Business Context and Reporting Period
Company: Builders FirstSource, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: A leading supplier and manufacturer of structural and related building products for residential new construction in the United States. The company operates in three regional segments (Atlantic, Southeast, and Central) but reports as one segment. Operations are heavily dependent on the cyclical homebuilding industry, which faced significant downturns during the reporting period.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Sales | $188,865 | $523,923 |
| Gross Margin | $39,392 (20.9%) | $112,115 (21.4%) |
| Net Loss | $(15,246) | $(68,428) |
| Net Loss Per Share (Diluted) | $(0.42) | $(1.91) |
| Cash and Cash Equivalents | $96,317 | $96,317 (Balance Sheet) |
| Operating Cash Flow | N/A | $9,735 |
| Total Debt (Long-term + Current) | $299,194 | $299,194 (Balance Sheet) |
Material Changes vs. Prior Period
- Revenue Decline: Sales decreased 29.0% in the quarter and 34.4% year-to-date compared to 2008. This was driven by an 18.1% decline in housing starts in their markets and a 12.8% drop in lumber prices. Management estimated market share losses reduced sales by approximately 8% in the quarter.
- Profitability: The company reported a net loss of $15.2 million for the quarter, compared to $18.9 million in the prior year quarter. Year-to-date net loss was $68.4 million versus $80.6 million in 2008. Losses were mitigated by significant cost reductions.
- Expense Reduction: Selling, general, and administrative (SG&A) expenses fell 29.2% in the quarter and 30.1% year-to-date. This was achieved by reducing full-time equivalent headcount by 38.4% and cutting delivery and office costs.
- Discontinued Operations: The company exited the Ohio market in Q2 2009, classifying it as a discontinued operation. This resulted in a loss from discontinued operations of $5.3 million for the nine months ended September 30, 2009.
- Asset Impairments: A $0.5 million impairment charge was recorded in Q2 2009 for real estate held for sale. This is a significant reduction from the $10.1 million in impairments recorded in the same period in 2008.
Guidance, Outlook, and Risks
- Market Outlook: Management expects difficult housing conditions to continue into 2010. They anticipate housing starts will fall for the remainder of 2009 and possibly into early 2010, citing a decline in single-family starts and units under construction.
- Liquidity Strategy: The company projects using $50-$55 million of cash over the next twelve months to fund operating losses, capital expenditures, and interest. They currently hold $92.0 million in usable cash.
- Capital Restructuring Proposal: On October 23, 2009, the company announced a revised proposal from its two largest stockholders (JLL and Warburg Pincus) for a $205 million common stock rights offering and debt exchange. The goal is to raise equity, deleverage the balance sheet, and extend the maturity of 2012 notes. This transaction is subject to shareholder and court approval.
- Credit Facility Constraints: Borrowing availability under the revolving credit facility was $0 at September 30, 2009. The company is required to maintain $35 million in excess availability or meet a fixed charge coverage ratio of 1.0x, which they currently do not meet. They are utilizing cash on deposit to meet the excess availability requirement.
- Risks: Key risks include continued declines in housing activity, inability to pass on material cost increases, potential additional asset impairments, and the uncertainty of completing the proposed rights offering and debt exchange.
Investor Verification Checklist
- Capital Raise Status: Verify the progress and approval status of the $205 million rights offering and debt exchange proposed by major shareholders.
- Covenant Compliance: Monitor the company's ability to maintain the $35 million excess availability requirement or meet the fixed charge coverage ratio under their credit agreement.
- Cash Burn Rate: Track actual cash usage against the projected $50-$55 million burn rate for the next 12 months.
- Housing Market Trends: Monitor single-family housing starts and lumber price trends in the company's specific operating regions (Atlantic, Southeast, Central).
- Discontinued Operations: Confirm the finalization of the Ohio market exit and any remaining liabilities associated with facility closures.