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Builders Firstsource Inc (NASDAQ:BLDR)
Q1 2021 Earnings Call
May 7, 2021, 9:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for joining Builders FirstSource first quarter 2021 earnings conference call. [Operator Instructions] Michael Neese, Senior Vice President of investor relations for Builders FirstSource will now provide the company's opening remarks. Please go ahead, sir.

Michael Neese -- Senior Vice President of Investor Relations

Thank you, Brad. Good morning, and welcome to our first quarter 2021 earnings call. I hope you and your families continue to remain safe and well. We only call our Dave Flitman, our CEO, and Peter Jackson CFO. Today, we will provide an overview of a record first quarter results, discuss the integration highlight and share how we are well positioned for continued success in 2021 and beyond. We have revised a gap results, which include BMC in Q1 of 2021 in stand-alone BFS in Q1 of 2020. We also provide a pro forma results as if we own BMC in Q1 of 2020. A slide deck in this morning's press release are available on our website at investors.bldr.com. The results discussed during the call will include gap and non gap 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. The reconciliation of these non GAAP measures to the corresponding gap measures were applicable and a discussion of why we believe they are useful to investors can be found at the back of the earnings press release. And in the presentation. remarks in the press release presentation. And on this call contained for 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 today's press release, and our SEC filings for various factors that could cause our actual results to differ materially from forward looking statements and projections.

With that, I'd like to turn the call over to Dave. Thanks, Mike. Good morning, everyone. And thanks for joining us. The positive momentum in our business continued with our record first quarter results. I very much appreciate the efforts of our more than 26,000 team members who are working tirelessly to provide best in class service for our customers in these unprecedented market conditions. They continue to grow our business while meeting the needs of our customers in a highly constrained supply environment. We're working closely with our customers and suppliers to reduce cycle times amid material availability constraints and capitalize on our nation's very strong demand for single family residential housing. In that context, the power of our platform is evident as we are seeing rapid growth across all product lines, and I could not be more pleased with our team's results. I'll cover five important topics on today's call. First, the positive macro and residential housing environment. Second, our record first quarter results in what drove our outperformance. Third, our excitement about how we think about our core business in a brief word on commodities. Fourth, an update on our latest acquisition and the strength of our m&a pipeline. And finally, an update on integration of BMC which is running ahead of our plant. I'd like to take just a minute and share why I remain bullish on our industry and our company. First, let's look let's look at residential housing. According to Freddie Mac, the US housing market is 3.8 million single family homes short of what is needed to meet the country's demand, representing a 52% increase in the nation's home shortage compared with 2018. The gap has widened significantly over the past two years, as Builders have struggled to keep up with demand, in part due to labor and material supply constraints. These challenges play to our strengths, including our structural component and value added offerings. In recent years, we have seen accelerating success in these areas. And we believe there remains a tremendous opportunity for demand and demographically fueled growth ahead of us. In terms of demand, according to the US Census Bureau, total housing starts jumped 19.4% in March to a seasonally adjusted rate of 1.7 4 million. The National Association of homebuilders reported that this is the fastest pace for combined single family and multifamily construction in 15 years. There are only about 1 million existing homes for sale at the end of February. A nearly 30% drop compared with February of 2020. That is the largest Annual decline ever in the lowest supply on record. This should bode well for a strong construction pace of new housing starts as we move into the summer season. Improving housing starts historically low mortgage rates and a shift toward single family living are all positive trends that remain tail winds for our products and services. We now operate in 47 of the top 50 and 86 of the top 100 essays, many of which are not only among the largest, but also some of the fastest growing Msh in the country. Our ability to manufacture and assemble structural components at our offsite facilities provides an integrated, one stop solution that helps solve the most challenging needs for our customers, labor availability and jobsite productivity. As a result of this area of strength and innovation. We expect to continue to outpace market growth for many years to come. Now let's turn to our record first quarter results. We delivered another very strong top and bottom line quarter. And importantly, our organic growth again outpaced mark the market as we continue to gain market share. On slide three of our investor deck on a combined basis for BFS and BMC. Total Sales grew 54% to $4.2 billion. Our core organic sales growth increased 22% gross profit increased more than 50% and adjusted EBITDA increased in impressive 187% to $455 million. These record results reflect the favorable housing market, our industry leading position, our ability to deliver value and a continuation of our disciplined approach to cost management. We firmly believe our core organic sales growth is sustainable for the long term. And we are positioned for outperformance through economic cycles. We ever received questions from analysts and investors over the past quarter about commodities, wondering what our underlying growth would look like in recent years if we normalize the commodity side of our business, bowling commodities flat at $400 per 1000 board feet. Our estimates show we have outpaced market growth by 20% from 2018 through 2020, resulting in a roughly 8% revenue kegger. And that momentum continues to accelerate in the first quarter of this year. That another way, we have consistently demonstrated our ability to far outperform the market and take advantage of our differentiated product platform. Now as a combined entity, we have the geographical presence and even stronger platform to further advance our strategy. Turning to m&a we announced today that we closed on our most recent acquisition earlier this month. John's lumber, a premier building material supplier serving the largest housing market in Michigan. The acquisition provides enhanced scale that will benefit our existing 14 locations in the state. The company generated approximately $49 million in net sales for the trailing 12 months ended March 31 2021. We're excited to welcome the john lumber team members to the BFS family. With our very strong balance sheet and robust free cash flow generation, we will continue to reinvest in our business while actively pursuing m&a opportunities. As you can see on slide five, we have identified over 500 targets. And we will continue to be a consolidator in this industry for a long time to come. Finally, I'd like to update you on the BMC integration. Our efforts are ahead of schedule, and we remain highly confident in achieving three year cost synergies of 130 to $150 million. For 2021, we expect to meet or exceed 60 to $70 million in realized savings. We saw merger related cost savings begin to accumulate in the first quarter and are accelerating in the second quarter. We continue to drive our internal operating system which will allow us to accelerate productivity, improve processes, and continue to grow our margins. While servicing our customers more competitively. We believe we can continue to help offset cost escalation with our off site manufacturing processes and other value added products including truss millwork, wall panels and ready frame. We're also seeing positive momentum in our growth efforts as our teams work together to leverage our scale and product strengths. The early returns are reflected on our exceptional first quarter results. These are exciting times and we are continuing to build our world class home building distribution platform that positions us as a partner of choice. Before I turn the call over to Peter, I would like to highlight one of our many valued team members may his Military Appreciation Month. Throughout the month, voters first sources celebrating our many veterans and profiling several of their success stories. One such story focuses on Jason Bennett, the general manager of our disappear Wisconsin lumber location, he joined BFS five years ago, after serving for 23 years in the US Army. As a first sergeant Jason was responsible for 200 soldiers ensure their safety, welfare and training while on active duty roles. And he learned key management skills that would last long after his military career. Whenever it was time to retire from the military, Jason looked for a company that shared the values instilled in him in him by the army, and he found that in Builders FirstSource Jason joined BFS as a Delivery Manager in Colorado Springs, and immediately fit right in. He worked his way up to operations manager and then General Manager. He led his team in adopting new logistics technology, specifically our delivery and dispatch management system, and was able to increase delivery efficiency by 20%. Jason is now a general manager in Wisconsin, where he focuses on the safety of his team members and customers his location and continue to act in a free Street and recently hit for years. Without a single recordable incident. We are proud to be a place where veterans feel valued and where their skills and experience translate into a reward rewarding civilian career for grateful red for veterans like Jason and how they've served our country and are pleased to have them as part of the VFS family. With that, let me turn the call over to Peter to go through a detailed look at our Q1 results in our 2021 updated financial guidance.

Peter Jackson -- Chief Financial Officer

Thank you, Dave. Good morning, everyone. I too would like to thank all of our team members for delivering fantastic results in this unprecedented environment. Your focus and execution is frankly, incredible. I'll cover three topics with you this morning. First, I'll review our combined first quarter results compared to the pro forma results from the prior year quarter. Then I'll discuss our free cash flow in strong balance sheet. And finally, I'll provide updating guidance on the market and our forecasted results for full year 2021. net sales of $4.2 billion for the quarter increased 54.1% compared to the combined pro forma prior year period. Value Added core organic sales increased by 22%. Led by 41.5% growth in our manufactured products category, and 7% growth in our windows doors and millwork category. commodity price inflation increased net sales by 31.3% and acquisitions contributed 2.4% to net sales growth. In Q1, we experienced stronger than expected demand in single family starts across the country. And we are well positioned to support that demand. Our strong relationships with suppliers enable us to bridge product availability constraints, and our value added products and services provide relief from labor shortages. Our Q1 gross profit of $1.1 billion was an increase of 52.1% year over year. Gross Margin of 25.6% was slightly better than expected, but decreased 40 basis points compared to the prior year period, primarily due to a one time purchase accounting adjustments. In light of the dramatic increase in costs this year, especially in commodities. I am pleased with our performance driven by the disciplined execution of our procurement and sales teams. sgma increase 35.3% in the quarter, driven primarily by higher variable compensation related to the increase in profitability, as well as depreciation and amortization and one time charges primarily related to the BMC merger.

Excluding these variables underlying sgma decreased by 2.6% sgma as a percent of sales decreased 270 basis points to 19.7%. And it cost leverage on higher sales and continued strong expense controls, which more than offset higher variable costs. adjusted EBITDA increased 187% to $455.2 million driven by strong demand in Single Family new construction, commodity price inflation and cost leverage. Our adjusted EBIT margin improved to a record 10.9%, which was a 500 basis points compared to 5.9% in the same combined pro forma period a year ago. leverage on sales along with cost management and early synergies drove margin expansion. Core organic value added product sales were especially impactful due to its rapid growth and higher average margins. We are in the early innings of our cost, synergies and pricing opportunities. We and we are accelerating our synergy capture and leveraging our combined capabilities. Let's turn to our first quarter cash flow, which was an outflow of $237 million due to our normal seasonal timing of working capital. In the quarter, we used $200.5 million in operating activities primarily related to investments of over $500 million in net working capital. At the end of the first quarter, our pro forma net debt ratio was approximately 1.2 times our LTM adjusted EBIT da, we have no long term debt maturities until 2027. And our total liquidity was approximately $1.1 million, providing us with significant financial flexibility. Our strong first quarter results are a testament to our category leading team and product portfolio meeting the demands of the of the strong market momentum. While the impact of increased commodity costs is evident in our results, what is most important to us is that we continue to generate exceptional and sustained growth in our core business with a strong margin profile. The focus of our business is in higher margin, specialty and value added products and services.

Our portfolio of efficient problem solving products such as trusses and millwork, continues to grow faster than the overall market. These specialty and value added products and services have improved our margins over the years as we help our customers solve labor availability, speed of construction and quality challenges on the job site. And as we have continued to consolidate the industry, we have created a consistent trend of improving operations and driving the above market growth while delivering accelerating EBIT, da fall through we have clearly created a competitively differentiated platform that can drive above market growth, accelerate that growth with m&a and deliver fantastic bottom line results in any market environment. Let's turn to our 2021 full year outlook. We continue to see strong underlying demand in both new housing, construction and remodeling. As we anticipated, builders are seeing such strong demand that they are limiting sales in certain communities to keep from increasing backlogs due to material and labor availability constraints. Consistent with our first quarter results are strong organic sales continued in April. Based on our Q1 performance, our positive conversations with customers are realized synergies with the BMC acquisition and a better view of our pricing and cost environment. We are increasing our full year 2021 outlook. We expect full year net sales to grow to a range of 16 to $17 billion or approximately 25 to 33% over our 2020 pro forma net sales of 12 point 8 billion. This is driven by an increase in single family starts as well as record commodity prices. We expect adjusted EBITDA to be in a range of 1.75 to $1.85 billion, or approximately 64 to 73% over our 2020 pro forma adjusted EBITDA of $1.07 billion of the $500 million increase in adjusted EBIT a guidance from last quarter roughly half is driven by for organic growth in share gains, while the other half is driven by higher commodity prices. As a result of that outperformance we are increasing the midpoint of our free cash flow guidance by $550 million to $1.4 billion.

Our outlook is based on several assumptions which are outlined in the earnings release, including low double digit growth in single family starts across our geographies. I single digit to low double digit decline in multifamily starts and low to mid single digit growth in r&r Our commodity assumption provides a five to 15% lift to our top line growth. Marine costs remain high, with reason futures trading over 16 $100 per 1000. While levels remain elevated so far this year, we anticipate commodity prices to normalize by the fourth quarter. For some added context, if commodity prices were to stay elevated at current levels through year end, we would expect to exceed our current guidance. During the capital allocation, we are committed to reinvesting in the business for maintenance and growth. We are focused on increasing our capacity through our list of internal capex projects. And we have a solid pipeline of m&a candidates. As Dave mentioned, we have already executed one bolt on acquisition this month, and we are looking at several more, we continue to assess capital allocation options in light of our accelerating cash flow. Our local field teams are focused on delivering strong quarter organic growth. And we continue to proactively manage expenses across our distribution footprint. We will meet our or exceed our cost synergy goals of 60 to $70 million this year, and also deliver on our operational excellence initiatives. Overall, we are continuing to build a world class distribution network to deliver exceptional value to our stakeholders. We have never been more excited about our strategy and our future.

Let me turn the call back to Dave for his closing remarks.

Dave Flitman -- President

Thanks, Peter. With underlying demand, the strongest has been in nearly 15 years, coupled with a broad based product supply constraints and our country's continued recovery from a horrific pandemic. These truly are unprecedented times. I couldn't be more pleased or proud of how our team has responded. We delivered core organic sales growth over 20%, while also successfully managing through one of the largest mergers this industry has ever seen. We have the right strategy. We have the best team on the field, and we're executing at a very high level. Our future is bright. And I'm highly confident in our ability to continue to outpace industry growth while operating in a $120 billion addressable market. Thanks for joining us today.

With that, Brad, let's open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we'll take our first question this comes from Keith Hughes with Truist.

Keith Hughes -- Truist -- Analyst

Thank you many, many good things in this release. I guess one of the jumps out are some of the success you've had in manufactured products. Could you talk about what went well, during the quarter? And what sort of your outlook for those products and live this revenue guidance that she'd given us?

Dave Flitman -- President

Good morning Keith Thanks for the question. Yeah, as you point out, we've had a lot of success for manufacturing products. And I think it goes back to the success that each company was having individually, it was part of our strategies. It was something that we focused on historically. And what we've seen over the last few years is increased penetration and adoption by the home builders, because it's solving those problems we talked about it helps them build the homes faster, it helps them manage the jobsite more effectively, and just be overall more productive. And we're excited about it. You know, as you pointed out, you know, their organic growth and components was about double what our core organic growth was this quarter, which was outstanding. We expect that will continue. We continue to see rapid adoption in these component categories. No one is better positioned than we are in terms of being able to supply the needs of our customers in this area across the country. And so we're excited about Yeah, so we've added shifts, we've added facilities and we'll continue to go down that path absolutely.

Keith Hughes -- Truist -- Analyst

Okay, and one other question, progress margin. You talked about the purchase accounting adjustment in the quarter as you look within this guidance range with gross margin, what would it What would it look like for the three year based on what we know today and the numbers.

Dave Flitman -- President

Yeah, I think we're we're feeling pretty good about being able to hold stable maybe even see a little bit of tailwind depending on you know, the trajectory. It's a it's a dynamic market is you know, price increases not just in commodities but across the board been very impactful But in terms of our discipline and our structure around passing through those prices, we've done a good job very proud of the team. And I think we can continue to, to perform at this level. I think it's something we're very proud of.

Keith Hughes -- Truist -- Analyst

Okay, thank you.

Operator

Thank you. Thank you. And we'll take our next question from Matthew Bouley with Barclays.

Matthew Bouley -- Barclays -- Analyst

Good morning. Well, congrats on the results, everyone, I concur with the prior comment that there's a lot of good topics to discuss here. My first one will be on m&a. I think it was notable that you included that m&a opportunities slide in your earnings presentation this morning, you know, reminiscent of the slide you had at BMC. You know, and you completed the acquisition of John's, which, you know, we actually thought that the integration, you know, may preclude some m&a at least further into 21. So, congrats on that as well. My question is, you know, how have you continued to cultivate this pipeline that, that you're now disclosing, you know, amid the integration, in terms of your own capacity to do so. And, you know, how does your common or does this commentary suggest, you know, potentially something more programmatic on the m&a side on the horizon? Thank you.

Dave Flitman -- President

Yeah. Great question, Matt. Thanks for thanks for asking that one. So, you know, as you pointed out, it's been a part of our strategy in both legacy companies. And as I said, on the last call, and I'll say, again, here, this integration with between BFS and BMC, could not be going better. Our teams have come together extremely well, you heard our comments on the synergies, we're ramping those up, we're having great success, the teams have meshed together extremely well. And obviously, based on our first quarter results, we stayed focused on our customers and meeting their needs, which is exactly what we needed to do. Importantly, you know, the fourth pillar of our strategy is m&a. And we have an extremely strong balance sheet. You know, as we've talked about, we have a relatively small overall share and a very large market. It's an important part of our strategy. We've got the wherewithal and the focus to continue to drive acquisitions. And as you pointed out in my, my comments this morning, we're focused on.

Matthew Bouley -- Barclays -- Analyst

Wonderful, OK, well, we'll help helpful color there. And then second one, I wanted to ask manufactured products again, because, you know, at a high level, you would say, it's not a coincidence that was framing lumber prices, this extreme, you know, in the near term that, you know, may foster adoption of prefab components is a question, Is that too simplistic? Or have you found that, you know, as into this spring, that builders are actually coming to you even more so now looking for options to address this issue and what you can do for them on the component side? And really, you know, longer term does something like this, you think impact the penetration of manufactured products going forward? Thank you.

Dave Flitman -- President

Sure. I think what you've seen is steady adoption of these component categories over the past several years, and both legacy companies, obviously, we've got a very strong team on it is Peter, as mentioned, you know, we've added capacity in several locations across the country, you'll continue to see us invest, not only in component manufacturing, but automation of those facilities, to make sure that we're meeting the demands of the marketplace, and we're providing as high quality and consistent product as possible. to your question, I think the adoption continues to accelerate. Some of it is probably related to, you know, what's going on with commodities near term. But more importantly, and I think more broadly, what we're seeing is the customers that have experienced the benefits of our component offerings are adopting those more rapidly across their geographic footprint. And that's probably the greater tailwind and what we're seeing here over the near term. I do believe it's sustainable, I believe will continue to convert the market this way. And, you know, we'll continue to invest in this category, that bit of the business.

Matthew Bouley -- Barclays -- Analyst

Makes sense Yes. That's exactly what I was wondering. So so thank you for those details. Dave, and congrats and good luck this year.

Dave Flitman -- President

Thanks a lot.

Peter Jackson -- Chief Financial Officer

Thanks you.

Operator

Thank you. And we'll take our next question from Mike Dahl with RBC Capital Markets.

Mike Dahl -- RBC Capital Markets -- Analyst

Thanks for taking my questions. My first question is, OK, probing on manufacturing, and then tremendous results there. If you were to kind of run raid or analyze the levels that you're seeing today, what utilization rate would you be across your components footprint? And can you elaborate a little bit more you talked about adding shifts and investments, can you kind of just refresh us or outline some of the incremental steps that you're you're taking, if possible, any any sort of quantification around additional investments and plants that, you know, may or may not have changed over the past few months in terms of plans for 2001.

Dave Flitman -- President

Sure, yeah, I mean, for context, you know, we've got well over 100 facilities we've opened between the combined entities around 13. Over the last few years, we've continued to invest in terms of capacity utilization, you know, a recent analytic on a single shift baseline would say we were about 75% capacity, add about 75% capacity. And, you know, Mike, we've talked about this before, that's a very, it's a tough description, because that's on an average. So you've got some facilities that are below in some above that number. But we certainly have a really nice trajectory right now, in terms of being able to leverage those new facilities, get them more fully ramped up, but also be able to do things like add second shifts, which, as you know, doesn't quite double but nearly doubles the capacity of any given facility. Also, adding lines, also adding automation equipment to increase the productivity and capacity of any one of those lines. That's been the primary way that we've responded. You know, more recently, our Riverside facility in California has come up and running. You know, we've been able to add capacity at other facilities, a number of other facilities, double digit facilities around the country through new equipment. So certainly, it's an area that we've gotten pretty good at extracting more volumes.

But at the end of the day, our forward look is absolutely adding footprint, new locations around the country, the adoption in certain markets, in particular is very encouraging. And we see that as a long runway of strength. As you know, admittedly, the adoption is good, but the incremental share of how much of the home is built off site, we're continuing to grow. And we think the trend continues to come our way with those labor costs going up, which inevitably happens in a market like this. But every time a cost goes up, those efficiency savings that we provide with manufactured products are magnified. We can save, you know, 10 board feet away based on a particular trust, it's more meaningful at 1600 than it is at 400. pairs right on and just just add an exclamation point to that, you know, we talk about our number one priority for uses of capital to be reinvesting in our company. The first portion of that goes to maintaining our facilities and making sure our people have what they need to get our products to the customers. The second order of priority is this area of our value added capabilities and continuing to invest heavily in that area of the business.

Mike Dahl -- RBC Capital Markets -- Analyst

That's great, very helpful. Second question, much as I'm tempted to push you on some of your conservatism, commodities, I'll switch over to the capital allocation question here. pierpoint, Dave hung in there. So obviously, first and foremost, investments for organic growth. You talked about the m&a pipeline a bit also. But if we look at your cash flow and your leverage profile, I mean, you're you're on track to be, you know, zero net leverage a year end, if not in a net cash position, you know, barring future m&a. And so when you when you look at that pipeline, as impressive as it is, it seems like there's going to be plenty of excess cash flow available beyond your organic investments beyond m&a. As you think about kind of priorities for that use of cash and comfort level in terms of then actually implementing a plan, whether it's buybacks or dividends. And you just give us a little more color or an update on on how you're thinking about that there just seems to be an awful lot of dry powder.

Dave Flitman -- President

You're right, Mike, we have a very strong position right now, our cash flow is tremendous. You know, we've we've talked in the past about wanting to maintain a fortress of bulletproof balance sheet, I think we have every reason to be confident in that right now, based on what we've done, and we'll continue to stay vigilant. Dave mentioned our priorities around capital allocation with regard to internal investment and and, you know, expansion internally and organically but also the inorganic opportunities are certainly out there. I think it's a fair question, right? We are going to generate a tremendous amount of cash. And what and I'm, I'm very specific when I say going to because as you see in our results, now we've borrowed money this quarter, so we're not sitting on cash. This is not a burning platform. We are absolutely looking at it. We continue to work with our board come up with strategies that we want to put to work in terms of putting all of our capital to work in an efficient way. You know, we've talked in the past that About being committed to retaining some level of leverage in order to maximize shareholder return, we will stay committed to that. We just don't have any new announcements today.

Mike Dahl -- RBC Capital Markets -- Analyst

Okay, appreciate it. Thanks for the color.

Dave Flitman -- President

Thank you.

Operator

And we'll take our next question this comes from David Manthey with Baird capital.

David Manthey -- Baird capital -- Analyst

Yeah. Hey, good morning, everyone. Clearly, you raised your, your guidance for single family housing, from high single digit to low double digit growth. And it's safe to say that you're not seeing any signs of demand destruction because of the high labor, the high lumber prices, I should say. And then what I'm wondering is, are there any changes in tone of the business in any other way? I'm thinking like, you know, what you're seeing in size of homes or stress on custom homebuilder balance sheets or anything that's beyond the obvious here sort of a tangent something else we should think about as relates to these unusually high lumber prices?

Dave Flitman -- President

Yeah, that's a great question. We're keeping our either ear to the ground on that, because obviously, we're we're making sure that our optimism at this point isn't misplaced. The short answer is no, you know, the, the demand is tremendously strong. One of the things we said in the last call that I think was met with a little bit of skepticism is this idea that there's going to be a limit on how many homes builders can build, even though there's virtually unlimited demand for those same homes, the level of announcements, I don't remember which analysts who put it out there, but you know, 54% of home builders have announced constraining sales in some number of communities around the country, they're recognizing an inability to deliver homes at that high level, that, again, is really a sign of that strong demand is far less about, you know, suppression of that demand by the level of prices, as we see today. You know, some of these prices will normalize on their own, you know, that's definitely a theme of ours in terms of commodities that we do expect it to normalize over time. But in the meantime, it is certainly a matter of responding to that continuing strong demand, you know, keeping up with those shortages around the country and staying disciplined in our in our management of, you know, both the flow through to maintain our position as a premier supplier, but also to maintain our management over prices and make sure we're fairly compensated for the work we're doing but strength across the board.

David Manthey -- Baird capital -- Analyst

Okay, and then, when you noted that you're adding shifts, some other companies we talked to, they're saying that they're competing for talent with the Xbox right now. What are your views on labor? Not so much your customers labor situation, but but your own labor? In terms of your access to adding people today?

Peter Jackson -- Chief Financial Officer

Yeah, I think that's pretty consistent over the years, it's it's regional, we haven't seen widespread inability to get people that usual pockets of demand drivers, you know, certain numbers, certain members of the trust manufacturing world, challenging in certain areas. Now, there's things you can do there are, you know, certainly we're doing well, our profit sharing, and bonuses are motivational to folks, we like our driver pay, you know, models in a lot of markets, and we're continuing to enhance that. Certainly looking at shift differentials. So there are things you can do to react in a measured way that allows you to, you know, evolve and respond, depending on how the market is doing things pull back, we could pull back. But we haven't had any, any massive issues to date, you know, pockets here, and there.

David Manthey -- Baird capital -- Analyst

That seems like these trends are playing to your favor, which, which sounds good. So thank you. Best of luck, guys.

Dave Flitman -- President

Thank you.

Operator

Hank you. And we'll take our next question this comes from Ketan Mamtora with BMO Capital Markets.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Thank you for the question. I want to come back to, you know, some of the value added products that you'll have, as you look out over the next, you know, kind of three to five years and clearly it seems like you know, the housing backdrop is is supportive. How do you think you know, how do you see that, that sort of mix evolving from the current sort of 42% that you have right now. And within that kind of where do you see the most opportunity? And just related to that, how does it kind of shift Your margin profile?

Dave Flitman -- President

Yeah, so it's a great question. This is a dynamic time, the this the whole, you know, commodity pricing being at record level certainly is, has thrown us a curveball. You know, I would say that the mix of the business just because of the mathematical change has shifted toward commodities, it's probably roughly 50% at this point, based on the increased prices. And the long term though, the way we see the dynamic is very similar to where we were 12 months ago, and that's that value add continues to be an increasing part of the business over the last couple of years, at least, it's been the biggest component of the business, it with value in specialty making up, you know, 60 plus percent of what we sold in an average year, we think that continues, we think that trend of the broader product portfolio, as well as the emphasis and dependence of the greater homebuilding market on this off site approach, and given its deficiencies, given its, you know, ability to be safer and cost less in total. We think that continues to grow. There kind of is no top side to that, you know, we talked about BFS, you know, back as we came out of the Great Recession, before the pro build merger was about 50% value, add, you know, certainly think that's an that's an achievable goal in the long run. But again, this is a long game we're playing. I think what you've seen over time is both legacy companies had a strong emphasis on pricing models and getting more efficient. That's how we take price to the marketplace. And then secondly, you know, that margin profile, as Peter pointed out, and will continue to improve based on our penetration of value added products, which we see no into.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That's very helpful. And then just one other clarification between your prepared remarks, you kind of referenced your expectation of lumber prices, kind of normalizing by the fourth quarter of 2021. Is it fair to say, you know, kind of normalize, you're looking at something sort of in the historical average range of 400? Is that the right way to think about it, and I understand, you know, kind of prices, you know, are very volatile, but I'm just curious at a high level.

Peter Jackson -- Chief Financial Officer

That's how we think about it, that that long term average feels like the reference point that we need to continue to communicate against, recognizing that, you know, there's a displacement right now in prices, displacement and demand and supply, probably the primary issue being supply. But eventually, it'll go, it'll likely go back to a more normalized long term average, that 400 range. It's really just a matter of, you know, when are we right on that? We know we're not right. That's the nature of commodity forecasting. So we figured we'd give you a sustainable, consistent target to head toward when you think about our numbers, and you can adjust as you see fit in terms of your expectations of lumber prices.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. That it, I'll turn it over. Thank you.

Dave Flitman -- President

Thank you.

Operator

Thank you. And our next question comes from Reuben Garner with Benchmark Company.

Reuben Garner -- Benchmark Company -- Analyst

Thanks. Good morning, and congrats on the results in the outlook is very impressive. Thanks. Let's see. So question manufactured products has been hit pretty, pretty hard so far, you know, question wise, the 40 plus percent growth that you saw on the quarter versus the I think you said, 7%, and Windows doors and millwork? Is that just a function of timing of when those products are used in the job cycle? Is that just kind of showing you how maybe there's an acceleration in use of your manufacturing products? Or? Or is there going to be a, you know, a backlog of activity that you're going to see kind of an acceleration in the windows and doors as you move through the through the year?

Dave Flitman -- President

Yeah, good question. I think it's twofold. I think, I think the whole build cycle, as we've seen, you know, completions get extended out here, because it's just been extended. So it's just changed the point at which, you know, our millwork is brought into the home. And then secondly, we've talked a lot about this room, and the supply constraints have been hit pretty hard in the windows and door piece of the business. And, you know, we're getting what we need. But it certainly has had an impact on our growth. For the near term. We expect that it will correct here for the course of the year.

Reuben Garner -- Benchmark Company -- Analyst

Perfect. And then I love the comment about kind of normalizing lumber and you guys are growing at an 8% kegger the last few years. What What did the EDID flow through look like on kind of a normalized basis? Is there a good way to think about that?

Peter Jackson -- Chief Financial Officer

Yeah, that's a great Question, you know, we in looking at that analysis, historically we did get kind of a better sense. In, you've heard us Ruben talk about how we've got 12 to 15% fall through is sort of our standard incremental around sales. What we've noticed in these numbers is that the inclusion of the value add, mix, the inclusion of the operational excellence, as actually driven that a little better. So we're, we're in that kind of high teens range for the fall through related to our incrementals, when you include all of those components, the growth of the business. And then specifically to point out right now, the nature of commodities, and the way that the market is changed. The constraint, the velocity of everything that fall through is actually a little higher as probably right around 20% right now. So you know, pros and cons of that, certainly taking advantage of it right now. But you know, something to think about in the long run.

Reuben Garner -- Benchmark Company -- Analyst

Wow, that's, very helpful. Thanks, guys. And Congrats, again on the quarter. Good luck as we move to the year.

Dave Flitman -- President

Thank you.

Operator

And our next question comes from Steven Ramsey with Thompson Research Group.

Steven Ramsey -- Thompson Research Group -- Analyst

Hi, good morning. One of the biggest synergies a little bit, says you're ahead of target, which is great, but maybe Can Can you describe if that was maybe some conservatism going in? What areas you're ahead on? And what is causing that? And then lastly, there? Do you see this as getting to your target synergy faster? or potentially raising the total synergy target as you make more progress?

Dave Flitman -- President

Yeah, good question. I, you know, I don't think we went into this intending to be conservative, you know, that 130 to $150 million range, you know, as solid, and we're executing very well. And as you heard me say, you know, the teams have come together extremely well, in what what I think has been a thing, or two things. One is the cultural alignment of these two legacy companies very, very similar. And then secondly, and perhaps to your question a little more importantly, is, is the experience that our teams have had in executing large mergers in the past, our team's knew what to expect, we had very strong leadership that's been through this before. And we just got on with business. And so I think that's reflective of the early ramp up that we've seen here, you know, over the first quarter of work, you know, we're excited about it, you know, we can deliver more, we certainly will. But I would say, you know, at this point, we're ahead of our plan and feeling good about the momentum.

Steven Ramsey -- Thompson Research Group -- Analyst

Okay, great. And then last one on kind of a net working capital investment, cash outflow there. would this have been a greater cash outflow without material constraints that you guys have seen in relative to the cash outflow? Can't remember, if you discussed how much of this was due to investment to get the synergies?

Peter Jackson -- Chief Financial Officer

Yeah, from a cash outflow perspective, the investment percentage is pretty modest. We had talked about it being in the similar 130 to 150 range for expenses that certainly don't think we're going to outspend that forecast, either. Yeah, the end of the investment is really just in the incremental value of the inventory, that we're maintaining the normal increase in the amount of inventory that we would maintain at our, at our yards in order to carry the increased level of business, just seasonally. And then probably, you know, most importantly, at the end of the day, the incremental accounts receivable that ends up on the books at these higher price levels across the board. Would we usually would we otherwise have had more if not for the material availability constraints? I think the answer is unequivocally Yes. I don't know how much more I'm really run the math on that. But certainly there's there are areas around the country where it's quite difficult to get the level of inventory that we would normally have, you know, especially products like OSB for example, just extremely difficult to make sure you have what you need. And, you know, while we feel like we get more than our fair share, we drill like more.

Steven Ramsey -- Thompson Research Group -- Analyst

Great, thanks for the color.

Peter Jackson -- Chief Financial Officer

Thank you.

Operator

And we'll take our next question from Trey Grooms with Stephens. Thanks, this is actually Nolan casco [Phonetic] for Trey. and just want to say congrats on the really strong results.

Dave Flitman -- President

Thank you.

Nolan casco -- Stephens -- Analyst

So, so first following up on, I guess the answer to that last question. You know, there's been a lot of talk of material constraints across The industry, but overall, they don't really seem to be holding you back. So maybe if you could just speak to your outlook for lumber and other products, available availability, with everything being so short and just how you're able to manage through that.

Dave Flitman -- President

Yeah, I think, you know, to a large extent, you're seeing two or three things happening right now, first of all, I think you're seeing the power and the strength of the platform that we've put together here with our unmatched geographic presence, and the strength of our team. You know, secondly, I think, you know, you're seeing the power, the strong relationships that we've built through both legacy companies, with our suppliers, and they're doing their very best job to meet the needs that we have. And then third, I think, you know, we have seen a shift in the marketplace where the builders, just given the significance in the broad breadth of the supply constraints have been a little bit more brand agnostic, I think, to what what they're putting into their homes, just driven in large part by the need, and then given, you know, the access that we have to the broad base of suppliers and products, you know, we've been able to meet those needs probably better than most.

And we'd expect that to continue in from a forecast perspective. You know, we've talked about the inability of the broader industry to meet the massive amounts of demand. It No, I know you this, but I know, you know, this. But for the broader group, you know, we've talked about the seasonal capacity, availability, that the shoulder seasons by nature offer more opportunity for rapid percent growth, we always would have expected a far higher year over year percent growth in Q1, candidly, Q2, because of the COVID, laughing in Q4, just because summer months, always our max capacity every year. So we fully expect the ability to grow on a year over year basis to be suppressed as we get through those summer months. But you know, that's already accounted for in our numbers. It's not, it's nothing new. But I think it's just important to keep in mind that those, you know, offseason, if you will, shoulder season type of quarters will naturally lend themselves to eye popping percent increases.

Nolan casco -- Stephens -- Analyst

Yeah, that makes sense. And then just for my follow up on the the free cash flow guide, how much is expected from lower commodity prices flowing through to working capital?

Peter Jackson -- Chief Financial Officer

Yeah, so I actually feel pretty good about that forecast, regardless of whether or not prices for commodities come down or not, just because of the way the math works. If I if prices come down, I spin off cash and the prices stay up by make more EBITDA. So that that's number four.

Nolan casco -- Stephens -- Analyst

All right. Perfect. Thanks, and good luck going forward.

Dave Flitman -- President

Appreciate it.

Peter Jackson -- Chief Financial Officer

Thank you.

Operator

And our next question comes from Jay McCanless with Wedbush.

Jay McCanless -- Wedbush -- Analyst

Hey, good morning, everyone. So my first question, I know y'all gave the growth rate on value add, but what, as a percentage of net sales for this year. And last year? Where was the what was the value add percentage? value add percentage for the prior year? I'm not sure. Well, for this year and for the prior year.

Dave Flitman -- President

Yeah, so value add a year ago, I want to say was right around 40 41%. This year, it drops to 30. Is it in the presentation 36 or 736 37%? So you lose a few a few bits. It grew fast. But that Windows doors and millwork closed down the average. You know where you saw the the shrinking of the mix was really in the you know, the r&r, like you'd expect, right, the r&r, the multifamily. Some of those other areas that just don't don't keep pace right now with the single family starts businesses or products.

Jay McCanless -- Wedbush -- Analyst

Got it. And then I just I just wanted to clarify the builders may be slowing down some of their their sales, but they're not slowing down on the backlogs. Correct? It's because what we've heard is that cancellation rates are way down and that the builders still have a pretty, you know, in generally pretty heavy backlog to fill out. Is that Is that still the case?

Peter Jackson -- Chief Financial Officer

No question about it. They're full steam ahead.

Dave Flitman -- President

Yeah, those guys are full up there. They're not they're not pushing out sales because they need them. They're pushing out sales because they, they they're full to the brim.

Jay McCanless -- Wedbush -- Analyst

Okay. All right. That's all I had. Thank you.

Dave Flitman -- President

Thank you.

Peter Jackson -- Chief Financial Officer

Thank you.

Operator

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

Kurt Yinger -- D.A. Davidson -- Analyst

Great. Good morning, everyone.

Dave Flitman -- President

Good morning Kurt.

Peter Jackson -- Chief Financial Officer

Good morning Kurt.

Kurt Yinger -- D.A. Davidson -- Analyst

I just wanted to start on commodities. How is this volatility in the current environment changed how your customers kind of purchase a framing package and what type of risks Are you willing to take in terms of locking prices for a certain period of time?

Dave Flitman -- President

Yeah, I don't think it's fundamentally changed how people think about purchasing, I think there's certainly a bigger emphasis on making sure they're saying ambition, which I think lends itself to some of this off site, manufactured product model that we sell. I think there's also a willingness to consider substitution species and material substitution, we've certainly heard a lot more about that. It's an availability game, right? You're trying to make sure as well, as a home buyer, trying to make sure you get a house. But as a home builder, you want to make sure you're able to stay on some sort of a schedule. So the, you know, the expectations, the ordering ahead. You know, for us, it's making sure that we have a significant percentage of our buy that's on a contractual basis. So we make sure we're getting our, our place in line, if you will, you know, historically, and I know, you know, the start is that we've maintained a goal to keep a steady flow, we are going to be in the market consistently over time at our scale and our size and our demand around the country. We don't just sit on the sidelines for any meaningful period of time. That is true. Now, that will continue to be true. I think that maintains our relationships with the mills in a very positive way. And we will continue to make sure we're, we're building up inventory, you know, that you've got to be in this game for the better for worse, you know, we've talked about in the past in terms of the fixed price contracts. Certainly those contracts have shrunk in recent months in year as a percentage of our total sales. But it's still I think it's representative of the type of commitment we have to our customers that we've got the balance sheet, we've got the credit, we've got the relationships, we're your partner that you want to rely on to be able to get to what you need for you to be successful. And we're committed to having inventory to do that.

Kurt Yinger -- D.A. Davidson -- Analyst

Okay, OK. So to the extent that, you know, we were to see commodity prices roll over, you would still expect some kind of short term benefit, just from the trend in prices, that fair?

Peter Jackson -- Chief Financial Officer

Yeah, certainly less than it used to be right with with a reduction in the amount of fixed price contracts, you'll see less suppression on the way up and last expansion in the way down of the gross margin percent.

Kurt Yinger -- D.A. Davidson -- Analyst

Okay, got it.

Peter Jackson -- Chief Financial Officer

I did that mathematically It's small.

Kurt Yinger -- D.A. Davidson -- Analyst

Right. Right. Okay. And then just my second one, you know, it sounds like you're pretty confident in your one synergies? Could you just talk a little bit more about some of the other focus areas in terms of operational excellence, and, you know, any examples of wins as far as shared best practices since the businesses come together over the last couple of months?

Dave Flitman -- President

Yeah, I think this is a great area of what I mentioned earlier around cultural alignment, because, you know, but if you recall, both legacy companies had a strong focus on operational excellence. And we just carried that through, we've merged the teams together. And I've already started to focus on that, in addition to the synergies, and you know, some of the early things are just, you know, how do we most effectively get our products to the customers given the footprint that has come together, and we have seen a lot of benefit in taking miles out of the system in terms of how we've executed that shifted some customer demand from one location to another. And you know, we're seeing that benefit in the bottom line. So things like that, you know, where we're in how much inventory that we keep, you know, these are some of the early wins of the teams are already executing on.

Kurt Yinger -- D.A. Davidson -- Analyst

Got it Appreciate the color and Good luck in Q2 guys.

Dave Flitman -- President

Really appreciate it.

Operator

And we'll take our next question from Stanley Elliott with Stifel.

Stanley Elliott -- Stifel -- Analyst

Good morning, everyone. Thank you all for squeezing me in. What do you think about the m&a business I mean, obviously got a very strong platform for it. Are you seeing at some of these smaller operators come to you looking as an exit strategy for them in lieu, you're ahead of potential tax changes or you know, any changes or any issues that they may have from a capacity standpoint, given the credit line increase? I imagine for a lot of the lumber and etc.

Dave Flitman -- President

Yeah, I mean, every day, right? I mean, m&a, being the being the big dog means everybody calls us so we absolutely are everybody's exit strategy, which we love. The phones have been ringing Yeah. So yeah. You know, it's important though in that dynamic right is your you have to keep in mind as a buyer, the reality of what is a sustainable business, what is a mid cycle business, right, you can't pay the same multiples on a on a peak business. But there are tremendous opportunities out there to buy at reasonable multiples really tremendous assets, so It's good time.

Stanley Elliott -- Stifel -- Analyst

Yep, no exciting for sure. And then in terms of the footprint expansion and the focus on the manufacturing side, you are y'all have any problems finding real estate, you know, our supply chains constrained in terms of getting the machinery in. Anything like that would keep you from executing on that party strategy right now.

Dave Flitman -- President

I'd say less on the real estate side, certainly on the equipment side, you know, the the lead times on equipment have expanded over the last 18 months or so. But our teams are ahead of that. And taking that into account, we're already ordering things that we don't expect to put in the ground for quite some time. So, you know, we've got a pretty strong forward look on that, again, the teams have come together well, we've got experts around things like trust manufacturing, they know what they need, and how to get ahead of it.

Stanley Elliott -- Stifel -- Analyst

Perfect guys, thank you very much. Congratulations, and best of luck.

Dave Flitman -- President

Thank you.

Peter Jackson -- Chief Financial Officer

Thanks.

Operator

Thank you. And we'll take our next question. This comes from Collin Verron with Jefferies.

Collin Verron -- Jefferies -- Analyst

Great quarter. And thank you for taking my question. It looks like your guidance implies a full year EBITDA margin in line with your one to one with 11% just given once you typically this easily lowest, even margin quarter,can you just talk about the cadence of your expected margin performance to the rest of the year? And then just how you're thinking about EBITDA margin over the long term?

Peter Jackson -- Chief Financial Officer

Yeah, so I'm gonna won't break out the quarters. But yes, there's certainly a an expectation that our even margins are going to be higher this year, our flow through has been great. Our demand obviously has been very high. There is certainly a seasonal nature to what we do. So you know, inevitably you'll see some some nice quarters during the summer when we reach our peak peak utilization and peak leverage. You know, the the nature of our long term, you know, I think we've consistently talked about believing we get the 910 percent EBIT, we're certainly working on that internally every day. And we're in regard to what Dave was talking about on operational excellence, the efficiencies that we think we can bring into this business as industry, you know, through technology through operational improvements through process. So certainly committed to that and believe that in the long run, you know, the dynamics around any given quarter obviously, are a little bit unique, but for this year is going to be an exceptionally strong year, given the combination of high demand and, you know, record prices and certain products.

Collin Verron -- Jefferies -- Analyst

Great, thank you for taking my question.

Peter Jackson -- Chief Financial Officer

Thank you.

Operator

Thank you. And we'll take our final question from Ryan Gilbert with BTIG.

Ryan Gilbert -- BTIG -- Analyst

Hey, morning, guys.

Dave Flitman -- President

Morning.

Peter Jackson -- Chief Financial Officer

Morning.

Ryan Gilbert -- BTIG -- Analyst

First question, more on manufactured products. I'm wondering if you're seeing any builders or an increased percentage of builders, either going deeper into manufactured products outside manufacturing, or exploring opportunities to do so more than just you know, buying a roof truss or a wall package? Like maybe what, what what Rainey has been doing in Florida?

Dave Flitman -- President

Well, certainly Randy has done exceptionally well, in a market like this. They're a great provider, and I think very valued by their homebuilding customers. You know, I think Dave alluded to it before, it's really been consistent. It's not as if we ever had a lull in the demand for increased utilization. There are absolutely markets around the country. And I think we've alluded to this before, I've talked about this before, where historically you would not have expected to see a lot of demand for you know, that off site fabrication type of work. a state like Texas is a good example. You know, historically very low labor rates, precluded the need for the labor arbitrage that comes from you know, the off site fabrication, those days are gone. You know, there is absolutely strong demand in Texas. It's strong demand across the country. It's just hard to it's kind of hard to tell the difference, you know, you carrying 500 pounds or carrying 550 pounds? I'm not sure I could tell you what that what the difference feels like. It's it's a lot.

Ryan Gilbert -- BTIG -- Analyst

Okay, got it. You're adding capacity on the manufacturer, product side. Are you seeing your suppliers either in lumber, or in millwork doors and windows? Also add capacity or is it has it been pretty consistent?

Peter Jackson -- Chief Financial Officer

We are.

Dave Flitman -- President

Yeah. We've heard you know, Peter mentioned earlier about the tightness in OSB. We've heard there are a couple Mills up in Canada that are coming back online. You know, the same in the US particularly in the south, on the lumber side. So We're expecting that hopefully will will help from a capacity standpoint. And obviously the window and door manufacturers are making some more investments, investments here to try to capture as much of this demand as possible.

Ryan Gilbert -- BTIG -- Analyst

Okay, thanks very much.

Dave Flitman -- President

Sure. Thank you.

Operator

Thank you. And this concludes today's Q&A session. I would now like to turn the conference back to Mr. Michael Neese for closing remarks.

Michael Neese -- Senior Vice President of Investor Relations

Thank you for your time today and for your interest in Builders FirstSource. We're around all day to take your questions. Take care and stay safe.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Michael Neese -- Senior Vice President of Investor Relations

Peter Jackson -- Chief Financial Officer

Dave Flitman -- President

Keith Hughes -- Truist -- Analyst

Matthew Bouley -- Barclays -- Analyst

Mike Dahl -- RBC Capital Markets -- Analyst

David Manthey -- Baird capital -- Analyst

Ketan Mamtora -- BMO Capital Markets -- Analyst

Reuben Garner -- Benchmark Company -- Analyst

Steven Ramsey -- Thompson Research Group -- Analyst

Nolan casco -- Stephens -- Analyst

Jay McCanless -- Wedbush -- Analyst

Kurt Yinger -- D.A. Davidson -- Analyst

Stanley Elliott -- Stifel -- Analyst

Collin Verron -- Jefferies -- Analyst

Ryan Gilbert -- BTIG -- Analyst

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