Builders FirstSource Reports Record Third Quarter 2021 Results

Builders FirstSource, Inc. reported its results for the third quarter and nine months ended September 30, 2021.

Third Quarter 2021 BFS Highlights (includes BMC in Q3 2021 and not in Q3 2020)
All Year-Over-Year Comparisons Unless Otherwise Noted:

-Net sales of $5.5 billion for the quarter increased 140.0% driven by the merger with BMC, commodity inflation, and strong organic growth
-Gross profit of $1.7 billion increased 200.1% driven by the merger with BMC, commodity inflation, and double-digit organic growth
-Net income of $613.1 million, or $2.98 per diluted share, and adjusted net income of $696.7 million, or $3.39 per diluted share

Year to Date September 2021 BFS Highlights (includes BMC in Year to Date September, 2021 and not Year to Date September, 2020)
All Year-Over-Year Comparisons Unless Otherwise Noted:

-Net sales of $15.3 billion for the period increased 153.1% driven by the merger with BMC, commodity inflation, and strong organic growth
-Gross profit of $4.4 billion increased 181.0% driven by the merger with BMC, commodity inflation, and strong organic growth
-Net income of $1.3 billion, or $6.18 per diluted share, and adjusted net income of $1.6 billion, or $7.55 per diluted share

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

-Net sales of $5.5 billion for the period increased 62.7% compared to the combined pro forma prior year period
-Commodity inflation increased net sales 38.6%
-Core organic sales increased 16.1%, excluding commodity and acquisition impacts
-Acquisitions, excluding the BMC merger, contributed net sales growth of 8.0%
-Gross profit of $1.7 billion increased 102.9% compared to the combined pro forma prior year period
-As a percentage of net sales, SG&A decreased 300 basis points to 15.9%
-Net income of $613.1 million, or $2.98 per diluted share, and adjusted net income of $696.7 million, or $3.39 per diluted share
-Adjusted EBITDA increased 244.4% to $975.9 million driven by commodity values, strong demand in the residential housing market, and disciplined cost management
-Adjusted EBITDA margin increased 930 basis points to 17.7%
-Strong quarter-end balance sheet with a net debt to LTM Adjusted EBITDA ratio of 0.8x and liquidity of $1.5 billion

Dave Flitman, CEO of Builders FirstSource, commented, “I couldn’t be more proud of our team’s effort and hard work that have resulted in record third quarter and first nine months earnings for Builders FirstSource. We delivered above market core organic growth of 16.1%, along with record gross profit, adjusted EBITDA, adjusted EBITDA margin of 17.7% and free cash flow of $1.1 billion. Our team is executing at a very high level as we continue to outperform the market, especially given the strong demand environment coupled with unprecedented supply chain challenges that have continued to affect the homebuilding industry.”

Mr. Flitman continued, “We remain focused on executing our strategy of investing both organically and through M&A to continue to enhance our portfolio of value-added offerings and faster-growth categories. We are excited to welcome the California TrusFrame team to Builders FirstSource, adding substantial and profitable scale to our value- added products business on the West Coast. In addition, the BMC integration continues to progress exceptionally well, and our realization of cost synergies remains ahead of schedule. Looking to the remainder of the year, we continue to expect both strong demand in single-family housing and solid execution of our strategy to drive above market growth, all of which are reflected in our upwardly revised 2021 outlook.”

Peter Jackson, CFO of Builders FirstSource, commented, “During the third quarter, we used a portion of our significant free cash flow to deploy capital in the repurchase of $578 million of stock, and $816 million in acquisitions. Looking ahead, we remain focused on consistently executing our balanced capital allocation strategy with the goal of meeting our commitment to deliver long-term shareholder value.”

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

Pro Forma Net Sales

-Net sales for the period were $5.5 billion, a 62.7% 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 16.1%, while commodity price inflation contributed 38.6% to net sales.
-Value-added core organic sales grew by an estimated 31.2%, led by 44.6% 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 increased 27.5% for Single Family, declined 16.4% for R&R/Other and declined 2.0% for Multi Family. R&R was down as increased commodity costs constrained R&R projects.
-Acquisitions completed during the prior three quarters, excluding the BMC merger, contributed net sales growth of 8.0%.

Gross Profit

Gross profit was $1.7 billion, an increase of $868.3 million or 102.9% compared with the combined pro forma prior year period. Our gross margin increased 620 basis points to 31.1%, primarily driven by disciplined pricing in a volatile, supply-constrained marketplace, as well as effective and timely sourcing.

Selling, General and Administrative Expenses

SG&A was $875.0 million, an increase of approximately $234.8 million, or 36.7%, 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. As a percentage of net sales, total SG&A decreased by 300 basis points to 15.9% due to the impact of higher net sales and continued expense control.

Interest Expense

Interest expense increased by $2.4 million to $36.0 million compared to the same combined pro forma prior year period. The year-over-year increase is primarily due to the $1.0 billion senior unsecured Notes due 2032 issued in the third quarter, offset by the payoff of the senior unsecured Notes due 2023.

Income Tax Expense

Driven by higher profitability, income tax expense was $188.3 million, compared to $39.6 million in the combined pro forma prior year period. The effective tax rate in the third quarter was 23.5%, up 30 basis points versus the prior year period.

Net Income

Net income was $613.1 million, or $2.98 earnings per diluted share, compared to combined pro forma net income of $130.8 million, or $0.63 earnings per diluted share, in the same period a year ago. Adjusted net income was $696.7 million, or $3.39 adjusted earnings per diluted share, compared to combined pro forma adjusted net income of $154.4 million, or $0.74 adjusted earnings per diluted share, in the prior year period. The 351.2% 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. Adjusted earnings per diluted share excludes amortization and one-time expenses related to merger and acquisition activity.

Adjusted EBITDA

-Adjusted EBITDA increased 244.4% to $975.9 million, driven by solid demand across our key customer end-markets, commodity inflation and cost leverage.
-Adjusted EBITDA margin improved to a record 17.7%, which increased 930 basis points compared to the year-over-year pro forma period.

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

-Net sales for the period were $15.3 billion, a 69.2% 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 24.4% while commodity price inflation contributed 40.5% to net sales.
-Value-added core organic sales grew by an estimated 30.3%, led by 48.4% 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 increased 33.7% for Single Family and increased 0.9% for R&R/Other. There was no change in Multi Family.
-Acquisitions completed during the prior four quarters, excluding the BMC merger, contributed net sales growth of 4.9%.

Gross Profit

Gross profit was $4.4 billion, an increase of $2.0 billion or 88.3% compared with the combined pro forma prior year period. Our gross margin increased 290 basis points to 28.6%, primarily driven by disciplined pricing in a volatile, supply-constrained marketplace.

Selling, General and Administrative Expenses

SG&A was $2.6 billion, an increase of approximately $773.2 million or 42.3%, 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. As a percentage of net sales, total SG&A decreased by 320 basis points to 17.0% due to the effect of higher net sales and continued expense control.

Interest Expense

Interest expense decreased by $27.9 million to $95.6 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 nine months of 2020, compared to $4.6 million in the first nine months of 2021.

Income Tax Expense

Driven by higher profitability, income tax expense was $387.1 million, compared to $84.0 million in the combined pro forma prior year period. The effective tax rate was 23.2%, slightly lower than the estimated annual effective tax rate driven primarily by the periodic impact of stock-based compensation adjustments during the nine months ended September 2021.

Net Income

Net income was $1.3 billion, or $6.18 earnings per diluted share, compared to combined pro forma of $284.2 million, or $1.38 earnings per diluted share, in the same period a year ago. Adjusted net income was $1.6 billion, or $7.55 adjusted earnings per diluted share, compared to a combined pro forma of $351.7 million, or $1.69 adjusted earnings per diluted share, in the prior year period. The 345.6% increase in adjusted net income was primarily driven by the increase in net sales and gross margin. Adjusted earnings per diluted share 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 226.6% to $2.3 billion, 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 14.9%, which increased 720 basis points compared to the year-over-year pro forma period.

Builders FirstSource Capital Structure, Leverage, and Liquidity Information

-For the first nine months of the year, cash provided by operating activities was $903.2 million; and cash used in investing activities was $970.4 million, including capital expenditures of $148.5 million, net of proceeds. The Company’s free cash was an inflow of $754.8 million, primarily driven by the impact of commodity inflation and core organic growth.
-Liquidity as of September 30, 2021 was $1.5 billion, consisting of over $1.3 billion in net borrowing availability under the revolving credit facility and $225 million cash on hand.
-As of September 30, 2021, Adjusted EBITDA, on a combined pro forma trailing twelve-month basis, was $2.6 billion and net debt was $2.2 billion, resulting in a decrease of our net leverage ratio from 1.6x to 0.8x.
-In the third quarter, BFS repurchased approximately 10,958,400 shares of its common stock at an average price of $52.74, for a total cost of approximately $578 million. As of September 30, 2021, BFS had approximately $422 million remaining under its previously-announced $1.0 billion share repurchase authorization. In October, the Company repurchased an additional 4.5 million shares at an average price of $55.99 leaving $172 million in our current authorization.

Pro Forma Combined Unaudited and Adjusted Information, Third 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 in the third quarter and $74 million for the first nine months of 2021. In addition, the Company now expects 2021 cost synergies to be in the range of $90 million to $110 million.

M&A Update

On July 26, 2021, the Company completed the sale of its standalone Eastern U.S. gypsum distribution operations to L&W Supply for total cash proceeds of $76.2 million. The gypsum business generated sales of approximately $160 million in 2020.

On September 1, 2021, the Company acquired California TrusFrame, LLC, (CTF) who was previously the largest independent producer of value-added building products in California, for $193.4 million. CTF reported trailing twelve months’ sales of approximately $143.2 million as of July 31, 2021.

On September 9, 2021, the Company acquired the Apollo software assets from construction technology startup Katerra for approximately $4.5 million. The Apollo platform provides design collaboration and workflow, construction budgeting and scheduling, and field task assignment with mobile functionality.

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 $19.3 billion to $19.8 billion or approximately 51% to 55% over 2020 combined pro forma net sales of $12.8 billion.
-Adjusted EBITDA to be in a range of $2.85 billion to $2.95 billion or approximately 166% to 176% over 2020 combined pro forma Adjusted EBITDA of $1.07 billion.
-Expected BMC merger integration realized cost savings of $90 million to $110 million.
-Free cash flow in the range of $1.8 billion to $2.0 billion.

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

-Single family starts percentage growth across our geographies in the mid teens; multi-family starts percentage increase in the high single digits; and R&R growth in the low single digits.
-Commodity price appreciation of 25% to 29% compared to the prior year.
-Recently completed acquisitions projected to add net sales growth of 5% to 6%.
-Two fewer selling days in 2021 versus 2020 or approximately 1%.
-Depreciation and amortization expenses in the range of $555 million to $565 million, including approximately $320 million of amortization related to intangible assets acquired in the BMC merger. Total depreciation projected to be $190 million and total amortization of $370 million for the full year 2021.
-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 between 23.0% to 25.0%.

For the complete press release, 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.