Builders FirstSource Reports Second Quarter 2023 Results

Builders FirstSource, Inc. 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.

For the full second quarter results, click here.

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

Contact:

Michael Neese – SVP, Investor Relations – investorrelations@bldr.com

Source: Builders FirstSource, Inc.