thanks a lot guys.

Next we go to Michael Cox of Piper Jaffray.

Good morning, thanks a lot for taking my question. My first question is on the SG&A control. I was wondering where you feel you are in terms of managing that down and the headcount reductions, is there still further room to go or are we at a point where you start to cut into muscle?

I think we still have opportunity. We continued on in October and we’ll continue on throughout the duration of the correction time to make the appropriate adjustments on our staffing levels. That is by far our largest controllable cost and so we will have to continually look at that and try to stay ahead of the curve. The other thing goes back to what Kevin alluded to, we will continue to evaluate our fixed cost whether we need to mothball, close, consolidate facilities and that will be a really second bullet that we’ll be looking to use in trying to improve operating cost during the downturn, but also position ourself for going forward to have even better operating efficiencies again when the recovery comes.

I think Charles, one of things that we continue doing on an ongoing basis is evaluating how we conduct our business, what are the processes that are used and where can we become more efficient and we’re moving very aggressively in bringing and promoting these improvements within current operations and that’s going to be going on, ongoing for the foreseeable future.

Okay that’s helpful, and in terms of the sizeable cash balance that you currently have, I’m curious what type of catalyst would require to move more aggressively in using that cash either to pay down debt or look more aggressively at acquisitions?

I mean, clearly, paying down debt is one of the alternatives with the loan covenant situation we discussed earlier. Acquisitions will continue to look at them, address them aggressively. As Kevin said, be opportunistic, but conversely, we are seeing capacity starting to drop out of the markets as well, and we feel that even more beneficial to us and potentially an acquisition in the short term. So we’re going to evaluate our market by market level, see where capacity is pulling out. If a good acquisition comes our way, we do want to be opportunistic, but we don’t want to chase an acquisition if it’s not the right fit long term.

And we’ve also seen, Charles, the announcement that have been made, Stock Building Material Supply has taken a number of operations offline. Certainly, we’ve seen the same with ’84. We’ve seen with Depot Supply. I’m seeing it with a number of other smaller regional players, so the industry is beginning to react now and we’re seeing some significant capacity being pulled. And that’s a fantastic opportunity for us.

Excellent, thank you very much.

Next is Mitun Daia with Lehman Brothers. Mitun Daia –Lehman Brothers: Good morning. Charles, you mentioned the 3.5% sales, the imnpact of lumber prices, how much of that did you say was impact of material prices versus competitor product line?

The market impact was somewhat small, about 0.5% on total sales. As you look, market prices are starting to basically be the same year over year. So most of that that you saw com through was just pricing concessions we’re giving customers in reaction to more competitive market plays. Mitun Daia –Lehman Brothers: But about 3% of that you are saying was just pricing concessions?

I’d say that’s accurate. Mitun Daia –Lehman Brothers: And is that a conscious decision to gain some share or is it just that that place is just so competitive?

Part of the reason that we’re making those adjustments certainly competitive pressures are part of it, but another part of it is in order to hold the rest of the parts of the package. We often find that if you lose the commodity side of the business frequently, you can anticipate to see an erosion of sales in your other lines, so we look very, very aggressively and respond very quickly to what has to be done in order to hold our position on the commodities. Mitun Daia –Lehman Brothers: But, I mean, if I were to extend this argument then, Charles, I mean you mentioned for example that most of the gross margin compression you saw was the lumber, but it is very linked, right? Because the lumber price decline you’re taking only because you want to make sure that you don’t lose the other stuff?

That would be correct. I mean, that’s part of the reason for making the price concession, yes. Mitun Daia – Lehman Brothers: Yes, okay, as you said, you’ve almost anniversaried right now, but when do we see the lumber prices, if you like, when will they start being ahead as opposed to your competitive action?

I think that we don’t anticipate any appreciable improvements or increase in commodity prices in the next year. I think it will probably be 2009 before some support can come into it and maybe help move that market prices up, but we don’t see it in the foreseeable future. Mitun Daia – Lehman Brothers: But you don’t see further declines, I would suppose?

At this point, we understand it’s below variable cost. It’d be hard for us to think its going to go appreciably lower. My guess would be, it’s going to be bump along where it is right now for about the next year or year and a half. Mitun Daia – Lehman Brothers: Okay, and geographically, which markets are you seeing the greatest weakness?

Clearly, Florida as a state is by far one of the weakest areas, the next would be Georgia. If you look at what’s going on in Atlanta, Atlanta is a very tough environment. Permits down over 52% in Atlanta during the quarter, is the fourth largest foreclosure rate markets right now in the US, so I’d say Florida obviously being the biggest drain on us and then Georgia being the second. Mitun Daia –Lehman Brothers: And what about Texas? Because you have a couple of Builders also talking about Texas being very painful.

Texas is painful. I wouldn’t say that there’s any market that’s not painful at this point, but Texas we do have some diversification in this area in terms of our multi-family and some light commercial businesses that help mitigate some of the pressure coming through here. Mitun Daia –Lehman Brothers: Okay, and lastly, on pricing pressure from Builders, I mean, are you seeing it in one area more than the other and what magnitude, I mean, a builder this morning, we were asking them and they said probably they are seeing 7% to 10% to 15% kind of input cost decline. I don’t know if that’s what you guys are seeing and if the pricing pressure from Builders is in one area over another?

I would say that the pricing pressure from the Builders is pretty universal and can’t point in any particular area where it’s more intense versus others. One of the things that I think you maybe picking up when they talk about their input cost decline, that also includes decline in the market price for lumber and lumber is the second single largest cost they have after the land and house, and so when the lumber prices decline that will cause their input prices to decline even if it doesn’t necessarily mean that our gross margin percentages are being impacted. Mitun Daia – Lehman Brothers: I see, fair enough. And on the installed services, I mean, there were some talks that the builders are going to focus on that and are you seeing that as well?

I mean, it’s definitely an area they focus on. They’re definitely trying to drive down prices on labor just due to the abundance of labor within the industry right now. So I will say that that is an area they’re being very effective. Mitun Daia – Lehman Brothers: Fair enough. Thank you very much.

We’ll go to David Manthey with Robert W. Baird. David Manthey - Robert W. Baird & Co., Inc.: Hi. Thanks a lot. Guys, I was wondering if you could address some of the markets that had held up better for you. Last quarter, I believe you mentioned North Carolina and Tennessee as being a little bit better than the rest of your locations, could you just talk about the conditions there. Have you seen some further deterioration in those areas?

I think, North Carolina is holding on the best of these states, but I’d actually take it to a little bit more granular level while answering your overall question, what we’re seeing are some of the smaller markets with more diversified homebuilder basis are holding in better than large markets, and so I think it’s almost a small market versus large market driven type of phenomenon within our business, but with the greatest strength being in North Carolina, the greatest weakness would be in Florida. David Manthey - Robert W. Baird & Co., Inc.: Okay, and in terms of new operations adding 1.9%, is that a number we should expect to diminish while the pain continues here or do you have plans to continue to open new operations even if the market remains weak?

Well, it’s conceivable. What’s driving that 1.9% is our two acquisitions Bama Truss and Wade Building Supply which we did late last year. That’s primarily the sales driver to that 1.9%. So depending upon the acquisition pipeline that could go down or it could go up. In terms of green fielding operations, I don’t think we plan to spend very much capital on doing that during this downturn. David Manthey - Robert W. Baird & Co., Inc.: Okay. Thank you, and then just to put two thoughts together here. Floyd, in your monologue, you said that you would seek better gross margin opportunities that you wouldn’t grow for growth sake, but Charles, I think you mentioned that if conditions continue, your gross margins could decline and I’m just trying to put those two thoughts together and understand sort of what your view is and how you plan to attack the market from here?

Well, I think there are two parts to that. What I’d said that we’re not just going to just start dropping prices indiscriminately just to take on business that do not give us an acceptable level of profitability. And I think what Charles was also saying is that we do anticipate that there is going to continue to be a lot of competitive pressures on the products we sell, the builders are exerting tremendous pressure on the supply chain to drive down their cost, and obviously we have to react to that, but I’m not the one who believes that just take business for business’ sake, unless it really gives you a strategic advantage that will quickly pay for itself when the market turns up and so, we’re very carefully managing that. We’re really watching that we don’t get over aggressive in trying to take business for business’ sake. David Manthey - Robert W. Baird & Co., Inc.: Very helpful, thank you.

And we’ll go to James Mccanless of FTN Midwest.

Good morning everyone. I wanted to ask you first on the builders in you different markets, we saw fairly large builder out west go bankrupt earlier this week, and just wanted to get your sense of potential bankruptcies in your markets, what you see happening over the next few months?

Due to what we’ve seen, we continue to evaluate all sizes of builders, what we’re seeing some of the smaller builders are starting to really have problems, and some of our markets, Dallas, Atlanta, we’ve definitely seen smaller builders starting to go out of business, and so we are having to watch that closely, and it is starting to be more pervasive than what it was before. You probably saw during the quarter, we did increase our allowance per bad debts in recognition of this increasing defaults rate going on among the smaller builders, and I do expect that trend to continue.

But you still have in bankruptcy or slow pace situation, you still have certain rights such as lien rights, et cetera, correct?

That is correct. In many cases, we do have lien rights perfected. We would be secured in trying to make sure we get paid, and in many cases we get personal guarantees from the smaller builders as well.

Okay, second question, great working capital management this quarter, but I wanted to address the cash balance from a different way, what if any cash target do you have or net debt goal, net debt cap goal that you have in mind right now?

I don’t think it’s really a net debt ratio, I think we’re more focused on total liquidity which would be cash plus credit availability. We’re very focused on cash, we’ve very focused on cash flow, we’re very focused, what I will say is always protecting the head and then in making sure that we can be opportunistic. So I can’t give you a specific ratio, but I’m obviously being very tight on cash, we’re obviously going to protect our liquidity under our credit agreements through the various alternatives we talked about and so we do want to have very strong liquidity during this downturn.

Okay, following on with the downturn question, are there other lines of businesses or potentially other areas that you believe are becoming attractive? Do you guys, as other people either shut their operations like you discussed before or move out of certain markets?

Well, I think what you try to do is when somebody leaves the market where you participate is try to hire any good people there particularly the sales people and any quality customers if they have, and so really, it’s on a case by case, market by market basis. I can’t really say that there’s one market in particular, one segment of the business in particular where we’re necessarily seeing it. Obviously, there is more pressure on the commodity lumber side of the business, and so competitors that are highly geared towards commodity lumbers as opposed to the value-added type products will tend to have financial problems before others, so it really just is a case by case basis.

Okay, and then the last question I have in listening to the Homebuilder conference calls over the last couple of days, pretty much across the board, they indicated that they had lowered their average sales prices to inform to both FHA and the GSE conforming loan limits and I’m wondering if that has translated into even stronger pressure on companies such as yourself to deliver better prices for them, so I guess my question is, has the pricing pressure intensified from the builders over the last 30 to 60 days?

I can’t really say that I see any visible or can feel a visible increase in the pressure. It had just been just tremendous pressure though that’s being exerted unlike any pressures that I’ve seen or experienced in over four years in the business. But I think it started over a year ago and it really continually kept stepping it up and it’s hard to imagine that it can be anymore difficult an environment than what we’re going through right now.

Right, thank you gentlemen.

And next is Steven Fisher of UBS. Steven Fisher – UBS: Good morning, just to follow up on the cost side, do you think you could take out another 15% of SG&A next year and what level of sales or market decline do you think you’d need to see to dig out that kind of level of cost?

I think it is conceivable, again, it’s going to be somewhat volume driven, but I do think it’s conceivable to take out 10% to 15% should volumes continue to fall. Now to answer a different way, if volumes are static, that would be an increasingly difficult thing to do, but our guess is that the market will continue to correct in ’08 and we will see volumes fall, and given that scenario, I do think that we can pull down 10% to 15% in our SG&A. Steven Fisher – UBS: Okay, great. Thanks very much.

And we’ll go to Seth Harvey of UBS. Seth Harvey – UBS: Good morning. I just had a question on, we’re kind of going back to working capital this quarter and it looks like you haven’t been doing a very good job of taking investment out of working capital for the second quarter. This quarter has slowed down, just wanted to see if there is anything happening there specific to this quarter? Kevin O’Meara: No, I don’t think so. I think you’ll see AR. Obviously we aged just a little bit more than we have in the previous quarters, part of the reason we increased our allowance. Inventories I think our turn ratio is about equivalent, we can still get some improvement there. Our accounts payable days, we’ve taken that to over 32 days based upon negotiating with suppliers, so that can hang in pretty well even though as Floyd had said in the past, as we increase our install labor business, that doesn’t put some downward pressure on our accounts payable because we have pay our subcontractors on a weekly basis. So what I think you’ll see is AP about static, can get some improvement in inventory turns. It will be difficult to improve our days sales outstanding on accounts receivable during this time, in fact, we’ll probably see a little bit more creep in that metric. Seth Harvey – UBS: Okay, and in terms of your capex, cut down, I guess you’re saying 8 to 10, is that a sustainable number and would you expect 2008 to be similar?

I think it is sustainable in the short term of a two to three year window. I think you will see us take it potentially lower in 2008 and then as conditions improve, we’ll look to maybe cover some of the deferred maintenance items we’re doing now and that could be in 2010-2011. So in the short term, I think we can definitely take it down a little bit down further than what we anticipate in ’07, and again we’re always focused on maintaining cash flow and generating good cash flow. Seth Harvey – UBS: And then, I guess, finally kind of going back to the covenants, so until an EBITDA coverage covenant or is that with a term loan or the revolver or when does that actually step down?

It actually will, in this situation, it stepped at the beginning year, first quarter of ’08. It is an EBITDA interest covenant and it does cover both the revolver which is $108 million availability as well as the term loan. In terms of the floating rate notes, the $275 million, they do not have any covenants associated therewith, so based upon how our financial results develop in the fourth quarter, we’ll look at one of the many alternatives so we have to make sure we maintain the liquidity and address that EBITDA interest coverage. Seth Harvey – UBS: Okay, thank you.

At this time, there appears to be no more questions. Mr. Sherman, I’ll turn the call back to you for closing remarks.

Thank you for joining us today. If you have any further questions, please feel free to contact Charles Horn.

This concludes the Builders FirstSource conference call. You may now disconnect.