Builders FirstSource, Inc. Q1 FY2026 Earnings Call

Good day, and welcome to the Builders FirstSource First Quarter 2026 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 FirstSource. Please go ahead.

Good morning, and welcome to our first quarter 2026 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 presentations. 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 our forward-looking statements and projections. With that, I'll turn the call over to Peter.

Thank you, Heather, and good morning, everyone. Our first quarter results reflect the adaptability of our operating model as we delivered strong strategic share growth in a weak housing market. Across the organization, we remain focused on the factors within our control, including serving our customers, expanding our differentiated portfolio of value-added solutions and leveraging technology to accelerate growth and drive operational excellence. This disciplined approach continues to strengthen our leading position as a trusted full-service partner to homebuilders. By continuing to invest in innovation and the capabilities that matter most to our customers, we are reinforcing our role as the leading building materials provider and extending our competitive advantages. Our strategy enables us to outperform as the market normalizes and to deliver sustainable long-term value for our shareholders. Let's turn now to Slide 4. Our first quarter results highlighted our agility despite the challenging housing market and seasonally lower time of the year for the industry. We landed at the upper end of the expected Q1 range for sales and EBITDA even if the macro was worse than we expected. We continue to lean on our exceptional team, leading value-added solutions and robust operating model to drive performance. Let me take a moment to share some perspective on the market. The housing market remains weak as affordability challenges and muted consumer confidence continue to weigh on demand. In recent months, geopolitical tensions have added to market volatility by contributing to higher interest rates and additional inflationary pressure. The surprise of the Middle East conflict and the uncertainty around implications for both affordability and consumer confidence have undermined the spring selling season. While we are managing what's in our control, these conditions have created sales and cost headwinds that we don't expect to fully offset this year. Sales improved in the first quarter, in line with expectations and daily sales continued to build in April. However, sentiment is clearly weaker. As people discuss, our revised full year guidance reflects these dynamics. Despite ongoing macro challenges, we remain committed to advancing our strategy, including a sustained focus on share growth, continuous improvement and capital allocation. We cannot control the market, but advancing our initiatives will enable us to realize share gains, improve the way we operate and position us to accelerate growth with any level of recovery. We expect to capture single-family share growth by delivering outstanding customer service, bundling our broad product portfolio to drive affordability and leveraging cutting-edge technology. Multifamily quoting activity remains active, but the uptick in interest rates has deferred certain projects. Given the current project pipeline, we don't anticipate a meaningful improvement in our multifamily results until next year. In response to the current market weakness, we are prudently managing spending and maximizing operational flexibility as outlined on Slide 5. We remain operationally disciplined and have taken actions to reduce costs in line with demand while preserving our ability to partner with our customers and invest in innovation and technology. So far in 2026, we have consolidated 21 facilities following the consolidation of 55 total facilities over the prior 2 years, all while maintaining an on-time and in-full rate greater than 90%. Supported by our industry-leading scale, experienced leadership team and proven ability to operate proactively through the cycle, we are confident in our ability to make the necessary adjustments and continue to deliver exceptional customer service. On Slide 6, we highlight some of the key initiatives under our strategic pillars. Our capital deployment is strengthening our competitive position and driving long-term value creation. Since the inception of the buyback program in August of 2021, we have repurchased nearly 50% of our total shares outstanding. Operational excellence is crucial to how we run the business. As we develop talent, improve agility and increasingly embed technology into our operations, we generated $6 million in productivity savings in Q1, primarily through targeted supply chain and logistics initiatives. Moving to Slide 7. Our prudent capital allocation strategy focuses on maximizing shareholder returns. In Q1, we deployed $360 million towards return-enhancing opportunities aligned with our priorities. Our consistent strong free cash flow through the cycle gives us the flexibility to invest in organic growth, pursue strategic M&A and return capital to shareholders. Drilling down into M&A on Slide 8. We remain focused on pursuing acquisitions that expand our value-added product offerings and advance our leadership position in desirable geographies. We have developed substantial and proven muscle memory to grow through M&A and have a track record of successful integration and synergy capture. As a reminder, we acquired premium building components in January, marking our company's first truss and wall panel operations in York. Since the P&C merger in 2021, we have made 41 acquisitions representing over $2.3 billion in annual sales, the equivalent of a top 6 LBM player, demonstrating our ability to execute and integrate seamlessly. With the industry still fragmented, we see significant opportunities ahead and are confident that inorganic investments will remain an important driver of long-term growth. Turning to Slide 9. We continue to differentiate by digitally enabling our team members, strengthening customer relationships and advancing value-added product development to support long-term growth. Our investments in automation, AI and digital integrations are focused on simplifying and accelerating the building process for our customers. In Q1, our digital platform processed nearly $800 million of quotes as we continue to automate key steps of the process. Later this year, we will roll out the next generation of digital solutions, deploying emerging technologies to support builders across key stages of the homebuilding journey. The platform will include four integrated hubs: community, plan, selections and construction, all accessible through mybldr.com with embedded AI capabilities, providing actionable insights through a single unified platform. Builders will have access to connected tools and real-time data to coordinate the build, reduce waste and sell homes faster. Digital is central to how we operate today, particularly with our sales organization, where these tools create opportunities to capture share, expand product adoption and deepen customer relationships. Recognizing one of our outstanding team members each quarter is one of my favorite parts of our earnings call. Today, I'm proud to highlight members of our Middletown, New York millwork team: Sam Lane, Dan Livingston, Anthony Legmen and Eddie Walsh, who are recognized by the New York State Police for their compassion and willingness to help a community member in need during dangerously cold winter weather. Earlier this year, first responders contacted Sam and his team after identifying a local resident whose front door was severely damaged and no longer provided adequate protection from the cold. The officers were seeking to purchase a replacement or to help ensure the individual's safety. When our team learned of the situation and the resident's need, they stepped in immediately, producing a brand-new prehung door at no cost and assisting with the installation. I'm truly grateful to our Middletown millwork team for living our BFS purpose every day to build a better future for those we serve. 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 performance reflects disciplined execution in a weak housing market. We remain focused on managing our operations and working capital while advancing key growth initiatives to drive long-term success. Turning to our first quarter results on Slides 10 through 12. Net sales decreased 10% to $3.3 billion, driven by lower organic sales and commodity deflation, partially offset by growth from acquisitions. The core organic sales decrease was driven by an 11% decline in single-family reflecting lower starts activity and reduced value per start and a 1% decline in both multifamily and repair and remodel, consistent with our expectations given muted activity levels and consumer uncertainty. As we've noted on recent calls, several factors reconciled single-family starts to our organic sales. First, there is an approximate 3-month lag between the start and our first sale. Second, average home value has declined as homes have become smaller and less complex, creating a sales headwind; we believe a comparable start has declined in value by 10% on average since 2019. Third, housing affordability constraints continue to pressure margins across the supply chain. Against this backdrop, we believe we grew share in the first quarter, reflecting our market-leading offerings and continued role as a trusted partner. For the first quarter, gross profit was $0.9 billion, a decrease of 17% compared to the prior year period. Gross margin was 28.3%, down 220 basis points, primarily driven by a declining start environment. Adjusted SG&A of $740 million decreased $31 million, primarily due to lower variable compensation amid lower sales and lower headcount, partially offset by acquired operations. As we touched on in February, we linked further into our downturn playbook with $100 million of cost actions, which includes $75 million in year-over-year cost reductions and $25 million in cost avoidance. These actions include deeper cuts to overtime and temporary labor, adjustments to incentive compensation plans, reduced merit and overhead spend, additional facility consolidations and tighter controls on discretionary spending. To date, all actions are complete or meaningfully underway. We realized $13 million in the first quarter and are on track to achieve our cost reductions this year. This positions us to leverage our costs as the market improves. Adjusted EBITDA was $214 million, down 42%, primarily driven by lower gross profit. Adjusted EBITDA margin was 6.5%, down 360 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage. Adjusted EPS was $0.27, a decrease of 82% compared to the prior year. Now let's turn to the cash flow, balance sheet and liquidity on Slide 13. Our first quarter operating cash flow was $87 million, down $45 million primarily due to lower net income. For the quarter, we delivered $43 million of free cash flow, underscoring the strength and consistency of our cash generation profile. Our trailing 12 months free cash flow yield was approximately 10%. Operating cash flow return on invested capital was 13%. Our net debt to adjusted EBITDA ratio was approximately 3.2x; while higher than our long-term target, we are confident in the strength of our balance sheet with strong liquidity of $1.5 billion. We remain comfortable with our net debt levels and we'll continue to execute our capital allocation priorities with discipline to maximize long-term value creation. Moving to the first quarter capital deployment. Capital expenditures were $45 million. We deployed $12 million on acquisitions, and we repurchased 3.3 million shares for $303 million. Earlier today, we announced that our Board of Directors authorized $500 million in share repurchase inclusive of the $200 million remaining under our April 2025 authorization. On Slides 14 and 15, we outlined our latest 2026 outlook and assumptions, which reflect continued weakness in housing starts, ongoing affordability pressure and a more cautious consumer. Compared to 2025, single-family and multifamily starts are expected to be down 2.5% and repair and remodel down 1%. As a result, we are guiding net sales in the range of $14.6 billion to $15.6 billion, adjusted EBITDA of $1.1 billion to $1.5 billion and adjusted EBITDA margin of 7.5% to 9.6%. We expect our 2026 full year gross margin to be in the range of 27.5% to 29%. Reflecting the below-normal starts environment, we expect free cash flow of approximately $400 million to $500 million. The year-over-year change is driven primarily by a $180 million swing in working capital and lower EBITDA. In 2025, we benefited from a working capital release driven by the lower sales environment exiting the year. In 2026, we anticipate the second half to be stronger, which requires investment in working capital. Our guidance assumes average commodity prices in the range of $390 to $410 per thousand board foot in line with the long-term average of $400. Despite continued end market softness, commodity prices have pushed higher since mid-December, driven by rising input costs. For Q2, we expect net sales to be between $3.75 billion and $4.05 billion and adjusted EBITDA to be between $300 million and $350 million. The shape of the full year implies a heavier second half contribution as we lap the starts decline due to the rapid deceleration of starts to reduce new home inventory levels. In closing, we are closely monitoring the current environment and remaining agile to mitigate downside risk in the near term while also investing strategically for the future. Supported by a fortress balance sheet and strong free cash flow through the cycle, we continue to manage capital with rigor, drive for organic growth and productivity savings and pursue M&A. We remain well situated to compound value through our strategic initiatives. With that, I'll turn the call back over to Peter for some final thoughts.

Thanks, Pete. We are the nation's largest supplier of building materials to homebuilders in new residential construction, combining unmatched scale with deep national execution across every major housing market we serve. We are #1 in manufactured components, windows, doors and millwork, providing significant value to builders. Our footprint, digital platform and install capabilities create an unparalleled structural advantage. With our experienced cycle-tested team, we expect to deliver solid results in the near term and significant upside when the market recovers. Thank you again for joining us today. Operator, let's please open the call now for questions.

(Operator Instructions) And we'll go first to John Lovallo with UBS.

Despite the headwinds that you've articulated in housing so far this year, I mean, we would argue that the spring selling season has probably been a little bit better than feared and better year-over-year with most builders posting year-over-year order growth. I mean, I do recognize there's a 3-month lag for you guys from when you start getting activity. But is this kind of better-than-expected spring part of the driver of the second half step-up that you're expecting? Along with just the easier comps?

John, yes, so thanks for the question. We absolutely did see a nice build at the beginning of the year. There were a number of different conversations we were having about the positive momentum, both on the public and the private side. It's important to remember that we generally see the headlines for the public builders, but they're significant, but not universal coverage of the industry. That momentum at the beginning of the year, I think, has been good. It's just not able to withstand negative headwinds around uncertainty. That's what we called out here. I still think we'll see a good year. I just think it will be a little bit weaker than what we anticipated and that has led to pressures throughout the business, whether it be on the inflation side or just the competitive dynamics side.

Makes sense. And then maybe just digging a little bit deeper. The outlook implies a pretty nice improvement in margin in the second half at the midpoint, I think a 2026 adjusted EBITDA margin of 9.6% is about 200 basis points higher than the first half. What are you kind of expecting to be the big drivers of this improvement?

Yes. Thanks for the question. So it's really driven by the leverage that we gain out of the summer selling seasons, with the strength in our sales flowing through and some of it's related to the sequential performance and management of our cost structure. We outlined our productivity was $6 million in the first quarter. We're still targeting our $50 million to $70 million for the full year, as well as the cost actions that we've outlined. So the $100 million of cost actions are well underway. We've completed most actions. Now it's just realizing those benefits as we move forward, which should help accelerate some of that leverage we would see in the back half of the year.

Our next question comes from Charles Perron-Piché with Goldman Sachs.

First, I just want to drill more into the gross margin guidance embedded for the balance of 2026. I think you mentioned last quarter, Q1 would be the low point for the year. But obviously, it sits on the midpoint of the revised range. So how does it inform your expectations for the balance of the year? And what drives your expectations for the high end versus the low end of that range?

So what we had signaled last earnings call is Q1 would be the low watermark as we were anticipating a stronger build in the selling season as Peter had mentioned, with the uncertainty as well as the increase in input costs, specifically around fuel, a lot of that inbound is still unknown that we're anticipating from our supply partners. It's not a nominal amount of impact and it will have on the cost. We've left the margin range fairly wide. We look to navigate what that looks like as we move forward. At the same time, we do expect to pass through where a distributor passed through those cost increases, but some of it is timing related. And as we work through that, it's probably going to have a muted impact on our margins. So we had signaled a build in margins as we go through the year and we leverage our fixed costs and cost of goods sold. That's still the case. We still anticipate that, but maybe not to the same degree, given the sales volume expectations.

Got it. Okay. That's helpful color. And considering the challenging housing backdrop and the profitability outlook you've highlighted, I would imagine some of your competitors are struggling significantly at these levels. How are you seeing some of them behave in this market environment? Are you seeing some smaller players exiting capacity?

Yes, it's a great question, Charles. The answer is, yes, there's a ton of pressure. And there are smaller players that are certainly struggling. There are players that have closed down a lot of facilities. We've obviously talked about it publicly, but they're doing it privately. We've seen that in the market. We've seen a lot of turnover. People are making significant headcount reductions, talent coming on to the market in some instances, and we've seen aggressive behavior, certainly, a mix, as you might expect. The bell curve of performers in this market is what we see in terms of reactions. Some people are trying to pursue product categories perhaps that they haven't before — new entrants and new competition in certain buckets. We've seen irrational behavior where people will throw numbers out and then not be able to fulfill and have to back off. And so churn in the market. And just in general, a lot of very aggressive behavior. So people alluded to it. I think sometimes it's hard to relate to what people are seeing in the market, but volume levels or starts that would be comparable to 2019, the content of the house is even smaller by another 10%. So we're certainly seeing a market that's at substantially lower levels of volume running through it even after having an additional five years of capacity adds and things going on. So the market is absolutely adapting. Capacity is coming out — some of the weaker players are really struggling. We're hearing rumors of not being able to pay bills and delays and layoffs, but we'll see how it pans out. We're still strong in this. We're still able to, I think, take advantage. We alluded to that a little bit, we're sort of leaning in a little bit this quarter, harder than we have and taking advantage of some of those opportunities. It's not easy right now, but I'm absolutely proud of this team for what we've been able to do. We're still strong in this market, even though it's not easy.

Got it. Peter, and good luck with the quarter.

Our next question comes from Rafe Jadrosich with Bank of America.

I just wanted to start on the share repurchase in the quarter. You are above the sort of target, the long-term target leverage range, but you bought back $300 million. Can you just talk about that decision and strategy going forward?

Sure. When we talk about our capital deployment strategy, it's very consistent with what we've seen. I would say the way I would frame that is, first, making sure that our balance sheet and our debt is rock solid. We have plenty of liquidity. Second, that we're investing in the core of the business, continuing to make sure we have what we need from a capital investment perspective. Third, looking at the M&A environment, the inorganic opportunities and what high return targets are out there for us to consider and then finally, what does it make sense to lean in and buy back shares. I think we saw the dip this quarter in reaction to the dynamics of what was going on in the Middle East and saw it as an opportunity to pick up shares of BFS at a tremendous discount. We have a lot of confidence in our balance sheet and where we stand on the leverage perspective; certainly with the decline in EBITDA levels, it's resulted in some of the multiples. The leverage multiple as you mentioned, is a bit higher but it's not an area of concern for the business. We're going to remain disciplined. We're going to remain thoughtful about how we do it. And at no point are we going to impair our strength on the balance sheet or our liquidity position.

That's helpful. And then just on the inflation side, could you help us understand how you handle higher diesel costs and some of the inflation? Does that get passed along to your customers through surcharges? And maybe just talk about the exposure in terms of the transport on the fuel side.

Yes, absolutely. We certainly saw, as did everyone else in the space and across the world, increases in fuel costs, diesel specifically. We take those costs as inputs, and we will surcharge our customers, passing them along. And sometimes it's embedded in the way that we price our product and how we service our customers. So it's all embedded and we do pass that through. We evaluate it very closely. And like I mentioned on a prior question, it's not an insignificant amount on the inbound and it's not insignificant on the outbound. We do take that very seriously and pass it through.

Our next question comes from Ryan Merkel with William Blair.

I want to go back to gross margins. What was the biggest surprise in the quarter because you did beat the street on sales? And then on the guidance, how did you think about that? Did you just extrapolate what you saw in the first quarter or did you add a little bit of incremental weakness to the guide?

Ryan, thanks for the question. The challenge that we face in this current environment is the variety of products that we're selling and the dynamics that are happening in each one of those categories. In Q1, if you look at the trends, the core of the business is pretty well leveled out. There are certainly hand-to-hand combats in certain areas, in certain parts of the country, so you get the normal variability. If you think about lumber commodity and the value add, where I think we were surprised is in the specialty products and the other categories. That was where it was certainly more challenging and more volatile than we expected. Not happy about it, recognizing it for what it is and trying to account for that on a go-forward basis. But that's the core of the story.

Ryan, if I could add to that. What's also working really well is our funding program. Where we picked up a little bit of mix is on the lumber and sheet goods. As we've been successful with our manufactured or value-added sales, we picked up a little bit more on the lumber and sheet which is a lower margin category, which had a little mix impact. So that's all evidence of some of the share that we've been able to capture on the lumber side, leveraging that value-added capability.

Got it. Okay. And then just back on the guide, I know it's an uncertain environment. Did you just extrapolate the trends in Q1? Or did you add a little bit of cushion in the guidance? Curious how you thought about it.

I would say we don't just extrapolate; we're looking at our buildup from the bottoms up as we think about our sales projections for the year, what's in the pipeline, what we're hearing from our customers and the economists. We take all things into consideration as we develop our guide. And we have a normal seasonal curve. So it's a little more muted than what we had communicated last quarter. But it's still a seasonal curve and we're seeing certain parts of the country start to gain momentum as we get into the summer selling season. We're playing closer to the pin, Ryan.

Our next question comes from Michael Dahl with RBC Capital Markets.

I want to follow up on the kind of strategic share comment. In the past, you've talked about others being more competitive on the lumber and 'dirty' side, not necessarily wanting to share that way. It doesn't sound like this is specifically the goal of, let's win back share in lumber; it's more a function of some other strategy. Can you elaborate a little bit more on the shift that you've made there? And is there any way to quantify when we think about the mix in the adjusted gross margin, what that really cemented the quarter and in the guide?

Thanks, Mike. I think I got your question, but if I don't, please correct me. Your question was about what's the bundling doing in terms of margins and the business. So our bundling is the culmination of all the work we've done to offer a variety of products. It's the ability to come in and say to a builder that we can make your life simpler and more efficient and put together an affordability package for you—if you're interested in buying lumber plus truss plus millwork plus windows or whatever we're offering in that particular market. The opportunity there is to have some sort of combined pricing that allows us to fill capacity and keep our operations humming. By combining it, we offer a superior value while at the same time capturing more gross margin dollars for ourselves. The mix impact right now, as Pete alluded to, is we've picked up a little more lumber and sheet goods which is a lower margin category and has a negative impact on margins by virtue of mix. I would tell you that's not the biggest impact to margins this quarter. The primary issue is the specialty products. It's just gotten tighter — I would say surprised us how quickly it got tight in the quarter. But the core of the business, the lumber, lumber sheet and the value-add, I think, is performing largely in line with what we expect.

Okay that's helpful. Then dovetailing, some public builders have commented about cost increases and not taking cost increases or wanting to push them off. We've heard concerns about players like yourselves being caught in the middle in an inflationary environment. Historically there's been sufficient ability to pass through costs. Can you talk through whether there's any timing differentials on commodity pricing that might be pressuring margins in the near term?

Good question. On the commodity side, you're right—we have largely moved away from long-term fixed contracts. We've done a better job of matching our commitments to our customers with our purchasing profile and the way we're bringing it in. So it's modest in terms of the number. The broader question is builders saying they're not going to take price increases and vendors saying they need to raise prices. That's going to leave someone holding the bag. I'd say that's not true in our view. We provide value to both parties. There's a level of profitability that we need to see to continue to participate. To the extent we have good long-term partnerships and the market wants product, there's going to be a pass-through where needed. We play a mediating role in those discussions between vendors and builders. It's clear we have an affordability problem and we are trying to help builders achieve that goal in any way we can. But at no point does that involve us becoming a charitable institution and losing money to do it. There's a balance and I think most understand that. We'll hold the line where appropriate while working the middle to create value.

Our next question comes from Matthew Bouley with Barclays.

Sticking on the gross margin topic. This guidance change of about 100 basis points — you mentioned several drivers: competitive environment, change in your starts assumption from flat to down low single digits, price/cost due to fuel, lumber mix, and specialty products. Is any one of those the biggest issue? Could you rank order drivers of the change so we can get conviction on what it would take to halt that decline in gross margin?

If I'm scaling the level of impact, the biggest one is the specialty products. The next piece is the inflationary component — impact of fuel and what we're doing to manage it. The other items — starts impact, competitive dynamic and mix — are more comparable in size. So specialty is the largest single driver.

Got it. The $100 million in cost savings for 2026 remains the same as last quarter. Given the lower earnings expectation, is there more room to press on that? How are you thinking about balancing holding on to labor versus additional austerity measures?

We're always looking at the size of the business and costs in a market like this. Our primary focus remains on the variable side to ensure we're matching people to the work we have. That's the biggest dollar impact you'll see. We're largely through most of the actions Pete mentioned, and initially we need to digest the impact to make sure we deliver on commitments before taking another pass. That said, we'll continue to monitor and make further adjustments if necessary as the year progresses. Nothing new to announce today.

Our next question comes from Keith Hughes with Truist.

With the margin hit on specialty, it seems like it's everything you do. Has it changed the relative margins amongst the products? Are the downturn pressures still rank ordered the same top to bottom?

They're still rank ordered pretty much the same. The timing of resets flowed through the P&L in an order: lumber first (commodity), then some value-added products, and now into specialty. So relative performance is similar but the timing is why you're seeing specialty now.

Our next question comes from David Manthey with Baird.

I'm wondering if you're expecting to see any relief in the size and complexity of homes as rates are more or less stable here. At some point buyers may skew more affluent because of affordability. Do you expect a second-derivative change — any leading indicators ahead of unit volumes going up?

We debated this internally. Up until now, we've seen a bifurcation: strength in the more affluent buyer segment, while starter homes are simpler and smaller. That's been driven by affordability and preferences. Stability or improvement in the market will likely lead to a reacceleration of some of the middle and upper tiers, and we would expect some stabilization in size and complexity as confidence returns.

Okay. And could you update us on the ERP — how far are you and what does the timeline look like from here?

We're in the midst of an SAP implementation using an incremental rollout approach to limit risk. We did a preliminary pilot last year and have been dialing it in to scale. We'll test further changes later this year with another rollout, and we expect to accelerate in 2027 over the next few years based on the current schedule. It's going well, it's slow, and the team is doing a good job.

Our next question comes from Trey Grooms with Stephens.

Installed products are around the high teens of your sales with install included. It seems builders are willing to pay for installed products. How are you thinking about installed generally — can you lean into it in the current environment? Where do you see your install offering going over time?

Install is a compelling offering: it takes work off the builder, makes the job site more efficient and captures off-site benefits from what we do. Whether installed truss, installed windows, installed framing or ReadyFrame, these offerings perform relatively well even in depressed volumes — typically down less than starts. As the market turns, the lack of skilled labor will remain a challenge, and I believe installed models will be an even larger differentiator and competitive advantage.

Got it. And on cash flow and the balance sheet, you mentioned the second half will be stronger, which will require working capital investment. Any additional color on what that use could be or what you're baking into the free cash flow guide for the year?

The working capital increase will be generally around receivables — as we have higher sales per day exiting the year, we'll have higher receivables carry into the finish. Last quarter we highlighted a year-over-year change in working capital of about $300 million. Because of the lower guidance, we pulled that back and are looking at about $180 million change in working capital year-on-year, which is helping to offset the lower EBITDA. There's also some inventory impact with higher inflationary costs, which makes inventory a bit higher on a dollar basis. We try to factor in all the operating working capital pieces in our guidance.

Our next question comes from Kurt Yinger with D.A. Davidson.

Looking at the base business, the current guide is down on sales 4% to 5%, a bit more than the drop in end market assumptions. Last quarter you assumed a certain level of share gains this year. Have you dialed that back at all? How does inflation play into that as well?

When you're looking at the base business trend, factor in price as well as volume — price weighs on the top line. We have not pulled back on our share gains or organic growth. We're still driving that forward alongside bundling and targeted strategic share gains where it's profitable. That is baked into the base business trend you see, but price weight is a factor on the sales line.

And that would be a component of competitiveness on gross margin, not necessarily an assumption of vendor-led price decreases. Is that the right way to think about it?

That's correct. Competitive nature is one of the factors Peter mentioned along with specialty and mix. The competitive environment remains active and with a lower start environment it's going to persist.

Okay. And on manufactured products, price/cost: lumber was on a low run through Q1 and stabilized at higher levels in Q2. Did you feel like on the truss side you're able to fully pass that through? How do you balance price/cost dynamics with the desire to fill capacity and cover fixed costs going forward?

Fixed cost dynamics are volume sensitive — we optimize utilization and rationalize facilities (we closed 21 locations so far this year) to maximize utilization. On truss, we are passing cost through, though there's a lag because truss is designed and bid, so it resets with each quote. That lag is longer than lumber and sheet goods, but the team manages the reset and truss remains a higher-margin category for us over time.

Our next question comes from Richard Reid with Wells Fargo.

I wanted to circle back to a comment in the prepared remarks on April — I believe you saw a little bit of a sales improvement in April. Is that a function of the macro and can you contextualize that April sales improvement relative to normal seasonality?

Yes, it's normal seasonality. We generally see growth from January through at least May and then it ebbs and flows throughout the rest of the year depending on the month and builder focus. Given normal seasonality around the country, this is what it's supposed to do. We just like it to be a little better and broader.

That makes sense. Switching gears to install: we've heard builders getting concessions on labor which drives savings. For your installed business, do you see any of those labor cost benefits flowing through the P&L? What's the implication?

Good news and bad news: yes, we see it, and no, it doesn't really flow to our P&L — it flows to the job site. Labor is a baseline competitive component similar to commodity lumber. We're adding value by virtue of our efficiency. There's some benefit but much of that passes through to the builder, not as a direct margin uplift to us.

Our next question comes from Philip Ng with Jefferies.

Peter, your sales in Q1 and even Q2 are somewhat backward-looking relative to starts, and starts have been grinding higher a bit. Curious what you're hearing from your customers on spring selling — you're calling for a better back half. Any color on that with the private customers you deal with day to day?

At the beginning of the year, you saw differentiated performance: some builders have been very successful and saw really nice starts, including a couple doing some of their best business ever. That's mostly a public builder storyline. On balance it's neutral to maybe a bit negative relative to what we'd hoped. Private builders (40%-45% of starts) have been more cautious given uncertainty and geopolitical events; some want to wait a bit. It's not an end to activity but it is more tepid than earlier in the year. That's why we reset guidance and are putting our best view forward.

That's helpful. One more: some larger distributors have been expanding horizontally into areas like insulation. Does that give you any rethink in terms of your approach? You've been targeted around your core; are you considering going more horizontal? How does that change the competitive landscape?

We feel good about our core focus. Historically we've made other moves and adjusted as needed; for example, we spun off certain businesses and do limited insulation and roofing in select markets. Those aren't areas of emphasis for us broadly. There's limited overlap in customer benefit for some of those products relative to our core. We believe our strategic advantages — footprint, value-add, digital, install — are the right place to compete and we remain focused there. We're not intimidated by other players and our strategy stands.

Our next question comes from Reuben Garner with the Benchmark Company.

You mentioned specialty margins several times. Can you give more color on what you're seeing? Is it specific products within specialty or broad-based price/cost pressure? What's driving the margin headwind there?

Specialty for us is a long list — everything outside primary categories: siding, roofing, gypsum, cement, and many other items. It's a culmination of many small hits across that long list of products that's driving the specialty margin pressure. It's broad-based across many smaller product slices rather than one single product.

So it's not the digital or install piece that's meaningful here; it's the long list of specialty products?

Correct. Install is too small to move the needle materially on the specialty margin callouts; it's the many small slices across specialty products.

Our next question comes from Min Cho with Texas Capital Securities.

You mentioned value per start was down in the quarter; have you started to see any stabilization there? Or do you expect it to decline in the intermediate term?

We called out a roughly 10% decline versus 2019, which is a longer-term decontenting. It has fairly leveled out recently; we might see point movements quarter to quarter, but it hasn't moved as dramatically as it did about 1.5 to 2 years ago.

Your value-added sales remain a similar percentage of overall revenue, and I assume those margins are holding up better. As sales pick back up, can you expect value-added to grow faster? You mentioned installation likely growing faster — but overall, how do you see value-add growth?

Value-add has historically been our high-growth area. We've improved capacity and service levels, and in a labor-constrained market it should perform better as the market turns. We expect value-add to grow faster than the broader market over time.

Our next question comes from Adam Baumgarten with Vertical Research.

You mentioned maybe not being able to recoup all cost inflation — I assume that relates to fuel in 2026. Can you give a sense of the magnitude of the headwind you're expecting for 2026 at this point?

It comes down to how much the market can bear in pass-throughs versus what we absorb for affordability. Broadly, it's market-specific by geography. We are taking several approaches — some embedded in inbound costs, some passed through as surcharges, and some negotiated in pricing. It's a meaningful number and at a company level it's around $100 million in terms of the cost headwind; the impact on the bottom line will be less given what we're doing, but it's not zero.

Our final question today comes from Ketan Mamtora with BMO Capital Markets.

On competitive dynamics, you talked about specialty, but you didn't talk about truss or the EWP side. Is it fair to say you're starting to see stabilization there?

Yes, generally directionally correct: we have better clarity on lumber stability and manufactured product categories, including truss and EWP, are starting to stabilize. But we'll be careful and watch quarter-to-quarter variability.

On leverage: I understand it's a function of how EBITDA moves this year. Is there a net-debt/EBITDA number where you wouldn't want to go — is 4x a hard line or is the high end of 3x the threshold?

We keep a very close eye on leverage. Our comfort zone is roughly 1x to 2x net debt to adjusted EBITDA; anything meaningfully north of that is more challenging. We won't put a single hard number out, but the Board and management watch it closely and we will be disciplined in capital allocation to preserve liquidity and flexibility.

Thank you. This brings us to the end of today's question-and-answer session as well as Builders FirstSource First Quarter 2026 Earnings Call. We appreciate your time and participation. You may now disconnect.