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

All right. Let's begin. Hello, everyone. Welcome to BuildDirect's Q3 2025 Financial Results Conference Call. For those who aren't familiar, BuildDirect trades on the TSXV under ticker BILD, that's B-I-L-D, BILD. And on the OTCQB under ticker symbol BDCTF. My name is Bob Chen, and I'll 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 law that reflect management's current views with respect to future events. Any such information and statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking information and statements. Please refer to the various materials the company has filed with the Canadian securities regulators for a broader description of operational and risk factors that could affect the company's performance. In addition, please note that all dollar amounts mentioned in the presentation are in U.S. dollars, unless otherwise stated. On today's call, we'll be covering BuildDirect's Q3 2025 financial and operational highlights as well as its growth outlook for the remainder of '25 and 2026. Following comments from BuildDirect's management, the call will be open for questions. [Operator Instructions] If you're calling in to listen to this webinar, please e-mail your questions directly to ir@builddirect.com. Our presenters today will be the CEO of BuildDirect, Shawn Wilson; CFO, Kerry Biggs; and COIO, Jay Allen. I will now turn the conference call over to Shawn.

Thanks, Bob, and to everyone joining us today, welcome. Let me start with a quick summary of the key highlights this quarter. First, we continue to see strong operational execution across our Pro Center network with solid performance in several key U.S. markets and improving margins driven by procurement discipline and mix. Second, we delivered double-digit year-over-year adjusted EBITDA growth, extending our track record of consistent profitability and operational leverage. Third, our Orlando integration is progressing well with particularly strong traction in the commercial segment and a growing pipeline of orders heading into Q4. Fourth, our tuck-in acquisition pipeline continues to expand, and we are applying a very disciplined structure to both pricing and post-acquisition integration as we evaluate top opportunities. And finally, our e-commerce business is now fully aligned with our Pro Center model, creating better alignment on fulfillment, a higher conversion and more scalable foundation for future growth in '26 and far beyond. North American flooring market remains a $90 billion category, but continues to experience uneven demand due to macro pressure, including housing turnover, interest rates. and consumer spending. Certain regions such as the Midwest remained softer due to broader economic conditions. Despite these, BuildDirect continued to demonstrate resilience. Revenue increased 6.5% year-over-year. Gross margin expanded to 38.95% and adjusted EBITDA grew 23% year-over-year. This consistency reinforces the strength of our hybrid model and disciplined execution. During Q3, we continue to see positive momentum from the operational upgrades implemented across our network. Margin performance improved as we tightened procurement discipline, we optimized our product mix and saw solid contributions from several key U.S. markets. As mentioned, integration efforts in Florida and also in California progressed well and remained aligned with our expectations. Overall, our combined -- combination of Localized Pro Centers, direct import sourcing and a more efficient e-commerce platform is creating a clear competitive advantage in a very fragmented industry landscape. Jay will speak more about our e-commerce section.

Thanks, Sean. Our e-commerce and marketing initiatives continue to be an important driver of our overall organic growth strategy. We are first launching new U.S. and Canadian e-commerce websites in Q4. These sites have been in development for some time and include thousands of technical and creative upgrades. We're very excited to see the impact of these on our visitors moving forward. There's a couple of screenshots here. Also in the second half of 2025, we expanded our marketplace presence significantly. We're going live on Lowe's and Walmart with Menards and Amazon close behind. This meaningfully broadens our reach and diversifies how customers discover and purchase BuildDirect products. These channels are performing well and position us to capture the incremental demand that historically has been outside of our core platform. We also tested increasing marketing spend this year, and the results were very encouraging. Our campaigns delivered strong returns, giving us a clear and scalable playbook that will carry into 2026 and help us accelerate top line growth. And finally, our Pro-focused marketing efforts have continued to show a lot of momentum. We saw strong engagement at U.S. builder shows throughout 2025, which has helped deepen our relationships with Pro customers and add new Pro accounts. We plan to expand these initiatives in 2026 as we see a real opportunity to grow this channel. Overall, our e-commerce and marketing engine is stronger and more diversified than ever and will be a key contributor to the next phase of growth. I'll also provide an update on our Orlando operations, which continue to show strong momentum throughout the third quarter. In terms of performance, sales taken exceeded expectations in Q3, reflecting solid execution across our business. Our commercial flooring segment remained a consistent driver of demand, and we launched our Pro Elite program into this market as well, which is showing very encouraging early traction. On the operational side, we moved the business into a higher visibility facility, which is already improving both Pro and homeowner traffic. We've expanded noncommercial Pro and homeowner sales, added a stronger mix of higher-margin core SKUs and the new location is now functioning as a true multichannel growth hub for the region. Finally, in terms of strategic impact, ship sales in Q3 were impacted by vendor timing tied to tariffs. This is a timing issue, not a demand issue. For context, we expected roughly $1.35 million of sales taken for the quarter, and we came in at $1.37 million. More importantly, we exited Q3 with $1.6 million in open orders, positioning us for a strong shipment profile heading into Q4. Overall, Orlando continues to validate the strength of our bolt-on playbook and its ability to compound value across the network. I'll now turn the call back to Shawn. You're on mute, Shawn.

Very good. Thanks, Jay. Let me spend a moment on our M&A strategy and what we're seeing in the pipeline today. First on a target profile, we're primarily evaluating tuck-in opportunities, and these are in like the $5 million to $15 million revenue range and EBITDA profiles vary. Some businesses operate near breakeven prior to integration, others going to have margins up to 10%, 15%. Our valuation approach remains disciplined, generally targeting 1 to 2x EBITDA, but with very limited goodwill and a structure that's heavily weighted towards the quality and the value of the inventory that we're acquiring. We're a working capital-focused company, and we think through how that working capital will be deployed, what the profitability will be back on the deployment. In terms of brand focus, for BuildDirect, we're looking at Pro Center additions in key Sunbelt and high-growth U.S. markets. Within our 4Source group, the focus is on regional distributors expanding outward from the Michigan base. And then for our Superb Flooring business, we're assessing full-service commercial and builder-focused operations that complement that existing portfolio. Post acquisition, integration follows a consistent playbook. We centralized accounting, financial controls and reporting within the acquiring division to ensure discipline and consistency really throughout. At the same time, we keep operations decentralized under our divisional leadership, which preserves local expertise and customer relationships while still benefiting from the shared services and scale. Finally, on the seller profile, most of our opportunities we're reviewing involve succession planning or ownership transition, and our goal is to offer sellers a fair valuation, a clean exit path and a structured transition that maintains continuity for employees, customers and also suppliers. Overall, the pipeline remains very active, and we continue to prioritize high-return opportunities that strengthen the platform. I'll now turn the call back over to Jay, who'll go over our Pro Elite marketing program.

Thanks, Shawn. Our Pro Elite program is a key part of how we are building deeper relationships with our Pro customers across the network. At a high level, the program is designed to build and support the professional installer customer base across all of our Pro centers, Vancouver, Los Angeles and Orlando. It equips installers and contractors with marketing tools, product resources and operational support that help them grow their own businesses while deepening their relationship with BuildDirect. In terms of how the program works, we start by using targeted regional data to identify Pros around each of our Pro Centers. From there, we're engaging with them through e-mail and SMS outreach and our local marketing teams follow up directly to onboard those who show interest. Once enrolled, Pros receive marketing materials, things like samples or handboards, signage and other tools to help them drive new customers and close more jobs. The early results have been very encouraging. We contacted more than 10,000 Pros across our regions with engagement rates of roughly 20%, and we're seeing strong early enrollment and meaningful order activity from those who have joined. What's important to us is that the early conversion data points to an attractive long-term value per Pro. And so that's why we're scaling the program across all our markets in 2026. Overall, the Pro Elite program is a key growth engine for the company and a key differentiator in how we serve the professional community. I'll now turn the call over to Kerry, who will talk through our financial highlights.

Great. Thank you very much, Jay. So as you see here, Q3 '25 was a very good quarter for us. In fact, our strongest quarter so far in 2025 and one of the strongest since Q3 of 2023 with continued improvement across revenue, margins and profitability. So looking at our performance for the quarter ended September 30, 2025, the key highlights are summarized here on the bar and line chart on the slide. Revenue was approximately $18.1 million, up 6.5% from $16.97 million in Q3 of 2024. So that's the far left bar chart. Gross profit, which is the middle bar on each area here was $7.04 million in Q3 of 2025 versus $6.5 million last year Q3 of 2024. That's an increase of over $500,000 year-over-year. Supporting that, gross margin improved 38.95% to 38.95%. That's an increase of 60 basis points year-over-year. Operating expenses, which is the right-hand bar chart here in each of the areas, totaled $7.08 million for Q3 of 2025. That's up about $500,000 year-over-year. This increase was driven mainly by the addition of the new Orlando Pro Center. Without the Pro Center operating expenses, overall OpEx would have been down on a same-store sales comparison by around $67,000 or 1%. Adjusted EBITDA, the yellow line was approximately $970,000, as Shawn noted, up 23.2% from prior year's $786,000 adjusted EBITDA, again, reflecting continued gross margin strength and the realization of cost-cutting efforts that were coming through the P&L over the year. Finally, working capital was $8.6 million at September 30, 2025, up $5.9 million from the prior year, supported by the August equity raise, resulting in a stronger cash position. Again, the quarter reflects strong margin execution, disciplined operations and a materially strengthened balance sheet. Yes, so on the next slide, I'll quickly go through this table here. Again, consolidated revenue was $18.1 million, up $1.1 million from Q3 of '24. Just kind of the split of that $18.1 million. On the e-commerce side, e-commerce made up $3.64 million of that $18.1 million in Q3 of 2025 compared to $3.89 million in the prior year. Gross profit for e-comm was $1.98 million this quarter with a margin of 54%, an increase of 430 basis points as compared to the 49.9% margin last year, mainly a result of product pricing and sales of higher-margin core inventory. On the Pro Center side, the Pro Centers were $14.4 million of sales for Q3 in 2025, up from $13.08 million, an increase of 10.3% Q3 year-over-year. Excluding the Orlando Pro Center, same-store sales still grew 2.3% in Q3 of '25 compared to Q3 of 2024. As the slide summarizes here, both segments resulted in consolidated gross profit of $7.04 million for the quarter, up 8.3% and a margin improvement of 60 basis points year-over-year to 39%. Just moving down the table, adjusted EBITDA, as we noted, for Q3 was $970,000, up 23% year-over-year. And OpEx for Q3 2025 was $7.1 million compared to $6.5 million. That's an increase of $570,000 or 8.8% and again, mainly a result of the commencement of the operations of the Orlando Pro Center, which were not in the results of the prior year. Again, our MD&A summarizes the line-by-line details for OpEx. But overall, I'm very pleased with the costs and cost structure in Q3 of 2025. I'll just point out on the net income side, in Q3, we had a $950,000 loss versus a $380,000 loss in Q3 of '24. Key drivers of this increased loss are generally noncash accounting items, higher noncash interest expense, higher noncash expense related to the fair value adjustment of warrants driven by our higher share price and higher noncash FX loss on the P&L. So moving to the next slide on the balance sheet. As at September 30, '25, current assets were $24.56 million of the total $36.8 million in assets and current liabilities were $15.97 million of the total $30.1 million in liabilities. So current assets over current liabilities equals a current ratio of 1.5x. And working capital, current assets less current liabilities was approximately $8.6 million in September '25 compared to $2.7 million at year-end '24 and $2.7 million at Q3 of '24. So overall, our cash balance was $8.8 million, up from $2.35 million at year-end '24. So that's an increase of $6.5 million, reflecting the equity raise we did in August, the tax credit refund and improved cash flow from operations. On to the next slide. So just talking about cash flow. Operating activities before changes in noncash working capital provided cash of $671,000 in Q3 of '25 compared to $788,000 in Q3 of '24, a slight decrease of $117,000, primarily due to increased cash interest costs and some incremental admin OpEx costs of the new Orlando operation. Operating activities after changes in working capital used $172,000 in Q3 of '25 compared to cash provided of $1.05 million in Q3 of '24, a difference of $1.2 million, again, mainly driven by working capital changes in the quarter, including a buildup of strategic inventory, $641,000. We lowered our accounts payable, $222,000 and a reduction of our deferred revenue by close to $400,000. And again, the deferred revenue was cash received in prior quarters now being recognized as revenue in the current period. Focus on financing activities provided $5 million of cash overall in Q3 compared to an outflow of $738,000 in Q3 of '24. Q3 2025 inflows reflect proceeds from the private placement, net new borrowings in the revolving credit facility, offset by scheduled repayments on the prom notes, cash interest and capital lease payments. So overall, the company ended Q3 '25 with a $4.75 million increase in cash compared to $340,000 increase in the same period the prior year. So as noted, we ended the quarter with a hefty strong cash balance of $8.8 million, giving us enhanced financial flexibility heading into '26. So with that, I'll just hand the call back to Shawn.

Thanks, Kerry. I'll walk through our growth pathways and how our M&A strategy fits into the broader platform. First off, starting with e-commerce, we continue to see meaningful opportunities for organic growth. We've expanded our product assortment to cover more categories. We've improved conversion through ongoing optimization of the funnel and also user experience. We're seeing increased fulfillment synergies in our Pro Center network, which is lowering delivery costs, improving service levels. On the M&A side, our primary focus remains on tuck-in acquisitions. These are typically businesses, as I mentioned, in the $5 million to $15 million revenue range, where we can apply an inventory valuation structure around pricing. And importantly, these operations can be integrated rapidly into our existing Pro Center divisions, allowing us to generate immediate strategic and financial impact. We also continue to evaluate selective larger division level acquisitions, which are in a net new category or major geographic expansion. But these are pursued only when they add clear capabilities and create meaningful synergy value, whether through procurement, cross-sell opportunities, networks, logistics, kind of things like that. Taken together, our organic initiatives and M&A approach position us to continue scaling the platform in a focused and most importantly, in a value-accretive way. With that, I'll turn the call over to Bob, who will handle our Q&A session.

Thank you, Sean. [Operator Instructions] first question we have here is, how is the customer engagement trending across the online platform? And are you seeing improvements in conversion or repeat activity?

Jay, you want to go that one?

Yes. I'll jump in. In 2025, we've seen a strong growth in site visitors and sample orders, which really drive our e-commerce sales. It's what we're really watching. The thing I'm most excited about the new websites going live, the Canadian website actually went live earlier this week. Immediately, we saw growth in visitors, growth in conversion rate and growth in sample orders. So I'm excited to get the other site live as well and see the impact there. And then in terms of repeat customers, we put a new full CRM tool in place earlier this year. And what it's really allowed us to do is contact our professional customers more consistently and frequently than we have in the past. And so we're seeing some really great engagement from the professional customers through that consistency. And I think that will really continue to drive us into 2026.

Our next question here is, are there any additional opportunities to improve working capital efficiency?

Yes, I'll take part of that and guys, you want to layer anything in. So historically, our e-commerce business operated off of like a consignment model. So intuitively, the working capital position for that business was lower. We took advantage, especially moving out of -- years ago out of China to Southeast Asia and other markets for importing. Those options weren't quite there. You have a lot of new factories, you have a lot of challenges using a consignment model and they're scaling up. And so we have like a hybrid model now for that business, but we're returning back to those opportunities. So I would say when you look at working capital for us, it's mostly inventory. And then our end, as we acquire businesses, integrate SKUs, kind of things like that, we're able to reduce the working capital pay down for those acquired businesses for sure. And even with ourselves, like without additions, that's mainly how we're thinking about making them more efficient. So concisely stated, moving more and more to leverage consignment, which we're really one of the few competitors in the space who are geared up to have that kind of model and the supplier relationships to facilitate it. Anything else you'd add there, Jay or Kerry?