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li
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
OR
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).Yes
The number of shares of the issuer’s common stock, par value $0.01, outstanding as of October 31, 2024, was
BUILDERS FIRSTSOURCE, INC.
Index to Form 10-Q
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Page |
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3 |
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Item 1. |
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3 |
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3 |
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Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2024, and December 31, 2023 |
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4 |
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5 |
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6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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15 |
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Item 3. |
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20 |
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Item 4. |
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20 |
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22 |
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Item 1. |
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22 |
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Item 1A. |
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22 |
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Item 2. |
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22 |
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Item 5. |
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22 |
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Item 6. |
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23 |
2
P ART I — FINANCIAL INFORMATION
I tem 1. Financial Statements (unaudited)
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
C ONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
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Nine Months Ended
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(in thousands, except per share amounts) |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross margin |
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Selling, general and administrative expenses |
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Income from operations |
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Interest expense, net |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Net income per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average common shares: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDA TED BALANCE SHEETS
(Unaudited)
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(in thousands, except per share amounts) |
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September 30,
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December 31,
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowances of $
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Other receivables |
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Inventories |
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Contract assets |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets, net |
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Goodwill |
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Intangible assets, net |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Contract liabilities |
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Current portion of operating lease liabilities |
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Current maturities of long-term debt |
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Total current liabilities |
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Noncurrent portion of operating lease liabilities |
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Long-term debt, net of current maturities, discounts and issuance costs |
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Deferred income taxes |
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Other long-term liabilities |
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Total liabilities |
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nts and contingencies (Note 11) |
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Stockholders' equity: |
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Preferred stock, $
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Common stock, $
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Additional paid-in capital |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
C ONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
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Nine Months Ended
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(in thousands) |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Deferred income taxes |
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(
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) |
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(
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) |
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Stock-based compensation expense |
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Other non-cash adjustments |
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(
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) |
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Changes in assets and liabilities, net of assets acquired and liabilities assumed: |
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Receivables |
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(
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) |
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Inventories |
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Contract assets |
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(
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) |
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(
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Other current assets |
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Other assets and liabilities |
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(
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) |
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(
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Accounts payable |
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Accrued liabilities |
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(
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) |
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(
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) |
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Contract liabilities |
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(
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) |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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||
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Cash used for acquisitions, net of cash acquired |
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(
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) |
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(
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) |
|
Purchases of property, plant and equipment |
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(
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) |
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(
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) |
|
Proceeds from sale of property, plant and equipment |
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Cash used for equity investments |
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(
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) |
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— |
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Net cash used in investing activities |
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(
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) |
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(
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) |
|
Cash flows from financing activities: |
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||
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Borrowings under revolving credit facility |
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Repayments under revolving credit facility |
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(
|
) |
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(
|
) |
|
Proceeds from long-term debt and other loans |
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— |
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|
Repayments of long-term debt and other loans |
|
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(
|
) |
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(
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) |
|
Payments of loan costs |
|
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(
|
) |
|
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(
|
) |
|
Payments of acquisition-related deferred and contingent consideration |
|
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(
|
) |
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— |
|
|
Tax withholdings on and exercises of equity awards |
|
|
(
|
) |
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|
(
|
) |
|
Repurchase of common stock |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash used in financing activities |
|
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(
|
) |
|
|
(
|
) |
|
Net change in cash and cash equivalents |
|
|
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|
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Cash and cash equivalents at beginning of period |
|
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Cash and cash equivalents at end of period |
|
$ |
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$ |
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||
|
Supplemental disclosures of cash flow information: |
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||
|
Cash paid for interest |
|
$ |
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$ |
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Cash paid for income taxes |
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Supplemental disclosures of non-cash activities: |
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||
|
Non-cash or accrued consideration for acquisitions |
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$ |
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$ |
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Accrued purchases of property, plant and equipment |
|
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Right-of-use assets obtained in exchange for operating lease obligations |
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Amounts accrued related to repurchases of common stock |
|
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
CONDENSED C ONSOLIDATED STATEMENTS O F CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
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Additional |
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|||||
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Common Stock |
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Paid-in |
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Retained |
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||||||||
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(in thousands) |
|
Shares |
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Amount |
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Capital |
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Earnings |
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Total |
|
|||||
|
Balance at December 31, 2022 |
|
|
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|
$ |
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$ |
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$ |
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$ |
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|
Vesting of restricted stock units |
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(
|
) |
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— |
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— |
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|
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|||
|
Repurchase of common stock (1) |
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|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Exercise of stock options |
|
|
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|
|
|
— |
|
|
|
|
|
|
— |
|
|
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|
|
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|
Shares withheld for restricted stock units vested |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
— |
|
|
|
(
|
) |
|
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|||
|
Balance at March 31, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Repurchase of common stock (1) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Shares withheld for restricted stock units vested |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Repurchase of common stock (1) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Shares withheld for restricted stock units vested |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance at December 31, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Repurchase of common stock (2) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Shares withheld for restricted stock units vested |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|||
|
Balance at March 31, 2024 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Repurchase of common stock (2) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Shares withheld for restricted stock units vested |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2024 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Repurchase of common stock (2) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Shares withheld for restricted stock units vested |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2024 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
N OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Builders FirstSource, Inc., a Delaware corporation formed in
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the dates and periods presented. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. Intercompany transactions are eliminated in consolidation.
The condensed consolidated balance sheet as of December 31, 2023, is derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. This condensed consolidated balance sheet as of December 31, 2023, and the unaudited condensed consolidated financial statements included herein should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2023, included in our most recent annual report on Form 10-K for fiscal year 2023 (“2023 Form 10-K”). Accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in our 2023 Form 10-K.
The accounting policies of our operating segments are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in our 2023 Form 10-K. Since the Company operates in one reportable segment, the primary measures reviewed by our CEO, whom we have determined to be our chief operating decision maker, including revenue, gross margin and income before income taxes, are shown in these condensed consolidated financial statements.
Business Combinations
When they meet the requirements under ASC 805, Business Combinations, merger and acquisition transactions are accounted for using the acquisition method, and accordingly the results of operations of the acquiree are included in the Company’s consolidated financial statements from the acquisition date. The consideration transferred is allocated to the identifiable assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with any excess recorded as goodwill. Transaction-related costs are expensed in the period the costs are incurred. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill.
Comprehensive Income
Comprehensive income is equal to net income for all periods presented.
Equity Investments
The Company’s equity investments are accounted for using equity method accounting and are recorded as other assets, net in the accompanying Condensed Consolidated Balance Sheets and are not considered significant to the Company.
Reclassifications
Certain prior periods’ amounts have been reclassified to conform to the current year presentation, including changing the composition of our product categories, and amounts presented as repurchases of common stock and tax withholdings on and exercises of equity awards. Prior period amounts related to product categories as disclosed in Note 3 have been reclassified to conform to the current year presentation.
The prior period amounts related to tax withholdings on equity awards have been reclassified from repurchases of common stock and combined with exercises of stock options to conform to the present year presentation. Reclassifications had no impact on net income, total assets and liabilities, stockholders’ equity, financing cash flows, or total cash flows as previously reported.
7
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through additional and more detailed information about a reportable segment's expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements and related disclosures .
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. This amendment modifies the rules on income tax disclosures to require entities to disclose: (i) specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold; (ii) the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes, as well as individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid net of refunds; (iii) the income or loss from continuing operations before income tax expense, or benefit, disaggregated between domestic and foreign; and (iv) income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, though retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
2. Business Combinations
During the first nine months of 2024, we completed the acquisitions of Quality Door & Millwork, Inc. (“Quality Door”), Hanson Truss Components, Inc. (“Hanson Truss”), RPM Wood Products, Inc. (“RPM”), Schoeneman Bros. Company (“Schoeneman”), TRSMI, LLC (“TRSMI”), Western Truss & Components (“Western Truss”), CRi SoCal (“CRi”), Wyoming Millwork Co. (“Wyoming Millwork”), Sunrise Wood Designs, LLC (“Sunrise Wood Designs”), Reno Truss, Inc. (“Reno Truss”) and High Mountain Door and Trim, Inc. (“High Mountain”) for a combined total of approximately
$
During the first nine months of 2023, we completed the acquisitions of Noltex Holdings, Inc. and its affiliates (“Noltex”), Builder’s Millwork Supply (“BMS”), JB Millworks (“JBM”), Church’s Lumber (“Church’s”) and Frank’s Cash and Carry (“FCC”) for a combined total of
$
The acquisitions were funded with a combination of cash on hand and borrowings under our $
Pro forma financial information for the acquisitions discussed above for 2024 and 2023 are not presented as these acquisitions did not have a material impact on our results of operations, individually or in the aggregate for each respective period.
The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for acquisitions during the periods ended September 30, 2024, and 2023:
8
|
|
|
Total Acquisitions |
|
|||||
|
|
|
2024 |
|
|
2023 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
— |
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Other receivables |
|
|
|
|
|
|
— |
|
|
Inventories |
|
|
|
|
|
|
|
|
|
Contract assets |
|
|
|
|
|
|
— |
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
|
|
|
|
Finance lease right-of-use assets |
|
|
— |
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Accounts payable |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
Contract liabilities |
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
|
|
|
|
|
|
|
|
Finance lease liabilities |
|
|
— |
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Goodwill |
|
|
|
|
|
|
|
|
|
Total purchase consideration |
|
|
|
|
|
|
|
|
|
Accrued contingent consideration and purchase price adjustments |
|
|
(
|
) |
|
|
(
|
) |
|
Less: cash acquired |
|
|
(
|
) |
|
|
— |
|
|
Total cash consideration |
|
$ |
|
|
|
$ |
|
|
3. Revenue
The following table disaggregates our net sales by product category:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Lumber & lumber sheet goods |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Manufactured products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows, doors & millwork |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty building products & services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Due to ongoing system integrations and conversions, our product alignment continues to be refined. We have reclassified prior periods net sales by product category to conform to current period presentation. The impact to each of the prior periods’ net sales for lumber & lumber sheet goods, manufactured products, windows, doors & millwork, and specialty building products & services was
The timing of revenue recognition, invoicing and cash collection results in accounts receivable, unbilled receivables, contract assets and contract liabilities. Contract assets include unbilled amounts when the revenue recognized exceeds the amount billed to the customer, and amounts representing a right to payment from previous performance that is conditional on something other than passage of time, such as retainage. Contract liabilities consist of customer advances and deposits, and deferred revenue.
Through September 30, 2024 and 2023, we recognized as revenue substantially all of the contract liabilities balances outstanding as of December 31, 2023 and 2022 , respectively.
9
4. Net Income per Common Share
Net income per common share (“EPS”) is calculated in accordance with the Earnings per Share topic of the FASB Accounting Standards Codification, which requires the presentation of basic and diluted EPS. Basic EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common shares.
The table below presents the calculation of basic and diluted EPS:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares outstanding, basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of options and RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Antidilutive and contingent RSUs excluded from diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Goodwill
The following table sets forth the changes in the carrying amount of goodwill:
|
|
|
(in thousands) |
|
|
|
Balance as of December 31, 2023 (1) |
|
$ |
|
|
|
Acquisitions |
|
|
|
|
|
Balance as of September 30, 2024 (1) |
|
$ |
|
|
(1) Goodwill is presented net of historical accumulated impairment losses o
f $
In 2024, the change in the carrying amount of goodwill is attributable to the acquisitions completed during the year. As of September 30, 2024, no impairment triggering events have occurred. The amount allocated to goodwill is attributable to the assembled workforce, synergies and expected growth from the expanded product and service offerings of acquisitions. The goodwill recognized from the TRSMI business combination will not be deductible for tax purposes. The
$
6. Intangible Assets
The following table presents intangible assets as of:
|
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
|
Gross
|
|
|
Accumulated Amortization |
|
|
Gross
|
|
|
Accumulated Amortization |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Customer relationships |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
Trade names |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Non-compete agreements |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Developed technology |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Total intangible assets |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
10
In connection with the current year acquisitions, we recorded customer relationships intangible assets of
$
During the three and nine months ended September 30, 2024, we recorded amortization expense in relation to the above-listed intangible assets of
$
The following table presents the estimated amortization expense for intangible assets for the years ending December 31:
|
|
|
(in thousands) |
|
|
|
2024 (from October 1, 2024) |
|
$ |
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future intangible amortization expense |
|
$ |
|
|
7. Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
|
|
September 30,
|
|
|
December 31,
|
|
||
|
|
|
(in thousands) |
|
|||||
|
Accrued payroll and other employee related expenses |
|
$ |
|
|
|
$ |
|
|
|
Accrued business and other taxes |
|
|
|
|
|
|
|
|
|
Self-insurance reserves |
|
|
|
|
|
|
|
|
|
Accrued rebates payable |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
|
|
|
Accrued contingent consideration & purchase price adjustments |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total accrued liabilities |
|
$ |
|
|
|
$ |
|
|
11
8. Long-Term Debt
Long-term debt consisted of the following as of:
|
|
|
September 30,
|
|
|
December 31,
|
|
||
|
|
|
(in thousands) |
|
|||||
|
Revolving credit facility (1) |
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other finance obligations |
|
|
|
|
|
|
|
|
|
Finance lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt discount/premium and debt issuance costs |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
Less: current maturities of long-term debt |
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities, discounts and issuance costs |
|
$ |
|
|
|
$ |
|
|
2024 Debt Transactions
On February 29, 2024, the Company completed a
private offering of $
In connection with the issuance of the
The
Fair Value
As of September 30, 2024, and December 31, 2023
, the Company does not have any financial instruments that are measured at fair value on a recurring basis. We have elected to report the value of our
We were not in violation of any covenants or restrictions imposed by any of our debt agreements at September 30, 2024 .
9. Employee Stock-Based Compensation
Time Based Restricted Stock Unit Grants
In the first nine months of 2024, our board of directors granted
12
Performance, Market and Service Condition Based Restricted Stock Unit Grants
In the first nine months of 2024, our board of directors granted
|
Expected volatility (Company) |
|
|
Expected volatility (peer group median) |
|
|
Correlation between the Company and peer group median |
|
|
Expected dividend yield |
|
|
Risk-free rate |
|
The expected volatilities and correlation are based on the historical daily returns of our common stock and the common stocks of the constituents of our peer group over the most recent period equal to the measurement period. The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention to not pay regular dividends in the foreseeable future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and has a term equal to the measurement period.
10. Income Taxes
A reconciliation of the statutory federal income tax rate to our effective rate for continuing operations is provided below:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
Statutory federal income tax rate |
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
State income taxes, net of federal income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation windfall benefit |
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Permanent differences and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
We base our estimate of deferred tax assets and liabilities on current tax laws and rates. In certain cases, we also base our estimate on business plan forecasts and other expectations about future outcomes. Changes in existing tax laws or rates could affect our actual tax results, and future business results may affect the amount of our deferred tax liabilities or the valuation of our deferred tax assets over time. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, as well as the residential homebuilding industry’s cyclicality and sensitivity to changes in economic conditions, it is possible that actual results could differ from the estimates used in previous analyses. These differences could have a material impact on our consolidated results of operations or financial position.
11. Commitments and Contingencies
As of September 30, 2024, we had outstanding letters of credit totaling
$
The Company has a number of known and threatened construction defect legal claims. While these claims are generally covered under the Company’s existing insurance programs to the extent any loss exceeds the deductible, there is a reasonable possibility of loss that is not able to be estimated at this time because (i) many of the proceedings are in the discovery stage, (ii) the outcome of future litigation is uncertain, and/or (iii) the complex nature of the claims. Although the Company cannot estimate a reasonable range of loss based on currently available information, the resolution of these matters could materially affect the Company's financial position, results of operations or cash flows.
13
In addition, we are involved in various other claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in amounts in excess of our self-insured retention that we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities with respect to such claims and lawsuits. Although the ultimate disposition of these other proceedings cannot be predicted with certainty, management believes the outcome of any such claims that are pending or threatened, either individually or on a combined basis, will not materially affect our consolidated financial position, cash flows or results of operations. However, there can be no assurances that future adverse judgments and costs would not be material to our results of operations or liquidity for a particular period.
12. Subsequent Events
Business Combinations
Subsequent to September 30, 2024, we completed the acquisition of Douglas Lumber which distributes building materials throughout Rhode Island, Massachusetts and Connecticut.
The accounting for this business combination has not been completed at the date of this filing given the proximity of the acquisition date.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our 2023 Form 10-K. The following discussion and analysis should also be read in conjunction with the unaudited condensed consolidated financial statements appearing elsewhere in this report.
Cautionary Statement
Statements in this report and the schedules hereto that are not purely historical facts or that necessarily depend upon future events, including statements about expected market share gains, forecasted financial performance, industry and business outlook or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. In addition, oral statements made by our directors, officers and employees to the investor and analyst communities, media representatives and others, depending upon their nature, may also constitute forward-looking statements. All forward-looking statements are based upon currently available information and the Company’s current assumptions, expectations and projections about future events. Forward-looking statements are by nature inherently uncertain, and actual results or events may differ materially from the results or events described in the forward-looking statements as a result of many factors. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve risks and uncertainties, many of which are beyond the Company’s control or may be currently unknown to the Company, that could cause actual events or results to differ materially from the events or results described in the forward-looking statements; such risks or uncertainties include those related to the Company’s growth strategies, including acquisitions, organic growth and digital strategies, or the dependence of the Company’s revenues and operating results on, among other things, the homebuilding industry and, to a lesser extent, repair and remodel activity, which in each case is dependent on economic conditions, including inflation, interest rates, consumer confidence, labor and supply shortages, and also lumber and other commodity prices. The Company may not succeed in addressing these and other risks. Further information regarding the risk factors that could affect our financial and other results can be found in the risk factors section of the Company’s 2023 Form 10-K filed with the Securities and Exchange Commission. Consequently, all forward-looking statements in this report are qualified by the factors, risks and uncertainties contained therein.
COMPANY OVERVIEW
We are a leading supplier and manufacturer of building materials, manufactured components and construction services to professional contractors, sub-contractors and consumers. The Company operates approximately 580 locations in 43 states across the United States, which are internally organized into geographic operating divisions. Due to the similar economic characteristics, categories of products, distribution methods and customers, our operating divisions are aggregated into one reportable segment.
We offer an integrated solution to our customers, providing manufacturing, supply and installation of a full range of structural and related building products. Our manufactured products include our factory-built roof and floor trusses, wall panels and stairs, vinyl windows, custom millwork and trim, as well as engineered wood that we design, cut, and assemble for each home. We also assemble interior and exterior doors into pre-hung units. Additionally, we supply our customers with a broad offering of professional-grade building products not manufactured by us, such as dimensional lumber and lumber sheet goods and various window, door and millwork lines, along with a full complement of specialty building products. Our full range of construction-related services includes professional installation, turn-key framing and shell construction, and spans our product categories.
RECENT DEVELOPMENTS
Business Combinations
Through September 30, 2024, we have completed the acquisitions of Quality Door, Hanson Truss, RPM, Schoeneman, TRSMI, Western Truss, CRi, Wyoming Millwork, Sunrise Wood Designs, Reno Truss and High Mountain for an aggregate purchase price of approximately $265.4 million, net of cash acquired. Among other opportunities, these acquisitions further expand our market footprint and provide additional operations in our value-add product categories. These transactions are described in further detail in Note 2 to these condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q.
Company Shares Repurchases
On August 5, 2024, the Company’s board of directors authorized a new repurchase plan of up to $1.0 billion of the Company’s outstanding shares of common stock. During the nine months ended September 30, 2024, under the previous program and the current authorization, the Company repurchased 6.8 million shares at a weighted average price of $171.37 per share, inclusive of applicable fees and taxes, for a total cost of $1.2 billion.
15
Executive Officer Transition
On September 19, 2024, the Company’s board of directors appointed Peter Jackson, Executive Vice President and Chief Financial Officer, as the Company’s next President & Chief Executive Officer and member of its Board of Directors, effective November 6, 2024. Mr. Jackson will succeed Dave Rush, who has served as President & Chief Executive Officer since November 2022 and is retiring after 25 years of dedicated service to the Company, effective November 6, 2024. Mr. Rush will remain on the Company’s board of directors and continue as a special advisor to the Company to ensure a smooth transition. Additionally, the Company’s board of directors appointed Pete Beckmann, Senior Vice President, Financial Planning & Analysis of the Company, to succeed Mr. Jackson as Chief Financial Officer, effective November 6, 2024.
CURRENT OPERATING CONDITIONS AND OUTLOOK
According to the U.S. Census Bureau, actual U.S. total housing starts were 0.4 million for the third quarter of 2024, a decrease of 3.5% compared to the third quarter of 2023, and 1.0 million for the nine months ended September 30, 2024, a 3.4% decrease compared to the nine months ended September 30, 2023 . Actual U.S. single-family starts for the third quarter of 2024 were 0.3 million, a decrease of 0.5% compared to the third quarter of 2023, and 0.8 million in the first nine months of 2024, a 10.1% increase compared to the same period a year ago . A composite of third-party sources, including the National Association of Home Builders, are forecasting 1.3 million U.S. total housing starts and 1.0 million single-family starts for 2024, which is a decrease of 5.3% and an increase of 5.6%, respectively from 2023. In addition, the Home Improvement Research Institute is forecasting sales in the professional repair and remodel end market to increase approximately 0.1% in 2024 compared to 2023.
We believe the long-term outlook for the housing industry is positive and that the housing industry remains underbuilt due to growth in the underlying demographics compared to historical new construction levels. Despite the challenges posed by higher interest rates and inflation that have impacted demand and affordability for consumers, investors and builders, new home sales remain resilient due to low inventory of existing homes for sale, builder incentives and modifications to home size and complexity. We believe we are well-positioned to take advantage of favorable long-term industry trends and to strategically increase our market share, both organically and through acquisitions. We will continue to focus on working capital by closely monitoring the credit exposure of our customers, remaining focused on maintaining the right level of inventory and by working with our vendors to improve payment terms and pricing on our products. We strive to achieve the appropriate balance of short-term expense control while maintaining the expertise and capacity to grow the business as market conditions expand.
SEASONALITY AND OTHER FACTORS
Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather causing reduced construction activity during these quarters. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following:
The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Working capital levels typically increase in the first and second quarters of the year due to higher sales during the peak residential construction season. These increases may result in negative operating cash flows during this peak season, which historically have been financed through available cash and borrowing availability under credit facilities. Generally, collection of receivables and reduction in inventory levels following the peak building and construction season positively impact cash flow.
16
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of certain costs, expenses and income items:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of sales |
|
|
67.2 |
% |
|
|
65.1 |
% |
|
|
67.0 |
% |
|
|
64.9 |
% |
|
Gross margin |
|
|
32.8 |
% |
|
|
34.9 |
% |
|
|
33.0 |
% |
|
|
35.1 |
% |
|
Selling, general and administrative expenses |
|
|
22.6 |
% |
|
|
20.7 |
% |
|
|
22.7 |
% |
|
|
22.1 |
% |
|
Income from operations |
|
|
10.2 |
% |
|
|
14.2 |
% |
|
|
10.3 |
% |
|
|
13.0 |
% |
|
Interest expense, net |
|
|
1.3 |
% |
|
|
1.1 |
% |
|
|
1.2 |
% |
|
|
1.1 |
% |
|
Income tax expense |
|
|
2.1 |
% |
|
|
3.1 |
% |
|
|
2.0 |
% |
|
|
2.7 |
% |
|
Net income |
|
|
6.8 |
% |
|
|
10.0 |
% |
|
|
7.1 |
% |
|
|
9.2 |
% |
Three Months Ended September 30, 2024 Compared with the Three Months Ended September 30, 2023
Net Sales. Net sales for the three months ended September 30, 2024, were $4.2 billion, a 6.7% decrease from net sales for the three months ended September 30, 2023. Core organic sales decreased net sales by 7.2%, primarily due to a continued downward trend in the multi-family customer segment and decreased single-family activity due to lower housing starts, while commodity price deflation decreased net sales by another 2.9%. These decreases were partially offset by increases in net sales from acquisitions and increased selling days of 2.0% and 1.4%, respectively.
The following table shows net sales classified by product category:
|
|
Three Months Ended September 30, |
|
|
|
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|||||||||||
|
|
(in millions) |
|
|
|
|
||||||||||||||
|
|
Net Sales |
|
|
% of Net Sales |
|
|
Net Sales |
|
|
% of Net Sales |
|
|
% Change |
|
|||||
|
Lumber & lumber sheet goods |
$ |
1,069.1 |
|
|
|
25.3 |
% |
|
$ |
1,157.2 |
|
|
|
25.5 |
% |
|
|
(7.6 |
)% |
|
Manufactured products |
|
997.6 |
|
|
|
23.6 |
% |
|
|
1,200.4 |
|
|
|
26.5 |
% |
|
|
(16.9 |
)% |
|
Windows, doors & millwork |
|
1,084.8 |
|
|
|
25.6 |
% |
|
|
1,093.3 |
|
|
|
24.1 |
% |
|
|
(0.8 |
)% |
|
Specialty building products & services |
|
1,081.0 |
|
|
|
25.5 |
% |
|
|
1,083.4 |
|
|
|
23.9 |
% |
|
|
(0.2 |
)% |
|
Net sales |
$ |
4,232.5 |
|
|
|
100.0 |
% |
|
$ |
4,534.3 |
|
|
|
100.0 |
% |
|
|
(6.7 |
)% |
We experienced decreased net sales in our lumber and lumber sheet goods primarily due to commodity deflation. Our manufactured products sales declined as multi-family continues to trend downward. For the comparable period, specialty building products and services and windows, doors and millwork sales remained consistent.
Gross Margin. Gross margin decreased $0.2 billion to $1.4 billion. Our gross margin percentage decreased to 32.8% in the third quarter of 2024 from 34.9% in the third quarter of 2023, a 2.1% decrease. This decrease was driven by ongoing multi-family and core organic margin normalization.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $958.3 million, an increase of $18.8 million, or 2.0%, over the third quarter of 2023. Increases in selling, general and administrative expenses were driven by additional operating expenses from locations acquired within the last twelve months and asset write-offs, which were partially offset by lower variable compensation on decreased sales.
As a percentage of net sales, selling, general and administrative expenses increased to 22.6%, up from 20.7%, for the three months ended September 30, 2024 and 2023, respectively, primarily attributable to reduced operating leverage.
Interest Expense, Net. Interest expense was $54.3 million in the third quarter of 2024, an increase of $4.1 million from the third quarter of 2023. The increase was due to higher average debt balances.
Income Tax Expense. We recorded income tax expense of $89.0 million and $140.0 million in the third quarters of 2024 and 2023, respectively. Our effective tax rate was 23.8% in the third quarter of 2024 and 23.7% in the third quarter of 2023. The decrease in the tax expense was primarily driven by a decrease in income before income taxes in the current period.
17
Nine Months ended September 30, 2024 Compared with the Nine Months ended September 30, 2023
Net Sales. Net sales for the nine months ended September 30, 2024, were $12.6 billion, a 2.8% decrease over net sales of $12.9 billion for the nine months ended September 30, 2023. Core organic sales decreased net sales by 3.8%, primarily due to a continued downward trend in the multi-family customer segment, a slight decrease in the single-family customer segment offset by a similar increase in the repair and remodel and other customer segment, while commodity price deflation decreased net sales by an additional 1.4%. These decreases were partially offset by increased net sales from acquisitions and selling days of 1.9% and 0.5%, respectively.
The following table shows net sales classified by product category:
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|||||||||||
|
|
(in millions) |
|
|
|
|
||||||||||||||
|
|
Net Sales |
|
|
% of Net Sales |
|
|
Net Sales |
|
|
% of Net Sales |
|
|
% Change |
|
|||||
|
Lumber & lumber sheet goods |
$ |
3,244.4 |
|
|
|
25.8 |
% |
|
$ |
3,092.9 |
|
|
|
23.9 |
% |
|
|
4.9 |
% |
|
Manufactured products |
|
3,031.8 |
|
|
|
24.1 |
% |
|
|
3,557.4 |
|
|
|
27.5 |
% |
|
|
(14.8 |
)% |
|
Windows, doors & millwork |
|
3,230.5 |
|
|
|
25.7 |
% |
|
|
3,263.4 |
|
|
|
25.2 |
% |
|
|
(1.0 |
)% |
|
Specialty building products & services |
|
3,073.5 |
|
|
|
24.4 |
% |
|
|
3,032.8 |
|
|
|
23.4 |
% |
|
|
1.3 |
% |
|
Net sales |
$ |
12,580.2 |
|
|
|
100.0 |
% |
|
$ |
12,946.5 |
|
|
|
100.0 |
% |
|
|
(2.8 |
)% |
We experienced increased net sales in our lumber and lumber sheet goods primarily due to increased single-family housing starts. Our manufactured products sales declined as multi-family continues to trend downward. For the comparable period, specialty building products and services and windows, doors and millwork sales remained relatively consistent.
Gross Margin. Gross margin decreased $0.4 billion to $4.1 billion, and our gross margin percentage decreased to 33.0% for the nine months ended September 30, 2024, from 35.1% in the nine months ended September 30, 2023, a 2.1% decrease. This decrease was attributable to margin normalization, particularly in our multi-family operations.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $2.9 billion, a decrease of $3.8 million, or 0.1% from 2023. This decrease was primarily due to decreased variable compensation on decreased sales and reduced intangible amortization, partially offset by additional operating expenses from locations acquired within the last twelve months and asset write-offs.
As a percentage of net sales, selling, general and administrative expenses increased to 22.7%, up from 22.1% for the nine months ended September 30, 2024 and 2023, respectively, primarily attributable to reduced operating leverage.
Interest Expense, Net. Interest expense was $154.6 million in the nine months ended September 30, 2024, an increase of $9.3 million from the nine months ended September 30, 2023. Interest expense increased primarily due to higher debt balances partially offset by interest income received in 2024.
Income Tax Expense. We recorded income tax expense of $248.8 million and $350.7 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in the tax expense was primarily driven by a decrease in income before income taxes in the current period. Our effective tax rate was 21.9% in the first nine months ended September 30, 2024, a decrease from 22.8% in the first nine months ended September 30, 2023, primarily related to an increase in our stock-based compensation windfall benefit, partially offset by permanent and other differences.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments, and to fund capital expenditures and potential future growth opportunities. Our capital resources at September 30, 2024, consist of cash on hand and borrowing availability under our Revolving Facility.
Our Revolving Facility is primarily used for working capital, general corporate purposes and funding capital expenditures and growth opportunities. In addition, we may use borrowings under the Revolving Facility to facilitate debt repayment and consolidation and to fund share repurchases. Availability under the Revolving Facility is determined by a borrowing base. Our borrowing base consists of trade accounts receivable, inventory, other receivables, and qualified cash that all meet specific criteria contained within the credit agreement, minus agent specified reserves. Net excess borrowing availability is equal to the maximum borrowing amount minus outstanding borrowings and letters of credit.
18
The following table shows our borrowing base and excess availability as of:
|
|
|
September 30,
|
|
|
December 31,
|
|
||
|
|
|
(in millions) |
|
|||||
|
Accounts receivable availability |
|
$ |
859.0 |
|
|
$ |
923.8 |
|
|
Inventory availability |
|
|
891.1 |
|
|
|
920.8 |
|
|
Other receivables availability |
|
|
69.8 |
|
|
|
65.1 |
|
|
Gross availability |
|
|
1,819.9 |
|
|
|
1,909.7 |
|
|
Less: |
|
|
|
|
|
|
||
|
Agent reserves |
|
|
(48.2 |
) |
|
|
(39.8 |
) |
|
Plus: |
|
|
|
|
|
|
||
|
Cash in qualified accounts |
|
|
267.8 |
|
|
|
13.3 |
|
|
Borrowing base |
|
|
2,039.5 |
|
|
|
1,883.2 |
|
|
Aggregate revolving commitments |
|
|
1,800.0 |
|
|
|
1,800.0 |
|
|
Maximum borrowing amount (lesser of borrowing base and
|
|
|
1,800.0 |
|
|
|
1,800.0 |
|
|
Less: |
|
|
|
|
|
|
||
|
Outstanding borrowings |
|
|
- |
|
|
|
(464.0 |
) |
|
Letters of credit |
|
|
(65.4 |
) |
|
|
(70.3 |
) |
|
Net excess borrowing availability on revolving facility |
|
$ |
1,734.6 |
|
|
$ |
1,265.7 |
|
As of September 30, 2024, we had no outstanding borrowings under our Revolving Facility, and our net excess borrowing availability was $1.7 billion after being reduced by outstanding letters of credit totaling $65.4 million. Excess availability must equal or exceed a minimum specified amount, currently $180.0 million, or we are required to meet a fixed charge coverage ratio of 1.00 to 1.00. We were not in violation of any covenants or restrictions imposed by any of our debt agreements at September 30, 2024.
Liquidity
Our liquidity at September 30, 2024, was $2.1 billion, which consists of net borrowing availability under the Revolving Facility and cash on hand.
Our level of indebtedness results in significant interest expense and could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. From time to time, based on market conditions and other factors and subject to compliance with applicable laws and regulations, we may repurchase or call our notes, repay, refinance or modify our debt or otherwise enter into transactions regarding our capital structure.
If industry conditions deteriorate or if we pursue additional acquisitions, we may be required to raise additional funds through the sale of capital stock or debt in the public capital markets or in privately negotiated transactions. There can be no assurance that any of these financing options would be available on favorable terms, if at all. Alternatives to help supplement our liquidity position could include, but are not limited to, idling or permanently closing additional facilities, adjusting our headcount in response to current business conditions, attempts to renegotiate leases, managing our working capital and/or divesting of non-core businesses. There are no assurances that these steps would prove successful or materially improve our liquidity position.
Consolidated Cash Flows
Cash provided by operating activities was $1.5 billion for the nine months ended September 30, 2024, compared to cash provided by operating activities of $1.7 billion for the nine months ended September 30, 2023. The decrease in cash provided by operating activities was largely the result of lower net income and changes in the timing of accounts payable outflows, partially offset by cash inflows from accounts receivable in the first nine months of 2024.
For the nine months ended September 30, 2024, the cash used in investing increased $58.8 million when compared to the prior year primarily due to using $114.0 million more cash for acquisitions, offset by $62.8 million less cash for net purchases of property and equipment.
Cash used in financing activities was $0.7 billion for the nine months ended September 30, 2024, which consisted primarily of $1.2 billion for repurchases of common stock and $0.5 billion net payments on the Revolving Facility, offset by a net $1.0 billion received for the issuance of the 6.375% 2034 Notes. Cash used in financing activities was $1.2 billion for the nine months ended September 30, 2023, which consisted primarily of $1.6 billion for repurchases of common stock, offset by $0.4 billion in net borrowings on the Revolving Facility.
19
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies are those that are both important to the accurate portrayal of a company’s financial condition and results, and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
To prepare financial statements that conform to generally accepted accounting principles, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.
Refer to Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K for a discussion of our critical accounting estimates and assumptions.
RECENT ACCOUNTING PRONOUNCEMENTS
Information regarding recent accounting pronouncements is discussed in Note 1 to the condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q.
Item 3. Quantitative and Qualitati ve Disclosures About Market Risk
We may experience changes in interest expense if changes in our debt occur. Changes in market interest rates could also affect our interest expense. Our 5.00% 2030 Notes, 4.25% 2032 Notes, 6.375% 2032 Notes and 6.375% 2034 Notes bear interest at a fixed rate, and therefore our interest expense related to these notes would not be affected by an increase in market interest rates. Borrowings under the Revolving Facility bear interest at either a base rate or SOFR, plus, in each case, an applicable margin. We did not have any outstanding borrowings on the Revolving Facility as of September 30, 2024. The Revolving Facility also assesses variable commitment and outstanding letter of credit fees based on quarterly average loan utilization.
We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured products that we deliver. Short-term changes in the cost of these materials and the related in-bound freight costs, some of which are subject to significant fluctuations, are sometimes, but not always, passed on to our customers. Delays in our ability to pass on material price increases to our customers can adversely impact our operating results.
Item 4. Controls and Procedures
Disclosure Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are attached as exhibits to this quarterly report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.
20
Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, the Company’s implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this quarterly report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our quarterly reports on Form 10-Q. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis, and to maintain them as dynamic systems that change as conditions warrant.
Conclusions Regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of September 30, 2024, we maintained disclosure controls and procedures that were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. During the period covered by this report, there were no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
21
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company has a number of known and threatened construction defect legal claims. While these claims are generally covered under the Company’s existing insurance programs to the extent any loss exceeds the deductible, there is a reasonable possibility of loss that is not able to be estimated at this time because (i) many of the proceedings are in the discovery stage, (ii) the outcome of future litigation is uncertain, and/or (iii) the complex nature of the claims.
In addition, we are involved in various other claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of such claims and lawsuits.
Although the ultimate disposition of these proceedings cannot be predicted with certainty, management believes the outcome of any such claims that are currently pending or threatened, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position, cash flows or results of operations. However, there can be no assurances that future adverse judgments and costs would not be material to our results of operations or liquidity for a particular period.
Item 1A. Ri sk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our 2023 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2023 Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
There were no material changes to the risk factors reported in Part 1, “Item 1A. Risk Factors” in our 2023 Form 10-K.
Item 2. Unregistered Sales of Equi ty Securities and Use of Proceeds
Company Stock Repurchases
The following table provides information with respect to the purchases of our common stock during the third quarter of fiscal year 2024:
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share
|
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
|
Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (1) |
|
||||
|
July 1, 2024 — July 31, 2024 |
|
|
1,456 |
|
|
$ |
158.88 |
|
|
|
— |
|
|
$ |
— |
|
|
August 1, 2024 — August 31, 2024 |
|
|
450,922 |
|
|
|
168.10 |
|
|
|
450,347 |
|
|
|
925,030,764 |
|
|
September 1, 2024 — September 30, 2024 |
|
|
453,505 |
|
|
|
185.33 |
|
|
|
453,505 |
|
|
|
841,816,489 |
|
|
Total |
|
|
905,883 |
|
|
$ |
176.71 |
|
|
|
903,852 |
|
|
$ |
841,816,489 |
|
In the third quarter of 2024, 0.9 million shares were repurchased and retired pursuant to the current share repurchase program authorized by our board of directors in August 2024. The remaining 2,031 shares presented in the table above represent stock tendered in order to meet tax withholding requirements for restricted stock units vested. Share repurchases under active repurchase programs may be made through a variety of methods, which may include open market purchases, block trades, accelerated share repurchases, trading plans in accordance with Rule 10b-5 or Rule 10b-18 under the Exchange Act, or any combination of such methods. The repurchase programs do not obligate the Company to acquire any particular amount of its common stock and may be suspended or discontinued at any time at the Company’s discretion.
Item 5. Other Information
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Item 6. Exhibits
|
Exhibit Number |
|
Description |
|
3.1 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
31.1* |
|
|
|
31.2* |
|
|
|
32.1** |
|
|
|
101* |
|
The following financial information from Builders FirstSource, Inc.’s Form 10-Q filed on November 5, 2024 formatted in Inline eXtensible Business Reporting Language (“Inline XBRL”): (i) Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2024 and 2023, (ii) Condensed Consolidated Balance Sheet as of September 30, 2024 and December 31, 2023, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023 and (v) the Notes to Condensed Consolidated Financial Statements. |
|
104* |
|
The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, has been formatted in Inline XBRL. |
* Filed herewith.
** Builders FirstSource, Inc. is furnishing, but not filing, the written statement pursuant to Title 18 United States Code 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, of Dave Rush, our Chief Executive Officer, and Peter M. Jackson, our Chief Financial Officer.
+ Indicates a management contract or compensatory plan or arrangement.
23
SIGNAT URES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
BUILDERS FIRSTSOURCE, INC. |
|
|
|
|
|
/s/ DAVE RUSH |
|
|
Dave Rush |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
November 5, 2024
|
|
/s/ PETER M. JACKSON |
|
|
Peter M. Jackson |
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
November 5, 2024
|
|
/s/ JAMI BECKMANN |
|
|
Jami Beckmann |
|
|
Senior Vice President and Chief Accounting Officer |
|
|
(Principal Accounting Officer) |
November 5, 2024
24