BFS Reports Q4 2.5% Sales Decline in Manufactured Products

Builders FirstSource, Inc. (NYSE: BLDR) today reported its results for the fourth quarter and full year ended December 31, 2022.

Fourth Quarter 2022 BFS Highlights

All Year-Over-Year Comparisons Unless Otherwise Noted:

• Net sales decreased 6.0% to $4.4 billion for the quarter driven by declining single-family starts, two fewer selling days, and commodity deflation, partially offset by growth from acquisitions.
• Net income decreased 13.1% to $0.4 billion, or $2.62 per diluted share compared to $2.31 in the prior year period, and adjusted net income decreased 11.6% to $0.5 billion, or $3.21 per diluted share compared to $2.78 in the prior year period.
• Adjusted EBITDA decreased 12.2% to $0.7 billion, mainly driven by a decline in net sales and higher operating expenses. Adjusted EBITDA margin declined by 110 basis points to 16.0%.
• Cash provided by operating activities was $1.0 billion, and free cash flow was $0.8 billion.
• Strong quarter-end balance sheet with liquidity of $1.5 billion and a net debt to LTM Adjusted EBITDA ratio of 0.7x.
• During the quarter, the Company repurchased 10.2 million shares of its common stock for $651.4 million at an average price of $64.17.

Full Year 2022 BFS Highlights

All Year-Over-Year Comparisons Unless Otherwise Noted:

• Net sales increased 14.2% to $22.7 billion for the year driven by acquisitions, core organic growth, and commodity inflation, partially offset by two fewer selling days.
• Net income increased 59.3% to $2.7 billion, or $16.82 per diluted share, and adjusted net income increased 45.7% to $3.1 billion, or $18.71 per diluted share. Adjusted net income per diluted share increased 81.3% over the prior year period.
• Adjusted EBITDA increased 43.0% to $4.4 billion, mainly driven by higher net sales, positive operating leverage, and commodity inflation. Adjusted EBITDA margin increased by 390 basis points to 19.3%.

“Over my more than two decades with Builders FirstSource, we have never been better positioned to compete in a highly fragmented industry and execute on our strategy to capture share and create long-term profitable growth,” commented Dave Rush, CEO of Builders FirstSource. “I want to thank the Board of Directors for trusting me to lead this great organization, and I am excited to help the team reach its full potential. Our continuing focus on growing value-added products and operational excellence helped us to produce record full-year 2022 Adjusted EBITDA of $4.4 billion. While economic conditions have become more complex in recent months, I am confident that our exceptional geographic and end-market exposure as well as our experienced management team will lead us to achieve our strategic growth priorities. We have the right team members and strategy in place to win in any environment.”

Mr. Rush added, “We have continued to demonstrate progress towards our stated goals through both organic growth and strategic, tuck-in acquisitions that effectively complement our industry-leading portfolio of solutions. We spent approximately $2 billion on acquisitions over the last two years to enhance our value-added offerings across the portfolio, expand into high-growth geographies, and increase our presence in the multi-family and R&R sectors. As we move into 2023, we will maintain our disciplined approach to capital deployment to ensure that we can continue to drive long-term value creation for our shareholders.”

Peter Jackson, CFO of Builders FirstSource, added, “I am proud of our ability to deliver solid financial results in the fourth quarter and record performance for the full year. We generated exceptional free cash flow of approximately $800 million in the fourth quarter and repurchased over $650 million of shares while maintaining a strong balance sheet capable of investing in future growth. We continue to manage through the complex operating environment with a proactive mindset and will act where needed to right-size the business. We expect the structural enhancements that we have made in our business over the past decade will mitigate the impact of softer housing demand and inflationary headwinds. Our ample liquidity, low leverage, and disciplined cost management provide significant financial firepower to strategically and opportunistically grow our business.”

Builders FirstSource Financial Performance Highlights - Fourth Quarter 2022 Compared to Fourth Quarter 2021

Net Sales

• Net sales for the period were $4.4 billion, a 6.0% decrease amid a weaker housing environment, two fewer selling days contributed a decline of 3.2%, and commodity deflation was 3.0%, partially offset by acquisitions contributing 7.9% growth. Core organic sales declined by 7.7%.
• Core organic sales in value-added products increased 0.6%.
• Core organic growth for Single-Family decreased 13.9%, Repair and Remodel (“R&R”)/Other increased 14.9% and Multi-Family increased 15.1%.

Gross Profit

• Gross profit was $1.5 billion, or roughly flat compared to the prior year period. The gross profit margin percentage increased 200 basis points to 34.1%, primarily driven by increased value-added product category mix.

Selling, General and Administrative Expenses

• SG&A was $958.7 million, an increase of approximately $94.7 million, or 11.0%, driven primarily by additional operating expenses from operations acquired within the last twelve months, inflation, and other costs. As a percentage of net sales, total SG&A increased by 340 basis points to 22.0%.

Interest Expense

• Interest expense increased $1.9 million to $42.2 million, primarily due to higher outstanding debt balances and higher interest rates.

Income Tax Expense

• Income tax expense was $99.3 million, compared to $139.0 million in the prior year period, and the effective tax rate in the fourth quarter decreased 340 basis points to 20.5% year-over-year.

Net Income

• Net income was $384.5 million, or $2.62 earnings per diluted share, compared to net income of $442.5 million, or $2.31 earnings per diluted share, in the same period a year ago.

Adjusted Net Income

• Adjusted net income was $470.8 million, or $3.21 adjusted earnings per diluted share, compared to adjusted net income of $532.4 million, or $2.78 adjusted earnings per diluted share, in the same period a year ago. The 11.6% decrease in adjusted net income was primarily driven by a decrease in net sales and higher SG&A expense.

Adjusted EBITDA

• Adjusted EBITDA decreased 12.2% to $0.7 billion, primarily driven by lower net sales including a decline in core organic products amid a slowing housing market, commodity deflation, and higher SG&A expense.
• Adjusted EBITDA margin declined by 110 basis points from the prior year period to 16.0%.

Builders FirstSource Financial Performance Highlights - Full Year 2022 Compared to Full Year 2021

Net Sales

• Net sales for the year were $22.7 billion, a 14.2% increase. Acquisitions contributed 7.3%, core organic sales increased by 6.6%, and commodity inflation contributed 1.1%, partially offset by two fewer selling days contributing a 0.8% decline.
• Core organic sales in value-added products increased by 20.9%.
• Core organic growth for Single-Family increased 4.9%, Repair and Remodel (“R&R”)/Other increased 14.2% and Multi-Family increased 9.5%.

Gross Profit

• Gross profit was $7.7 billion, a 32.4% increase. The gross profit margin percentage increased 470 basis points to 34.1%, primarily driven by increased sales mix in value-added product categories.

Selling, General and Administrative Expenses

• SG&A was $4.0 billion, an increase of approximately $0.5 billion, or 14.7%, driven primarily by additional operating expenses from operations acquired within the last twelve months and higher variable compensation costs as a result of higher sales and profitability, as well as inflation and other costs. As a percentage of net sales, total SG&A increased by 10 basis points to 17.5%.

Interest Expense

• Interest expense increased $62.5 million to $198.4 million, primarily due to higher outstanding debt balances and higher interest rates.

Income Tax Expense

• Driven by higher profitability, income tax expense was $822.5 million, compared to $526.1 million in the prior year period, and the effective tax rate for the full year was 40 basis points lower year-over-year at 23.0%.

Net Income

• Net income was $2.7 billion, or $16.82 earnings per diluted share, compared to net income of $1.7 billion, or $8.48 earnings per diluted share, in the same period a year ago. Earnings per diluted share increased 98.3% over the prior year period.

Adjusted Net Income

• Adjusted net income was $3.1 billion, or $18.71 adjusted earnings per diluted share, compared to adjusted net income of $2.1 billion, or $10.32 adjusted earnings per diluted share, in the same period a year ago. The 45.7% increase in adjusted net income was primarily driven by net sales growth, a higher mix of sales from value-added product categories, and disciplined pricing in a market that was supply constrained for much of the year, partially offset by higher income tax and SG&A expense. The adjusted earnings per diluted share increase was driven by share repurchases, which contributed $3.81, or 45% of the $8.39 change.

Adjusted EBITDA

• Adjusted EBITDA increased 43.0% to $4.4 billion, primarily driven by net sales growth, a higher mix of sales from value-added product categories, and disciplined pricing in a market that was supply constrained for much of the year.
• Adjusted EBITDA margin increased by 390 basis points from the prior year period to 19.3%.

Builders FirstSource Capital Structure, Leverage, and Liquidity Information

• For the twelve months ended December 31, 2022, cash provided by operating activities was $3.6 billion, and cash used in investing activities was $1.0 billion. The Company’s free cash was an inflow of $3.3 billion, primarily driven by increased sales and margins from core organic growth and acquisitions.
• Liquidity as of December 31, 2022 was $1.5 billion, consisting of approximately $1.4 billion in net borrowing availability under the revolving credit facility and $0.1 billion of cash on hand.
• As of December 31, 2022, Adjusted EBITDA was $4.4 billion and net debt was $2.9 billion, resulting in the net debt to LTM Adjusted EBITDA ratio decreasing to 0.7x, compared to 1.0x at year end 2021.
• In the fourth quarter, the Company repurchased approximately 10.2 million shares of its common stock for $651.4 million at an average price of $64.17 per share. During the twelve months ended December 31, 2022, the Company repurchased approximately 41.9 million shares at an average price of $61.79 per share for a total cost of $2.6 billion.
• In addition, the Company repurchased approximately 0.9 million shares in January 2023 for $60.7 million at an average price of $65.94 per share. The Company has more than $0.9 billion remaining in its current share repurchase authorization from November 2022.
• Since August 2021, the Company has repurchased approximately 70.2 million shares of its common stock, or approximately 34.0% of its total shares outstanding, at an average price of $62.58 per share for a total cost of $4.4 billion.

Operational Excellence Productivity

• In the fourth quarter, the Company delivered approximately $47 million in productivity savings.
• In 2022, the Company delivered approximately $123 million in productivity savings versus our expectation for greater than $100 million in savings.

Q1 2023 Total 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 providing guidance for the full year 2023 but will reassess each quarter.

For the first 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 Q1 2023.

• Net Sales to be in a range of $3.4 billion to $3.7 billion.
• Adjusted EBITDA to be in a range of $400 million to $440 million.
• Adjusted EBITDA margin to be in a range of 11.7% to 11.9%.

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 $300 million to $350 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 $550 million, including approximately $160 million of amortization related to intangible assets acquired in the BMC merger. Total depreciation projected to be $215 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.

Conference Call

Builders FirstSource will host a conference call and webcast on Tuesday, February 28, 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: 800-274-8461 (U.S. and Canada) and 203-518-9856 (international), Conference ID: BLDRQ422. A replay of the call will be available at 12:00 p.m. Central Time through Tuesday, March 7, 2023. To access the replay, please dial 800-839-2418 (U.S. and Canada) or 402-220-7210 (international) and refer to pass code BLDRQ422. 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.