Welcome to the Universal Forest Products Incorporated Fourth Quarter 2017 Conference Call. Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks, and then we'll open the call up for questions. This conference call is available simultaneously and in its entirety to all interested investors and news media through a webcast at www.ufpi.com. A replay will also be available at that website through March 25, 2018. Before I turn the call over to Matt Missad, let me remind you that yesterday's press release and today's presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include but are not limited to those factors identified in the press release and in filings with the Securities and Exchange Commission. At this time, I would like to turn the call over to Matt Missad.

Thank you, Liz, and good morning, everyone. We appreciate you taking the time to listen to our year-end 2017 conference call. 2017 was the year of Leo, which is learn it, earn it, and own it. And our team definitely owned it by breaking records for both sales and profits. As we discussed on last quarter's call, we also needed to position our company well for continued growth and success in 2018. And they did that too. Just some quick highlights. Sales were a record $966 million for the quarter and a record $3.94 billion for the year. Earnings were also a record $0.51 per share for the quarter and $1.95 for the year, all adjusted for our stock-split during Q4. Again, I would like to thank all the members of the UFP family of companies for making these new records. Of course, we had a little help from the new federal income tax law, which Mike will describe in more detail. And we did have some margin headwinds related to hurricanes, which we talked about at the end of Q3. Gross margins were down 80 basis points from 2017, due in large part to the higher lumber market, increased freight cost and to significantly lower margins on sales of hurricane-related materials. We honored our commitment to hold the line on pricing in the wake of the hurricanes to help the hurricane victims. We incurred additional freight, handling and sourcing cost to make sure that our customers received as much product as possible in the face of these disasters. Our ability to source worldwide and support the impacted geographies from our many facilities outside the hurricane regions enabled us to ship products at up to 4 times the prior year's unit volumes on some SKUs. While this impact is painful…

Thanks. Before reviewing the financials, I should briefly touch on the impact of lumber prices this quarter. Specifically, overall lumber prices were up 23% year-over-year in the fourth quarter, as a result of significantly higher spruce prices in the fourth quarter - as a result of significantly higher spruce prices. Spruce was up 41% year-over-year and increased approximately 9% sequentially in Q3. Southern yellow pine prices were up 6% year-over-year and up 8% sequentially. As you might recall, rising lumber prices present a challenge for certain products we sell with a fixed price until we reach a point when we can reprice those products with our customers to pass along the cost increase. Higher lumber prices also expose us to future gross product risk and products sold on a variable price formula like treated lumber, in the event lumber prices fall during our primary selling season. You might recall this was the situation we experience last year from April through June. Finally, higher lumber prices caused our ratios of gross profits, SG&A costs, and operating profit as a percentage of sales to temporarily look distorted as we generally attempt to pass along higher commodity cost to our customers and earn a targeted profit per unit. In periods like this, it's best to compare changes in profits and cost with a change in unit sales. Also as we stated in the press release, our results for the quarter and full-year included one less operating week, which we tried to quantify for you. Moving on to the highlights from our income statement. Our overall sales for the quarter increased 13%, resulting from 5% increase in unit sales and an 8% increase in selling prices due to the lumber market. Our 5% unit sales increased was driven by recently completed acquisitions. The lack…

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

Good morning, Matt, Mike.

Good morning, Ketan. How are you?

I'm fine. So first question, has this recent tax reform change changed your view at all on kind of build versus buy?

Yeah, I think that's a good question, Ketan. I think from a build versus buy for us is really about what the situation is in the marketplace in terms of valuations. And that's a bigger driver really than the tax issue. If the valuations are too high, which they appear to be today, we're more inclined to build. If the valuations normalize more that generally is a better option for us.

Got it. That's helpful. And then, can you just give us some sense at a high level what is it that is kind of most interesting to you at this point, whether it is in the build category or in the buy category, whether it is filling up leased and hold? Or just give us some sense of where do you think there was the most opportunity for you?

Yeah, I would say that we are still focused very heavily, Ketan, on the industrial market. There are a lot of opportunities, whether it's with the different product lines or different geographies. So I would say that's probably our biggest focus area and then the new products would be our next one in any of the markets that we serve, trying to find new product opportunities that are scalable that we can grow.

That's helpful. And then, turning to lumber markets, out to Q1, is it fair to say that you would expect a bigger margin squeeze in Q1? Or anything that you can do to mitigate whether it is reset of contracts on January 1 or anything of that kind?

Yeah, Ketan, so we don't have a specific date that's common for all of our agreements, so they tend to run at different timeframes. So a specific date that's common for all of our agreements, so they tend to run at different timeframe. So you're right, as the market runs you're going to continue to have compression until we're able to pass along those cost. So I think it's something similar, I would say, to Q4 in terms of the run in Q4. It's hard to predict at this point, although we're up approximately 7% on the southern yellow pine market thus far this year. So it's a little bit of playing catch-up.

And typically, what the lag is between kind of the cost and when you can reset the contracts? Appreciate that it would vary across different categories and products, but on average?

I would say, on average, it's probably between 60 and 90 days, some longer, obviously, considerably and some much shorter.

Got it. And just one last question on idX. You gave the sales figures that was very helpful. Would you be able to give us the EBITDA contribution as well in 2017?

No, I think we're going to try to stick towards the sales and you can kind of use their historical percentages and that would give you a pretty good idea of what the numbers look like.

Got it. And that's very helpful. Good luck in 2018. I'll turn it over.

All right. Thank you, Ketan.

Our next question comes from the line of Dan Jacome with Sidoti & Company. Your line is now open.

Hello, good morning.

Good morning, Dan.

Hey, Dan.

Hey. So let's say on idX, if we can - I think you said you're targeting $290 million in revenue this year versus a base of $260 million in 2017. Did I get that right?

Yes.

Okay. Can you just give us a little flavor of exactly how you're going to get there or what's the game-plan, because I think it's kind of 11% delta, which seems pretty reasonable? But I would just love to hear a little bit more on that.

Sure, yeah, I think what we said about a year ago is that a lot of their business got pushed back and what we're seeing now is our backlogs are growing. And then, overall what we're seeing is some of the end markets, they're picking up. The newer diversified end markets are picking up with new business. So I think the typical retail apparel category, they're going to spend more money this year than they did last year and all the new end markets that they're focused on are starting to pick up too. So based on - based on their backlog and their visibility with the customer base, that's how they're arriving at the $290 million number.

Okay. So you are saying there was - because of the timing there was a little bit - the results were a little bit depressed and now they should recover from that?

Yeah, as you may recall from a year ago, people were talking about store closures and trying to rationalize their own capacity, so…

Right, no, I remember, yeah, I remember, okay, and that's encouraging. Then wanted to - maybe a one-off or do you - you look at your footprint back in Florida, that looks - mistaken, you still own a lot of manufacturing facilities. Do you see room for further opportunities like this down the road, because for a return on invested capital standpoint it would probably be a positive? Just curious anything there.

Yeah, I think this one was a very easy compelling view of the ROI model that we use to manage the business and to the extent that there are others like that, which I don't believe we have a lot of that to begin with. But we'll be able to downsize the facility, still serve that local market very, very well. And as Mike said, we'll be able to build or create a much more efficient facility, so our operating cost will be even lower there.

Right, yeah, I remember seeing that in the press release. How close are the other facilities to the Medley one? Like do you have a rough idea?

In terms of…

The nearby facilities, yeah, where you're going to roll over some of that production to the facilities nearby, how close are they?

Yeah, we have facilities in Central Florida, and we also will have facilities within that Miami market, so…

Okay. Good. And then, on the hurricane, if I'm not mistaken, you said there was some sourcing cost, and maybe headwind - temporary headwind. So hurricanes are not going to go away. Did you pick up any learnings from this short-term, I don't know, let's call it, blip that maybe going forward, can mitigate something like this happening again? Or is this just kind of like the cost of doing business down there?

Yeah. I think you're absolutely right. Hurricanes are going to happen. And every hurricane, we learn a little something about it. And in this case, one of the things we do is we try to make sure that we service our customer, and the need to service the customer trumps the short-term profitability issue. I think, what we will do and learn from this, is we will need to better manage the expectations with the customer base in terms of how much material we can get and how quickly we can get it there.

Okay. And then on the lease deck, I forgot to ask earlier, but the proceeds, is there just kind of - it's being roll forward in - it's in your CapEx guidance for the year, some of that, that you're going to reinvest, I guess?

Yeah, I would think, that we would look to use it for replacement projects and properties around the country.

Okay, terrific. And then last one, what sort of housing start growth do you have baked in internally at corporate, when you're thinking about 2018, if you care to comment on that? Just trying to see what you guys think versus some peers? That's it.

Yeah. I would say that we're probably on the lower end of the spectrum. Dan, we typically are with probably at 3% maybe growth rate.

Oh, yeah. Okay, that is low. All right, but fair. Thank you very much.

All right. Thank you.

[Operator Instructions] Our next question comes from the line of Steve Chercover with D. A. Davidson. Your line is now open.

Thanks. Good morning, Matt and Mike.

Good morning, Steve.

Good morning, Steve.

So just to kick it off, I'm assuming that you guys could be beneficiaries of increased infrastructure spending. And in my mind, I see concrete forming as maybe the most obvious opportunity. But can you tell us how you might participate and how you're targeting it?

I think, you just said it, Steve, probably better than I can. That's - like [ph] the big area that we would see being able to participate in that, and that's an area we're focused on. So any of the infrastructure spend, our concrete forming business, we think, would benefit and perhaps some of our other construction markets will benefit as well.

All right. Very good. And I'm not trying to dig much deeper, but on idX, you gave us the sales achievement and target for 2018. I just want to - can you help us recall, was it around $25 million what you've thought they would be generating in a steady state?

Yeah, I think it was - that was the number from a couple of years. That's correct.

All right. So anyhow, they'll be kind of accretive to your - or achieving better than ROI in 2019.

Correct.

Okay. And finally on lumber prices, when you cited them that the higher lumber prices, specifically, is a governor on residential construction. So, A, do you expect that the new mills from GP and Canfor might ultimately help drive prices down? And do you think that these duties on Canadian lumber are actually detrimental to the U.S. economy?

Well, that's a loaded question. I know you're setting me up here, Steve, so I'll try to tackle the first part of that. First, I guess, in terms of the impact on the lumber market, clearly, if there it is more supply, we would expect and not commensurate increasing demand. We would expect there to be some moderation in the pricing. So that's the first and the easy one. I guess, with respect to what's the impact of the Canadian duties on the lumber market it would be hard for me to say that it hasn't had an impact in driving up the costs. And the ultimate question is how high is too high relative to what does that do to the market in terms of consumer demand. And I guess, you can draw your own conclusions there, but I definitely think it's had an impact.

Yeah. Well, I mean, I'm a double agent, everyone knows that. But to the extent housing is a policy objective - housing affordability, and if it's actually impacting activity levels, it doesn't seem - it seems like there's clearly negative. All right. Well, thanks guys. Best wishes for 2018.

Thank you, Steve, appreciate it.

We have a follow-up question from the line of Ketan Mamtora. Your line is now open.

Thank you. Mike, just a couple of quick ones, and sorry if I missed this, but what would your cash taxes be in 2018? Would it be similar to your effective tax rate or would there be any differences?

It would be very similar.

Got it. And then, any change in your view on leverage as we move through the housing cycle?

No, I think at this point of the cycle, we still think 1.5 to 2 times debt to EBITDA is a good comfortable leverage ratio. At another point in this cycle, when we expect demand to be off, then we might change our view on that. But at this point, we're very comfortable with that.

Okay. That's very helpful. Good luck in 2018.

Thank you.

Thank you, Ketan.

And I'm not showing any further questions at this time. I'd like to turn the call back to Mr. Missad, for any closing remarks.

Thank you, Liz. I'd like to thank all of you again for joining us on our call this morning. We truly appreciate your interest in our company, and believe that we have an outstanding team committed to driving performance and increasing the value of our investment. I'd also like to say a special thank you to you for helping us get our Halloween wish of a tax reduction. Sometimes wishes do come true. And our 2018 goal is to say, one year from now that 2018 was greater than ever before. Thank you and have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. And you may now disconnect. Everyone, have a great day.