Good morning, and thank you for joining Builders FirstSource 4th Quarter and Full Year 2020 Earnings Conference Call. Michael Neese, Senior Vice President of Investor Relations for Builders FirstSource will now provide the company's opening remarks.
Thank you, Keith. Good morning, and welcome to our Q4 and full year 2020 earnings call. I hope you and your families continue to remain safe and well. With me on the call are Chad Crow, CEO Dave Blittman, President and Peter Jackson, our CFO. Builders.
Today, we will provide you an overview of our record 4th quarter results and full year performance, Builders, discuss merger and integration highlights as Builders FirstSource and BNC come together as one culture and company Since we closed the BNC merger on January 1, 2021, the results reported today reflect standalone BFS's record results Builders for both the Q4 and full year. On the last page of the earnings release, we have provided select pro form a financial information Builders. To show the record results for the combined company as though they operated as one entity in 2020. Builders. A slide deck in this morning's press release are all available on our website at investors.
Bldr.com. Your Own Funds. The results discussed during the call will include GAAP and non GAAP results adjusted for certain items. Builders. We provide these non GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures.
Builders. The reconciliation of these non GAAP measures to the corresponding GAAP measures where applicable and a discussion of why we believe they are useful to investors can be found at the back of the press release IR and in the slide 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. Builders. 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 materially Builders and Company from forward looking statements and projections.
With that, I'll now turn
the call over to Chad. Builders. Thanks, Mike. Good morning, everyone, and thanks for joining us. I wanted to start by saying our thoughts remain with all those affected by the COVID-nineteen pandemic.
We We remain diligent in keeping our associates, suppliers, customers and community safe. Safety will continue to guide our operating strategy. Builders. Our thoughts are also with our fellow Texans. It has been a challenging time over the past 2 weeks and we wish everyone a fast recovery.
Builders. BFS and BMC together had an incredible and transformational year in 2020. We could not have done it without all our dedicated team members. Builders. They are a true testament of excellence to driving growth, while still meeting the needs of our customers in an unprecedented environment.
Builders. I want to congratulate and thank them for everything they accomplished last year. We closed our merger on January 1 and have formed the nation's premier supplier of building materials and services with tremendous opportunity for continued growth. Builders. The transaction allows us to expand our footprint and enhance our local relationships in many of the nation's largest and fastest growing markets.
Builders. We are well positioned for long term growth, underpinned by resilient and expanding housing environment as well as a significant capital base for M and A. Builders. We expect to deliver above market growth through our shared commitment to growing our value add offerings, which allow us to closely partner and integrate with customers to streamline the construction process. In addition, this larger platform strengthens our ability to Builders.
Great and invest in best in class innovative solutions that deliver significant benefits to our customers. Builders. Our increased scale combined with substantial synergies will help drive EPS accretion and robust cash generation, We expect this housing environment to fuel profitable growth and value creation for all stakeholders for the years to come. Builders. Over the past several months, Dave and I have traveled to many regions of the country to meet with team members while adhering to our safety protocols.
Builders. We also held a socially distanced town hall in our Dallas office and shared the video with all our team members. The feedback has been very positive. Builders. We are seeing firsthand that our former standalone organizations share a passion for partnering together to serve our customers.
Builders. And now we share an excitement about our future opportunities as the new Builders FirstSource. Dave and Peter will discuss the merger, integration and specifics of the Holdings' quarter and full year performance shortly. However, I would like
to highlight the fact that legacy Builders FirstSource
achieved top and bottom line results for the full year 2020. Net sales were $8,600,000,000 and adjusted EBITDA was $700,000,000 Builders Pure Energy, up 18% and 36% from the prior year, respectively. Before I turn the call over to Dave, I would like to thank everyone Builders, who supported me during my more than 20 years at Builders FirstSource. When I joined BFS in 1999, it was of course much smaller having only made a few and Company's operations at that time. I couldn't have dreamed that this company would be where it is today, an industry leader, but more importantly, such a special place to work Builders.
To all our shareholders and analysts, thank you for supporting our team. Builders FirstSource. I've enjoyed the time with you and hearing your perspectives. Builders FirstSource is in a very strong position and it's the right time to pass the baton. Builders.
I have total confidence in Dave, Peter and the entire senior management team to lead this company into the next phase of growth Builders and Drive even stronger relationships with our valued customers. With that, I'd like to turn the call over to Dave.
Thank you, Chad, And good morning, everyone. This is truly a very exciting time for our combined company. And I want to start by thanking Chad for his dedication, guidance Builders and support during this transition. It's been a real pleasure working with you, Chad. Although you'll be around for a few more weeks, I wish you all the best as you enter retirement and embark on your next journey.
I will, however, keep your number handy. Builders. As Chad said, we continue to keep those affected by the COVID-nineteen pandemic in our thoughts. The safety of our team members, suppliers and customers Builders is our number one priority and we remain vigilant in this regard. As a combined company, we started the year with strong momentum, Builders.
I want to personally thank all of our team members for their hard work and relentless determination during this unprecedented year, which led to those outstanding results. Your Own. I'll cover 3 important topics on today's call that we believe will ensure that our already very strong performance continues well into the future. Builders. First, I'll provide an update on why we remain bullish on the macro backdrop in our industry and our even stronger position in the industry Builders.
Following the completion of our merger. 2nd, I'll share our new mission, vision and values, which are critical ingredients to our strong culture Builders and I'll unveil the updated strategy of our combined company. Finally, I'll bring you up to speed on our integration efforts Builders. The homebuilding market remains strong, resilient and growing. And an improved economic outlook for 2021 bodes well for our customers.
Builders. We are bullish on the pent up demand for housing amid what has been a long term shortage of housing supply. Builders. Our analysis suggests coming into 2020, the industry has under built since the last downturn by 2,000,000 to 2,500,000 units. In addition, the U.
S. Added roughly 950,000 households in 2020. We believe there continues to be a long runway underbuilt and demographically fueled growth in front of us. Improving housing starts, historically low mortgage rates and his shift towards single family suburban living are all positive trends that continue to support demand for our products and services. Builders.
Together, as a bigger, stronger competitor, we are well positioned to capture a greater share of the increased demand in the single family home market. Builders. As was the case with both legacy companies, we will remain disciplined in our pricing processes Builders. And we will strike the right balance between profitability and volume growth, especially considering this highly constrained supply environment. Builders.
We believe the strategic combination of our 2 great organizations is a transformational step forward for our teams, our customers and our suppliers. Together, we have more than $12,000,000,000 in revenues and in excess of $1,000,000,000 in adjusted EBITDA. Builders. Even with our combined size and scale, we estimate our share in core product categories is only about 10%, We will benefit from our leading network of 550 distribution and manufacturing locations that span 40 states. That network includes 46 of the top 5085 of the top 100 MSAs, Builders, covering most of the nation's fastest growing regions.
We have significantly enhanced our ability to service key high growth markets in our South, Builders Southeast and West regions, which represent over 3 quarters of U. S. Single family housing starts and approximately 80% of our current combined revenues. We will leverage the power of both companies operating systems to extend our competitive advantage in the market. Builders.
We expect our scale will yield continued productivity opportunities this year in addition to our deal synergies. Builders. We are still in the early innings of this important work in both legacy companies and we have meaningful opportunities to drive productivity and efficiency Builders across the combined company. For those who don't know me, I am relentless when it comes to ensuring the safety of our team members. Builders.
We have put many processes in place to protect our associates during the pandemic. And I'm also encouraged by the 12% reduction and we have more work ahead of us to accelerate our progress towards achieving that goal. For my second topic, Builders. I'd like to take a few minutes to talk with you about our updated mission, vision, values and strategy. A core team of leaders from both legacy companies work together to and Company.
Finalized the mission, vision, values and strategic pillars that will serve as our guidepost as we continue to grow our share of customers Builders and Specialty Building Materials Production and Distribution space. On Page 8 of the investor deck, Builders. You can see that our mission is to be the best supplier of building materials and services by having a people first culture that delivers exceptional customer service Builders and Innovative Solutions to help build more efficiently, while at the same time creating superior value for our stakeholders. Builders. Also shown on Page 8 is our vision, which is to make the dream of homeownership more achievable for everyone, making Builders FirstSource the most valuable partner Builders and the Industry.
And we rely on our values to guide our behaviors in achieving our mission and vision: Builders, a blend of ingredients to produce a better outcome. Next, I'm excited to introduce the combined company strategy, Builders, which consists of 4 key pillars. The first is to expand our market penetration by leveraging and growing our portfolio of value added products and Services 2nd, drive operational excellence to improve our profitability, invest in innovation Builders and provide outstanding service to our customers. Our third strategic priority is to cultivate, build and empower High Performing Culture. And the 4th, we will continue to pursue a disciplined approach to strategic acquisitions Builders and Company.
With many opportunities in our pipeline and one of the strongest balance sheets in our industry. Builders. The investor deck has a slide that highlights the details of our strategy on Page 9. Importantly, you should recognize that this strategic framework Builders. Is similar to one shared by both legacy companies over the past several years, which just underscores my confidence that executing it well Builders.
We will leverage our significant free cash flow generation to drive growth, while preserving a strong balance sheet, enhance our double digit return on invested capital Builders and Return Capital to Shareholders. We have brought together 2 very strong companies with complementary capabilities and cultures. Builders. As we look ahead, I have no doubt that together we will be able to accelerate profitable growth for our customer centric service model. Dir.
Finally, I'd like to briefly share with you how our important work on integration is proceeding. Builders. Back in September, we officially launched our Integration Management Office or IMO, a cross functional team comprised of strong leaders from both organizations ERP's company is responsible for developing detailed initiatives to integrate, optimize and transform the combined company once the merger was finalized. Your Own. Back in October, we launched an organizational survey for both companies to better understand any cultural related issues Builders.
That might affect our success as a combined company. Encouragingly, the survey showed that the cultures of the 2 companies are remarkably similar. Builders. This, along with the fact that most of our associates have been through the integration process before, has given us a high level of confidence Builders, that our integration plan will be implemented successfully and on schedule. On day 1 post close, Builders.
The teams came together to discuss growth opportunities and the many ways our combined company will create value from the merger. Your Own. As I said before and firmly believe at the heart of this merger is growth. Expanding our geographic reach in a highly fragmented industry, enhancing and growing our suite of value added offerings and our market position, pursuing strategic acquisitions Builders. Since we closed the transaction early last month, we have been seamlessly executing our plan.
The integration is on track Builders. And I feel even better today about our prospects for the future than I did in August when we announced the transaction. Builders. Over the next 3 years, I have complete confidence in our ability to deliver $130,000,000 to $150,000,000 Builders and Company. And we are on track to realize $60,000,000 to $70,000,000 of those cost synergies in our 2021 results.
Yours. Before I turn the call over to Peter, I would like to highlight one of our many valued team members. Beto Valdez, Builders, a Trust Production Manager at our Colorado Springs location. Beto joined the company out of high school. And 19 years later, he is a top operator and Builders.
Thanks to his leadership, Beto's location earned one of the highest efficiency ratings of any trust plant at our company last year. Builders. Neece, Jr. Neece, Jr. Neece:] Neece, Jr.
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He is also a leader in safety, taking great pains to ensure facilities are clean and that everyone is well versed in proper protocol. Your Own Offers. In large part due to his guidance, the Colorado Springs location has been accident free for nearly 10 months. Thank you, Beto, and the many incredible associates who have made the 1st several weeks of our integration so smooth, while continuing to maintain the superior quality of service Builders. It's an exciting time at Builders FirstSource.
Builder. As we execute our strategy and remain focused on serving our customers, growing our share, capturing synergies associated with our merger Builders and Driving Shareholder Value. With that, let me turn the call over to Peter to highlight our financial performance and our outlook for the year.
Thank you, Dave. Good morning, everyone. I would like to start by thanking our team for the incredible results and focused execution during this unprecedented time. Builders. I will cover 3 topics with you today.
First, I'll review BFS's stand alone 4th quarter results. Builders. Then I'll discuss free cash flow, provide you with an update on our upsized revolving credit facility and discuss our pro form a leverage. Builders. And finally, I'll give you the road map for how we see
the market and our outlook for
2021. Standalone Builders FirstSource
Builders had
$2,500,000,000 in net sales in the 4th quarter, a 43.5% increase compared to a year ago. Builders. Core organic sales increased by 15%, while commodity price inflation added 26.5% to net sales. Builders. Our latest acquisitions completed during the year contributed to a net sales growth of 2%.
Value added core organic sales IR Group grew by an estimated 10.8%, led by 16.9% growth in our manufactured products category Builders and 5.3% growth in our windows, doors and millwork category. We continue to experience accelerated and stronger than
and Construction. We expect the demand across the country throughout the Q4.
As a reminder, the 4th quarter is typically a slower part of the homebuilding season. Builders. Our gross profit of $669,200,000 was an increase of 40% year over year. Builder. Gross margin of 26.4%, while slightly better than expected, decreased 60 basis points compared to the prior year period, Builders.
SG and A as a percentage of net sales decreased 480 basis points to 18% Builders. Amid cost leverage on commodity price inflation, higher core organic sales and continued strong expense control, Builders, which more than offset higher variable costs related to the increase in net sales. Adjusted EBITDA grew $147,800,000 to a quarterly record of $257,100,000 an increase of 135%. Builders. Adjusted EBITDA margin improved to 10.2% of net sales compared to 6.2% Builders.
I'm extremely proud of our team for delivering these very strong results. Builders. Our continued focus on and efforts to improve our mix and carefully manage pricing levels supported our record gross Builders' profit, adjusted EBITDA and adjusted net income for the Q4. Let's turn to our cash flow. Builders.
For the full year, we generated operating cash flow of $260,000,000 while investing over 260,000,000 Building Facilities, among several growth initiatives as well as refreshing vehicles and equipment and investing in technology and automation Builders. On a pro form a basis, the combined company's operating cash flow Yours, was $468,000,000 less CapEx of $181,000,000 Last month, We amended and extended the maturity of our existing $900,000,000 revolving credit facility. The amendment increased Builders. Total commitments by $500,000,000 up to $1,400,000,000 in total, while extending the maturity Builders. The increase and extension of this facility provides us with an improved capital base that better represents Builders.
Earlier this month, we gave notice that on March 3, Builders. $82,500,000 of the 2027 notes will be redeemed at a redemption price equal to Builders. At the end of the 4th quarter, Builders. Our pro form a net debt was approximately 1.3x our LTM adjusted EBITDA. In addition, Builders.
We have no long term debt maturities due until 2027. Our strong standalone and combined results in 2020 Builders. Demonstrate positive momentum for the new Builders FirstSource and the broader homebuilding industry where demand continues to outstrip supply. Turning to our outlook, we continue to see robust underlying demand in the single family and remodeling sectors. Builders.
Our business momentum continued in January, reflecting another month of builders, double digit sales and organic growth as compared to prior year period on a pro form a basis. Builders. This is just the timing of a new start to our sales as evidenced by houses under construction growth of approximately 17%. Builders. We expect this dynamic to continue throughout 2021 until homebuilders work through their elevated backlogs.
Builders. As we see these backlogs providing a strong foundation for our business and the industry Builders
and Company.
We therefore expect net sales for the full year 2021 Builders to be in the range of $13,900,000,000 to $14,600,000,000 or an approximate 9% to 14% increase Builders. From our 2020 pro form a net sales of $12,800,000,000 We expect adjusted EBITDA to grow 20% to 25% Builders. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Inc.
Dollars $176 per 1,000 in the 4th quarter and hit 2 quarterly all time highs during 2020. Builders. Despite elevated levels in 2021, we do anticipate commodity prices to normalize in the back half of the year. Builders. As in the past, we remain highly confident that we will successfully manage through the inflationary and deflationary environments and will exceed the guidance Builders.
Our outlook is based on several assumptions, which are outlined in the earnings release, Builders. Including growth in single family starts across our geographies in the high single digits. While demand for single family starts remains extremely high, Builders. We believe actual starts will be constrained by material and labor availability. Multifamily starts declined in the low single digits Builders and R and R growth in the low single digits.
Our free cash flow is projected to be in the range Builders. Our significant cash generation Builders. Our capital allocation plan includes reinvesting in the business in both growth and maintenance capital expenditures. Remains very healthy, as evidenced by strong homebuyer demand and continued adoption of value added products. Expense Management, delivering deal driven cost synergies and ongoing operational excellence initiatives.
Builders. With our strong flexible balance sheet position, we have a significant opportunity ahead of us to continue to be a consolidator Builders' 1,000,000,000 addressable market. Overall, the new Builders' FirstSource entered 2021 on exceptionally strong footing, Builders, and we are excited to deliver another year of record results. So with that, operator, let's open the call to questions.
Builders. Builders. We'll take our first question from Mike Dahl with RBC Capital Markets. Please go ahead.
Good morning. Thanks. Chad, Dave, Peter, congrats Builders. To you guys and your whole team,
it's great to see that you come
to crew at just that we'll miss you, tremendous results. Going out on a high note. First question is really around Thinking through capital allocation, just given it sounds like the integration so far progressing smoothly, albeit early days, Builders. Between the combined balance sheet already having relatively low leverage and then the cash flow guide you're providing, Some of the slides in here in your commentary make it seem like, yes, there's obviously still a long runway Builders. And in some ways, maybe even more programmatic than Builders.
It has been in the past. So I guess I'm just thinking about how we should view kind of cadence of tuck in M and A while you're Builders. And then also given the excess cash flow, how you think about returning capital Builders and to shareholders.
Great question, Mike. This is Dave. We're excited about the balance sheet as you point out. Builders. And as you heard Peter say, we have a lot of opportunities to invest capital inside the company to support our growth.
I love a lot of things about the culture of the 2 companies. Builders. The Millwork business that we have combined with the trust and off-site component manufacturing, both companies were investing heavily in those. Builders. We will continue to do that, including automation of our facilities.
You'd heard me talk at BMC about that over time. Chad and Peter had also talked about that. So very good alignment around that. And as you think about just from a legacy BMC standpoint, 150 locations, which are now 550, I get excited about that. I get excited about things like ready frame penetration and the opportunity to take that across the country and three times the number of facilities that we have.
So a lot Builders. To your point around M and A, we've got one of the strongest balance sheet here inside the industry. Builders. And that wasn't by accident, as you know, from both legacy companies' perspective. And as you heard me say in my comments, I was excited as I am about our platform Builders.
We still have a relatively small share and this industry remains highly fragmented. As Peter said, we've got a strong M and A pipeline Builders. And we're 57 days into the integration, so we've got a lot of work ahead of us here. But you will see us continue to be an aggregator
Your Own. Okay. Thanks, Dave. And second question or kind of a 2 parter on the lumber environment. 1st, I guess I'm curious, your margin performance, the margin guide, it's very strong and clearly a number of things playing into that.
But builders. These builders are trying to work through,
has the relationship between
Builders. Higher margins than you'd normally expect just given the bottlenecks and kind of the urgency Builders from the customers to get product on the job sites. The second part is just a clarification when you talked about Normalization, I think there's a lot of different views on what normal may or may not be given what's transpired. So any sense of just when you say normal, is that true long term trend line price? Or how do you think
Builders. Yes, another great question, Mike.
Your Company. I'll flip to Peter here
in a minute, but let me
just say, as you've watched both legacy companies execute in what was a Builders. High inflationary environment in 2018 and then that deflation in 2019 and just unprecedented inflation and supply constraints in 2020. We're We've got a lot of expertise around that. And I have the utmost confidence that whatever the market brings our way in terms of the inflation and deflation that we're going to do a great job Builders. And I think because of those challenges in the market over the past couple of years, I think we've sharpened our toolkit Builders.
And we've got even better at doing that, which is what you see represented in the way we've executed on a margin basis here over the last couple
of years. You're exactly right, Dave. The work that we've been talking about over the past few years on pricing management and training within the organization. I think it was true in BMC, just like it was for BFS. It really has Builders.
Come into play as you've seen such dramatic increases in the price of commodities, right? Our ability to react has gotten better. Builders. Our disciplines around the management of that has gotten better. And I think you've seen that in the gross margin results.
I would also say that there's some truth to the idea that a move that dramatic Builders has forced everyone in the industry to take stock of pricing more aggressively, right? I mean, this isn't something you could ever hope Builders. So certainly a respect for the need to change pricing quickly, Builders. And we participated in that. And I think we did, as you mentioned, far better than usual as a combination of those two factors.
Builders. As for the long term estimate, you're right on. We did revert to a long term average. Builders. There's certainly a lot of debate about whether or not there's going to be a new normal.
I think that's fair. There are some legitimate questions out there. But Builders. At the end of the day, the game of prognosticating commodity prices is not one we really like Builders. We've proven an ability to make money on the way up.
We've proven an ability to make money on the way down. And for us, we think a modest Builders. Our normalization in the back half of the year is just a smart and prudent way to communicate the business. And we're just excited about the core. We think we've got a great Buildr.
Okay. Yes, fair enough. Makes sense and
Builders. We'll take our next question from Matthew Bouley Dirks with Barclays. Please go ahead.
Good morning. I'd like to offer my congratulations to everyone
And to Chad as well on retirement.
So I guess first question, I guess on the guide, the core organic outlook. It seems like based on all the pieces you've given, you're implying kind of mid single digit organic growth Builders. Within the 9% to 14% total. Peter, you mentioned completions and units under construction really ramping, I think you said Builders at 17%. And you even gave a little bit of view into 'twenty two just in terms of confidence of having some builder backlogs Driving that.
So I'm just trying to reconcile that versus the mid single digits. Builders. And is the expectation, I guess, cadence wise that the growth should be sort of flat or even down into the second half of the year? Thank you.
Your Own. Great question, Matt. I'll just say to Peter's comments earlier during the prepared remarks. Builders. There's been an increasing challenge here to go from starts to completion based on what's been going on in the supply chain.
You look at lumber, we just talked about lumber. Builders. OSB is as tight as it's ever been, even getting windows and doors and we've all talked about a lot of those challenges in the past and the result of that has been just extension Builders. Now having said that, we're projecting starts in the mid upper single digits. Builders.
We are going to capture absolutely as much of the core organic growth that can possibly be had here. We're well positioned for it. Builders. Our customers have large backlogs, which underscores the confidence that Peter outlined in terms of our performance throughout 2021 and even into 2022, Builders. Given the reality of where we are in the market, in many of these product categories, not improving from a capacity standpoint anytime soon.
So So we got a lot of confidence in our performance. As you've seen, you heard Peter talk about double digit core organic growth here to start 2021. Builders. And we're going to outperform the market regardless of what's going on.
And like you said, the comps do get more challenging in the back half Builders. I just want to reiterate our assumptions around both commodities and single family starts are Builders. Our attempt to give you a modest and reasonable, thoughtful look at what we think the market can do given the dynamics at play, Builders. If the market does better than that, we're going to do better. No hesitation in saying that.
We're just trying to give you what we think is a thoughtful view. Builders. We're certainly very bullish on the overall strength of demand. This is not a demand commentary. We think consumers are strong, trends are Builders.
We like what we're seeing and that's sort of the hint you saw for 2022. The inability to deliver on the products that demand is asking for Builders. Is really just an extension of the build cycle and we think that goes very well for us and for the industry.
Your Own.
Perfect. And I appreciate the assumption there around normalization in Commodity and even the market as well as potentially leaving some room for upside if things stay elevated. So that is helpful. Builders. I guess the second question is on value add and manufactured products in particular.
You talked about the really strong organic results there. Builders. It did accelerate after the past couple of quarters. And then Dave, you even just mentioned the expansion of Ready Frame Builders across the BLDR footprint. So I guess the question is just kind of linking those together.
What are you seeing in Manufactured Products today. And then now that you've hit the gas pedal on the integration, what are some of the things we should look for Builders in terms of expanding products nationally. Thank you.
Yes, great question. I'm excited about it. As you watch both legacy Companies performed here over the last couple of years. You saw continued penetration in leading the market down the value added Builders. And I think in large part driven by the needs of our customers.
They're continuing to look for ways to get more efficient and productive Builders. 6 to 9 months based on the strength of the market, some of the supply chain challenges. So these builders need to get Builders. We're pleased to have the offerings that we do. So we expect continued strong organic growth and penetration of the markets, Builders.
And especially in markets that haven't historically been a component market. We think the time is right now labor constraints are still very real. Builders. And I think we'll continue to fight those sort of challenges. And to your question around what to expect going forward, I think we've talked about Builders.
Our first priority here going forward is to invest in the strong growth opportunities that we have inside the company. And I'm not any more excited about any of that than on our value added offerings including Ready Frame. And so that's what I think you can expect going forward, which is a lot more of the same and the wherewithal to continue to accelerate that growth.
Dir. We'll take our next question from Ketan Mamtora with BMO Capital Markets.
Thank you. Congrats on a strong start. Maybe just coming back to Ready Frame, Is there a way to kind
of
and I'm not looking for exact numbers, but is there a way to kind of Builders. What kind of opportunity you have there to grow? And would that require any additional investments from your
Builders. Yes, great question. And I can talk Builders. About Ready Frame for a long time because in legacy BMC, we were continuing to invest in it and we're excited about the growth, Builders, which as we've talked about over the past couple of years have been from a house penetration standpoint in the double digit Builders. I would just tell you in legacy BMC in the Q4 that house penetration was nearly 20% Builders.
As we continue to grow strength and momentum and really exciting part about Ready Frame and that investment to your question is, it's a relatively minor investment. Builders. We're talking about SAWs and some computer aided design and capability, but it's a relatively minor investment to extend that across the markets. Builders. And there's a large part driven by the know how of our people, right, to not only design the homes Builders and put that in the Ready Frame model, but also how we deliver it to job sites and unload it in a way that's very effective for the framers, so they can do their work most Builders.
So minor investment as we extend it to new markets and we will continue to be aggressive at Doolnet.
Your Own.
Got it. That's helpful. And then maybe can you talk about sort of Any disruptions from some of the recent storms that we've had in Texas, how you are kind
of managing, given what has happened? Your
Own. Yes. No, that's a great question. It's been a difficult time, obviously, not just for us, for the whole state. Yours.
Probably around $40,000,000 in sales that were delayed as a result of those shutdowns. IR. We'll see how it plays out through the rest of the quarter for a company of our scale. Obviously, that's not material, but it's impactful to the folks in the state. So Builders.
We've done some work with our employees to make sure we're supporting them and those that were impacted, and we're continuing to bring all of our facilities back up. And candidly, they're running quite well now. As you can imagine, there's a lot of pent up demand. There was anyway in a very, very busy market and They're rolling hot right now. It's fun.
Got it. Understood. I'll turn it over. Good luck through 2021.
Do we think it's going to last through 2021?
Is that your question? Your Own.
All I said was good luck as we move through the year.
Good luck. I apologize.
Yes, thank you so much.
Your Own.
We'll take our next question from David Manthey with Baird. Please go ahead.
Hi. Good morning, everyone. So you're guiding to approximately $135,000,000 in total Quarterly depreciation and amortization. I assume that most of that resides in SG and A in your combined P and L. Is there a piece of that depreciation that resides in cost of goods sold, first off?
Your Own. There is a little bit, yes,
attributable to the manufacturing
facilities. And
That's a great question. I don't know if we've ever broken that out before. I don't have it handy on me. Okay. Builders.
Yes, maybe that's a good follow-up.
Okay. What I'm getting at here is I'm thinking about total SG and A Builders. With or without D and A as a fixed component of your operating expenses, could you remind us what percent of the combined company SG
Builders. Yes, I mean, we generally talk about
it as about 70% variable. So most of that cost moves with the increasing and decreasing volumes. IR. It's a bit less than that when we talk about the commodity influenced component of growth,
but certainly
the bulk of what we do is moved
Builders. Okay. And D and A would be a portion of that 30%?
Your Own Funds.
Yes. Yes. And as we finish the purchase accounting, we'll have some updates for you on Builders. Sort of what the dollars are going to be in those buckets, but as it stands, that's still a work in progress.
Okay. Thank you. Yes, we're just trying to work through the pro form a this year. And then in terms of working capital, is your goal still to remain in that 12% to 13% of sales range? And Here too, just to be clear, could you give us how you define working capital for that calculation?
Yes. So that 12% to 13% is not familiar to me. Maybe that was on the BMC side. The number we've used in the past is closer to 8% to 9%. Builders.
That's a number that includes receivables, inventory and payables Builders. Now obviously, that's gone down over time and will move as we look at the valuation of commodities in the
current numbers. But Just as a
rule of thumb, that 8% to 9% as an incremental percentage for VW sales is the right way to think about it.
Okay, got it. All right. Thank you very much guys. Good luck. Thank you.
We'll take our next question from Colin Veron with Jefferies. Please go ahead.
Good morning. Thanks for taking my questions.
So I just want to
start on the EBITDA margin expansion. The guidance implies about 100 basis points of EBITDA margin expansion. I was just hoping you can walk us through how this might show up on your P and L, gross profit or SG and A. And just given where LUNAR is now and the capturing Synergies. Can you just talk about the cadence of this improvement throughout the year?
Sure. Yes. So the Generally speaking, we talk about the fall through on our incremental sales in that 12% to 15% range. Obviously, you'll see certain movements that will go above or below that, but that's a good rule of thumb for how our business grows over time. So That fall through as you see the expansion both in the underlying volume and in the commodities throughout the year this year Builders will fall through and you'll see that gross margin then translate as we talk about the volume impact on SG and A Builders will translate down into that EBITDA number.
So to think about it more broadly, we like high prices. As a distributor, this is certainly a very good Builders. We have a very strong season for
us, if you will, in terms of
the prices we're seeing and the growth. The leverage of our business is quite strong, as you can imagine. So Builders. That's the reason that's driving that fall through to those very high numbers. We also do expect to see an increasing Builders.
Generation of synergies throughout the year as well as an increase in generation of productivity savings and improvements throughout the year. Builders. I don't know if I would say it's a straight line increase, but for the purposes of this discussion, that's a reasonable way to look at it.
Your Own.
Okay, great. Thank you. And just on the lumber prices being at all time highs, there's been a lot of headlines just about the impact on home prices and the ability of buyers to get appraisals. It doesn't seem to have an impact in the near term, but have you heard from any of your customers that things could slow down as we start to look at like Builders. 6 months to a year if lumber prices don't normalize?
Or do they just think that the low interest rates and the underlying fundamentals in the industry from a demographic standpoint Builders can really sustain this even in this high lumber price environment.
Yes. I think it's far more the latter. The demand is Builders. So strong. The problem is our ability to build the homes that people want as an industry.
So while there could be on the edges Builders. Some headwinds, framing really isn't anywhere near an important part as important part of the cost of the home as many other factors. Builders. Sure. There is a component there.
We're seeing inflation in a couple of other areas that in the long term may Yours. Some of the constraints in the industry that will normalize that as well, which I think will then feed back into a stronger
Builders. Thank you.
We'll take our next question from Keith Hughes with Truist. Please go ahead.
Dirge. Yes. Well, I mean, like I mentioned, it's still a work in progress, but a pretty substantial step up on the purchase Accounting, as you can imagine, right? That will burn off over a few years. But as it relates to the valuations that we'll do as part of that purchase accounting, we'll see a pretty substantial step up.
Your
Okay. And the this was sort of out earlier, but I just wanted to bear down a little bit more. With the EBITDA expansion you have versus the pro form a numbers projected here for 'twenty one, do you expect to see EBITDA margins
Your Business. Yes. You know what, that's
a fair question. We do anticipate seeing increasingly difficult comparisons as you get through the Builders. You're looking at the beginning of the year last year, pretty modest numbers across the board and by the end of the year, looking at record commodities, record Builders. A lot of records in there, which they're pretty fun, I could admit. But yes, the comps will get harder in the back half of the year.
The real question is what happens with commodities and starts. There's the numbers that we've got laid out here would indicate some tough costs, but Builders. If things stay elevated, it will stay good. But overall, the year looks great. Builders.
A lot of confidence in both the overall industry and our performance.
Okay. And final thing, thank you for all the pro form a numbers historically both
Builders.
We'll take our next question from Trey Grooms with Stephens. Please go ahead.
Hey, good morning, everyone, and congrats to everybody on getting the deal done and Chad on your retirement and Builders. Best of luck to you. So on the first question that I have is, I know your Builders' guidance hasn't included historically hasn't included any sales synergies Builders, between the two companies. But like the rollout of Ready Frame Builders FirstSource branches, examples like that. Where do you see potential opportunity for some benefits Builders to
the top line,
sales synergies or whatever you want to call them, where you can benefit Irrigues, if you could just maybe update us on where you think there might be some low hanging fruit.
Yes. Thanks, Keith. And Direct. As I mentioned, we've got 9 work streams on our transaction here focused on integration. Builders.
And one of those is growth, as you might expect. And we talked about Ready Frame, but we're seeing a lot of opportunities. Builders. And as we talked about when we announced the deal, one of the exciting parts about the deal is the fact that we will have a broader Builders. And even in the local markets where we're individually very strong, one of the other legacy companies might have been stronger in millwork versus components.
Builders. And as we brought this thing together, we're very excited about having that full breadth of offering across the footprint. So we're seeing a lot of opportunities like that Builders. In terms of growth potential across our value added segments, there are several others. But it's early days.
The team is working hard on it and we're very excited about it.
Okay. Thanks, Dave. And then Yours. Last one for me is, there's you mentioned earlier in the comments that there could be Some inflation in some other areas. And of course, there's tightness in a lot of the different products out there outside of lumber.
Builders. And a lot of manufacturers of these products are out with price increases from wallboard to Builders and Roofing and Insulation. How are you guys looking at the inflation outside of lumber for this year Builders. Relative to what we've seen in the last couple, do you expect that to accelerate? Just what are you baking in there?
Yes, we do. There's certainly been enough increases across the board from different vendors that Builders. I think to think otherwise would be misinformed. There are a lot of reasons for it. Some of it is inputs, Builders.
Some of it is cost of doing business. The other is, I think, just the recognition that we're chasing a nice Builders. And capacity in the market is struggling to keep up, so people are trying to balance that price capacity, that price volume metric. Builders. But it's certainly something that we, I won't say, are happy about.
It's part of what we do. We Builders. Well in markets with strong pricing. So we are participating in that. We're making sure we stay disciplined about it, Builders.
Communicating with our vendors where we think it's maybe out of line, but for the most part trying to be supportive to make sure we have an industry
Builders. All
right, cool. Thanks. And then last one, sorry, I said last one earlier, but I actually do want to sneak one more Builders. And you've got a range here with your EBITDA range with the margins there. How would that look?
This commodity has surprised everybody. I say, well, maybe not everybody, but most folks, the way that it's resilient and stayed up Builders. As high as it has through the winter and it has accelerated. So if we don't see if the commodity doesn't normalize in the back half, Builders. How does that change your outlook?
Trey, good and important question. Let me start and then I'll flip it over Builders. But I think for a number of reasons, I think the lumber questions here are starting to become less and less important, Builders. Especially in our combined company. First of all, as we've talked about, we're both expert in managing through this cycle.
And as you heard us say earlier, Builders. We're real confident in our ability to do that regardless of what the market throws at us. And a lot of things that we talked about that we're excited about here Builders. Having the largest footprint in our industry here, broadest portfolio of products, the geographical reach with 550 locations, 85 of the top and MSAs. And importantly, as you look at our millwork and components business, that's more than $5,000,000,000 of the combined company revenues right now.
Builders. And they're the fastest growing in the company. So leads back to our strategy, growing those value added components Builders. We want to be an important part of how we grow the company and how we continue to improve profitability. Not that lumber won't be an important part of what we do and it always will be, But it's going to have less and less of an impact on what we do over time, right?
And so I just want to get everybody's head calibrated. That's one of the most exciting parts Builders. About this merger. And I would just say, we've got to stop thinking about what we're building here as a lumber Some areas that are non commodity related. So Peter, go ahead.
Yes. No, great point. And we do pretty well at Lumber 2, Which is I think the right way to think about it, right? Maybe not be the core of where we're headed, but we do well at it. And the short answer on to your question, Builders.
Trey, you're right on. It is going to be a really nice tailwind if it stays high based on the guide that you were given because the math will show, right? You got 1st half growth, second half headwind. If you look at just the math of the commodities and you take away the second half headwind, it's Builders. We'll look forward to enjoying that business if you're right.
Thanks a lot guys. I appreciate the color. Good luck.
Builders.
We'll take our next question from Reuben Garner with Benchmark Company. Please go ahead.
Your Business.
Thank you. Good morning, everybody, and congrats on the quarter and good luck. Enjoy your retirement, Chad. Most of my questions have been answered. I guess just one kind of more macro level picture.
In the past, BMC Builders. Has been one to highlight the kind of falling footprint Builders. And the size of homes that are being built, whether it was because of new entry homes or just smaller homes in general. And I think there have been some signs that, that might be reversing. Are you guys Builders.
Seeing anything there? What's kind of baked in your guidance? I missed it. Apologies, but any color you could give on that, that would be great.
Yours. Yes, we can tag team this. I think as you point out there, Ruben, I mean the average square foot of the home has continued to fall and I think that's Accelerated over the past couple of years just based on the entry level or first time step up buyers. I think we're somewhere around 2,300 square feet at this point Builders. But as you've heard me say in Legacy GMC, I don't really get concerned about the size of the home as long as it continues to fuel growth, Builders.
Right, in the industry. And I haven't met a start I don't like yet at this point. So as long as that holds up and continues to fuel growth, Builders. We're going to continue to penetrate with our value added offerings.
Yes. And I think what you might be alluding to is Builders. The rumor and the rumblings that people are that might turn, right? We're seeing folks that are more committed to the homes that they're Builders. So they like it a little bit bigger.
They want that office where they can close the door, for example. So there's, I think reason to believe that we may see the end of that shrinking of the home. I'm seeing it no data yet, but I think it's reasonable to think that's a real Builders. And I'll just sort of take away one of the little headwinds we were seeing in the industry and be a stabilizing factor. Builders.
Today's point though, we could still see an average decline just because I think the growth of the single family starter home has been so strong, which is great for us,
Buildr. Perfect. And then actually I might sneak one more in. The cash flow that you're generating Maybe emphasize what if you're not able to get enough deals done, I guess, as a use of cash, Builders. What you might do with the excess as we move forward?
Do you continue to build a fortress? Or do you think you'll get more aggressive in other ways to Either return cash to shareholders or invest in the business.
Yes. We've got Your Capital Markets.
Really nice position
like you said. Our debt as a leverage ratio base metric is quite low. We feel very good about the Builders. The strength of our balance sheet, we tend to maintain that as a priority. Moving into the investment opportunities, Dave alluded to it, and I think we all feel good about As we get to the cash generation point in our year, we'll have gotten through a lot of the Builders.
Initial stress of the integration and be in a stronger position to really be aggressive on some of those M and A opportunities that are out there. We really like Your portfolio and think we have a lot of runway in front of us to consolidate the industry. And the short answer, if for whatever reason all those things don't use up the cash, Sure. The options are open, right? You've seen both companies buy back shares in the past and we'll look at it.
But right now, we feel like we've got
Your Company.
We'll take our next question from Jay McManus with Wedbush. Please go ahead.
Hey, good morning, everyone. Chad, all the best. Enjoy your retirement.
Thank you, sir.
Peter, on the yes, you bet. Peter, on the lumber guidance, I'm just wondering, are you guys thinking that revenues, total revenues first half may actually be a little Builders. Higher this year than revenues in the second half if lumber prices start to fall back down. And then also, are you hearing or seeing Builders. Capacity increases or I guess capacity utilization getting better at your suppliers
Your Own.
Yes, I don't think that commodity is strong enough to skew sales from second half to first half. I think second Historically stronger, so I think we should continue to see that. And I mean the answer on the commodity capacity question, it's a good one. I mean I'm of two minds, right? On one hand, some capacity coming online, doesn't appear to be enough to pull the rug out from under it.
But The counter to that argument of sort of bullishness on prices is that historically, this is not an industry that's held price, just isn't. Your Company. So I don't know that I want to be the guy to put my foot down and say, yes, this time it's different. I haven't seen any evidence to prove that. So we're going to continue to put that sort of modest Builders.
Sort of reasonable number out there and if it's better then it will be good.
Got it. And then the other question I had, Builders. Very strong results in multifamily in the 4th quarter, but then you're calling for multifamily to be down in 2021. Builders. Is what we saw this quarter just kind of finishing out some of those larger projects that were started mid-twenty 19 and that project activity is going to flow from here?
Your Business. Yes. I mean, in context, multifamily is about 6% of our business. So Builders. It's pretty specifically focused on certain geographies and certain projects.
There is a bit of exactly what you described, projects that sort of Builders. Our concluding and the pipeline, while still good, looks to be maybe not as much of a positive Builders. Contributor as it was last year where the team really sort of did a really nice job of expanding the business and leveraging some of our capacity. Builders. That gets a little harder in this environment.
I think we've all seen multifamily struggle a bit. We feel good about the business. We think there's still growth opportunity there, but Builders. Just sort of line of sight thinking it's going to moderate a bit.
Got it. Thanks for taking my questions.
Your Own. Thank you.
We'll go next to Alex Rygiel with B. Riley. Please go ahead.
Your Own.
Thank you. Real quick question. As it relates to your free cash flow forecast, which is fantastic, how should we think about working capital changes I guess the question here is how much could that free cash flow forecast vary depending on
Yes, you nailed it. That's a great question. The short answer is Builders. Our business being distribution based is going to generate a tremendous amount of cash as sales decline, and that includes the value of commodities and any So certainly do expect given our stated belief or stated forecast rather Unfortunately, it's a little bit hard to put your finger on it. But to put it in context, we talked about the increase Builders.
Working capital usage in 2020 being about $260,000,000 in our prepared remarks. So Builders. Just to kind of put it in context that that's directionally the types of numbers you'd expect to see when extrapolating that
Builders. Great. Thank you. Your Own. Thank you.
We'll take our next question from Kurt Yinger with D. A. Davidson. Please go ahead.
Great. Thank you, and good morning, everyone. Just one quick one on the capital spending side. Could Builders. Can you talk about any kind of notable projects you have slated for 2021 here?
And as you think about your capacity at present, particularly on the manufactured the product side. How do you feel about your ability to supply increasing levels of demand as the market grows and perhaps those products continue to gain adoption?
Earnings. Yes. I think you've been peeking into my ops reviews. So that's a good one. We've got Obviously,
a lot of facilities around
the country right now that are focused on meeting the increased demand. Couple of factors there, obviously hiring Builders. Making sure we're running all the ships we can, utilizing equipment fully. And in markets where even that's not enough, making sure we're bringing in the increased capacity on the equipment side that we need. So, we talked a little bit earlier about the ability and the willingness Builders.
The desire to invest in organic growth for the company, that's the sort of tip of the spear, right? It's, how do you react to make sure you've got the right Builders. Trust equipment, door machines, saws, computer equipment to be able to chase that expanding use of value add, Builders. While continuing to invest in the trucks and the core operations that we need, but you're absolutely right. We're focused on making sure we're Builders.
It's a high quality challenge, right? A high quality problem.
All right. Thanks for the color, Peter. Good luck here in Q1, guys.
Builders. We'll
take our next question from Steven Ramsey with Thompson Research Group. Please go ahead.
Builders. Hey, good morning, everyone. A quick question on the margin guide, maybe I'm misunderstanding. It looks like the high end implies Margins not stepping up with increased sales, if we're matching the
Your Own. I don't know if I can point to a specific driver. I think you might be just Builders. We're seeing the impact of multiple variables in the high and low end of the range. Commodity is absolutely part of it as is the Builders.
And then one other thing, I don't know that I have a hard answer for you.
Your Own. Okay, great. And then one other thing, not trying to get into specific guidance, but just qualitatively, Builders. Starts time extending between starts to completion, is this factored into revenue generation Builders. For 2021, but maybe help support demand out into 2022 if this dynamic continues through the year?
Your
That's right. Yes, we generally tell everyone that the best proxy for our long term growth is that single family starts Builders. And it's true. The challenge is with an extension of that build cycle, you start to get a little bit of wiggle, right? It doesn't look as clean and it's a little harder to draw the Builders.
So we just wanted to point that out to everybody to say it's still the right number, but it will extend the time that we'll be able to enjoy the upside Builders. If that expansion of homes under construction continues out for a while, we actually think that's going to happen. So, 2021 into 2022 And then as things, as we expect, continue to be strong, that gives us a nice runway. So, yes, you're right.
Builders. Excellent. Thanks.
Our final question is from Ryan Gilbert with BTIG. Please go ahead.
Your Own. Hi, thanks.
Good morning, guys. First question, Dave, I really appreciate your comments earlier about over time lumber being Builders. Less important component of BFS' story as the value add piece of the business grows. But for the I think for the time being, it's still a relatively Builders. So my first question is on lumber and just given the strength of demand that we've seen from homebuilders, Builders.
As you're writing fixed price contracts with the builders, are you noticing the length of time that you're fixing lumber prices Arlington in the Q4 and so far in 2021.
So one of the things that has been Builders. A discussion in those fixed price contracts and the appropriateness of them in light of the market and market dynamics. Builders. Our observation is those appear to be falling as a percentage of the total, just given the way the market has evolved over the years. Builders.
There's certainly something that, as you can imagine, we manage very closely to make sure people are living up to their commitments. We live up to ours as A partner in this industry, we've got the financial wherewithal to do what is right no matter what, but also making sure that both sides are living up to it. Builders. So that's something we're careful with. But more broadly, it's about the relationship with the customer and working with them in a way that's Builders.
Obviously, good for the end customer and mutually beneficial and watching the evolution of the industry, it appears that that is something that is
Your Business. Okay, got it.
And second question is just digging into sales synergies Builders. I guess one dynamic that I've noticed in the field is that a builder would buy like a combined company. Have you seen an ability or are you able to take advantage of? Are you going after, I guess, IT for the combined company.
Well, as you rightfully point out, I mean, it's early days, right? But as we talked about that growth work stream earlier, Builders. We're excited about it. We see nothing as a deterrent in that. We've not had pushback.
And in fact, our customers are equally excited Builders. About our combined offering in a lot of these markets. And so time will play out, but we're excited to see no roadblocks and we think the future is very bright to
Builders. Okay,
great. Thanks so much for the time.
Your Own. Thank you.
Ladies and gentlemen, this concludes today's question and answer session. At this time, I'd like to turn the conference back to Chad Crow for any additional or closing remarks.
Thank you. We appreciate everyone joining the call today and for the continued support of our company. Builders. I'm personally looking forward to watching what this new management team and all of our incredible team members will accomplish in the years ahead. Builders.
As you heard throughout the call today, there is a lot of excitement around the future of our company. Builders. I certainly share that excitement and truly believe BFS is in the strongest position it has ever been. I am proud to have been a part of this amazing journey over the past 2 decades.
Your Own
Offers. Ladies and gentlemen, this concludes today's conference. We appreciate your participation