Builders FirstSource, Inc. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
Builders FirstSource is a U.S. supplier and manufacturer of building materials, prefabricated components, and construction services serving professional homebuilders, contractors, remodelers, and consumers. It operated approximately 565 locations in 42 states and reported one aggregated operating segment.
This Form 10-K covers the fiscal year ended December 31, 2021, filed March 1, 2022. Although the request references 2021 Q4, the filing is an annual report and includes full-year results. The January 1, 2021 all-stock merger with BMC Stock Holdings materially affects comparability because BMC results are included from the acquisition date and were not included in prior-year reported results.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $19.894 billion | $8.559 billion | +132.4% |
| Gross margin | $5.851 billion | $2.223 billion | +163.3% |
| Gross margin percentage | 29.4% | 26.0% | +3.4 percentage points |
| Income from operations | $2.387 billion | $543.9 million | +338.6% |
| Operating margin | 12.0% | 6.4% | +5.6 percentage points |
| Net income | $1.725 billion | $313.5 million | +450.3% |
| Net margin | 8.7% | 3.7% | +5.0 percentage points |
| Diluted EPS | $8.48 | $2.66 | +219.5% |
| Net interest expense | $135.9 million | $135.7 million | Approximately flat |
| Income tax expense | $526.1 million | $94.6 million | +455.9% |
Sales growth reflected the BMC merger, which management attributed to 76.6% of the increase, commodity price inflation, which contributed 30.2%, and core organic growth, principally in the single-family customer segment. Gross-margin expansion was attributed primarily to pricing relative to commodity inflation and increased sales of higher-margin value-added products. Selling, general and administrative expenses increased 106.3%, but declined to 17.4% of sales from 19.6% because of operating leverage.
- Lumber and lumber sheet goods: $8.412 billion, or 42.3% of sales.
- Manufactured products: $4.333 billion, or 21.8% of sales.
- Windows, doors and millwork: $3.332 billion, or 16.7% of sales.
- Siding, metal and concrete: $1.531 billion, or 7.7% of sales.
- Gypsum, roofing and insulation: $656.4 million, or 3.3% of sales.
- Other building products and services: $1.629 billion, or 8.2% of sales.
Cash flow, balance sheet, debt and liquidity
| Metric | December 31, 2021 | December 31, 2020 |
|---|---|---|
| Cash provided by operating activities | $1.744 billion | $260.1 million |
| Cash used in investing activities | $1.345 billion | $136.2 million |
| Cash used in financing activities | $780.1 million | Cash provided of $285.9 million |
| Cash and cash equivalents | $42.6 million | $423.8 million |
| Total debt before discounts and issuance costs | $2.957 billion | $1.642 billion |
| Net long-term debt reported | $2.926 billion | $1.597 billion |
| Total assets | $10.714 billion | $4.174 billion |
Investing cash outflows included $1.206 billion for acquisitions and $227.9 million of capital expenditures. Financing outflows included approximately $1.715 billion for share repurchases, debt repayment and the redemption of $165.0 million of 2027 notes, partially offset by issuance of $1.0 billion of 2032 notes and net revolver borrowings.
At year-end, the company had a $1.4 billion revolving credit facility, $588.0 million of borrowings, and $126.4 million of letters of credit. Net excess borrowing availability was $685.6 million, and reported liquidity, including cash, was $728.2 million. The company was in compliance with its debt covenants. The revolving facility was subsequently increased to $1.8 billion on February 4, 2022.
Capital expenditures for 2022 were expected to be approximately $400 million to $420 million, primarily for rolling stock, equipment, facility expansion, and improvements.
Material changes versus the prior comparable period
- The BMC merger was completed on January 1, 2021 for consideration of approximately $3.658 billion in company stock and assumed options. BMC contributed $6.5 billion of 2021 sales and $789.5 million of income before taxes, as disclosed by the company.
- The company completed six additional acquisitions for aggregate reported purchase prices of approximately $1.4 billion, including Alliance, Paradigm, CTF, TTI, National Lumber, and John’s Lumber.
- Goodwill increased to $3.270 billion from $785.3 million, and intangible assets increased to $1.603 billion from $119.9 million, primarily because of the merger and acquisitions.
- Debt increased substantially as the company funded acquisitions and expanded operations, although maturities were extended through the 2026 facility amendment and issuance of 2032 notes.
- The company sold its standalone Eastern U.S. gypsum distribution operations for $76.2 million in cash and recorded a $26.3 million gain.
- The company repurchased and retired approximately 27.5 million shares during 2021 for approximately $1.748 billion. It completed the two prior $1.0 billion authorizations in January 2022 and received authorization for an additional $1.0 billion repurchase program in February 2022.
Guidance, outlook, management commentary and risks
Management described the long-term housing outlook as positive and cited expected 2022 U.S. housing starts of approximately 1.7 million total and 1.2 million single-family starts, each about 4% above 2021. A third-party forecast cited by the company projected professional repair and remodel sales growth of approximately 7.1% in 2022.
Management intends to pursue growth in prefabricated and other value-added products, operational efficiency, digital solutions, strategic acquisitions, working-capital discipline, and shareholder returns. The company expects demand for manufactured components to benefit from labor shortages and the need to shorten construction cycles.
- COVID-19, supply-chain disruptions, product shortages, inflation, labor shortages, and higher labor or freight costs could pressure sales, margins, and operations.
- Results are highly dependent on residential construction, repair and remodeling, interest rates, housing affordability, consumer confidence, credit availability, and general economic conditions.
- Lumber and lumber sheet goods represented 42.3% of 2021 sales and are subject to substantial commodity-price volatility. The company may not always be able to pass cost increases to customers.
- Large production builders exert pricing pressure, and the company’s ten largest customers represented approximately 18% of sales; its largest customer represented approximately 5%.
- The BMC integration and other acquisitions involve execution, employee retention, systems integration, synergy realization, goodwill and intangible-asset impairment risks.
- The company reported known and threatened construction-defect claims and asbestos-related litigation. For construction-defect matters, a reasonable range of loss could not be estimated and the resolution could materially affect financial results or cash flows.
- Debt totaled $2.957 billion, including variable-rate revolver borrowings. A 1% increase in rates on the year-end revolver balance would increase annual interest expense by approximately $5.9 million.
- The company does not expect to pay regular cash dividends in the near term, and debt agreements restrict dividends and other restricted payments.
Most important facts for investors to verify
- Separate organic growth, commodity-price effects, and acquisition-related growth, particularly the continuing contribution and margins of BMC.
- Whether gross-margin gains remain durable if lumber prices decline, inflation moderates, or customer pricing pressure increases.
- Progress toward BMC integration synergies and the performance of the six 2021 acquisitions, including Paradigm and National Lumber.
- Cash conversion after acquisitions, share repurchases, working-capital investment, and the planned $400 million to $420 million of 2022 capital expenditures.
- Debt reduction, revolver utilization, interest-rate exposure, covenant headroom, and the effect of the additional $300 million of 2032 notes issued in January 2022.
- Exposure to construction-defect, asbestos, insurance, tax, environmental, lease, and other contingencies whose ultimate losses may be uncertain.
- Housing starts, repair-and-remodel demand, labor availability, supply-chain conditions, and housing affordability as leading indicators of future revenue and margins.