Builders FirstSource, Inc.: Form 10-Q for the period ended Sep 30, 2026

The following discussion of our financial condition and results of operations should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the year ended December 31, 2025, included in our 2025 Form 10-K. The following discussion and analysis should also be read in conjunction with the unaudited condensed consolidated financial statements appearing elsewhere in this report.

Cautionary Statement

Statements in this report and the schedules hereto that are not purely historical facts or that necessarily depend upon future events, including statements about expected market share gains, forecasted financial performance, industry and business outlook, including single and multifamily housing starts and repair and remodel activity, capital allocation, acquisitions and integration, or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Readers are cautioned not to place undue reliance on forward-looking statements. In addition, oral statements made by the Company’s directors, officers and employees to the investor and analyst communities, media representatives and others, depending upon their nature, may also constitute forward-looking statements. All forward-looking statements are based upon currently available information and the Company’s current assumptions, expectations and projections about future events. Forward-looking statements are by nature inherently uncertain, and actual results or events may differ materially from the results or events described in the forward-looking statements as a result of many factors. Forward-looking statements involve risks and uncertainties, many of which are beyond the Company’s control or may be currently unknown to the Company, that could cause actual events or results to differ materially from the events or results described in the forward-looking statements; such risks or uncertainties include those related to the Company’s growth strategies, including acquisitions and the integration of acquired businesses and realization of their anticipated benefits, organic growth and digital and technology strategies, including the Company’s ability to drive growth by incorporating artificial intelligence and machine learning solutions into its platform, or the dependence of the Company’s revenues and operating results on, among other things, the homebuilding industry and, to a lesser extent, repair and remodel activity, which in each case is dependent on economic conditions, including inflation, interest rates, home size and affordability, consumer confidence, labor and supply shortages, tariffs and duties, and also lumber and other commodity prices, as well as risks related to the Company’s level of indebtedness and ability to reduce leverage, the outcome of tax positions and settlements with taxing authorities, and the implementation of its enterprise resource planning system. The Company may not succeed in addressing these and other risks. Further information regarding the risk factors that could affect the Company’s financial and other results can be found in Part I, Item 1A, “Risk Factors” of the Company’s 2025 Form 10-K and may also be described from time to time in the other reports the Company files with the Securities and Exchange Commission. Consequently, all forward-looking statements in this report are qualified by the factors, risks and uncertainties contained therein. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

COMPANY OVERVIEW

We are a leading provider of building materials for professional builders in new residential construction and repair and remodeling. We deliver integrated homebuilding solutions by manufacturing, supplying, and installing a full range of structural and related building products. The Company operates approximately 575 locations in 43 states across the United States, which are internally organized into two geographic operating divisions (East and West), which represent the Company’s operating segments. Due to the similar economic characteristics, categories of products, distribution methods and customers, our two operating segments are aggregated into one reportable segment.

Our leading network of strategically located manufacturing facilities produces factory-built roof and floor trusses, wall panels, vinyl windows, custom millwork and trim, manufactured and semi-custom modular homes, as well as engineered wood that we design and cut specifically for each home. We also assemble interior and exterior doors into pre-hung units for easy installation. Additionally, we distribute a wide range of building products, including lumber, sheet goods, windows, doors, millwork, and specialty items. Our services, which vary by market, include, among others, professional installation, turnkey framing, and shell construction. Supported by the latest construction innovations and digital solutions, we help drive greater efficiency across homebuilding.

RECENT DEVELOPMENTS

Business Combinations

Through September 30, 2026, we completed the acquisitions of PBC, Precision Design, ICG, and Gleckler and Sons for an aggregate purchase price of approximately $129.3 million. Among other opportunities, these acquisitions further expand our market footprint and provide additional operations in our value-added product categories. These transactions are described in further detail in Note 2 to the condensed consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q.

Investment

On August 25, 2026, we announced a strategic investment in, and collaboration with, Digs, an AI-based platform for homebuilders and homeowners. Under the partnership, the Company was the solo lead investor on Digs’ $25.3 million Series A financing and also entered into a five-year commercial agreement with Digs to accelerate product development, strengthen platform integration, and expand AI capabilities. The investment in and collaboration with Digs is intended to strengthen our digital ecosystem to better serve homebuilders by helping them eliminate disconnected workflows, reduce manual work, and improve the homeowner experience from pre-construction through warranty and beyond.

Company Shares Repurchases

During the nine months ended September 30, 2026, the Company repurchased 3.3 million shares at a weighted average price of $92.25 per share, for a total cost of $302.9 million, inclusive of applicable fees and taxes. On April 29, 2026, the Company’s board of directors authorized the repurchase of up to $500.0 million of the Company’s outstanding shares of common stock, inclusive of the approximately $200.0 million remaining under the Company’s prior April 2025 $500.0 million share repurchase authorization.

CURRENT OPERATING CONDITIONS AND OUTLOOK

According to the U.S. Census Bureau, actual U.S. total housing starts were 341 thousand for the third quarter of 2026, a decrease of 4.2% compared to the third quarter of 2025. Actual U.S. single-family starts for the third quarter of 2026 were 232 thousand, representing a decrease of 1.6%, compared to the third quarter of 2025.

A composite of third-party sources, including the National Association of Home Builders, Zonda Home, and John Burns Research and Consulting, is forecasting approximately 1.3 million U.S. total housing starts and 880 thousand U.S. single-family housing starts for 2026. These forecasts represent decreases of 3.5% and 6.4%, respectively, compared to 2025 housing starts data, as reported by the U.S. Census Bureau.

Notwithstanding these headwinds, we believe the housing industry’s long-term outlook is positive and that it remains underbuilt due to growth in the underlying demographics relative to historical new construction levels. However, consumer confidence and macroeconomic uncertainty, including domestic and global conditions, fluctuations in interest rates, stock market volatility, and the impact of changes in tariffs and inflation, have adversely impacted, and may continue to adversely impact near-term housing industry demand as homes are less affordable for consumers, investors, and builders. In addition, the housing industry may continue to experience labor constraints, including shortages of skilled tradespeople, which could affect residential construction activity and housing supply.

Despite these challenges, we believe we are well-positioned to grow and capture market share as industry conditions improve in the long term. We believe our value-added products, including factory-built trusses, wall panels, and pre-hung doors, help builders address the ongoing shortage of skilled construction labor. By moving work from the jobsite into our manufacturing facilities, these products reduce the on-site labor needed and help builders improve cycle times and build quality. Our focus remains on managing the business through this cycle by maintaining disciplined working capital practices, including closely monitoring the credit exposure of our customers, maintaining appropriate inventory levels, and working with our vendors to improve payment terms. We strive to achieve the appropriate balance of short-term expense control while maintaining the expertise and capacity to grow the business.

SEASONALITY AND OTHER FACTORS

Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather, causing reduced construction activity during these quarters. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following:

• The cyclical nature of the homebuilding industry;
• General economic conditions in the markets in which we compete;
• The volatility of lumber prices;
• The pricing policies of our competitors;
• Disruptions in our supply chain; and
• The production schedules of our customers.

The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Working capital levels typically increase in the first and second quarters of the year due to higher sales during the peak residential construction season. These increases may result in negative operating cash flows during this peak season, which historically have been financed through available cash and borrowing availability under credit facilities. Generally, collection of receivables and reduction in inventory levels following the peak building and construction season positively impact cash flow.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to net sales of certain costs, expenses and income items:

Three Months Ended September 30, 2026 Compared with the Three Months Ended September 30, 2025

Net Sales. Net sales for the three months ended September 30, 2026, were $3.9 billion, a 2.2% decrease from net sales of $3.9 billion for the three months ended September 30, 2025. Core organic sales decreased net sales by 3.9%, primarily due to a lower housing starts environment and related headwinds, while commodity price deflation decreased net sales by another 0.1%. These decreases were partially offset by an increase in net sales from acquisitions of 1.8%.

The following table shows net sales classified by product category:

(in millions)

(1) Manufactured products and windows, doors and millwork are collectively referred to as total value-added products.

We experienced decreased net sales in our manufactured products category primarily due to a lower single-family housing starts environment and commodity price deflation, partially offset by an increase in net sales from acquisitions. Our windows, doors and millwork and specialty building products and services net sales decreased primarily due to decreased single-family activity resulting from a lower housing starts environment, partially offset by an increase in net sales from acquisitions. Our lumber and lumber sheet goods category increased primarily due to increased sales volumes resulting from certain sales initiatives.

Gross Margin. Gross margin decreased $0.1 billion to $1.1 billion. Our gross margin percentage decreased to 27.8% in the third quarter of 2026 from 30.4% in the third quarter of 2025, a 2.6% decrease. This decrease was primarily driven by a lower housing starts environment and related headwinds.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $2.5 million, or 0.3%, primarily due to additional operating expenses from locations acquired within the last twelve months as well as increased insurance and fuel costs, partially offset by lower variable compensation resulting from decreased net sales and lower wages as a result of cost saving actions.

As a percentage of net sales, selling, general and administrative expenses increased to 25.3%, up from 24.6%, for the three months ended September 30, 2026 and 2025, respectively, primarily attributable to reduced operating leverage.

Interest Expense, Net. Interest expense was $72.2 million in the third quarter of 2026, an increase of $3.0 million from the third quarter of 2025. The increase was primarily due to additional interest expense from other finance obligations and higher average debt balances.

Income Tax Expense (Benefit). We recorded an income tax benefit of $33.6 million in the third quarter of 2026, compared to income tax expense of $37.1 million in the third quarter of 2025. The change was primarily driven by losses before income taxes incurred by certain subsidiaries in the current year period, as well as lower consolidated income before income taxes. Our effective tax rate was (125.0)% in the third quarter of 2026, compared to 23.3% in the third quarter of 2025.

Nine Months Ended September 30, 2026 Compared with the Nine Months Ended September 30, 2025

Net Sales. Net sales for the nine months ended September 30, 2026, were $11.0 billion, a 7.0% decrease from net sales of $11.8 billion for the nine months ended September 30, 2025. Core organic sales decreased net sales by 6.4%, primarily due to a lower housing starts environment and related headwinds, while commodity price deflation decreased net sales by another 2.0%. These decreases were partially offset by increased net sales from acquisitions of 1.4%.

The following table shows net sales classified by product category:

(in millions)

(1) Manufactured products and windows, doors and millwork are collectively referred to as total value-added products.

We experienced decreased net sales in our manufactured products category primarily due to a lower single-family housing starts environment and commodity price deflation, partially offset by an increase in net sales from acquisitions. Our windows, doors and millwork and specialty building products and services net sales decreased primarily due to decreased single-family activity resulting from a lower housing starts environment, partially offset by an increase in net sales from acquisitions. Our lumber and lumber sheet goods category decreased primarily due to commodity price deflation and a lower single-family housing starts environment, partially offset by an increase in net sales from acquisitions.

Gross Margin. Gross margin decreased $0.5 billion to $3.1 billion, and our gross margin percentage decreased to 28.1% for the nine months ended September 30, 2026, from 30.5% in the nine months ended September 30, 2025, a 2.4% decrease. This decrease was primarily driven by a lower housing starts environment and related headwinds.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $45.4 million, or 1.6%. This decrease was primarily due to lower variable compensation resulting from decreased net sales and lower wages as a result of cost saving actions, partially offset by additional operating expenses from locations acquired within the last twelve months and increased fuel costs.

As a percentage of net sales, selling, general and administrative expenses increased to 25.8%, up from 24.4%, for the nine months ended September 30, 2026 and 2025, respectively, primarily attributable to reduced operating leverage.

Interest Expense, Net. Interest expense was $222.7 million in the nine months ended September 30, 2026, an increase of $16.6 million from the nine months ended September 30, 2025. Interest expense increased primarily due to additional interest expense from purchase options exercised related to other finance obligations.

Income Tax Expense. We recorded income tax expense of $12.3 million and $114.6 million for the nine months ended September 30, 2026 and 2025, respectively. Current year tax expense was primarily driven by a settlement agreement with the IRS regarding the treatment of certain research and development expenses claimed in prior years. As a result of the settlement agreement, we recognized a discrete income tax expense of approximately $43.9 million in the current year period. Excluding the impact of the settlement agreement, income tax expense decreased primarily as a result of losses before income taxes incurred by certain subsidiaries in the current year period, as well as lower consolidated income before income taxes. Our effective tax rate was 57.4% for the nine months ended September 30, 2026, compared to 22.1% for the nine months ended September 30, 2025.

LIQUIDITY AND CAPITAL RESOURCES

Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments, and to fund capital expenditures and potential future growth opportunities. Our capital resources at September 30, 2026, consist of cash on hand and borrowing availability under our Revolving Facility.

Our Revolving Facility is primarily used for working capital, general corporate purposes and funding capital expenditures and growth opportunities. In addition, we may use borrowings under the Revolving Facility to facilitate debt repayment and consolidation, invest in strategic acquisitions, and fund share repurchases. Availability under the Revolving Facility is determined by a borrowing base. Our borrowing base consists of accounts receivable, inventory, and qualified cash that all meet specific criteria contained within the credit agreement, minus agent-specified reserves. Net excess borrowing availability is equal to the maximum borrowing amount minus outstanding borrowings and letters of credit.

The following table shows our borrowing base and excess availability as of:

(in millions)

As of September 30, 2026, we had $197.0 million outstanding borrowings under our Revolving Facility, and our net excess borrowing availability was approximately $1.4 billion after being reduced by outstanding letters of credit totaling $75.6 million. Excess availability must equal or exceed a minimum specified amount, currently $173.2 million, or we are required to meet a fixed charge coverage ratio of 1.00 to 1.00. We were not in violation of any covenants or restrictions imposed by any of our debt agreements at September 30, 2026.

Liquidity

Our liquidity at September 30, 2026, was $1.5 billion, consisting of approximately $1.4 billion in net borrowing availability under the Revolving Facility and $0.1 billion cash on hand.

Our level of indebtedness results in significant interest expense and could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. From time to time, based on market conditions and other factors and subject to compliance with applicable laws and regulations, we may repurchase or call our notes, repay, refinance or modify our debt or otherwise enter into transactions regarding our capital structure.

If industry conditions deteriorate or if we pursue additional acquisitions, we may be required to raise additional funds through the sale of capital stock or debt in the public capital markets or in privately negotiated transactions. There can be no assurance that any of these financing options would be available on favorable terms, if at all. Alternatives to help supplement our liquidity position could include, but are not limited to, idling or permanently closing additional facilities, adjusting our headcount in response to current business conditions, attempts to renegotiate leases, managing our working capital, and/or divesting of non-core businesses. There are no assurances that these steps would prove successful or materially improve our liquidity position.

Consolidated Cash Flows

Cash provided by operating activities was $302.0 million for the nine months ended September 30, 2026, compared to cash provided by operating activities of $1,021.1 million for the nine months ended September 30, 2025. The decrease in cash provided by operating activities was primarily driven by the decrease in net income in the current period compared to the prior year period, and an increase in net working capital in the first nine months of 2026.

For the nine months ended September 30, 2026, cash used in investing activities decreased $866.6 million compared to the nine months ended September 30, 2025, primarily due to $787.8 million less cash used for acquisitions.

Cash used in financing activities was $133.4 million for the nine months ended September 30, 2026, which consisted primarily of using $303.5 million for repurchases of common stock, partially offset by $197.0 million in net borrowings on the Revolving Facility. Cash provided by financing activities was $283.4 million for the nine months ended September 30, 2025, which consisted primarily of a net $739.3 million received for the issuance of the 6.75% 2035 Notes, offset by $414.0 million for repurchases of common stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that are both important to the accurate portrayal of a company’s financial condition and results, and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

To prepare financial statements that conform to generally accepted accounting principles, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

Refer to Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Form 10-K for a discussion of our critical accounting estimates and assumptions.

RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding recent accounting pronouncements is discussed in Note 1 to the condensed consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q.

We may experience changes in interest expense if changes in our debt occur. Changes in market interest rates could also affect our interest expense. Borrowings under the Revolving Facility bear interest at either a base rate or SOFR, plus, in each case, an applicable margin. A 1.0% increase in interest rates on the Revolving Facility would result in approximately $2.0 million additional interest expense annually based on our $197.0 million in outstanding borrowings as of September 30, 2026. The Revolving Facility also assesses variable commitment and outstanding letter of credit fees based on quarterly average loan utilization. Our 4.25% 2032 Notes, 6.375% 2034 Notes, 6.75% 2035 Notes, 6.375% 2032 Notes, and 5.00% 2030 Notes, bear interest at a fixed rate, and therefore our interest expense related to these notes would not be affected by an increase in market interest rates.

We purchase certain materials, including lumber products, which are then sold to customers, as well as used as direct production inputs for our manufactured products that we deliver. Short-term changes in the cost of these materials and the related transportation costs, including fuel and in-bound freight costs, some of which are subject to significant fluctuations, are sometimes, but not always, passed on to our customers. Delays in our ability to pass on material price increases to our customers can adversely impact our operating results.

Disclosure Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report.

Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this quarterly report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, the Company’s implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this quarterly report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems, or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our quarterly reports on Form 10-Q. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department, and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis, and to maintain them as dynamic systems that change as conditions warrant.

Conclusions Regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of September 30, 2026, we maintained disclosure controls and procedures that were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. During the period covered by this report, there were no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2025 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2025 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

There were no material changes to the risk factors reported in Part I, “Item 1A. Risk Factors” in our 2025 Form 10-K.