What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-11-21 compared with 2023-11-17 · 70 added, 78 removed, 387 unchanged (28% of the section changed)

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The Safety & Infrastructure segment designs and manufactures solutions including metal framing, mechanical pipe, perimeter security and cable management for the protection and reliability of critical infrastructure.

We believe we hold #1 or #2 positions in the United States by net sales in the vast majority of our products.

We believe we hold #1 or #2 positions in the United States by net sales in a significant number of our products.

The quality of our products, the strength of our brands and our scale and presence provide what we believe to be a unique set of competitive advantages that position us for profitable growth.

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A stronger United States economy and robust non-residential construction generally increase demand for our products.

In fiscal 2023, our sales and cost of sales were impacted by pricing normalization in certain raw materials used in our products.

In fiscal 2024, our sales and cost of sales were impacted by continued pricing normalization in certain raw materials used in our products.

We generally sell our products on a spot basis and as such, were exposed to sales prices on our products that decreased faster than the cost for the related raw materials.

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During those periods, our MR&R demand as a percentage of total demand typically increases, providing a more consistent revenue stream for our business.

Additionally, central bank interest rate increases, inflation, and conflicts in Ukraine and the Middle East are creating additional uncertainty in the global economy, generally, and in the markets in which we operate.

Additionally, central bank interest rate fluctuations, inflation, and conflicts in Ukraine and the Middle East are creating additional uncertainty in the global economy, generally, and in the markets in which we operate.

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

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Raw Materials.

We use a variety of raw materials in the manufacture of our products, which primarily include steel, copper, PVC and HDPE resin.

We use a variety of raw materials in the manufacturing of our products, which primarily include steel, copper, PVC and HDPE resin.

We believe that sources for these raw materials are well established, generally available and are in sufficient quantity that we may avoid disruption in our business.

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Pressure from regulators, and expectations from customers, to combat climate change may accelerate the move to more renewable power generation, the electrification of buildings and transportation, and the use of more sustainable methods in construction in our markets.

The rapid market growth for the use of digital technologies may continue to drive the need for more digital infrastructure such as data centers and the need for advanced warehousing and distribution centers to support e-commerce.

The rapid market growth for the use of digital technologies may continue to drive the need for more

digital infrastructure such as data centers and the need for advanced warehousing and distribution centers to support e-commerce.

Atkore offers products including electrical conduit & fittings, electrical cable & cable management, metal framing and racking structures that are commonly used in the construction of new and renovated buildings, infrastructure, renewable power systems, data centers, warehouses, and to connect electric vehicle charging stations to the electrical grid.

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Average selling prices (11.5) %

Acquisitions 4.3 %

Other (1.1) %

Solar energy tax credits (1.1) %

Net sales (9.0) %

Net sales for fiscal 2024 decreased $316.7 million to $3,202.1 million, a decrease of 9.0%, compared to $3,518.8 million for fiscal 2023.

The decrease in net sales is primarily attributed to lower average selling prices of $646.6 million, the economic value of solar tax credits to be transferred to certain customers of $30.4 million and the unfavorable impact of foreign exchange rates of $15.1 million.

These decreases are partially offset by increased net sales of $168.9 million from companies acquired during fiscal 2022 and 2023 and higher sales volume of $125.1 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.

The decrease in net sales is primarily attributed to decreased average selling prices of $406.1 million, and the economic value of solar tax credits to be transferred to certain customers of $38.3 million.

These decreases are partially offset by increased sales volume of $122.6 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.

Cost of sales

Average input costs (4.7) %

Acquisitions 5.8 %

Solar energy tax credits (3.8) %

Freight 1.6 %

Cost of sales (2.5) %

Cost of sales decreased $55.0 million, or 2.5%, to $2,124.2 million for fiscal 2024 compared to $2,179.3 million for fiscal 2023.

The decrease was primarily due to lower input costs of steel, copper and PVC resin of $337.8 million and the impact of foreign exchange rates of $13.0 million partially offset by recent acquisitions during fiscal 2022 and 2023 of $130.3 million and higher sales volume of $107.7 million.

The decrease was primarily due to lower input costs of steel, copper and PVC resin of $103.1 million and the benefit of solar tax credits of $84.0 million, partially offset by higher sales volume of $86.5 million and increased freight costs of $34.6 million

Selling, general and administrative

Selling, general and administrative expenses increased $9.3 million, or 2.4%, to $397.5 million for fiscal 2024 compared to $388.2 million for fiscal 2023.

The increase was primarily due to increased headcount of $16.6 million, digital initiatives of $16.1 million, recent acquisitions in fiscal 2022 and 2023 of $14.6 million, and stock compensation of $3.8 million.

These increases were partially offset by lower variable compensation of $15.4 million, lower sales commission expense of $9.9 million, lower transaction costs of $2.5 million and $5.1 million is spread across a variety of other spend categories.

The increase was primarily due to digital initiatives of $10.0 million, increased headcount of $7.5 million, and increased compensation of $3.0 million.

These increases were partially offset by increases in productivity of $6.0 million, lower sales commission expense of $4.1 million, and lower costs of $1.1 million spread across a variety of other spend categories.

Intangible asset amortization

Intangible asset amortization expense increased $21.6 million, or 59.8%, to $57.8 million for fiscal 2023 compared to $36.2 million for fiscal 2022.

The increase in intangible asset amortization is primarily driven by the acquisition of definite-lived intangible assets through businesses acquired in fiscal 2022 and 2023.

Intangible asset amortization expense decreased $2.3 million, or 4.0%, to $55.5 million for fiscal 2024 compared to $57.8 million for fiscal 2023.

The decrease in intangible asset amortization resulted from certain intangibles becoming fully amortized.

Interest expense, net

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Other (income) and expense, net

Other (income) and expense, net increased $8.5 million to expense of $8.0 million for fiscal 2023, compared to income of $0.5 million for fiscal 2022.

The increase in expense was primarily due to impairments recognized in connection with the Company’s plans to exit from operations in Russia of $7.5 million.

Other (income) and expense, net decreased $6.0 million to expense of $2.0 million for fiscal 2024, compared to expense of $8.0 million for fiscal 2023.

The decrease in expense was primarily due to impairments recognized in fiscal 2023 in connection with the Company’s plans to exit from operations in Russia of $7.5 million.

Income tax expense

Income tax expense decreased $46.0 million to $114.4 million, compared to $160.4 million for fiscal 2023.

The Company's income tax rate decreased to 18.9% for fiscal 2023, compared to 24.1% for fiscal 2022.

The decrease in income tax expense is due to lower income before taxes and solar tax credits generated during fiscal 2023, while the decrease in effective tax rate was primarily due to solar tax credits generated during fiscal 2023.

See Note 7, “Income Taxes” to the accompanying consolidated financial statements included elsewhere in this Annual Report.

The Company's income tax rate increased to 19.5% for fiscal 2024, compared to 18.9% for fiscal 2023.

The decrease in income tax expense is due to lower income before taxes, while the increase in effective tax rate was primarily due the benefit of solar credits being recognized in cost of sales in fiscal 2024 where as the benefit of solar tax credits was recognized in income tax expense in fiscal 2023 as described in the Summary of Significant Accounting Policies in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies.” Additionally, see Note 7, “Income Taxes” to the accompanying consolidated financial statements included elsewhere in this Annual Report.

Segment results

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Adjusted EBITDA Margin 30.9 % 37.6 %

Volume (0.3) %

Average selling prices (14.3) %

Acquisitions 5.3 %

Other (0.5) %

Net sales (12.0) %

Net sales decreased by $320.1 million, or 12.0%, to $2,355.0 million for fiscal 2024 compared to $2,675.1 million for fiscal 2023.

The decrease in net sales is primarily attributed to lower average selling prices of $475.6 million, the unfavorable impact of foreign exchange rates of $14.1 million and decreased sales volume of $9.2 million.

These decreases were partially offset by increased net sales of $159.7 million from companies acquired during fiscal 2022 and 2023.

The decrease in net sales is primarily attributed to lower average selling prices of $379.5 million partially offset by increased sales volume of $54.3 million.

Adjusted EBITDA

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Adjusted EBITDA Margin 10.6 % 12.2 %

Volume 15.0 %

Average selling prices (3.2) %

Other (2.2) %

Solar energy tax credits (4.7) %

Net sales 0.6 %

Net sales decreased $56.4 million, or 6.3%, to $844.2 million for fiscal 2023 compared to $900.6 million for fiscal 2022.

The decrease is primarily attributed to lower average selling prices of $171.0 million and the economic value of solar tax credits to be transferred to certain customers of $30.4 million partially offset by higher volumes of $134.2 million and increased net sales of $9.2 million from companies acquired during fiscal 2022.

Net sales increased $4.9 million, or 0.6%, to $849.1 million for fiscal 2024 compared to $844.2 million for fiscal 2023.

The increase is primarily attributed to higher volumes of $68.3 million partially offset by lower average selling prices of $26.6 million and the economic value of solar tax credits to be transferred to certain customers of $38.3 million.

Adjusted EBITDA

Adjusted EBITDA decreased $13.2 million, or 12.8%, to $90.0 million for fiscal 2024 compared to $103.2 million for fiscal 2023.

The Adjusted EBITDA decrease was primarily due to lower average selling prices and over input costs and the impacts of solar tax credits transferred to certain customers.

The Adjusted EBITDA decrease was primarily due to lower average selling prices versus higher input costs, partially offset by the net benefit of solar tax credits.

Fiscal 2023 Compared to Fiscal 2022

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Interest expense, net 35,232 30,676 4,556 14.9 %

Loss on extinguishment of debt — 4,202 (4,202) (100.0) %

Other (income) and expense, net 7,969 (490) 8,459 (1,726.3) %

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Net income $ 689,899 $ 913,434 $ (223,535) (24.5) %

Volume (3.2) %

Average selling prices (16.5) %

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Net sales (10.1) %

Net sales for fiscal 2022 increased $985.9 million to $3,913.9 million, an increase of 33.7%, compared to $2,928.0 million for fiscal 2021.

The increase in net sales is primarily attributed to increased average selling prices of $996.2 million which were mostly driven by the plastic pipe and conduit category within the Electrical segment and increased net sales of $96.4 million from companies acquired during fiscal 2021 and 2022.

These increases are offset by decreased sales volume of $94.8 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.

Pricing for PVC products, as well as other products, has begun to decline from historic highs.

Net sales for fiscal 2023 decreased $395.2 million to $3,518.8 million, a decrease of 10.1%, compared to $3,913.9 million for fiscal 2022.

These decreases are partially offset by increased net sales of $168.9 million from companies acquired during fiscal 2022 and 2023 higher sales volume of $125.1 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.

Cost of sales

Volume (2.9) %

Average input costs (15.0) %

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Cost of sales (4.2) %

Cost of sales increased $471.5 million, or 26.2%, to $2,273.9 million for fiscal 2022 compared to $1,802.4 million for fiscal 2021.

The increase was primarily due to higher input costs of steel, copper and PVC resin of $405.5 million and recent acquisitions during fiscal 2021 and 2022 of $70.4 million, partially offset by lower sales volume of $52.8 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.

Cost of sales decreased $94.7 million, or 4.2%, to $2,179.3 million for fiscal 2023 compared to $2,273.9 million for fiscal 2022.

Selling, general and administrative

Selling, general and administrative expenses increased $18.2 million, or 4.9%, to $388.2 million for fiscal 2023 compared to $370.0 million for fiscal 2022.

The increase was primarily due to higher sales commission expense of $21.1 million, increased general spending on business improvement initiatives of $29.8 million, higher variable compensation of $6.5 million, transaction costs of $2.6 million, and recent acquisitions in fiscal 2021 and 2022 of $7.4 million.

The remaining increase of $9.6 million is spread across a variety of other spend categories.

Intangible asset amortization

Intangible asset amortization expense increased $21.6 million, or 59.8%, to $57.8 million for fiscal 2023 compared to $36.2 million for fiscal 2022.

The increase in intangible asset amortization is primarily driven by the acquisition of definite-lived intangible assets in fiscal 2022.

The increase in intangible asset amortization is primarily driven by the acquisition of definite-lived intangible assets through businesses acquired in fiscal 2022 and 2023.

Interest expense, net

Interest expense, net, decreased $2.2 million, or 6.8% to $30.7 million for fiscal 2022, compared to $32.9 million for fiscal 2021.

The decrease is primarily due to debt refinancing and principal prepayments in the second half of 2021 resulting in a lower average principal balance in fiscal 2022 from which interest expense was derived.

Interest expense, net, increased $4.6 million, or 14.9% to $35.2 million for fiscal 2023, compared to $30.7 million for fiscal 2022.

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

Other (income) and expense, net

Other income, net increased $17.7 million to $0.5 million for fiscal 2022, compared to income of $18.2 million for fiscal 2021.

The increase was primarily due to a $15.5 million business interruption insurance recovery from a flood at one of the Company’s manufacturing facilities.

See Note 15, “Commitments and Contingencies” and Note 6, “Other Income, net” to the accompanying consolidated financial statements included elsewhere in this Annual Report.

Other income, net increased $8.5 million to expense of $8.0 million for fiscal 2023, compared to income of $0.5 million for fiscal 2022.

The increase in expense was primarily due to impairments recognized in connection with the Company’s plans to exit from operations in Russia of $7.5 million.

Income tax expense

Income tax expense increased $98.0 million to $290.2 million, compared to $192.1 million for fiscal 2021.

Income tax expense decreased $129.8 million to $160.4 million for fiscal 2023, compared to $290.2 million for fiscal 2022.

The Company's income tax rate decreased to 18.9% for fiscal 2023, compared to 24.1% for fiscal 2022.

The increase in income tax expense is due to higher income before taxes, while the decrease in effective tax rate was primarily due to a decrease in state income taxes.

See Note 7, “Income Taxes” to the accompanying consolidated financial statements included elsewhere in this Annual Report.

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Net sales (11.2) %

Net sales increased by $780.5 million, or 34.9%, to $3,013.8 million for fiscal 2022 compared to $2,233.3 million for fiscal 2021.

The increase in net sales is primarily attributed to increased average selling prices of $788.8 million which were mostly driven by the plastic pipe and conduit category and increased net sales of $78.0 million from companies acquired during fiscal 2021 and 2022.

These increases were partially offset by decreased sales volume of $67.4 million.

Pricing for PVC products, as well as other products, has begun to decline from historic highs.

Net sales decreased by $338.7 million, or 11.2%, to $2,675.1 million for fiscal 2023 compared to $3,013.8 million for fiscal 2022.

These decreases were partially offset by increased net sales of $159.7 million from companies acquired during fiscal 2022 and 2023.

Adjusted EBITDA

Adjusted EBITDA increased $399.5 million, or 45.7%, to $1,273.4 million for fiscal 2022 compared to $873.9 million for fiscal 2021.

The increase in Adjusted EBITDA was largely due to the increase in average selling prices and acquisitions offset by volume declines as discussed above.

Adjusted EBITDA decreased $268.6 million, or 21.1%, to $1,004.9 million for fiscal 2023 compared to $1,273.4 million for fiscal 2022.

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

Safety & Infrastructure

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Average selling prices (19.1) %

Other (2.2) %

Net sales (6.3) %

Net sales increased $202.3 million, or 29.0%, to $900.6 million for fiscal 2022 compared to $698.3 million for fiscal 2021.

The increase is primarily attributed to increased average selling prices of $207.4 million and increased net sales of $18.4 million from companies acquired during fiscal 2022, partially offset by lower volumes of $27.3 million across various steel product categories.

Net sales decreased $56.4 million, or 6.3%, to $844.2 million for fiscal 2023 compared to $900.6 million for fiscal 2022.

Adjusted EBITDA

Adjusted EBITDA increased $56.6 million, or 69.1%, to $138.4 million for fiscal 2021 compared to $81.8 million for fiscal 2020.

The Adjusted EBITDA increase was primarily due to the increase in average selling prices and volume discussed above.

Adjusted EBITDA decreased $35.2 million, or 25.4%, to $103.2 million for fiscal 2023 compared to $138.4 million for fiscal 2022.

The Adjusted EBITDA decrease was primarily due to lower average selling prices and over input costs and the impacts of solar tax credits transferred to certain customers.

Liquidity and Capital Resources

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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.

Our cash and cash equivalents decreased $0.6 million from September 30, 2022, primarily due to acquisitions, capital expenditures and share repurchases and partially offset by cash provided from operating activities.

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

Our cash and cash equivalents decreased $36.7 million from September 30, 2023, primarily due to lower cash provided by operating activities and increased dividend payments, partially offset by less cash used in capital expenditures, acquisitions, and share repurchases.

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

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

As of September 30, 2023, there were no outstanding borrowings under the ABL Credit Facility (excluding $2.6 million of standby letters of credit issued under the ABL Credit Facility).

As of September 30, 2024, there were no outstanding borrowings under the ABL Credit Facility (there were no standby letters of credit issued under the ABL Credit Facility).

The borrowing base was estimated to be $325.0 million and approximately $325.0 million was available under the ABL Credit Facility as of September 30, 2024.

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Capital expenditures have historically been necessary to expand and update the production capacity and improve the productivity of our manufacturing operations and IT initiatives aimed to facilitate the ease of doing business with Atkore.

In FY23, $142.7 million was spent on equipment related to growth initiatives in solar, plastics and regional services centers.

In FY24, $149.9 million was spent on equipment, which included both routine capital expenditures and spending on growth initiatives such as Water and Global Megaprojects.

We have purchase commitments of $103.2 million and $2.2 million for the years 2025 and 2026, which represent purchases of raw materials in the normal course of business for which all significant terms have been confirmed.

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Limitations on Distributions and Dividends by Subsidiaries

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.

Atkore 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 them so that they may pay obligations and expenses, including satisfying obligations with respect to indebtedness.

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During fiscal 2024, operating activities provided $549.0 million of cash, compared to $807.6 million during fiscal year 2023.

Cash provided by operating activities increased by $20.8 million primarily driven by less cash used in working capital of $105.8 million, tax impacts of $229.3 million and partially offset by lower operating income of $340.3 million.

The decrease in cash provided by operating activities was primarily driven by lower operating income of $268.7 million and tax impacts of $6.5 million, partially offset by less cash used in working capital of $5.2 million and higher depreciation and amortization of $15.4 million.

Investing activities

During fiscal 2024, we used $154.3 million of cash for investing activities compared to $302.2 million during fiscal 2023.

The $140.7 million decrease in cash used by investing activities was primarily driven by $224.4 million in decreased cash used for acquisitions in fiscal 2022, partially offset by increased capital expenditures of $83.1 million.

The $147.8 million decrease in cash used by investing activities was primarily driven

by $77.3 million in decreased cash used for acquisitions in fiscal 2024 compared to fiscal 2023 and decreased capital expenditures of $69.0 million.

Financing Activities

During fiscal 2024, we used $435.3 million for financing activities compared to $506.8 million during fiscal 2023.

The decrease in cash used for financing activities during fiscal 2023 was primarily driven by repurchases of shares of $491.0 million in fiscal 2023 as compared to $500.2 million of share repurchases in fiscal 2022.

The decrease in cash used for financing activities during fiscal 2024 was primarily driven by repurchases of shares of $381.0 million in fiscal 2024 as compared to $491.0 million of share repurchases in fiscal 2023, partially offset by dividends paid of $34.5 million in fiscal 2024.

The table below summarizes cash flow information derived from our statements of cash flows for the fiscal years ended September 30, 2023 and September 30, 2022.

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During fiscal 2023, operating activities provided $807.6 million of cash, compared to $786.8 million during fiscal year 2022.

The $213.9 million increase was primarily driven by improved operating income of $434.9 million year over year and was partially offset by increased tax impacts of $224.8 million, with cash used in working capital relatively flat year over year.

Investing activities

During fiscal 2023, we used $302.2 million of cash for investing activities compared to $442.8 million during fiscal 2022.

The $344.8 million increase in cash used by investing activities was primarily driven by $264.6 million in increased cash used for acquisitions in fiscal 2022 over the prior year as well as increased capital expenditures of $71.3 million, which includes the purchase of facilities in Dallas, Texas.

Financing Activities

During fiscal 2023, we used $506.8 million for financing activities compared to $524.2 million during fiscal 2022.

Cash used for financing activities during fiscal 2022 was primarily driven by repurchases of shares of $500.2 million as compared to $135.1 million of share repurchases in fiscal 2021.

Critical Accounting Estimates

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The following discussion is not intended to represent a comprehensive list of our accounting policies.

For a detailed discussion of the application of these and other accounting policies, see Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” to the accompanying consolidated financial statements included elsewhere in this Annual Report.

For a detailed discussion of the application of these and other accounting policies, see Note 1, “Basis of

Presentation and Summary of Significant Accounting Policies” to the accompanying consolidated financial statements included elsewhere in this Annual Report.

Revenue Recognition

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Valuations related to tax accruals and assets can be impacted by changes in accounting regulations, changes in tax codes and rulings, changes in statutory tax rates, and changes in our forecasted future taxable income.

Any reduction in future taxable income, including but not limited to any future

restructuring activities, may require that we record an additional valuation allowance against our deferred tax assets.

Any reduction in future taxable income, including but not limited to any future restructuring activities, may require that we record an additional valuation allowance against our deferred tax assets.

An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings.

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The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure of risk related to the specific reporting unit’s forecasted performance.

The key uncertainties in these calculations are the assumptions used in determining the reporting unit’s forecasted future performance, including revenue growth and EBITDA margins, as well as the perceived risk associated

with those forecasts.

Fair value under the guideline public company method is determined for each reporting unit by applying market multiples for comparable public companies to the reporting unit’s financial results.

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The Company calculated the fair value of its indefinite-lived intangible assets using the income approach, specifically the relief-from-royalty method.

The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset.

The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of an

intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset.

Internally forecasted revenues, which the Company believes reasonably approximate market participant assumptions, are multiplied by a royalty rate to arrive at the estimated net after tax cost savings.

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Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control.

We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report.

market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report.

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 Annual Report, those results or developments may not be indicative of results or developments in subsequent periods.

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

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

• widespread outbreak of diseases;

• changes in prices of raw materials;

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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-K

Item 7. Management’s Discussion and Analysis