Builders FirstSource, Inc. (BLDR) Earnings

Management highlights

### Market & Geographic Performance - Regional performance varied: continued softness in Texas and Colorado, offset by relative strength in the Northeast - Multifamily market conditions remain weak: high interest rates delayed project starts, competitive bidding, and developer caution are expected to pressure results through the rest of 2026 - BFS maintained its overall market share in a challenging operating environment ### Cost & Operational Efficiency - Implemented facility consolidation to right-size capacity for current demand: 36 facilities consolidated in 2026 YTD, 91 total over the past three years, while retaining an on-time in-full delivery rate above 90% - Delivered $28 million in productivity savings in Q2 from targeted supply chain and logistics initiatives - Originally targeting $100 million in 2026 full-year cost reductions; management identified an incremental $40 million in run-rate savings, increasing the 2026 total target to $115 million - New cost-cutting actions include deeper cuts to overtime and temporary labor, incentive compensation adjustments, reduced merit and overhead spending, additional facility consolidations, and tighter controls on discretionary spending, focused mostly on fixed SG&A costs ### Capital Allocation & M&A - Deployed ~$50 million in Q2 to return-enhancing opportunities aligned with capital allocation priorities; strong cycle through free cash flow provides flexibility for business investment, accretive acquisitions, and shareholder capital returns - Completed the acquisition of Precision Design and Trim in June 2026, expanding installation capabilities in the Boise, ID area - Since the 2021 BMC merger, BFS has completed 42 acquisitions representing nearly $2.3 billion in annualized sales, equivalent to the size of a top 6 LBM (lumber and building materials) player - The fragmented LBM industry provides significant long-term M&A runway, and M&A remains a core driver of long-term growth ### Digital & Strategic Initiatives - Steady progress is being made on the company's SAP implementation - Refreshed digital strategy prioritizes near-term value creation, with focus on initiatives that improve sales team efficiency/effectiveness, enhance customer connectivity, and integrate with the growing home builder technology ecosystem - Investments are targeted at practical, scalable capabilities that support growth, while protecting existing digital IP and capabilities, with technology expected to be a long-term competitive differentiator ### Balance Sheet & Cash Flow - Q2 operating cash flow was $68 million, free cash flow was $32 million - Trailing 12-month free cash flow yield is ~7%, and operating cash flow return on invested capital is 10% - Net debt-to-adjusted EBITDA is ~3.6x, above the company's long-term target, but management is comfortable with the leverage position given $1.6 billion in total liquidity and strong ongoing free cash flow generation; leverage is expected to return to target as EBITDA recovers with the housing market - Q2 capital deployment included $36 million in capital expenditures, $14 million for acquisitions, and no share repurchases

Guidance

- Full year 2026 guidance reflects continued housing market weakness, affordability pressures, and cautious consumer behavior, with downward revisions to housing start projections: single-family starts expected to be down nearly 7% YoY, multifamily starts down 4% YoY, and repair and remodel activity down 1% YoY - 2026 full year net sales guidance is $14 to $14.8 billion, adjusted EBITDA guidance is $1 to $1.2 billion, and adjusted EBITDA margin guidance is 7.1% to 8.1% - 2026 full year gross margin guidance is 27.5% to 28.5%, reflecting below-normal housing starts activity; the lower bound of the range was kept unchanged, reflecting downside scenario planning, while the upper bound was reduced to account for slower than expected activity - 2026 full year free cash flow guidance is approximately $400 to $500 million - Commodity price guidance remains unchanged at an average of $390 to $410 per thousand board foot, in line with the long-term average of $400; the stable guidance reflects management's expectation that recent lumber price increases will moderate in the second half of 2026, in line with prior projections - Q3 2026 net sales guidance is $3.6 to $3.9 billion, and adjusted EBITDA guidance is $275 to $325 million; gross margins are expected to remain broadly stable relative to Q2 levels, with full year second half average gross margin coming in slightly below first half levels to hit the full year guidance midpoint - Full year 2026 expected headwind from higher fuel prices remains $100 million, unchanged from prior guidance

Segment performance

Total net sales for Q2 2026 decreased 9% year-over-year to $3.9 billion, with declines across core organic sales partially offset by acquisition growth and commodity deflation. Breakdown of core organic sales changes by segment: 1) Single-family: down 8% year-over-year, pressured by lower housing starts, smaller average home size, value engineering, and reduced average selling prices per start due to affordability pressures; 2) Multifamily: down 10% year-over-year, with higher interest rates pushing out project start dates, competitive bidding, and developer caution keeping results pressured amid below-target occupancy rates across many markets; 3) Repair and remodel: down 2% year-over-year, the smallest decline among the three segments. Aggregate gross profit was $1.1 billion, down 16.3% YoY, with a gross margin of 28.1% (down 260 basis points) driven by the declining starts environment. Adjusted SG&A was $781 million, down $37 million YoY from cost-cutting actions, partially offset by acquired operations and higher fuel/delivery costs. Adjusted EBITDA was $329 million (down 35% YoY), with an adjusted EBITDA margin of 8.5% (down 350 basis points). Adjusted EPS was $1.17, down 51% YoY.

Risks & headwinds

- Persistent weakness in housing starts, driven by high interest rates and consumer affordability pressures, continues to pressure top-line growth, operating leverage, and gross margins - Intense competitive pricing pressure across the industry has compressed margins, with some new market entrants pursuing aggressive pricing to fill capacity that has pressured industry profitability - Higher diesel and freight costs create ongoing headwinds to profitability, with only partial pass-through to customers currently achieved - Elevated leverage (above the company's long-term target) limits aggressive capital allocation activity such as large-scale share repurchases, though management notes liquidity remains strong - Uncertainty around future commodity price trends and pass-through to customers creates volatility in gross margin outcomes - Softness in key markets like Texas and Colorado continues to weigh on overall results - If market weakness persists into 2027, additional fixed cost cuts will be required to right-size capacity for lower demand

Analyst Q&A

• Q: The Q4 2026 implied sales outlook shows ~4% YoY growth despite the downward revision to full-year single-family starts projections. With a 3-month lag between starts and sales, does this mean single-family starts need to inflect positive YoY soon to hit the target? /

  A: The apparent YoY growth comes from lapping the extreme, precipitous decline in builder activity that occurred in Q4 2025. It does not reflect a positive inflection in 2026 starts; it shows that the expected seasonal decline in 2026 looks stronger relative to last year's unusually large drop. This dynamic also begins to impact Q3 2026 results alongside commodity price lags.

• Q: Are you seeing struggling high-cost competitors exiting the market, and has this eased competitive pricing pressure in high-cost markets? /

  A: Management cannot confirm broad exit of competitors, but notes that many players have pursued very aggressive pricing to fill capacity, and some have moved past overly aggressive pricing after seeing disappointing results. While margins remain under pressure, BFS has maintained its market share from its leading position. Pricing has started to stabilize after several years of volatility, though overall results remain dependent on broader market conditions and builder confidence.

• Q: Why does BFS's 2026 multifamily start projection differ sharply from industry projections that show growth this year? What is the medium-term outlook for multifamily? /

  A: BFS only participates in 5-story and below wood-frame multifamily, and management believes public multifamily start numbers are incorrect, likely driven by measurement errors in government data that do not reflect on-the-ground conditions. If interest rates decline slightly, especially short-term rates, multifamily activity is expected to pick up, and BFS is well positioned to capture that upside with its existing product portfolio.

• Q: What is the current outlook for M&A, given your above-target leverage? Are you seeing more assets come to market in this downturn, and how are you approaching valuations? /

  A: M&A remains a priority for BFS, and there are already a number of desirable assets in the active pipeline. While leverage is elevated due to the cycle, BFS has strong equity, solid debt maturities, and ongoing positive free cash flow, so it can pursue attractive opportunities. The M&A market is moderately active, with sellers often basing valuations on pre-downturn earnings which BFS does not accept; BFS focuses on well-aligned geographies and product categories, and is willing to be patient for the right opportunities at appropriate valuations. Current M&A transactions are smaller than in prior periods, matching the company's current smaller free cash flow profile.