BuildDirect CEO’s Letter to Shareholders, Employees and Customers
Dear Shareholders, Employees and Customers,
I’d first like to begin with my sincere appreciation for the opportunity to lead the BuildDirect team. After spending 20 years in the flooring industry, I have a deep conviction for building an omni-channel business that aims to become the leading provider of flooring materials to ‘Pros’. I identify closely with the company’s mission – Pros represent the largest underserved segment and it’s a problem worth solving.
During my first six months, I spent a considerable amount of time getting to know the BuildDirect team members, their capabilities and their understanding of the various systems and processes that support the business. Across the operating teams, there was a general direction of where the company was headed – but needed further clarity on how to get there. Through workshops, research and trial and error – we landed on a path to scale the company through a series of sequential steps that we’ve begun now to work through.
There were a number of lingering issues that needed to be addressed during the first six months including leadership changes, budget rationalization, investor relations, and prior-incurred debt obligations that needed to be restructured. Despite these headwinds, there’s a tailwind that attracted me (and newly added team members) to BuildDirect – there’s a substantial healthy core business that is profitable, meaningful and scalable.
During the fourth quarter, we continued to demonstrate growth across various key business units of our company, which has enabled us to improve our bottom line as highlighted by our adjusted EBITDA of $1.3 million for the full year of 2022 while producing a total revenue that is close to the $100 million threshold – $92.2 million for the year ended 2022. It’s important to note that our initiatives to improve profitability have not yet been fully realized, many of the initiatives took place later in 2022.
Throughout Q4 of 2022, we continued to execute a growth strategy that focuses on profitability. Instead of attempting to grow fast and achieve profitability at some future scale level, we are pursuing strategies that achieve a profitable model at the current scale. It’s an approach that is well utilized by leading companies in the building materials industry whereby they establish a business model at a reasonable scale level, ensure profitability in the model, then grow. BuildDirect’s mission for becoming the leading provider of flooring materials for the Pro is not burdened with a short-term window of opportunity, it’s a reenvisioning of a $71B TAM from the viewpoint of the Pro – which drives the industry. In my experience, ‘slowing down to speed up’ typically achieves both faster growth and profitability.
Q4 examples of strategies that were focused on improving the profitability/scalability of BuildDirect include:
- Focusing BuildDirect’s retail pricing strategy on a High-Low model, providing a ~5% GM improvement with a path for further improvement.
- Identifying a technology re-platform path which will allow the business to scale, reduce cost and not require a significant investment.
- Superb ERP Implementation, improved stability/scalability.
- Continued progress on the potential acquisition targets
- Consolidating supply chain services and product sourcing across all acquisitions which will improve gross margins and reduce fulfillment expenses
While our total revenue for Q4 2022 decreased by 9.7% year-over-year, our gross margins increased by roughly 4% year-over-year as a result of our continued shift of focus on the more profitable Pro customer, in which we reduced our digital marketing expenditures and focused on our brick-and-mortar operations. In addition, we cut costs which we outlined during our Q2 2022 conference call and continue to look for additional efficiencies.
As a result of our efforts, our total revenue for the Pro segment for the full year of 2022 reached $77 million, which represented 84% of our total revenue and increased 12% year-over-year. Our goal is to continue growing this segment as we see high upside potential due to Pro customers making larger recurring purchase orders as compared to other specific customer segments.
Due to our efforts to maximize cost efficiencies while driving sustainable growth, we were able to increase our adjusted EBITDA for Q4 and the full year of 2022 by $3.8 million and $5.4 million, respectively as compared to the same period in the last fiscal year. Streamlining our operations to reduce costs without disrupting our growth is a key objective for us and we intend to scale ongoing efforts to achieve this goal.
New Operational Initiatives
In 2023, our intended strategy is to continue to pursue additional operational and technology efficiencies while also improving functionality for our E-Commerce operation. In addition, we intend on integrating our E-Commerce operation with Brick and Mortar operations to reduce dependence on expensive third-party logistic providers while also improving our customer experience and local sales opportunities. Lastly, we intend on better leveraging a core group of products across our omni-channel business to improve margins and inventory turns.
With a track record of two successful acquisitions, we aim to continue exploring opportunities for accretive acquisitions to expand our Pro market share. We have identified multiple M&A opportunities across the United States and will continue to evaluate them to determine if they are a fit for our business model based on the following investment criteria:
- Pro-focused revenue mix
- One of the top regional players
- Track record of positive EBITDA performance
New potential acquisitions will be financed through a combination of cash, vendor take-back loans, earn out and minimal stock.
Growth Outlook for 2023
We aim to continue delivering transformational results for the remainder of 2023 with a focus on four key areas as noted above:
- Focus on improving profitability
- New operational initiatives
- Pilot organic growth programs and services for Pros
- Advance our M&A strategy
We intend to continue streamlining our operations by unlocking synergies that will enable us to achieve more cost savings – we have identified several areas in our business where we can reallocate our resources to not only enhance our growth but also, maximize cost-efficiencies. Additionally, we will also continue to capitalize on the more profitable Pro customer base and grow our Pro market share through our existing operations as well as potential new acquisitions that have extensive Pro customer networks.
Overall, we believe that the company is heading in the right direction and we are eager to expedite that process.
We are pleased to have reached significant milestones throughout 2022. Our team’s efforts have led to four consecutive quarters of positive adjusted EBITDA as a result of our strategy to achieve substantial cost savings and focused our operations on the more profitable Pro customer segment. While we ended 2022 with strong results, I am optimistic that 2023 will also be a remarkable year despite the headwinds from the global economy as we have laid the groundwork for positioning our company on the right track to improve profitability. I look forward to updating our shareholders, employees and customers again and I would like to thank all of you for your continued support.
CEO of BuildDirect.com Technologies Inc.
BuildDirect (TSXV: BILD “BuildDirect” or the “Company”) is a growing omnichannel building material retailer. BuildDirect connects North American home improvement B2B and B2C organizations, and homeowners with quality building materials and services through its robust global supply chain network. BuildDirect’s growth trajectory, strong product offering, and proprietary heavyweight delivery network are delivering value today, solidifying its position as an innovative player in the home improvement industry. For more information, visit www.BuildDirect.com.
Source: BuildDirect.com Technologies Inc.