bldr aug 2012
TRANSCRIPT
1
Cautionary Notice
Statements in this presentation which are not purely historical facts or which necessarily depend upon future events, including statements about forecasted financial performance or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements in this presentation are based upon information available to Builders FirstSource, Inc. on the date of this presentation. Except as required by law, Builders FirstSource, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to the Company’s revenues and operating results
being highly dependent on, among other things, the homebuilding industry, lumber prices and the economy. Builders FirstSource, Inc. may not succeed in addressing these and other risks. Further information regarding factors that could affect our financial and other results can be found in the risk factors section of Builders FirstSource, Inc.’s most recent
Form 10-K filed with the Securities and Exchange Commission. Consequently, all forward-looking statements in this presentation are qualified by the factors, risks and uncertainties contained therein
Use of Non-GAAP Financial Measures
This presentation includes financial measures and terms not calculated in accordance with accounting principles generally accepted in the United States (“GAAP”) in order to provide investors with an alternative method for assessing our
operating results in a manner that enables investors to more thoroughly evaluate our current performance as compared to past performance. We believe these non-GAAP measures provide investors with a better baseline for modeling our future earnings expectations. Our management uses these non-GAAP measures for the same purpose. We believe that our investors should have access to the same set of tools that we use in analyzing our results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Our calculations of non-GAAP measures are not necessarily comparable to similarly titled measures reported by other companies. Schedules that reconcile non-GAAP financial measures to their GAAP equivalents are included later in this presentation.
Safe Harbor & Non-GAAP Financial Measures
2
Contents
Section 1 Company Overview 3 Section 2 Industry Update 9 Section 3 Investment Highlights 13 Section 4 Financial Overview 19 Section 5 Reconciliation of Non-GAAP Financial Measures 27
Company Overview
4
Prefabricated Components Lumber & Lumber Sheet Other Products & Services
Products include dimensional lumber, plywood and oriented strand board (“OSB”)
Factory-built substitutes for job side-framing including floor trusses, roof trusses, wall panels, stairs, and engineered wood
Cabinets, gypsum, roofing and insulation. Services include turn-key framing, shell construction, design assistance, and installation
Windows & Doors Millwork
Manufacturing, assembly and distribution of aluminum and vinyl windows
Assembly and distribution of interior and exterior door units
Distribution of interior trim, exterior trim, columns and posts. Manufacturing of custom exterior features under the Synboard™ brand name
Third largest building products provider1 operating in the estimated $106.8 billion single family residential home construction market2
The Company is a fully-integrated supplier, manufacturer and installer of structural and related building products
Company Overview
Notes: 1 According to ProSales Magazine among those with manufacturing capabilities, based on 2011 revenues 2 2011 National Association of Home Builder (“NAHB”)
5
Revenue Distribution
Over 50% of BFS sales in 2011 were from value added product categories — Prefabricated Components, Millwork and Windows & Doors
Over 20% of 2011 sales related to our installation services
Lumber & Lumber Sheet
Goods 28.9%
Windows & Doors 23.5%
Prefabricated Components
18.9%
Other building products &
services 18.2%
Millwork 10.5%
6
Top 10 customers represented approximately 23% of total sales, with no one customer exceeding 5% for FY 2011
Customer mix consists of large national homebuilders, regional homebuilders and local builders
Approximately 15% of sales are related to light commercial and multi-family construction Large builders, making up a significant portion of the Company’s customers, are winning
market share due to cost advantages, land positions and easier access to financing
Our Customers
7
BFS has operations in 32 markets in 9 states primarily in the southern and eastern regions of the United States
BFS is in 17 of the nation’s
top 50 Metropolitan Statistical Areas (as ranked by single family housing permits)
Approximately 46% of 2011 U.S. housing permits were issued in states in which BFS operates
53 distribution centers and 44 manufacturing facilities, some of which are co-located
Geographic Footprint
North East
Emmitsburg Frederick
Port of Rocks
Hagerstown
Manassas
Culpeper
Washington
Hillsborough
High Point
Bristol
Piney Flats Kingsport Johnson City
Knoxville Asheville
Hendersonville Brevard Cashiers
Blairsville
Gainsville
Atlanta
LaGrange
Columbus
CherryPoint
Edisto Island Johns Island
Charleston Pawleys Island
Columbia Sumter
Goose Creek Conway Loris
Florence
Anderson
Seneca Greenville
Spartanburg Cowpens
Charlotte Aberdeen
Fayetteville
Southport
Wilmington Wilmington
Nashville
Chelsea
Shelby
Auburn
Jacksonville Freeport
Tampa
Bunnell
Orlando
West Palm Beach
Dallas Headquarters
Lewisville
Arlington Grand Prairie
Houston
San Antonio
Austin
Apex Clarksville
8
Strong Market Position
BFS is the third largest building products provider in an estimated
$106.8 billion single family residential construction market1
Building Products Suppliers with Manufacturing Capabilities
Note: 1 2011 NAHB
Pro Distributor % Change
ProBuild Holdings $2,838 $3,045 -6.8%
84 Lumber 1,278 1,378 -7.2%
Builders FirstSource 779 700 11.3%
Stock Building Supply 735 818 -10.1%
BMC 631 570 10.7%
Carter Lumber 557 535 4.2%
US LBM 429 270 59.3%
Harvey Building Products 400 n/m n/m
McCoy’s Building Supply 380 377 0.6%
Golden State Lumber 213 212 0.4%
Source: ProSales Magazine, 2011 & 2010
2011 Pro Segment
Sales ($mm)
2010 Pro Segment
Sales ($mm)
Industry Update
10
Recent downturn in residential new construction market is without precedent since World War II Since 2008, housing starts have been well below the long term trend of 1.5 million total starts and
1.1 million single family starts.
Overbuild/Underbuild
New Construction Market Trends
Sources: US Census
1.6 1.7
1.8 2.0
2.1
1.8
1.4
0.9
0.6 0.6 0.6
-
0.5
1.0
1.5
2.0
2.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
To
tal S
tart
s (m
m u
nit
s)
Long Term Average: 1.5mm
Underbuild
Overbuild
Sources: US Census, NAHB, MBA, Fannie Mae
2,0
68
1
,80
1
1,3
55
9
06
55
4
58
7
60
9
74
6 9
42
-
400
800
1,200
1,600
2,000
2,400
1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011
Sta
rts
(00
0s
unit
s)
Housing Starts
Single-Family Units Multi-Family Units Consensus Projections
1959 - 2011 MedianTotal: ̴ 1.5 millionSingle-family: ̴ 1.1 million
Peak to troughdecline of 73.2%
11
The residential new construction market has experienced a substantial downturn in recent years as a result of the recession The downturn resulted in the largest decline in housing starts since the Great Depression
falling by 74% from the 2005 peak to the current trough Building products sales have had a corresponding decline
Trends that will drive a recovery in U.S. housing demand include:
Low interest rates, the aging of housing stock, and population growth due to immigration and birthrates exceeding death rates
The National Association of Home Builders (“NAHB”) is predicting that for 2012 U.S. housing starts will grow approximately 19% from 2011, with approximately 519,000 single family housing starts predicted
NAHB predicts single family housing starts will increase to 668,000 in 2013, representing a 29% increase over the 2012 forecast
The Macro Environment
BFS is well positioned to take advantage of anticipated renewed demand
12
Commodity Price Trends
Commodity prices have steadily increased from the beginning of the year. Higher commodity prices will typically result in increased gross profit dollars and improved EBITDA flow through.
Investment Highlights
14
Strategic Growth Plan
Management continues to focus on profitable, disciplined growth and free cash
flow generation
Expand Current
Customer Base
Expand into
Multi-Family and Light
Commercial Business
Focus on Cost, Working
Capital and Operating
Improvements
Selective
Acquisitions Subject to
Liquidity
Grow sales to production homebuilders as they continue to gain market share
Continue with plan to prudently expand presence in the custom homebuilder base
Diversify revenue base into more stable end markets
Utilize existing capabilities of large design centers and personnel with necessary expertise to effectively compete in these markets
Focus on remaining a low cost supplier through operational efficiencies such as implementation of computer systems linking customers to BFS network
Continued focus on all aspects of working capital
The Company regularly evaluates its facilities in an effort to reduce fixed costs without compromising service
Focus on growing high margin prefabricated component business and geographic expansion
Acquire market-leading distributors and expand by adding product offerings and/or integrated manufacturing facilities
15
Fully Integrated Distribution Platform
BFS has an integrated business model that differentiates it from
competitors that operate with a decentralized collection of facilities
Network of 53 distribution centers and 44 manufacturing facilities, some which are co-located
Size of facilities tailored to each market to meet customer needs Offering large-scale, full-service branches in larger markets and smaller, more tailored
facilities in secondary markets
Highly customized, proprietary information technology system drives internal efficiencies allowing the Company to respond rapidly to customers and reduce their costs BFS operates and owns the source code to its Enterprise Resource Planning (“ERP”)
computer system that is tailored to the building supply industry in addition to laser technology that facilitates precision, speed and efficiency in the manufacturing process
16
Due to the breadth of its product offering (63,000 SKUs), BFS functions as a “one-stop shop” Homebuilders value the convenience and efficiency of using one supplier throughout building process
BFS provides customers with a full range of services including professional installation, turn-key framing and shell construction and design
BFS’s salespeople are typically trained homebuilders who understand the challenges that might be
encountered at the job site Just-in-time delivery of just the right amount of product Value-added advice and consultation on engineering, building codes and other building matters
BFS acts as both a supplier and advisor to the homebuilding customer
Supplier to Homebuilders
Trusted Consultant
Full Offering of Manufactured Products and
Construction Services
17 17
13 years of industry experience Prior experience: Director of Accounting at Pier One Imports
and five years experience with PriceWaterhouse
Chad Crow Senior Vice President and CFO
48 years of industry experience Prior experience: Area Manager at Pelican Companies, Inc. Morris E. Tolly
Senior Vice President – Operations
Over 40 years of industry experience Prior experience: Chairman & CEO of Triangle Pacific /
Armstrong Flooring
Floyd F. Sherman President and CEO
Over 30 years of industry experience Prior experience: Manufacturing management positions
with Builders Supply and Lumber and The Ryland Group Frederick B. Schenkel Vice President – Manufacturing
Experienced Management Team
Area VPs Average BFS tenure of 20 years
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Summary
Experienced
Management
Team
Full Offering of
Manufactured
Products and
Construction
Services
Diversification
into Multi-family
and Light
Commercial End
Markets
Superior
Customer
Service
Streamlined
Operations and
Attractive Cost
Position
Fully Integrated
Distribution
Platform
Leading Local
Market Positions
in Attractive
Geographies
Differentiating factors that will enhance BFS’s ability to take advantage of
anticipated housing recovery
Financial Overview
20
Sales for 2011 were 11.2% higher than 2010 primarily due to increased sales volume Comparing our sales growth to an 8.6% decline in U.S. single family housing starts indicates
significant market share gains
For the year, gross margins increased 150 bps, from 18.8% in 2010 to 20.3% in 2011 Margins improved 90 bps due to increased sales volume and our ability to leverage fixed costs
in cost of goods sold Improving customer pricing, coupled with less volatility in the commodity market also
contributed to margin improvement Margins are positioned to expand further due to operating leverage upon increased builder
demand as well as an improved commodity inventory position
Selling, general, and administrative expenses have been monitored closely by management and as a percentage of sales decreased from 27.3% in 2010 to 24.2% in 2011 (excluding stock compensation expense and 2010 litigation settlement)
Review of 2011 Operating Results
21
After declines in 2007-2009, revenues stabilized in 2010 and grew 11% in 2011 Historical margins demonstrate the potential for expansion from current margins as the
business builds toward historical scale and leverages a leaner cost structure Proven ability to conserve capital through tight working capital management and reduced
capital spending
Summary Financial Performance
$mm except Sales per SF Start 2005 2006 2007 2008 2009 2010 2011
Single Family Housing Starts1
831,300 756,500 539,500 323,600 232,100 247,200 229,200
Sales per SF start $2,572 $2,728 $2,722 $3,066 $2,921 $2,833 $3,399
Total Revenue $2,138.1 $2,063.5 $1,468.4 $992.0 $677.9 $700.3 $779.1
% growth -3.5% -28.8% -32.4% -31.7% 3.3% 11.2%
Gross Profit $543.4 $544.8 $363.2 $215.5 $142.4 $131.8 $157.9
% margin 25.4% 26.4% 24.7% 21.7% 21.0% 18.8% 20.3%
Operating Expenses2
$388.6 $401.5 $341.9 $280.0 $201.4 $194.1 $193.0
% revenue 18.2% 19.5% 23.3% 28.2% 29.7% 27.7% 24.8%
Adjusted EBITDA3
$172.7 $169.9 $53.2 ($32.4) ($35.1) ($43.6) ($15.0)
% margin 8.1% 8.2% 3.6% -3.3% -5.2% -6.2% -1.9%
Capex4
$29.7 $27.2 $10.1 $8.2 $2.1 $9.0 $4.8
% revenue 1.4% 1.3% 0.7% 0.8% 0.3% 1.3% 0.6%
Net Working Capital5
$182.6 $184.6 $140.4 $95.3 $53.9 $61.0 $85.8
% revenue 8.5% 8.9% 9.6% 9.6% 7.9% 8.7% 11.0%
Notes:
1 U.S. Census for the South Region, which encompasses all of our markets
2 2005 operating expenses adjusted to exclude $35.5mm anti-dilution payment to stock option holders
3 See Adjusted EBITDA reconciliation on page 28
4 2005 and 2006 capex includes expansion expenditures.
5 Net working capital calculated as accounts receivable plus inventories plus other current assets minus accounts payable minus
accrued liabilities. 2008 and 2009 net working capital excludes taxes receivable of $35mm and $34mm, respectively.
Fiscal Year
22
Recent Quarterly Performance
Recent quarterly performance demonstrates strong revenue trends with four consecutive quarters of revenue growth greater than 20%
Increasing sales per start indicates market share gains
$mm except Sales per SF Start Q1 Q2 Q3 Q4 Q1 Q2
Single Family Housing Starts1
52,100 63,800 61,700 51,600 62,000 77,400
Sales per SF start $3,125 $3,235 $3,520 $3,734 $3,539 $3,513
Total Revenue $162.8 $206.4 $217.2 $192.7 $219.4 $271.9
% growth y-o-y 0.9% -2.4% 20.4% 31.0% 34.7% 31.7%
Gross Profit $31.4 $42.8 $44.4 $39.3 $45.1 $53.7
% margin 19.3% 20.7% 20.4% 20.4% 20.6% 19.7%
Operating Expenses $46.7 $49.0 $50.2 $47.1 $50.8 $55.0
% revenue 28.7% 23.7% 23.1% 24.4% 23.2% 20.2%
Adjusted EBITDA2
($9.7) ($1.3) ($0.7) ($3.3) ($2.1) $2.1
% margin -6.0% -0.6% -0.3% -1.7% -1.0% 0.8%
Capex $0.5 $1.1 $1.1 $2.1 $1.7 $2.3
% revenue 0.3% 0.5% 0.5% 1.1% 0.8% 0.8%
Notes:
1 U.S. Census for the South Region, which encompasses all of our markets
2 See Quarterly Adjusted EBITDA reconciliation on page 29
2011 2012
23
Market Share Gains
BFS sales per South Region single-family housing start for FY 2011 grew 20% year-over-year.
Gains continued in 1H 2012 as sales per single-family start grew 11% compared to 1H 2011.
24
Sales & Adjusted EBITDA Trends
Consistent sales and adjusted EBITDA growth Four straight quarters of y/o/y sales growth Six straight quarters of y/o/y adjusted EBITDA improvement
In 2Q 2012, achieved positive adjusted EBITDA for the first time in 19 quarters and breakeven for 1H 2012
25
June YTD 2012 Update
Sales for 1H 2012 were $491.3 million, a 33.1% increase over sales of $369.2 million for 1H 2011 Sales growth was primarily driven by volume U.S. single family housing starts (South region) were up only 20.3% over the same period U.S. single family units under construction (South region) were down 0.7% over the same
period Combination of these data points, indicate market share gains
Gross margins were 20.1% for both six month periods, as increased sales volume was offset by
commodity lumber price inflation, particularly in 2Q 2012, relative to quarterly customer pricing commitments. Higher than expected sales volume resulted in us replacing inventory during the latter half of the quarter at higher costs.
2Q 2012 Adjusted EBITDA was $2.1 million, achieving positive Adjusted EBITDA for the first time in 19 quarters
At June 30, 2012, our LTM Adjusted EBITDA had improved $27.8 million – ($4.0) million compared to ($31.8) million for the same period in 2011
26
Capital Structure Summary
$mm 6/30/2012 Coupon Maturity Call Provisions
Cash & Cash Equivalents $105.1
Term Loan *
160.0 L+950 bps (2% Libor floor) Sep-15 Interest make-whole through Dec 2014
Second-lien Floating Rate Notes 139.7 L+1000 bps (3% Libor floor) Feb-16 Currently callable at 101
Other debt 4.1
Total Debt $303.8
Stockholders' Equity 71.3
Total Capitalization $375.1
* Financing also includes an LC facility that provides for the issuance of up to $20mm letters of credit
Reconciliation of
Non-GAAP Financial Measures
28
Adjusted EBITDA Reconciliation
$mm 2005 2006 2007 2008 2009 2010 2011
Net Income (Loss) $48.6 $68.9 ($23.8) ($139.5) ($61.9) ($95.5) ($65.0)
Reconciling Items:
Depreciation & amortization 16.9 20.4 22.4 20.8 17.9 15.4 14.0
Interest expense 47.2 28.7 27.7 25.6 27.0 31.7 24.9
Income tax expense (benefit) 27.0 43.3 (4.3) (17.7) (30.8) (1.1) 2.2
(Income) loss from discontinued operations, net of tax (3.6) 2.3 21.1 18.9 5.0 1.2 0.4
Asset impairments - - 0.4 46.9 0.5 0.8 -
Stock compensation expense 0.0 4.1 7.0 8.5 2.9 4.3 4.6
Litigation settlement - - - - - (1.2) -
Transaction costs - - 1.1 2.8 3.2 (0.0) 1.2
Facility closure costs 0.8 0.6 0.1 1.2 1.2 0.6 2.5
Anti-dilution payment to stock option holders 35.5 - - - - - -
Other 0.2 1.6 1.5 (0.1) (0.0) 0.2 0.2
Adjusted EBITDA $172.7 $169.9 $53.2 ($32.4) ($35.1) ($43.6) ($15.0)
Fiscal Year
29
Quarterly Adjusted EBITDA Reconciliation
$mm Q1 Q2 Q3 Q4 Q1 Q2
Net Loss ($21.2) ($15.5) ($11.6) ($16.7) ($19.2) ($12.1)
Reconciling Items:
Depreciation & amortization 3.7 3.5 3.4 3.5 2.9 2.5
Interest expense 5.9 5.7 5.3 8.1 13.1 10.5
Income tax expense (benefit) (0.0) 1.7 0.3 0.3 0.2 0.1
Loss from discontinued operations, net of tax 0.1 0.1 0.1 0.1 0.1 0.1
Stock compensation expense 1.1 0.9 1.7 0.9 0.8 0.9
Transaction costs 0.9 0.3 - - - 0
Facility closure costs 0.0 1.9 0.1 0.4 0.1 0.1
Other (0.1) 0.1 (0.0) 0.1 0.0 (0.0)
Adjusted EBITDA ($9.7) ($1.3) ($0.7) ($3.3) ($2.1) $2.1
2011 2012