Q1 2025 Earnings Call Transcript

Good day, and welcome to the Builders FirstSource First Quarter 2025 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by management and the question-and-answer session. [Operator Instructions]. I'd now like to turn the call over to Heather Kos, Senior Vice President, Investor Relations for Builders Resource. Please go ahead.

Good morning, and welcome to our first quarter 2025 earnings call. With me on the call are Peter Jackson, our CEO; and Pete Beckmann, our CFO. The earnings press release and presentation are available on our website at investors.bldr.com. We will refer to the presentation during our call.

The results discussed today include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. You can find a reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings and presentation. Our remarks in the press release, presentation and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results.

Please review the forward-looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ from forward-looking statements and projections. With that, I'll turn the call over to Peter.

Thank you, Heather, and good morning, everyone. Given the current environment, I'm proud of our resilient results for the first quarter, which reflect the strength of our differentiated product portfolio and our continued focus on driving operational excellence. While macro and industry dynamics continue to be unsettled, we remain confident in our ability to navigate any challenges. We are a cycle-tested team that has withstood economic uncertainty in the past.

We will execute again by staying rooted in our strategy and focusing on the factors within our control. During these uncertain times, our role as a trusted partner is vital as we help our customers address affordability challenges and increase efficiency. We are focused on the near term while laying the groundwork for future growth. As the market recovers, I'm confident we will outperform.

As shown on Slide 3, our strategy remains consistent. We are focused on organic growth, operational excellence and disciplined capital allocation. We are committed to advancing our strong foundation and driving value creation for our customers through investments in innovation. Our significant investments in value-added products, digital tools and internal systems are cementing our leading industry position.

Let's turn now to our first quarter performance on Slide 4. Our team's ability to drive resilient results, despite external headwinds, reflects our focus on execution, operational rigor and customer success. Pete will expand on our results more later in the presentation. On Slide 5, we highlight key areas where we've been executing our strategy. In the first quarter, we invested $23 million in our value-added facilities to prepare for future demand in key markets.

This included opening one new millwork location, expanding another millwork plant and upgrading a truss facility. Adoption rates for our industry-leading BFS digital tools are steadily climbing each week and we are garnering consistent positive feedback from our growing customer base. I'm pleased that we realized $19 million in incremental digital sales for the quarter, bringing our total to $153 million since launch despite the challenging environment that has persisted for our target customers. We achieved $17 million in productivity savings in Q1 and primarily through targeted supply chain initiatives, more efficient truss manufacturing and fleet management.

We are focused on optimizing processes, leveraging technology and improving supplier relationships to enhance efficiency. We remain disciplined stewards of discretionary spending, and we are continuing to maximize operational flexibility. We increased our service levels to our customers with an on-time and in-full delivery rate of 92%. Single-family starts remain soft, as builders manage the pace of construction amid affordability challenges, inventory buildup and increased economic uncertainty.

As we expected and communicated previously, multifamily also remains a headwind compared to 2024. In response to lower volumes over the last year, we have taken steps to align capacity across our facilities, manage headcount and control expenses. This continues to be an attractive and profitable business for us. Turning to single family, builders continue to employ specs, smaller and simpler homes and interest rate buydowns to help buyers find affordable options. Our comprehensive product portfolio enables builders to optimize their costs while maintaining quality.

And we continue to supply more lower-cost offerings in products like engineered wood, windows and doors. We are standing alongside our customers to battle affordability challenges and grow with them through the investment in our people, technology and innovation. While critical for the long-term health of the industry, these actions mean less near-term sales and gross profit dollars for BFS. Ultimately, this positions our company to accelerate when starts increase and current headwinds begin to subside.

Turning to M&A on Slide 6. We remain focused on pursuing high-return opportunities that expand our value-added product offerings and advance our leadership position in desirable geographies. Over the years, we have developed substantial and proven muscle memory to grow through M&A and have a track record of successful integration. In the first quarter, we completed two acquisitions with aggregate prior year sales of roughly $565 million. As a reminder, in early January, we acquired Alpine Lumber, the largest independently operated supplier of building materials and value-added products in Colorado and Northern New Mexico.

In February, we acquired O.C. Cluss, a leading supplier of lumber, building materials and installation services with locations in Pennsylvania, Maryland and West Virginia. In addition, we acquired Truckee Tahoe Lumber in early April after quarter end. Truckee Tahoe has built a reputation of excellence as a leading supplier of lumber and building materials in the Northern California and Nevada markets.

We are excited to welcome these talented new team members to the BFS family. Our industry remains highly fragmented. And despite a slowing M&A environment, we are confident that our M&A capabilities will remain an important catalyst for our long-term growth. Turning to Slide 7. Our disciplined capital allocation strategy focuses on maximizing shareholder returns through organic growth, inorganic growth and share repurchases.

In the first quarter, we deployed over $900 million towards investing in the business, acquisitions and share repurchases. Now let's turn to Slide 8 and discuss the latest updates on our digital strategy. With our BFS digital tools, we are focused on creating value for our homebuilder customers and in doing so, further extending our industry leadership position and driving substantial organic growth. Despite the challenging market, we have seen continued adoption and growth with our target audience of smaller builders.

Our sales team continues to increase digital tool usage, which will further drive customer adoption. Since launch in early 2024, we have seen more than $1.5 billion of orders placed through our BFS digital tools, of which $153 million were incremental sales from existing and new customers. We're pleased with our progress to date and expect an additional $200 million of incremental sales in 2025, bringing our total to $334 million at the end of the year. I'm incredibly grateful to lead such a talented and hard-working team that makes a difference every day.

One great example is Delmar Littleview in Oklahoma City, who has been with BFS for more than 20 years. Delmar excels as a trusted partner to our customers who have relied on him both as a driver and now as a dispatcher to ensure that deliveries are accurate and on time. As a dispatcher, he has helped keep his location ranked among the best in the company for dispatch and delivery management efficiency. Beyond his technical skills, Delmar is a mentor to our drivers.

The experience in the field allows them to guide them not just on routes and best practices, including safety, but also on ways to provide value to our customers. His leadership and calm demeanor help keep our team running efficiently, even on the most challenging days. I'm proud of Delmar and our countless other dedicated team members who continually raise the bar and service to our customers and each other. I'll now turn the call over to Pete to discuss our financial results in greater detail.

Thank you, Peter, and good morning, everyone. Our first quarter results were driven by our durable business model and unwavering commitment to executing our strategy. We have a proven track record of generating strong free cash flow through the cycle and deploying capital in a disciplined manner, in line with our capital allocation priorities. Our scale, differentiated platform and talented team members give us confidence that we will continue to compound value now and into the future.

Let's begin by reviewing our first quarter performance on Slides 9 through 11. Net sales decreased 6% to $3.7 billion, driven by lower organic sales, one fewer selling day and commodity deflation, partially offset by growth from acquisitions. Although we expect higher commodity prices for the full year, we experienced commodity deflation in Q1 given the prior year spike in OSC prices. The core organic sales decrease was driven by a 33% decline in multifamily with muted activity levels against stronger prior year comps. Additionally, single-family declined 6%, attributable to lower starts activity, value per start and weather, while repair and remodel increased 4%, driven by strength in the Mid-Atlantic and Southeast regions.

As we have shared on recent calls, there are a few main variables reconciling single-family starts to work for organic sales. First, the value of the average home has fallen as size and complexity have decreased. Second, we have seen ongoing margin pressure as starts remain below normal. Third, extreme weather in the Southeast and California impacted the quarter by approximately $80 million in long-term deferrals.

Although macro headwinds persist and there are fewer sales dollars available per start today, we are the market leader in building products and continue to be a trusted partner to our customers that start to remain below normal levels. For the first quarter, gross profit was $1.1 billion, a decrease of 14% compared to the prior year period. Gross margins were 30.5%, down 290 basis points primarily driven by single and multifamily margin normalization as well as a below normal starts environment. Adjusted SG&A of $771 million decreased $9 million, primarily attributable to lower variable compensation due to lower core organic net sales, partially offset by acquired operations.

On an annual basis, adjusted SG&A is approximately 30% fixed and 70% variable with volumes, enabling flexibility during challenging periods. As Peter mentioned, we are investing in technology with a look toward the future despite ongoing headwinds. One big component of this is moving to a single, modern, ERP platform. Our ERP investment is projected to incur approximately $140 million this year.

This positions us to drive innovation, enhance efficiency and support our long-term growth objectives. We are focused on carefully managing our SG&A and are well positioned to leverage our fixed costs as the market grows. Adjusted EBITDA was $369 million, down 32%, primarily driven by lower gross profit. Adjusted EBITDA margin was 10.1%, down 380 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage.

Adjusted EPS was $1.51, a decrease of 43% compared to the prior year. On a year-over-year basis, share repurchases, enabled by our strong free cash flow generation, added roughly $0.11 per share for the first quarter. Now let's turn to our cash flow, balance sheet and liquidity on Slide 12. Our first quarter operating cash flow was $132 million, a decrease of $185 million mainly attributable to lower net income. We generated free cash flow of $45 million.

Our trailing 12-month free cash flow yield was 9%. Operating cash flow return on invested capital was 19%. Our net debt to adjusted EBITDA ratio was approximately 2 times. Excluding our ABL, we have no long-term debt maturities until 2030. At quarter end, our total liquidity was $1.1 billion consisting of $944 million in net borrowing availability under the ABL and $115 million in cash.

Moving to capital deployment. Capital expenditures were $87 million in the first quarter. We deployed $828 million on two acquisitions. In Q1, we repurchased roughly 100,000 shares for $13 million.

Additionally, in April, we repurchased 3.3 million shares for $391 million. As we announced this morning, our Board has authorized a $500 million share repurchase program inclusive of the $100 million remaining on the prior $1 billion authorization. This reflects our commitment to returning capital to shareholders while maintaining flexibility for strategic investments. With our current leverage ratio at approximately 2 times, we remain mindful of maintaining a leverage ratio of roughly 1 to 2 times at year-end.

We remain disciplined stewards of capital and have multiple paths for value creation to maximize returns. On Slide 13, we show our 2025 outlook. For full year 2025, our forecast assumes a down mid-single-digit single-family market and continued weakness in multifamily. As a result, we are guiding net sales in the range of $16.05 billion to $17.05 billion.

We expect adjusted EBITDA to be $1.7 billion to $2.1 billion. Adjusted EBITDA margin is forecasted to be in the range of 10.6% to 12.3%. In a lower starts environment, we expect our 2025 full year gross margin to be in a range of 29% to 31%. We expect free cash flow of $800 million to $1.2 billion.

The change from the prior guidance is primarily due to a lower working capital assumption based on our lower sales outlook for the year. As we have stated previously, imports accounted for approximately 15% of our total raw material spend in 2024, comprised of roughly 11% commodities and 4% non-commodities. Given what we know today, we estimate a tariff cost impact of $175 million to $250 million annually. This impact reflects the products we import as well as potential U.S. supplier impacts.

This range also assumes USMCA tariff exemptions on Canadian lumber. 2025 guidance assumes average commodity prices in the range of $400 to $440 per thousand board foot, an increase of $15 at the midpoint. Note that this is our best current estimate and subject to change. Our guide does not reflect potential tariff and duty impacts. Please refer to our earnings release and presentation for a list of key 2025 assumptions.

Additionally, we want to provide color for Q2 given ongoing macro volatility. We expect Q2 net sales to be between $4.1 billion and $4.4 billion. Q2 adjusted EBITDA is expected to be between $475 million and $525 million. In closing, I am confident in our ability to drive long-term growth by executing our strategy, leveraging our exceptional platform and maintaining financial flexibility.

With that, I'll turn the call back over to Peter for some final thoughts.

Thanks, Pete. Let me close by reiterating that we remain focused on controlling the controllables. Our resilient business model enables us to win in any environment, given our scale, breadth of product offerings and our disciplined investments in technology. I'm confident in the long-term strength of our industry due to the significant housing underbuild across our core markets.

We are well positioned to capitalize on this, driving growth for years to come as we execute our strategy. We continue to deepen our value proposition as a key partner to our customers by helping them solve problems through our investments in value-added products, digital tools and install services. Our proven growth playbook, fortress balance sheet and robust free cash flow generation through the cycle will help us continue to compound long-term shareholder value. In the meantime, we are closely monitoring the current environment and remain agile to mitigate downside risks in the near term while also investing strategically for the future.

Thank you again for joining us today. Operator, let's please open the call now for questions.

Thank you. [Operator Instructions] And your first question comes from the line of Matthew Bouley with Barclays. Please go ahead.

Hi good morning everyone. Thank you for taking the questions. So the question is on market share. If I look at single-family housing starts in Q1, they were down 6%.

Your single-family was down 6% even with presumably still being impacted by less dollar content per home. So -- however, you look at it, it is a really notable change in terms of your growth versus the market from 2024. And what I'm getting at, of course, your thoughts on share, how your views on share have evolved over the past year? And in this declining market, are you actually looking to increase your market share going forward or simply maintain your share in this type of market? Thank you.

Hey Matt, good morning. Thank you for the question. So I will consistently say we are always trying to increase our share, no matter what the market is. I think the dynamic over the past year, we talked about a little bit, this below normal starts environment has changed some patterns of behavior, and we have had to fight the fight.

So being in the market each day, acting and reacting to competitive dynamics, partnering with customers and some of the strategic things they're trying to do, adapting to the affordability challenges in the marketplace, it's all part of what we do every day. I think the team is doing a fantastic job. Ebbs and flows every quarter. And I think what you're seeing here is the hard work, the kind of the culmination of the hard work over the last year, the team to lean back in and drive behaviors at the local market level that allow us to continue to be consistent and competitive.

We've done the right things to invest. Our cost positions are very good. We continue to run the operations very efficiently and focused on our customers. And I think that's why you're seeing the performance.

We're going to continue to strive for it over time.

Okay. Got it. And then -- so that, of course, then leads to the gross margin question. If we're in this kind of market that requires a balance between share versus margin and your gross margin guide now does have 29% at the low end for this year.

It begs the question of sort of where you are willing to go on the gross margin? Is there a level on that margin at which you would prioritize the margin again? Or should we be looking for share to kind of be the dominant strategy? So kind of where would you be willing to go on that gross margin in this type of market?

Thank you.

Matt, this is Pete. What I would say is our margins are still very strong. We're pleased with the performance. We are anticipating margins to drift lower through the year.

Some of that is due to the margin normalization that we're experiencing with the multifamily as well as the single-family side. But as this market continues to present additional challenges, being below normal levels, now gone down about 5%, I think you're going to see continued competitive pressure, and we have to make that call every day on how to balance share versus margin. And as Peter mentioned, that's just part of running the business every day. And we know that we need to be in the game in order to continue to win and position ourselves to bundle the products where we're going to be more competitive.

And I think we are overall very pleased with the performance of margins. It's been a bit of a discovery process post the whole COVID push as to where normal is. We tried to talk about that with everybody. Hopefully, that's come through is an attempt to be transparent.

What I think we're seeing now is a lot of that normalization is done. Now it's just hand-to-hand combat in given markets with specific competitors. So that dynamic is where our advantaged position from a cost perspective, from a coverage perspective, allows us to have superior margins than the competition. Our pricing discipline and knowing exactly where we stand and what we're doing in each individual decision is a powerful advantage to some of our competitors.

So we'll continue to balance it. It has to be a balance. You can't walk away from the table. But the reality is our continued success has led to that bundling ability.

Our customers do see the value of the combined offering that we have in our product portfolio. The benefits of value-add have been very sticky even when there's some uncertainty and challenges in the market. And we still continue to sell to a wide variety of customers, both ups and downs in various markets. So we feel good, but no question, it's a time pressure, and we're happy to be smart about it.

Got it. Well I appreciate the thoughts. Good luck guys. Thanks again.

Thanks.

Thank you. And we will take our next question from Mike Dahl with RBC Capital Markets. Please go ahead.

Good morning. Thanks for taking my questions. Just, I guess, to pick up on the gross margin dynamic. Can you just put a finer point on what drift lower through the year means you're starting at 30.5%, presumably, there's still some near-term pressure doing where you've guided 2Q.

Just how -- just help us ballpark, what the 2Q gross margin is and then drift lower through the year? I guess, are you expecting sequential declines each quarter from here?

Yes, thanks, Mike. So when we look at our results, excluding the multifamily, we really see margins flattening out for and slightly down if we continue to see a below normal source environment. So that's kind of what we've baked in. From a multifamily standpoint, we continue to have a little bit of that normalization.

I think we're in our last leg of that. But when we look year-over-year, it's a much bigger step down. So it has an impact as we look at the overall year-to-year. So I would say we're getting pretty close to flat.

Our competitive advantages with what we've invested in our manufacturing continues to support our margins with our value-added products and we're very confident in our ability to deliver higher margins.

Okay, thanks. That's helpful, Pete. The -- I guess the second question is capital allocation. Look, this has been a hallmark of the company for a number of years in terms of the ability to aggressively deploy capital both on M&A and buybacks.

We're reaching a point here where given the compression we're seeing in the EBITDA and cash flow and some of what you've already deployed on the acquisitions and now this big buyback in 2Q, your pro forma leverage does look to be a couple of ticks higher than your 2x range in an uncertain environment. So how are you thinking about balancing that? I mean, as much as we like to see the buybacks, that's a pretty big number to lean into and in the quarter given what's transpiring. Just maybe a little more elaboration on how you plan to balance all of this in the coming quarters.

Yes. Great question, Mike. So our capital allocation priorities remain the same. We are going to focus on protecting our balance sheet, making sure that we're investing in the core. The next priorities of M&A and stock buyback, we will have to continue to evaluate as we move forward, so that we're committed -- staying to our commitment of managing to a 1 to 2x leverage by year-end.

Yes, the other thing I would add. We have been very disciplined and thoughtful about building out our balance sheet, making sure our tenures, our rates, our liquidity position, all remains very strong. So none of that has really changed. All that's really evolved here is that we've seen a pullback in the EBITDA number for the basis of the math.

And what I would say is we're targeting a year-end 1 to 2 times. It's always been the sort of the theme because of our seasonal borrowing fluctuations. It's pretty normal for us to have some changes across the year. And I think we're still in a position to be able to deploy capital in a very intelligent way to position the business for growth over time at the current level.

And as each year passes, we'll have more opportunities. As we return to growth, we'll have more opportunities. So I think fair. I think your observations are on point, but it's a point in time.

Got it. Okay, thank you.

Thank you. And we will take our next question from Charles Perron-Piche with Goldman Sachs. Please go ahead.

Charles Perron-Piche: Thank you, good morning everyone. First, I want to talk a bit about the commodity backdrop. Lumber prices have been trading higher through the spring and you obviously revise your guidance higher to reflect that. But can you talk about how you expect this to flow through your commodity inflation expectations for 2025? And how are those higher lumber prices impacting the mix of value-add? Are you seeing specifically increased elasticity of demand as builders are facing growing margin pressures?

Yes. Thanks for the question, Charles. So with commodities, we are seeing the impact of the year-to-date higher prices on lumber. But as a reminder, and I don't know if we've shared this with you specifically, both when we look at our commodity prices, it's 70% weighted to the lumber composite and 30% weighted to the OSB composite.

So that's kind of the blend of what we see going into a normal home size. So with that, with OSB being super depressed, especially to where it was a year ago, we're seeing that pull the number overall down, but we are seeing the lumber composite year-over-year higher. So what we see for the balance of the year is kind of holding at this level, if not even drifting down a little bit as people digest some of the initial reaction to tariff concerns. And that's going to continue to benefit modestly in our results through the balance of the year as we pass that through.

With respect to the value-added products, it is a portion of the truss and the wall panels that we produce and that will change the cost basis as we continue to design and engineer optimize those truss plants.

I think your point is right on, though, anything that grows commodities as a percentage will, by mathematical equation, reduce value-add as a percentage of total mix, but it's fairly modest overall. And to clarify a point, so lumber out of Canada is covered under USMCA for tariff reasons, meaning no tariff impact on what we've been up to lately, but the traditional duty regime is still in place. So there is expected to be an update to that duty regime later on this year that for the time being, looks to be fairly substantial. The reality is, by the time it gets implemented, it will be kind of into the fourth quarter really before we start to see it hit.

And as you know, fourth quarter is a fairly small quarter for us overall. So some development, we think will play out although I'll be quite candid and tell you that given the amount of uncertainty around tariffs and duties in general, I wouldn't necessarily deposit that check on anything yet.

Charles Perron-Piche: Got it. That's a very helpful color. And second, you talked about the progress of digital initiatives in your prepared remarks. I think that adding $90 million this quarter when you consider software housing backdrop, what factors lead your confidence to reaching that $200 million target in 2025? I think you mentioned last quarter you were adjusting your go-to-market strategy for those. How are you progressing against that?

Yes. No, that's a great question. So the reality is the tools are being really well received. The customers that are engaging with them and using them like them a lot.

They find it valuable in terms of their pace of build, their ability to understand the components, the ability to adapt to what they want to do on the ground more quickly, the interfaces, I think, are more seamless, more modern than anything that the industry has seen before. So the adoption has been good. I think our internal rollout is a lot more about training, dialing in some of the features and functions of the tool internally and getting things re-platformed to be able to, I would say, accelerate the adoption by the customer. Now the one thing I will point out that came through, hopefully, in the materials is that our initial target audience for this tool is the smaller builders.

So production build is between 50 and 2,000 homes a year, until we get the tool really dialed in the way we want it. And that is a customer category that has been under a lot of pressure. I would say comparative to last year, they're pretty stable, pretty good, maybe even up a little. Some other customer categories or maybe down a bit versus last year, but that gives us confidence that we're on the right track, both the momentum we've seen in the initial reset internally as well as customer adoption and overall customer health.

I think those are the sort of the three reasons we remain confident that digital is on the right track and going in the right direction.

Charles Perron-Piche: Okay, thanks for the color guys. And good luck.

Thank you.

Thank you. And your next question comes from the line of John Lovallo with UBS. Please go ahead.

Good morning guys. Thanks for taking my questions as well. The first one is kind of working off of Matt's question at the onset here in terms of the competition. I mean, really, what does the competition look like today?

And what I'm getting at is if you're expecting gross margins, call it, 29% to 31%, and your competitors, some of the smaller ones have higher cost, new capacity, I have to imagine that they're running closer to breakeven. I mean how sustainable is some of this newer competition that's come into the market?

That is a fantastic question. It's an ongoing debate. I would tell you, based on some of the behaviors that we've seen, the lowest of the low is not sustainable, and they're regretting some of the decisions they've made rightfully so. I think builders to their credit are trying to get the lowest cost possible, which I respect, right, it is business.

The counterpoint to that is they need actual partners to do what they do. This is our role in the industry. We need to be able to provide products to the job site. In order to do that, we need to have a sustainable business.

There are certain players in this space that I think are trying to play the short game, right? This is a space that's been known to try and grow quick and flip the business so that they could make a few bucks. If you're a builder, particularly a big builder, that has got to be tempting, but also long term, I think, very detrimental. Because they're reliant on a stable industry, an industry that's focused on the future, becoming more efficient, leveraging technology, being able to provide the best quality, most efficient tools for builders to be able to build homes, and that's us.

And there's a cost associated with it. That's the trick, right? They -- like any good customer, they want everything and they want it nearly free. There's a balance that needs to play out in the market.

There are some players that have historically made lower single-digit margins and have been comfortable there, but they're unwilling and frankly, unable to invest in the type of future for this industry that I think we all deserve as Americans. And so my challenge to them, to my competitors is get better, do better for this industry because we deserve it. And we're going to walk the talk. We're going to continue to invest.

We're going to make this a business that's able to support the biggest, the best, the fastest, the most innovative homebuilders in this country. We're going to help solve problems. So is there a balance there on margins? Is there a fight that needs to be had, yes, there is, right?

And we're going to stay in the fight. But I think in the long run, we're going to win this, and we're going to make our business, our industry, our country better because of it.

Yes. That makes a lot of sense to me. Okay. And then next question is on the productivity savings, $17 million in the quarter, targeting $70 million to $90 million for the full year. Curious how you kind of view the cadence of the remainder of those savings? And what sort of actions are you taking to drive those savings through the year?

So I'll let Pete talk to the cadence, but productivity for us is very core to who we are and what we do. Our expectation is every quarter, every day; really, our employees are looking for ways to get a little bit better. One-step better, one-step in the right direction, and that incremental progress as a team has had tremendous cumulative value for us as an organization. We're better, we're more profitable.

We're faster. Candidly, the jobs are more fun because we take some of the garbage work out. So I think that's something that we have gotten comfortable with in this organization, and we're very good at as an organization. That's what you're seeing in terms of our performance.

We do a little bit of pullback because of the diversion that some of our ERP work is requiring. We've got to be able to put hours in some of our best people to make sure that ramp-up goes well but the numbers in general continue to be a core part of what we do and are delivering that is critical to our long-term success. Pete?

Yes, and as Peter said, from a -- the way that it's going to roll in, we've been delivering productivity for several years now, and it's not something that just starts and stops. It's a constant, and we're seeing that productivity that will roll in throughout the course of the year. I would say ratably, and it's kind of generally in that kind of linear line. However, with the ERP rollout that we're expecting toward the back half of the year, we may see some of that impact that Peter mentioned in the back half, but right now, we're expecting more of a ratable realization of it.

Great. Thank you guys.

Thank you. And your next question comes from the line of Rafe Jadrosich with Bank of America. Please go ahead.

Hi, good morning. It's Rafe. Thanks for taking the questions. First, when you look at the full year guidance, it implies second half growth over the first half, which is a little bit stronger than what you've done sort of historically.

Can you just talk about some of the assumptions, specifically around like content per house, market share or multifamily mix in terms of what's driving the stronger second half sequentially versus the first half?

Rafe, I'll take the first pass at this. What we're seeing in the full year is more of a seasonal -- a normal seasonal year, where the first quarter is really the lowest quarter of the year, fourth quarter is kind of the second lowest, but the peak in the build through Q2 and really in Q3. The other factors that we're looking at with multifamily, multifamily is really stabilizing that we're seeing in 2025. So we don't have the same downward headwind or trajectory in the back part. So it may look like it's stronger but it's actually holding the line more, and we're just realizing that seasonal benefit.

We're also generating growth from our acquisitions that we've completed. So all the ones we completed last year and early this year that we're going to benefit in the back half of the year that we didn't have a year ago.

That's helpful. And then just following up on some of the changing patterns and behavior in the market. Can you -- is that more on the commodity side or manufactured products? And is that -- are you seeing that broad-based across the country? Or are there specific markets where you're seeing more pressure than others?

Well, there's no question there's pressure across the board, right? I mean this is an affordability focused environment. You're getting a deep dive on everything. What I would say though is and I think maybe we've talked about this in prior quarters is, we've seen an evolution in a progression of how builders have looked at the various categories.

Commodity is easiest, commodity is first, so commodity got attacked, I would say, the first. As you look at other categories, it's more complex. There are more pieces to be considered. The consequences are potentially more impactful.

So it's been a little slower in terms of the review and the focused work. There's no question that there's some regional differentiation between profitability and the pressure. Some areas of the country, very high utilization, lots of competition, lots of capacity, reacts very different than a smaller environment where maybe you're the only game in town. So all of them seeing pressure, but different levels of pressure depending on where you are and what the competitive environment looks like.

Thank you, it’s helpful.

Thank you. And your next question comes from the line of Keith Hughes with Truist Securities. Please go ahead.

Thank you. Question's on your value-added products. Could you talk about in terms of the reported numbers, how much of that is units and how much is price pressure in the work?

Good morning, Keith. I don't think we provide that level of information. But what I can tell you in the decline in the manufactured products. Just a reminder, in the multifamily space, we're much more heavily weighted toward the value-added products.

So I think previously, we're about 75% to the value-add. What we're seeing in the declines, as we've indicated year-over-year, was a big headwind as we lapped that multifamily normalization. And our truss decline within the multifamily was down about 46%. So more than the 32 multifamily down that we communicated, so that's given you a disproportionate decline in that manufactured products.

And there will be price and units included in the, price and units in there.

And do you -- and just based on your multifamily comments, you in this guide, you're anticipating that number to start flattening out that third quarter?

Really, we're starting to see it flatten out now. What we're -- year-over-year, we'll start to get to parity by probably around closer to the fourth quarter because there's still a headwind that we're lapping from the prior year.

Okay, great. Thank you very much.

Thank you. And your next question comes from the line of Trey Grooms with Stephens.

Hi, good morning, Peter and Pete. So I know you guys -- first off, you mentioned your capital allocation priorities haven't changed. But I guess kind of going back to that question, where does the appetite stand for additional acquisitions at this point? Or maybe asked another way, at what point do you start to take the foot off the accelerator as far as with M&A and buybacks, things of that nature?

Well, I mean, it's interesting because a piece of this is completely outside of our control and is dependent on the sort of the personality and the mood of the market. I will start by saying that the mood to the market has cooled significantly. I would say a year ago, there were a lot of deals out there, a lot of folks talking. As I see it today, I think uncertainty more broadly has contributed to a lot of uncertainty in the M&A space.

So I'll start with that. The other is to say there's been a theme, and I think we've been pretty clear about it to say for the right deal in the right market for the right product categories, we would do something special but those are pretty rare. They're pretty few and far between. So I don't want to come out and say never, but at this stage of the game, I would say it seems pretty unlikely that there's anything big going to happen anytime soon.

But we continue to look. Our M&A team is, I would argue, a finely tuned weapon, and we are not shy about using it when it makes sense for shareholders in that long-term strategic lens.

Okay. And then maybe kind of sticking with the same theme of -- if things continue to kind of hang around here or maybe even slow a little more than expected, when you think about your footprint, your branch network, are there -- how do you see the opportunity? Or is there any opportunity if the time comes when it's needed to streamline any of those -- the footprints in any certain markets or do you feel like you're kind of at a critical place right now with your branches and the footprint you have, where you're happy with that over kind of any situation really that is feasible in the near term?

Yes, that's a great question. The short answer is we're already doing it. We are a very disciplined organization when it comes to the variable cost and the way that we manage capacity into the market that we play in. Every market across the country has their operating metrics that they use to govern how they run their business.

We look at every location and every market from a profitability perspective. So we're very disciplined about continuing to, I would say, maintain the right operating hygiene, managing capacity. Over the last year, we've closed 17, 20 locations. That dynamic is something that we will continue to manage to ensure that we've got the right footprint, putting our best people in the best locations.

That's all part of what we do. We just don't really talk about it externally very much. The other piece that I would mention and I know you've seen this, Trey, is the downturn playbook is certainly available for us if we need it, and we use it on a market level in terms of responding to the dynamics at play.

Yes, got it. Okay, thank you very much for that. And its helpful. I’ll pass on.

Thank you. And your next question comes from the line of Phil Ng with Jefferies. Please go ahead.

Hey guys, thanks for all the great color. I guess, implicit in your guide, you're calling for a second half earnings ramp and Peter, it sounds like it's more seasonal in recent deals? Or does your guide actually assume some second half pickup in activity, perhaps maybe the production builders are kind of easing some of that destock as we kind of look out to the back half? Kind of give us a little more context what you're kind of assuming for the back half.

Got it. I was just going to say it's definitely not an assumed ramp and trying to use the word seasonality, is we definitely have footprint across certain geographies that the spring summer selling season are the peaks when you're looking across Alaska and the Northern Hemisphere, the Lower 48. So it's disproportionate in that way for those markets, and we're seeing healthy activity currently, and we're expecting that to continue on a normal seasonal basis.

Yes, just to confirm that, right? It's mostly what you said. It's mostly M&A and the comps from a percentage perspective, the daily sales number in the core business is a gentle seasonal curve like you'd expect, but not expecting a recovery in the broader market or from key customers or any of that.

Okay. That's helpful. Appreciate that. And then your larger -- some of the larger public builders have talked about, one, they haven't seen inflation from tariffs yet and perhaps not even anticipate much over the course of the year, and you called out, call it, $175 million to $200 million potential impact from tariffs.

Just want to get your thoughts and your ability to kind of pass it through because implicit your gross margin guidance, I think you're assuming it to kind of hold relatively steady from 1Q levels? Maybe it dipped down a little bit, but still pretty healthy. So just kind of give us some context there.

Yes. It's going to be an interesting environment as those tariffs continue to make their way into the inventories and as we need to supply to our customers. Our intent is to pass it through, but we will work with our customer partners. We were going to continue to figure out the right approach and dealing with affordability challenges as the tariffs are coming through, but the expectation is that, that's a cost that's increased and it will need to go through.

A lot of this is going to be passed through and focused in key categories, right? I mean China is the big player. We don't actually import, virtually anything from China ourselves. A lot of this is stuff that we buy and then we have to sell.

So there's a limited opportunity for us to participate for the most part. The real question is how does the market respond. Are there substitutions? Is it a logical progression in terms of movement over time?

Does it happen all at once? How much is done on the ground at a time? Where does the tariff get negotiated to? So everybody wants to know the answer to the questions.

We've tried to take a pass at it. I'll put my hand up and tell you this is our best guess and the actual fall-through impact of this is an even bigger yet.

And when does that actually hit your P&L because there's an inventory balance dynamic?

Yes, exactly. It's -- this number is a full year estimated impact so whenever it starts hitting, you'll get to pro rata share of it. Even based on today, you're talking about a delay based on what is already on the ground. I don't think any of us actually understand.

There have been a few announcements from certain players but I mean, you saw the GDP numbers. There was a ton of inventory that came in or the people are trying to prepare for this. So when it actually hits the ground, I don't think any of us really know.

Okay, thank you.

Thank you. And our next question comes from the line of Collin Verron with Deutsche Bank. Please go ahead.

Hey good morning. Thanks for taking my questions. Just a point of clarity on the tariffs there. Does the guide or the debt tariff impacts assume any tariff mitigation in it? Or is that just the cost number flowing through 100%?

So in our guide, we did not bake in any impact from the tariffs. We put that estimate together to kind of give an indication of size or impact that it would have and that, as Peter was mentioning, includes the stuff we're importing directly, which is very little, and some of the impact from our suppliers that they're going to ultimately be impacted by tariffs based on how they're sourcing products. So it is a big estimate at this time, and we just -- we don't know what the true impact, so it is not built into the guidance.

So I'm going to call them over the top and say two things on that. One, we don't lose money on stuff that we sell. And two, there is absolutely going to be an impact of some degree but if you look at the band of our guidance, the dollar amount of the tariff impact, we are not talking about a change outside of our guidance. The question is how do you dial it in.

Man, if I had a crystal ball, I would promise to tell you the right number, but this is our attempt to provide guidance in the face of what we consider to be massive uncertain. So I don't know if that helps you or not.

That's very helpful color. All right. And then I guess just on the windows, doors & millwork pricing headwind that you guys called out. I know you guys don't usually break it out, but any sense of just sort of what the magnitude is that you guys are dealing with from price -- from vendor price cuts? And just how you're thinking about sort of that as a top line headwind through the rest of 2025?

Yes. If we said under price cuts, it was unintentional. I think that the environment is stable to inflationary, but in particular, based on the tariffs, yes.

[Indiscernible] thank you for the color.

Thank you.

Thank you. And your next question comes from the line of Ketan Mamtora with BMO Capital Markets. Please go ahead.

Good morning and thanks for taking my question. I'm curious, as you think about your 2025 guidance, can you sort of just at a high level, maybe two or three key buckets where you are sort of seeing incrementally more challenges than kind of what you had when you put out your prior guidance. Clearly, it looks like single-family housing starts, you've taken that down, but two or three sort of key big buckets would be helpful.

All right. So I'll just give you the high level. Starts are down. Single-family starts are down. Monties are up a little to offset it, and the margin pressure on single-family is a little tighter than we thought, not a lot, but a little. And part of it is because single-family starts are down. So there's a correlation. Puts and takes on other things, but those are the big drivers.

Got it. No, that's helpful. So fair to say that the multifamily piece that you had previously talked about, like, call it, $175 million, $200 million EBITDA impact, that's sort of still in line with how you guys were expecting?

It is.

Yes, directionally. And we're lapping most of it, 80% of what we're going to see in terms of the downturn is going to happen in the first half. There will be a tail on some little stuff still fading, but it's largely stable and largely what we anticipated coming into the year.

Understood. That’s helpful. I’ll jump back in the queue. Thank you.

Thank you.

Thank you. And our next question comes from the line of Adam Baumgarten with Zelman & Associates. Please go ahead.

Hey good morning guys. Can you talk about the trends you're seeing in the installation business? Has that been kind of trending in line with overall results or maybe outperforming a bit? Just curious what you're seeing there.

Yes, it's been good. The multifamily is a headwind against us. So that's broader macro. But install itself, I think it's something that builders continue to be attracted to ease of doing business, efficiency, being able to manage labor the labor market has eased up a little bit.

I think you really can see that in the headlines. Still some question marks around what's going to happen with immigration, I don't think we're quite through that yet. But in general, the way we manage it, that we feel really good about our ability to be successful in that environment, and we think customers are continuing to adopt it and like it as an alternative.

Okay. Got it, thanks. And then just on digital. Just curious when you think you'll be moving to roll out the platform to some of the larger homebuilders. And is that a piece of getting to that $1 billion sales target that you guys have put out there?

Yes. I mean, there are some aspects of the tool that we're thinking about working with some of the larger builders on. They certainly have -- there've been a lot of questions from the large builders and our answer to them is, yes, just give us a little bit of time to make sure that it's exactly where we want to be able to do it. We feel really good about our ability to execute with smaller, but a lot of scale changes everything, as you know.

So that's been the pause. But we're playing around with certain features and functionality. And I think that's something that we will absolutely deliver on. We don't need it to get to the $1 billion number in our estimation.

But it certainly, I think, is a vote of confidence in what we've been focused on and why it's important to the future of the industry.

Got it. Thanks.

Thank you. And your next question comes from the line of Brian Biros with Thompson Research Group.

Hey good morning. Thanks for taking my questions. The R&R segment was, I believe, up in the quarter. I know you cited some regional strengths there.

Can you just expand on what drove that performance? It seems like that's maybe a more onetime phenomenon just given the reduced outlook there for R&R in your guidance from -- I think it was up low single digits to now flat. So can you just talk about the expectations there for the rest of the year?

Well, expectations, as you just said. So we're calling flat for the full year, had a little bit of bump in the first quarter, really coming from some of the lumber and sheet categories where we're seeing strength in lumber and sheet.

That's a part of our business, while fairly modest in size that's more stable. You do see the regional impact. One of the nice things about our size and scale is because we're in 43 states and magnitude of the top 100 MSAs, you do get a blend in a smoothing at the corporate level, less of that with R&R. So you do see a little bit of movement based on the mix of regions, but generally speaking it's a more stable part of what we do.

And a little bit of pops here and there can have an impact. But generally, we feel pretty good about estimating much on it.

Understood. And then maybe how are your, I guess, customers is managing activity in orders here with this weaker demand, but prices may be rising? Are you seeing anything of pre-buy or forward activity in response to any of that? Thank you.

Not really. It's a good question. I think they just continue to stay focused on, I want to call it, trade downs, but compromises that are necessary to stay within the price points that they're targeting because builders are doing different things, right? Some are starter homes, some are move-up homes, similar customs.

And depending on what you're doing, it's going to require you to adapt in a certain way. And one of the common areas of focus is whether or not there's just a substitute that beats the job but does it in a more efficient way or take it out entirely. So that's -- those are the areas we've been partnering with our customers on. Where can the design help, take cost out, work in individual product categories be adapted to the dynamics of what they're trying to meet in order to be the most efficient possible.

But in terms of buying ahead, it's a pretty tough thing to do in our space for the customer.

Thank you. And your next question comes from the line of Jeffrey Stevenson with Loop Capital. Please go ahead.

Hi, thanks for taking my questions, today. I just wanted to follow up on install services. And I wondered if they were positive in the first quarter? And then Peter, you talked about some of the labor disruptions we've seen due to the administration's immigration policy and just wondered if you're continuing to lean into your third-party assembly and install capabilities and a competitive advantage with builder customers?

So on install, as I was alluding to before, the core business is still doing well. Multifamily, it's a headwind. I mean that's in context of everything we said, I think, consistent. We still like install, yes and I think the third-party model is functional.

I think time will tell how much on the ground impact is going to come out of some of the conversations around immigration. To date, if they are going to stay focused on MS13, I don't think we're going to do anything. If there is a more -- a broader impact on -- some of the more traditional non-newsworthy the legal immigration that could be impactful in our industry, but I think only time will tell. And ultimately, given what we do and how we do it, there is a place for third-party contracting, subcontractors, if you will, in the industry more broadly.

We think it's the right model so we're going to continue to use it where it makes sense.

Okay. That makes sense. And then I wanted to shift to the M&A pipeline and wondered if during this period of market uncertainty, you're seeing any benefit from improved seller expectations or whether potential sellers are pulling back right now to manage through this period of market uncertainty?

Yes, I think it's the latter. Yes, what I was listening is we have certainly seen sellers pull back rumor deals that have been pulled off the table and then just a generally quiet space right now. It's a little, but it's pretty small and pretty wide. We're glad we're able to get Alpine into the family before things got too uncertain because we're excited about bringing them into the team and our team in Colorado and northern New Mexico is really ramped up to deliver incredible value to our customers.

We're excited about it.

Great. Thank you.

Thank you. And it appears that there are no further questions at this time. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.