I've been continuing to work on the building product distribution side of things. One of the main questions I've always struggled with is that manufacturers and distributors seem to be very separate players in the market. However, Builders FirstSource does both, which is interesting. They are vertically integrated to some extent. I'm trying to understand the advantages, disadvantages, and difficulties of operating a vertically integrated model. So, maybe the first question I have is, where does owning both the plant and the yard create value for the customer?

There are two main ways to frame a house. You can stick frame the house using loose lumber, plywood, and OSB, shipping these products to the site where crews construct the house using blueprints. Alternatively, you can use components where BFS delivers the truck, cranes the trusses, sets the wall panels, and places the trusses on top. This method frames the house in a fraction of the time, providing all the value I mentioned. This process belongs with the lumber dealer in the value chain, as they make the most sense. Builders FirstSource has made this part of their main value proposition to customers, offering value-added products. These products are very important to their customers, and the margin structure, as BFS reports in earnings calls, is 800 to 1000 basis points higher than commoditized loose lumber. It's beneficial for Builders FirstSource and even better for the customer. Once builders use these products, they tend not to go back to stick framing because the crews prefer them.

Could you explain operationally how stick framing is less efficient, more costly, more labor-intensive, and generates more waste compared to framing a house with pre-manufactured products?

You're not constructing these walls on site; it's done in the plant. You take the wall panel, stand it up where it belongs, and nail it into place. You've transferred the labor from the job site to the plant, assembling the house with these components. The quality is dramatically better because it's done within tolerances of a fraction of an inch. The quality standards and speed to put these houses together are improved, allowing you to frame a house in less than half the time. The real value is in quality, speed, and overall safety. Not to mention the waste on the job. If you're stick framing a house, think about the waste created. With a saw, cutting every board down, you'll have scrap pieces of lumber everywhere. They use big 40-foot dumpsters in the front yard, filling two or three of those, costing $400 per dumpster pull.

What I'm trying to understand is whether the machinery used to produce these manufactured products is too big or too expensive for the builder or contractor on-site who builds the house. Does it make sense for them to buy this type of machinery? Is it transportable from one construction site to another? Is it justifiable for them to order just lumber and lumber sheets and manufacture the products on-site?

It doesn't work that way. These systems are not transportable. You can't just put them on a truck and ship them to the next job. This is heavier equipment. These big truss tables and the equipment that rolls over them reside inside a facility. To make this work efficiently, it has to be done at scale. You can't just produce one or two roof truss jobs; it has to be dozens a day. That's how it's done. You pay for it with scale, and when you run volume through these, it's highly efficient. You ship it to the job site instead of hauling the equipment around. You couldn't do that; it's just not feasible.