All right, let's begin. Hello everyone, welcome to BuildDirect's Q1 2025 Financial Results Conference Call. For those who are unfamiliar, BuildDirect trades on the TSXV under the ticker BILD, that's B-I-L-D, Build. My name is Bob Chan, and I'll be the moderator for today's call. Before I begin, I'd like to note that some of the comments today will contain forward-looking information and statements under applicable securities law that reflect management's current views with respect to future events. Any such information and statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking information and statements. Please refer to the various materials the company has filed with the Canadian securities regulators for a broader description of operational and risk factors that could affect the company's performance.
In addition, please note that all dollar amounts mentioned in the presentation are in U.S. dollars unless otherwise stated. Here's a disclaimer in case if anybody wants to take a screenshot. On today's call, we'll be covering BuildDirect's Q1 2025 financial and operational highlights, as well as growth outlook for the remainder of 2025. Following comments from BuildDirect management, the call will be open for questions. Questions can be sent using the Zoom Q&A function at the bottom of your screen. If you're calling in to listen to this webinar, please email your questions directly to ir@builddirect.com. Our presenters today will be the CEO of BuildDirect, Shawn Wilson, and CFO of BuildDirect, Kerry Biggs. I'll now turn the conference call over to Shawn.
All right, great. Thanks, Bob. And for those joining the first time, welcome to our story. BuildDirect is a leading North American flooring retailer. We're expanding our footprint through a combination of organic and also M&A of brick-and-mortar locations. Our strategy is focused on consolidating a highly fragmented $90 billion flooring industry while also building a platform that supports future product expansion and entry into adjacent home improvement categories, ultimately targeting a total addressable market of over $200 billion. Before I hand it over to Kerry for a detailed look at the financials, a few top-line highlights from Q1. Over the three months ended March 31, 2025, we generated $15.1 million in revenue with a gross margin of 41.3%. Adjusted EBITDA came in approximately at $650,000, reflecting continued progress on both growth and operational efficiency.
With that, I'll turn it over to Kerry to walk through the financials in more detail.
Okay, thank you. Thank you, Shawn. I think we're on slide 11 now, Bob.
Great. Okay, so looking at the Q1 2025 financial performance, again, that's three months ended March 31, 2025. The key highlights are summarized here on slide 11, which I'll quickly go through now, and I'll provide further context and details on these shortly. Revenue, as Shawn noted, was $15.1 million for the quarter compared to $15.6 million in the same quarter last year, so Q1 of 2024. Gross profit was $6.2 million with a 41.3% gross margin for Q1 2025 compared to $6.1 million and a 39.1% gross margin in the same quarter last year, so again, Q1 of 2024. That's an increase of $100,000 or so of gross profit. OPEX, operating expenses, were $6.4 million for the quarter, a slight decrease year over year as compared to Q1 2024.
Adjusted EBITDA, as noted, was approximately $650,000 for the three months ended March 31, 2025, compared to just over $500,000 in the same quarter last year. Working capital was $2.5 million at March 31, 2025, compared to $2.7 million in the prior year, down slightly around $200,000. On to slide 12, which will outline quarterly income statement trends. Again, I'll focus on Q1 2025 with comparisons to the same period, prior year, Q1 of 2024. Revenue was $15.1 million compared to $15.6 million, a decrease of around $500,000 or 3.2%. If we break that down by segment, revenue in Q1 for the BuildDirect e-comm segment was $4.2 million for Q1 2025 compared to $4.3 million for the same period the prior year, a slight decrease of around $44,000 or 1%.
Q1 2025 revenue for the Pro Centers was $10.8 million compared to $11.3 million for the same period in the prior year, so a decrease of $450,000 or 4%. Sales overall for the period were negatively impacted by some adverse weather conditions in some of our key markets in Michigan earlier in January and February, which reduced customer traffic and delayed some project timelines. On to gross profit. As I noted, strong gross profit in the face of the slightly lower sales. We had $6.2 million gross profit compared to $6.1 million in the same period prior year, so an increase of $133,000 or 2.2%. Increase is mainly attributable to sales of higher margin core inventory across our businesses. Given this, gross profit percent increased 220 basis points to 41.3% in Q1 of 2025 versus Q1 of 2024. On to OPEX.
Operating expenses in Q1 2025 decreased $28,000 to $6.4 million in Q1 of 2025, so fairly consistent with Q1 of 2024. Fulfillment costs in Q1 decreased $102,000 or just over 10% to nearly $900,000 from $1 million in Q1 of 2024. The decrease is attributed to slightly lower e-commerce revenues in Q1 of 2025 and some negotiated cost savings with key fulfillment vendors versus the prior period. Selling and marketing costs were approximately $1.4 million in Q1 of 2025, slight increase of $53,000 or 3.9% versus Q1 of 2024. Finally, admin costs in Q1 of 2025 increased nominally by 0.3% to $3.2 million. The company completed certain cost-cutting initiatives, I think, which were press released earlier in the year in Q1 of 2025, which will support operational cost savings moving forward, which should positively impact admin costs.
Moving to other income and expense on the income statement, probably just point out the key highlights in Q1 of 2025. Interest expense increased nominally $19,000 to $349,000 compared to $330,000 in Q1 of 2024. Increases related primarily to the higher accrued balances on the insider loans and some incremental interest on our new Royal Bank of Canada revolving credit facility. I'll also point out on the income statement a fair value warrant adjustment. So the fair value of our warrant liability on the company's balance sheet increased to $195,000 as at March 31, 2025. This resulted in a fair value loss on the income statement of $131,000 in Q1 of 2025, which compared to a fair value gain of $3,000 in the same period the prior year.
Again, I'll note that this is a non-cash loss and reflects an accounting expense only driven by the company's higher share price quarter over quarter. The company also incurred restructuring costs, which you'll see on the P&L, of approximately $120,000 in Q1 of 2025. This was compared to no restructuring costs in the same period the prior quarter. These costs relate primarily to severance related to some of our headcount reductions that were realized in Q1. On the adjusted EBITDA side, Shawn noted earlier, we achieved another positive quarter of adjusted EBITDA in Q1, reporting $650,000, up nearly $150,000 from the prior quarter, reflecting strong gross margins, as I've noted, as well as add-back of certain one-time non-recurring restructuring costs. Moving on to the balance sheet, I'll quickly summarize here. We are in a strong position still as at March 31, 2025.
Looking into the total asset number, within that is our current assets, which consisted primarily of cash, receivables, inventory, and prepaids, and that totaled $16.6 million as at March 31, 2025. Our current liabilities, which primarily consist of AP, accrued liabilities, deferred revenue, current portion of lease liabilities, and loan and prom notes payable, totaled approximately $14 million. I will note of that $14 million current liabilities, $2.4 million relates to debt outstanding from our bank line of credit. This facility is classified as current debt for accounting purposes as it's a demand loan. Practically speaking, though, this loan is not due within 12 months, as we expect our tier one bank partner, Royal Bank of Canada, will not require repayment within the next year. This gives us a 1.2 times current ratio as at March 31, as our current assets exceed our current liabilities by approximately $2.5 million.
As I have noted, this $2.5 million is referred to as working capital, as I have noted on the slide. Cash position at March 31 was $3.5 million, so $1.2 million higher than the prior quarter year over year. Next slide. I will quickly discuss the cash flow statement. On the operating activity side for the three months ended March 31, 2025, total cash from operations provided was $768,000 compared to $1.2 million in the prior period, Q1 of 2024, so a decrease of $400,000 year over year. The decrease is mainly attributable to non-cash working capital. Non-cash working capital contributed $313,000 positive cash in Q1 of 2025 compared to $665,000 positive in Q1 of 2024. That is the majority of the $400,000 decrease year over year.
On the investing activity side for the three months ended March 31, cash from investing activities used $101,000 compared to $41,000 positive cash in the prior period, Q1 of 2024, net decrease of $142,000. The decrease is attributed to higher purchases of PP&E, $101,000 versus $29,000 in the prior period. Those were Pro Center CapEx and capital additions, and less cash received under certain subleases, which matured in 2024. We are no longer collecting sublease income as those subleases matured in 2024. On the financing activity side, cash provided by financing activities was $476,000 compared to $1.7 million used in the prior period, Q1 of 2024. This is a $2.1 million difference. Primarily related to advances on the company's credit facility in Q1 2025 was $1.2 million compared to NIL the prior period. Majority of that was used to fund the assets of the Florida Pro Center.
Deferred consideration repayment was $675,000 in the prior period compared to NIL in the current period. Loan repayments also impacted the financing activities year over year. This concludes my overview of the financials. I will say, as we look into the future, our focus remains on strengthening profitability across all areas of the business, including continuing to realize savings on newly launched cost reduction initiatives and maintaining strict cost control. We are prioritizing growth through the expansion of our physical store network that Shawn will talk about, accelerating our high-margin e-commerce operations where feasible, and pursuing operational efficiencies that will drive sustainable growth and create long-term value for our shareholders. I'll turn the call back over to Shawn. Over to you. Thank you.
Great. Thanks, Kerry. I want to share an update on a few operational highlights. We made great progress in Q1. First off, on the Pro Center expansion side, in March, we completed the acquisition of key assets from Anchor Yorkshire Flooring, a well-established distributor in Orlando, Florida. The $593,000 transaction expanded our footprint in Southeast US. It's a strategically important growth region for us, for sure. We'll provide more detail here in a bit. In addition, we opened up a new Pro Center in Southern California, and we transitioned out of a third-party logistics provider to our own fully owned and operated facility. This shift enhances our direct-to-Pro service and strengthens our presence also, but in the West Coast. Lastly, we advanced several operational streamlining initiatives designed to improve organizational efficiency and our cost structure.
These were expected to generate approximately $900,000 U.S. annualized in savings, as we've mentioned previously. Okay, turning to subsequent events. After the first quarter, we executed two initiatives. First off, on April 23, we signed a supply agreement worth up to $200 million USD with a North America customer, a large one in the sports, entertainment, and rec sector. A high-performance flooring will be used in their facilities, reinforcing our position in high-spec commercial applications. Our model is a great fit for customers in their home projects and also pros in their very large projects. It's good to see. We also completed a secured loan with their growth partners, a long-term insider for our senior management team on a share purchase, which we're pretty excited about. Okay, moving on to the M&A. Let me first briefly walk through our framework behind our strategy.
We focus on underutilized or underperforming locations that could be quickly converted into Pro Centers. These are high ROI opportunities, generate meaningful returns with minimal disruption. We also emphasize validated book value, ensuring that inventory and assets can be independently verified by us. This helps protect downside risk and gives us confidence in the numbers. From there, we assess the upside. We target businesses with a clear and achievable path to positive EBITDA, but more so payback on the investment in 12-24 months using a conservative operations-based plan. Alignment's important, and we prioritize targets that expand our geographic footprint. In some cases, increased density, but overall, enhancing logistics for our network. We focus on synergy-ready businesses where we can quickly apply our centralized procurement, marketing, and distribution capabilities to drive margin improvement and also, of course, improve customer service.
Together, this framework ensures that each acquisition will be accretive, low-risk, and aligned with the long-term platform that we are building. As noted, on the acquisition of Anchor Yorkshire Flooring, it was valued at $593,000, approximately 1x EBITDA. It is a great acquisition for our footprint. With this kind of acquisition, we gain established relationships, local builders, contractors, an opening inventory footprint, and also, more importantly, proven operational expertise with the team. The revenue they reported on audit was $5.8 million and EBITDA of around $661,000, which is a good starting point. This really aligns with our strategy for improving penetration in the Southeast. As we look ahead in 2025, our focus remains on disciplined expansion, specifically through the continued growth of our Pro Center network.
We are committed to scaling this network across key regions and striving to consistently meet the evolving needs of our pro customers and really focus on driving EBITDA along with it by optimizing operations, things like gross margin improvement and operating expense management is going to be important for us really through this entire journey. With that, I'll turn the call back over to Bob to begin the Q&A session.
Thank you, Shawn. We'll now begin the Q&A session. As a reminder, questions can be submitted using the Zoom Q&A function at the bottom of your screen. If you're calling in to listen to the webinar, please email your questions directly to ir@builddirect.com. The first question we have here is, could you provide more detail on the timeline for the planned new Pro Center openings in key U.S. markets?
I would say on the build side, we have a couple in mind. Potentially on the buy side, as I mentioned before, these kind of things, they happen when they happen. We'd be thrilled if we acquired $15 million or $20 million in revenue this year. With Anchor Yorkshire, that took out about $6 million. From a timing perspective, I would say look for the balance of that. Ideally, for us in Q3 would be ideal for integration in Q4, but we also do not force the deals. They have to make sense and be done in the right kind of the right way. I would say for those kind of watching our pipeline, the pipeline's healthy. Looking for, I mean, sorry, really not looking for too many new ones to add, but with that, it has to be the right structure.
Nothing more to add on that one.
Now, second question is, given your dual strategy of building new Pro Centers organically and acquiring existing flooring retailers, could you elaborate on why BuildDirect often prefers to acquire established locations?
Yeah, it's a lot easier. A lot faster payback. You get into a market with an established team. That's really the most important part. On our pipeline, for example, we look for businesses that are not being operated by the owners, ideally, because then post-transaction, you have an operational challenge. Really, it's having a team in place that's already used to operating. They have relationships. Those are staying with the business. We're able to quickly plug in procurement and marketing synergies for really rapid improvement. We've seen that, for example, with Anchor Yorkshire Flooring. It's been fantastic. Great team, very committed, great relationships. They're able to take our product offerings and marketing services and really run with it. I would say that's kind of first and foremost.
We mentioned before, it's the massive industry, over 12,000 independent operators, highly fragmented, no shortage at all of targets out there for a good fit. Here, again, it has to be the right kind of deal, right structure, right area for us to prioritize a specific opportunity.
Now, the next question will be on the recent acquisition in Florida, which was done at approximately one time's EBITDA. Can you discuss how you plan to integrate this asset operationally and commercially, as well as what synergies do you expect to realize and on what timeline?
Yeah, so this one goes both ways. Anchor Yorkshire Flooring is a really interesting business. They have a really strong presence in the Southeast, but also in some large contract sectors like around the medical field and hospitality that we are, as a broader group, we're a bit weaker in. There are some interesting synergies there going both ways. On the integration, that was pretty fast. It's already done. Pretty good process and team and structure there. At this point now, it's just a matter, as far as our current roadmap, we're loading out the extra incremental products that they do not sell today. Inventory is there. Samples are being loaded in. They'll go out to their customers, and then it's kind of a rolling change. I'll look to see improvements in that business really in Q3, Q4, keep on going from there.
As mentioned before, potentially, there's also some synergies that could flow back, penetrating into some new segments for us, which we've seen and been participating in some line reviews for, which has been great.
The next question here is, given the expansion into the Southeast U.S., how does this acquisition fit into your overall regional growth strategy?
Yeah, so we definitely want, we prefer opening up Pro Centers in markets that are intuitively growing. Southeast Unbelt is a good example of that. For our e-commerce business, we had a pretty good foothold in the Southeast. We had a substantial freight savings from acquiring that business and then being able to ship out of there, which is great. Really, along with that, it also opens up nearby states, going into Texas, so on and so forth. It is a good entry point. It will not be the only location in Florida. It is just the first one. In the Southeast, those comments kind of hold. Building out a bigger base of Pro Centers throughout the Southeast is definitely a priority.
BuildDirect has been reducing reliance on third-party warehouses in favor of Pro Centers. How is this transition progressing, and what impact has it had on fulfillment costs and customer delivery times?
Yeah, so this one's a pretty big deal. It's done. First off, we don't use 3PLs any longer. In some cases, we offer 3PL services, which is kind of interesting, flip of a narrative there. Yeah, we're out of that altogether. It's brought down fulfillment costs remarkably. When you think about a 3PL, you have these giant warehouses. They're set up for light products. Think of shoes or other things you can ship on Amazon kind of thing. They're very cost-ineffective. Very often, you get into a spot where you can reverse scale. From a cost perspective, if you have slow-moving inventory, you just rack up the cost like crazy. On the fulfillment side, it's not great.
Customer service has definitely gone up quite a bit as we've gotten out of those. Next to our claim rates, super low on shipping now, things like that. Just the sheer fulfillment cost over the past couple of years has come down progressively, really from getting out of those facilities, which is now done.
Can you elaborate on the recent management loans secured by senior leadership? How do these loans align with the company's incentive structure and shareholder interests?
Simply stated, the management team owns a lot more equity. That aligns the interest.
That's good.
Yeah, I can maybe just comment just from the debt side perspective. Lira loaned BuildDirect $775,000, so an insider. Those funds were lent to senior executives to purchase shares in a private transaction. From a company's perspective, BuildDirect has a loan payable to Lira and a loan receivable from management. From a company's perspective, net-net, there's no incremental leverage. As Shawn said, management now owns a larger portion of the company. We're sharing risk and reward of share ownership, which I think aligns with everyone who are also shareholders.
Sounds good. Now, a few questions on the market opportunity here. The $90 billion-plus flooring market is largely fragmented. What are your plans to deepen penetration in the commercial segment? How does this segment's margin profile compare with your residential business?
On the commercial, I'm assuming you're referring to large projects, condo renovations, kind of things like that. I would say we're in that space today. Like I mentioned with the Anchor Yorkshire Flooring acquisition, we got a bit deeper into kind of subsegments with that. It's interesting when there was an acquisition that Lowe's did recently for Artisan Design Group. It was a pretty big roll-up in the industry, very much focused on builder and commercial, but fully installed. The margins are a lot lower, a lot, a lot lower. The side of the business that we're more focused on is just the product fulfillment, where we direct source from factories and send them straight to those projects. The margins are fantastic. They're really good. Now, on the installation of that, the general contractor typically is taking care of the work.
The margins aren't great for installing. That's not a huge advantage, I think, for us. Yeah, we're definitely very much geared towards and why we announced the large contract we won recently. It's just got quite a few of them, but that was a good one to put out there. Yeah, that's definitely something that we're doing more and more of, have a good expertise around it. Because we're able to go straight from factory to essentially the project site, the margins are very healthy.
Now, a question here from the audience. Will you be releasing guidance for 2025? Can you speak to seasonality?
Yeah. No, guidance, no. Yeah, so do not provide guidance. That is mainly around the M&A strategy we have. I think I mentioned this quite a few times. We are interested in insanely accretive deals. That is what drives everything. We take capital allocation very, very seriously. When you look at the business and you look at perhaps if you are checking out a few different examples and you use the Artisan Design Group as an example of a flooring roll-up that was done a while back in a different but probably close enough segment, you could see how these businesses are valued very reasonably. There is a tremendous amount of upside even when we are sitting today, which is great. With that, doing deals that are highly accretive. For me, that means the company takes ideally double-digit arbitrage on the deal plus fast payback.
With that kind of strategy, it's all about timing and when those things hit. I have been pretty good, though, I think, about saying what success looks like for those deals yearly when it comes to much more than that. I would say, "Look, I'd be thrilled if we acquired $15-$20 million in those models I've mentioned before this year. Take that number, subtract out what we've already done, the $6 million annualized. That leaves the balance." That's how I would look at that. Bob, what was the second part of the question? Or did I answer it all?
It was, what is the, sort of, can you speak to the seasonality?
Oh, seasonality. Yeah. For the most part, the back half of Q4 and Q1 is a bit softer for us. If you look at the full year and just sign equal weights, quarter to quarter, you could probably discount 20% and put it into Q2 through Q3. This year, because we have a large presence in Michigan, specifically Michigan, which we're continuing to diversify around, that was really two things this year in Q1. One, the weather was terrible. You can just chat GPT it. It was pretty bad. Very, very bad. Second, we also had a lot of fun noise around the auto industry and all the stuff that happened with the macro side as well. That hit a few areas a bit harder. Thankfully, that's unwound and it's gotten better.
I would say that's the one thing I would say. As you look at our business, that comment around seasonality would not be like that in other markets like in the Southeast or Southwest. You do not really have weather patterns. Seasonality is very, very mild. For us right now, because we have a large concentration in Michigan, Q1, for example, got hit with those two things. Otherwise, it is relatively smooth.
Perfect. That's all the questions we have for today. If you haven't addressed your question during the call, please feel free to submit your questions directly to ir@builddirect.com. Thank you, Shawn. Before we end the conference call, do you have any closing comments that you would like to share with our audience?
No, thanks for joining. Keep following the story. Really appreciate it. And reach out anytime. Thanks, guys. Take care.
All right. Thank you, Shawn and Kerry. Just as a reminder to those who are unfamiliar with BuildDirect, the company trades on the TSXV under the ticker BILD. That's B-I-L-D. The recording of today's conference call will be uploaded onto BuildDirect's investor relations website. Like I said earlier, if you have any additional questions that were not addressed during the call, please send them to ir@builddirect.com. Now, I'd like to thank everyone for joining us today. Take care.