liI

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 June 30, 2021

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 001-40620

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	New York Stock Exchange

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.

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 August 3, 2021 was 207,208,436.

BUILDERS FIRSTSOURCE, INC.

Index to Form 10-Q

		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Operations (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020	3
	Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 2021 and December 31, 2020	4
	Condensed Consolidated Statement of Cash Flows (Unaudited) for the Six Months Ended June 30, 2021 and 2020	5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Unaudited)
	(In thousands, except per share amounts)
Net sales	$	5,576,682	$	1,945,643	$	9,750,457	$	3,732,664
Cost of sales		3,993,531		1,428,311		7,097,752		2,749,919
Gross margin		1,583,151		517,332		2,652,705		982,745
Selling, general and administrative expenses		902,913		388,077		1,724,511		792,543
Income from operations		680,238		129,255		928,194		190,202
Interest expense, net		27,795		26,812		59,639		78,743
Income before income taxes		652,443		102,443		868,555		111,459
Income tax expense		155,208		23,519		198,740		23,768
Net income	$	497,235	$	78,924	$	669,815	$	87,691
Net income per share:
Basic	$	2.40	$	0.68	$	3.24	$	0.75
Diluted	$	2.39	$	0.67	$	3.21	$	0.75
Weighted average common shares:
Basic		207,114		116,634		206,844		116,446
Diluted		208,318		117,547		208,470		117,520

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

3

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

	June 30, 2021		December 31, 2020
	(Unaudited)
	(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	90,266	$	423,806
Accounts receivable, less allowances of $33,494 and $17,637 at June 30, 2021 and December 31, 2020, respectively		2,174,674		880,018
Other receivables		137,304		76,436
Inventories, net		2,074,448		784,527
Other current assets		438,383		58,895
Total current assets		4,915,075		2,223,682
Property, plant and equipment, net		1,300,680		749,130
Operating lease right-of-use assets, net		429,940		274,562
Goodwill		2,535,360		785,305
Intangible assets, net		1,422,649		119,882
Other assets, net		22,390		21,110
Total assets	$	10,626,094	$	4,173,671
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,318,446	$	600,357
Accrued liabilities		831,852		385,536
Current portion of operating lease liabilities		91,134		61,625
Current maturities of long-term debt		11,316		27,335
Total current liabilities		2,252,748		1,074,853
Noncurrent portion of operating lease liabilities		347,823		219,239
Long-term debt, net of current maturities, discounts and issuance costs		2,043,817		1,596,905
Deferred income taxes		362,061		49,495
Other long-term liabilities		137,190		80,396
Total liabilities		5,143,639		3,020,888
Commitments and contingencies (Note 13)
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; 207,196 and 116,829 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		2,072		1,168
Additional paid-in capital		4,248,194		589,241
Retained earnings		1,232,189		562,374
Total stockholders' equity		5,482,455		1,152,783
Total liabilities and stockholders' equity	$	10,626,094	$	4,173,671

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

	Six Months Ended June 30,
	2021			2020
	(Unaudited)
	(In thousands)
Cash flows from operating activities:
Net income	$	669,815		$	87,691
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		261,553			57,875
Deferred income taxes		(32,753	)		2,248
Stock-based compensation expense		18,867			6,720
Other non-cash adjustments		3,534			6,748
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Receivables		(867,143	)		(69,991	)
Inventories		(840,283	)		(53,685	)
Other current assets		(53,672	)		2,987
Other assets and liabilities		10,201			39,452
Accounts payable		448,527			108,152
Accrued liabilities		177,578			(18,311	)
Net cash (used in) provided by operating activities		(203,776	)		169,886
Cash flows from investing activities:
Purchases of property, plant and equipment		(98,293	)		(54,809	)
Proceeds from sale of property, plant and equipment		9,321			1,451
Cash acquired in BMC Merger		167,490			—
Prepayments for acquisitions		(225,000	)		—
Cash used for acquisitions		(24,833	)		(15,893	)
Net cash used in investing activities		(171,315	)		(69,251	)
Cash flows from financing activities:
Borrowings under revolving credit facility		1,769,000			791,000
Repayments under revolving credit facility		(1,233,000	)		(818,000	)
Proceeds from long-term debt and other loans		—			895,625
Repayments of long-term debt and other loans		(470,330	)		(557,964	)
Payments of debt extinguishment costs		(2,475	)		(22,686	)
Payments of loan costs		(4,272	)		(13,800	)
Exercise of stock options		335			708
Repurchase of common stock		(17,707	)		(4,153	)
Net cash provided by financing activities		41,551			270,730
Net change in cash and cash equivalents		(333,540	)		371,365
Cash and cash equivalents at beginning of period		423,806			14,096
Cash and cash equivalents at end of period	$	90,266		$	385,461
Supplemental disclosures of cash flow information:
Cash paid for interest		53,600			55,356
Cash paid for income taxes		191,070			335
Supplemental disclosures of non-cash activities:
Non-cash consideration for the BMC Merger		3,658,362			—
Accrued purchases of property, plant and equipment		9,616			1,900
Right-of-use assets obtained in exchange for operating lease obligations		29,146			25,960
Assets acquired under finance lease obligations		1,644			10,132

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
	Common Stock						Paid-in			Retained
	Shares			Amount			Capital			Earnings		Total
	(Unaudited)
	(In thousands)
Balance at December 31, 2019		116,052		$	1,161		$	574,955		$	248,837	$	824,953
Vesting of restricted stock units		579			6			(6	)	—			—
Stock-based compensation expense	—			—				3,254		—			3,254
Exercise of stock options		82		—				398		—			398
Shares withheld for restricted stock units vested		(168	)		(2	)		(3,832	)	—			(3,834	)
Net income	—			—			—				8,767		8,767
Balance at March 31, 2020		116,545			1,165			574,769			257,604		833,538
Vesting of restricted stock units		130			2			(2	)	—			—
Stock-based compensation expense	—			—				3,466		—			3,466
Exercise of stock options		48		—				325		—			325
Shares withheld for restricted stock units vested		(22	)	—				(319	)	—			(319	)
Net income	—			—			—				78,924		78,924
Balance at June 30, 2020		116,701		$	1,167		$	578,239		$	336,528	$	915,934
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

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 550 locations in 39 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, 2020 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, 2020 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, 2020 included in our most recent annual report on Form 10-K, as amended (“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.

Segments

We offer an integrated solution to our customers by providing manufacturing, supply, and installation of a full range of structural and related building products directly to homebuilder customers. We manufacture floor trusses, roof trusses, wall panels, stairs, millwork, windows, and doors. We also provide a full range of construction services. These product and service offerings are distributed across our approximately 550 locations operating in 39 states across the United States. Following the merger with BMC Stock Holdings, Inc. on January 1, 2021, which is discussed in Note 2 to these condensed consolidated financial statements, the Company reorganized the structure of its internal organization.

Given the span and depth of our geographical reach, our locations are organized into three geographical divisions (East, Central, and West), which are also our operating segments. Our operating divisions are organized on a geographical basis to facilitate a disaggregated management of the Company and to respond to the local needs of the customers in the markets we serve. All of our segments have similar customers, products and services, and distribution methods.

Due to these similarities, along with the similar economic profitability achieved across all our operating segments, we aggregate our three operating segments into one reportable segment. Centralized financial and operational oversight, including resource allocation and assessment of performance on an income before income taxes basis, is performed by our CEO, whom we have determined to be our chief operating decision maker (“CODM”).

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 the CODM, 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.

7

Comprehensive Income

Comprehensive income is equal to the net income for all periods presented.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Other Current Assets

Other current assets consist primarily of our prepayment on acquisitions expected to be closed within one year, refer to Note 2 for more details, held-for-sale assets expected to be disposed within one year, and prepaid expenses.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“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 expedients in this update are effective as of March 12, 2020 through December 31, 2022 and may be elected by topic. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued an update to existing guidance under the Income Taxes topic of the FASB Accounting Standards Codification (“Codification”). This updated guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in the Income Taxes topic. This guidance is effective for public companies annual and interim periods beginning after December 15, 2020 with early adoption permitted. The adoption of this guidance did not have a material impact on our consolidated financial statements.

2. Business Combinations and Dispositions

On January 1, 2021, we completed our previously announced all stock merger transaction with BMC Stock Holdings, Inc., a Delaware corporation (“BMC”), pursuant to the Agreement and Plan of Merger, dated as of August 26, 2020 (as amended, restated, supplemented, or otherwise modified from time to time, the “Merger Agreement”), by and among Builders FirstSource, Inc., Boston Merger Sub I Inc., a Delaware corporation and direct wholly owned subsidiary of Builders FirstSource, Inc. (“Merger Sub”) and BMC. On the terms and subject to the conditions set forth in the Merger Agreement, on January 1, 2021, Merger Sub merged with and into BMC, with BMC continuing as the surviving corporation and a wholly owned subsidiary of Builders FirstSource, Inc. (the “BMC Merger”). The BMC Merger expands the Company’s geographic reach and value-added offerings.

The BMC Merger was 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. Net sales and income before income taxes attributable to BMC were $1.8 billion and $179.6 million, respectively, for the three months ended June 30, 2021. Net sales and income before income taxes attributable to BMC were $3.2 billion and $223.1 million, respectively, for the six months ended June 30, 2021. Income before income taxes attributable to BMC reflects an increase in depreciation and amortization expense related to the recording of these assets at fair value as of the acquisition date and is also impacted by changes in the business post-acquisition. The consideration transferred was allocated to the identifiable assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess recorded as goodwill. The fair value of acquired intangible assets of $1.5 billion was primarily related to customer relationships. Immediately following the BMC Merger, the Company settled certain assumed long-term debt of $359.8 million using cash on hand. We incurred transaction-related costs of $0 and $17.6 million related to the BMC Merger during the three and six months ended June 30, 2021, respectively, which are included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

The consideration transferred was determined as the sum of the following: (A) the price per share of the Company’s common stock (“BFS common stock”) of $40.81 (based on the closing price per share of BFS common stock on December 31, 2020), multiplied by each of: (1) the approximately 88.7 million shares of BFS common stock issued to BMC stockholders in the BMC Merger (based on the number of shares of BMC common stock outstanding on December 31, 2020, multiplied by the exchange ratio as set forth in the Merger Agreement); and (2) the approximately 0.9 million shares of BFS common stock issued to holders of outstanding BMC restricted stock awards in connection with the BMC Merger (based on the number of BMC restricted stock awards outstanding as of December 31, 2020 (with performance-based awards vesting at target level of performance), multiplied by the exchange ratio as set forth in the Merger Agreement); plus (B) the fair value attributable to fully vested, outstanding options for BMC common stock held by current BMC employees that were assumed by the Company at the effective time and became options to purchase BFS common stock, with the number of shares and exercise price adjusted by the exchange ratio.

8

The calculation of consideration transferred is as follows (in thousands, except ratios and per share amounts):

Number of BMC common shares outstanding		67,568
Exchange ratio for common shares outstanding per Merger Agreement		1.3125
Shares of BFS common stock issued for BMC outstanding common    stock		88,683
Number of BMC stock awards that vested as a result of the BMC    Merger		688
Exchange ratio for stock awards expected to vest per Merger    Agreement		1.3125
Shares of BFS common stock issued for BMC vested restricted stock awards		903
Price per share of BFS common stock	$	40.81
Fair value of BFS common stock issued for BMC outstanding common    stock and vested equity awards	$	3,655,988
Fair value of modified BMC fully vested, unexercised options		2,374
Total consideration transferred	$	3,658,362

On May 3, 2021, we acquired certain assets and operations of John’s Lumber and Hardware Co. (“John’s Lumber”) for $24.8  million in cash. Located in Detroit, Michigan, John’s Lumber is a supplier of lumber and sheet goods, windows, doors, millwork, siding, decking, kitchen and bath and installation services to homebuilders, remodel contractors and retail consumers. This acquisition was funded with a combination of cash on hand and borrowings under our 2026 revolving credit facility (the “2026 facility”).

This transaction was 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 fair value of acquired intangible assets of $2.6 million was primarily related to customer relationships. Pro forma results of operations as well as net sales and income attributable to John’s Lumber are not presented as this acquisition did not have a material impact on our results of operations. We did not incur any significant acquisition related costs attributable to this transaction.

On June 28, 2021, we entered into an agreement to acquire WTS Paradigm, LLC (“Paradigm”), a software solutions and services provider for the building products industry for $450.0 million subject to customary adjustments. As consideration for entering into the agreement and for Paradigm forgoing other opportunities, we agreed to pay $225.0 million of the purchase price (“Exclusivity Payment”) upon signing of the agreement, which has been included within Other current assets in the condensed consolidated balance sheet as of June 30, 2021. The Exclusivity Payment is creditable against both the purchase price and a termination fee that is equal to the purchase price less the Exclusivity Payment (the “Termination Fee”), if any, and is subject to repayment in the event that the agreement is terminated by the Company in certain specified instances.

The closing of the Paradigm acquisition is subject to the satisfaction or waiver of certain customary conditions to closing, including the termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Approval”). In the event that the agreement is terminated due to a failure to obtain the required HSR Approval before June 28, 2022 (subject to certain extensions) or due to the presence of a law or order related either to antitrust matters or certain customer litigation that prohibits the closing of the acquisition, we shall be required to pay the Termination Fee, subject to certain limited exceptions. In the event we pay the Termination Fee, the Paradigm business is required to be sold with the aggregate proceeds from such a sale remitted to the Company.

On July 26, 2021, we completed the sale of our standalone Eastern U.S. gypsum distribution operations (“Disposal Group”) for total cash proceeds of approximately $76 million. The disposition meets the criteria to be classified as held-for-sale as of June 30, 2021 and therefore the assets and liabilities of the Disposal Group have been included in other current assets and accrued liabilities, respectively, in the condensed consolidated balance sheet as of June 30, 2021. The disposition does not meet the criteria for discontinued operations classification, thus the results of operations for this Disposal Group are reported within the Company’s one reportable segment in the condensed consolidated statement of operations for the three and six months ended June 30, 2021.

9

The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for the BMC Merger and other acquisitions (in thousands):

	BMC Merger		All Other Acquisitions		Total
Cash and cash equivalents	$	167,490	$	-	$	167,490
Accounts receivable		469,204		8,815		478,019
Other receivables		36,704		83		36,787
Inventories		460,146		7,308		467,454
Other current assets		32,891		56		32,947
Property, plant and equipment		555,170		831		556,001
Operating lease right-of-use assets		179,133		2,448		181,581
Goodwill		1,751,604		8,374		1,759,978
Intangible assets		1,470,000		2,550		1,472,550
Other assets		6,244		-		6,244
Total assets	$	5,128,586	$	30,465	$	5,159,051
Accounts payable	$	279,980	$	1,673	$	281,653
Accrued liabilities		246,119		1,469		247,588
Operating lease liabilities		180,650		2,448		183,098
Long-term debt		366,797		42		366,839
Deferred income taxes