Builders FirstSource, Inc. Q4 FY2024 earnings call

Strategic Pillars: Investing in value-added products/services and leveraging technology to address customer challenges and be a supplier of choice. ### 2024 Performance: Mid-teens adjusted EBITDA margin and nearly 33% gross margin. ### Organic Growth: Invested in value-added facilities, digital platform with $134M incremental sales in 2024, $117M productivity savings from supply chain and manufacturing initiatives. ### M&A: Completed 13 acquisitions in 2024 with aggregate prior year sales of ~$420M, allocated $352M to acquisitions. ### Digital Strategy: Over $1B in orders placed through platform since launch, expecting $200M incremental sales in 2025.

In 2024, the company's value-added products and services were a key focus. They invested over $75 million in value-added facilities, including opening two new truss manufacturing facilities, upgrading nineteen truss facilities, and enhancing thirteen millwork locations. Install sales increased by 8% year-over-year. The digital platform saw $134 million in incremental sales in 2024. Multifamily represents about 9% to 10% of net sales and was a headwind in 2024, expected to be a headwind again in 2025. Value-added mix helped maintain margin profile despite challenges in commodity products due to affordability issues.

For full year 2025, net sales are guided in the range of $16.5 to $17.5 billion. Adjusted EBITDA is expected to be between $1.9 to $2.3 billion with a margin range of 11.5% to 13%. Full year gross margin is forecasted to be in the range of 30% to 32%. Full year free cash flow is expected to be $600 million to $1 billion. Q1 2025 net sales is expected to be between $3.5 and $3.8 billion, and adjusted EBITDA is between $350 million and $400 million.

Commodity price volatility, uncertainties related to tariffs, impacts of labor and immigration policy, market normalization challenges, and the lingering effect of California wildfires and extreme weather on sales and recovery.

Q: Morning, everyone. Thank you for taking the questions. A couple of questions on the outlook. So organic revenues, core organic in 2025, I think you're speaking to sort of a very low single-digit decline if I back out the M&A. Correct me if I'm wrong, but I wanted to get a sense for what you're thinking on some of those variables that you mentioned earlier that impacted the business in 2024. You know, the declining home sizes and the value of homes, some of the vendor price reductions, I think you called out. Those seem like a bit of a headwind in Q4. So I wanted to get a sense if you're seeing any signs of stabilization across those variables and how those are contemplated in the guide. Thank you.

A: Thanks, Matt. Maybe I'll frame it and let Pete fill in any details that I missed. But what I would tell you is that, broadly, the market is pretty stable at a level below where we would like. I think that as you listen to the builders, we're hearing a lot of the same things. Obviously, the challenges that they're seeing in the broader market or in the broader public discussions that they're having. There is a battle that's going on with affordability. We're all engaged in it and trying to make sure that we find ways to deliver homes that people can actually acquire. And it's been a bit of a rocky road. Interest rates haven't helped. Builders have been sort of modulating their build pace in order to maintain inventories at a reasonable level. Seems, by all accounts, they've done a pretty good job of it. But that's put us in this rather stagnant sort of stable but lower than we would like level. I think that continues. Some puts and takes around starts, some puts and takes around completions, but that's been sort of the storyline, and we continue to see that on the single-family side. Multifamily, it's down. I would say it's been leveling out. Stable, kind of like we've talked about. Unfortunately, again, at a fairly low level, haven't quite seen the recovery and the run that I think we're all hoping for. Maybe that's just dependent on rates, as people say. We'll see. Pete, I'm not sure what I missed.

Q: Hi. Thanks for taking my questions. Just follow-up on the gross margins and, you know, with the exit rate comment on 31.5% from, you know, back of the envelope, it seems like maybe the Q1 guide implies something closer to, yes, 30% to 31.5%, maybe a little bit lower than that exit rate. But can you just talk a little bit more about what's really embedded in Q1 and how you see the progression through the year in gross margins?

A: So, Mike, what I can tell you is we're seeing that continued normalization from the multifamily as we're exiting the year, and the competitive pressure on the single-family side, especially in the seasonal lows, having further pressure on the margins in Q1, not to a significant degree, but some degree from that exit velocity. We see that really being the entry point to the year and have some of that mix built in from the rest of the year to help keep that margin in the midpoint of what we guided.

Q: Hey. Good morning, guys, and thank you for taking my questions as well. Maybe starting off again with the first quarter outlook. I mean, it seems to be a number of, I guess, unusual items. There's the fires, weather, I think there's one less selling day as well. And you framed the quarter-to-date impact, I believe, from weather and the fires, but can you help us think about how you're thinking about that for the full quarter for each of those buckets? And maybe can you help us bridge from that 10.3% implied EBITDA margin in the first quarter to the full year range of, you know, 11.5% to 13%?

A: Yeah. So the first quarter is definitely feeling the effects of the severe weather. We had a foot of snow down in the Gulfport through Emerald Coast, and it's unusual. We expect that to come back. It's a matter of time as the builders are able to pick up momentum and work through it in the seasonal low. So that $80 million impact that we had outlined in the prepared remarks, it's something that we do expect to get back, but it may take longer than Q1 to get it all back. As far as the California wildfires, it's not a huge immediate impact in Q1, but for the full year, it's gonna have a lingering effect. So it'll be something we continue to monitor as we work through the year. And then the one last selling day, that's just a simple math equation. I think you understand that one. And we are looking through the full year on what we believe the year is gonna deliver as we go through it. And we start to see the churn a bit in Q2 where we start passing those negative comps and seeing continued, I would say, organic growth through the back part of the year in conjunction with the contributions from the acquisitions we've completed.