Builders FirstSource(BLDR) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Gross profit for Q1 2023 was $1.4 billion, a decrease of 25.2% compared to the prior year period [56] - Gross margin increased by 300 basis points to 35.3%, driven by strength in multi-family value-added products and services [49][56] - Adjusted EBITDA was$ 632 million, a decline of 37%, with an adjusted EBITDA margin of 16.3% [74] - Operating cash flow for Q1 was $654 million, up from$ 180 million in the prior year, driven by disciplined working capital management [58] - Free cash flow for Q1 was $554 million, with a free cash flow yield of 28.5% [58] - The company repurchased 7.5 million shares for$ 628 million in Q1 and 3.8 million shares for $348 million in Q2, totaling 39% of outstanding shares since August 2021 [32] Business Line Data and Key Metrics - Multi-family sales grew by nearly 70% in Q1, driven by acquisitions and a strong rental market [72] - Multi-family margin more than doubled to 13% of net sales in Q1, compared to 6% in the prior year [62] - Value-added products represented 56% of net sales in Q1, reflecting the company's focus on high-margin products [77] - Single-family sales declined by 34% due to slowing demand, while R&R and Other grew by more than 3% [72] Market Data and Key Metrics - The company saw strong performance in the East, with multi-family and value-added products driving growth [155] - The West Coast and Texas experienced weather disruptions, impacting operations [22] - The company expects multi-family strength to continue for the remainder of 2023 [62] Company Strategy and Industry Competition - The company is focused on improving productivity, delivering$ 34 million in savings in Q1 through operational excellence [50] - The company is investing in digital transformation, with 6,000 automated window and lumber takeoffs completed in Q1, an 80% increase over Q4 2022 [46] - The company plans to host an Investor Day in December 2023 to update progress on strategic initiatives, including digital offerings [45] - The company is targeting $500 million in M&A annually, with recent acquisitions expanding value-added offerings and customer base [51][69] Management Commentary on Operating Environment and Future Outlook - Management noted that the company is navigating a challenging macro environment, with elevated mortgage rates and affordability challenges as headwinds [48] - The company is seeing "green shoots" in homebuilding, with resilient demand when mortgage rates dip [48] - Management expressed confidence in sustaining double-digit EBITDA margins throughout 2023, even with single-family starts declining by up to 25% [31] - The company raised its long-term normalized gross margin target to 28% or higher, driven by increased mix of value-added products [66][82] Other Important Information - The company achieved a 22% reduction in total recordable incident rate in 2022 and another 30% reduction so far in 2023 [35] - The company plans to release its 2023 Corporate Social Responsibility (CSR) report later in May, focusing on sustainability and greenhouse gas emissions reduction [37][63] - The company has trained over 99% of its team members on diversity, equity, and inclusion initiatives [35] Q&A Session Summary Question: Gross margin improvement and long-term target [99] - The company raised its long-term normalized gross margin target to 28% or higher, driven by increased mix of value-added products and faster-than-expected productivity gains [66][82] - Management highlighted that value-added products are less price-sensitive and solve customer problems, contributing to margin resilience [102] Question: Capital allocation and share repurchases [117] - The company repurchased$ 1 billion worth of shares in the last four months and has a new $1 billion share repurchase authorization [81] - Free cash flow is expected to be north of$ 1.5 billion for 2023, providing flexibility for further capital deployment [115] Question: Competitive environment and market dynamics [118] - The company noted increased competition in tougher demand markets, particularly in the West, but value-added products remain sticky and less competitive [124] - The company is leveraging its platform to manage capacity efficiently between single-family and multi-family plants [129] Question: Multi-family backlog and outlook [132] - The company has a substantial multi-family backlog but noted that the backlog is declining as jobs are completed faster than new ones are added [132] - Management expects multi-family tailwinds to wane as the year progresses, with capital cost issues impacting the sector [114] Question: Lumber market and commodity pricing [146] - The company is managing lumber pricing on a flow-through basis, with some indications of capacity curtailments potentially stabilizing prices [146] - Management noted that lumber prices have been range-bound and difficult to predict [146] Question: Productivity savings and margin impact [171] - Productivity savings of $34 million in Q1 contributed to both SG&A and gross margin improvements, with manufacturing efficiencies driving margin gains [176] Question: Free cash flow outlook for 2023 [181] - The company expects free cash flow to be north of$ 1.5 billion for 2023, driven by strong operational performance and working capital management [174]