Builders FirstSource(BLDR) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Highlights The company's second quarter 2024 performance saw a decline in net sales and profitability, alongside strong cash flow generation and significant share repurchases Q2 2024 Key Financial Metrics (YoY Comparison) | Metric | Q2 2024 | Change (YoY) | Notes | | :--- | :--- | :--- | :--- | | Net Sales | $4.5 billion | -1.6% | Core organic sales down 3.8%, driven by Multi-Family decline | | Gross Profit Margin | 32.8% | -240 bps | Primarily driven by normalization, especially in Multi-Family | | Net Income | $344.1 million | -15.0% | - | | Diluted EPS | $2.87 | -9.2% | Compared to $3.16 in Q2 2023 | | Adjusted EBITDA | $669.7 million | -12.9% | Driven by lower gross profit, offset by lower operating expenses | | Adjusted EBITDA Margin | 15.0% | -200 bps | Has remained in the mid-teens or better for 13 consecutive quarters | - Cash provided by operating activities increased to $452.1 million, and free cash flow grew by 35.9% to $366.7 million compared to the prior year period[3] - The company repurchased 5.8 million shares of common stock for $989.6 million during the quarter at an average price of $170.01 per share[3] Management Commentary Management emphasized resilient performance in a challenging housing market, focusing on cost control, value-added solutions, and strategic capital allocation - CEO Dave Rush highlighted the company's resilient performance, maintaining a mid-teens EBITDA margin despite a complex environment with weaker Single-Family starts, slowing Multi-Family, and housing affordability challenges[4] - The company's strategy focuses on controlling costs, investing in value-added solutions, and driving adoption of its digital platform to navigate the uncertain macroeconomic landscape[4] - CFO Peter Jackson noted the effective navigation of a softer housing market by leveraging the company's strong balance sheet to execute nearly $1 billion in share repurchases and three tuck-in acquisitions[4][5] Second Quarter 2024 Financial Performance The second quarter saw a decline in net sales and gross profit margins, while operating expenses decreased, leading to reduced net income and Adjusted EBITDA Net Sales Net sales decreased by 1.6% to $4.5 billion, primarily due to a 3.8% decline in core organic sales. A significant 31.3% drop in the Multi-Family segment was the main driver, which was partially offset by growth in Single-Family (+1.1%), R&R/Other (+1.5%), and acquisitions (+1.9%) Q2 2024 Net Sales Breakdown (YoY) | Category | Change | Impact on Net Sales | | :--- | :--- | :--- | | Core Organic Sales | -3.8% | - | | - Single-Family | +1.1% | +0.7% | | - Multi-Family | -31.3% | -4.8% | | - R&R/Other | +1.5% | +0.3% | | Acquisitions | +1.9% | +1.9% | | Commodity Inflation | +0.3% | +0.3% | Gross Profit Gross profit fell 8.3% to $1.5 billion. The gross profit margin contracted by 240 basis points to 32.8%, which the company attributes to ongoing margin normalization, particularly within the Multi-Family segment - Gross profit decreased by 8.3% to $1.5 billion[5] - Gross profit margin declined 240 basis points to 32.8% due to normalization, especially in Multi-Family[5] Operating and Other Expenses SG&A expenses decreased by 4.4% to $973.2 million, mainly from lower variable compensation, leading to a 70 basis point improvement as a percentage of sales. Interest expense remained stable at $52.0 million, while income tax expense decreased due to lower pre-tax income and a lower effective tax rate of 21.3% - SG&A expenses decreased by $44.7 million (4.4%) to $973.2 million, primarily due to lower variable compensation[6] - The effective tax rate for Q2 decreased by 150 basis points year-over-year to 21.3%, mainly due to a stock-based compensation windfall benefit[7] Net Income and Adjusted EBITDA Net income declined 15.0% to $344.1 million, resulting in diluted EPS of $2.87. Adjusted net income also fell 15.6% to $420.4 million. Adjusted EBITDA decreased 12.9% to $669.7 million, with the margin contracting by 200 basis points to 15.0%, primarily due to lower gross profit margins Q2 2024 Profitability Metrics (YoY) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $344.1M | $404.6M | -15.0% | | Diluted EPS | $2.87 | $3.16 | -9.2% | | Adjusted Net Income | $420.4M | - | -15.6% | | Adjusted Diluted EPS | $3.50 | $3.89 | -10.0% | | Adjusted EBITDA | $669.7M | - | -12.9% | | Adjusted EBITDA Margin | 15.0% | 17.0% | -200 bps | Capital Structure, Leverage, and Liquidity The company maintained strong liquidity and a moderate leverage ratio, actively engaging in significant share repurchases to return capital to shareholders Liquidity and Leverage As of June 30, 2024, the company maintained a strong liquidity position of approximately $1.7 billion. Net debt stood at $3.8 billion, resulting in a net debt to LTM Adjusted EBITDA ratio of 1.4x, an increase from 1.1x in the prior year period - Total liquidity was approximately $1.7 billion, consisting of $1.6 billion in revolving credit facility availability and $0.1 billion in cash[9] - The net debt to LTM Adjusted EBITDA ratio was 1.4x as of June 30, 2024, compared to 1.1x in the prior year period[9] Share Repurchases The company was active in its share repurchase program, buying back 5.8 million shares for $989.6 million in Q2. The Board authorized a new $1.0 billion repurchase plan. Since August 2021, the company has repurchased 45.0% of its total shares outstanding for $7.1 billion - In Q2 2024, repurchased 5.8 million shares for $989.6 million[9] - The Board of Directors authorized a new share repurchase plan of up to $1.0 billion[10] - Since the program's inception in August 2021, the company has repurchased 93.0 million shares (45.0% of total shares outstanding) for a total of $7.1 billion[10] Operational Excellence Productivity The company achieved significant productivity savings in Q2 and year-to-date, expecting to meet full-year targets through operational and supply chain initiatives - The company achieved approximately $37 million in productivity savings in Q2 2024 from operations excellence and supply chain initiatives[11] - Year-to-date savings total approximately $77 million[11] - The company expects to deliver total productivity savings of $90 million to $110 million for the full year 2024[11] 2024 Full Year Outlook The company provided its full-year 2024 financial guidance, reflecting market assumptions for housing starts and operational targets for sales, profitability, and cash flow Full Year Guidance The company provided its full-year 2024 outlook, projecting net sales between $16.4 billion and $17.2 billion and Adjusted EBITDA between $2.2 billion and $2.4 billion. Free cash flow is expected to be in the range of $1.0 billion to $1.2 billion 2024 Full Year Financial Outlook | Metric | Guidance Range | | :--- | :--- | | Net Sales | $16.4B - $17.2B | | Gross Profit Margin | 31.5% - 32.5% | | Adjusted EBITDA | $2.2B - $2.4B | | Adjusted EBITDA Margin | 13.4% - 14.0% | | Free Cash Flow | $1.0B - $1.2B | Key Assumptions for 2024 The 2024 outlook is based on several key market and operational assumptions. These include low-single-digit growth in Single-Family starts, a significant 25-30% decline in Multi-Family starts, and flat R&R activity. Acquisitions are expected to contribute 1.5% to 2.0% to net sales growth - Market Assumptions: - Single-Family starts: Up low-single digits - Multi-Family starts: Down 25% to 30% - R&R: Flat to prior year[13] - Operational & Financial Assumptions: - Net sales growth from acquisitions: 1.5% to 2.0% - Capital expenditures: $400 million to $500 million - Average commodity prices: $380 to $400 per mbf - Effective tax rate: 23.0% to 25.0%[13] Financial Statements and Reconciliations This section details consolidated financial statements, including operations, cash flows, balance sheet, sales by category, and non-GAAP reconciliations Consolidated Statement of Operations For the second quarter ended June 30, 2024, net sales were $4.46 billion, down from $4.53 billion in the prior year. Net income was $344.1 million, or $2.87 per diluted share, compared to $404.6 million, or $3.16 per diluted share, in Q2 2023 Statement of Operations Summary (Three Months Ended June 30) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $4,456,340 | $4,528,890 | | Gross margin | $1,462,684 | $1,594,946 | | Income from operations | $489,483 | $577,072 | | Net income | $344,090 | $404,619 | | Diluted EPS | $2.87 | $3.16 | Consolidated Statement of Cash Flows For the six months ended June 30, 2024, net cash provided by operating activities was $769.3 million. The company used $315.6 million in investing activities, primarily for acquisitions and capital expenditures, and $444.2 million in financing activities, driven by $1.0 billion in common stock repurchases Cash Flow Summary (Six Months Ended June 30, 2024) | (in thousands) | Amount | | :--- | :--- | | Net cash provided by operating activities | $769,271 | | Net cash used in investing activities | ($315,625) | | Net cash used in financing activities | ($444,233) | | Net change in cash | $9,413 | Consolidated Balance Sheet As of June 30, 2024, the company reported total assets of $10.72 billion, up from $10.50 billion at year-end 2023. Total liabilities increased to $6.42 billion from $5.77 billion, while total stockholders' equity decreased to $4.30 billion from $4.73 billion, reflecting significant share repurchase activity Balance Sheet Summary (in thousands) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $3,454,705 | $3,300,728 | | Total assets | $10,721,187 | $10,499,452 | | Total current liabilities | $1,892,541 | $1,863,437 | | Total liabilities | $6,416,545 | $5,767,101 | | Total stockholders' equity | $4,304,642 | $4,732,351 | Sales by Product Category In Q2 2024, Value-added products constituted the largest portion of sales at 48.7%, though sales in this category declined 9.0% YoY. Lumber & lumber sheet goods saw a significant 12.7% increase in sales, driven by commodity price changes Q2 2024 Net Sales by Product Category (YoY % Change) | Product Category | Net Sales (in millions) | % of Net Sales | % Change YoY | | :--- | :--- | :--- | :--- | | Value-added products | $2,170.3 | 48.7% | (9.0%) | | - Manufactured products | $1,054.9 | 23.7% | (18.5%) | | - Windows, doors & millwork | $1,115.4 | 25.0% | 2.2% | | Specialty building products & services | $1,091.2 | 24.5% | 0.8% | | Lumber & lumber sheet goods | $1,194.8 | 26.8% | 12.7% | | Total net sales | $4,456.3 | 100.0% | (1.6%) | Reconciliation of Non-GAAP Measures The company reconciled its GAAP net income of $344.1 million for Q2 2024 to its non-GAAP Adjusted EBITDA of $669.7 million. Key adjustments included adding back income tax expense ($117.5 million), amortization ($81.0 million), depreciation ($62.3 million), and interest expense ($52.0 million) Q2 2024 Reconciliation to Adjusted EBITDA (in millions) | Item | Amount | | :--- | :--- | | GAAP net income | $344.1 | | Tax-effect of adjustments to net income | ($24.1) | | Amortization expense | $81.0 | | Adjusted net income | $420.4 | | Depreciation expense | $62.3 | | Interest expense, net | $52.0 | | Income tax expense | $117.5 | | Stock compensation expense | $16.7 | | Other adjustments | $1.9 | | Adjusted EBITDA | $669.7 |