UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from                 to                

Commission File Number 0-51357

BUILDERS FIRSTSOURCE, INC.

(Exact name of registrant as specified in its charter)

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)

(214) 880-3500

(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
Common stock, par value $0.01 per share	BLDR	NASDAQ Stock Market LLC

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 (Section 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, 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.

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

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 October 30, 2019 was 115,786,770.

BUILDERS FIRSTSOURCE, INC.

Index to Form 10-Q

		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Operations and Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018	3
	Condensed Consolidated Balance Sheet (Unaudited) as of September 30, 2019 and December 31, 2018	4
	Condensed Consolidated Statement of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2019 and 2018	5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33

2

PART I  — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(Unaudited)
	(In thousands, except per share amounts)
Sales	$	1,981,035	$	2,118,467	$	5,516,858	$	5,908,791
Cost of sales		1,439,893		1,595,686		4,016,585		4,478,630
Gross margin		541,142		522,781		1,500,273		1,430,161
Selling, general and administrative expenses		411,510		400,993		1,183,105		1,151,670
Income from operations		129,632		121,788		317,168		278,491
Interest expense, net		27,788		29,106		82,071		84,805
Income before income taxes		101,844		92,682		235,097		193,686
Income tax expense		23,714		19,354		54,655		40,516
Net income	$	78,130	$	73,328	$	180,442	$	153,170
Comprehensive income	$	78,130	$	73,328	$	180,442	$	153,170
Net income per share:
Basic	$	0.68	$	0.64	$	1.56	$	1.34
Diluted	$	0.67	$	0.63	$	1.54	$	1.31
Weighted average common shares:
Basic		115,732		114,707		115,639		114,480
Diluted		117,154		116,456		116,870		116,614

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

3

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

	September 30,		December 31,
	2019		2018
	(Unaudited)
	(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	43,271	$	10,127
Accounts receivable, less allowances of $14,280 and $13,054 at September 30, 2019 and    December 31, 2018, respectively		721,134		654,170
Other receivables		49,526		68,637
Inventories, net		581,543		596,896
Other current assets		34,603		43,921
Total current assets		1,430,077		1,373,751
Property, plant and equipment, net		696,154		670,075
Operating lease right-of-use assets, net		286,971		—
Goodwill		754,765		740,411
Intangible assets, net		101,303		103,154
Deferred income taxes		5,055		22,766
Other assets, net		23,434		22,152
Total assets	$	3,297,759	$	2,932,309
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	499,360	$	423,168
Accrued liabilities		289,735		292,526
Current portion of operating lease liabilities		60,280		—
Current maturities of long-term debt		14,370		15,565
Total current liabilities		863,745		731,259
Noncurrent portion of operating lease liabilities		232,475		—
Long-term debt, net of current maturities, debt discount, premium and issuance costs		1,350,467		1,545,729
Deferred income taxes		18,836		—
Other long-term liabilities		53,235		58,983
Total liabilities		2,518,758		2,335,971
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and    outstanding		—		—
Common stock, $0.01 par value, 200,000 shares authorized; 115,767 and 115,078 shares    issued and outstanding at September 30, 2019 and December 31, 2018, respectively		1,158		1,151
Additional paid-in capital		570,373		560,221
Retained earnings		207,470		34,966
Total stockholders' equity		779,001		596,338
Total liabilities and stockholders' equity	$	3,297,759	$	2,932,309
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

	Nine Months Ended
	September 30,
	2019			2018
	(Unaudited) (In thousands)
Cash flows from operating activities:
Net income	$	180,442		$	153,170
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		71,771			72,691
Amortization of debt discount, premium and issuance costs		3,060			3,479
Loss on extinguishment of debt, net		4,654			—
Deferred income taxes		36,547			35,829
Stock compensation expense		9,380			9,929
Net gain on sale of assets and asset impairments		(1,502	)		(480	)
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Receivables		(41,083	)		(151,092	)
Inventories		22,263			(86,639	)
Other current assets		8,968			(1,786	)
Other assets and liabilities		1,756			1,442
Accounts payable		73,913			(12,792	)
Accrued liabilities		(9,905	)		(14,219	)
Net cash provided by operating activities		360,264			9,532
Cash flows from investing activities:
Purchases of property, plant and equipment		(77,937	)		(78,693	)
Proceeds from sale of property, plant and equipment		5,474			1,890
Cash used for acquisitions		(33,931	)		—
Net cash used in investing activities		(106,394	)		(76,803	)
Cash flows from financing activities:
Borrowings under revolving credit facility		885,000			1,243,000
Repayments under revolving credit facility		(1,064,000	)		(1,189,000	)
Proceeds from long-term debt and other loans		478,375			3,818
Repayments of long-term debt and other loans		(502,062	)		(11,173	)
Payments of debt extinguishment costs		(2,301	)		—
Payments of  loan costs		(8,566	)		—
Exercise of stock options		3,220			2,394
Repurchase of common stock		(10,392	)		(4,855	)
Net cash provided by (used in) financing activities		(220,726	)		44,184
Net change in cash and cash equivalents		33,144			(23,087	)
Cash and cash equivalents at beginning of the period		10,127			57,533
Cash and cash equivalents at end of the period	$	43,271		$	34,446

Supplemental disclosure of non-cash activities

Purchases of property, plant and equipment included in accounts payable were $2.1 million and $2.5 million for the nine months ended September 30, 2019 and 2018, respectively.

The Company purchased equipment which was financed through finance lease obligations of $11.7 million and capital lease obligations of $9.0 million in the nine months ended September 30, 2019 and 2018, respectively.

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

							Additional Paid			Retained Earnings
	Common Stock						in			(Accumulated
	Shares			Amount			Capital			Deficit)			Total
	(Unaudited)
	(In thousands)
Balance at December 31, 2017		113,572		$	1,136		$	546,766		$	(171,693	)	$	376,209
Vesting of restricted stock units		766			7			(7	)		—			—
Stock compensation expense		—			—			2,890			—			2,890
Exercise of stock options		517			5			2,036			—			2,041
Shares withheld for restricted stock units vested		(236	)		(2	)		(4,853	)		—			(4,855	)
Cumulative effect adjustment		—			—			—			1,468			1,468
Net income		—			—			—			23,220			23,220
Balance at March 31, 2018		114,619			1,146			546,832			(147,005	)		400,973
Vesting of restricted stock units		6			1			(1	)		—			—
Stock compensation expense		—			—			3,538			—			3,538
Exercise of stock options		46			—			338			—			338
Net income		—			—			—			56,622			56,622
Balance at June 30, 2018		114,671		$	1,147		$	550,707		$	(90,383	)	$	461,471
Vesting of restricted stock units		49			—			—			—			—
Stock compensation expense		—			—			3,501			—			3,501
Exercise of stock options		5			—			15			—			15
Net income		—			—			—			73,328			73,328
Balance at September 30, 2018		114,725		$	1,147		$	554,223		$	(17,055	)	$	538,315
Balance at December 31, 2018		115,078		$	1,151		$	560,221		$	34,966		$	596,338
Vesting of restricted stock units		662			7			(7	)		—			—
Stock compensation expense		—			—			2,659			—			2,659
Exercise of stock options		59			—			216			—			216
Shares withheld for restricted stock units vested		(196	)		(2	)		(2,448	)		—			(2,450	)
Net income		—			—			—			35,708			35,708
Balance at March 31, 2019		115,603			1,156			560,641			70,674			632,471
Vesting of restricted stock units		11			—			—			—			—
Stock compensation expense		—			—			3,379			—			3,379
Exercise of stock options		266			3			1,674			—			1,677
Net income		—			—			—			66,604			66,604
Balance at June 30, 2019		115,880		$	1,159		$	565,694		$	137,278		$	704,131
Vesting of restricted stock units		59			—			—			—			—
Repurchase of common stock (1)		(460	)		(4	)		—			(7,938	)		(7,942	)
Stock compensation expense		—			—			3,342			—			3,342
Exercise of stock options		288			3			1,337			—			1,340
Net income		—			—			—			78,130			78,130
Balance at September 30, 2019		115,767		$	1,158		$	570,373		$	207,470		$	779,001

(1) During the three and nine months ended September 30, 2019 we repurchased and retired 460,000 shares of our common stock at an average price of $17.24 per share for $7.9 million pursuant to the repurchase program authorized by our board of directors in February 2019. The primary purpose of the repurchase program is to offset dilution from employee stock awards.

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 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 400 locations in 40 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, 2018 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, 2018 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, 2018 included in our most recent annual report on 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, except as noted below relating to the adoption of updated guidance under the Leases topic of the Accounting Standards Codification (“Codification”).

Recent Accounting Pronouncements

In June 2016, the FASB issued an update to existing guidance under the Investments topic of the Codification. This update introduces a new impairment model for financial assets, known as the current expected credit losses (“CECL”) model that is based on expected losses rather than incurred losses. The CECL model requires an entity to estimate credit losses on financial assets, including trade accounts receivable, based on historical information, current information and reasonable and supportable forecasts. Under this guidance companies will record an allowance through earnings for expected credit losses upon initial recognition of the financial asset. The aspects of this guidance applicable to us will be required to be adopted on a modified retrospective basis. This update is effective for public companies for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018.  While we are still evaluating the impact of this guidance on our financial statements, we do not currently expect it to have a material impact.

In February 2016, the FASB issued an update to the existing guidance under the Leases topic of the Codification. Under the new guidance, lessees are now required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

We adopted this guidance on January 1, 2019 by applying the provisions of this guidance on a modified retrospective basis as of the effective date. As such, comparative periods have not been restated and the disclosures required under the new standard have not been provided for periods prior to January 1, 2019. We elected the package of practical expedients whereby we were not required to: i) reassess whether any expired or existing contracts are or contain leases, ii) reassess the lease classification of existing leases and iii) reassess initial direct costs for any existing leases. We did not elect the hindsight practical expedient or the practical expedient related to land easements. We have assessed and updated our business processes, systems and controls to ensure compliance with the recognition and disclosure requirements of the new standard.

Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities of $269.7 million and $267.5 million, respectively, as of January 1, 2019 to recognize operating leases, primarily related to real estate and rolling stock, which were not recognized on our balance sheet under previous guidance. Further, the adoption of this guidance had no impact to our remaining other finance obligations as they continue to fail to meet the sale-leaseback requirements of the new standard. The adoption of this guidance did not have a material impact on our condensed consolidated statement of operations and comprehensive income or on our condensed consolidated statement of cash flows as our leases retained their classifications as determined under previous guidance.

7

2. Revenue

The following table disaggregates our sales by product category (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Lumber & lumber sheet goods	$	605,494	$	818,693	$	1,724,670	$	2,273,761
Manufactured products		401,245		385,894		1,092,896		1,050,963
Windows, doors & millwork		407,397		372,453		1,151,836		1,080,120
Gypsum, roofing & insulation		149,676		146,648		408,983		400,797
Siding, metal & concrete products		201,068		196,591		542,275		528,290
Other building products & services		216,155		198,188		596,198		574,860
Net sales	$	1,981,035	$	2,118,467	$	5,516,858	$	5,908,791

Information regarding disaggregation of sales by segment is discussed in Note 13 to the condensed consolidated financial statements. Sales related to contracts with service elements represents less than 10% of the Company’s net sales for each period presented.

The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, contract assets and contract liabilities. Contract asset balances were not significant as of September 30, 2019 or December 31, 2018. Contract liabilities consist of deferred revenue and customer advances and deposits. Contract liability balances are included in accrued liabilities on our consolidated balance sheet and were $48.3 million and $42.1 million as of September 30, 2019 and December 31, 2018, respectively.

3. Net Income per Common Share

Net income per common share (“EPS”) is calculated in accordance with the Earnings per Share topic of the 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 (in thousands, except per share amounts):  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Numerator:
Net income	$	78,130	$	73,328	$	180,442	$	153,170
Denominator:
Weighted average shares outstanding, basic		115,732		114,707		115,639		114,480
Dilutive effect of options and RSUs		1,422		1,749		1,231		2,134
Weighted average shares outstanding, diluted		117,154		116,456		116,870		116,614
Net income per share:
Basic	$	0.68	$	0.64	$	1.56	$	1.34
Diluted	$	0.67	$	0.63	$	1.54	$	1.31
Antidilutive and contingent options and RSUs excluded    from diluted EPS		151		1,035		488		578

8

4. Debt

Long-term debt consisted of the following (in thousands):

	September 30,			December 31,
	2019			2018
2023 facility (1)	$	—		$	179,000
2024 notes		503,923			696,361
2024 term loan (2)		157,075			458,250
2027 notes		475,000			—
Other finance obligations (Note 5)		222,606			227,071
Finance lease obligations (Note 5)		18,915			16,445
d		1,377,519			1,577,127
Unamortized debt discount/premium and debt issuance costs		(12,682	)		(15,833