Builders FirstSource, Inc. — 2024 Q1

Matt, thanks for the question. So the margins that we're seeing are really in line with what we were expecting. The multifamily business specifically, I think, outlined it a couple of times, but for everybody just to restate it, will continue to normalize, will continue to go down over the course of the year. We think that sales will continue to decline back towards normal, and we'll continue to see margins as a percentage return back to normal as the year progresses. So not over, but very much in line with what we were expecting.

Yes, it's the latter. You should expect a consistent decline from multifamily throughout the year. It's a long lead time product category. We've got pretty good visibility to what we're expecting to see. There's certainly a bit of slippage from one month to the next in any given period. But I think what we're seeing and expecting in multifamily is another big decline in Q2 and sort of a consistent year-over-year decline throughout the end of the year. We'll, of course, update you as we learn more.

Mike, thanks for the question. In short, we're really confident in the forecast, the way it's laid out. That guide is something that you put out there and feel good about reaffirming. The growth that you're talking about is already happening. So I think it came through in some of our materials. I think there's maybe this expectation that our whole business moves in the same way in the same quarter. And that's really not what we're seeing here, right? You're seeing the early parts of the building process, the lumber, the truss, the stuff that hits the job site early after the start, doing great. we're growing. The momentum is building.

Yes. The only thing I'd add is -- echo the overarching demand profile continues to be strong. I think the timing of when they actually execute the buy is kind of what is a little more volatile than the expectation that they will execute the buy. And that's part of it but our builder customers are still indicating that they are seeing that demand, and they're expecting the similar trajectory that we've forecasted for ourselves for the back half.

Yes. We're -- you're right, we're sitting on about $700 million in cash plus all of the capacity in the ABL, lots of cool M&A popping, right? I mean we've done a couple of small deals so far, but we're sitting on a bunch of dry powder and excited about what the opportunities look like. We'll have to see how they play out. But at this moment in time, we're ready to take advantage of the opportunities that are going to present themselves. That's kind of how you should read that. A little bit of a slow start to the year, but we're feeling good.

Yes. Thanks, Trey. What I would tell you is multifamily in specific, some of that backlog is getting extended. So where at one point in time in the year, I may have thought more of those jobs would finish quicker. They're spread now. It's actually a good thing. It kind of smoothed that transition for us in one way. The other thing I'd tell you about multifamily, our team has done a great job going after pseudo multifamily.

The only thing I might add is there's nothing in what's happened that is a surprise to us in terms of the variables. All the variables I think. We've accounted for. There are a couple of variables that were, I would say, bigger headwinds than we anticipated. I think that weather thing has certainly thrown us a curve ball. It will bounce back, but that's been a tricky one to navigate, particularly regionally.

Yes. And I would add, a good indicator for me is always our truss backlog. Our truss backlog is at healthy levels. It's continuing to build. That's an indicator for us of what's to come. And that -- if that was starting to slack off, I might give a little more worried, but it's where it needs to be for us to be in a healthy situation.

Thanks, Trey.

Yes. So I would tell you right up front that commodities are where the war is happening. That's where the fight is. It's where historically, you've got the most aggressive players. You've got the most dynamic pricing, the volatility of it. I think what you're seeing in the numbers is really just around timing. A little bit of shift in terms of when we saw the OSB run versus when we were feeling it. That will come through at different points during the year. But I would expect sort of us to be pretty much done with the bad news around the prices of commodities.

Yes. So SG&A, we saw a couple of one-timers come through in Q1 that hurt us a little bit. Some of it was -- we had some credits last year that we didn't repeat this year. I wouldn't -- from my perspective and take it what it's worth, I wouldn't read too much into it.

The only thing I'd add is our highest variable cost obviously is our labor. And the field and the team have done an exceptional job keeping labor as a percent of gross profit, which is our key metric, right in line with our operating -- within the parameters of what we set for ourselves in this level of sales and activity and our tools for managing that cost are as good as they've ever been in my 25 years with the company. So the key factor for us in managing SG&A is how well we manage our labor down at the field level, and they've done exceptional at that since the beginning of the year.

Well, good morning, Keith, if you recall, Keith, this time last year or in the first quarter last year, we were just coming out of normalization of the supply chain, windows and doors were getting delivered timely again, and the national builders focus on completions in that first quarter was at a higher level just to catch up. That kind of was the [ PIG in the pipeline ] for us last year in higher millwork and [ window and ] the door sales in the first quarter than normal. I would tell you this first quarter was normal. So we had to roll over those numbers from last year where it was a bit more tilted towards completions where this year was more normal with respect to completions.

So you're talking about customer pricing or vendor pricing.

So it's -- as you would expect and why we play in those categories, that is less price sensitive on the manufacturing side because once you get locked in with the designer and you get locked in with somebody who's going to meet delivery schedules and whatnot. That becomes more important factor. Now as commodities have fluctuated and the fact that they are a component of manufacturing that affects the price as commodities go up or down, and they've been going down for lumber slightly.

Well, I was happy to say Q2 up until Houston got buried or flooded out. Generally, it takes about quarter to a quarter and a half to catch back up. It doesn't unfortunately just whipsaw back the other direction, but that's probably a reasonable way to think about it, 3 to 4 months.

Yes. I would say all of the above. We had a strong install business. We did $2.5 billion in labor and materials installed in 2023. So we had a nice base to work from. And our initial focus, as you would expect, was on the products that we are already good at in one market and leveraging that platform to other markets. And it's the products that we're most familiar with and the products that we distribute every day. So we've got off to a great start. A lot of that increase is from existing markets that are already doing install because those are the ones that had the base to work from.

It's a little, it depends on the product category first of all. But the national builders certainly like the install solution wherever they can apply it.

And to Dave's point, we do see a higher level of adoption of our value-added products to the larger players just generally.

Yes. And install is a natural evolution to the value add. It's the next part of value add, not only do you get the components delivered to the job site, but you actually install the components that are delivered to the job site, that's just a natural evolution of doing more for our customers.

Yes. So I don't think I can give you the detail -- thank you for the question. I'm not sure I can give you the breakdown necessarily exactly what you're looking for. What I can tell you is on the mix side, it's an expectation that we're going to see a trend back to normal mix. I don't think that's much of a stretch, right? So what we're seeing right now is more of our growth being in the pure commodities and the truss and the relationship between just those 2 categories, biases it towards the commodities. And commodities like I was saying before, is where we've had the most aggressive normalization.

We won't get that precise, but I think our strategy has not changed, right? The way we look at the market, where we're successful, where we can add the most value are all variables in the discussion. But I think that there's -- there are always a million rumors about what may or may not trade. I think for us, it's imperative that we stay disciplined and we stay focused. What's exciting is, as it stands today, we see a lot of assets out there that fit that screen, and now we just got to see if we can get them across finish line.

What I would tell you, Tyler, is not any more than usual. Again, where we differentiate ourselves is in the value-added solution in the value-added space, and that's for a reason. Anybody can do commodities, anybody can deliver lumber. It's hard to differentiate yourself in a straight distribution model. So we do see competition in that arena for sure. We try to leverage our relationships with those customers where we do other stuff for them very well and use that as a way to continue to maintain share on the commodity side versus just getting into a price war.

The only thing I'll add, I think it might be embedded in your question is share. I think one of the variables that we struggle with is what's the real share number. Generally, we would use single-family starts as a proxy for the market and then we would compare our sales against that. In general, that's a really tricky thing right now because I think there are some meaningful differences between a start unit and a sales dollar.

So as it relates specifically to the first quarter, we're higher concentrated in R&R in the Northeast. And the Northeast was that set area of the country for us. That was a great -- more greatly impacted by weather. I think 20 to 23 days had serious weather in the quarter. That's where we felt it. In general, I think R&R will be -- is kind of a two-edged sword, right? The bigger projects are facing some of the same kind of cost of money pressures that the small custom builder is facing. But the regular smaller projects, I think, are going to be along the same line as what you would expect.

Dave, yes, we're excited about digital. I don't unfortunately have user numbers. I might be able to get them for you, but I don't have them off the top of my head. It's going up. We're seeing that. They were -- gosh, I don't know what it was 500 or 700 leads that we took out of IBS. We've got a lot of customers as we do our adoption and our rollout around the country that are coming on board. While most of them are mid to smaller-sized builders. The profile, I think, that you're talking about are those that are leaning into digital and technology to be able to make themselves more efficient and more professional and better with their customers.

What I would tell you juices me the most was the traffic we had at our booth at IBS. I have never in my 25 years of going to IBS seen the kind of excitement and the kind of traffic that went through our booth, primarily because of our digital platform and showing what capabilities that it was going to present. The other thing I would say is, think about it, if you're a smaller builder, 50 to 200 homes a year, you don't have the ability to invest in technology for yourself to get this to the level of platform that we're developing.

Yes, pretty similar. I think that the West got hammered out of the gate, and they bounced back really nicely, a little more stable through the other 2 regions. But yes, I think that's been pretty consistent. We have to see how this whole weather thing in Houston plays out. But for the time being, it's pretty good.

We didn't see a lot of unusual behavior in the market, no. Tough for us to see that from others perspective, but it's a strong I would think generally a strong and a stable market. So I don't know how people made bets with regard to where stuff was moving.

Ketan, yes, I would tell you that we're closer to the end in terms of how we expect margins to normalize. We're still below normal in terms of volume. So that's a pressure-filled environment. It's always very competitive. It always has been. We expect it always will be on the commodity side. But that now needs to be a battle cry that we rise to, right? And it's something that we've done for years and we feel good about.