BuildDirect.com Technologies Inc. (BILD) Earnings Call Transcript & Summary

Hi, everyone. Welcome to BuildDirect's Q4 and Full Year 2024 Earnings Conference Call. For those that are unfamiliar, BuildDirect trades on the TSXV under the ticker BILD, B-I-L-D. My name is Prit Singh, and I will be the moderator for today's call. Before we begin, I would like to note that some of the comments today will contain forward-looking information and statements under applicable securities laws that reflect management's current views with respect to future events. Any such information and statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking information and statements. Please refer to the various materials the company has filed with Canadian securities regulators for a broader description of operational and risk factors that could affect the company's performance. In addition, please note that all dollar amounts mentioned in this presentation are in U.S. dollars unless otherwise stated. On today's call, we will be covering BuildDirect's Q4 and full year 2024 financial and operational highlights as well as its growth outlook for 2025. Following comments from BuildDirect's management team, the call will be open for questions. [Operator Instructions]. If you are calling in to listen to the webinar today, you can alternatively e-mail us your questions directly to [email protected]. Again, that is [email protected]. Our presenters today will be the CEO of BuildDirect, Shawn Wilson, and CFO of BuildDirect, Kerry Biggs. I will now turn the conference call over to Shawn Wilson.

Thanks, Prit. For those joining us for the first time, BuildDirect is the leading North America flooring retailer, and we're expanding our footprint through both organic and acquisition of profitable the brick-and-mortar locations, and we call those Pro Centers. Our strategy targets consolidation within the $90 billion North American flooring market by creating a strong platform for product expansion and also unlocking opportunities in adjacent categories with the combined TAM of well over $200 billion. Turning to our financial performance. Kerry will walk through the details shortly, but the 2 top line highlights for the full year. For 12 months ended December 31, we generated approximately $65.5 million in revenue with a gross margin of 38.7% and adjusted EBITDA came in at $2.2 million. So the $90 billion North America flooring market represents a meaningful consolidation opportunity, especially with 73% of the market served by independent floor covering stores and contractors. Many of these are smaller, locally operated businesses, navigating challenges like succession planning, rising operating costs and access to capital, which really creates a strong pipeline for strategic acquisitions and market share. At the same time, the continued rise of online flooring and also increasing collaboration with home own -- home improvement retailers presents additional path for expansion, customer acquisition and also innovation. It's a very ripe market. So with a quick overview of our business model. We blend brick-and-mortar with e-commerce. Our Pro Centers are designed to serve professional contractors. They simplify the buying process, reduce costs and deliver value by sourcing directly from manufacturers and offering fast local service. Simply stated, we leased light industrial spaces in strategic locations to house inventory, showrooms and order desk, creating a one-stop shop for Pros. And these Pro Centers also support our e-commerce operations by reducing third-party logistics and shipping costs, which is fantastic, very important. With over 20 years of experience online, our e-commerce platform offers thousands of products, free samples and expert phone support and home delivery. As we expand, we're replacing our third-party warehouse with Pro Centers to improve efficiency and control. And this model really allows us to enter new markets quickly, delivering a better customer experience and building lasting relationships with contractors. So to date, we have a total of 9 Pro Center locations across North America, plus our Vancouver e-commerce location, so a total of 10 locations together, and we intend on expanding our physical footprint in the U.S. and also in Canada. Looking ahead, our strategy for growth is clear. Start digital, validate demand that expand physically through our Pro Center network. This deliberate data-driven progression from e-commerce to brick-and-mortar is really what sets us apart. We began our e-commerce platform to test markets quickly and efficiently without the cost of physical infrastructure by shipping in from out of market and then leveraging our data, customer insights, so on and so forth, we identify high potential markets for demand talked interest and also contract activity aligned. Once validated, we move on the ground by launching Pro Center, either buying or building. And this flexible approach allows us to scale efficiently based on our preference on ROI and also local dynamics. After opening, we focus on building local strength, adding products, services. Our teams drive contract relationships, repeat business, and we're a viable installed services, but our focus is on material for the most part. Finally, optimized by scaling our private label products. Private labels are huge for the flooring industry, improving logistics and integrating acquisitions quickly to strengthen the platform and deepen our market control. So in short, our commerce to Pro Center model is scalable, repeatable and capital-efficient. It's a core pillar of our strategy and a key engine of driving long-term value creation. Okay. So next let's walk through our expansion strategy, which follows the Build and Buy approach. So starting with build. This involves opening new Pro Centers in strategic markets, especially where we've already established our e-commerce presence. And we're focused on clustering in key metro areas. So think of like Los Angeles, Dallas, Atlanta, these major markets and then really leveraging our inventory across the network there. On the buy side, we target acquisitions if it's a Pro-focused B2B flooring retailer, who very often buys from mid-market distribution and focuses on the Pro customer. And these deals to help us accelerate customer acquisition on the Pro side and also quickly convert locations to our operating model. We highly prioritize capital-efficient transactions, primarily inventory based with a minimum goodwill and focus on optimizing these businesses through procurement, really first and foremost, and also marketing synergies. So both strategies are supported by our centralized services here in Vancouver, across procurement, marketing, e-commerce and IT, which now allows scalable and efficient growth. So with that, I'll turn it over to Kerry for a deeper look at our Q4 and full 2024 performance.

Great. Thanks, Shawn. Overall, I'm very pleased with the progress realized in Q4 as well as the full year of 2024. So just looking at Q4 '24, financial performance, so that's the 3 months ended December 31 of '24. The key highlights are summarized here on Slide 11, which I'll quickly go over now. And as my discussion furthers, I will go into more detail on each of these areas. So just on the far right of the table, you see that revenue was approximately $16.7 million for the quarter ended December 31, 2024, compared to $16.9 million in the same quarter of last year. So that's the far left part of the table here. Looking at the middle bar, gross profit was $6.6 million with a 39.2% gross margin for Q4 of '24 compared to $6 million and a 35.2% gross margin in the same quarter of last year. So an increase of nearly $600,000 in gross profit from the prior year's comparable quarter. Operating expenses were $7 million for Q4 of 2024 compared to $6.7 million in Q4 of '23, up slightly around $300,000. And adjusted EBITDA was approximately $376,000 for the quarter ended December 31, 2024, compared to approximately $73,000 in the same quarter of the prior year, so an increase of $300,000 of EBITDA of the -- compared to the prior comparable period. Working capital was $2.7 million at December 31, '24, in line with the same period last year, it was around $2.8 million, so down approximately $100,000. So moving on to Slide 12 here, which outlines the quarterly and annual income statement or P&L trends, I'll really focus on Q4 of '24 in the full year '24 with comparisons of Q4 and full year '23. So on the revenue side, as I just noted, revenue for the quarter was $16.7 million versus $16.9 million in the prior quarter. Looking at it on a segmented basis, so BuildDirect.com or the e-commerce segment revenue for Q4 of '24 was $4.2 million. That was up $406,000 or close to 11% from $3.8 million in Q4 of 2023. So strong momentum. The increase can be attributed to the company's strategic investment into core inventory products with the product mix shifting to our higher-margin direct source products for that segment. On the retailer segment, also known as call it bricks and mortar, the Pro Center, its revenue for the quarter was $12.5 million, down $600,000 or 4.6% from $13.1 million in Q4 of '23, mainly a result of softness in home remodeling and new construction activity. So for the full year, consolidated revenue, as Shawn noted, was $65.5 million compared to $72.3 million in '23. So that's a decrease of $6.8 million or 9.4%. Again, looking at it on a segmented basis, for the e-commerce segment, revenue for the year was $15.2 million, down $4.5 million or 23% from 2023 and this decrease can be attributed to the company's purposeful scale down of its e-commerce operations earlier in the year to replatform and concentrate on both higher-margin products and higher-margin regions and postal codes. On the bricks-and-mortar Pro Center segment, revenue was $50.2 million for the year, down $2.3 million or 4.3% year-over-year for the reasons as previously noted, softness in home remodeling and new construction activity. On to gross profit. Q4 gross profit increased by $605,000 or 10%, up to $6.6 million from $6 million in the prior quarter. And as I've noted, gross margin was 39.2% versus 35.2% in the prior year quarter. Full year gross profit was $25.3 million, down $2.5 million or 9% compared to $27.8 million in 2023, mainly driven by the revenue decline, but despite this revenue decline, gross margin improved slightly, 38.7%, up from 38.5%. The e-comm margin rose to 52.1% while the retailer segment delivered an approximately 34.7% margin. On to operating expenses. For Q4, operating expenses totaled $7 million, up 3.8% from $6.7 million in Q4 of 2023. Increase is primarily due to higher selling and marketing expenses, notably pay-per-click advertising and some payment processing, higher admin and R&D costs as well. For the full year, operating expenses decreased by $2.3 million or 8% to $26.3 million compared to $28.6 million in 2023. Fulfillment cost, fulfillment -- sorry, fulfillment cost declined with lower revenue and admin costs benefited from operational streamlining throughout the year. R&D and depreciation expense also declined year-over-year. We subsequently announced further operational efficiencies, cost-cutting measures in a March 2025 press release that will save us approximately $600,000 of expenses in 2025 alone. Annualizing this, we expect around $900,000 of ongoing operating expense savings. On EBITDA, so adjusted EBITDA, as Shawn noted earlier, we achieved another positive quarter of adjusted EBITDA in Q4 of '24, reporting 700 -- sorry, $376,000 of adjusted EBITDA, up $300,000 from Q4 of 2023. For the full year, adjusted EBITDA was $2.2 million compared to $3.6 million in the prior year. Again, overall, we're happy with this fiscal '24 adjusted EBITDA in light of the $6.8 million decline in sales in fiscal '24 versus '23. Moving forward with the continued focus on operational efficiencies, the announced cost-cutting savings. The Anchor and Yorkshore asset purchase, we're confident of positive trending adjusted EBITDA levels moving forward. Next slide, quick balance sheet summary. Overall, I'm pleased to report a strong position as at December 31. Our current assets are approximately $16.9 million. Our current liabilities are approximately $14.2 million at year-end. So it gives us a current ratio of around 1.2x. Our current assets exceed our current liabilities by $2.7 million, and this $2.7 million is referred to as our working capital position. Cash position at the end of the year was $2.4 million, in line with the prior quarter, Q3 of '24, which was $2.6 million and the year-end '23 balance of cash, which was $2.6 million. So finally, I'll just quickly go over our cash flow statement on Slide 14 here. A couple of highlights to kind of note. Cash from operating activities was $2.2 million, down $1.8 million from $4 million in '23, including working capital or noncash working capital changes, cash from ops was $2 million, down $1.3 million from 2023. Cash from investing activities for the full year was $41,000 or $182,000 lower than the prior year. And then cash used in financing activities for the year was $2.5 million for the full year of 2024 or a $3.3 million positive variance versus the $5.8 million of cash used for financing activities for the full year of '23. This concludes my overview of the financials for Q4 and the full year of '24. Looking ahead, we remain focused on enhancing profitability across all business segments through disciplined cost management, including those recently announced cost-saving initiatives. We aim to expand our brick-and-mortar footprint, ensure profitability and efficiency for our high-margin e-com platform, and we continue to drive operational efficiencies to support long-term growth and shareholder value. So with that, I'll turn the call back over to Shawn, who will go over some of our operational highlights.

On that -- thanks Kerry, sorry I was on mute. So we continue to strengthen our e-commerce platform this year. And as demand grows, we've increased inventory to really support faster fulfillment. On the marketing side, our focus on Pro customers continues to pay off. We're acquiring them more efficiently, driving better traffic and also with improved margins. So on the physical front, which is a huge part of our story, we made a lot of progress with our Build model. So first, in Richmond, BC, we refined our prototype for what the build Pro Center looks like, which gave us great insights into how to improve the scale in operations, ramp up, things like that. Additionally, we've opened up a new Pro center in Brighton, Michigan, which is another good market and good step. We're evaluating other markets across North America for Pro Center openings, really trying to make sure we're positioned to serve growing demand from both professional and also contract customer. On the Buy side, so we're actively pursuing M&A opportunities really to accelerate that expansion. And for us, spending time developing integration playbooks to make sure we can bring them into the fold seamlessly and efficiently was pretty important and also assessing different financing options that align with our broader investment strategy, really making sure our capital allocation remains disciplined and effective as we continue to expand. On the corp dev side, we've made great progress by establishing an M&A team, also setting up dedicated business workflows to drive growth through the acquisitions, like we're leveraging the most important synergies. And alongside this, we've improved our operational integration models on how that will all work together, which help us achieve further cost savings. Looking ahead, we're pretty excited about the opportunities we see to continue scaling both our digital and physical footprints and driving strong returns for our shareholders. Okay. Turning to more recent events. So on March 27, we announced the acquisition of the flooring assets for Anchor and Yorkshore for $593,000. This move was a great step in our Pro Center expansion also helps kind of model out how we think about acquisitions. Earlier in the month, on March 10, we expanded our physical footprint by opening a new Pro Center in California, Santa Fe Springs. This facility is designed to function as a regional hub offering high-quality products along with efficient logistic services for our e-commerce business. We expect this initiative to reduce distribution costs and significantly improve service levels for our customers in that market. In line with our ongoing focus on efficiency, we also implemented key platform streamlining as we talked about here a few moments ago on March 7, and these are approximately generate -- will generate approximately, as Kerry mentioned, $900,000 annualized savings. For us, really having a disciplined focus on our core platform costs and services is a really important part of our story and how we think about allocating our capital towards investments. Okay. So on the acquisition side. So as noted, the acquisition of Anchor and Yorkshore, they're both well-established flooring, companies that were combined in Orlando and this was valued at $598,000 or approximately about 1x EBITDA and marks a significant step towards expanding our Pro Centers. We established relationships with the local builders and contractors through the acquisition, well-stocked inventory and also proven operational expertise, fantastic team, a great team who's there? And for the year ended December 31, 2024, their unaudited revenue was around $5.8 million and EBITDA of $661,000, which really speaks to how great a buy -- of a buy that location was. So it's strategically placed in our Pro Center expansion plan. Florida is a key market for us. The Southeast is a great market for us, especially with e-commerce and we can intuitively handle fulfillment from that Pro Center like we do with our other ones for both local orders, contractors, customers and also our e-commerce business. Okay. So regarding 2025, like -- so as we look ahead, our focus remains on disciplined expansion, especially with our Pro Center network, and we're committing to scaling this network across key regions. I'm sure we continue to meet the needs of Pro customers while driving growth. One of the other initiatives for this year is continuing to unlock operating leverage across our platform, especially around procurement and also a bit on the marketing side. This includes both building and acquiring new locations and really continuing down our growth path for -- throughout North America. And lastly, we're focused on driving EBITDA growth by continuing to optimize our operations and running very efficient operations. We're confident we'll be able to achieve sustainable and profitable growth while also being able to invest in growth initiatives. Okay. Prit, back to you.

Thanks, Shawn. Thank you, Kerry. Thank you for all our attendees. We will now begin the Q&A session of the presentation. [Operator Instructions] First question, given your better performance, are suppliers now more willing to provide inventory on consignment? A follow-up to that, what's the typical timeline for integrating a new acquisition? And can we expect more acquisitions this year? It's 2 questions.

Yes. Yes. I think I'll take a stab at about those and then Kerry, any thoughts you can add on. So I would say the short answer is yes. So with all the -- even before the more recent noise around tariffs, there's been a lot of excess capacity in the flooring industry, particularly around hard surface products like vinyl plank, laminates, so on and so forth. A lot of excess capacity due to a variety of factors. And so we have a lot of options. We've had them for quite a while. We're pretty -- I think, pretty strategic on sourcing from different places, different companies to help keep like healthy competition up on the supplier side. And so with that excess capacity, buying on kind of more liberal terms, whether it be really extended terms or consignment, things like that, are definitely out there and things that you can leverage. I don't see that going away really anytime soon. The -- and interestingly, like -- so typically in a lot of industries, when you have like a glut of excess supply, it drives cost down or price down. That's just not something that's very common in the flooring industry. It hasn't been really my entire 20-year career. And so pricing in the flooring industry is very inelastic. It's more about narrative, how it looks, feels, story, brand, kind of things like that. And so it's a pretty good dynamic to have if you are on our side of the business. On the second part, Prit, do you mind recapping the question again?

Sure. What's the typical time line for integrating a new acquisition? And can we expect more acquisitions this year?

Yes. So I would say like even before integration, so I'll kind of first off state, for us, having an M&A pipeline has been a focus for a while, having the right facilities and teams to be able to execute those has also been important, especially the facilities like the RBC facility that the team got put in place as like a first step of a few steps was really important, right, because we're looking for businesses, and we like to buy assets, not intangibles. And so that's a great way of being able to do it. So I would say kind of first and foremost, look, they can -- you can meet a company and come to an agreement relatively fast, but for the most part, we like to really do our due diligence and get to know the team, the customers, the markets, so on and so forth because for us, it's really about the people. The people are the most important part because they have the relationships with the local contractors and that are Pro customers. And we tend to like the BuildDirect brand better our procurement, we're very aggressive. And so it's very odd defined, a company you can acquire that, that has an edge there, very rare. And so like for us, when we're doing an integration, a big part of it is that and making sure it's a good fit for both sides. And then from there, of course, making sure you can do a deal that's effectively based on the assets because we're going to come in and we're going to -- over the course of, let's say, around 60 days from start to finish to answer the question more directly. We come in and effectively put in our systems process and then also start layering on product and work through the procurement synergies first. For us, the most important thing is to capture their procurement synergy, which means locking down the pricing side and then being able to lower cost, and we locked that pricing side down because you want to capture that synergy because as I mentioned before, the market is not super price sensitive. And so you don't want to just lower cost and lower price. So for us, that's really the main focus for the first 2 months.

Okay. Thank you. How do you feel about the growth in the e-commerce side of the business heading into 2025?

Being that it's April, I'd say I feel pretty great. We did a lot of work we put into the business over the last couple of years, which I won't get into really here as we provide that info kind of previously, but definitely have found our groove for that business, have a great team who runs that operation. It's just increasingly gaining more and more connected with our Pro Centers for fulfillment. And yes, definitely very happy content and bullish on what that business could really do. We're at this point, still even online. So our demand generation primarily targets professional customers. And so the website is set up to accommodate both the Pro and also a homeowner. But on the demand gen side, it's geared towards as far as like how we do our search campaigns, things like that around that customer. So I would say mission accomplished on being that model in a good spot. And at this point now, it's just letting it run and the same way we pulled it back before. Let's do the opposite now. That's kind of our thought process.

Okay. Thank you. Next question. Adjusted EBITDA declined year-over-year. Can you walk us through what's driving that and how you're addressing it in 2025.

Yes. Yes, absolutely. Definitely to plan. Kerry, you want to take that question?

Yes, sure. Yes, as we kind of noted, fiscal '24 adjusted EBITDA was $2.2 million, down from $3.6 million in '23. Again, the majority of that decline is the sales and revenue that we've noted. The -- ultimately, the strategic scale down of e-comm that we just talked about, right? So sales is driving the majority of that decline especially on the e-com front. The modest decline on the retailer side, the Pro Center side had a minor impact as well. But -- so sales really are the key driver there. We had some minor investments in sales and marketing as well later in Q4, '24, which I think we're optimistic that those expenses are investments in the longer term. But I think looking ahead, looking ahead into 2025, we're actively addressing EBITDA and adjusted EBITDA, obviously, scaling our Pro Centers, opening and optimizing Richmond and Brighton and the new Santa Fe store. Obviously, we have targeted acquisitions like we talked about, we'll be able to support positive EBITDA with Anchor and Yorkshore. Obviously, tight cost discipline. I'm pretty focused on budgeting and forecasting. In '24, we reduced OpEx by $2.3 million. And obviously, with some of the things we've announced, we've locked in further savings of $600,000 this year and $900,000 annualized moving forward. And yes, obviously, focusing on EBITDA expansion is key our entire strategy from product mix to footprint expansion is centered on profitable, capital-efficient growth that enhances adjusted EBITDA moving forward.

Yes. I would say the one thing I'd add to that would be -- and this is coming from both observations of some competitors where you can find their info and then also like from -- like our M&A pipeline and some things we kind of see. So like, for example, Kerry mentioned expenses, we believe will turn into long-term assets. For flooring you have a lot of -- not a lot, sorry, like a meaningful amount of like sample costs like or other set of things like that. And we find -- yes, some companies have different approaches to how they look at those start-up costs. We tend to be a bit more on the conservative side. So just flushing through on expenses and not building up just -- we're pretty conservative when it comes to that. So just to clarify us Kerry, I think what you're kind of referring to there.

Yes, we don't [indiscernible] a lot of those investment costs upfront. So yes.

Yes, yes, 100%. So -- which also helps keep -- Kerry is tough, is the sheriff in town, right? Like so we're very tight there. So on stuff we do, we're going to flush it through on the expense side, helps keep team alignment for sure as well. So we're a big fan of that type of management structure and practice.

Thank you. Next question. Can you elaborate on the company's current cash position and how you're managing liquidity given upcoming expansion plans?

Yes, Kerry?

Yes, sure. December 31, as everyone has seen, we had $2.3 million of cash on hand and $2.7 million of working capital, so a strong position. And as we've announced, we did secure a CAD 9.5 million revolving credit facility or a line of credit from the Royal Bank. So -- and that's a big feather in BuildDirect's cap, having a cash flow lender come on board here a Tier 1 Canadian bank. So that really enhances our financial flexibility moving forward. So we're excited on that. As it relates to expansion plans, obviously, our strategy is tightly aligned with working capital discipline and expected EBITDA contributions from each of the new Pro Centers. So as Shawn has kind of elaborated, we take a fairly measured return-driven approach to our growth with a strong focus on cost control. So overall, we expect to remain cash neutral to positive in '25, even after covering all our fixed charges, including interest, cash interest, principal and lease payments. So operationally, we're in a very strong position. And again, this reflects both the structural improvements we've made in our cost base as well as the capital structure improvements in the derisking that occurred really over the last 12 to 18 months on the debt side. So I think we're in a very strong position as we enter 2025 here.

Okay. Great. Next question, 2-part question. How should investors think about the impact of the current tariff situation on your business? And a follow-up to that, and I'll repeat it again, is the current tariff situation actually a catalyst for potential M&A?

Yes, it's interesting. So I would say kind of first and foremost, with the flooring industry, for the most part, about 1/3 of our revenue is carpet, and that's mostly made in domestically in the Southeast, and that's not impacted. On the hard surface front, we are in a pretty great position in that we don't have long-term supply contracts set with suppliers. And so we source from a variety of countries. We have flexibility there. And we're very intentional about having backup suppliers in different places because it could be tariffs or it could be natural disasters, stuff happens, right, in different parts of -- again the kind of things I've just covered. So we don't believe that we'll be losing any kind of competitive footing through all this at all. If anything, we'll pick up a bit of the competitiveness because of our flexibility of -- in our supply chain. I would say it's more of something I'm -- we're thoughtful of on the macro side, right? So flooring is a discretionary purchase. And so it does tend to fare well in kind of all cycles, but we -- if anything, that's more of what we're thinking about there. It's interesting on the M&A side. So I'll add a little bit of color to this. So it's not just that like -- for a lot of these small businesses, great companies, great entrepreneurs, it's not just that things were running kind of normal and then all of a sudden, they got more difficult with all that's happening. No, we have to go back a few years. First, we had COVID happened. We had this big nesting kind of phenomena, people fixing up their homes and just doing a lot of renovation and flooring industry did very well. On top of that, small business did very well, lots of government subsidies and programs, PPP, ERTC. You had like just -- you had doing business was great for a lot of these businesses in those years. It got back to somewhat normal, which was oddly enough, for a lot of these folks we talk to them just getting back to normal was almost a bit painful or too painful in some cases. And now you have this that hits. And so you have a lot of -- sorry, not a lot, but most companies who don't have direct procurement, they're buying through distribution. And like the cost of switching products is expensive, it's risky, so on and so forth. And so we think overall will fare pretty well. We do think it will accelerate the M&A pipeline. But also with that, we have to make sure we're diligent and we tend to be a bit tougher on ourselves internally on types of deals that we view as being good and driving value for the shareholder, probably more than most. And so that's kind how we think about those 2 things.

Thank you. [Operator Instructions] Just touching quickly on the debt on the balance sheet. Can you provide more specifics around Build's -- BuildDirect's stack and then specifically the covenants?

Yes, Kerry?

Yes. Yes, I can do that. Yes. So at the end of the year, debt stood at approximately $11 million, $8.3 million of that is secured debt. And I think I've noted in the past, just to kind of reiterate, that is friendly debt as provided by our 3 insider lenders. Lyra, Pelecanus and Beedie. Again, they're on our Board as well as Board. So again, extremely friendly. The other $2.2 million at the end of the year was a portion of the new Royal Bank credit facility and the remaining vendor take-back payments required for our floor source principles, again, who are running our floor source Michigan-based Pro Centers, and that will be paid off at the end of this year, early January. So generally speaking, we're comfortable with our debt levels, particularly given that the insider held secured debt requires no ongoing cash interest or principal payments, which significantly reduces the fixed cash obligations and enhances our near-term liquidity. So from a debt perspective, I think we're extremely confident where we're at. As it relates to the covenants, yes, so under the new credit facility, with Royal Bank, we have 2 new covenants. We have a debt service covenant and the funded debt to EBITDA, debt to EBITDA covenant. And from a debt-to-EBITDA covenant, it's 3x -- but again, it excludes subordinated debt to Royal Bank. So Royal Bank has a secured position on everything. So effectively, it's measuring debt related to Royal Bank and some capital leases. So debt service is 1.2x to 1, so minimum 1.2x to 1. At this point, we have significant room and flexibility around both those covenants. So nothing really to kind of note on that front.

Looking ahead into 2025, what are the top 3 KPIs investors should be looking for this year?

Yes. So I would say for us, like the majority of the like known operational improvements on like streamlining things like that, we've accomplished that for sure. So I would say at this point, it's going to be more around our location-driven strategy. And so building new locations, buying new locations, really things like that. We've been pretty intentional, I believe, in how we've structured our financials and talked about them also to help folks get a clear view of what our platform looks like as far as what it does and what it costs and what would our operations look like and their financials also. And so then from there, it's effectively a numbers game on the growth side. And then, of course, paying attention to how we structure deals. It's not the KPI question, but it's in my mind, tied to it pretty closely. So I would say that's probably the biggest thing on the margin side. So that one is interesting. It takes time to fully take advantage of direct procurement when you acquire a business because they have -- it's a Pro-focused business, which means they have samples out in the marketplace. And you can't just change it and then resend them out or find them all. It takes a bit of time to kind of work through. So I would say we're not done yet on the GM side either. Hopefully, things hold up, and we'll see how the tariffs fare and so on and so forth. But we still have opportunity there as well to take advantage of. But I say kind of first and foremost, it's more of a location-based strategy and then modeling around that is probably what I'd be looking for along the way.

I think that's it for questions. Before we wrap up the conference call, Shawn or Kerry, do you have any closing comments that you'd like to share with the audience?

Yes, Kerry, yourself?

Yes. No, I'm great. And I appreciate everyone coming on, and I look forward to meeting and chatting with you in the future. So I appreciate it.

Yes. Thanks for following the story. It's been a quite a journey, and we're just getting started. So it's going to be really fun time. So I appreciate it and yes, we're pretty energized and excited. So that's it. Thanks. Prit.

Thanks, see you Shawn and Kerry. So just a reminder to our viewers. Today's earnings call will be uploaded on to BuildDirect's Investor Relations website. If we did not get to your question, please email us at [email protected] again. With that out of the way, I would like to thank everyone for joining the call today. Thank you.