10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

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 ☐ No ☒

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of July 27, 2022 was 156,075,221.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

1. Basis of Presentation

Builders FirstSource, Inc., a Delaware corporation formed in 1998, is a leading supplier and manufacturer of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers. The Company operates approximately 560 locations in 42 states across the United States. In this quarterly report, references to the “Company,” “we,” “our,” “ours” or “us” refer to Builders FirstSource, Inc. and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.

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, 2021 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, 2021 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, 2021 included in our most recent annual report on Form 10-K (“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 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 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

Certain prior periods’ amounts have been reclassified to conform to the current year presentation, including presenting contract assets and contract liabilities separately on the face of the financial statements, whereas, these contract assets and contract liabilities had previously been presented as a component of accounts receivable and accrued liabilities, respectively. Reclassifications had no impact on net income, total assets and liabilities, stockholders’ equity, or cash flows as previously reported. We have changed the composition of our product categories, including a decrease to four product categories. As a result of these changes, prior period amounts, as disclosed in Note 3, have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which intends to address diversity and inconsistency in the accounting related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. This standard is effective for fiscal years beginning after December 15, 2022,

including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The purpose of ASU 2020-04 is to provide optional guidance for a period of time related to accounting for reference rate reform on financial reporting. It is intended to reduce the potential burden of reviewing contract modifications related to discontinued rates. The amendments and optional expedients in this update are effective, as elected, beginning March 12, 2020 through December 31, 2022 and may be elected by topic. We have not elected adoption of this optional guidance and do not intend to elect this guidance before the sunset date of December 31, 2022, as there is no material impact on our consolidated financial statements.

2. Business Combinations

On April 1, 2022, we acquired certain assets and operations of Panel Truss of Longview, Inc., Panel Truss – Hearne, LLC, Case-Hill, Inc., Panel Truss-Dallas, LLC, Truss Ops Trucking, LLC and Truss Ops, LLC (the “Texas Panel Truss Businesses”), and Panel Truss – Oakwood, LLC Panel Truss – Townville, LLC and Panel Truss – Ringgold, LLC (the “East Panel Truss Businesses”) for approximately $89.1 million and $79.6 million, which includes $7.0 million of contingent and deferred consideration. Each of the acquired businesses provides building components primarily to multi-family markets, serving such markets in Texas, Georgia and South Carolina.

On April 1, 2022, we acquired substantially all of the assets and operations of Valley Truss Co., Inc. ("Valley Truss") for approximately $31.6 million, which includes $0.4 million of deferred consideration. Valley Truss is a manufacturer of floor and roof trusses located in Boise, Idaho.

Each of these acquisitions were funded with a combination of cash on hand and borrowings under our 2026 revolving credit facility (“2026 facility"). These transactions were accounted for by the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from the acquisition date. The purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill.

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	$	34,959
Inventories		19,544
Property, plant and equipment		16,118
Operating lease right-of-use assets		9,795
Goodwill		66,099
Intangible assets		66,601
Total assets	$	213,116

Accounts payable	$	125
Accrued liabilities		168


Delaware		52-2084569
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2001 Bryan Street, Suite 1600
Dallas, Texas		75201
(Address of principal executive offices)		(Zip Code)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share	BLDR	New York Stock Exchange


		Page
	PART I — FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Operations (Unaudited) for Three and Six Months Ended June 30, 2022 and 2021	3
	Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 2022 and December 31, 2021	4
	Condensed Consolidated Statement of Cash Flows (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
	PART II — OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 6.	Exhibits	26


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Net sales	$	6,926,259	$	5,576,682	$	12,607,391	$	9,750,457
Cost of sales		4,514,112		3,993,531		8,362,870		7,097,752
Gross margin		2,412,147		1,583,151		4,244,521		2,652,705
Selling, general and administrative expenses		1,046,279		902,913		2,014,847		1,724,511
Income from operations		1,365,868		680,238		2,229,674		928,194
Interest expense, net		70,715		27,795		112,029		59,639
Income before income taxes		1,295,153		652,443		2,117,645		868,555
Income tax expense		307,944		155,208		490,795		198,740
Net income	$	987,209	$	497,235	$	1,626,850	$	669,815

Net income per share:
Basic	$	5.79	$	2.40	$	9.36	$	3.24
Diluted	$	5.75	$	2.39	$	9.27	$	3.21
Weighted average common shares:
Basic		170,378		207,114		173,730		206,844
Diluted		171,549		208,318		175,525		208,470


(in thousands, except per share amounts)	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	166,185	$	42,603
Accounts receivable, less allowances of $48,011 and $39,510 at June 30, 2022 and December 31, 2021, respectively		2,407,841		1,708,796
Other receivables		228,191		255,075
Inventories, net		2,065,349		1,626,244
Contract assets		270,714		207,587
Other current assets		139,036		127,964
Total current assets		5,277,316		3,968,269
Property, plant and equipment, net		1,420,722		1,385,441
Operating lease right-of-use assets, net		483,545		457,833
Goodwill		3,336,291		3,270,192
Intangible assets, net		1,534,242		1,603,409
Other assets, net		33,786		29,199
Total assets	$	12,085,902	$	10,714,343
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,265,461	$	1,093,370
Accrued liabilities		904,934		718,904
Contract liabilities		259,029		216,097
Current portion of operating lease liabilities		96,504		96,680
Current maturities of long-term debt		2,885		3,660
Total current liabilities		2,528,813		2,128,711
Noncurrent portion of operating lease liabilities		401,995		375,289
Long-term debt, net of current maturities, discounts and issuance costs		3,552,362		2,926,122
Deferred income taxes		339,494		362,121
Other long-term liabilities		126,885		119,619
Total liabilities		6,949,549		5,911,862
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding		—		—
Common stock, $0.01 par value, 300,000 shares authorized; 160,226 and 179,820 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		1,602		1,798
Additional paid-in capital		4,244,374		4,260,670
Retained earnings		890,377		540,013
Total stockholders' equity		5,136,353		4,802,481
Total liabilities and stockholders' equity	$	12,085,902	$	10,714,343


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Small reporting company	☐
Emerging growth company	☐


							Additional
	Common Stock						Paid-in			Retained
(in thousands)	Shares			Amount			Capital			Earnings			Total
Balance at December 31, 2020		116,829		$	1,168		$	589,241		$	562,374		$	1,152,783
Merger consideration		89,586			896			3,657,466		—				3,658,362
Vesting of restricted stock units		648			6			(6	)	—				—
Stock-based compensation expense	—			—				10,402		—				10,402
Exercise of stock options		27			1			234		—				235
Shares withheld for restricted stock units vested		(232	)		(2	)		(10,415	)	—				(10,417	)
Net income	—			—			—				172,580			172,580
Balance at March 31, 2021		206,858		$	2,069		$	4,246,922		$	734,954		$	4,983,945
Vesting of restricted stock units		472			5			(5	)	—				—
Stock-based compensation expense	—			—				8,465		—				8,465
Exercise of stock options		16		—				99		—				99
Shares withheld for restricted stock units vested		(150	)		(2	)		(7,287	)	—				(7,289	)
Net income	—			—			—				497,235			497,235
Balance at June 30, 2021		207,196		$	2,072		$	4,248,194		$	1,232,189		$	5,482,455

Balance at December 31, 2021		179,820		$	1,798		$	4,260,670		$	540,013		$	4,802,481
Vesting of restricted stock units		1,018			11			(11	)	—				—
Stock-based compensation expense	—			—				8,840		—				8,840
Repurchase of common stock (1)		(3,593	)		(36	)		—			(285,915	)		(285,951	)
Exercise of stock options		42			—			421		—				421
Shares withheld for restricted stock units vested		(401	)		(4	)		(29,380	)	—				(29,384	)
Net income	—			—			—				639,640			639,640
Balance at March 31, 2022		176,886		$	1,769		$	4,240,540		$	893,738		$	5,136,047
Vesting of restricted stock units		300			3			(3	)	—				—
Stock-based compensation expense	—			—				9,316		—				9,316
Repurchase of common stock (1)		(16,871	)		(169	)	—				(990,570	)		(990,739	)
Exercise of stock options		1			—			13		—				13
Shares withheld for restricted stock units vested		(90	)		(1	)		(5,492	)	—				(5,493	)
Net income	—			—			—				987,209			987,209
Balance at June 30, 2022		160,226		$	1,602		$	4,244,374		$	890,377		$	5,136,353