Builders FirstSource Reports Record Second Quarter 2021 Results

Builders FirstSource, Inc. (“BFS” or the “Company”) reported its results for the second quarter and six months ended June 30, 2021.

Second Quarter 2021 BFS Highlights (includes BMC in Q2 2021 and not in Q2 2020)

All Year-Over-Year Comparisons Unless Otherwise Noted:

– Net sales of $5.6 billion for the quarter increased 186.6% driven by the merger with BMC, commodity inflation, and strong organic growth
– Gross profit of $1.6 billion increased 206.0% driven by the merger with BMC, commodity inflation, and double-digit organic growth
– Net income of $497.2 million, or $2.39 per diluted share, and adjusted net income of $574.0 million, or $2.76 per diluted share

Year to Date June 2021 BFS Highlights (includes BMC in Year to Date June, 2021 and not Year to Date June, 2020)

All Year-Over-Year Comparisons Unless Otherwise Noted:

– Net sales of $9.8 billion for the period increased 161.2% driven by the merger with BMC, commodity inflation, and strong organic growth
– Gross profit of $2.7 billion increased 169.9% driven by the merger with BMC, commodity inflation, and strong organic growth
– Net income of $669.8 million, or $3.21 per diluted share, and adjusted net income of $870.3 million, or $4.17 per diluted share

Second Quarter 2021 Highlights Compared to Combined Non-GAAP Pro Forma Second Quarter 2020

– Net sales of $5.6 billion for the period increased 90.6% compared to the combined pro forma prior year period
– Commodity inflation increased net sales 51.8%
– Core organic sales increased 35.3%, excluding commodity and acquisition impacts
– Acquisitions, excluding the BMC merger, contributed net sales growth of 3.5%
– Gross profit of $1.6 billion increased 105.4% compared to the combined pro forma prior year period
– As a percentage of net sales, SG&A decreased 360 basis points to 16.2%
– Net income of $497.2 million, or $2.39 per diluted share, and adjusted net income of $574.0 million, or $2.76 per diluted share
– Adjusted EBITDA increased 231.6% to $835.8 million driven by commodity value, strong demand in the residential housing market, and disciplined cost management
– Adjusted EBITDA margin increased 640 basis points to 15.0%
– Strong quarter-end balance sheet with a net debt to LTM Adjusted EBITDA ratio of 1.0x and liquidity of $750 million

Dave Flitman, CEO of Builders FirstSource, commented, “Our record second quarter and first half earnings were the result of the hard work and strong execution by our more than 26,000 team members, who are relentless in providing superior customer service in a very challenging and volatile supply environment. In the second quarter, we delivered core organic sales growth of 35% along with record gross profit, Adjusted EBITDA and margin. Our strong results accelerated in the second quarter as we continued to expand our value-added offerings while maintaining our focus on operational excellence and providing outstanding customer service.” Flitman continued, “Demand in single-family housing remains exceptionally strong and we continue to capitalize on this positive trend while ensuring we meet the needs of our customers. The BMC integration continues to progress exceptionally well, and our realization of cost synergies is ahead of schedule. Looking forward, we remain focused on executing our strategy of investing both organically and through M&A to shift our portfolio toward high-value and faster-growth categories while simultaneously improving efficiencies in the value chain through enhanced digital capabilities. We acquired Alliance Lumber in Arizona and we are thrilled to be welcoming those new associates to the BFS team. Our future is bright, our hunger to innovate has never been stronger, and we will continue going above and beyond for our customers and partners to provide best-in-class homebuilding solutions.”

CFO Peter Jackson added, “Our record sales, Adjusted EBITDA, and Gross Margin reflect our ability to successfully manage through unprecedented commodity price volatility, as well as capture cost synergies from our merger with BMC. Given our strong year-to-date performance, we are increasing annual guidance for sales and Adjusted EBITDA by 12% and 28% at the respective midpoints. As part of our capital deployment strategy, we are setting our leverage target at 1.0x to 2.0x at this point in the building cycle, which is in line with our commitment to maintain a strong, working balance sheet. Furthermore, our sustained cash generation and recently announced senior notes offering collectively provide us with a strong foundation to deploy capital opportunistically and drive additional shareholder value.”

Builders FirstSource Financial Performance Highlights – Second Quarter 2021 Compared to Combined Non-GAAP Pro Forma Second Quarter 2020

Pro Forma Net Sales

– Net sales for the period were $5.6 billion, a 90.6% increase compared to the combined pro forma prior year period. Core organic sales, which excludes acquisitions, commodity price fluctuations and differences in the number of selling days between periods, increased by 35.3%, while commodity price inflation contributed 51.8% to net sales.
– Value-added core organic sales grew by an estimated 35.4%, led by 57.9% growth in our Manufactured Products category. Robust demand nationally was somewhat hindered by material availability constraints.
– Demand for single family housing continues to drive top-line growth. For the quarter, our Core organic customer growth was 44.1% for Single Family, 16.3% for R&R/Other, and 6.0% for Multi Family.
– Acquisitions completed during the prior four quarters, excluding the BMC merger, contributed net sales growth of 3.5%.

Gross Profit

Gross profit was $1.6 billion, an increase of $812.4 million or 105.4% compared with the combined pro forma prior year period. Our gross margin increased 210 basis points to 28.4%, primarily driven by disciplined pricing in a volatile, supply constrained marketplace.

Selling, General and Administrative Expenses

SG&A was $902.9 million, an increase of approximately $324.0 million, or 56.0%, compared to the combined pro forma prior year period, driven primarily by expense related to the BMC Merger and other acquisitions including amortization expense of acquired intangibles and one-time charges. Variable compensation was also higher due to the increase in profitability and Core organic growth. Excluding the aforementioned, underlying SG&A increased by 18.9%. As a percentage of net sales, total SG&A decreased by 360 basis points to 16.2% due to the impact of higher net sales and continued expense control.

Interest Expense

Interest expense decreased by $4.9 million to $27.8 million compared to the same combined pro forma prior year period. The year over year decrease is primarily due to the payoff of the 2023 notes.

Income Tax Expense

Driven by higher profitability, income tax expense was $155.2 million, compared to $36.7 million in the combined pro forma prior year period. The effective tax rate in the second quarter was 23.8%, up 80 basis points versus the prior year period.

Net Income

Net income was $497.2 million, or $2.39 earnings per diluted share, compared to combined pro forma net income of $122.5 million, or $0.59 earnings per diluted share, in the same period a year ago. Adjusted net income was $574.0 million, or $2.76 adjusted earnings per diluted share, compared to combined pro forma adjusted net income of $132.2 million, or $0.64 adjusted earnings per diluted share, in the prior year period. The 334.1% increase in adjusted net income was primarily driven by the increase in net sales and gross margin described above partially offset by higher tax expense and higher SG&A expense due to the normalization of COVID expense rationalization in the prior year period. Adjusted EPS excludes amortization and one-time expenses related to merger and acquisition activity.

Adjusted EBITDA

– Adjusted EBITDA increased 231.6% to $835.8 million, driven by solid demand across our key customer end-markets, commodity inflation and cost leverage.
– Adjusted EBITDA margin improved to a record 15.0%, which increased 640 basis points compared to the year over year pro forma period.

Builders FirstSource Financial Performance Highlights – Year to Date June 30, 2021 Compared to Combined Non-GAAP Pro Forma Year to Date June 30, 2020

– Net sales for the period were $9.8 billion, a 73.1% increase compared to the pro forma year over year period. Core organic sales, which excludes acquisitions, commodity price fluctuations and differences in the number of selling days between periods, increased by 29.1% while commodity price inflation contributed 41.9% to net sales.
– Value-added core organic sales grew by an estimated 29.0%, led by 50.1% growth in our Manufactured Products category. Robust demand nationally was somewhat hindered by material availability constraints.
– Demand for single family housing continues to drive Core organic growth. For the year over year period, our Core organic growth was 37.1% for Single Family, 11.2% for R&R/Other, and 1.5% for Multi Family.
– Acquisitions completed during the prior four quarters, excluding the BMC merger, contributed net sales growth of 2.9%.

Gross Profit

Gross profit was $2.7 billion, an increase of $1.2 billion or 80.0% compared with the combined pro forma prior year period. Our gross margin increased 100 basis points to 27.2%, primarily driven by disciplined pricing in a volatile, supply constrained marketplace.

Selling, General and Administrative Expenses

SG&A was $1.7 billion, an increase of approximately $538.4 million or 45.4%, compared to the combined pro forma prior year period, driven primarily by expenses related to the BMC Merger and other acquisitions, including amortization expense of acquired intangibles and one-time charges. Variable compensation was also higher due to the increase in profitability and Core organic growth. Excluding these variables, underlying SG&A increased by 9.9%. As a percentage of net sales, total SG&A decreased by 340 basis points to 17.7% due to the effect of higher net sales and continued expense control.

Interest Expense

Interest expense decreased by $30.4 million to $59.6 million compared to the same combined pro forma prior year period. The year over year decrease includes higher one-time charges of $28.0 million related to debt financing transactions during the first six months of 2020, compared to $4.6 million in the first six months of 2021.

Income Tax Expense

Driven by higher profitability, income tax expense was $198.7 million, compared to $44.4 million in the combined pro forma prior year period. The effective tax rate was 22.9%, slightly lower than the estimated annual effective tax rate driven primarily by the periodic impact of stock-based compensation adjustments during the six months ended June 2021.

Net Income

Net income was $669.8 million, or $3.21 earnings per diluted share, compared to combined pro forma of $153.3 million, or $0.74 earnings per diluted share, in the same period a year ago. Adjusted net income was $870.3 million, or $4.17 adjusted earnings per diluted share, compared to a combined pro forma of $197.3 million, or $0.96 adjusted earnings per diluted share, in the prior year period. The 341.1% increase in adjusted net income was primarily driven by the increase in net sales and gross margin described above partially offset by higher tax expense and higher SG&A expense due to the normalization of COVID expense rationalization in the prior year period. Adjusted EPS excludes amortization and one-time expenses related to merger and acquisition activity, as well as losses recognized on the refinancing and extinguishment of debt.

Adjusted EBITDA

– Adjusted EBITDA increased 214.3% to $1,291.0 million, driven by solid demand across single family, repair and remodel and other customer end-markets, commodity inflation, and cost leverage.
– Adjusted EBITDA margin improved to 13.2%, which increased 590 basis points compared to the year over year pro forma period.

Builders FirstSource Capital Structure, Leverage, and Liquidity Information

– For the first six months of the year, cash used in operating activities was $203.8 million; cash used in investing activities was $171.3 million, including capital expenditures of $89.0 million, net of proceeds. The Company’s free cash was an outflow of $292.8 million, primarily driven by the impact of commodity inflation on working capital. The Company expects to generate significant free cash flow in the second half of the year in line with normal seasonality.
– Liquidity as of June 30, 2021 was $750 million, consisting of over $660 million in net borrowing availability under the revolving credit facility and $90 million cash on hand.
– Adjusted EBITDA, on a combined pro forma trailing twelve-month basis, was $2.0 billion and net debt was $2.0 billion as of June 30, 2021, resulting in a decline of our net leverage ratio from 1.6 turns to 1.0x.

Pro Forma Combined Unaudited and Adjusted Information, Second Quarter 2021

The Company has provided supplemental unaudited financial data of the combined company in this press release. The below financial data combines Builders FirstSource and BMC historical operating results as if the businesses had been operated together on a combined basis during prior periods along with adjustments to reclassify certain BMC historical financial information to conform to Builders FirstSource historical financial information. This financial data is not intended to be, and was not, prepared on a basis consistent with the unaudited pro forma condensed combined financial information included in Builders FirstSource’s Pre-effective amendment to an S-4 filing dated November 17, 2020 with the U.S. Securities and Exchange Commission (the “Pro Forma S-4 Filing”), which provides the pro forma data information prepared in accordance with Article 11 of SEC Regulation S-X.

BMC Merger Integration

Operating in most of the nation’s largest and fastest growing regions, the combined company is exceptionally positioned for long-term value creation. Since closing the merger with BMC on January 1, 2021, Builders FirstSource has made substantial progress in integrating the two companies while delivering solid execution.

The Company’s increased scale, a strong balance sheet bolstered by robust cash generation, and anticipated annual run-rate synergies of $140 million to $160 million by the end of 2022 are expected to provide greater resources to invest in growth, innovation and ongoing value creation for all stakeholders. The Company delivered $36 million in cost synergies through the second quarter. In addition, the Company raised its expected range of 2021 cost synergies to $80 million to $100 million from $60 million to $70 million.

M&A Update

On May 3, 2021, BFS completed the acquisition of John’s Lumber, a premier building materials supplier serving the largest housing markets in Michigan. The acquisition adds another top 50 Metropolitan Statistical Area (MSA) to the Company’s portfolio and provides enhanced scale that will benefit our existing 14 locations in the state.

On June 29, 2021, the Company entered into a definitive agreement to acquire WTS Paradigm, a software solutions and services provider for the building products industry. The acquisition is an important step forward in Builder FirstSource’s strategy to invest in innovative digital solutions that will help its customers build more efficiently. Paradigm serves hundreds of customers, including manufacturers, retailers, dealers, homebuilders and remodelers

On July 1, 2021, BFS completed the acquisition of Alliance Lumber, the largest independently operated supplier of building materials in Arizona, primarily serving the greater Phoenix, Tucson, and Prescott Valley metropolitan areas. As a leading regional supplier with strategically located facilities, Alliance is uniquely positioned to offer unmatched distribution throughout the highest-growth regions of Arizona with a comprehensive portfolio of premium building materials.

Capital Markets Update

Last month, the Company completed an offering of $1 billion aggregate principal amount of unsecured 4.250% Senior Notes due 2032. The Company intends to use the net proceeds from the offering to repay a portion of the indebtedness outstanding under its senior secured ABL facility and to pay related transaction fees and expenses, with any remaining net proceeds to be used for general corporate purposes.

2021 Outlook

For 2021, the Company expects significant improvement in its financial performance compared to 2020, including the following:

– Net sales to grow to a range of $18.0 billion to $19.0 billion or approximately 41% to 48% over 2020 combined pro forma net sales of $12.8 billion.
– Adjusted EBITDA to be in a range of $2.2 billion to $2.4 billion or approximately 105% to 124% over 2020 combined pro forma Adjusted EBITDA of $1.07 billion.
– Expected BMC merger integration realized cost savings of $80 million to $100 million
– Free cash flow in the range of $1.4 billion to $1.6 billion

The 2021 outlook is based on several assumptions, including the following:

– Single family starts percentage growth across our geographies in the mid to high teens; multi-family starts percentage increase in the high single digits; and R&R growth in the low to mid-single digits.
– Commodity price appreciation of 18% to 28% compared to the prior year
– Recently completed acquisitions projected to add net sales growth of 4%
– 2 fewer selling days in 2021 versus 2020 or approximately 1%
– Depreciation and amortization expenses in the range of $525 million to $535 million, including approximately $320 million of amortization related to intangible assets acquired in the BMC Merger. Total depreciation projected to be $187 million and total amortization of $340 for the full year 2021. Full year estimate does not reflect the purchase accounting impact of acquisitions that are not completed.
– Total capital expenditures spend in the range of $200 million to $220 million
– Interest expense in the range of $130 million to $140 million
– An effective tax rate of between 23.0% to 25.0%

For the full second quarter results, click here.

About Builders FirstSource

Headquartered in Dallas, 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 39 states with approximately 550 locations and have a market presence in 47 of the top 50 and 84 of the top 100 MSA’s, providing geographic diversity and balanced end market exposure. We service customers from strategically located distribution and manufacturing facilities (certain 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 building products. For more information about Builders FirstSource, visit the Company’s website at www.bldr.com.

Contact:

Michael Neese – SVP, Investor Relations – (214) 765-3804

Source: Builders FirstSource, Inc.