What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2023-02-01 · 136 added, 56 removed, 153 unchanged (56% of the section changed)

5 unchanged sentences

Incremental Market Uncertainties

We continue to monitor developments related to the novel coronavirus (“COVID-19”) pandemic to assess its impact on our business.

Further uncertainty and delays in our end-markets could have a material adverse impact on the demand for our products.

Some jurisdictions may raise taxes to help cover pandemic-related costs, and disruptions to or adverse conditions in the financial industry could affect our ability to obtain financing on favorable terms or at all.

Factors that contribute to our ability to adjust to the outbreak include benefiting from mostly localized supply chains and continuing to take actions within our control to minimize the disruptive impacts of the outbreak.

However, there can be no assurance that we will not be materially and adversely impacted in the future.

In addition to the uncertainties brought about by COVID-19, recent events, including central bank interest rate increases, inflation and the Russia-Ukraine conflict, are creating additional uncertainty in the global economy, generally, and in the markets we operate in.

COVID-19, the Russia-Ukraine conflict and other factors have had and will continue to have adverse effects on global supply chains, which may impact some aspects of our business.

Recent events, including central bank interest rate increases, inflation and the Russia-Ukraine conflict, are creating additional uncertainty in the global economy, generally, and in the markets we operate in.

The Russia-Ukraine conflict and other factors have had and will continue to have adverse effects on global supply chains, which may impact some aspects of our business.

Furthermore, we are mindful of the effects that adverse weather can have on our domestic supply chain.

RESULTS OF OPERATIONS

The consolidated results of operations for the three months ended December 30, 2022 and December 24, 2021 were as follows:

The consolidated results of operations for the three months ended March 31, 2023 and March 25, 2022 were as follows:

Three months ended

(in thousands) December 30, 2022 December 24, 2021 Change % Change

(in thousands) March 31, 2023 March 25, 2022 Change % Change

Net sales $ 895,934 $ 982,573 $ (86,639) (8.8) %

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Acquisitions 5.0 %

Other (0.3) %

Net sales (8.8) %

Net sales decreased by $7.0 million, or 0.8%, to $833.8 million for the three months ended December 30, 2022, compared to $840.8 million for the three months ended December 24, 2021.

The decrease in net sales is primarily attributed to decreased average selling prices across the Company’s products of $108.3 million and the unfavorable impact of foreign exchange rates of $7.6 million.

These decreases were partially offset by increased net sales of $61.3 million from companies acquired during fiscal 2022 and fiscal 2023 and increased sales volume of $45.6 million.

Average selling prices have declined as the Company continues to see normalization of pricing.

Net sales decreased by $86.6 million, or 8.8%, to $895.9 million for the three months ended March 31, 2023, compared to $982.6 million for the three months ended March 25, 2022.

The decrease in net sales is primarily attributed to decreased average selling prices across the Company’s products of $168.7 million as a result of expected pricing normalization.

This decrease was partially offset by increased net sales of $49.5 million from companies acquired during fiscal 2022 and fiscal 2023 and increased sales volume of $40.9 million.

Cost of sales

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Acquisitions 6.7 %

Other (0.4) %

Cost of sales (4.1) %

Cost of sales increased by $13.5 million, or 2.8%, to $499.5 million for the three months ended December 30, 2022 compared to $486.0 million for the three months ended December 24, 2021.

The increase was primarily due to recent acquisitions during fiscal 2022 and fiscal 2023 of $41.2 million and higher sales volume of $29.0 million.

This was partially offset by lower input costs of steel, copper and PVC resin of $59.2 million.

Cost of sales decreased by $23.1 million, or 4.1%, to $543.1 million for the three months ended March 31, 2023 compared to $566.2 million for the three months ended March 25, 2022.

The decrease was primarily due to lower input costs of steel, copper and PVC resin of $91.8 million.

This was partially offset by recent acquisitions during fiscal 2022 and fiscal 2023 of $37.7 million and higher sales volume of $38.3 million.

Selling, general and administrative

Selling, general and administrative expenses increased by $11.8 million, or 15.1%, to $90.0 million for the three months ended December 30, 2022 compared to $78.2 million for the three months ended December 24, 2021.

The increase was primarily due to increased general spending on business improvement initiatives of $5.7 million, recent acquisitions in fiscal 2022 and 2023 of $5.5 million and $2.1 million spread across a variety of other spend categories, partially offset by lower variable compensation of $1.1 million and by lower transaction costs of $0.4 million,

Selling, general and administrative expenses increased by $9.3 million, or 10.4%, to $98.2 million for the three months ended March 31, 2023 compared to $88.9 million for the three months ended March 25, 2022.

The increase was primarily due to increased general spending on business improvement initiatives of $8.2 million, recent acquisitions in fiscal 2022 and 2023 of $4.4 million and $5.6 million spread across a variety of other spend categories, partially offset by lower variable compensation and commissions of $8.8 million and by lower transaction costs of $0.1 million,

Intangible asset amortization

Intangible asset amortization expense increased to $12.8 million for the three months ended December 30, 2022 compared to $8.2 million for the three months ended December 24, 2021.

Intangible asset amortization expense increased to $14.8 million for the three months ended March 31, 2023 compared to $8.7 million for the three months ended March 25, 2022.

Increased amortization expense resulted from additional intangible assets acquired in business combinations in fiscal 2022 and 2023.

Interest expense, net

Interest expense, net increased by $2.6 million, or 37.1% to $9.5 million for the three months ended December 30, 2022 compared to $6.9 million for the three months ended December 24, 2021.

The increase is primarily due to increased interest rates on our Senior Secured Term Loan Facility.

Interest expense, net increased by $1.0 million, or 12.8% to $8.5 million for the three months ended March 31, 2023 compared to $7.5 million for the three months ended March 25, 2022.

The increase is primarily due to increased interest rates on the Company’s Senior Secured Term Loan Facility.

Other (income) and expense, net

Other (income) and expense, net decreased to $0.0 million other expense for the three months ended December 30, 2022 compared to $0.3 million other income for the three months ended December 24, 2021.

Other (income) and expense, net increased to $3.9 million other expense for the three months ended March 31, 2023 compared to $0.8 million other income for the three months ended March 25, 2022.

The increase in expense is primarily due to impairments recognized in connection with the Company’s plans to exit from operations in Russia of $3.7 million.

Income tax expense

The Company ’ s income tax rate increased to 21.9% for the three months ended December 30, 2022 compared to 21.8% for the three months ended December 24, 2021.

The increase in the current period effective tax rate was driven by a decrease in the excess tax benefit associated with stock compensation offset by a decrease in state tax expense.

The Company ’ s income tax rate decreased to 23.5% for the three months ended March 31, 2023 compared to 25.2% for the three months ended March 25, 2022.

The decrease in the current period

effective tax rate was driven by a decrease in state tax expense and an increase in the excess tax benefit associated with stock compensation.

SEGMENT RESULTS

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Both segments use Adjusted EBITDA as the primary measure of profit and loss.

Segment Adjusted EBITDA is income (loss) before income taxes, adjusted to exclude unallocated expenses, depreciation and amortization, interest expense, net, stock-based compensation, loss on extinguishment of debt, certain legal matters, and other items, such as inventory reserves and adjustments, (gain) loss on disposal of property, plant and equipment, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions, realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives, gain on purchase of business, restructuring costs and transaction costs.

We define segment Adjusted EBITDA margin as segment Adjusted EBITDA as a percentage of segment Net sales.

Three months ended

(in thousands) December 30, 2022 December 24, 2021 Change % Change

(in thousands) March 31, 2023 March 25, 2022 Change % Change

Net sales $ 680,965 $ 759,877 $ (78,912) (10.4) %

1 unchanged sentence

Adjusted EBITDA margin 37.7 % 43.6 %

Volume (0.6) %

Average selling prices (15.2) %

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Net sales (10.4) %

Net sales decreased by $3.0 million, or 0.5%, to $638.7 million for the three months ended December 30, 2022 compared to $641.7 million for the three months ended December 24, 2021.

The decrease in net sales is primarily attributed to decreased average selling prices of $66.7 million and the unfavorable impact of foreign exchange rates of $7.6 million.

These decreases were partially offset by increased net sales of $55.2 million from companies acquired during fiscal 2022 and fiscal 2023 and increased sales volume of $17.5 million, primarily in the metal electrical conduit and fittings and electrical cable and flexible conduit product lines.

Net sales decreased by $78.9 million, or 10.4%, to $681.0 million for the three months ended March 31, 2023 compared to $759.9 million for the three months ended March 25, 2022.

The decrease in net sales is primarily attributed to decreased average selling prices of $115.0 million as a result of expected pricing normalization, decreased sales volume of $4.9 million and the unfavorable impact of foreign exchange rates of $5.4 million.

These decreases were partially offset by increased net sales of $47.9 million from companies acquired during fiscal 2022 and fiscal 2023.

Adjusted EBITDA

Adjusted EBITDA for the three months ended December 30, 2022 decreased by $35.7 million, or 12.8%, to $243.8 million from $279.5 million for the three months ended December 24, 2021.

Adjusted EBITDA margins decreased to 38.2% for the three months ended December 30, 2022 compared to 43.6% for the three months ended December 24, 2021.

Adjusted EBITDA for the three months ended March 31, 2023 decreased by $74.1 million, or 22.4%, to $256.9 million from $331.0 million for the three months ended March 25, 2022.

Adjusted EBITDA margins decreased to 37.7% for the three months ended March 31, 2023 compared to 43.6% for the

three months ended March 25, 2022.

The decrease in Adjusted EBITDA and Adjusted EBITDA margins was largely due to lower average selling prices over input costs.

1 unchanged sentence

Three months ended

(in thousands) December 30, 2022 December 24, 2021 Change % Change

(in thousands) March 31, 2023 March 25, 2022 Change % Change

Net sales $ 215,054 $ 224,285 $ (9,231) (4.1) %

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Acquisitions 0.7 %

Other (1.2) %

Net sales (4.1) %

Net sales decreased by $5.3 million, or 2.6%, for the three months ended December 30, 2022 to $195.3 million compared to $200.5 million for the three months ended December 24, 2021.

The decrease is primarily attributed to decreased average selling prices of $41.6 million driven by lower input costs of steel partially offset by higher volumes of $28.1 million, primarily in the construction and metal framing product lines, and increased net sales of $6.1 million from companies acquired during fiscal 2022.

Net sales decreased by $9.2 million, or 4.1%, for the three months ended March 31, 2023 to $215.1 million compared to $224.3 million for the three months ended March 25, 2022.

The decrease is primarily attributed to decreased average selling prices of $53.7 million driven by lower input costs of steel partially offset by higher volumes of $45.8 million, primarily in the mechanical tube, construction and metal framing product lines, and increased net sales of $1.6 million from companies acquired during fiscal 2022.

Adjusted EBITDA

Adjusted EBITDA increased by $6.0 million, or 21.8%, to $33.4 million for the three months ended December 30, 2022 compared to $27.4 million for the three months ended December 24, 2021.

Adjusted EBITDA margins increased to 17.1% for the three months ended December 30, 2022 compared to 13.7% for the three months ended December 24, 2021.

The Adjusted EBITDA increase is primarily due to average selling prices declining slower than input costs.

Adjusted EBITDA increased by $4.3 million, or 14.8%, to $33.2 million for the three months ended March 31, 2023 compared to $28.9 million for the three months ended March 25, 2022.

Adjusted EBITDA margins increased to 15.4% for the three months ended March 31, 2023 compared to 12.9% for the three months ended March 25, 2022.

The Adjusted EBITDA increase is primarily due to increased volume.

The consolidated results of operations for the six months ended March 31, 2023 and March 25, 2022 were as follows:

Six months ended

(in thousands) March 31, 2023 March 25, 2022 Change % Change

Net sales $ 1,729,755 $ 1,823,374 $ (93,619) (5.1) %

Cost of sales 1,042,520 1,052,150 (9,630) (0.9) %

Gross profit 687,235 771,224 (83,989) (10.9) %

Selling, general and administrative 188,178 167,069 21,109 12.6 %

Intangible asset amortization 27,586 16,930 10,656 62.9 %

Operating income 471,471 587,225 (115,754) (19.7) %

Interest expense, net 17,963 14,432 3,531 24.5 %

Other (income) and expense, net 3,899 (1,115) 5,014 (449.7) %

Income before income taxes 449,609 573,908 (124,299) (21.7) %

Income tax expense 101,923 135,588 (33,665) (24.8) %

Net income $ 347,686 $ 438,320 $ (90,634) (20.7) %

Average selling prices (15.1) %

Foreign exchange (0.7) %

Acquisitions 6.0 %

Net sales (5.1) %

Net sales decreased by $93.6 million, or 5.1%, to $1,729.8 million for the six months ended March 31, 2023, compared to $1,823.4 million for the six months ended March 25, 2022.

The decrease in net sales is primarily attributed to decreased average selling prices of $277.0 million, the unfavorable impact of foreign exchange rates of $13.0 million.

These decreases are offset by increased net sales of $110.8 million from companies acquired during fiscal 2022 and fiscal 2023 and increased sales volume of $86.4 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.

Cost of sales

Average input costs (14.4) %

Foreign exchange (1.1) %

Acquisitions 7.7 %

Cost of sales (0.9) %

Cost of sales decreased by $9.6 million, or 0.9% to $1,042.5 million for the six months ended March 31, 2023 compared to $1,052.2 million for the six months ended March 25, 2022.

The decrease in cost of sales was primarily due to lower input costs for steel, copper and resin of $153.7 million.

This was partially offset by recent acquisitions in fiscal 2022 and fiscal 2023 of $82.7 million and by higher sales volume of $66.3 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.

Selling, general and administrative

Selling, general and administrative expenses increased by $21.1 million, or 12.6% to $188.2 million for the six months ended March 31, 2023 compared to $167.1 million for the six months ended March 25, 2022.

The increase was primarily due to increased general spending on business improvement initiatives of $13.9 million, recent acquisitions in fiscal 2022 and 2023 of $10.0 million, and $7.6 million spread across a variety of other spend categories.

These increases were partially offset by lower commissions and variable compensation of $9.9 million and lower transaction costs of $0.5 million.

Intangible asset amortization

Intangible asset amortization expense increased to $27.6 million for the six months ended March 31, 2023 compared to $16.9 million for the six months ended March 25, 2022.

Increased amortization expense resulted from additional intangible assets acquired in business combinations in fiscal 2022 and 2023.

Interest expense, net

Interest expense, net, increased by $3.5 million, or 24.5% to $18.0 million for the six months ended March 31, 2023 compared to $14.4 million for the six months ended March 25, 2022.

The increase is primarily due to increased interest rates on the Company’s Senior Secured Term Loan Facility.

Other (income) and expense, net

Other (income) and expense, net increased to $3.9 million of other expense for the six months ended March 31, 2023 compared to $1.1 million of other income for the six months ended March 25, 2022.

The increase in expense is primarily due to impairments recognized in connection with the Company’s plans to exit from operations in Russia of $3.7 million.

Income tax expense

The Company ’ s income tax rate decreased to 22.7% for the six months ended March 31, 2023 compared to 23.6% for the six months ended March 25, 2022.

The decrease in the current period effective tax rate was driven by a decrease in state tax expense partially offset by a decrease in the excess tax benefit associated with stock compensation.

SEGMENT RESULTS

Six months ended

(in thousands) March 31, 2023 March 25, 2022 Change % Change

Net sales $ 1,319,670 $ 1,401,560 $ (81,890) (5.8) %

Adjusted EBITDA $ 500,720 $ 610,517 $ (109,797) (18.0) %

Adjusted EBITDA margin 37.9 % 43.6 %

Average selling prices (12.9) %

Foreign exchange (0.9) %

Acquisitions 7.3 %

Other (0.2) %

Net sales (5.8) %

Net sales decreased by $81.9 million, or 5.8%, to $1,319.7 million for the six months ended March 31, 2023 compared to $1,401.6 million for the six months ended March 25, 2022.

The decrease in net sales is primarily attributed to decreased average selling prices of $181.7 million and the unfavorable impact of foreign exchange rates of $13.0 million.

These decreases were partially offset by companies acquired during fiscal 2022 and fiscal 2023 of $103.1 million and increased sales volume of $12.5 million.

Adjusted EBITDA

Adjusted EBITDA for the six months ended March 31, 2023 decreased by $109.8 million, or 18.0%, to $500.7 million from $610.5 million for the six months ended March 25, 2022.

Adjusted EBITDA margins decreased to 37.9% for the six months ended March 31, 2023 compared to 43.6% for the six months ended March 25, 2022.

The decrease in Adjusted EBITDA and Adjusted EBITDA margins was largely due to lower average selling prices over input costs.

Safety & Infrastructure

Six months ended

(in thousands) March 31, 2023 March 25, 2022 Change % Change

Net sales $ 410,313 $ 424,795 $ (14,482) (3.4) %

Adjusted EBITDA $ 66,597 $ 56,349 $ 10,248 18.2 %

Adjusted EBITDA margin 16.2 % 13.3 %

Volume 17.3 %

Average selling prices (22.4) %

Acquisitions 1.8 %

Other (0.1) %

Net sales (3.4) %

Net sales decreased by $14.5 million, or 3.4%, for the six months ended March 31, 2023 to $410.3 million compared to $424.8 million for the six months ended March 25, 2022.

The decrease is primarily attributed to decreased average selling prices of $95.3 million.

This was partially offset by higher volumes of $73.9 million and net sales of $7.7 million from companies acquired during fiscal 2022.

Adjusted EBITDA

Adjusted EBITDA increased $10.2 million, or 18.2%, to $66.6 million for the six months ended March 31, 2023 compared to $56.3 million for the six months ended March 25, 2022.

Adjusted EBITDA margins increased to 16.2% for the six months ended March 31, 2023 compared to 13.3% for the six months ended March 25, 2022.

The Adjusted EBITDA increase is primarily due to increased volume.

LIQUIDITY AND CAPITAL RESOURCES

We believe we have sufficient liquidity to support our ongoing operations and to invest in future growth and create value for stockholders.

Our cash and cash equivalents were $307.8 million as of December 30, 2022, of which $62.5 million was held at non-U.S.

Our cash and cash equivalents were $354.3 million as of March 31, 2023, of which $67.2 million was held at non-U.S.

subsidiaries.

Those cash balances at foreign

subsidiaries may be subject to withholding or local country taxes if the Company ’ s intention to permanently reinvest such income were to change and cash was repatriated to the United States.

Those cash balances at foreign subsidiaries may be subject to withholding or local country taxes if the Company ’ s intention to permanently reinvest such income were to change and cash was repatriated to the United States.

In general, we require cash to fund working capital investments, acquisitions, capital expenditures, debt repayment, interest payments, taxes and share repurchases.

We have access to the ABL Credit Facility to fund operational needs.

As of December 30, 2022, there were no outstanding borrowings under the ABL Credit Facility and $12.1 million of letters of credit issued under the ABL Credit Facility.

The borrowing base was estimated to be $325.0 million and approximately $312.9 million was available under the ABL Credit Facility as of December 30, 2022.

As of March 31, 2023, there were no outstanding borrowings under the ABL Credit Facility and $2.6 million of letters of credit issued under the ABL Credit Facility.

The borrowing base was estimated to be $325.0 million and approximately $322.4 million was available under the ABL Credit Facility as of March 31, 2023.

Outstanding letters of credit count as utilization of the commitments under the ABL Credit Facility and reduce the amount available for borrowings.

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Limitations on distributions and dividends by subsidiaries

AI, AII, and AIH are each holding companies, and as such have no independent operations or material assets other than ownership of equity interests in their respective subsidiaries.

On December 31, 2022, AIH merged into AII, with AII being the surviving entity.

AI and AII are each holding companies, and as such have no independent operations or material assets other than ownership of equity interests in their respective subsidiaries.

Each company depends on its respective subsidiaries to distribute funds to it so that it may pay obligations and expenses, including satisfying obligations with respect to indebtedness.

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The table below summarizes cash flow information derived from our statements of cash flows for the periods indicated:

Three months ended

(in thousands) December 30, 2022 December 24, 2021

Six months ended

(in thousands) March 31, 2023 March 25, 2022

Cash flows provided by (used in):

3 unchanged sentences

Operating activities

During the three months ended December 30, 2022, the Company was provided $198.9 million by operating activities compared to $97.2 million during the three months ended December 24, 2021.

During the six months ended March 31, 2023, the Company was provided $403.4 million by operating activities compared to $161.2 million during the six months ended March 25, 2022.

The $242.2 million increase in cash provided was primarily due to $228.6 million decrease in cash used in working capital primarily due to lower inventory and accounts receivable as well as $39.5 million of tax impacts, partially offset by decreased operating income.

Investing activities

During the three months ended December 30, 2022, the Company used $117.2 million in investing activities compared to $45.0 million during the three months ended December 24, 2021.

During the six months ended March 31, 2023, the Company used $156.1 million in investing activities compared to $60.8 million during the six months ended March 25, 2022.

Cash used in acquisitions increased in fiscal 2022 by $47.3 million primarily as a result of the acquisition of Elite Polymer in the first quarter of fiscal 2023.

1 unchanged sentence

Financing Activities

During the three months ended December 30, 2022, the Company used $164.8 million in financing activities compared to $129.0 million used during the three months ended December 24, 2021.

The increase in cash used in financing activities is primarily due to $45.5 million more cash used to repurchase common stock during the three months ended December 30, 2022 compared to the same period in the prior year.

During the six months ended March 31, 2023, the Company used $284.3 million in financing activities compared to $285.6 million used during the six months ended March 25, 2022.

The decrease in cash used in financing activities is primarily due to $10.0 million less in issuance of common stock, net of shares withheld for tax partially offset by $8.0 million more cash used to repurchase common stock during the six months ended March 31, 2023 compared to the same period in the prior year.

CHANGES IN CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Forward-looking statements include, without limitation, all matters that are not historical facts.

They appear in a number of places throughout

this Quarterly Report on Form 10-Q and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial position;

results of operations;

They appear in a number of places throughout this Quarterly Report on Form 10-Q and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial position;

of operations;

growth strategies or expectations;

5 unchanged sentences

In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

A number of important factors, including, without limitation, the risks and uncertainties discussed or referenced under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements.

A number of important factors, including, without limitation, the risks and uncertainties disclosed in the Company’s filings with the U.S.

Securities and Exchange Commission, including but not limited to the Company’s most recent Annual Reports on Form 10-K and reports on Form 10-Q and Form 8-K, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements.

Additional factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

1 unchanged sentence

• weakness or another downturn in the United States non-residential construction industry;

• widespread outbreak of diseases, such as the novel coronavirus (COVID-19) pandemic;

• changes in prices of raw materials;

• pricing pressure, reduced profitability, or loss of market share due to intense competition;

• availability and cost of third-party freight carriers and energy;

• changes in prices of raw materials;

• high levels of imports of products similar to those manufactured by us;

5 unchanged sentences

• work stoppage or other interruptions of production at our facilities as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiations of new collective bargaining agreements, as a result of supplier financial distress, or for other reasons;

• widespread outbreak of diseases;

• changes in our financial obligations relating to pension plans that we maintain in the United States;

27 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis