Builders FirstSource Reports Second Quarter 2023 Results

Net sales of $4.5 billion, a decrease of 34.6%

Net income of $404.6 million

Earnings per diluted share of $3.16 per share

Adjusted EBITDA of $768.8 million at a margin of 17.0%

Repurchased 7.0 million shares in Q2; 10.5% reduction in shares outstanding YTD

Builders FirstSource, Inc. (NYSE: BLDR) today reported its results for the second quarter ended June 30, 2023.

Second Quarter 2023 Highlights

All Year-Over-Year Comparisons Unless Otherwise Noted:

• Net sales of $4.5 billion, a 34.6% decrease driven by a decline in core organic net sales of 22.3% and commodity deflation of 16.2%, partially offset by acquisitions of 3.9%.
• Gross profit margin percentage increased 40 basis points to 35.2% due to stronger mix in value-added products overall, largely driven by our recent strategic investments in Multi-Family and related commodity price fluctuations.
• Net income decreased 59.0% to $404.6 million, or $3.16 per diluted share compared to $5.75 in the prior year period, and adjusted net income decreased 53.6% to $498.4 million, or $3.89 per diluted share compared to $6.26 in the prior year period. Net income and adjusted net income per diluted share declined 45.0% and 37.9%, respectively.
• Adjusted EBITDA decreased 49.0% to $768.8 million, primarily driven by lower net sales including a decline in core organic products and commodity deflation. Adjusted EBITDA margin declined by 480 basis points to 17.0%.
• Cash provided by operating activities was $391.3 million, down $555.9 million compared to the prior year period, while free cash flow was $269.9 million, down $611.5 million compared to the prior year period.
• Strong quarter-end balance sheet with liquidity of $0.9 billion and a net debt to LTM Adjusted EBITDA ratio of 1.1x.
• Repurchased 7.0 million shares of common stock at an average price of $103.68 for $722.7 million, inclusive of fees and taxes.

“Second quarter results surpassed our expectations driven by the strength of our value-added product portfolio, contributions from operational initiatives instilled over the last few years, and a more stable housing environment,” commented Dave Rush, CEO of Builders FirstSource. “We continue to exceed our near-term targets and execute our strategic priorities through the hard work and dedication of our team members. We are creating value for shareholders by driving operational excellence and prudently deploying capital for long-term growth.”

Mr. Rush continued, “We are making deliberate investments to enhance our cutting-edge digital solutions and improve the customer experience, primarily through the Digital Tools on our recently launched myBLDR.com portal. We will continue to leverage these solutions, our value-added offerings, and our purpose-built scale to drive growth into the future.”

Peter Jackson, CFO of Builders FirstSource, added, “Our second quarter performance demonstrates that we are well positioned in the marketplace with differentiated solutions and a strong balance sheet. We continue to generate robust free cash flow and prudently deploy capital, making four value-enhancing, tuck-in acquisitions to date in 2023 and repurchasing over $700 million of shares in the second quarter. As we continue to assess our margin expectations based on our current mix and overall performance, we are confident that our long-term normalized gross margin percentage is now 29% or higher versus our previous expectation of 28% or higher. We believe our industry-leading scale, ongoing investments in value-added products and digital solutions, and strong financial position will lead to a double-digit Adjusted EBITDA margin this year and sustained growth in the years to come.”

Financial Performance Highlights - Second Quarter 2023 Compared to Second Quarter 2022

Net Sales

• Net sales of $4.5 billion, a 34.6% decrease driven by a decline in core organic net sales of 22.3% and commodity deflation of 16.2%, partially offset by acquisitions of 3.9%.
• Driving the core organic net sales decline of 22.3%, Single-Family declined 31.0%, Multi-Family increased 29.6%, and Repair and Remodel (“R&R”)/Other increased 4.6%.
• While core organic net sales in Value-Added Products decreased 19.5%, Value-Added Products increased as a percentage of our overall net sales mix from 43% in the prior year to 53% in the current year.

Gross Profit

• Gross profit was $1.6 billion, a decrease of 33.9% compared to the prior year period. The gross profit margin percentage increased 40 basis points to 35.2% due to stronger mix in value-added products overall, largely driven by our recent strategic investments in Multi-Family and related commodity price fluctuations.

Selling, General and Administrative Expenses

• SG&A was $1.0 billion, a decrease of approximately $28.4 million, or 2.7%, driven primarily by lower variable compensation due to lower core organic net sales, partially offset by additional expenses from operations acquired within the last twelve months. As a percentage of net sales, total SG&A increased by 740 basis points to 22.5% primarily attributable to decreased leverage to net sales.

Interest Expense

• Interest expense decreased $17.7 million to $53.0 million, primarily due to a loss on the extinguishment of $27.4 million recognized in the second quarter of 2022, partially offset by higher debt balances and interest rates.

Income Tax Expense

• Income tax expense was $119.4 million, compared to $307.9 million in the prior year period, and the effective tax rate in the second quarter decreased 100 basis points year-over-year to 22.8%.

Net Income

• Net income was $404.6 million, or $3.16 earnings per diluted share, compared to net income of $987.2 million, or $5.75 earnings per diluted share, in the same period a year ago. The 59.0% decrease in net income was primarily driven by a decrease in sales volumes and commodity deflation.

Adjusted Net Income

• Adjusted net income was $498.4 million, or $3.89 adjusted earnings per diluted share, compared to adjusted net income of $1.07 billion, or $6.26 adjusted earnings per diluted share, in the same period a year ago. The 53.6% decrease in adjusted net income was primarily driven by a decrease in sales volumes and commodity deflation.

Adjusted EBITDA

• Adjusted EBITDA decreased 49.0% to $768.8 million, primarily driven by lower net sales including a decline in core organic products and commodity deflation.
• Adjusted EBITDA margin declined by 480 basis points from the prior year period to 17.0% primarily from the deleveraging of expenses due to declining commodity prices and Single-Family volumes.

Capital Structure, Leverage, and Liquidity Information

• For the six months ended June 30, 2023, cash provided by operating activities was $1.0 billion, and cash used in investing activities was $0.3 billion. The Company’s free cash was an inflow of $0.8 billion.
• Liquidity as of June 30, 2023 was approximately $0.9 billion, consisting of $0.8 billion in net borrowing availability under the revolving credit facility and approximately $0.1 billion of cash on hand.
• As of June 30, 2023, LTM Adjusted EBITDA was $3.3 billion and net debt was $3.6 billion, resulting in the net debt to LTM Adjusted EBITDA ratio increasing to 1.1x, compared to 0.8x in the prior year period.
• In the second quarter, the Company repurchased approximately 7.0 million shares of its common stock at an average price of $103.68 per share for $722.7 million, inclusive of fees and taxes.
• The Company has approximately $0.6 billion remaining on its most recent $1 billion share repurchase authorization from April 2023.
• Since the inception of its buyback program in August 2021, the Company has repurchased approximately 83.8 million shares of its common stock, or approximately 40.6% of its total shares outstanding, at an average price of $67.81 per share for a total cost of $5.7 billion. As of July 28, 2023, shares outstanding were approximately 125 million.

Operational Excellence Productivity

• Year to date, the Company has delivered approximately $84 million in productivity savings.
• The Company believes it can now deliver $110 million to $150 million in productivity savings in 2023.

2023 Total Company Outlook

For 2023, the Company expects to achieve the financial performance highlighted below. Projected net sales and Adjusted EBITDA include the expected benefit of price, commodity, and margin impacts for 2023.

• Net Sales to be in a range of $16.8 billion to $17.8 billion.
• Gross Profit margin to be in a range of 33% to 35%.
• Adjusted EBITDA to be in a range of $2.6 billion to $2.9 billion.
• Adjusted EBITDA margin to be in a range of 15% to 17%.

2023 Full Year Assumptions

The Company’s anticipated 2023 performance is based on several assumptions for the full year, including the following:

• Within the Company’s geographies, Single-Family starts are projected to be down high single-digits to low double-digits, Multi-Family starts up low double-digits, and R&R is projected to be up low-to-mid-single digits.
• Acquisitions completed within the last twelve months are projected to add net sales growth of 3% to 4%.
• Total capital expenditures in the range of $400 million to $450 million.
• Free cash flow in the range of $1.6 billion to $2.0 billion, assuming average commodity prices in the range of $400 to $450/mbf.
• Interest expense in the range of $185 million to $205 million.
• An effective tax rate of 23.0% to 25.0%.
• Depreciation and amortization expenses in the range of $550 million to $600 million, including approximately $160 million of amortization related to intangible assets acquired in the BMC merger. Total depreciation projected to be $225 million, and total amortization projected to be $340 million.
• No change in selling days in 2023 versus 2022.

Conference Call

Builders FirstSource will host a conference call and webcast on Wednesday, August 2, 2023, to discuss the Company’s financial results and other business matters. The teleconference will begin at 8:00 a.m. Central Time and will be hosted by Dave Rush, Chief Executive Officer, and Peter Jackson, Chief Financial Officer.

To participate in the teleconference, please dial into the call a few minutes before the start time: 800-245-3047 (U.S. and Canada) and 203-518-9708 (international), Conference ID: BLDRQ223. A replay of the call will be available at 12:00 p.m. Central Time through Wednesday, August 9, 2023. To access the replay, please dial 800-839-4568 (U.S. and Canada) or 402-220-2681 (international). The live webcast and archived replay can also be accessed on the Company's website at www.bldr.com under the Investors section. The online archive of the webcast will be available for approximately 90 days.

About Builders FirstSource

Headquartered in Irving, Texas, Builders FirstSource is the largest U.S. supplier of building products, prefabricated components, and value-added services to the professional market segment for new residential construction and repair and remodeling. We provide customers an integrated homebuilding solution, offering manufacturing, supply, delivery, and installation of a full range of structural and related building products. We operate in 42 states with over 550 locations and have a market presence in 47 of the top 50 and 86 of the top 100 MSAs, providing geographic diversity and balanced end market exposure. We service customers from strategically located distribution and manufacturing facilities (some of which are co-located) that produce value-added products such as roof and floor trusses, wall panels, stairs, vinyl windows, custom millwork, and pre-hung doors. Builders FirstSource also distributes dimensional lumber and lumber sheet goods, millwork, windows, interior and exterior doors, and other specialty building products. www.bldr.com

Forward-Looking Statements

Statements in this news release and the schedules hereto that are not purely historical facts or that necessarily depend upon future events, including statements about expected market share gains, forecasted financial performance or other statements about anticipations, beliefs, expectations, hopes, synergies, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. In addition, oral statements made by our directors, officers and employees to the investor and analyst communities, media representatives and others, depending upon their nature, may also constitute forward-looking statements. As with the forward-looking statements included in this release, these forward-looking statements are by nature inherently uncertain, and actual results or events may differ materially as a result of many factors. All forward-looking statements are based upon information available to Builders FirstSource on the date this release was submitted. Builders FirstSource undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve risks and uncertainties, many of which are beyond the Company’s control or may be currently unknown to the Company, that could cause actual events or results to differ materially from the events or results described in the forward-looking statements; such risks or uncertainties include those related to the Company’s growth strategies, including acquisitions, organic growth and digital strategies, or the dependence of the Company’s revenues and operating results on, among other things, the homebuilding industry and, to a lesser extent, repair and remodel activity, which in each case is dependent on economic conditions, including inflation, interest rates, consumer confidence, labor and supply shortages, and also lumber and other commodity prices. Builders FirstSource may not succeed in addressing these and other risks. Further information regarding factors that could affect our financial and other results can be found in the risk factors section of Builders FirstSource’s most recent annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) and may also be described from time to time in the other reports Builders FirstSource files with the SEC. Consequently, all forward-looking statements in this release are qualified by the factors, risks and uncertainties contained therein.

Non-GAAP Financial Measures

The financial measures entitled Adjusted EBITDA, LTM Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income, diluted Adjusted net income per share and Free cash flow are not financial measures recognized under GAAP and are therefore non-GAAP financial measures. The Company believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and operating results.

Adjusted EBITDA is defined as GAAP net income before depreciation and amortization expense, interest expense, net, income tax expense and other non-cash or special items including stock compensation expense, acquisition and integration expense, debt issuance and refinancing costs, severance and gain on sale of assets and other one-time costs. LTM Adjusted EBITDA is defined as Adjusted EBITDA for the last twelve consecutive months. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales. Adjusted net income is defined as GAAP net income before non-cash or special items including acquisition and integration expense and debt issuance and refinancing cost offset by the tax effect of those adjustments to net income. Adjusted net income per diluted share is defined as Adjusted net income divided by weighted average diluted common shares outstanding. Free cash flow is defined as GAAP net cash from operating activities less capital expenditures, net of proceeds from the sale of property, plant and equipment.

Company management uses Adjusted EBITDA, Adjusted EBITDA margin and Adjusted net income as supplemental measures in its evaluation of the Company’s business, including for trend analysis, purposes of determining management incentive compensation and budgeting and planning purposes. Company management believes that these measures provide a meaningful measure of the Company’s performance and a better baseline for comparing financial performance across periods because these measures eliminate the effects of period to period changes, in the case of Adjusted EBITDA and Adjusted EBITDA margin, in taxes, costs associated with capital investments, interest expense, stock compensation expense, and other non-cash and non-recurring items and, in the case of Adjusted net income, in certain non-recurring items. Company management also uses free cash flow as a supplemental measure in its evaluation of the Company’s business, including for purposes of its internal liquidity assessments. Company management believes that free cash flow provides a meaningful evaluation of the Company’s liquidity.

The Company believes that these non-GAAP financial measures provide additional tools for investors to use in evaluating ongoing operating results, cash flows and trends and in comparing the Company’s financial measures with other companies in the Company’s industry, which may present similar non-GAAP financial measures to investors. However, the Company’s calculations of these financial measures are not necessarily comparable to similarly titled measures reported by other companies. Company management does not consider these financial measures in isolation or as alternatives to financial measures determined in accordance with GAAP. Furthermore, items that are excluded and other adjustments and assumptions that are made in calculating these non-GAAP financial measures are significant components in understanding and assessing the Company’s financial performance. These non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company’s GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP and are thus susceptible to varying calculations, the non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures of other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the tables below.

The Company’s Adjusted EBITDA outlook, free cash flow and full-year forecast for its effective tax rate on operations exclude the impact of certain income and expense items that management believes are not part of underlying operations. These items may include, but are not limited to, loss on early extinguishment of debt, restructuring charges, certain tax items, and charges associated with non-recurring costs such as professional and legal fees associated with our acquisitions and enterprise resource planning (ERP) program. The Company’s management cannot estimate on a forward-looking basis without unreasonable effort the impact these income and expense items will have on its reported net income, operating cash flow and its reported effective tax rate because these items, which could be significant, are difficult to predict and may be highly variable. As a result, the Company does not provide a reconciliation to the most comparable GAAP financial measure for its Adjusted EBITDA or free cash flow outlook or its effective tax rate on operations forecast. Please see the Forward-Looking Statements section of this release for a discussion of certain risks relevant to the Company’s outlook.

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