Builders FirstSource(BLDR) - 2022 Q3 - Quarterly Report

Acquisitions and Investments - The company completed six acquisitions for a total purchase price of $639.0 million, expanding its market footprint and operations in value-add product categories and the multi-family customer segment [96]. - The company plans to focus on strategic acquisitions to increase market share and improve working capital management [104]. - The company invested a net $817.3 million in acquisitions and property, plant, and equipment for the nine months ended September 30, 2022, which is $153.1 million less than the prior year, mainly due to $278.6 million less cash outflows for acquisitions [132]. - The company reported a significant reduction in cash outflows for acquisitions, indicating a strategic shift in investment focus [132]. Financial Performance - Net sales for Q3 2022 increased by 4.6% year-over-year, driven by core organic sales growth of 6.9% and acquisitions contributing 5.2%, offset by commodity price deflation of 7.5% [103]. - Net sales for the three months ended September 30, 2022, were $5.8 billion, a 4.6% increase from $5.5 billion in the same period of 2021 [109]. - For the nine months ended September 30, 2022, net sales were $18.4 billion, a 20.4% increase from $15.3 billion in the same period of 2021 [116]. - Net income for the three months ended September 30, 2022, was 12.8% of net sales, compared to 11.1% in the same period of 2021 [108]. Margins and Expenses - Gross margin percentage in Q3 2022 increased by 3.9% compared to Q3 2021, attributed to organic growth in value-added product categories and disciplined pricing strategies [103]. - Gross margin increased to 35.0% in Q3 2022 from 31.1% in Q3 2021, reflecting a 3.9% increase attributed to core organic growth and acquisitions [111]. - Gross margin for the nine months ended September 30, 2022, increased to 34.1% from 28.6% in the same period of 2021, a 5.5% increase [119]. - Selling, general and administrative expenses as a percentage of net sales were 17.4% in Q3 2022, up from 15.9% in Q3 2021, primarily due to additional operating expenses from recent acquisitions and higher wages [103]. - Selling, general and administrative expenses rose by $125.2 million, or 14.3%, to 17.4% of net sales in Q3 2022, up from 15.9% in Q3 2021 [112]. Market Conditions - Actual U.S. total housing starts were 0.4 million in Q3 2022, a decrease of 7.4% compared to Q3 2021, with single-family starts down 18.2% [102]. - The company forecasts 1.6 million total U.S. housing starts for 2022, a decrease of 2.4% from 2021, and 1.0 million single-family starts, down 9.7% from 2021 [102]. - The Home Improvement Research Institute projects a 10.2% increase in sales in the professional repair and remodel market for 2022 compared to 2021 [102]. Liquidity and Financing - As of September 30, 2022, the company had $1.3 billion in liquidity, consisting of net borrowing availability and cash on hand [128]. - The company authorized a new share repurchase program of $2.0 billion, replacing a previous $1.0 billion authorization [97]. - Cash used in financing activities was $1.8 billion for the nine months ended September 30, 2022, including $2.0 billion in common stock repurchases and $612.5 million for the redemption of 2027 notes [134]. - Interest expense for the nine months ended September 30, 2022, was $156.1 million, an increase of $60.5 million from the same period in 2021 [122]. - A 1.0% increase in interest rates on the 2026 revolving credit facility would result in approximately $4.5 million in additional interest expense annually based on $450.0 million in outstanding borrowings as of September 30, 2022 [138]. Operational Challenges - Short-term fluctuations in material costs, including lumber products, can adversely impact operating results if price increases cannot be passed on to customers [139]. - The company may need to raise additional funds through capital stock or debt sales if industry conditions deteriorate or if additional acquisitions are pursued [130]. - The company has no assurance that liquidity improvement strategies, such as idling facilities or adjusting headcount, will be successful [130]. - The increase in cash provided by operating activities was offset by an increase in cash used to fund net working capital in the first nine months of 2022 [131]. - Cash provided by operating activities increased to $2.6 billion for the nine months ended September 30, 2022, compared to $903.2 million for the same period of 2021, primarily due to higher net income [131].