Builders FirstSource, Inc 10-Q for FY2023 Q3
Builders FirstSource, Inc. (BLDR)
About this 10-Q
Builders FirstSource, Inc filed this 10-Q on November 1, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.53B
- down 21.3% from $5.76B a year earlier
- Net income
- $451.46M
- down 38.8% from net income of $738.01M a year earlier
- Diluted EPS
- $3.59
- down 23.9% from $4.72 a year earlier
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) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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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Accelerated filer |
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Non-accelerated filer |
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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 27, 2023, 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 Sheet (Unaudited) as of September 30, 2023, and December 31, 2022 |
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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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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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19 |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 5. |
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Item 6. |
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2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT 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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2023 |
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2022 |
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2023 |
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2022 |
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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 CONSOLIDATED BALANCE SHEET
(Unaudited)
(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, net |
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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
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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Nine Months Ended |
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(in thousands) |
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2023 |
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2022 |
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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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Stock-based compensation expense |
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Other non-cash adjustments |
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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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Inventories |
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Contract assets |
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Other current assets |
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( |
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Other assets and liabilities |
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Accounts payable |
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( |
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Accrued liabilities |
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( |
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Contract liabilities |
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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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Cash used for acquisitions |
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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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Proceeds from sale of property, plant and equipment |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities: |
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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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( |
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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 debt extinguishment costs |
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— |
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( |
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Payments of loan costs |
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( |
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( |
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Exercise of stock options |
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Repurchase of common stock |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Net change in cash and cash equivalents |
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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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$ |
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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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$ |
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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 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
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Additional |
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Common Stock |
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Paid-in |
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Retained |
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(in thousands) |
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Shares |
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Amount |
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Capital |
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Earnings |
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Total |
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Balance at December 31, 2021 |
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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 |
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— |
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— |
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— |
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Repurchase of common stock (1) |
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( |
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( |
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— |
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( |
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( |
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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 |
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( |
) |
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( |
) |
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( |
) |
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— |
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( |
) |
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Net income |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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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 |
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— |
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— |
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— |
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Repurchase of common stock (1) |
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( |
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( |
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— |
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( |
) |
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( |
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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 |
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( |
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( |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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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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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Repurchase of common stock (1) |
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( |
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( |
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— |
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( |
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( |
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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 |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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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 |
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— |
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— |
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— |
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Repurchase of common stock (1) |
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( |
) |
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( |
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— |
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( |
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( |
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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 |
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( |
) |
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( |
) |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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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 |
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— |
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— |
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— |
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Repurchase of common stock (1) |
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( |
) |
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( |
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— |
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( |
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( |
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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 |
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( |
) |
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( |
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( |
) |
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— |
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( |
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Net income |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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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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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Repurchase of common stock (1) |
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( |
) |
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( |
) |
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— |
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( |
) |
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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 |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
Net income |
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— |
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— |
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— |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
6
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
NOTES 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, 2022, 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, 2022, 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, 2022, included in our most recent annual report on Form 10-K for fiscal year 2022 (“2022 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 2022 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 2022 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.
Reclassifications
The prior periods’ amounts disclosed in Note 3 have been reclassified to conform to the current year presentation. These reclassifications had no impact on net income, total assets and liabilities, stockholders’ equity, or cash flows as previously reported.
Recent Accounting Pronouncements
The Company reviews new accounting standards as issued or updated. There were no recently issued standards or updates adopted in the period that had a material impact on these condensed consolidated financial statements.
7
2. Business Combinations
During the first nine months of the year, we acquired certain assets and the operations 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 $
The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for the acquisitions described above:
|
|
Total |
|
|
|
|
(in thousands) |
|
|
Accounts receivable |
|
$ |
|
|
Inventories |
|
|
|
|
Other current assets |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
Finance lease right-of-use assets |
|
|
|
|
Goodwill |
|
|
|
|
Intangible assets |
|
|
|
|
Other assets |
|
|
|
|
Total assets |
|
$ |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
Accrued liabilities |
|
|
|
|
Contract liabilities |
|
|
|
|
Operating lease liabilities |
|
|
|
|
Finance lease liabilities |
|
|
|
|
Total liabilities |
|
$ |
|
|
|
|
|
|
|
Total purchase consideration |
|
|
|
|
Less: accrued contingent consideration and purchase price adjustments |
|
|
( |
) |
Total cash consideration |
|
$ |
|
|
3. Revenue
The following table disaggregates our sales by product category:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Lumber & lumber sheet goods |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Manufactured products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Windows, doors & millwork |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Specialty building products & services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
8
Net sales from installation and construction services were less than
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, 2023, and 2022, we recognized as revenue substantially all of the contract liabilities balances at December 31, 2022, and 2021, respectively.
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 |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(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, 2022 (1) |
|
$ |
|
|
Acquisitions |
|
|
|
|
Balance as of September 30, 2023 (1) |
|
$ |
|
|
(1) Goodwill is presented net of historical accumulated impairment losses of $
In 2023, the change in the carrying amount of goodwill is attributable to the acquisitions completed during the year. As of September 30, 2023, no 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 current year acquisitions is expected to be deductible for tax purposes and will be amortizable ratably over a
9
6. Intangible Assets
The following table presents intangible assets as of:
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Gross |
|
|
Accumulated Amortization |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Trade names |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Subcontractor relationships |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Non-compete agreements |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Developed technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
In connection with the current year acquisitions, we recorded customer relationships intangible assets of $
During the three and nine months ended September 30, 2023, we recorded amortization expense in relation to the above-listed intangible assets of $
10
The following table presents the estimated amortization expense for intangible assets for the years ending December 31:
|
|
(in thousands) |
|
|
2023 (from October 1, 2023) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total future net 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 |
|
$ |
|
|
$ |
|
||
Self-insurance reserves |
|
|
|
|
|
|
||
Accrued business taxes |
|
|
|
|
|
|
||
Accrued contingent consideration & purchase price adjustments |
|
|
|
|
|
|
||
Accrued rebates payable |
|
|
|
|
|
|
||
Amounts accrued for repurchases of common stock |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
||
8. Long-Term Debt
Long-term debt consisted of the following as of:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(in thousands) |
|
|||||
Revolving credit facility (1) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
2030 notes |
|
|
|
|
|
|
||
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 |
|
$ |
|
|
$ |
|
||
11
2023 Debt Transactions
On January 17, 2023, and April 3, 2023, the Company amended the Revolving Facility to extend the maturity of $
The Revolving Facility and outstanding senior unsecured notes are discussed in more detail in our 2022 Form 10-K and in our quarterly report on Form 10-Q for the three months ended March 31, 2023.
Fair Value
As of September 30, 2023, and December 31, 2022, 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, 2023.
9. Employee Stock-Based Compensation
Time Based Restricted Stock Unit Grants
In the first nine months of 2023, our board of directors granted
Performance, Market and Service Condition Based Restricted Stock Unit Grants
In the first nine months of 2023, 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.
12
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 |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
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, 2023, 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.
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 in respect of 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. Related Party Transactions
A member of the Company’s board of directors was an executive officer of one of our customers, Ashton Woods USA, L.L.C., during 2022. Accounts receivable due from and net sales to Ashton Woods USA, L.L.C. were approximately
13
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, 2022, included in our 2022 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 2022 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 570 locations in 42 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
During the period, we completed the acquisitions of Noltex, BMS, JBM, Church’s and FCC for an aggregate purchase price of $156.7 million. These acquisitions further expand our market footprint and provide additional operations in our value-add product categories and our multi-family customer segment. 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
During 2022, the Company’s board of directors approved share repurchase authorizations in the aggregate amount of $3.0 billion of its shares of common stock. In April 2023, the board of directors approved an additional share repurchase authorization in the amount of $1.0 billion. During the nine months ended September 30, 2023, the Company repurchased 16.2 million shares at a
14
weighted average price of $97.43 per share, for a total cost of approximately $1.6 billion, inclusive of fees and taxes. At September 30, 2023, the Company had $0.4 billion in authorized share repurchases remaining.
Debt Transactions
In the first and second quarter of 2023, the Company amended the Revolving Facility to extend the maturity to January 17, 2028, and to include additional pricing tiers for the applicable margin.
These transactions are described in Note 8 to the condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q. From time to time, based on market conditions and other factors and subject to compliance with applicable laws and regulations, the Company may repurchase or call its notes, repay debt, repurchase shares of its common stock or otherwise enter into transactions regarding its capital structure.
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 2023, a decrease of 6.2% compared to the third quarter of 2022. Actual U.S. single-family starts for the third quarter of 2023 were 0.3 million, an increase of 6.8% compared to the third quarter of 2022. A composite of third-party sources, including the National Association of Home Builders, are forecasting 1.4 million U.S. total housing starts and 0.9 million U.S single-family housing starts for 2023, which are projected decreases of 9.9% and 8.0%, respectively, from 2022. In addition, the Home Improvement Research Institute is forecasting sales in the professional repair and remodel end market to decrease approximately 5.0% in 2023 compared to 2022.
Our net sales for the third quarter of 2023 decreased 21.3% from the same period last year. The decrease was driven by a decrease in core organic sales of 13.5%, primarily in the single-family customer segment, with commodity price deflation accounting for 9.1%, and fewer selling days contributing another 1.6%, partially offset by sales growth from acquisitions of 2.9%. Our gross margin percentage of 34.9% in the third quarter of 2023 was comparable to the third quarter of 2022 of 35.0%. Our selling, general and administrative expenses, as a percentage of net sales, were 20.7% in the third quarter of 2023, a 3.3% increase from 17.4% in the third quarter of 2022, largely due to decreased cost leverage on lower sales.
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. While historically low existing homes for sale has provided some current resiliency for new home sales, rising interest rates and inflation have tempered near term demand as homes become less affordable for consumers, investors and builders. 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:
15
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.
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 |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
65.1 |
% |
|
|
65.0 |
% |
|
|
64.9 |
% |
|
|
65.9 |
% |
Gross margin |
|
|
34.9 |
% |
|
|
35.0 |
% |
|
|
35.1 |
% |
|
|
34.1 |
% |
Selling, general and administrative expenses |
|
|
20.7 |
% |
|
|
17.4 |
% |
|
|
22.1 |
% |
|
|
16.4 |
% |
Income from operations |
|
|
14.2 |
% |
|
|
17.6 |
% |
|
|
13.0 |
% |
|
|
17.7 |
% |
Interest expense, net |
|
|
1.1 |
% |
|
|
0.8 |
% |
|
|
1.1 |
% |
|
|
0.9 |
% |
Income tax expense |
|
|
3.1 |
% |
|
|
4.0 |
% |
|
|
2.7 |
% |
|
|
3.9 |
% |
Net income |
|
|
10.0 |
% |
|
|
12.8 |
% |
|
|
9.2 |
% |
|
|
12.9 |
% |
Three Months Ended September 30, 2023 Compared with the Three Months Ended September 30, 2022
Net Sales. Net sales for the three months ended September 30, 2023, were $4.5 billion, a 21.3% decrease over net sales of $5.8 billion for the three months ended September 30, 2022. Core organic sales, primarily in the single-family customer segment, commodity price deflation, and fewer selling days decreased net sales by 13.5%, 9.1%, and 1.6%, respectively. These decreases were partially offset by increased net sales from acquisitions of 2.9%.
The following table shows net sales classified by product category:
|
Three Months Ended September 30, |
|
|
|
|
||||||||||||||
|
2023 |
|
|
2022 |
|
|
|
|
|||||||||||
|
(in millions) |
|
|
|
|
||||||||||||||
|
Net Sales |
|
|
% of Net Sales |
|
|
Net Sales |
|
|
% of Net Sales |
|
|
% Change |
|
|||||
Lumber & lumber sheet goods |
$ |
1,150.5 |
|
|
|
25.4 |
% |
|
$ |
1,817.2 |
|
|
|
31.5 |
% |
|
|
(36.7 |
)% |
Manufactured products |
|
1,197.9 |
|
|
|
26.4 |
% |
|
|
1,501.0 |
|
|
|
26.1 |
% |
|
|
(20.2 |
)% |
Windows, doors & millwork |
|
1,102.1 |
|
|
|
24.3 |
% |
|
|
1,292.8 |
|
|
|
22.4 |
% |
|
|
(14.8 |
)% |
Specialty building products & services |
|
1,083.8 |
|
|
|
23.9 |
% |
|
|
1,150.5 |
|
|
|
20.0 |
% |
|
|
(5.8 |
)% |
Net sales |
$ |
4,534.3 |
|
|
|
100.0 |
% |
|
$ |
5,761.5 |
|
|
|
100.0 |
% |
|
|
(21.3 |
)% |
We experienced decreased net sales in all of our product categories primarily due to a slow-down in single-family housing starts earlier in the year, resulting in a decline in core organic sales in the third quarter, and commodity deflation.
Gross Margin. Gross margin decreased $0.4 billion to $1.6 billion due to decreased sales. Our gross margin percentage was relatively flat from 35.0% in the third quarter of 2022, to 34.9% in the third quarter of 2023.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $60.7 million, or 6.1%, primarily due to decreased variable compensation as a result of decreased sales, partially offset by higher amortization expense and additional operating expenses from locations acquired within the last twelve months.
As a percentage of net sales, selling, general and administrative expenses increased to 20.7%, up from 17.4% in the third quarter of 2022. This increase was primarily due to decreased cost leverage on lower net sales during the period.
Interest Expense, Net. Interest expense was $50.2 million in the third quarter of 2023, an increase of $6.1 million from the third quarter of 2022. The increase was primarily due to higher debt balances and increased interest rates during the third quarter of 2023 compared to the third quarter of 2022.
16
Income Tax Expense. We recorded income tax expense of $140.0 million and $232.4 million in the third quarters of 2023 and 2022, respectively. Our effective tax rate was 23.7% in the third quarter of 2023 and 23.9% in the third quarter of 2022. The decrease in the tax expense was primarily driven by a decrease in income before income taxes in the current period.
Nine Months ended September 30, 2023 Compared with the Nine Months ended September 30, 2022
Net Sales. Net sales for the nine months ended September 30, 2023, were $12.9 billion, a 29.5% decrease over net sales of $18.4 billion for the nine months ended September 30, 2022. Core organic sales, primarily in the single-family customer segment, and commodity price deflation decreased net sales by 21.0% and 12.6% respectively. These decreases were partially offset by increased net sales from acquisitions of 4.1%.
The following table shows net sales classified by product category:
|
Nine Months Ended September 30, |
|
|
|
|
||||||||||||||
|
2023 |
|
|
2022 |
|
|
|
|
|||||||||||
|
(in millions) |
|
|
|
|
||||||||||||||
|
Net Sales |
|
|
% of Net Sales |
|
|
Net Sales |
|
|
% of Net Sales |
|
|
% Change |
|
|||||
Lumber & lumber sheet goods |
$ |
3,081.3 |
|
|
|
23.8 |
% |
|
$ |
6,989.7 |
|
|
|
38.0 |
% |
|
|
(55.9 |
)% |
Manufactured products |
|
3,592.3 |
|
|
|
27.7 |
% |
|
|
4,533.0 |
|
|
|
24.7 |
% |
|
|
(20.8 |
)% |
Windows, doors & millwork |
|
3,242.7 |
|
|
|
25.0 |
% |
|
|
3,537.0 |
|
|
|
19.3 |
% |
|
|
(8.3 |
)% |
Specialty |
|
3,030.2 |
|
|
|
23.5 |
% |
|
|
3,309.2 |
|
|
|
18.0 |
% |
|
|
(8.4 |
)% |
Net sales |
$ |
12,946.5 |
|
|
|
100.0 |
% |
|
$ |
18,368.9 |
|
|
|
100.0 |
% |
|
|
(29.5 |
)% |
We experienced decreased net sales in all of our product categories primarily due to a slowing economy, a decline in core organic sales as a result of declining housing starts, and commodity deflation.
Gross Margin. Gross margin decreased $1.7 billion to $4.5 billion, and our gross margin percentage increased to 35.1% for the nine months ended September 30, 2023, from 34.1% in the nine months ended September 30, 2022, a 1.0% increase. This increase was driven by improved product mix toward our value-add products primarily due to recent strategic investments in value-add operations, including the current year benefit of commodity purchase timing in our multi-family segment and core organic margin normalization.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.2 billion, or 5.1%. This decrease was primarily due to decreased variable compensation as a result of decreased sales, partially offset by higher amortization expense and additional operating expenses from locations acquired within the last twelve months.
As a percentage of net sales, selling, general and administrative expenses increased to 22.1% in the nine months ended September 30, 2023, from 16.4% in the nine months ended September 30, 2022, largely driven by decreased cost leverage on lower net sales during the period.
Interest Expense, Net. Interest expense was $145.3 million in the nine months ended September 30, 2023, a decrease of $10.8 million from the nine months ended September 30, 2022. Interest expense decreased primarily due to the loss on extinguishment of $27.4 million recognized during the first nine months of 2022, partially offset by higher balances and increased interest rates during the first nine months of 2023 compared to the first nine months of 2022.
Income Tax Expense. We recorded income tax expense of $350.7 million and $723.2 million for the nine months ended September 30, 2023, and 2022, respectively. The decrease in tax expense was driven by a decrease in income before income taxes in the current period. Our effective tax rate was 22.8% in the first nine months ended September 30, 2023, a decrease from 23.4% in the first nine months ended September 30, 2022, primarily related to a reduction in our blended state tax rate and an increase in our stock-based compensation windfall benefit, partially offset by permanent 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, 2023, consist of cash on hand and borrowing availability under our Revolving Facility.
17
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.
The following table shows our borrowing base and excess availability as of:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(in millions) |
|
|||||
Accounts receivable availability |
|
$ |
996.4 |
|
|
$ |
841.1 |
|
Inventory availability |
|
|
997.1 |
|
|
|
1,064.7 |
|
Other receivables availability |
|
|
83.0 |
|
|
|
48.1 |
|
Gross availability |
|
|
2,076.5 |
|
|
|
1,953.9 |
|
Less: |
|
|
|
|
|
|
||
Agent reserves |
|
|
(51.7 |
) |
|
|
(64.7 |
) |
Plus: |
|
|
|
|
|
|
||
Cash in qualified accounts |
|
|
5.8 |
|
|
|
10.9 |
|
Borrowing base |
|
|
2,030.6 |
|
|
|
1,900.1 |
|
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 |
|
|
(682.0 |
) |
|
|
(264.0 |
) |
Letters of credit |
|
|
(70.3 |
) |
|
|
(128.9 |
) |
Net excess borrowing availability on revolving facility |
|
$ |
1,047.7 |
|
|
$ |
1,407.1 |
|
As of September 30, 2023, we had $0.7 billion in outstanding borrowings under our Revolving Facility, and our net excess borrowing availability was $1.0 billion after being reduced by outstanding letters of credit totaling $70.3 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, 2023.
Liquidity
Our liquidity at September 30, 2023, was $1.1 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 $1.7 billion for the nine months ended September 30, 2023, compared to cash provided by operating activities of $2.6 billion for the nine months ended September 30, 2022. The decrease in cash provided by operating activities was largely the result of a decrease in net income in the first nine months of 2023.
18
For the nine months ended September 30, 2023, the cash used for investing decreased $0.3 billion with $0.5 billion less cash used for acquisitions in the current year, offset by $0.2 billion more cash used for net purchases of property and equipment.
Cash used in financing activities was $1.2 billion for the nine months ended September 30, 2023, which consisted primarily of $1.6 billion in repurchases of common stock, offset by $0.4 billion net borrowings on the Revolving Facility. Cash used in financing activities was $1.8 billion for the nine months ended September 30, 2022, which consisted of $2.0 billion repurchases of common stock, the redemption of our 6.75% senior unsecured notes due 2027 for $0.6 billion and $0.1 billion in net payment under the Revolving Facility, offset by net proceeds from the issuance of $1.0 billion of 2032 notes.
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 2022 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 Qualitative 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 2030 notes and 2032 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. A 1.0% increase in interest rates on the Revolving Facility would result in approximately $6.8 million in additional interest expense annually based on our $0.7 billion in outstanding borrowings as of September 30, 2023. 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.
19
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.
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, 2023, 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.
20
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. Risk 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 2022 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2022 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 2022 Form 10-K.
Item 2. Unregistered Sales of Equity 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 2023:
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, 2023 — July 31, 2023 |
|
|
899 |
|
|
$ |
146.42 |
|
|
|
- |
|
|
$ |
629,943,373 |
|
August 1, 2023 — August 31, 2023 |
|
|
699,775 |
|
|
|
140.94 |
|
|
|
699,200 |
|
|
|
532,371,256 |
|
September 1, 2023 — September 30, 2023 |
|
|
951,700 |
|
|
|
132.75 |
|
|
|
951,700 |
|
|
|
407,296,197 |
|
Total |
|
|
1,652,374 |
|
|
$ |
136.22 |
|
|
|
1,650,900 |
|
|
$ |
407,296,197 |
|
In the third quarter of 2023, 1.7 million shares were repurchased and retired pursuant to share repurchase programs authorized by our board of directors. The remaining 1,474 shares presented in the table above represent stock tendered in order to meet tax withholding requirements for restricted stock units vested. Share repurchases under the program 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 program does not obligate the Company to acquire any particular amount of its common stock, and the share repurchase program may be suspended or discontinued at any time at the Company’s discretion.
21
Item 5. Other Information
None.
22
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 1, 2023 formatted in Inline eXtensible Business Reporting Language (“Inline XBRL”): (i) Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2023 and 2022, (ii) Condensed Consolidated Balance Sheet as of September 30, 2023 and December 31, 2022, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 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, 2023, 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
SIGNATURES
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 1, 2023
|
/s/ PETER M. JACKSON |
|
Peter M. Jackson |
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
November 1, 2023
|
/s/ JAMI BECKMANN |
|
Jami Beckmann |
|
Senior Vice President and Chief Accounting Officer |
|
(Principal Accounting Officer) |
November 1, 2023
24
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Dave Rush, certify that:
1. I have reviewed this report on Form 10-Q of Builders FirstSource, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ DAVE RUSH |
Dave Rush |
President and Chief Executive Officer |
Date: November 1, 2023
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Peter M. Jackson, certify that:
1. I have reviewed this report on Form 10-Q of Builders FirstSource, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ PETER M. JACKSON |
Peter M. Jackson |
Executive Vice President and Chief Financial Officer |
Date: November 1, 2023
Exhibit 32.1
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the quarterly report of Builders FirstSource, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Dave Rush, as President and Chief Executive Officer of the Company, and Peter M. Jackson, as Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ DAVE RUSH |
Dave Rush |
President and Chief Executive Officer |
/s/ PETER M. JACKSON |
Peter M. Jackson |
Executive Vice President and Chief Financial Officer |
Date: November 1, 2023
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.