Q1 2021 Builders FirstSource Inc Earnings Call
1000 board feet, our estimates show, we have outpaced market growth by 20% from 2018 through 2020.
Resulting in a roughly 8% revenue CAGR.
And that momentum continues to accelerate in the first quarter of this year.
Said another way, we have consistently demonstrated our ability to far outperformed the market and take advantage of our differentiated product platform.
Now as a combined entity, we have the geographical presence an even stronger platform to further advance our strategy.
Turning to M&A, we announced today that we closed on our most recent acquisition earlier this month.
John's lumber a premier building materials supplier, serving the largest housing market in Michigan.
The acquisition provides enhanced scale that will benefit our existing 14 locations in the state.
The company generated approximately $49 million on net sales for the trailing 12 months ended March 31 2021.
We're excited to welcome the Johns lumber team members to the BFS family.
With our very strong balance sheet and robust free cash flow generation, we will continue to reinvest in our business while actively pursuing M&A opportunities as you can see on slide five we have identified over 500 targets.
And we will continue to be a consolidator in this industry for a long time to come.
Finally, I'd like to update you on the BMC integration.
Our efforts are ahead of schedule and we remain highly confident in achieving three year cost synergies of $130 million to $150 million.
For 2021, we expect to meet or exceed $60 million to $70 million in realized savings.
We saw a merger related cost savings begin to accumulate in the first quarter and are accelerating in the second quarter.
We continue to drive our internal operating system, which will allow us to accelerate productivity improved processes and continue to grow our margins.
While servicing our customers more competitively.
We believe we can continue to help offset cost escalation with our off site manufacturing processes and other value added products, including trust millwork wall panels and ready frame.
In adopting new logistics technology, specifically are delivery and dispatch management system.
And was able to increase delivery efficiency by 20%.
Jason is now a general manager in Wisconsin, where he focuses on the safety of his team members and customers.
Dislocation continued it accident free Street, and recently hit four years without a single recordable incident.
We are proud to be a place where veterans feel valued and where their skills and experience translate into a reward rewarding civilian career.
We're grateful for veterans like Jason and how they've served our country and are pleased to have them as part of the BFS family.
With that let me turn the call over to Peter to go through a detailed look at our Q1 results and our 2021 updated financial guidance.
Thank you day good morning, everyone on.
Two would like to thank all of our team members for delivering fantastic results. In this unprecedented environment. You are focused on execution is frankly incredible.
I'll cover three topics with you. This morning first I'll review, our combined first quarter results compared to the pro forma results from the prior year quarter.
Then I will discuss our free cash flow and strong balance sheet and finally, I will provide updated guidance on the market and our forecasted results for full year 2021.
Net sales are four $2 billion for the quarter increased 54.1% compared to the combined pro forma prior year period.
<unk> added core organic sales increased by 22% led by 41, 5% growth and are manufactured products category and 7% growth on our windows doors and millwork category.
Commodity price inflation increased net sales by 31.3% and acquisitions contributed to 4% to net sales growth.
And Q1, we experienced stronger than expected demand in single family start across the country.
And we are well positioned to support that demand.
Are strong relationships with suppliers enable us to bridge product availability constraints and our value added products and services provide relief from labor shortages.
R Q1 gross profit of $1.1 billion was an increase of 52.1% year over year.
Gross margin of 25, 6% was slightly better than expected, but decreased 40 basis points compared to the prior year period, primarily due to a one time purchase accounting adjustments.
In light of the dramatic increase in costs this year, especially in commodities I am pleased with our performance driven by the disciplined execution of our procurement in sales teams.
SG&A increased 35, 3% in the quarter, driven primarily by higher variable compensation related to the increase in profitability as well as depreciation and amortization in one time charges primarily related to the BMC merger X.
Excluding these variables underlying SG&A decreased by two 6%.
SG&A as a percentage of sales decreased 270 basis points to 19, 7% in mid cost leverage on higher sales and continued strong expense controls, which more than offset higher variable costs.
Adjusted EBITDA increased 187% to 455 $2 million.
Driven by strong demand and single family, new construction commodity price inflation in costs leverage.
Are adjusted EBITDA margin improved to a record 10, 9%, which was up 500 basis points compared to five 9% and the same combined pro forma period a year ago.
Leverage on sales along with cost management and early synergies drove margin expansion.
Core organic value added product sales were especially impactful due to its rapid growth and higher average margins.
We are in the early innings of our cost synergies and pricing opportunities, we and we are accelerating our synergy capture and leveraging our combined capabilities.
Let's turn to our first quarter cash flow, which was an outflow of $237 million due to our normal seasonal timing of working capital.
In the quarter, we used $200.5 million in operating activities, primarily related to investments of over $500 million in networking capital.
At the end of the first quarter are pro forma net debt ratio was approximately one two times are LTM adjusted EBITDA.
We have no long term debt maturities until $2027 and our total liquidity was approximately $1.1 million, providing us with significant financial flexibility.
Are strong first quarter results are a testament to our category, leading team and product portfolio meeting the demands of the of the strong market momentum.
While the impact of increased commodity cost is evident in our results. What is most important to US is that we continue to generate exceptional and sustained growth in our core business with a strong margin profile.
The focus of our business is in higher margin specialty in value added products and services are portfolio of efficient problem solving products such as trust is in millwork continues to grow faster than the overall market.
These specialty in value added products and services have improved our margins over the years as we help our customers saw labour availability speed of construction and quality challenges on the job site.
And as we have continued to consolidate the industry, we have created a consistent trend of improving operations and driving.
And above market growth, while delivering accelerating EBITDA fall through.
We have clearly created a competitively differentiated platform that can drive above market growth accelerate that growth with M&A and deliver fantastic bottom line results in any market environment.
Let's turn to our 2021 full year outlook.
We continue to see strong underlying demand in both new housing construction and remodeling.
As we anticipated builders are seeing such strong demand that they are limiting sales in certain communities to keep from increasing backlogs due to material and labor availability constraints.
Consistent with our first quarter results are strong organic sales continued in April.
Based on our queue. One performance are positive conversations with customers are realized synergies with the BMC acquisition and a better view of our pricing and cost environment. We are increasing our full year 2021 outlook.
We expect full year net sales to grow to a range of $16 billion to $17 billion.
Or approximately 25% to 33% over our 2020 pro forma net sales of 12 8 billion.
This is driven by an increase in single family starts as well as record commodity prices.
We expect adjusted EBITDA to be in a range of $175 billion to $185 billion or approximately 64% to 73% over our 2020 pro forma adjusted EBITDA of $1.07 billion.
Of the $500 million increase and adjusted EBITDA guidance from last quarter, roughly half is driven by for organic growth and share gains while the other half is driven by higher commodity prices.
As a result of that outperformance, we are increasing the midpoint of our free cash flow guidance by $550 million to $1.4 billion.
Our outlook is based on several assumptions, which are outlined in the earnings release, including.
Low double digit growth and single family start across our geographies.
High single digit to low double digit decline in multifamily starts.
And low to mid single digit growth in R&R.
Or commodity assumption provides a 5% to 15% lift to our top line growth.
Commodity costs remain high with recent futures trading over $1600 per thousand.
While levels remained elevated so far this year, we anticipate commodity prices to normalize by the fourth quarter.
For some added contact if commodity prices were to stay elevated at current levels through year, and we would expect to exceed our current guidance.
Turning to capital allocation, we're committed to reinvesting in the business from maintenance and growth. We are focused on increasing our capacity through our list of an internal capex projects and we have a solid pipeline of M&A candidate.
As Dave mentioned, we have already executed one bolt on acquisition. This month and we are looking at several more.
We continue to assess capital allocation options in light of our accelerating cash flow.
Our local field teams are focused on delivering strong core organic growth and we continue to proactively manage expenses across our distribution footprint.
We will meet our or exceed our cost synergy goals of $60 million to $70 million. This year and also deliver on our operational excellence initiatives.
Overall, we are continuing to build a world class distribution network to deliver exceptional value to our stakeholders.
We have never been more excited about our strategy and our future.
Let me turn the call back today for his closing remarks, thanks Peter.
With underlying demand the strongest has been in nearly 15 years, coupled with the broad based product supply constraints and our country's continued recovery from a horrific pandemic.
These truly are unprecedented times.
I couldn't be more pleased are proud of how our team has responded.
We delivered core organic sales growth over 20%, while also successfully managing through one of the largest mergers this industry has ever seen.
We have the right strategy, we have the best team on the field and we're executing at a very high level, our future is break and I'm highly confident in our ability to continue to outpaced industry growth, while operating and on 120 billion dollar addressable market.
Thanks for joining us today and with that brand, let's open the call for questions.
Thank you.
You would like to ask a question. Please signal depressing star one on your telephone keypad.
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And again press Star one to ask a question will pause for just a moment to allow all colors an opportunity to signal for questions.
And we will take our first question. This comes from key pieces with truest.
Thank you many many good things on this release I guess, those lovett jumps out of some of the success you added manufactured products.
Could you talk about what went well during the quarter and what sort of your outlook for those products and relies on this rapid guidance that you've given us.
Good morning teas. Thanks for the question, Yes, as you point out we've had a lot of success on our manufacturing.
Products and I think it goes back to the success that each company was having individually. It was part of our strategies. It was something that we focused on historically and what we've seen over the last few years has increased penetration and adoption by the homebuilders because it's solving those problems we talked about it helps from.
Build the homes faster it helps them manage the job site more effectively and just be overall more productive.
And we're excited about it.
As you pointed out there are organic growth and components was about double what our core organic growth was this quarter, which was outstanding we expect that will continue we continue to see rapid adoption and these component categories.
No one is better position than we are in terms of being able to supply the needs of our customers in this area across the country and so we're excited about it.
Yeah. So we've added shifts we've added facilities and will continue to go down that path absolutely.
Okay and one other question on gross margin that you talked about.
The purchase accounting adjustment and a quarter as you look within this guidance range gross margin what would what would it look like for the year based on what we know today on the numbers.
Yeah, I think we're we're feeling pretty good about being able to hold stable, maybe even see a little bit of tailwind depending on the trajectory. It's a it's a dynamic market is you know price increases not just in commodities, but across the board been very impactful.
But in terms of our disciplined and our structure around passing through those prices. We've done a good job very proud of the team and I think we can continue to.
To perform at this level I think it's something we're very proud of.
Okay. Thank you.
Thanks.
Thank you and we will take our next question from Matthew Bewdley with Barclays.
Good morning caller, congrats on the results, everyone and I concur with the prior comment that there's a lot of good topics to discuss here like.
My first one will be on M&A.
I think it was notable that you included that M&A opportunity slide and your earnings presentation on this morning.
Reminiscent of the slide you had it BMC.
When you completed the acquisition of Jon's, which we actually thought that the integration may preclude some M&A at least further into 21. So congrats on that as well. My question is how have you continued to cultivate this pipeline that you that you are now disclosing.
Amidst the integration in terms of your own capacity to do so and.
How how does your common does this commentary suggest.
Potentially something more programmatic on the M&A side on the horizon.
Yeah, Great question, Matt Thanks for Ah, Thanks for asking that one so.
As you pointed out it's been a part of our strategy and both legacy companies.
And as I said on the last call and I'll say again here this integration between BFS and BMC could not be going better our teams have come together extremely well you heard our comments on the synergies we're ramping those up we're having great success. The teams of mesh together extremely well and obviously based on our first quarter results. We stayed focused on our car.
Customers and meeting their needs, which is exactly what we needed to do importantly, the fourth pillar of our strategy is M&A.
We have an extremely strong balance sheet.
As we've talked about we have a relatively small overall share in a very large market. It's an important part of our strategy. We've got the wherewithal on the focus to continue to drive acquisitions and as you pointed out in my comments this morning.
We're focused on it.
Wonderful, Okay, well, we will help helpful color there and then.
The second one I wanted to ask a manufactured products again because.
At a high level you would say, it's it's not a coincidence that with framing lumber price was this extreme.
In the near term net May Foster adoption prefab components is my question is that too simplistic or have you found that.
As in to this spring net builders are actually coming to you even more so now looking for options to address this issue and what you can do for them on the components side.
And really longer term does something like this you think impact of penetration of manufactured products going forward.
Sure I think what you've seen as steady adoption of these component categories over the past several years on both legacy companies. Obviously, we've got a very strong team on it.
Peter is mentioned we've added capacity in several locations across the country. You will continue to see us invest not only component manufacturing, but automation of those facilities to make sure that we're meeting the demands of the marketplace on we're providing is high quality and consistent product as possible.
To your question I think the adoption continues to accelerate some of it is probably related to what's going on with commodities near term, but more importantly than I think more broadly what we're seeing is the customers that have experienced the benefits of our component offerings are adopting those more rapidly across their geographic footprint and that's probably the gray.
Or tailwind on what we're seeing here over the near term I do believe it's sustainable I believe will continue to convert from market. This way and we will continue to invest in this category of the business of the business.
Makes sense, yes, that's exactly what I was wondering so so thank you for those details day been congrats on and good luck. This here.
Thanks, a lot. Thank you.
Thank you and we will take our next question from Mike dull with RBC capital markets.
Thanks for taking my questions.
My first one on <unk>.
Okay, I'll keep probing on manufacturing and then tremendous results. There if you were to kind of run radar annualize.
The levels that you're seeing.
Today, what utilization rate would you be across year components footprint and can you elaborate a little bit more you talked about adding Simpson.
Investments can you kind of just refresh us or outline some of the incremental steps that you're taking if possible any any sort of quantification around.
Additional investments in plants.
That.
May or may not have changed over the past few months in terms of plans for 21.
Sure.
Yes, I mean for context, you know, we've got well over 100 facilities. We've open between the combined entities around 13 over the last few years, we've continued to invest in terms of the capacity utilization.
A recent analytic on a single ship baseline would say we were about 75% capacity.
Add about 75% capacity.
Mike We've talked about this before that's very.
At the top description because that's on an average so you've got some facilities that are below and some above that number but we certainly have a.
A really nice trajectory right now in terms of being able to leverage those new facilities get them more fully ramped up but also be able to do things like add second shifts, which as you know doesn't quite double but nearly doubles the capacity of any given facility also adding lines also adding on a name.
<unk> equipment to increase the productivity and capacity of any one of those lines. That's been the primary way that we've responded more recently or Riverside facility in California has come up and running.
We've been able to add capacity at other facilities, a number of other facilities double digit facilities around the country through new equipment. So certainly it's an area that we've gotten pretty good at extracting more volumes, but at the end of the day or forward look is absolutely, adding footprint new locations around the country the adoption and.
Certain markets in particular is very encouraging and we see that as a long runway of strength as it.
Admittedly the adoption is good but the incremental share of how much of the home is built off site is continuing to grow and we think the trend continues to come our way with those labor costs going up which inevitably happens in a market like this but every time a cost goes up those efficiency savings that we.
Provide with manufactured products are magnified.
We can save 10 board feet, a waste on a particular trust it's more meaningful at 1600 than it is a 400.
Yeah, <unk> right on and just just to add on exclamation point to that we talk about our number one priority for uses of capital to be reinvesting in our company the.
The first portion of that goes to maintaining our facilities and making sure our people have what they need to get our products to the customers. The second order of priority is this area are value added capabilities and continuing to invest heavily in that area of the business.
Oh, that's great very helpful second question.
Such as I'm tempted to push you on some ear conservatism.
Commodity.
Switch over to the capital on location question here.
On your point day of having index, obviously first and foremost.
Investments for organic growth you talked about the M&A pipeline a bit also but if we look at your cash flow and year leverage profile. On then you are on track to be zero net leverage by year and it's not on the net cash.
Position borrowing future M&A.
And so when you when you look at that pipeline as impressive as it is.
It seems like there's going to be plenty of.
Excess cash flow available beyond.
Your organic investments beyond M&A.
As you think about kind of priorities for that use of cash and comfort level in terms of been actually implementing a plan, whether it's buybacks dividends and you just give us a little more color or an update on on how you are thinking about that they just seems to be an awful lot of dry powder.
You're right, Mike we have a very strong position right now our cash flow is tremendous.
We've talked to in the past about wanting to maintain a fortress of bulletproof balance sheet. I think we have every reason to be confident in that right now based on what we've done and will continue to stay vigilant day.
Dave mentioned, our priorities around capital allocation with regard to internal investment in an.
Expansion internally inorganically, but also the inorganic opportunities are certainly out there.
I think it's a fair question right, we're going to generate a tremendous amount of cash.
And when I'm on.
I am very specific when I say going too because if you see in our results now we borrowed money. This quarter. So we're not sitting on cash this is not a burning platform.
Absolutely looking at it we continue to work with our board come up with strategies that we want to put to work in terms of.
Putting.
All of our capital to work in an efficient way, we've talked in the past about being committed to retaining some level of leveraged in order to maximize shareholder return, we will stay committed to that we.
We just don't have any new announcements today.
Okay actually hit it thanks for the color.
Q.
And we will take our next question. This comes from David Manthey with Bird capital.
Yeah, a good morning, everyone.
<unk>.
And clearly you raised your your guidance for single family housing from high school digit to low double digit growth and it's safe to say that you're not seeing any signs of demand destruction because of the high.
<unk>.
Lumber price I should say and then.
What I'm wondering is are there any changes in total of the business in any other way I'm thinking like what you're seeing in size of homes are stress on custom homebuilder balance sheets or anything that's beyond the obvious here sort of a tangent something else. We should think about as it relates to these unusually high lumber price.
<unk>.
Yeah. That's a great question, we're keeping our either ear to the ground on that because obviously.
Making sure that our optimism at this point isn't misplaced the short answer is no.
The demand is a tremendously strong.
One of the things we said in the last call that I think it was met with a little bit of skepticism is this idea that there's going to be a limit on how many homes builders can build even though there's virtually unlimited demand for those same homes.
The level of announcements on our.
Which analysts to put it out there, but 54% of homebuilders have announced.
Constraining sales and some number of communities around the country, they're recognizing an inability to deliver homes at that high level.
That again is really a sign of that strong demand and is far less about.
Suppression of that demand by the level of prices as we see today.
Some of these prices will normalize on their own.
It definitely a theme of ours in terms of commodities that we do expect it to normalize overtime.
But in the meantime, it is certainly a matter of.
Responding to that continuing strong demand.
Keeping up with those shortages around the country and staying disciplined in our in our management of both the flow through to maintain our position as a premier supplier.
But also to maintain our management over prices and make sure we're fairly compensated for the work, we're doing but strength across the board.
HM HM.
Okay, and then when you noted that you're adding ships.
Some other companies, we talk to her saying that they're competing for talent with the X box right now.
What are your views on labor not so much your customers labor situation, but but.
But your own labor.
In terms of your access to to adding people today.
Yeah.
Consistent over the years, it's it's regional we haven't seen widespread inability to get people the usual pockets of demand drivers.
Certain certain members of the trust manufacturing World Chang.
Challenging in certain areas. There's things you can do there certainly were doing well our profit sharing on bonuses or motivational to folks we like our driver pay.
Model and a lot of markets and we're continuing to enhance that.
Certainly looking at shift differential. So there are things you can do to react and Ah.
Measured way that allows you to.
Vallve and respond depending on how the market is doing things pullback we could pullback.
But we haven't had any.
Any massive issues to date pockets here and there.
It seems like these trends are playing to your favorable which which sounds good. So thank you best of luck guys.
Exploitative.
Thank you and we will take our next question. This from this comes from <unk> Mom Torah with B M O capital markets.
Thank you for taking my question I wanted to come back to in off of the value added products that you'll have as you look out over the next day now kind of cheat on <unk> and clearly it seems like the housing backdrop is supportive how do you think how do you see that that's sort of mix evolving from the currents on a 40.
2% that you have right now.
And then that kind of where do you see the most opportunity and just related to that how does that kind of shift.
Margin profile.
Yeah. So it's a great question you. This is a dynamic time the this the whole.
Commodity pricing being at record level of certainly has thrown us a curve ball.
I would say that the mix of the business just because of the mathematical change has shifted towards commodities, it's probably roughly 50% at this point based on the increased prices.
On the long term no the way we see the dynamic is very similar to where we were 12 months ago and thats debt value add continues to be an increasing part of the business over the last.
Couple of years at least it's been the biggest component of the business.
With value and specialty making up 60 plus percent of what we sold in an average year. We think that continues we think the trend of the broader product portfolio as well as the emphasis independence of the greater homebuilding market on this offsite approach given this efficiencies given it's.
Ability to be safer and coughing less than total.
We think that continues to grow they're kind of is no topside to that we talk about the Fas.
Back as we came out of the great recession before the pro build merger was about 50% value at.
Certainly think that's that's an achievable goal on the long run, but again this is a long game or plan.
And I think what you've seen over time as both legacy companies had a strong emphasis on pricing models and getting more efficient of how we take price to the marketplace and then secondly that margin profiles, Peter pointed out and will continue to improve based on our penetration of value added products, which we see no into.
Got it that's a hassle and then just wanted that clarification retain you are prepared remarks heal on also referenced.
Our expectation of number price, it's kind of normalizing by the fourth quarter of 2021.
Is it fair to say kind of normalize you're looking at something kind of on the historical average range of 400 is that the right way to think about it on I understanding all kind of prices.
Of a volatile, but I'm just curious at a high level.
Yeah, that's how we think about it that long term average feels like the reference point that we need to continue to communicate again, recognizing that there is a displacement right now and prices displacement and demand and supply probably the primary distribute supply.
But eventually it will it will likely go back to a more normalized long term average that 400 range.
It's really just a matter of.
When are we right on that we know we're not right. That's the nature of commodity forecasting. So we figured we'd give you.
A sustainable.
Consistent target to head towards when you think about our numbers and you can adjusted as you see fit in terms of your expectations of lumber prices.
Got it that's a has put a identical well thank you.
Thank you.
Thank you and our next question comes from Reuben Garner with the benchmark company.
Thanks, Good morning, and congrats on the results from the outlook is very <unk>.
Impressive thanks.
Let's see so <unk>.
Question manufactured products has been hit pretty pretty hard so far.
Question Wise.
The 40 plus percent growth that you saw on the quarter versus that I think he said, 7% in windows doors and millwork is that just a function of.
Timing of when those products are used in the job cycle is that just kind of showing you how maybe there's an acceleration and use of your manufactured products or or is there going to be a a backlog of activity that you're going to see kind of an acceleration in the windows and doors as you move through the through the year.
Yeah. Good question I think it's two two fold I think.
The whole build cycle is we've seen completions get extended out here has just been extended so it's just change the point at which.
Our millworkers brought into the home and then secondly, and we've talked a lot about this rueben the supply constraints have been hit pretty hard and the windows and door piece of the business and we're getting what we need but it certainly has had an impact on our growth for the near term, we expect that it will correct here through the course of the year.
Perfect and then I love the comment about tunnel normalizing lumbering and you guys are growing on an 8% CAGR. The last few years, what did day EBITDA flow through look like on kind of a normalized basis is there a good way to think about that.
Yeah, No that's a great question.
In looking at that analysis, historically, we did get a kind of a better sense.
And you've heard is driven talk about how we've got 12% to 15% fall through a sort of our standard incremental around sales.
What we've noticed in these numbers is that the inclusion of the value add mix. The inclusion of the operational excellence as actually driven that a little better. So we're we're in that kind of high teens range for the fall through related to our Incrementals when you in.
Include all of those components the growth of the business.
And then specifically to point out right now the nature of commodities in the way that the market has changed the constraint the velocity of everything.
That fall through is actually a little higher as probably right around 20% right now.
So pros and cons of that certainly taking advantage of it right now but.
And to think about in the long run.
Wow, that's that's very helpful.
Thanks, guys and congrats on again on the quarter. Good luck is from that the deer.
Appreciate it.
And our next question comes from Stephen Ramsay with Thompson Research group.
Hi, good morning wanted to dig in synergies a little bit.
Hit your head or target, which is great, but maybe can you describe it that was 80, some conservatism going in what areas your hold on and what is causing that and then lastly, there do you see this is getting to your target synergy faster or potentially range.
Total synergy target as you make more progress.
Yeah. Good question.
I don't think we went into this intending to be conservative that $130 million to $150 million range.
Solids, and we're executing very well on as you heard me say.
The teams have come together extremely well and what I think has been anything us or two things one is the cultural alignment of these two legacy companies very very similar.
And then secondly, and perhaps to your question a little more importantly is is the experienced with our teams of hand and executing large mergers in the past our teams knew what to expect we have very strong leadership that's been through this before and we just got on with business and so I think that's reflective of the early ramp up that we've seen here.
Over the first quarter of work we're excited about it.
We can deliver more we certainly will but I would say at this point. We're ahead of our plan and feeling good about the momentum.
Okay, Great and then last one on kind of a networking capital investment cash outflows day or.
This has been a greater cash outflow without material constraints that you guys received relative to the cash outflow cant remember if you discussed how much of this was due to investments can't get the synergies.
Yes from a cash outflow perspective, the investment percentage is pretty modest.
We had talked about it being in the.
Similar 130 to 150 range for expenses that certainly don't think we're going on.
Spend that forecast either.
Yes, the investment is really just in the incremental value of inventory that we're maintaining the normal increase in the amount of inventory that we would maintain at our at our yards in order to carry the increased level of business just seasonally and then probably most importantly at the end of the day the Inc.
For mental accounts receivable that ends up on the books at these higher price levels across the board.
Would we usual would we otherwise have had more if not for the material availability constraints I think the answer is unequivocal yes.
I don't know how much more I am really run the map on that but certainly there is there are areas around the country, where it's quite difficult to get.
Get the level of inventory that we would normally have especially products like OSB. For example, just extremely difficult to make sure you have what you need and.
While we feel like we get more than our fair share we'd share like more.
Great. Thanks for the color.
Thank you.
And we will take our next question from trade rooms with Stevens.
Thanks. This is actually no on the couch go on portray.
And just wanted to say growth congrats on the really strong results.
Thank you.
So so first followed up on I guess the answer that last question. You know there's been a lot of talk of material constraints across the industry, but overall, they don't really seem to be holding you back.
So maybe if you could just speak to your outlook or lumber and other products available availability with everything being so short and just how you are able to manage through that.
Yes, I think.
To a large extent, you're seeing two or three things happening right. Now first of all I think you're seeing the power on the strength of the platform that we put together here with our unmatched geographic presence and the strength of our team.
Secondly, I think you're seeing the power of the strong relationships that we built through both legacy companies with our suppliers and they're doing their very best job to meet the needs that we have and then third I think we have seen a shift in the marketplace or the builders just given the significance in the broad breath of the supply constraints of.
Been a little bit.
More brand diagnostic I think towards what they're putting into their homes just driven in large part by the need and then given the access that we have to the broad base of suppliers and products, we've been able to meet those needs probably better than most and we'd expect that to continue it from a forecast perspective.
We've talked about the inability of the broader industry to meet the massive amounts of demand.
No I know you this but I know you know this but for the broader group, we've talked about the seasonal capacity availability that the shoulder seasons by nature offer more opportunity for rapid percent growth.
Always would have expected a far higher year over year percent growth in Q1 candidly queue to because of the COVID-19 lapping in queue for just because summer months always are Max capacity every year. So we can fully expect the ability to grow on a year over year basis to be suppressed as we get through those summer months.
But that's already accounted for on our numbers if not it's nothing new but I think it's just important to keep in mind that those.
Off season, if you will shoulder season type of quarters will naturally lend themselves to eye-popping percent increase.
Yeah that makes sense.
And then just from my follow up on the free cash flow guide.
How much is expected from lower commodity prices blowing through the working capital.
Yeah, So I actually feel pretty good about that forecast, regardless of whether or not prices for commodities come down or not just because of the way. The map works if I if prices come down I'd spinoff cash and the price of stay off by make more EBITDA so that number.
Number for it.
Alright, perfect. Thanks, and good luck on forward.
I appreciate it.
And our next question comes from J Mccandless with Wedbush.
Hey, good morning, everyone. So my first question I know, you'll gave the growth rate on value add but as a percentage of net sales from this year and last year, where we should what was the value add percentage.
The value add percentage for the.
Prior year I'm not sure.
For this year and for the prior year.
Yeah, so value add.
A year ago I'm going to say it was right around 40, 41%.
This year it drops to.
30 is it in the presentation 30 seconds.
Six or seven.
36, 37%. So you lose a few a few bps.
It grew fast but that window stores are nowhere closed down on the average.
Where you saw the shrinking of the mix was really in the the R&R like you'd expect right. The R&R the multifamily some of those other areas, but just don't don't keep pace right now with the single family starts businesses.
Donna.
Got it.
And then I just I just wanted to clarify the builders may be slowing down some of their sales, but they're not slowing down on the backlogs correct. It's because what we've heard is that cancellation rates are way down and that the builders still have a pretty in.
And generally pretty heavy backlog to fill out is that still the case no question about it they're full steam ahead. Yeah. Those guys are full up they're not they're not pushing out sales because they need them, they're pushing out sales because they they they are full to the brim.
Okay, Alright, that's all I had thank you.
Great. Thank you Jake.
Our next question comes from Kurt anger with the da Davidson.
Great Good morning, everyone.
From a burger.
Yeah I just wanted to start on commodities. How is this volatility in in the current environment changed higher customers kind of purchase a framing package and what type of risk are you willing to take in terms of locking prices for a certain period of time.
Yeah, I don't think it's fundamentally changed how people think about purchasing I think there is certainly a bigger emphasis on making sure, they're saying ambition, which I think lends itself to some of this offsite manufacturing product.
Model that we sell I think there's also a willingness to consider substitution species.
Species and materials substitution, we've certainly heard a lot more about that.
It's an availability game right, you're trying to make sure as well as a homebuyer try and make sure you get a house, but as a home builder you want to make sure you are able to stay on some sort of a schedule. So the the expectations the ordering ahead.
For us, it's making sure that we have a significant percentage of our by that's on a contractual basis. So we make sure we're getting our.
Our place in line if you will.
Historically and I know, there's Curtis that we've maintained a goal to keep a steady flow we are going to be in the market consistently over time at our scale on our size on our demand around the country. We don't just sit on the sidelines for any meaningful period of time.
That is true now that will continue to be true I think that maintains our relationships with the mills in a very positive way.
And we will continue to make sure. We're we're building up inventory.
You've got to be in this game further better for worse, we've talked about in the past in terms of the fixed price contracts.
Certainly those contracts or have shrunk in recent months and year.
As a percentage of our total sales, but it's still I think is representative of the type of commitment we have to our customers that we've got the balance sheet. We've got the credit we've got the relationships where your partner that you want to rely on to be able to get you what you need.
For you to be successful and we're committed to having inventory to do that.
Okay. Okay. So so to the extent that we were to see commodity prices from all over you would still expect some kind of short term benefit just from the trend and prices that fur.
Uhm, yeah, but certainly less than it used to be right with with a reduction in the amount of fixed price contracts, you'll see less suppression on the way up and less expansion in the way down on the gross margin percent.
Okay got it <unk>.
Mattingly get smaller.
Right.
And then just my second one it sounds like you're pretty confident in the year. One synergies could you just talk a little bit more about some of the other focus areas in terms of operational excellence in any examples of wins as far as shared best practices since the businesses come together over the last couple of months.
Yeah I think this is a great area of what I mentioned earlier on cultural alignment because if you recall both legacy companies had a strong focus on operational excellence and we just carry debt through we've merged the teams together and have already started to focus on that in addition to the synergies and some of the early things are just.
How do we most effectively get our products to.
The customers given the footprint that has come together and we have seen a lot of benefit and taken miles out of the system in terms of how we have executed that shifted some customer demand from one location to another and we're seeing that benefit and the bottom line so things like that.
And how much inventory that we keep these are some of the early Windsor. The teams are already executing on.
Got it I appreciate color and good luck here in Q2 guys.
Really appreciate it.
And we will take our next question from Stanley Elliot with Stifel.
Good morning, everyone. Thank you all for a squeeze me in.
What do you think about the M&A business I mean, obviously you got a very strong platform Ford are you seeing any some of the smaller operators come to you looking as an exit strategy for them and Lou are ahead of potential tax changes or.
Any changes or any issues that you may have from our capacity standpoint given.
Credit line increase I imagine for a lot of the lumber et cetera.
Yeah, I mean every day right I mean M&A.
Being a big dog means everybody calls us. So we absolutely are everybody's exit strategy, which we love.
The phones have been range yeah, yeah.
Important though on that dynamic writers, you're you have to keep in mind as a buyer of the reality of what is sustainable business. What is a mid cycle business right. You can't pay the same multiple is on on on a peak business.
But there are tremendous opportunities out there to.
To buy it reasonable multiples really tremendous asset so.
It's good times.
Yep no exciting for sure and then in terms of the footprint expansion into focus on the manufacturing side. You are you all have any problems finding real estate.
Our supply chain constrained in terms of getting the machinery in.
Anything like that that would keep you from executing on that part of your strategy right now I.
I'd say less on the real estate side, certainly on the equipment side the lead times on equipment.
Have expanded over the last 18 months or so but our teams are ahead of that and taken that into account and we're already ordering things that we don't expect to put on the ground for quite some time. So we've got a pretty strong forward look on that again the teams have come together well, we've got experts around things like trust manufacturing I know, what they need and how to get ahead of it.
Perfect guys. Thank you very much and congratulations special Ed.
Thank you. Thank you.
Thank you.
And we will take our next question.
This comes from calling variant with Jeffries.
Hey, great quarter, and thank you for taking my question.
It looks like your guidance implies a full year EBITDA margin in line with you on <unk> almost 11% just given once you typically to see it on the lowest EBITDA margin quarter can you just talk about the Keating said, you're expected margin performance of the rest of the year and then just how you're thinking about EBITDA margin over the long term.
Yeah, So I'm going on won't break out the quarters, but yes, there is certainly a.
An expectation that are EBITDA margins are going to be higher this year or flow through has been great hour <unk>.
Demand, obviously has been very high there is certainly a.
Seasonal nature to what we do so inevitably you'll see some some nice quarters during the summer when we reach our peak peak utilization in peak leverage.
On the nature of our long term I think we've consistently talked about believing we could get the 910% EBITDA. We're certainly working on that internally every day and we're in regards to what day was talking about on operational excellence efficiencies that we think we can bring into this business this industry.
Through technology through operational improvements to process, so certainly committed to that and believe that in the long run.
On the dynamics around any given quarter, obviously are a little bit unique but for this year is going to be unexceptional strong year, given the combination of I demand and.
Record prices and certain products.
Great. Thank you for taking my question.
Thank you.
And we'll take our final question from Brian Gilbert with B T I G.
Hey morning, guys on good.
Good morning runs question morning on.
First question [laughter] more on manufactured products on I.
I am wondering if you're seeing any builders.
Or on increased percentage of filters either going deeper into.
Manufactured products Offsite manufacturing are exploring opportunities to do so more than just buying a brief trust her on what package like maybe what what what rainiest day in Florida.
Well certainly Randy is done exceptionally well.
In a market like this there are great provider and I think very valued by their homebuilding customers.
On.
And I think Dave alluded to before it's really been consistent it's not as if we ever had a lull in the demand for increased utilization there are absolutely markets around the country and I think we've alluded to this before I talked about this before where historically you would not have expected to see a lot of demand for.
That off site fabrication type of work.
State like Texas is a good example, historically very low labor rates.
Precluded the need for the labor arbitrage that comes from.
The offsite fabrication those days are gone.
There is absolutely strong demand in Texas, it's strong demand across the country.
It's just hard to.
It's kind of hard to tell the difference.
Carrying 500 pounds or carrying 550 pounds I'm not sure I can tell you what that what the difference feels like it's it's a lot.
Okay got it on.
You are adding capacity on the manufactured product side are you are you seeing your suppliers, either and lumber or.
No work doors and windows.
Also add capacity or is it.
Has been pretty consistent.
We are yeah yeah.
We've heard Peter mentioned earlier about the tightness and OSB. We further a couple mills up in Canada that are coming on back online.
The same on the U S, particularly in the south on the lumber side. So we're expecting that hopefully will will help from a capacity standpoint, and obviously the window and door manufacturers are making similar investments investments here to try to capture as much of this demand as possible.
Okay. Thanks very much.
Sure. Thank you.
Thank you and this concludes today's Q&A session I would now like to turn the conference back to Mister Michael Nice for closing remarks.
Thank you for your time today and for your interest in builders first source, where around all day to take your questions take care and stay safe.
Thank you ladies and gentlemen. This concludes today's call. We thank you for your attendance and participation and you may now disconnect.
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