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

Good afternoon, everyone, and thank you for joining us. Welcome to BuildDirect Technologies' Second Quarter 2026 Financial Results Conference Call. My name is Bob Chan, and I'll be moderating today's call. On the call today are Shawn Wilson, Chief Executive Officer; Kerry Biggs, Chief Financial Officer; and Jay Allen, President, Digital and Commercial. Before we begin, I would like to remind everyone that today's presentation contains forward-looking statements within the meaning of applicable Canadian securities laws, including statements regarding the company's growth strategies, acquisition plans, integration objectives, margin targets and business outlook. These statements based on management's current expectations and assumptions are subject to known and unknown risks and uncertainties that could cause actual results to differ materially. Please refer to advisors on Slide 2 of today's presentation and to the risk factors described in the company's continuous disclosure filings available on SEDAR plus. The company undertakes no obligation to update forward-looking statements, except as required by law. If you have any questions during the call, please send them in using the Zoom Q&A function at the bottom of your screen or e-mail them to ir@bilddirect.com, will address these questions during the Q&A session. A replay of this call will be available approximately 24 hours after the conclusion of this conference call and will be posted on the Investor Relations section of our website at ir.billdirect.com. With that, I'll turn the call over to Bill Direct CEO, Sean Wilson. Sean?

Great. Thanks, Bob, and good afternoon, everyone. We appreciate you joining us. The second quarter was a strong quarter for BuildDirect and strong in the way we've been telling the market to measure. We grew, we stay disciplined, generated cash while doing it. revenue increased 16% year-over-year to $19.7 million. Gross profit increased $14 million, $7.7 million with the gross margin holding at 39.2% despite the mix shift that comes with the acquisitions. We reported a net loss of $0.9 million, adjusted EBITDA of $0.39 million and a positive operating cash flow of $0.5 million. Just as important as the shape of the quarter against the first quarter. Q1 was soft as we said at the time. In Q2, our revenue increased 34% sequentially, well ahead of the normal seasonal lift. Adjusted EBITDA swung from negative $0.34 million to positive $0.39 million. The net loss narrowed from $1.8 million to $0.2 million that rebound reflects the contribution of the business we acquired and reflects the execution of the cross locations we already owned. All right. I won't be straightforward about the composition of our growth because straightforward is how you want to be measured businesses contributed roughly $3.4 million in second quarter revenue, excluding acquisitions, same-store revenue declined about 4%. Soft demand is real across deploying industry or not going to pretend otherwise. But are answered a soft market is not hope. It's a 2 engine to see this quarter, buying great businesses well and running everything we owned with increased discipline. I'll now turn the call over to Kerry, who will discuss our Q2 and first half 2026 financial results.

Great. Thank you, Shawn, and good afternoon to everyone on the call. Starting with the consolidated second quarter of $26 million. revenue was $19.7 million, up $16.6 million from $16.9 million in Q2 of 2025. Gross profit was $7.7 million, up 14.7% and from prior year and gross margin was down slightly, 70 basis points to 39.2%. Decline reflects acquisition mix rather than pricing erosion both segments maintained pricing discipline overall. Adjusted EBITDA was $0.39 million compared to $0.6 million a year ago for the same quarter reflecting business and sales mix and softer legacy business demand. I would note the $1.08 million bargain purchase gain on TOA is a noncash item, which you'll see in our P&L and excluded from adjusted EBITDA, along with restructuring and other items detailed in the reconciliation in our MD&A for the -- for EBITDA. Operating cash flow was positive $0.45 million for the quarter through 2 integrations and cash at June 30 was $4.1 million. So just talking first half of '26. Overall, revenue was $34.3 million, up 7.2% from $31.9 million in the first half of $25 million. Gross profit was $13.6 million for the first half of 26% at a 39.6% gross margin. Adjusted EBITDA for the first half was $0.06 million mainly driven by the soft first quarter, which Shawn noted, which had a negative adjusted EBITDA of $0.34 billion. But again, recovered positive for Q2. On to the segment segment level by segment for Q2 2026, E-commerce revenue grew -- was at actually $4.5 million for the quarter, up 22.8% year-over-year driven by the Grain acquisition, which closed in February, excluding Grain, e-commerce revenue declined approximately 12% on a same-store basis, reflecting softer demand and lower quality inbound lead flow during the quarter gross margin remained very strong, 48.3%, our highest margin segment, while adjusted EBITDA was flat in the quarter versus a positive for the overall first half. Moving on to the next slide. For the Pro centers, Q2 2026 Presenter revenue was $15.2 million, up 14.9%, representing 77% of consolidated revenue overall for the business. If we exclude Tile of America, TOA, same-store ProCentr revenue declined roughly 2% and primarily reflecting softness in our Michigan locations. Presenter gross margin was 36.5% for the quarter and segment adjusted EBITDA grew to $1.55 million in the second quarter and $2.17 million overall for the first half, as noted earlier. Finally, on the balance sheet and liquidity side. Cash ended the quarter $4.1 million, down from $8.2 million at year-end, primarily reflecting the deliberate deployment of capital into the TOA acquisition and related working capital, again, partially offset by positive operating cash flow. Total acquisition cash outlays for the first half of the year were approximately $4.5 million across the 2 transactions that we've noted. Our revolving credit facility was drawn to $4.8 million at quarter end. -- compared to $3.6 million at year-end, reflecting acquisition-related working capital as well as the timing of certain quarter end working capital payments. And finally, total assets increased $9 million to $47.2 million largely reflecting the acquired businesses and associated working capital that came along with them. Our focus in the second half is working capital optimization across our inventory and payables, a disciplined capital deployment and maintaining appropriate liquidity to support the ongoing needs of the business. So I appreciate the time. With that, I'll hand it back over to Shawn.

Okay. Great. That brings me 1 I think is the most important story this quarter, the acquisition platform is working. We closed 2 acquisitions in the first half, grain custom wood in February added premium custom hardwood and national big box marketplace channels to our cover segment, demand sources we did not previously reached fulfilled to logistics infrastructure that we already owned. Tile AlisAmerica in May, J3 established profitable tile showrooms in Tampa, Sarasota and Fort Myers and anchored in a Florida cluster alongside our current using operations there. And look, we bought them well. TA was acquired far below the fair value of net assets roughly $0.78 paid per dollar net assets producing 1.08 million bargain purchase gain, which should be clear if we exclude from the adjusted EBITDA, required only a modest working capital true-up in the quarter, and both were funded from operating cash flow in our revolving facility on our last equity raise. This is the model, profitable flooring businesses bought with discipline, folded into a shared infrastructure all made better on our platform. Looking further out, we see a long runway of highly accretive growth. The flooring industry is large, fragmented and full of succession-driven sellers is actually the conditions rather the consolidator is built for. As a recent acquisition season, we're approaching a meaningful annualized revenue milestone and believe the same playbook that got oster scales well, well beyond it. Jay will now take us through our acquisition playbook and the grain in TOA K studies.

Thanks, Shawn. Good afternoon, everyone. On the next 3 slides, I'll walk through how we're applying our acquisition strategy and practice. What we're looking for, how we're underwriting the transactions and how we're integrating each of the businesses on to our build direct platform. We're targeting profitable specialty flooring retailers and distributors with strong local customer relationships and established operating economics. These are often founder family-owned businesses that are facing a succession decision include both physical showroom networks and e-commerce or marketplace-type platforms. Price discipline is central to our strategy. tile outlets of America is a really good example of this. We paid approximately $3.9 million for preliminary net identifiable assets valued at approximately $5 million, are about $0.78 for each dollar of net assets acquired. So that resulted in a $1 million noncash bargain purchase gain. Our acquisitions are funded prudently using available cash, operating cash flow and our revolving credit facility. We're underwriting each based on its existing cash flows and asset value with the expectation that it will be accretive, not on any assumptions that the market needs to recover. Once a transaction closes, we apply a standard integration playbook using common systems and reporting, consolidating purchasing aligning our merchandising and sharing back-office resources. Our goal is to add acquired revenue while keeping corporate overhead largely stable. Regional density also matters fostering location locations allows us to share inventory, management resources and freight lanes. As our purchasing volume grows, we also expect to create opportunities for improved profit margins across our platform. Grain custom wood is a good illustration of the e-commerce side of this strategy. We acquired Grain on February 2 and the business added premium custom hardwood products and access to national big marketplace channels. This is customer demand that we did not previously reached directly. Grain is a capital-light addition because its orders can be fulfilled through warehouse and logistics infrastructure that BuildDirect already operates. It also diversifies our e-commerce segment beyond demand generated through builddirect.com and Paech marketing. Grain contributed approximately $1.3 million of second quarter revenue based on our internal operating results, it was accretive to the e-commerce segment during the first half. The business was onboarded on to build direct systems and fulfillment processes during the first quarter of ownership. We've also seen improved gross margins as fulfillment and purchasing have moved on to our logistics network and supplier programs. Overall, I think grain demonstrates how we can add new products and sales channels and leverage the infrastructure we already have in place. Tile outlets demonstrates the showroom side of this strategy. We completed the Tile Outlets acquisition on May 12, adding 3 established Florida locations in Tampa, Sarasota and Fort Myers. The approximately $3.9 million cash purchase brought us roughly $5.4 million of inventory, together with the showroom operations and their associated lease arrangements. TOA contributed approximately $2.2 million of revenue during the roughly 7 weeks between the acquisition date and quarter end. Based on our internal operating data, its gross margin was approximately 46% compared with 36.5% for the overall Procenter segment in the quarter. So that made TOA margin accretive to the segment from the outset. Integration is now underway. We're moving systems, reporting and merchandising and purchasing onto our Pro centers platform, and we're connecting the 3 showrooms with our existing Florida operations. as purchasing is consolidated on the build direct supplier programs, management is targeting an improvement in TOAs gross margin from approximately 46% towards 50%. That's a forward-looking management target, not guidance, and it depends on purchasing integration, product mix and volumes. So I think -- this shows that we have 2 different businesses we acquired, but they demonstrated the same underlying model by profitable flooring businesses with discipline, integrate them into the shared infrastructure and use the combined platform to create operating leverage for the business. With that, I'll turn it back to Shawn to discuss our long-term outlook.

Okay. Great. Let me close on how we think about the path and here because the quarter matters in the pattern. The framework we manage is pretty simple. We buy profitable for businesses at 1 to 2x post-interesEBITDA, largely backed by inventory and hard assets. We run acquired locations towards 12% to 15% for wall EBITDA over our ownership period and the hold carpet costs largely flat acquired revenue lands, so operating leverage, not financial engineering is what compounds. Those management targets are not some targets on guidance, the assumptions behind them are put in today's materials. Our priority for the balance of 2026 -- 1 on the slide, integrate what we bought, we build the organic demand engine and stayed disciplined on the next acquisition. We maintained regular ongoing discussions with potential partners and we'll update the market if and when there's an defend of transaction to announce. I want to thank our teams across every location, including the people who joined us from Grain and Tile Allot of America this year for a quarter that shows that this platform can do. And with that, Bob, let's open it up for any questions.

Thank you, Shawn. We'll now begin the Q&A session. For those who have not submitted their questions, please submit them using the Zoom Q&A function at the bottom of your screen. -- or can send e-mail to ir@builddirect.com. So the first question we have here -- your previous acquisitions were smaller single store or e-commerce acquisitions, but TOA was a sizable high-quality business you purchased at a bargain price. Are there other acquisitions like TOAs quality and size in the funnel?

Absolutely. And I've commented on this in the past. TOA acquisition is a good indication of what's out there. the part that I would just think about a bit more basically, except for the grain acquisition, which was obviously more of a marketplace with a great opportunity we saw leverage if you buy 1 of these locations or 5, the economics are relatively the same. Intuitively, it's a bit easier to process a handful out of time versus 1 at a time. That's really more of our target base. So -- when you think about what we find the sleetspot, it's $20 million to $40 million companies with anywhere from 3 to 5 or 6 locations that are clustered as the adult target. And as I mentioned, really now for a while, there's -- we'll run out of time before there's a lack of targets in that range. And yes, very much the case.

Another question we have here. Can you expand on the TOA margin target?

It's kind of a big question. anything else moving that 1 or just if you frankly just the bridge up or...

Yes. It's -- what can you expect? Can you expand on the TOE margin target?