Good morning and welcome to Builders FirstSource's Third Quarter Conference Call. [Operator Instructions]. Following the company's remarks, we will conduct a question-and-answer session. Today's call is being recorded and will be available at www.bldr.com. It is now my pleasure to introduce Mr. Binit Sanghvi, Vice President, Investor Relations. Please go ahead.

Thank you. Chantelle. Good morning and welcome to Builders FirstSource third quarter 2019 earnings conference call. With me on the call today are Chad Crow, Chief Executive Officer and Peter Jackson, Chief Financial Officer. A copy of the slide presentation referenced on this call is available on the Investor Relations section of the Builders FirstSource website at bldr.com. Before we begin, let me note that during the course of this conference call we may make statements concerning the company's future prospects, financial results, 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 10-K filed with 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. The Company will discuss adjusted results on this call. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release and detailed explanations of non-GAAP financial measures in our Form 8-K filed yesterday, both of which are also available on our website. I will now turn the call over to Chad Crow.

Good morning and thank you for joining us. I will start on slide two. Our team delivered an impressive performance in the third quarter, building on our year-to-date progress to produce above market growth, expand margins and generate outstanding cash flow. I'm proud to say that we recorded the 13th straight quarter of year-over-year increases in adjusted EBITDA and achieved an EBITDA margin of 8.1% of sales, our highest quarterly percentage since our 2015 acquisition of ProBuild. Our ongoing strategic investments in market leading value-added products capacity has provided the targeted growth, margin and customer value benefits we anticipated. Our operational excellence initiatives also continued to gain momentum and are contributing to our results. And notably our strong cash flow and working capital management continue to fund our investments, which included an acquisition of three strategic truss manufacturing plants and further pay down of debt. We were especially pleased to achieve the low end of our long-term targeted ratio of net debt to adjusted EBITDA of 2.5 times as of the end of the quarter. We believe our success is a direct result of our commitment to our strategic initiatives. Our momentum in sales volume during the quarter continued from the strong first half of 2019, supported by an improvement in our -- in all of our end markets. For the first nine months of the year, sales volume, excluding commodity deflation, grew by more than 6%. Once again, our value-added product categories led the volume growth, increasing its sales volume by an estimated 9% in the first nine months, as we continue to realize the benefit from years of strategic investments. Commodity deflation negatively impacted sales by nearly 13%, which led to an overall decline in reported sales of 7%. Despite the headwinds, we grew adjusted EBITDA by 8%…

Thank you, Chad. Good morning, everyone. I'm especially proud of our team's work in delivering another quarter of improvement in the controllable aspects of our business. We achieved $2 billion in net sales in the third quarter, down 6.5% versus the prior year period. We have one additional sales day in the third quarter of 2019, compared to the prior year quarter. So, I will speak to our sales drivers on a sales per day basis for better comparability. Net sales per day declined by 8% due to commodity deflation, which decreased sales by an estimated 17.4%. The commodity headwind mass robust sales volume growth of 9.4%, a rate significantly above the overall U.S. starts market. The largest contributor to this growth was once again our value-added product categories, which increased 11% over the third quarter of 2018, reflecting the ongoing execution of our strategic plan. Gross margin of $541.1 million increased by $18.4 million or 3.5% over the prior year. Our gross margin percentage increased to its historical high at 27.3%, representing a 260 basis point improvement compared to the same period a year ago. The margin percentage increase was attributable to several factors, including an improved product mix, as our team continued to maintain focus on delivering higher margin value-added solutions to our customers. Additionally, the decline in the cost of commodities along with our team's continued focus on pricing discipline contributed favorably to gross margin. In regards to pricing and commodity costs, as we have discussed on prior calls, market cost inflation causes short-term gross margin percentage compression when prices rise rapidly, relative to the short-term pricing commitments we provide to customers. We experienced this temporary contraction during the third quarter of 2018. Conversely, gross margin percentage expansion occurs when costs rapidly decline. This quarter, commodity prices…

Thank you, Peter. As we enter the end of the home buying season, the overall market outlook continues to improve. Homebuilders are increasingly catering to demands of buyers with a more affordable and right size product. Our market leading investments in value-added products and ongoing growth initiatives enable us to provide productivity solutions to help our customers meet the changing demands of homebuyers. In this environment, we are confident that we can continue to -- continue our positive momentum to generate growth in our fourth quarter sales volume in the mid-single digit range, led by single-family activity. Moving to slide nine, based on our meaningful progress to-date against our longer-term targets, we remain confident that our unmatched scale, market diversity and value-added product leadership provides us with substantial opportunities to generate strong returns in our business. Our value creation framework begins with capturing incremental benefits from core business growth as the fundamentals of homebuyer demand remain intact and starts to continue to move toward historical averages. In addition, customers are accelerating the adoption of our labor -- labor saving, high efficiency value-added products, providing significant ongoing opportunities to increase our market share. To meet this demand we will continue to invest in value-added product facilities, the execution of this plan can be seen in our results with the five additions, we are making this year. We see the market opportunity for these higher margin products only increasing as customers recognize the value of these -- the value these products provide and accelerate their adoption. As we discussed today, our value creation plan also includes a set of operational excellence initiatives that are well under way. This includes the roll-out of our distribution and logistics software, pricing and margin management tools, back-office process efficiencies and information system enhancements. When fully rolled…

Thank you very much. [Operator Instructions] Our first question will come from Trey Grooms, Stephens Inc.

Hey, good morning. Congrats on a good quarter.

Thank you. Good morning.

And the outlook here for the 4Q also equally impressive and looking at the gross margin guide that you've given us here 26.4% to 26.6%, I think Peter, you mentioned that a lot of the tailwind from commodity -- commodity price deflation has concluded and you expect it to normalize in the 4Q. So, is this 26.4% to 26.6% is that kind of the -- I'm sure it's a lot closer, but is that the normalized gross margin we should be targeting there? Is there any anything else going in there that might be helping it out?

Well, we certainly have seen very stable commodity prices over the last few quarters. So, it'd be -- it'd be disingenuous to talk about the near-term impact of deflation as it relates to our pricing commitments. What we have seen that I think is important to note is this -- this sense that there is value in the delivery of the product and the commodity side and that is paid off with slightly higher margins as the value has declined. So I think there has been some stickiness to a little bit of those higher margins, probably a bit more than we anticipated. We think we'll still stay above 26%. But I think there is room for that to drift down a little bit as we go into the upcoming year and years, but we certainly feel good about Q4.

And I'll just add, Trey, we've seen a little bit better expected result in our pricing initiatives that are part of the operational excellence initiatives. So, that's been really good to see as well and it is contributing to some of that.

Great. Great. Okay and then just -- just for clarity. I think you changed how you calculate free cash flow, I think you made a mention of that. But the free cash flow that you're guiding to for full year, the $300 million to $320 million, is that -- how does that compare to the prior goals that you had set may be in the kind of -- I think it was $180 million to $210 million. How does that compare relative to the prior number?

Yes, so…

I mean, is it your information, I guess how does the calculation compare, is the same or is it different?

It is clearly an increase. When we talked about it last time we were around that $200 million range, accounting for the money that we were -- that we were anticipating or that we had announced we were going to invest in Sun State Components. So, there were $34 million of M&A, plus the $200 million, we were about $234 million, pretty substantial increase obviously from that point. We've continued to see strong results in our working capital initiative and we've not seen a bit of the recovery in the pricing of lumber commodities that we thought would happen. So, I think for the year, we're absolutely calling up cash.

Got it. Okay. So, that's -- that's kind of the comparable number the $234 million roughly, is kind of the comparable number to the $300 million to $320 million.

Yes.

Okay, perfect. Well, that's pretty awesome. So, looking at last thing for me before I pass it on, you've got the leverage now at 2.5times the low end of the range, so does is -- what should we expect maybe a pickup in M&A since you're kind of at the low-end or a pickup in pushing and accelerate a little harder in Greenfields and maybe the outlook for Greenfields in 2020 is kind of a lead on to that too?

Well, I'll answer the M&A side, there is a -- there is a lot of opportunities we're seeing out there right now. So, I guess, the answer would be, yes, it does clearly, give us more financial flexibility to do M&A. We are still going to be very disciplined about it and make sure that we do deals that make sense strategically from a long-term perspective. But yes, you could see a pickup, like I said, there are a lot of deals out there, we're looking at some. We'll see how they shake out, but we're not going to go crazy. We're going to be disciplined about what we're doing. But it's nice to have that flexibility again.

As far as the Greenfield, we're looking at two to three Greenfields for next year that we think will come on line. In addition, we'll do, of course, our continued investments in expanding and enhancing the capacity of the existing facilities.

Got it. All right. Well, thanks for taking my questions. I'll pass it on. And good luck with the current quarter.

Thanks, Trey.

Thanks, Trey.

Thank you. Our next question will come from Matthew Bouley, Barclays.

Good morning. Thank you for taking my questions, and congrats again on the quarter. I wanted to ask a bit about the pricing tools, obviously, lumber prices perhaps creeping back a bit, I guess, around the better single-family market. So, can you kind of discuss what you've seen over the past few weeks with lumber bottoming and moving higher a bit, if that kind of provides a bit of a test. If you guys can kind of point to any tangible improvements you've seen as a result of your pricing initiatives perhaps relative to past years reflecting these efforts. Thank you.

Yes, lumber has moved a little bit, it hasn't moved significantly. Most of the -- most of the pricing initiatives we've done to date are really focused more outside of the lumber products. And really what we're doing there is creating a lot more structure on a market level basis and more of a market level pricing concept and making it easier on our operators at the local level to do pricing more accurately and quicker, just taking some of the manual process out of it. So, no, I wouldn't say the little bump we've seen in lumber has been as you described a test on our -- on our initiatives because most of those are focused on the categories outside of lumber to-date.

Okay, got it. Thank you for clarifying that. And then I just wanted to ask about the Q4 guide looking at the revenues. I guess, number one, is there -- I didn't hear if there's anything we need to be aware of around selling days there, and then just looking at the implied volume numbers relative to the third quarter. If I'm doing the math right, it would seem you're guiding to a bit of a deceleration and correct me if I'm wrong there. Did you see anything in October, if that's driving that or are you guys just kind of layering in some conservatism, any detail there? Thank you.

Yes, so look in the fourth quarter forecast is always tricky given the weather patterns, the normal seasonality. It's a challenging quarter as teams really focused on preparing themselves for the lean months and preparing for the upcoming year. Well, we will have one less selling day in the quarter, so that's a factor as well. But we certainly feel good about the performance coming out of the fourth quarter. We -- but we're certainly not pessimistic at this stage where we are seeing the expected increases as the customers are seeing healthy orders coming in. So, we feel good about that and feel pretty optimistic about how things are shaping up for both fourth quarter, but also for 2020.

All right. Got it. Thanks a bunch. And congrats again on the quarter.

Thank you.

Thank you very much. Our next question will come from Mike Dahl, RBC Capital Markets.

Good morning, thanks for taking my questions.

Good morning, Mike.

I wanted to ask a question about OSB. So, OSB prices have -- have started to move higher and I think the industry has taken off about 10% capacity over the recent weeks. So, there's an expectation from some of the analysts covering those stocks that you're going to see a material move higher in OSB pricing. Can you remind us how much or what percentage of that -- of your business would OSB represents either in the lumber and sheet goods category or also, if it's part of manufactured products. And just any color around what you're seeing, hearing and how you -- how you think you can manage that?

Sure, I can base line it and let Chad, maybe talk about his sense of the market, but the commodities broadly speaking represents right around 40%, just about the same as the value-add of our total sales. Within that category OSB is roughly 30%. So, overall, maybe 12% of sales, OSB is not a substantial part of the manufacturing components, obviously lumber is, but not a substantial part. It only comes into play when we've got wall panels with applied sheeting.

Yes. And I'll just I'll just comment on some of the curtailments that have been announced. Long-term, as we've talked about over the years as we prefer higher prices and so if it does -- if some of these curtailments does lift prices that's a good thing. As you know, we will see a little bit of margin compression in the interim, but longer term that's a good thing for us. We view some of the curtailments more as taken off some of the incremental capacity that's come online in the last year or two. So, our view is, yes, it will help firm prices, but I think a lot of it is still going to depend on the demand that we see, especially going into the spring building season next year. But in my mind curtailment is a good thing because we prefer the higher prices. And as far as managing through it, I'm not worried about that. My gosh look what we managed through back in 2018 and I think we did an outstanding job doing that. So as far as managing through the fluctuations that doesn't concern me.

Okay, that's helpful color. Thanks for that. And I guess maybe just to follow-on, if we're thinking out into 2020 and obviously the results this year has been excellent. Is there a way to ballpark kind of from the 2019 guide how much of that was, I don't want to say totally non-recurring benefits, but effectively just the benefits of the favorable price costs. And then from a baseline standpoint, it seems like volume growth should be sufficient to offset whatever you lose there. But just any preliminary thoughts on how you're thinking about EBITDA, the EBITDA dollar growth potential next year, given you likely lose some of that tailwind from price cost?

Yes. So, no question. You're absolutely correct that we received some of the benefits from the tailwind as the deflation hit; we were pretty open about that as we went through the year. There'll be some of that next year. We agree growth will be obviously a tailwind for us next year. We feel good about both the markets and our competitive position. So, I think those are positives, not ready to give a specific guide on that, but we do anticipate having that for our next call as we roll-out our 2020 numbers for the Q4 call. So, absolutely intend to break that down for you.

Okay, thanks for that.

Thank you. Our next question will come from Alex Rygiel, B. Riley FBR.

Thank you. Good morning. Your organic growth in the quarter was very, very strong, particularly with the regards to your value-added products. The homebuilders are seeing incredible demand over the last three months and in the month of October. Can you talk a little bit about your ability to keep up with their demand in the coming months, talk a little bit about your ability to add labor and maybe highlight what your utilization rate of your facilities is right now?

Keeping up with demand, maybe labor is a challenge. It has been for years. Especially in areas -- drivers has gotten a little better, but still yard personnel and folks working in our manufacturing facilities, labor is tough. But I'm confident that our facilities can handle the demand, whatever the Builders throw at us. We could struggle at times with employees, but we've got a lot of temp agencies that we use and we call on them when we need to. So, from my standpoint bring on -- bring on the demand because we've got -- we've got the footprint to handle it. I'm not too worried about our capacity.

That's great. And as you reengage in M&A, can you comment on seller price expectations these days and what kind of competition you're seeing out there.

Some of the deals we look at are our auctions. Some of them aren't. Some of them come from relationships that we've kind of been cultivating over the years. Those are our preferred, right. So you're not in the bidding process, but overall I would say sellers' expectations are pretty much in line with what buyers want to pay these days. The last, I would say over the last couple of years they seem to have come down a little bit, the seller's expectations. So it's -- in my opinion, a pretty good time to be a buyer out there.

Thank you.

Thank you. Our next question will come from Keith Hughes, SunTrust.

Thank you. Some of the commentary on the call here on the good order growth from the Builders fair amount that's coming toward the low end of the market. I would assume that would be a positive for you on -- given your push into truss manufacturing, but would love to kind of hear your opinion on that, and any other impacts that would have either positive or negative on your business.

Well, you're right, a lot of the incremental demand we're seeing is in some smaller homes and really to meet some of the affordability issues that's facing homebuyers. In my opinion as always the more houses, we build the better. We're distribution company to a large degree and we need volume. And my belief is that where we're going to get back to that normal $1 million to $1.1 million in single-family houses, you got to have a higher contribution from the lower end homes. So to me, it's just all about let’s build homes. And to your comment on it playing to our advantage, yes, we obviously have a very large manufacturing footprint and when you're building some of these column starter homes, a lot of the -- especially, the national builders will use repeat home designs. And so, we can be very efficient in our truss plants when we're building those houses. There's just not as many changes to the truss line set up. So, yes, there are some incremental efficiencies for us there. But clearly as homes get smaller, you lose another parts of the home. You may have a few more or few less windows, a few less doors. But again, net-net, it's all about building more homes for us.

Okay, thank you.

Thank you.

Thank you. Our next question will come from Trey Morrish, Evercore.

Thanks guys. I just want to add my great job on the quarter.

Thank you.

I want to talk about the -- the value-added products a little bit. You highlighted how they're definitely a tailwind and definitely something that -- it seems like builders are looking to more and more. But could you just talk about how you think builders are going to continue to shift more toward the use of those value-added products over time, given labor constraints and given your abilities to continue to make more as you either acquire or build out Greenfield locations for those?

Yes, well I look at it -- this is cyclical business, right, and there's times when labor is tight and there's times when housing slows and labor is readily available. This has been the longest streak I can ever remember of -- of tight labor and there's many reasons for that, but I just don't see it solving itself anytime soon. And I think as the years tick by the builders are starting to see that as well. And so a big driver for them is the labor shortage, the cost of framing labor and they're looking for ways to mitigate that and improve their cycle times, especially the National Builders, they're under earnings pressure, just like every other public company out there. And so they're continually looking for ways to build houses quicker and more efficiently. And in my opinion, that's what's driven a lot of them to the product and then history has also proven that as they switch to these products, very seldom will they switch away from it, because they realize the benefits in the -- in the cycle time and the cost savings. So it's just overall an environment that's -- that's pushing more and more builders in that direction.

And do you see anything that would -- that would accelerate that -- that move to more value-added products. Do you think it's more of a -- a gradual shift in that direction.

Well, typically, it's been a slow to change industry, so, my gut would say it's going to be gradual. Now, if we see a really big surge in housing demand for example, next year that could push more and more builders to that because obviously labor -- framing labor would become even more scarce. But in general, I would say gradual barring some unexpected increase in demand.

And then just thinking about about your volume growth that you've done this year. Clearly, very well in a challenging housing environment to say the least. But just thinking out to next year, is there any reason to think why in a better housing market, your volume improvement should be lower than what you've done so far this year?

Now everything else being equal, I don't -- I wouldn't anticipate it changing significantly. I'm a pretty conservative guy. So our volume gains have been pretty damn impressive this year. So I'm always a little hesitant to say we're going to keep doing that, but generally speaking, no, if everything else stays the same and -- and demand is better than expected next year. Yeah, I think it's certainly possible that we can hang on to those volume gains.

Thanks very much.

Thank you. Our next question will come from Megan McGrath, Buckingham Research.

Thanks, good morning. I wanted to follow-up on that conversation around lumber prices, in the sense of, if we think about a time when that commodity deflation reverses or at least stabilizes as we get some topline revenue growth. How do we think about two things; your ability to sort of get or for us to see more clearly SG&A leverage from your operational initiatives, as well as, you mentioned, cash flow benefiting from the lower lumber prices. So, how do you feel about your ability to kind of continue to generate strong cash flow, if and when that lumber reverses?

Yes. So the thinking around SG&A, we certainly do expect to get. SG&A leverage, as the sales increase. We saw some delever this year. We generally think about our SG&A as being 70% variable. So, some leverage associated with that. We do have internal initiatives that relate to -- that relate to the operational excellence initiatives. We will call those out to give you a chance to get a clearer understanding about what we're up to. But certainly we'll see that in there as far as the overall growth of the business, we certainly think that the increases in -- the increases in lumber and commodities given where prices are more likely, then decreases from here. We think that our ability to -- to grow the business until leverage off of those is consistent, and obviously we've gotten through an up and down cycle in commodities. So, we feel like we've, as Chad mentioned, feel very good about our ability to manage through it and to be able to leverage that kind of both directions. I'm not sure if I hit both of your questions. If any --

Any thoughts on cash flow?

Yes, I mean, I think the cash flow side of it is -- is there is no question that as the values of commodities increase for both in the -- well for the value of both lumber and OSB, we will see correlating increases in the values of AR inventory and AP on our side. So no question that a fair share of the benefit both at the end of last year and through the first half of this year from a cash flow perspective has been because of that deflation, we'll absolutely be investing cash as we go the other direction. That said, there is a component of this that really is attributable to, I would say, enhanced focus and discipline, enhanced processes and procedures internally. So, we feel good about holding on to that, but yeah, I'd be crazy to tell you if it wasn't going to cost us some money, if things reinflate.

All right. Okay and then just a quick follow-up on the repair, remodel and multi-family segments. You pointed to some improvements in I think Southern California for repair remodel and it sounded like may be some pent-up demand in multi-family running through. So any more color on that? And whether that was sort of one-time in the quarter or if you think it's going to last another quarter or two, that would be helpful.

Yes, it's a great question. I think that when it comes to the R&R component of R&R and other, we've seen some stabilizing, we've seen -- while still down more stable on a year-over-year comp basis in the Midwest. For example, we've seen some stabilization and even some modest improvement in Alaska and some improvement in Southern California. The area that's probably the more volatile component is the other. So, we do a fair amount of commercial and industrial. As you called out, we have a multi-family business that's well, but that other is a lot of project driven business, been very good to us this quarter. Some parts of the country that have competed very well, taken advantage of -- of stumbled competitors. So, I think we feel good about that. For the quarter it's a -- it's obviously a win. I don't think I'd want to extrapolate that forward. But we do feel good about at least lapping the negatives from the prior year. In terms of the impact of tariffs and really the hard turn in that Southern California market.

Got it. Thank you very much.

Thank you. Our next question will come from Matt McCall, Seaport Global Securities.

Thanks, good morning everybody. So the -- I just want to better understand a couple of things. So if I try to look at volume by product category, I think you said value-add overall was up 11%. I know there's -- I think there 17 points of commodity pressure. But if I just look at the -- I'm trying to better understand the impact on manufactured products, from the commodity moves. And I guess I'll tell you the way I thought about it is, did you see revenue pressure, but maybe there is a profitability benefit from a lower input cost. Am I thinking about the directional nature of those two items, the right way?

I'm not entirely sure, I understood. I think what I can say is that we did see growth both in volume and in margins. Certainly of the unadjusted growth for -- for manufactured components is less because of the substantial headwind that we've seen from commodities, but manufactured products grew solidly in the double digits. Some of the other value-add grew, I would say high singles to get that average about 11% in the total value-add component. Did that helped?

Yes, it helps. I'm just trying to make sure I think about. I don't know what percent of that 360 -- $360 million impacted your lumber and lumber sheet goods versus manufactured products or maybe I should, but I don't -- have you ever broken that out or is it easily easy to calculate.

I don't think we have.

Okay. All right, no, you don't have that much time Peter. So the next question, I want to go back to the technology. And I definitely understand the benefits that you discussed. But can you put any numbers to that. I know that is there a way to look at market share margin impact you talked about cash collection and some of the improvements there. Can you put any numbers to that and maybe quantify any benefit that you're seeing and what would be some of the expected benefits from a numbers perspective as we move out in the 2020?

Yes, so I mean a couple of factors. So I guess if we look at our total working capital metrics. We got some pretty substantial improvements, there are two components to that obviously in different -- the two different drivers operational versus deflation where you will see the benefit is in reduced inventory. You'll see it in, so -- lower DIO or days inventory on hand, lower DSO, and day sales on hand in the AR metric. You'd see it in a lower SG&A as a percent of sales as we go through the -- the aspect of the efficiency generated by utilizing online tools, having automated interfaces that allow us to be more efficient from the administrative side. And there is -- there is an efficiency also associated with anytime you're applying cash and trying to work with a customer, you're utilizing labor resources to do that. The customers doing it themselves, obviously, it's always right because they're doing it themselves. So, we haven't called out a dollar amount. We're planning to roll that into the operational excellence update as we get into the full year we'll update the full year. But we'll definitely, we call that out now. I think it's fair to say that we're not looking at doing this as a -- as a labor cut basis for restructuring like some companies do. I think what we're really focused on is filling in for attrition and really looking at how do we continue to grow the business and leveraging the resources we already have on hand because it's hard to get good people and we want to make sure we -- we take advantage of the ones we have on staff.

Yes. And I'll just add real quick, some of the operational excellence initiatives are easier to measure than others like customer engagement on our website kind of hard to -- to pin down $1 benefit to that. But -- but some of them are little easier than the margin expansion and the logistics initiatives. Those are much more tangible and easier to measure. We've guided to $14 million to $16 million of benefit. In 2019, I think we have a chance to do a little better than that. But if it helps that's a pretty even split between margin and SG&A right now those savings and the SG&A portion really is -- shows itself more efficient yard labor and more efficient -- or more efficient running of our trucks and less fuel costs. But if that helps that's a pretty even split between margin and SG&A on those two items.

And then you will give an update on the 2020 expectations next call?

Yes.

Okay, thank you all.

Thank you.

Thank you. Our next question will come from John Baugh, Stifel.

Thank you. Good morning. And my congratulations as well. Great execution.

Thanks, John.

Could you remind us of your long-term goal on the percentage value-add, number one. And does the timing to get there change with some of these acquisitions, adding to the Greenfield strategy. And -- and does that long-term goal may be rise a little bit from your original thinking seeing what's your -- the labor shortage and the success and seemingly the demand pull you're getting from your customers. Thank you.

Yes, well from my standpoint, the higher our value-add mix is the better. And clearly, the acquisitions we're making could help get us there sooner or should help get us there sooner. I guess, our kind of our near-term goal is more of a 50/50 mix between lumber and -- our distributed product and value-added product. But I certainly would not be -- wouldn't be heartbroken if we hit that number and continue to blow past it. It's clearly the -- the most profitable part of our business. I think it helps differentiate our company versus some of our peers. And so yes, the near-term is 50 but longer term, if we can -- if we can get past that will -- I'll certainly shoot for it.

I think it's worth pointing out that this quarter our value-add business is a greater percentage of our total sales in our commodities

Got it, got it. And then thanks for that, Peter. And then maybe a high level, how should we think -- maybe a reflection several years post ProBuild, it seems from might that one successful. I know it's a lot of work, how do we think about where we are in the housing cycle where your balance sheet is and what your appetite may or may not be to entertain of other big deal in the next several years. Thank you.

Always open to entertaining, a larger deal maybe something could happen if it was a combination of debt and equity, depending on the size maybe, an all-cash deal, we never try to be closed-minded. We're certainly open to opportunities that make sense and our strategic from a long-term perspective. But right now, I don't see any of those on the near-term horizon, most of the deals we're seeing now are smaller to mid-sized deals, but could fit in nicely from a strategic standpoint as well.

Okay. Great. Congrats. Good luck. Q4 and beyond. Thank you.

Thank you, sir.

Thank you.

Thank you. Our last question will come from Kurt Yinger, D.A. Davidson.

Yes, good morning everyone. And I appreciate all the details. I just wanted to go back to volumes and maybe take it in a bit of a different direction. Obviously really positive trends on the value-add side, but the other categories have grown pretty well too. And so, I'm wondering whether you think you can a share taker going forward in those non-value add categories? And if so, what do you think is really separating kind of Builders FirstSource versus your competitors?

Yes, we can be a share taker in other categories, but to me it's -- a lot of it boils down to pricing in margin expectations and return on investment. We've always said, over the years, you take all the share you want if you're prepared to drop your drawers and lower prices, but we tend not to do that. We try to be very, very thoughtful about how we allocate our capital and return on investment. And so, yes, if the returns are adequate, we're more than happy to grow share there as well. But the -- I'll call it the distributed side of our business is the most competitive and so clearly that results in lower margins on average. So, most of our focus over the years has been on the value-add side of the business, better margins, better ROIC and that's where we will continue to focus our efforts.

There's no question that the portfolio that we're able to offer based on our scale and our product breadth has been mutually beneficial. I mean, as we do a really good job with our -- with our customers and we partner with them on value-add really makes a lot of sense, just ease of doing business to work with us on the other products that they purchase as well, as long as it's a fair price. It's -- it's been a fun way for us to continue to grow the business.

Great, thanks for the color and good luck in the fourth quarter.

Thank you.

Thank you. At this time, there appear to be no further questions. So, Mr. Crow, I will turn the call back over to you for any closing remarks.

Yes. Thank you again for joining our call today and we look forward to updating you on our quarter and our full year results in February. And if you have any follow-up questions in the meantime, please don't hesitate to reach out to Binit or Peter. Thank you.

Thank you very much. Ladies and gentlemen, at this time this now concludes our conference. You may disconnect your phone lines and have a great rest of the week. Thank you.