Builders FirstSource (BLDR) Q2 2026 earnings call transcript

Good morning and welcome to our 2nd quarter, 2026 earnings call. With me on the call are Peter Jackson, our CEO, and Pete Beckman, our CFO. The earnings press release and presentation are available on our website at investors. cldr. com. We will refer to the presentation during our call. The results discussed today include gaps and non-gap results adjusted for certain items. We provide these non-gap results for informational purposes, and they should not be considered in isolation from the most directly comparable gap measures.

You can find the reconciliation of these non-gap measures to the corresponding gap measures where applicable, and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and presentations.

Our remarks in the press release presentation and on this call contain forward-looking and cautionary statements within the meaning of the private securities litigation reform act and projections of future results. Please review the forward-looking statement section in today's press release and in our SEC filings for various factors that could cause our actual results to differ from forward-looking statements and projections.

With that, I'll turn the call over to Peter.

Thank you Heather, and good morning everyone. Our second quarter results reflect the strength of our differentiated platform in the adaptability of our operating model. We remain focused on the factors within our control, including managing the business with discipline and leveraging both our technology capabilities and our value-added solutions. This approach continues to strengthen our position as the partner of choice to home builders.

While housing market conditions remain weak, we are continuing to invest in innovation and capabilities that enhance the customer experience, improve efficiency across the value chain, and reinforce our competitive advantages. Our business model is built to perform through the cycle, and we are confident in our ability to outgrow the market over time and create sustainable, long-term value for our shareholders.

Now let's turn to slide four. Our second quarter performance underscores the resilience of our platform in a challenging housing environment. Sales and adjusted EBITDA were in line with expectations supported by the strength of our team, our value-added solutions, and the discipline embedded in how we run our business.

Before turning to our strategic priorities, let me spend a moment on the market backdrop. Ongoing geopolitical uncertainty, persistent inflation, and elevated interest rates continue to weigh on affordability and consumer sentiment, creating a challenging demand environment for new residential construction.

In response, we have lowered our full year guidance to reflect a more cautious view of housing starts. He will walk through the updated assumptions in his remarks.

Despite these macro headwinds, we remain committed to executing our strategy with a sustained focus on share growth, continuous improvement, and proven capital allocation. We cannot control the market, but consistent execution against these priorities will strengthen how we operate today and position us to accelerate growth as conditions improve.

In single-family, builders are actively managing elevated inventory levels and costs in certain markets. At the same time, they are moving towards a greater mix of built-to-order homes versus specs. This environment plays to our strengths, and we expect to capture share by delivering outstanding customer service, bundling our broad product portfolio to drive affordability, and applying technology in ways that make our sales teams more effective.

Performance varied by region, with continued softness across Texas and Colorado partially offset by relative strength in the northeast. The multifamily, higher interest rates have pushed out project start dates, and bidding remains competitive. As the industry works through existing projects and occupancy rates remain below desired levels in many markets, developers continue to take a cautious approach to new starts. Based on the current pipeline, we expect multifamily results to remain pressured through the balance of the year.

By five, highlight how we are navigating the current environment while preserving the flexibility to invest for the long term. Our operating model enables us to right-size capacity, control spending, and align working capital with demands, all without compromising our commitment to customers.

We have consolidated 36 facilities so far in 2026, and 91, in total, over the last three years, while maintaining an on-time and in full delivery rate above 90%. These actions build on the broader cost discipline that people detail.

Supported by our industry leading scale and leadership team, we are confident in our ability to manage through today's environment while strengthening the operating leverage we expect to realize as the market recovers.

Slide six lays out the key initiatives underway across our four strategic pillars. This quarter, we believe we maintained our share in a challenging market, generating $28 million in productivity savings through targeted supply chain and logistics initiatives, and made steady progress on our SAP implementation.

Together, these efforts reinforce our ability to compound value over time. Turning to slide seven, in the second quarter, we deployed approximately $50 million towards return-enhancing opportunities aligned with our capital allocation priorities. Strong, free cash flow generation through the cycle gives us the flexibility to invest in the business, pursue a creative acquisitions, and return capital to shareable.

Turning to slide eight, M&A remains an important lever in our capital allocation framework. We are focused on pursuing acquisitions that enhance our value-added product offerings and strengthen our position in desirable geographies. In June, we acquired precision design in trim, expanding our installation capabilities in the Boise area. Since the BMC merger in 2021, we have completed 42 acquisitions, representing nearly $2.3 billion in annual sale. The equivalent of a top six LBM player.

With the industry still fragmented, we see significant runway ahead and expect M&A to remain a key contributor to our long-term growth. Turning to slide nine, as we continue to advance our digital strategy, we are sharpening our focus on the areas where we believe we can create the most meaningful near-term value.

Based on what we have learned from our AI and digital investments today, we are increasingly prioritizing initiatives that improve the effectiveness and efficiency of our sales teams, enhance customer connectivity, and integrate seamlessly with the growing home-builder technology ecosystem. We continue to direct our resources towards practical, scalable capabilities that support growth, improve execution, and better serve our customers.

While protecting and building on the digital capabilities and IP, we have developed. We remain confident that technology will be an important long-term differentiator for the FS, and we are ensuring our investments are aligned with opportunities that will drive the greatest value for our business.

Highlighting one of our team members is something I look forward to every quarter. Today, I want to recognize Ralph Cummins, an inside sales representative at our Vainbridge Island, Washington location, who is celebrating 40 years with BFS and our legacy companies. In 1986, moviegoers were introduced to the original Top Gun, and that same year, Ralph began his journey with our company.

Both have stood the test of time, although Ralph has had a much bigger impact on the people around him. Ralph has built his career in retail sales and takes pride in keeping the store's inventory aligned with what customers need. He maintains a close pulse on the local market, consistently sharing insights that help the Vainbridge Island team better serve the builders and contractors that count on us.

Ralph is also known for one especially sweet tradition. Every week, he bakes cookies for the team and our customers. Thank you, Ralph. Call sign sweetness. It's team members like you who make me proud to lead VFS. I now turn the call over to Pete to discuss our financial results in greater detail.

Thank you, Peter, and good morning, everyone. Our second quarter results reflect the continued discipline we are applying across costs, working capital, and capital deployment. We remain focused on operating in efficiently today while advancing the initiatives that support durable growth. According to the second quarter results on slides 10 through 12, net sales decreased approximately 9% to $3.9 billion, reflecting lower organic sales and commodity deflation, partially offset by growth from acquisitions.

Organic sales declined 8% in single family, 10% in multifamily, and 2% in repair and remodel. These results were generally in line with our expectations given ongoing market softness and consumer uncertainty.

As we noted on recent calls, several factors reconcile single family starts to our core organic sales. First, there is an approximate three month lag between a start and offer sale.

Second, the value of a comparable start has declined by roughly 10% on average since 2019 as homes have become smaller and more value engineered.

Third, the affordability pressure has extended into pricing across the supply chain, contributing to lower average selling prices per start.

Against this backdrop, we believe that we have maintained share in the quarter, reflecting the competitiveness of our value proposition and our role as a trusted partner to home builders.

For the quarter, gross profit was $1.1 billion, a decrease of 16.3% compared to the prior year period. Gross margin was 28.1%, down 260 basis points, primarily driven by a declining start's environment and related headwinds, adjusted to SG&A of $781 million decreased $37 million, primarily due to lower variable compensation, reduced head count, and the benefits of cost actions, partially offset by our acquired operations, and higher fuel and delivery expenses.

Building on the actions we have already taken, we remain on track to deliver our previously announced $100 million of cost reductions. As we continue to proactively manage the business, we have identified an additional $40 million of run rate savings, increasing our total cost actions target for 2026 to $115 million.

As a reminder, these specific actions include deeper cuts to overtime and temporary labor adjustments to incentive compensation plans, reduced merit and overhead spend, additional facility consolidations, and tighter controls and discretionary spending. These incremental actions are reflected in our updated guidance and reinforce our ability to protect profitability, generate strong free cash flow, and preserve the flexibility to invest in the business through the cycle.

Adjusted EBITDA was $329 million, down 35%, and adjusted EBITDA margin was 8.5%, down 350 basis points, primarily due to lower gross profit and reduced operating leverage on the sales decline.

Adjusted EPS was $1.17, a decrease of 51% compared to the prior year. Now let's turn to the cash flow balance sheet and liquidity on slide 13. Our second quarter operating cash flow was $68 million, compared to $341 million in the prior year, reflecting lower net income. Free cash flow for the quarter was $32 million.

On a trailing 12-month basis, our free cash flow yield was approximately 7%, and operating cash flow return on invested capital was 10%. Our net debt to adjusted the EBITDA ratio was approximately 3.6 times. While above our long-term target, we remain comfortable with our leveraged position. Our position is supported by $1.6 billion in liquidity and our strong free cash flow generation.

We expect to move back within our target range as EBITDA recovers with the market. Second quarter capital deployment included $36 million of capital expenditures and $14 million on acquisitions, with no share repurchases in the quarter.

Slide 14 and 15 outline are updated 2026 Outlook and Assumption. Our guidance reflects continued weakness in housing starts, ongoing affordability pressure and a more cautious consumer. Compared to 2025, we now expect single-family starts to be down nearly 7%, while that family starts down 4%, and repair and remodel activity down 1%.

As a result, we are guiding net sales in the range of $14 to $14.8 billion, adjusted EBITDA of $1 to $1.2 billion, and adjusted the EBITDA margin of 7.1 to 8.1%.

We expect our 2026 full-year gross margin to be in the range of 27.5 to 28.5%, reflecting below normal starts activity.

We expect free cash flow of approximately $400 to $500 million. Our guidance assumes average commodity prices in the range of $390 to $410 per 1,000 foot in line with the long-term average of $400.

While lumber prices have pushed slightly higher, OSB remains weak. For Q3, we expect net sales to be $3.6 to $3.9 billion and adjusted to EBITDA to be $275 to $375 to $325 million.

In closing, we are remaining agile to mitigate near-term pressures while investing strategically for the long-term. Supported by strong liquidity, disciplined execution, and consistent free cash flow, we continue to manage capital with rigor, drive organic growth and productivity, and execute on our M&A pipeline.

We remain well positioned to create long-term value for our shareholders. With that, I'll turn the call back over to Peter for some final thoughts.

Thanks, Pete. As the nation's largest supplier of building materials and value-added services, we combine national scale with strong local market relationships across the housing ecosystem. We maintain leading positions in manufactured components, windows, doors, and millwork. Our footprint, digital platform, and installation capabilities create a durable, competitive advantage and strengthen our value proposition with customers.

Back by our experienced, cycle-tested team, we are confident in our ability to deliver resilient results in the current environment and to capture meaningful upside as the housing market recovers. Later this year, we will host our investor deck, where we plan to share more on our growth strategy, operational initiatives, capital allocation framework, and long-term value creation opportunities. We are excited to discuss our vision of the future with the investment community.

Thank you again for joining us today. Operator, please open the line for questions.

Yeah, that's right. I think the context for this is the dramatic decline we saw in builder behavior last year. I think that's the right sort of lens to look at this through. It's not really an increase in this year would be a seasonal decline, like you'd expect compared against last year's precipitous decline. It looks a little bit better.

Well, I know that I can speak to specifics about flushing out, I hope you're right. I think that the reality is there's been some pre-aggressive price discovery. Folks have gotten and been absolutely focused on filling capacity around the industry. I think that people have made aggressive moves, sometimes too aggressive and shown meaningful regret, the ability of our team to be able to navigate through that. Certainly, markets have been under pressure, that's obvious.

But to be able to do that and hold share from our leadership position, I think our team is doing a great job on that. I also think there are some tailwinds coming. I mean, we've all seen lumber moving in a stronger direction. If OSB hadn't sort of eroded underneath it, I think that might be a nice story on the strength line.

But all of this is really dependent on what the overall market is going to do, the sense of uncertainty that the consumer feels and what builders are trying to do to react. I think that's really what it boils down to.

Thank you.

Yeah, thanks Matt. That's a good question. There's been a lot of activity. Certainly, some categories are able to pass through just by virtue of what they are and what they're made of. The reality of petroleum internationally right now is under pressure. There are certain categories that are moving in response to that. I would say most of the other categories are pretty flat. There hasn't been much movement in terms of inflation.

There are a couple of categories, some subcategories that on a year over year basis are still showing pretty meaningful declines on the prices that the manufacturers are charging. You think about some of the things we've talked about in the past, when the UWP on a year over year basis is still down. There are certain millwork subcategories that are still down.

There are absolutely competitive dynamics in certain of the categories that have limited manufacturers ability to pass through. I think that applies to us in some degree. We've, I think, done a good job of managing our capacity, but I think it's fair to say we have more capacity than we need for the existing market, so we're making the proven steps necessary to resize down, but also trying to make sure we're prepared to take advantage of a return to growth, which we think is likely to happen at some point in the future, so that they're in through. Builders rightfully so are fighting for every penny and trying to manage their own affordability, but this has to be a win-win, and I think as the market works through that price discovery process, we're getting to a more predictable outcome on margins.

I'd say we're not quite where we want to be yet, but it's a lot more stable over the past six months than we've seen over the past few years.

Yeah, thanks, Matt. Good question. We still think M&A is a great opportunity for us, right? There are a lot of players out there. There are a lot of desirable players out there in our space, so we're continuing to probe and stay close. We certainly have been speaking to a handful of players that are looking to make a move now, various reasons, and think this is a good time for us to continue to lean into those opportunities, so we'll continue to do that. You're right. I mean, the elevated leverage, not because of debt, but because of the cycle, certainly is something we're attentive to. We want to be respectful of it, but do not feel concerned with where we are.

We couldn't be strong. Our maturities are strong. Our disciplines, our cash flows are still good, so our ability to take advantage of opportunities that present themselves at a time like this, in particular, absolutely. We are still interested, and there are some deals in the pipeline at this point, and we keep looking for the right ones to keep showing up. So we're looking forward to that opportunity, Matt.

Thank you.

Thank you for the question, Charles. So the commodity outlook is in line with what we had projected last quarter. We expected it to continue to float up through Q2 and then retreat a little in the second half of the year, and it's performing pretty much in line with that expectation. That's the reason for no change to that guidance.

Yeah, built-to-order is an obvious reaction from builders that have seen inventories grow, right? That's certainly a good discipline that they have displayed, and I think will be effective in helping to manage the business over time. It'll give us a more predictable target around which to make sure we're providing the right support. You're absolutely right. Our digital tools are particularly suited to people trying to do plans and designs, and then trying to leverage the tools through to being able to offer the best possible service and value proposition for our builder customers. So we're continuing to find ways to refine those tools and to offer those three-dimensional digital twins in a way that is going to create value for builders, or at the end of the day, that has to be the deliverable and the commitment that we live up to is to make the builders life easier as they're building those homes.

So you hit the nail on the head, I think our tools are absolutely good for that and built for that, and this is the type of market we think that plays to our strengths, as does our value added offering, as does our bundling package, as does our extremely experienced sales team and the subject of battery expertise that we have. Those are all reasons that this bill to order trend is going to play well for us.

Thank you. Thank you.

Good morning, Rick. On the market share commentary, I think you said you held share in the second quarter. If I remember right in the first quarter, I thought you gained some share. Did the competitive environment change in the second quarter relative to one Q and what sort of the outlook for that in the back half of the year? I think it changed meaningfully. I'd say it's abs and flows. What I would describe is that the overall market constricted a little bit in the second quarter. I'd say the feel of the market given the uncertainty and the volatility in the Middle East. I think the sense was this is harder. That's more of an emotional comment to you than a data-driven comment.

But the conversations that we have with builders, the conversations we're having in our operating review calls and speaking with the teams around the country, I think there was a sense of optimism at the beginning of the year that faded pretty meaningfully into the midst of the second quarter as things sort of ebbed and flowed pretty aggressively.

But I don't know that there's more than that. I think that generally speaking, the holding share is just an indication of the competition day in day. I think that's helpful. Can you just talk about the inbound and outbound freight impact from higher diesel prices? How does that flow through your P&L and then just the time? How much of a headwind was that to two Q and what you're anticipating for the third quarter?

Thanks for the question. So we haven't changed our position on what we expect for the full year. We're still expecting about a $100 million headwind from the higher fuel costs, the combination of the inbound and the outbound. We did see a little bit of softening during some of the ceasefire periods during the quarter, but that doesn't give us enough visibility into the balance of the year with the increased tensions that were holding on to the 100 million. We have seen our fuel surcharge and pass through increased about 20% in the quarter. So we are effective at passing some of it through. We have more work to do. But the inbound, I think as we talked about last quarter, is really going to show up in the cost of inventory, the cost of the materials, and that flows through cost of goods sold.

The outbound will be more in the S&A line, so that's certainly a headwind in S&E. And the recovery of that's going to be up in sales and margin. So there's a little bit of distortion and geography on the P&L, but I think we're the team's job managing the costs and we have, there's always more work to do, but we're managing it in this kind of fluid situation pretty well.

Thank you.

Yeah, I would say you're spot on the lag on the commodities and seeing those higher prices coming through into our inventory is still the case. We anticipate to pass that through it will flip even with the expectation of being at a 400 dollar per thousand midpoint in our guide. That'll be higher than the prior year on average for the year. So we should see a flip and a benefit in the back part of the year, but it's also on a lower sales activity level. So it's going to be muted from an overall contribution, but it'll start to turn into a benefit. The Q3 again, do you kind of have to flip from it was going well to the lights turned off, happened in the third quarter.

So you're also lapping that component. Obviously it's more prevalent in it or it's more evident in the fourth quarter result, but there's a little bit of that there too. So there's a couple of pieces that come into play.

Yeah, so obviously in the second half that 28% mid-point would require a slightly below 28% in order to average down. We're seeing it kind of flat for the balance of the year at this point. There's still enough uncertainty on how it's really going to play out. But we took the approach based on where we exited Q3 and what we're seeing with the lower or Q2, excuse me, with the lower starts expectations for the full year, that it's going to be a continued competitive environment that we're going to have to continue to compete and win business every day. And so that's going to keep the pressure on the margins. But we're going to find a way to improve and capture every nickel we can.

Hopefully, it's just what's in the past. We might get stronger markets allow for more opportunities to manage both mix and price in a way that gives a stable margins. If we're calling down the top line, it's a tougher environment. It's not dramatically tougher, but we're trying to signal that those two go together. Hopefully, that's clear on what we said, but we think it's pretty flat from where we're at now.

Thank you.

Yeah, absolutely. This one's a bit of an irritant for me. So I'm going to I'll say I'll anonymize this because it's not fair. We only play an important in the business. So I will readily admit that maybe my perspective is skewed because we're only in five story and below wood structures. So that could be the beginning of the end of the explanation of the next thing I'm going to say, but the multifamily published numbers do not make sense to us. I believe they are incorrect. I believe something happened in the fed numbers or the way they're doing their surveys or something. I don't think they're right. I don't think there's any way they can be right.

And I've talked to a couple of other players, people in positions of authority that you would know their names who do this for a living and they agree with me. This does not make sense. So maybe there's some aspect of the tower conversions or something that I'm not seeing that is causing these permits and starts numbers to be higher than what we're seeing. But I think we're actually doing decently in the multifamily space where we play 100% agree with you that if rates turn a little to short rates will absolutely release and we will see it increase.

I think we're positioned well to be able to take advantage of that with both trust and no work as well as some other product categories that we've been leading into. So feeling like that's a good opportunity for us when the time comes.

Yeah, so there's two components. So I think what you were referencing was really the productivity savings that we've identified and called out. Those are separate in addition to the cost actions that we are continuing to execute against. What we had stated previously was 100 million dollars of cost actions. 75 million of those were cost out year over year, 25 million of cost avoidance. That number has now been increased to 115 million dollars in 2026. But 140 million if you count the full run rate that we expect from the 40 million of new cost actions that we're putting in place immediately, those are largely the original 100 million is largely complete and underway. It's just realizing it through the passage of time through the balance of this year.

The 40 million is increasing what we were going after a bit more and it's targeted specifically and more on the fixed cost side of the equation. So we see the reduction in the sales we are very aware of the situation and we're reacting to help make sure that we're not deleveraging more than we should. So that's the call and the reason for those cost actions but they are separate from the productivity.

So I know how much you guys hate the cost avoidance. So I'll just take that out, right? We took the 75 of cuts, got them done. We're adding another 40 of cuts. You're going to get them done. That is predominantly SG&A, predominantly fixed. That's not the variable. The variable is already falling with the decline in sales and the work that the teams do day in day out to run the business is appropriate. So that, you know, 115 million annualized run rate of cuts is what we're executing because we're starting the 40 right now and in July, you're not going to get all 40 this year. So that's where Pete says 15 of that is going to hit this year and the rest of it will flow through in the run rate into next year.

Thank you. Thank you.

Well, I mean, just to maybe put a sharper point on it, we do it all the time. So by market, we are looking at what our capacity is, what our profitability is by location every month, every quarter. So we will absolutely do that. I think there's enough excess capacity based on where we are now that that will be a struggle for us for some time until the market turns. Now, we're trying to find that balance, near-term profitability and long-term capacity and opportunity. So we'll keep looking at it, but yeah, that's that's our lot in life right now with the market as tough as it is.

I grew up to 91. What did you begin back in 22? What did you begin with? Well, you get to remember we're buying. So we're probably about 30 or 40 down that, but we've added a bunch, whatever the delta is 60. So that 91 Keith is over the last two and a half years, so it's later a lot of acquisitions. We had some store openings on Greenfield projects that were in process underway, so there is a lot of puts and takes.

Thank you.

Yeah, thanks. That's unfortunately the reason for the call, though. I mean, what generally happens throughout the year, and we've talked about is the seasonality and the seasonal curve. So we know by week what our expected run rate on a daily sales basis is coming out of the holiday, fourth holiday. We had an expectation of sort of the normal run that sort of gets to the peak that you hold through late summer and then fades into the fall. That didn't happen. The run didn't happen. So basically the peak leveled out lower than we expected in July, and the conversations with our customers and the public comments, we've sort of basically concluded that we shouldn't expect for a late pop to hit.

We're probably going to see the normal seasonal based on where we are. If there's a ray of hope in all this, I think the good news is we don't expect last year's light switch. Oh, we're not going to build anymore. We've got too much inventory. I think that the behavior of the builders this year has been a little bit better aligned. Sell a unit, build a unit or sell a unit, start a unit kind of an approach. So I think they're more comfortable with their inventory levels. But it's, yeah, it was an unpleasant July in that regard.

I don't know that there's anything to flag, as we mentioned, kind of flat from where we are today. And it's going to be down on average for the second half relative to the first half, and we're to meet the midpoint of the guide. So we're seeing margins holding stable a little bit of wiggle in different categories. But for the all-intensive purposes, pretty much stable and margin environment.

Thank you. Thank you.

Yeah. Thanks, folks. Yeah. Generally speaking, I would say the trend is towards stabilization. There are certain categories or markets that occasionally will show, you know, volatility, right? Someone will get aggressive at the fourth bite. Someone will back off say, no, this isn't, this doesn't make sense for us. Any stable eyes and we'll get to status flow is in that market. You know, our, our discipline internally is really around assuring that you're getting a break even or better or appropriate margin market or some aspect of that, that we maintain the core discipline of running our business and maintaining it in a way that we like over the long run. We sometimes fall victim to the commentary from certain builders who, well, you need to take losses because this is a hard market.

And my response to that is, no, this is a, this is a win-win relationship and we're both going to do this for profit because that's why we're here. And so we're going to say no to things that don't make sense. I don't think everybody in this space has a fine, as fine a pencil as we do. So I think you see behaviors for windows of time that get a little sideways. So therein lies this whole share versus margin conversation that we kind of have with regularity. Even our, our scale is, it's pretty detailed. It's, it's pretty broad and you can sort of see it in different markets dynamic playing out. But we at the end of all of this and looking at it in consolidation, see a trend towards it stabilizing, getting to numbers that we think are defensible given where we own.

And as volumes continue to hopefully stabilize and turn, we have a good sense of what that means for margins and where.

Yeah, that's a good question. I mean, it's a modest market. I wouldn't say that it's red hot. It's not ice cold. There's a fair number of assets where people have raised their hands. You're right about valuations, right? You've got to be very thoughtful about what you're buying. You know, every seller wants to use a five-year run rate. You're right, a five-year average, which is lunacy. But you also, I think, can be a little bit forward-looking when you think about current year numbers. I think that's also an appropriate way to think about the business.

Geographies matter, product categories matter. Those have always been true, but I would say especially so now. So the way we look at it is, you know, buying a really nice business with a good fit for us. This is a nice time to do it. We still have cash flows. We're still, you know, generating cash on a regular basis. I think that the overlay on this entire story is the numbers are just smaller than the numbers. The flows are smaller, the M&As are smaller, any conversations, you know, even what we've done already. So far this year around share-by-backs are smaller. So that's, I think, the by virtue of our business being smaller, that's probably the way to think about what we're up to.

And we'll continue to execute the strategy. I think the core of it is very consistent. It still works for us. We still like it.

Thank you.

Yeah, I'm probably back you up. You know, we continue to be consistent the way that we narrow guide as we go through the year, consistent with the prior years. So as we get to Q3, we'll tighten it up a bit more. I know you're trying to look for the exit rate and the possibility of what Q4 would be. I would tell you we try to go down the middle. We give obviously a range because there's uncertainty and unknowns that continue to present themselves. But if you go down the middle, that's probably more in line with where the thinking would be at this current time. And we're not in a position where we're going to give actual exit rate information or guidance, which I know is not helpful for you as you start to look forward to 2027 and putting numbers together there.

Well, that's a really good bias nature has more likelihood of change orders or adaptations throughout this process. However, I want to be a little careful with that because most of the folks making the pivot are expect builders, so they don't offer that much variability anyway. So I don't know that it'll be meaningful, maybe a little in terms of dollars that go in, same kind of general answer.

Say, yeah, order, you know, built order is generally going to have more dollars in it. But if you're just shifting a spec builder or a large lease spec builder or first move up type of home, the amount of incremental is fairly modest. So if you're wrong, we'll take every penny or every stick. But I don't know that it's going to be meaningful.

Thank you.

Well, I don't think anyone is immune to the affordability pressures. I think it's fair to say that the higher up the food chain you are, the easier it is. The amount of pass through on the private side, you know, I would say just by virtue of the way that they approach negotiations, the larger builders are a sharper instrument. I would say that the smaller guys depends more on the individuals involved and the markets that they play in.

That isn't to say that there's a meaningful difference, but there's a difference. You know, that scale matters. I think that the words, I would not use different words if I was a large homo, but the reality is nobody in this industry is doing this for charitable purposes. There are points where you have to just say no, and this is the price and if you don't want it, that's fine, but you're not buying it from us for less than this price. And that's the battle, right? That's what we're all engaged in right now because it's gotten back to that point of knowing where your lines are. And I think, you know, in the conversations we have with vendors, we have a lot of great vendor partners.

They're trying, they're scrapping. We all know we need to build more houses. I think all of us have been very intentional about tightening our belts and being good partners in a tough time in the industry. But there's a threshold where you just can't go past. It's now you're harming your company for the good of an industry, and that's not what we're here to do. So, you know, there is pass through happening. There is back, there is a back and forth happening. It's challenging, but I think we all know how to do it. And we're all representing our companies the best we can.

Yeah, that's a heavy question, man. So, there's a couple different pieces to it. I think that the way that margins will shift, there's some mixed components, there's some competitive dynamics, depending on which markets are stronger than others, you've got different margin profiles. So, there's a combination of events that I think could position us to do a little bit better than the median. And I think that we've outlined that. We certainly have seen it at certain points, and there's a possibility that they could play out that way. The downside, planning and scenario planning is something we do a ton of around here. So, we've laid out a lower case scenario than where we have ended up so far this year.

And I still don't think we're going to get there, but we wanted to give you the lower bound. So, I think that's why you're seeing us not move the lower end of it. It's not what we had hoped for, but it's not what we had feared either. So, I think that there's your answer there in terms of why we weren't necessarily moving the bottom. But again, kind of back to my prior statement, there is a walk away point with all of this. And I think we're confident in our ability to recognize where we're not doing, we're unwilling to take business that doesn't contribute to what we're trying to accomplish, and being able to walk away at that point is the right thing for this business, regardless of what other players do.

So, that's the line I think we've been able to understand and manage the business around. The good news is we don't have to be down there all the time, right? We know how to continue to protect our margins. We're still profitable and cash flow positive and doing a lot of good things strategically at a time when the broader market is under a ton of pressure. So, I think we feel good about our ability to execute and to continue to drive forward.

But, you know, it's a challenge. It's a dogfight out there, and we're doing well. We're doing better than our competition, but it's tough.

Thank you.

Yeah, that's a good question. Let me clarify. So, when we talk about the facilities, that is a mix between what shows up in SG&A and what shows up in Cox. So, you're talking about the manufacturing facilities, a meaningful portion of that is up in Cox by virtue of what they do. We have absolutely taken down facilities as part of the 91 that we closed over the past couple of years. That is inclusive in that number. The way we think about it is it's your variable, right? It's your variable cost. So, it sails come down. You have to take down those variable costs, at least the ones that show up that way. And then a component of that will show up down in the below, in the SG&A portion of the P&L.

The fixed stuff, right? The line ends identified as fixed. The cost category is identified as fixed. It aren't necessarily tied to specific sales volumes. That's what we're really leaning into with those other conversations. I won't call you. I won't tell you it's super rigid in terms of exactly every dollar coming from where. But the vast majority of the focus on those cost cuts that we've talked about, that $115 million is SG&A related.

Yeah, definitely. And I actually forgot to answer this second half of your first question. Yes, we've absolutely seen competitors closing facilities around us in similar ways. So, I think that, broadly speaking, everyone is trying to figure out how they can adapt. I think one advantage that we have is the multiple locations per market allow us to be more flexible while still retaining the customer base and maintaining on time and full ratios and keeping the customer happy. So I think that's been to our advantage in that regard. Others have to exit more dramatically from either chunks of the market or markets entirely. The second half of the question, so where we're seeing some weakness still persist a little bit in Texas and Colorado, those are pretty important markets for us.

Where we're seeing strength is really in the entire Northeast is performing well. But obviously there's just a different start to exposure in the Northeast versus some of the other markets. In your point about where we service versus where we don't, we see that too. We're in most of the large MSAs, but I'd say we're probably covering 80-ish percent of starts nationally. There are certain parts of the country where we're not in Chicago, we're not in South Florida, we're not heavily into chunks of Illinois and Indiana. We've got pockets where we're doing great in Indiana, but we don't cover the entire market. So there's examples like that where we have seen strength in some of the headlines where we just don't participate, so it's part of it.

It's not a major part of the story, but it's there.

Thank you.

You too.

Yeah, thanks for your question. We really haven't seen change year over year or sequentially in the size of home. The size has been pretty stable. As far as the complexity, there's still the value engineering that's been taking place, and we continue to see some cost out year over year or opportunity out on the sales versus start. It's pretty modest, maybe in the one to two percent range. This is not a big factor at this point, but it's still there as we see more town homes or shifts to the type of dwelling space that is being delivered to the market.

Yeah, it's part of the cost actions as we think about conserving capital. In a shrinking market or a tightening market, we don't need to invest as much in some of the replacement of our rolling stock or fleet and equipment. We have the ability to redeploy and move that equipment around and make sure that our operations are taken care of and they have what they need. And so it's just an approach to tighten that up as well as not needing to invest as much for growth, especially in markets that we already have a density and a footprint that we can service very well. We don't need to continue to expand at this time. We continue to evaluate every market by market and they have different needs and they have different capabilities.

So we're we do that on a regular basis. We just felt for this year it was more prudent to pull back on some of the capital expenditures and conserve that capital.

Thank you.

Thank you for your time today. If you have any questions you can follow up with the investor relations team.

Thank you.