Builders FirstSource(BLDR) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements for the three and nine months ended September 30, 2024, reflect a decline in net sales and income, an increase in total assets and liabilities, and a decrease in stockholders' equity due to share repurchases Condensed Consolidated Statements of Operations The condensed consolidated statements of operations show a decline in net sales, net income, and diluted EPS for both the three and nine months ended September 30, 2024, compared to the prior year Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $4,232,494 | $4,534,264 | $12,580,186 | $12,946,468 | | Gross margin | $1,386,333 | $1,581,102 | $4,148,871 | $4,547,448 | | Income from operations | $428,023 | $641,628 | $1,291,103 | $1,685,883 | | Net income | $284,783 | $451,457 | $887,654 | $1,189,862 | | Diluted EPS | $2.44 | $3.59 | $7.39 | $9.10 | Condensed Consolidated Balance Sheets As of September 30, 2024, the balance sheet reflects an increase in total assets and liabilities, primarily due to long-term debt, while total stockholders' equity decreased mainly from common stock repurchases Balance Sheet Summary (in thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $3,474,408 | $3,300,728 | | Total assets | $10,894,137 | $10,499,452 | | Total current liabilities | $1,958,883 | $1,863,437 | | Total liabilities | $6,447,464 | $5,767,101 | | Total stockholders' equity | $4,446,673 | $4,732,351 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash from operations decreased, while significant cash was used in investing activities for acquisitions and in financing activities for common stock repurchases Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,499,229 | $1,695,173 | | Net cash used in investing activities | ($534,884) | ($476,096) | | Net cash used in financing activities | ($702,398) | ($1,211,426) | | Net change in cash and cash equivalents | $261,947 | $7,651 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on eleven acquisitions, issuance of new senior notes, significant stock repurchases, and confirmation of no goodwill impairment triggering events - The company operates as a single reportable segment, supplying building materials, manufactured components, and construction services across approximately 580 locations in 43 states[12][15] - Completed eleven acquisitions in the first nine months of 2024 for a combined total of approximately $265.4 million, net of cash acquired[22] - In February 2024, the company issued $1.0 billion of 6.375% senior unsecured notes due 2034, using the proceeds to repay outstanding debt under its Revolving Facility and for general corporate purposes[41] - The company has known and threatened construction defect legal claims, which are generally covered by insurance above a deductible, however, a reasonable estimate of loss cannot be determined at this time[49] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the decrease in Q3 net sales and gross margin to market conditions, while maintaining a positive long-term housing outlook and continuing its strategy of growth through acquisitions and shareholder returns Recent Developments Recent developments include eleven acquisitions, significant share repurchases, and an executive transition with a new CEO and CFO appointed - Completed eleven acquisitions through September 30, 2024, for an aggregate purchase price of approximately $265.4 million, net of cash acquired[57] - Repurchased 6.8 million shares for a total cost of $1.2 billion during the nine months ended September 30, 2024, at a weighted average price of $171.37 per share[58] - Announced that Peter Jackson, EVP and CFO, will succeed Dave Rush as President & CEO, effective November 6, 2024[60] Current Operating Conditions and Outlook Despite a slight decrease in Q3 single-family housing starts, management maintains a positive long-term outlook for the underbuilt housing market and focuses on strategic growth through acquisitions - U.S. single-family housing starts decreased 0.5% in Q3 2024 vs Q3 2023, but increased 10.1% for the first nine months of 2024 compared to the same period in 2023[61] - Management believes the long-term housing industry outlook is positive, as the market remains underbuilt relative to demographic growth[62] Results of Operations Net sales for Q3 and the nine-month period decreased due to lower organic sales and commodity deflation, leading to a decline in gross margin percentage attributed to margin normalization Q3 2024 vs. Q3 2023 Net Sales by Product Category (in millions) | Product Category | Q3 2024 Net Sales | Q3 2023 Net Sales | % Change | | :--- | :--- | :--- | :--- | | Lumber & lumber sheet goods | $1,069.1 | $1,157.2 | (7.6)% | | Manufactured products | $997.6 | $1,200.4 | (16.9)% | | Windows, doors & millwork | $1,084.8 | $1,093.3 | (0.8)% | | Specialty building products & services | $1,081.0 | $1,083.4 | (0.2)% | | Total Net sales | $4,232.5 | $4,534.3 | (6.7)% | Nine Months 2024 vs. 2023 Net Sales by Product Category (in millions) | Product Category | Nine Months 2024 Net Sales | Nine Months 2023 Net Sales | % Change | | :--- | :--- | :--- | :--- | | Lumber & lumber sheet goods | $3,244.4 | $3,092.9 | 4.9% | | Manufactured products | $3,031.8 | $3,557.4 | (14.8)% | | Windows, doors & millwork | $3,230.5 | $3,263.4 | (1.0)% | | Specialty building products & services | $3,073.5 | $3,032.8 | 1.3% | | Total Net sales | $12,580.2 | $12,946.5 | (2.8)% | - Q3 2024 gross margin percentage decreased to 32.8% from 34.9% in Q3 2023, driven by ongoing multi-family and core organic margin normalization[69] Liquidity and Capital Resources As of September 30, 2024, the company maintained strong liquidity, with cash from operations decreasing year-over-year, primarily used for significant share repurchases and acquisitions - Total liquidity was $2.1 billion at September 30, 2024, consisting of cash on hand and availability under the Revolving Facility[83] Borrowing Availability (in millions) | Metric | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Maximum borrowing amount | $1,800.0 | $1,800.0 | | Outstanding borrowings | $0.0 | ($464.0) | | Letters of credit | ($65.4) | ($70.3) | | Net excess borrowing availability | $1,734.6 | $1,265.7 | - Cash from operations decreased to $1.5 billion for the nine months ended Sep 30, 2024, from $1.7 billion in the prior year, largely due to lower net income and timing of accounts payable[86] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate changes, particularly on variable-rate borrowings, and commodity price volatility, which can impact operating results if price increases are not passed on to customers - The company's $4.55 billion in senior notes bear fixed interest rates, mitigating risk from rising market rates, however, the Revolving Facility has variable interest rates[40][92] - The company faces risk from short-term changes in material costs, particularly lumber, delays in passing on price increases to customers can negatively impact operating results[93] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level[99] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[100] PART II — OTHER INFORMATION Legal Proceedings The company is involved in various legal claims, including construction defect claims, which are generally insured, and management believes their outcome will not materially affect the company's financial position - The company faces construction defect legal claims, but a reasonable estimate of loss cannot be made at this time due to the early stage of proceedings and complexity of claims[102] - Management believes the ultimate disposition of current legal proceedings will not materially affect the company's financial position, cash flows, or results of operations[104] Risk Factors There were no material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - There were no material changes to the risk factors reported in the company's 2023 Form 10-K[106] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, the company repurchased shares under a new program, with a significant amount remaining available for future repurchases Q3 2024 Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2024 | 1,456 | $158.88 | | August 2024 | 450,922 | $168.10 | | September 2024 | 453,505 | $185.33 | | Total Q3 | 905,883 | $176.71 | - On August 5, 2024, the board authorized a new $1.0 billion share repurchase plan, as of September 30, 2024, $841.8 million remained available under this authorization[107] Other Information No other information is reported for this item - None[109] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[110] - Financial statements and notes are provided in Inline eXtensible Business Reporting Language (Inline XBRL) format[110]