BFS Q1 Sales Down, Manufactured Products Down 18.4%

Builders FirstSource, Inc. (NYSE: BLDR) today reported its results for the first quarter ended March 31, 2023.

First Quarter 2023 Highlights

All Year-Over-Year Comparisons Unless Otherwise Noted:

• Net sales decreased 31.6% to $3.9 billion driven by declining single-family starts and commodity deflation, partially offset by growth from acquisitions and one additional selling day.
• Gross profit margin percentage increased 300 basis points to 35.3% primarily driven by increased Multi-Family value-added product category mix.
• Net income decreased 47.8% to $333.8 million, or $2.41 per diluted share compared to $3.56 in the prior year period, and adjusted net income decreased 41.5% to $410.3 million, or $2.96 per diluted share compared to $3.90 in the prior year period.
• Adjusted EBITDA decreased 36.9% to $631.7 million, mainly driven by a decline in net sales and commodity deflation. Adjusted EBITDA margin declined by 130 basis points to 16.3%.
• Cash provided by operating activities was $654.4 million, up $474.6 million compared to the prior year period, while free cash flow was $554.5 million, up $423.0 million compared to the prior year period.
• Strong quarter-end balance sheet with liquidity of $1.4 billion and a net debt to LTM Adjusted EBITDA ratio of 0.8x.
• Repurchased 7.5 million shares of common stock at an average price of $83.17 for $627.6 million, inclusive of fees and taxes.

“We are proud of our results for the first quarter given the challenging macro backdrop. We were able to exceed our forecasts through the strength of our product portfolio, continued execution of our strategic priorities, and the tireless effort of our team members,” commented Dave Rush, CEO of Builders FirstSource. “Our best-in-class end market exposure and distribution footprint, in addition to our unrelenting focus on operational excellence, are guiding us through this complex operating environment. We remain committed to enhancing our customer relationships by being the easiest to do business with. Our continued investments in value-added products, productivity initiatives, and digital solutions all work to reduce cycle times and costs, making homebuilding more affordable and efficient. Given our differentiated platform, experienced management team, and clear focus on delivering value-added solutions to our customers, we are well-positioned to outperform.”

Mr. Rush continued, “In addition to our focus on profitable organic growth and improving mix, we remain committed to growing through accretive acquisitions. Our recent tuck-in acquisitions allow us to further expand our value-added offerings and reach a more diverse customer base in what we consider to be very attractive markets.”

Peter Jackson, CFO of Builders FirstSource, added, “I am pleased with our results in the first quarter. We generated free cash flow of approximately $554.5 million as we leveraged our best-in-class operating platform and extended our track record of effective cost containment and working capital management. We remain disciplined stewards of capital, making another valuable acquisition, and repurchasing $627.6 million of shares during the quarter while maintaining a strong balance sheet and substantial financial flexibility. As we continue to see the benefits of our transformed business, I am increasingly confident that our long-term normalized gross margin percentage is now at 28% or higher versus our previous expectation of 27% or higher. We also believe that we can sustain a double-digit Adjusted EBITDA margin this year. Looking forward, we believe our robust financial position, industry-leading products and solutions, and reputation for providing excellent customer service will allow us to successfully navigate macro volatility and position ourselves for above market growth in the years to come.”

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

Net Sales

• Net sales for the period were $3.9 billion, a 31.6% decrease amid a weaker housing environment and commodity deflation of 11.8%, partially offset by acquisitions contributing 5.5% growth and one additional selling day contributing 1.0%. Core organic sales declined by 26.3%.
• Core organic sales in value-added products decreased 16.9%.
• Core organic sales for Single-Family decreased 34.1%, Multi-Family increased 11.5%, and Repair and Remodel (“R&R”)/Other increased 3.1%.

Gross Profit

• Gross profit was $1.4 billion, a decrease of 25.2% compared to the prior year period. The gross profit margin percentage increased 300 basis points to 35.3%, primarily driven by increased Multi-Family value-added product category mix.

Selling, General and Administrative Expenses

• SG&A was $904.2 million, a decrease of approximately $64.4 million, or 6.6%, driven primarily by lower variable compensation due to lower volume, partially offset by additional expenses from operations acquired within the last twelve months. As a percentage of net sales, total SG&A increased by 630 basis points to 23.3% primarily attributable to decreased leverage to net sales.

Interest Expense

• Interest expense increased $0.8 million to $42.1 million, primarily due to higher outstanding debt balances and higher interest rates.

Income Tax Expense

• Income tax expense was $91.3 million, compared to $182.9 million in the prior year period, and the effective tax rate in the first quarter decreased 70 basis points to 21.5% year-over-year.

Net Income

• Net income was $333.8 million, or $2.41 earnings per diluted share, compared to net income of $639.6 million, or $3.56 earnings per diluted share, in the same period a year ago.

Adjusted Net Income

• Adjusted net income was $410.3 million, or $2.96 adjusted earnings per diluted share, compared to adjusted net income of $700.8 million, or $3.90 adjusted earnings per diluted share, in the same period a year ago. The 41.5% decrease in adjusted net income was primarily driven by a decrease in net sales amid a slowing housing environment and commodity deflation.

Adjusted EBITDA

• Adjusted EBITDA decreased 36.9% to $631.7 million, primarily driven by lower net sales including a decline in core organic products amid a slowing housing market and commodity deflation.
• Adjusted EBITDA margin declined by 130 basis points from the prior year period to 16.3%.

Capital Structure, Leverage, and Liquidity Information

• For the three months ended March 31, 2023, cash provided by operating activities was $654.4 million, and cash used in investing activities was $178.9 million. The Company’s free cash was an inflow of $554.5 million.
• Liquidity as of March 31, 2023 was $1.4 billion, consisting of $1.2 billion in net borrowing availability under the revolving credit facility and approximately $0.2 billion of cash on hand.
• As of March 31, 2023, LTM Adjusted EBITDA was $4.0 billion and net debt was $3.1 billion, resulting in the net debt to LTM Adjusted EBITDA ratio decreasing to 0.8x, compared to 0.9x in the prior year period.
• In the first quarter, the Company repurchased approximately 7.5 million shares of its common stock at an average price of $83.17 per share for $627.6 million, inclusive of fees and taxes.
• In addition, the Company repurchased approximately 3.8 million shares in April 2023 for $348.4 million at an average price of $91.90 per share, inclusive of estimated fees and taxes. The Company has completed its expanded share repurchase authorization from November 2022 totaling approximately $1.5 billion.
• Since the inception of our buyback program in August 2021, the Company has repurchased approximately 80.7 million shares of its common stock, or approximately 39.1% of its total shares outstanding, at an average price of $65.84 per share for a total cost of $5.3 billion. As of April 28, 2023, shares outstanding were approximately 128 million.
• In April, the Board of Directors approved a share repurchase authorization in the amount of $1 billion of the Company's common shares.

Operational Excellence Productivity

• In the first quarter, the Company delivered approximately $34 million in productivity savings.
• The Company continues to believe it can deliver $90 million to $110 million in productivity savings in 2023.

Q2 2023 Company Guidance

The Company expects challenging conditions in housing amid elevated mortgage rates and general uncertainty in economic conditions that may significantly impact the business. As a result, the Company is not currently providing guidance for the full year 2023 but will continue to reassess each quarter.

For the second quarter of 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 Q2 2023.

• Net Sales to be in a range of $4.0 billion to $4.2 billion.
• Adjusted EBITDA to be in a range of $525 million to $575 million.
• Adjusted EBITDA margin to be in a range of 13.1% to 13.7%.

2023 Full Year Assumptions

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

• Total capital expenditures in the range of $325 million to $375 million.
• Interest expense in the range of $150 million to $170 million.
• An effective tax rate of 23.0% to 25.0%.
• Depreciation and amortization expenses in the range of $525 million to $575 million, including approximately $160 million of amortization related to intangible assets acquired in the BMC merger. Total depreciation projected to be $220 million and total amortization projected to be $325 million.
• No change in selling days in 2023 versus 2022.
• Productivity savings in the range of $90 million to $110 million.