BuildDirect.Com Technologies Inc.

My name is Bob Chen and I'll be moderating today's call. On the call today are Shawn Wilson, Chief Executive Officer, Kerry Biggs, Chief Financial Officer, and Jay Allen, President, Digital and Commercial. Before we begin, I would like to remind everyone that today's presentation contains forward-looking statements within the meaning of applicable Canadian securities laws, including statements regarding the company's growth strategies, acquisition plans, integration objectives, margin targets, and business outlook. These statements, based on management's current expectations and assumptions, are subject to known and unknown risks and uncertainties that could cause actual results to differ materially. Please refer to advisories on slide 2 of today's presentation and to the risk factors described in the company's continuous disclosure filings available on CDAR+. The company undertakes no obligation to update forward-looking statements except as required by law. If you have any questions during the call, please send them in using the Zoom Q&A function at the bottom of your screen or email them to ir.billedirect.com. We'll address these questions during the Q&A session. A replay of this call will be available approximately 24 hours after the conclusion of this conference call and will be posted on the investor relations section of our website at ir.billedirect.com. With that, I'll turn the call over to BuildDirect CEO, Shawn Wilson. Shawn?

Great, thanks, Bob, and good afternoon, everyone. We appreciate you joining us. The second quarter is a strong quarter for BuildDirect and strong in the way we've been telling the market to measure. We grew, we stayed disciplined, generated cash while doing it. Revenue increased 16% year-over-year to $19.7 million. Gross profit increased 14% to $7.7 million with the gross margin holding at 39.2% despite the mixed shift that comes with the acquisitions. We reported net loss of 0.19 million, just leave it at 0.39, and a positive operating cash flow of 0.45 million. Just as important as the shape of the quarter against the first quarter. Q1 was soft, as we said at the time. In Q2, our revenue increased 34% sequentially, well ahead of the normal seasonal lift, and just leave it a swung from negative 0.34 million to positive 0.39 million. The net loss narrowed from 1.8 to Point2. And that rebound reflects the contribution of the business we acquired and reflects the execution across locations we already owned. All right, I want to be straightforward about the composition of our growth because straightforward is how we want to be measured. Acquired businesses contributed roughly $3.4 million in the second quarter revenue, excluding acquisitions. Same store revenue declined about 4%. Soft demand is real across the deploying industry. We're not going to pretend otherwise. But our answer to the soft market is not hope. It's the two engines that see this quarter, buying great businesses well and running everything we own with increased discipline. Now it's time to call over to Kerry, who will discuss our Q2 and first half 2026 financial results.

Great, thank you, Shawn, and good afternoon to everyone on the call. Starting with the consolidated second quarter of 26, revenue was $19.7 million, up $16.6 million from $16.9 million in Q2 of 2025. Gross profit was $7.7 million, up 14.7% from prior year, and gross margin was down slightly, 70 basis points to 39.2%. Decline reflects acquisition mix rather than pricing erosion. Both segments maintained pricing discipline overall. Adjusted EBITDA was 0.39 million compared to 0.6 million a year ago for the same quarter, reflecting business and sales mix and softer legacy business demand. I would note the $1.08 million bargain purchase gain on TOA as a non-cash item which you'll see in our P&L and excluded from adjusted EBITDA along with restructuring and other items detailed in the reconciliation in our MD&A for EBITDA. Operating cash flow was positive $0.45 million for the quarter through two integrations and cash at June 30th was $4.1 million. So just talking First half of 26, overall revenue was $34.3 million, up 7.2% from $31.9 million in the first half of 25. Gross profit was $13.6 million for the first half of 26 at a 39.6% gross margin. adjusted EBITDA for the first half was 0.06 million, mainly driven by the soft first quarter, which Shawn noted, which had a negative adjusted EBITDA of 0.34 million, but again, recovered positive for Q2. Onto the segment. Segment level by segment for Q2 2026 e-commerce revenue grew was that actually four point five million for the quarter, up twenty two point eight percent year over year, driven by the grain acquisition, which closed in February, excluding grain e-commerce revenue declined approximately 12 percent on the same store basis, reflecting softer demand and lower quality inbound lead flow during the quarter. Gross margin remained very strong, 48.3%, our highest margin segment, while adjusted EBITDA was flat in the quarter versus a positive 0.03 for the overall first half. Moving on to the next slide, for the Pro Centers, Q2 2026, Pro Center revenue was $15.2 million, up 14.9%, representing 77% of consolidated revenue overall for the business. If we exclude Tile of America, TOA, same store, Pro Center revenue declined roughly 2%, primarily reflecting softness in our Michigan locations. Pro Center gross margin was 36.5% for the quarter, and segment adjusted EBITDA grew to $1.55 million in the second quarter and $2.17 million overall for the first half, as noted earlier. Finally, on the balance sheet and liquidity side, cash ended the quarter $4.1 million, down from $8.2 million at year end, primarily reflecting the deliberate deployment of capital into the TOA acquisition and related working capital. Again, partially offset by positive operating cash flow. Total acquisition cash outlays for the first half of the year were approximately $4.5 million across the two transactions that we've noted. Our revolving credit facility was drawn to $4.8 million at quarter-end compared to $3.6 million at year-end, reflecting acquisition-related working capital as well as the timing of certain quarter-end working capital payments. And finally, total assets increased $9 million to $47.2 million, largely reflecting the acquired businesses and associated working capital that came along with them. Our focus in the second half is working capital optimization across our inventory and payables, disciplined capital deployment, and maintaining appropriate liquidity to support the ongoing needs of the business. So appreciate the time. With that, I'll hand it back over to Shawn.

Okay, great. That brings me to what I think is the most important story this quarter. The acquisition platform is working. We closed two acquisitions in the first half. Grain Custom Wood in February, added Premium Custom Hardwood and National Big Box Marketplace Channels to recover a segment. Demand sources we did not previously reach, but filter logistics infrastructure that we already owned. Tile outlets of America in May, which added three established profitable tile showrooms in Tampa, Sarasota, and Fort Myers, and anchored in a Florida cluster alongside our current existing operations there. And look, we bought them well. TOA was acquired far below the fair value of net assets, roughly 78 cents paid per dollar of net assets, producing a 1.08 million bargain purchase gain, which should be clearly excluded from the adjusted EBITDA. Grain required only a modest working capital true-up in the quarter, and both were funded from operating cash flow in our evolving facility on their last equity raise. This is the model. Profitable flooring businesses bought with discipline, folded into a shared infrastructure, all made better on our platform. Looking further out, we see a long runway of highly accretive growth. The flooring industry is large, fragmented, and full of succession-driven sellers. Exactly the conditions a consolidator is built for. As of recent acquisition season, We are approaching a meaningful annualized revenue milestone and believe the same playbook that got us here scales well, well beyond it. Jay will now take us through our acquisition playbook and the grain and TOA case studies.

Thanks, Shawn. Good afternoon, everyone. On the next three slides, I'll walk through how we're applying our acquisition strategy and practice. What we're looking for, how we're underwriting the transactions, and how we're integrating each of the businesses onto our Build Direct platform. We're targeting profitable specialty flooring retailers and distributors with strong local customer relationships and established operating economics. These are often founder or family owned businesses that are facing a succession decision. So the opportunity can include both physical showroom networks and e-commerce or marketplace type platforms. Price discipline is central to our strategy. Tile Outlets of America is a really good example of this. We paid approximately 3.9 million for preliminary net identifiable assets valued at approximately 5 million, or about 78 cents for each dollar of net assets acquired. So that resulted in a $1 million non-cash bargain purchase gain. Our acquisitions are funded prudently using available cash, operating cash flow, and our revolving credit facility. We're underwriting each based on its existing cash flows and asset value with the expectation that it will be accretive, not on any assumptions that the market needs to recover. Once a transaction closes, we apply a standard integration playbook using common systems and reporting, consolidating purchasing, aligning our merchandising, and sharing back office resources. Our goal is to add acquired revenue while keeping corporate overhead largely stable. Regional density also matters. Clustering locations allows us to share inventory, management resources, and freight lanes. As our purchasing volume grows, we also expect to create opportunities for improved profit margins across our platform. Grain custom wood is a good illustration of the e-commerce side of this strategy. We acquired Grain on February 2nd. The business added premium custom hardwood products and access to national big box marketplace channels. This is customer demand that we did not previously reach directly. Grain is a capital light addition because its orders can be fulfilled through warehouse and logistics infrastructure that BuildDirect already operates. It also diversifies our e-commerce segment beyond demand generated through BuildDirect.Com and paid search marketing. Grant contributed approximately 1.3 million of second quarter revenue. Based on our internal operating results, it was accretive to the e-commerce segment during the first half. The business was onboarded onto BuildDirect systems and fulfillment processes during the first quarter of ownership. We've also seen improved gross margins as fulfillment and purchasing have moved onto our logistics network and supplier programs. Overall, I think Grain demonstrates how we can add new products and sales channels and leverage the infrastructure we already have in place. Tile Outlets demonstrates the showroom side of this strategy. We completed the Tile Outlets acquisition on May 12th, adding three established Florida locations in Tampa, Sarasota, and Fort Myers. The approximately 3.9 million cash purchase brought us roughly 5.4 million of inventory, together with the showroom operations and their associated lease arrangements. TOA contributed approximately $2.2 million of revenue during the roughly seven weeks between the acquisition date and quarter end. Based on our internal operating data, its gross margin was approximately 46% compared with 36.5% for the overall ProCenter segment in the quarter. So that made TOA margin accretive to the segment from the outset. Integration is now underway. We're moving systems, reporting, and merchandising and purchasing onto our ProCenters platform, and we're connecting the three showrooms with our existing Florida operations. As purchasing is consolidated onto BuildDirect's supplier programs, management is targeting an improvement in TOA's gross margin from approximately 46% towards 50%. That's a forward-looking management target, not guidance, and it depends on purchasing integration, products mix and volumes. So I think this shows that we have two different businesses we acquired, but they demonstrated the same underlying model by profitable flooring businesses with discipline, integrate them into the shared infrastructure, and use the combined platform to create operating leverage for the business. With that, I'll turn it back to Shawn to discuss our long-term outlook.

Okay, great. Let me close on how we think about the path from here because the... The quarter matters less than the pattern. The framework we manage is pretty simple. We buy profitable foreign businesses one to two times post-Synergy EBITDA, largely backed by inventory and hard assets. We run acquired locations toward 12% to 15% for wall EBITDA over our ownership period. And we hold corporate costs largely flat. We acquire revenue land, so operating leverage, not financial engineering, is what compounds. Those management targets are not... Subvention targets, not guidance. The assumptions behind them are... but then today's materials. Our priority for the balance of 2026 are the ones on the slide. Integrate what we bought, rebuild the organic demand engine, and stay disciplined on the next acquisition. We maintain regular ongoing discussions with potential partners and will update the market if and when there's a definitive transaction to announce. I want to thank our teams across every location, including the people who joined us from grain and tile outlets of America this year, for a quarter that shows what this platform can do. And with that, Bob, let's open it up for any questions.

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

Absolutely. And I've commented on this in the past. TOA acquisition is a good indication of what's out there. The part that I would just think about a bit more basically, except for the grain acquisition, which was obviously more of a marketplace with a great opportunity, we saw a leverage. If you buy one of these locations or five, the economics are relatively the same. Intuitively, it's a bit easier to process a handful at a time versus one at a time. That's really more of our target base. When you think about what we find at the sweet spot, it's $20 to $40 million companies with Anywhere from three to five or six locations that are clustered as the ideal target. And as I mentioned, really now for a while, we'll run out of time before there's a lack of targets in that range. And yeah, very much the case.

Another question we have here, can you expand on the TOA margin target?

Kind of a vague question. Anything else Bob on that one or just, are you referring to like just the bridge upper?

Yeah, it's what can you expect? Can you expand on the TOA margin target?

I'm going to assume the questions pertaining to where margins are now and where they're forecasted to go. Jay, do you want to take that one? Probably a mix of a few assortment items along with the pricing and product line structure and things like that.

Yes, that's exactly how I would interpret it and that's how I would explain it. I think there's a couple of things going on. One is we were able to take advantage of some pricing opportunities and increase margins pretty much right out of the gate. We continue to see some opportunities there. The second big piece in my mind is is our supply chain and utilizing our supply chain to both bring in build direct core items into that business and then also optimize how they're bringing product in as well and gain some margin opportunities there. I think those are really the two big pieces we see working for us. Yeah, great.

All right, Bob, anything else? How is the M&A progressing on the pipeline with this last quarter? Is it about the same or is there an increasing pipeline?

Yeah, I'd say with that, so our play is to buy, integrate, and then continue on. And so we don't obviously comment on things aside from we're constantly maintaining and talking to partners. We also don't plan on just sitting on our hands. So one thing I could say, the grain acquisition and integration went very well. It was obviously wrapped up and finished before we bought. The next one, Tile Atlas, which that one is effectively on the tail end of any kind of remaining integration work. There's obviously always improvement ideas and opportunities. And those carry both ways, I should mention. Like we buy great businesses with great team members that have really great ideas. And so we find synergies that we kind of identify going into the business but then candidly in both cases we found things that frankly they were doing much better than uh than our core was that we then started pulling back through so that that's like a continuous synergy process that will get you know it just kind of keeps on rolling but when it comes to integration our teams will be relatively free um to process uh the next one from a bandwidth perspective and our intent is to keep on keep the machine keep the pattern rolling

Next question, what is the state of the flooring industry today versus even 12 months ago, and how does this impact the M&A landscape?

Yeah, I would say just, you know, I'll kind of address that one. You guys can fill in any details if you'd like. But, you know, I would say... First off, the overall industry looked in a really bad year. It's a bit off in a really great year. There's a bit of a tailwind. It doesn't have wild swings like other categories like cabinets, roofing, siding do, and that's mainly because flooring is highly concentrated with residential remodeling, which is why it's, in my opinion, a great A great industry for a strategic roll-up. A lot of stability there. You do have swings in some spots. For example, in new home construction, that is what it is. Housing turnover, when it increases, it's a tailwind of the industry. People are moving, they change floors, sell their house, and then people change floors and they buy houses. So You definitely don't see a lot of that happening right now. And look, we get asked, what's our forward view on what rates are going to do? I don't know. Who knows? Not something we think about or waste time with. We just focus on what we can control. And right now, it's not causing that big of an issue. It's, if anything, just having us focus on commercial flooring opportunities more so than onboarding just net new builders. For sure. When it comes to what's doing to the industry, I would say fatigue. So you have a lot of folks you talk to, you know, they wrote out the COVID time, the PPP funding, all these great programs and a lot of volumes and the real estate, you know, appreciated quite a bit on the commercial side. So building they bought for a million dollars, now we're five. The noise of the tariffs and housing turnover, so on and so forth, we perceive it definitely has caused just fatigue and a desire to transition for those who might have been on the fence otherwise. That was part of our thesis going after this play a few years back. I mean, I didn't think it'd be this hectic on the tariff side. Like, for example, the new ones that were announced with Canada. But I'd say if anything, it's just caused a bit of fatigue there, which is fine for us. We're well equipped to work through process and compete in that kind of environment. And it definitely built forward for sure. So that's my thoughts there.

I don't think we have any more questions. So that concludes today's Q&A session. I'll now turn the call back to Shawn for any final remarks before we end this conference call.

I just want to thank everyone for joining, following the story, your support. And as I've said a few times, we're just getting started. It's going to be a great play. We're having a blast doing it. So take care all and we'll see you next time.

Thank you, Shawn. This concludes BuildDirect's Q2 2026 conference call. A replay will be available on the company's investor relations website. Thank you, everyone.