Making America Great Again One House At A Time Value Investor - PowerPoint PPT Presentation

Making America Great Again One House At A Time Value Investor Conference Omaha, NE May 4, 2017 Bob Robotti President & CIO Robotti & Company Advisors

Traditional Value Investor Bias Investing Checklist  Is this company cyclical?  Is the business tied to commodity prices?  Is the balance sheet levered?  Are shares trading near 52 week highs? “If you want to have a better performance than the crowd, you must do things differently from the crowd.” Sir John Templeton Page 2

Understanding the Value of Economic Cycles Economic cycles resemble Schumpeter’s process of creative destruction: New entrants attracted by prospect of high returns: Investors Optimistic Improving supply side Rising competition causes returns to rise causes returns to fall above cost of capital: below cost of capital: Share Price Share Price Outperforms Underperforms Business investment declines, industry consolidation, firms exit: Investors Pessimistic Page 3 Source: Capital Returns, Edward Chancellor, editor (2015)

Cyclicals Amplify Mr. Market’s Manic Depressive Nature “A business which sells at a premium does so because it earns a large return upon its capital; this large return attracts competition; and generally speaking, it is not likely to continue indefinitely. Conversely in the case of a business selling at a large discount because of abnormally low earnings. The absence of new competition, the withdrawal of old competition from the field, and other natural economic forces should tend eventually to improve the situation and restore normal rate of profit on the investment.” Security Analysis (1934 Edition) Benjamin Graham and David Dodd Page 4 Source: Barclays

What Makes Us Different Informational Edge Analytical Edge Our network of industry relationships, Within the context of a longer-term focus on deep primary research, and perspective and 30+ years of experience, experience serving on company boards, we have the ability to develop a different provides us with more pieces for conclusion than that of the market. building our information mosaic. Leads Us To Behavioral Edge We take a longer-term view and have the ability to tolerate market swings. Our behavioral edge comes from our ability to tolerate market volatility. As a result, our investment process concentrates on understanding the long-term normalized earning power of a business well before the “investing herd” gains interest. Page 5

Builders FirstSource, Inc. (BLDR)

Builders FirstSource, Inc. (BLDR)  Builders FirstSource is leading a supplier Financial Summary of building products, prefabricated Price: $15.92 Net Debt 1,788 components and value-added services Dil Shrs: 113.6 Net Debt/EBTIDA 4.7x primarily for new residential construction Market Cap 1,808 LT Debt 1,802 52 Week High $16.50 and repair & remodeling. Cash 14 52 Week Low $9.04 Enterprise Value 3,596 Avg Volume (mm) 1.6  With the second largest North American Prices as of 5/3/17 in $ millions (except share price) LBM distribution network serving the Financial Summary Consensus professional market BLDR benefits from 2016 2017E 2018E regional economies of scale. Revenue 6,367 6,810 7,226 growth 78.6% 6.9% 6.1%  After a period of industry consolidation, ev / sales 0.6x 0.5x 0.5x expense reduction and balance sheet EBITDA 382 454 515 improvement BLDR is poised to benefit margin 6.0% 6.7% 7.1% from the reversion of single family home ev / ebitda 9.4x 7.9x 7.0x $1.27 $1.06 $1.46 Diluted EPS starts to a normal level. Housing Starts 1,176 1,240 1,331 SFH Starts 784 855 961  We believe BLDR trades at a low single- digit multiple of normalized earnings power. Page 7 Source: Builders FirstSource 10K, S&P CapitalIQ

Homebuilding Industry Map Windows & Doors Structural Board Architectural Paint Roofing, Siding & Insulation Cabinetry & Fixtures Lighting Materials Manufacturers Flooring & Carpets Wallboard Plumbing HVAC Molding & Trim Pro-Segment Big Box Retail Distributors Specialty Contractors Homebuilders National Regional Homebuilders Homebuilders Page 8

Exposure to ~50% of the Material Cost of a Home • BLDR’s broad product and service offering represents ~50% of the material cost of a home. Page 9 Source: BMC Holdings Investor Presentation

Distributing A Broad Mix of Products Page 10 Source: Builders FirstSource Q4 2016 Results Presentation

Focus on Growth Priorities Page 11 Source: Builders FirstSource Q4 2016 Results Presentation

Single Family Starts Still ~40% Off Long-Term Average Page 12 Source: U.S. Bureau of the Census retrieved from Federal Reserve Bank of St. Louis, Builders FirstSource Q4 2016 Results Presentation

Competitive Advantage From Regional Economies of Scale • The 2015 ProBuild Acquisition created ~$100 million of synergies through procurement savings, general & administrative cost reductions and network consolidation. • With its leading network of distribution facilities BLDR is able to benefit from regional economies of scale . Builders FirstSource is ~50x larger than the average remaining top 100 pro dealers. Page 13 Source: Builders FirstSource Q4 2016 Results Presentation

Growing Shareholder Value Page 14 Source: Builders FirstSource Q4 2016 Results Presentation

Managed by Seasoned Professionals With Aligned Interests Page 15 Source: Builders FirstSource Presentation for Zelman Housing Summit, September 2016

Focus on Cash Generation and Debt Reduction • Builders FirstSource is not a capital intensive business Annual Maintenance Capex = 1% - 1.5% of Sales • FY 2016 Free Cash Flow: $120mm  FY 2017 Free Cash Flow Guidance: $145 - $155mm Revenue vs EBITDA Margin (ttm) 6,400 7% 6,300 REVENUE (TTM) EBITDA MARGIN (TTM) 6% 6,200 6,100 5% 6,000 5,900 4% Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Jun- Sep- Dec- Mar- Jun- Sep- Dec- 15 15 15 16 16 16 16 TTM Revenue 6,104 6,092 6,067 6,180 6,229 6,276 6,367 EBITDA Margin 4.7% 5.0% 5.2% 5.7% 6.0% 5.9% 6.0% Page 16 Pro-Forma the ProBuild Acquisition assuming the acquisition closed January 1, 2015 Source: Builders FirstSource Quarterly Result Announcements

Focus on Cash Generation and Debt Reduction • Total Liquidity as of 12/31/16 was $682 million • No maturities until August 2023 BLDR Net Debt / EBITDA (ttm) Annual Cash 6.5x 6.2x Issue Outstanding Interest 5.5x 5.3x 5.3x 10.75% Unsecured Note 2023 368 40 4.8x 5.625% Senior Secured Note 2024 750 42 4% Floating LIBOR Term Loan 2024 468 19 2% Floating LIBOR Revolver – 5 Lease Obligations 246 22 Total 1,831 127 $ millions Page 17 Source: Builders FirstSource Quarterly Result Announcements

SF Home Starts vs. BLDR Revenue (2009 – 2014) Home Starts • The U.S. Housing market 2009 - 2014 bottomed in 2009 at 442k 1,001 928 784 single-family home starts. 612 554 586 647 620 • Between 2009 and 2014 537 471 442 434 single family home starts increased 46% to 647,000. 2009 2010 2011 2012 2013 2014 U.S. Home Starts Single Family Starts BLDR Revenue • In 2009 Builders FirstSource 2009 - 2014 generated $687mm of revenue. • Between 2009 and 2014 $1,604 $1,490 Builders’ revenue increased $1,071 136% to $1.6bn $779 $700 $678 2009 2010 2011 2012 2013 2014 Page 18 Source: U.S. Bureau of the Census retrieved from Federal Reserve Bank of St. Louis, Builders FirstSource Filings

Builders FirstSource Earning Power Potential Single Family Home Starts Home Starts 2009 - 2014 1,001 928 1,176 784 612 554 586 784 647 620 537 471 442 434 2009 2010 2011 2012 2013 2014 U.S. Home Starts Single Family Starts 2016 Actual 2018 - 2020 Estimes BLDR Revenue BLDR Revenue 2009 - 2014 $12,735 $1,604 $1,490 $1,071 $6,367 $779 $700 $678 2009 2010 2011 2012 2013 2014 2016 Actual 2018 - 2020 Estimes Page 19 Source: U.S. Bureau of the Census retrieved from Federal Reserve Bank of St. Louis, Builders FirstSource Filings, Robotti & Company Advisors Estimates

Range of Intrinsic Value EBITDA Estimate (8x EV / EBITDA multiple) Revenue 9,000 10,000 11,000 12,000 13,000 14,000 6% 540 600 660 720 780 840 EBITDA Margin 7% 630 700 770 840 910 980 720 800 880 960 1,040 1,120 8% 9% 810 900 990 1,080 1,170 1,260 10% 900 1,000 1,100 1,200 1,300 1,400 11% 990 1,100 1,210 1,320 1,430 1,540 1,080 1,200 1,320 1,440 1,560 1,680 12% Share Price Margin of Safety Revenue Revenue 9,000 10,000 11,000 12,000 13,000 14,000 9,000 10,000 11,000 12,000 13,000 14,000 6% $22 $27 $31 $35 $39 $43 6% 40% 67% 93% 120% 146% 173% EBITDA Margin $29 $34 $38 $43 $48 $53 80% 111% 142% 173% 204% 235% 7% 7% 8% $35 $41 $46 $52 $58 $63 8% 120% 155% 190% 226% 261% 297% $41 $48 $54 $60 $67 $73 159% 199% 239% 279% 319% 359% 9% 9% 10% $48 $55 $62 $69 $76 $83 10% 199% 244% 288% 332% 376% 421% $54 $62 $69 $77 $85 $93 239% 288% 336% 385% 434% 482% 11% 11% $60 $69 $77 $86 $94 $103 279% 332% 385% 438% 491% 544% 12% 12% Page 20 Source: Robotti & Company Advisors Estimates