Mr. Rob Brown reports

HDI ANNOUNCES RECORD FIRST QUARTER 2022 RESULTS

Hardwoods Distribution Inc. has released financial results for the three months ended March 31, 2022. Hardwoods is one of North America's largest suppliers of specialty building products to fabricators, home centres and builders, servicing the new residential, repair and remodel, and commercial construction end markets. The company currently operates a network of 86 distribution facilities in the United States and Canada. All amounts are shown in U.S. dollars unless otherwise noted.

First quarter highlights:

• First quarter sales grew 121.5 per cent to $644.9-million, a year-over-year increase of $353.7-million. Organic sales growth in Q1 was 39.4 per cent while acquisitions contributed an additional 84.3 per cent.
• Gross profit climbed 155.3 per cent, or $89.9-million, to $147.8-million, with gross profit margin percentage increasing to 22.9 per cent from 19.9 per cent in the same period last year.
• Operating expenses were well controlled and, as a percentage of sales, were 13.1 per cent, as compared with 13.4 per cent in Q1 2021.
• Profit per share increased significantly to a quarterly record of $1.83 from 61 cents in Q1 2021, an increase of 200.0 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) climbed 209.8 per cent to a record $79.8-million from $25.8-million during the same period in 2021.
• Cash flow from operating activities, before changes in working capital, per share increased by $2 in the third quarter to $3.16 from $1.16 in the same period last year.
• The board of directors declared a quarterly dividend of 12 cents per share, payable on July 29, 2022, to shareholders of record as at July 18, 2022.
• Hardwoods completed the purchase of Mid-Am Building Supply Inc., an acquisition which is expected to strengthen its access to customers and markets in the U.S. Midwest. The Mid-Am acquisition closed on Feb. 7, 2022.

"We achieved significant new financial milestones in the first quarter as we took full advantage of our scale, superior product access and strengthened market channels to deliver the best ever quarterly sales and profitability in HDI's history," said Rob Brown, Hardwoods' president and chief executive officer.

"Our record Q1 results included contribution from Mid-Am and Novo operations, which we acquired on Feb. 7, 2022, and July 30, 2021, respectively. Mid-Am and Novo are expected to deliver approximately $1-billion in pro forma sales in 2022. These acquisitions have provided valuable strategic benefits, including access to new geographies and a strong presence in the U.S. pro dealer and home centre channels.

"We paired our record-setting pace for sales, gross profit and earnings with continued careful management of expenses and product pricing. This, in turn, resulted in healthy gross margins and EBITDA margins of 22.9 per cent and 12.1 per cent, respectively, and enabled us to deliver record profit per share. Our Q1 results clearly demonstrate the significant value we are achieving from our combined organic and accretive acquisition-based growth strategy.

"Going forward, activity levels remain strong in our end markets and across our customer base, driving continued robust demand for our products. Market fundamentals, including the significant shortage of housing stock relative to demand, are also expected to provide support for demand over the longer term. We will continue to closely monitor the economic conditions in North America and the impacts that price inflation, rising interest rates and other factors can have on our business. Our skilled team has a long track record of successfully managing our operations and controlling costs during challenging times. We believe our business has developed the resilience needed to manage through these cycles, and we are better equipped than we have even been to deliver continued growth and value from our leading position in the North American building products space," said Mr. Brown.

Outlook

The company expects demand for its products to remain strong in 2022, supported by strong fundamentals in its end markets. It continues to see a multiyear runway for growth in the residential, repair and remodel, and commercial end markets that it participates in. While interest rates have increased in recent weeks and are expected to rise further as central banks work to slow inflation, mortgage rates remain well below their historical trend, and demand for housing continues to significantly outstrip supply in the markets it serves. Its customers today continue to be very busy, and anticipate being so well into 2022.

From a financial standpoint, the company maintains a strong balance sheet, which provides financial stability in the event an economic downturn were to emerge. Its business model converts a high proportion of EBITDA to operating cash flow before changes in working capital, and during periods of reduced activity, its investment in working capital has historically decreased, resulting in an additional source of cash.

Supply is expected to remain tight for some of the products the company distributes, which could result in disruptions to product availability. However, it generally expects to have continuing access to supply from its vendors given it is often the largest customer for its key suppliers. It is also carefully managing its exposure to the global freight disruptions and delays that are currently affecting multiple industries. As a significant and highly experienced importer with diverse supply and transport relationships, it is able to cost-effectively pursue multiple freight options. It also maintains dedicated internal resources to manage logistics daily, and its strong balance sheet enables it to invest working capital to secure product and pursue creative freight options to meet its customers' needs. To date, it has not experienced significant adverse effects from global freight challenges, which it believes demonstrates the resilience of its business approach.

Going forward, it remains uniquely positioned to pursue strategic acquisitions in its core markets. The North American specialty building product distribution market is large in size and scope, and it remains fragmented. It believes its platform positions it to capture market share through both organic and acquisitions-based growth. As it has done in the past, it intends to continue achieving this growth on an accretive basis for its shareholders.

Outlook for its end markets

Leading indicators for the U.S. residential construction market remain positive. Housing starts have meaningfully lagged population growth this past decade, leading to pent-up demand for housing. More recently, housing completions have not kept pace with starts, and the company believes this dynamic will create an elongated demand curve for its products given they are typically installed during the finishing stages of home construction.

Demographically, millennials now represent the largest segment of the U.S. population and as they move into the homebuying phase of their lives, they are expected to further drive demand for homes. Mortgage rates, although currently increasing, remain low by historical standards, and the continuing trend of population shift from urban to suburban markets is adding to the sharp increase in housing permits and starts. These dynamics are expected to drive strong multiyear demand for its products.

The repair and remodel market is benefiting from rising home equity, the advancing age of the current U.S. housing stock, and social trends such as individuals spending more of their time and disposable income on their homes. These trends are expected to be an important driver of multiyear demand for its products.

The demand outlook for U.S. commercial markets is mixed, with some sectors showing strength and others recovering at a slower pace. Commercial market participation is highly diverse for Hardwoods, including construction activity in health care, education, public buildings, hospitality, office, retail facilities and recreational vehicles. The company expects certain of these commercial end markets will perform better than others, with the broad nature of its participation reducing the impact of dynamics in any one geography or end market.

Q1 2022 investor call

Hardwoods will hold an investor call on May 13, 2022, at 8 a.m. Pacific Time (11 a.m. Eastern Time). Participants should dial 1-888-204-4368 or 647-794-4605 (Greater Toronto Area) at least five minutes before the call begins. A replay will be available through May 20, 2022, by calling toll-free 1-888-203-1112 or 647-436-0148 (GTA), followed by passcode 1161093 or 6712457.

About Hardwoods Distribution Inc.

Hardwoods is one of North America's largest suppliers of specialty building products to fabricators, home centres and builders servicing the new residential, repair and remodel, and commercial construction end markets. The company currently operates a network in North America of 86 distribution and manufacturing facilities in the United States and Canada. Hardwoods' common shares are listed on the Toronto Stock Exchange under the symbol HDI.

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