GIBRALTAR INDUSTRIES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain information set forth herein includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and, therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “anticipates,” "aspires," “expects,” “estimates,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, competition, strategies and the industries in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” disclosures in our most recent Annual Report on Form 10-K along with Item 1A of this Quarterly Report on Form 10-Q. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition, liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition, liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. We use certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage our businesses, set operational goals, and establish performance targets for incentive compensation for our employees. We define consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. We define operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales. We believe consolidated gross margin, operating margin and consolidated operating margin may be useful to investors in evaluating the profitability of our segments and Company on a consolidated basis. Overview Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the renewable energy, residential, agtech, and infrastructure markets. The Company operates and reports its results in the following four reporting segments: • Renewables; • Residential; • Agtech; and • Infrastructure. The Company serves customers primarily in North America including renewable energy (solar) developers, home improvement retailers, wholesalers, distributors, institutional and commercial growers of food and plants, and contractors. At June 30, 2022, we operated 33 facilities, comprised of 24 manufacturing facilities, one distribution center, and eight offices, which are located in 15 states, Canada, China, and Japan. Our operational infrastructure provides the necessary scale to support regional and national customers in each of our markets. 21 Table of Contents Recent Trends As we have navigated through COVID-19, our top priority continues to be focused on our organization - keeping our team and their families as safe as possible, maintaining our supply chain and providing a high level of responsiveness to customer needs. We continue to proactively execute our pandemic “playbook” and make adjustments to our operating protocols as we navigate forward. The broader market dynamics over the past two years, which have included the impact of COVID-19, have resulted in impacts to our company, including material cost inflation, labor availability issues and logistics costs increases. We have also been impacted from supply constraints for materials and commodities used in our operations and used by our customers in conjunction with the goods and services we provide. In certain instances these constraints have resulted in project delays, cost inflation and logistics delays. We continue to work with our customers and suppliers in this dynamic environment to better align pricing, understand the existing and potential future impacts to the supply chain, and make efforts to mitigate such impacts as we expect these supply chain and labor availability pressures along with the impact of material cost, labor and logistics inflation will continue throughout 2022. In early 2022, the U.S. Department of Commerce ("USDOC") was petitioned to investigate alleged circumvention of antidumping and countervailing duties on Chinese imports of solar panels produced in other countries in Southeast Asia. In March 2022, the USDOC announced that it would investigate the circumvention alleged in the petition. In June 2022, the President of the United States issued an Executive Order to suspend any tariffs that result from this investigation for two years. The USDOC has not yet issued a ruling to implement this order. Furthermore, in June 2022, the Uyghur Forced Labor Prevention Act ("UFLPA") was enacted. The UFLPA requires traceability of components of imported goods to validate that the components are not sourced from areas in the Xinjiang region of China. There have been recent reports of solar panels being held at customs until the importer is able to prove where they have been sourced. As the timing and progress of many of our customers’ projects depend upon the supply of solar panels, our operating results have been and could be impacted by these actions. As such, we continue to work with customers who are assessing their ability to source panels needed to complete projects. Business Strategy The Company's mission is to create compounding and sustainable value for our stockholders and other stakeholders with strong and relevant leadership positions in higher growth, profitable end markets focused on addressing some of the world's most challenging opportunities. The foundation of the Company's strategy is built on three core pillars: Business System, Portfolio Management, and Organization Development. 1. Business System reflects the necessary systems, processes, and management tools required to deliver consistent and continuous performance improvement, every day. Our Business System is a critical enabler to grow, scale, and deliver our plans. Our focus is on deploying effective tools to drive growth, improve operating performance, and develop the organization utilizing 80/20 and lean quote-to-cash initiatives along with digital systems for speed, agility and responsiveness. Our Business System challenges existing paradigms, drives day-to-day performance, forces prioritization of resources, tests our business models, and brings focus to new product and services development and innovation. 2. Portfolio Management is focused on optimizing the Company’s business portfolio in higher growth markets with leadership positions ensuring our financial capital and human resources are effectively and efficiently deployed to deliver sustainable, profitable growth while increasing our relevance with customers and shaping our markets. For a description of recent portfolio management activities, see the actions described below in the Recent Developments section. 3. Organization Development drives the Company’s continuous focus on ensuring we have the right design and structure to scale the organization in order to execute the Company’s plans and meet commitments. The Company aspires to make our place of work the "Best Place to Work", where we focus on creating an environment for our people to have the best opportunity for success, continue to develop, grow, and learn. At core of this pillar is the Company’s development process focused on helping employees reach their potential, improve performance, develop career roadmaps, identify ongoing education requirements, and respective succession plans. We believe doing so helps us attract and retain the best people so we can execute our business plans. We believe the key elements of our strategy have, and will continue to, enable us to respond timely to changes in the end markets we serve, including evolving changes due to COVID-19 and the broader market dynamics experienced over the past two years. We have and expect to continue to examine the need for restructuring of our 22 Table of Contents operations, including consolidation of facilities, reducing overhead costs, curtailing investments in working capital, and managing our business to generate incremental cash. We believe our strategy enables us to respond to volatility in commodity and other input costs and fluctuations in customer demand, along with striving to maintain and improve margins. We have used cash flows generated by these initiatives to minimize debt, improve our liquidity position, invest in growth initiatives and return capital to our shareholders through share repurchases. Overall, we continue to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher stockholder returns. Recent Developments In May 2022, the Company's Board of Directors authorized a share repurchase program of up to $200 million of the Company's issued and outstanding common stock. The program has a duration of three years, ending May 2, 2025. Repurchases may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The repurchase program may be suspended or discontinued at any time at the Company's discretion. As of June 30, 2022, the Company has repurchased 1,194,925 shares for an aggregate price of $50 million under this repurchase program. During the first quarter of 2022, the Company committed to a plan to sell its processing equipment business, which is a business within the Company's Agtech reportable segment, as a result of its portfolio management strategy in order to focus its resources on the higher growth and more profitable growing business within the Agtech segment. The processing equipment business was classified as held for sale as of March 31, 2022 and remains under such classification as of June 30, 2022. During the first quarter of 2021, the Company sold its Industrial business which was previously included in the Company's Industrial and Infrastructure Products segment, now the Infrastructure segment, and was reported as discontinued operations as of December 31, 2020. Results of Operations Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021 The following table sets forth selected results of operations data and its percentage of net sales for the three months ended June 30 (in thousands): 2022 2021 Net sales $ 366,949 100.0 % $ 348,389 100.0 % Cost of sales 276,678 75.4 % 267,458 76.8 % Gross profit 90,271 24.6 % 80,931 23.2 % Selling, general, and administrative expense 50,132 13.7 % 49,522 14.2 % Income from operations 40,139 10.9 % 31,409 9.0 % Interest expense 656 0.1 % 245 0.0 % Other expense (income) 281 0.1 % (4,666) (1.3) % Income before taxes 39,202 10.7 % 35,830 10.3 % Provision for income taxes 9,895 2.7 % 9,457 2.7 % Income from continuing operations 29,307 8.0 % 26,373 7.6 % Loss from discontinued operations — 0.0 % (424) (0.2) % Net income $ 29,307 8.0 % $ 25,949 7.4 % 23 Table of Contents The following table sets forth the Company’s net sales by reportable segment for the three months ended June 30, (in thousands): Impact of 2022 2021 Total Change Portfolio Management Ongoing Operations Net sales: Renewables $ 101,549 $ 107,751 $ (6,202) $ — $ (6,202) Residential 200,245 164,209 36,036 — 36,036 Agtech 43,680 53,696 (10,016) (4,516) (5,500) Infrastructure 21,475 22,733 (1,258) — (1,258) Consolidated $ 366,949 $ 348,389 $ 18,560 $ (4,516) $ 23,076 Consolidated net sales increased by $18.6 million, or 5.3%, to $366.9 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The 5.3% increase in revenue was driven by the Residential segment, which more than offset volume declines in our Renewables, Agtech and Infrastructure segments. The improvement year over year was driven by a 13% increase in pricing to customers, partially offset by a net volume decline of 8%. The increase during the current year quarter was driven by price management and participation gains in our Residential segment, partially offset by project delays caused by continued supply chain challenges in the Agtech and Renewables segments. While the Company committed to a plan of sale of its Processing business within the Agtech segment, and has reclassified the assets and liabilities as held-for-sale as of March 31, 2022, the Company will continue reporting its operating results in the Company's consolidated operating results from continuing operations until the sale of the business is completed. Consolidated backlog increased 5% to $411 million up from $392 million at the end of the prior year quarter. Net sales in our Renewables segment decreased $6.2 million, or 5.8%, to $101.5 million for the three months ended June 30, 2022 compared to $107.8 million for the three months ended June 30, 2021. Revenue decreased as expected during the quarter as solar project schedules remained dynamic, the result of customers continuing to assess and understand solar panel availability, which has been impacted by the USDOC investigation, the implementation of the UFLPA by the U.S. Custom and Border Protection Agency, and the Executive Order issued by the administration with respect to solar panel tariff enforcement. As a result, backlog decreased 2% year over year, yet it is expected to improve once these trade issues are resolved. Net sales in our Residential segment increased 21.9%, or $36.0 million, to $200.2 million for the three months ended June 30, 2022 compared to $164.2 million for the three months ended June 30, 2021. The increase from the prior year quarter, the eighth consecutive quarter of double-digit growth, was driven by price management and participation gains. Net sales in our Agtech segment decreased 18.6%, or $10.0 million, to $43.7 million for the three months ended June 30, 2022 compared to $53.7 million for the three months ended June 30, 2021. Excluding the impact of the processing equipment business which has been classified as held for sale as of March 31, 2022, revenue declined in our produce and cannabis businesses as projects shifted into the third and fourth quarters, the result of continued licensing and permit delays. Despite these headwinds, the commercial greenhouse business continued solid growth across its core product lines. Backlog increased 28% year over year. Net sales in our Infrastructure segment decreased 5.3%, or $1.3 million, to $21.5 million for the three months ended June 30, 2022 compared to $22.7 million for the three months ended June 30, 2021. The decrease in revenue was due to a very strong prior year quarter comparison, which benefited from the scheduling of customer projects. While order backlog was essentially flat compared to the prior year quarter, bidding activity is strong and new bookings have accelerated early in the third quarter. Management continues to expect a positive impact from the infrastructure bill in the second half of 2022. Our consolidated gross margin increased to 24.6% for the three months ended June 30, 2022 compared to 23.2% for the three months ended June 30, 2021. The increase was largely the result of favorable price / cost management, along with the impact of participation gains in our residential segment, business mix, and improved operating execution from lean enterprise initiatives. These actions more than offset the impacts of continued and anticipated supply chain challenges that resulted in increased costs due to project disruptions. 24 Table of Contents Selling, general, and administrative ("SG&A") expenses as a percentage of net sales decreased to 13.7% for the three months ended June 30, 2022 compared to 14.2% for the three months ended June 30, 2021. SG&A expenses for the current quarter increased by $0.6 million, or 1.2%, to $50.1 million from $49.5 million compared to the prior year quarter. The increase year over year was the net result of expenses associated with investing in our enterprise resource planning ("ERP") systems to simplify and digitize our businesses, nearly offset by lower compensation and benefits expense as compared to the prior year quarter, largely the result of equity-based awards tied to the Company's 200-day average stock price. The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended June 30, (in thousands): Impact of 2022 2021 Total Change Portfolio Management Ongoing Operations Income from operations: Renewables $ 6,829 6.7 % $ 9,510 8.8 % $ (2,681) $ — $ (2,681) Residential 35,664 17.8 % 27,155 16.5 % 8,509 — 8,509 Agtech 1,542 3.5 % 977 1.8 % 565 (643) 1,208 Infrastructure 2,887 13.4 % 4,186 18.4 % (1,299) — (1,299) Unallocated Corporate Expenses (6,783) (1.8) % (10,419) (3.0) % 3,636 — 3,636 Consolidated income from operations $ 40,139 10.9 % $ 31,409 9.0 % $ 8,730 $ (643) $ 9,373 The Renewables segment generated an operating margin of 6.7% in the current year quarter compared to 8.8% in the prior year quarter. The decrease in operating margin on lower volume was largely the result of project management inefficiencies related to project delays and disruptions associated with market supply chain challenges. Project management inefficiencies began to subside as we moved through the quarter, resulting in double-digit margin performance in both May and Ju ne. Execution of our integration plans, including implementing a common platform for our ERP system and insourcing production, remain on track. The Residential segment generated an operating margin of 17.8% in the current year quarter compared to 16.5% in the prior year quarter. The increase in operating margin was the result of favorable price / cost management, supply chain initiatives, labor management, volume leverage and 80/20 initiatives. During the quarter, we completed the implementation a new ERP system in the mail and package business. Our Agtech segment generated an operating margin of 3.5% in the current year quarter compared to 1.8% in the prior year quarter. Operating profit and margin improved year over year, the result of business mix, price / cost management, supply chain improvement, 80/20 initiatives, and integration activities. Our Infrastructure segment generated an operating margin of 13.4% during the three months ended June 30, 2022 compared to 18.4% during the three months ended June 30, 2021. The margin declined year over year due to unfavorable product mix. Unallocated corporate expenses decreased $3.6 million from $10.4 million during the three months ended June 30, 2021 to $6.8 million during the three months ended June 30, 2022. The decrease in expense was primarily the result of lower performance-based compensation expense for equity-based awards tied to the Company's 200-day average stock price as compared to the prior year quarter. Interest expense increased year over year with $0.7 million for the three months ended June 30, 2022 compared to $0.2 million for the three months ended June 30, 2021. The increase in expense was primarily due to higher outstanding balances on the Company's revolving credit facility during the quarter along with higher interest rates compared to the prior year quarter. The outstanding balances on the Company's revolving credit facility were $93.5 million and $32.3 million as of June 30, 2022, and 2021, respectively. The Company recorded other expense of $0.3 million for the three months ended June 30, 2022, compared to other income of $4.7 million for the three months ended June 30, 2021. The change from income in the prior year quarter 25 Table of Contents to expense in the current year quarter was primarily the result of a $4.7 million gain recognized on the sale of securities received from the sellers of Thermo Energy Systems, Inc. ("Thermo") to settle indemnification claims recorded in the prior year quarter. We recognized a provision for income taxes of $9.9 million and $9.5 million, with effective tax rates of 25.2% and 26.4% for the three months ended June 30, 2022, and 2021, respectively. The effective tax rate for the three months ended June 30, 2022, and 2021, respectively, was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation. Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021 The following table sets forth selected results of operations data and its percentage of net sales for the six months ended June 30 (in thousands): 2022 2021 Net sales $ 684,814 100.0 % $ 635,981 100.0 % Cost of sales 529,699 77.3 % 495,032 77.8 % Gross profit 155,115 22.7 % 140,949 22.2 % Selling, general, and administrative expense 93,781 13.7 % 96,725 15.2 % Income from operations 61,334 9.0 % 44,224 7.0 % Interest expense 1,141 0.2 % 689 0.1 % Other expense (income) 434 0.1 % (4,351) (0.6) % Income before taxes 59,759 8.7 % 47,886 7.5 % Provision for income taxes 14,996 2.2 % 11,017 1.7 % Income from continuing operations 44,763 6.5 % 36,869 5.8 % Income from discontinued operations — 0.0 % 1,842 0.3 % Net income $ 44,763 6.5 % $ 38,711 6.1 % The following table sets forth the Company’s net sales by reportable segment for the six months ended June 30, (in thousands): Impact of 2022 2021 Total Change Portfolio Management Ongoing Operations Net sales: Renewables $ 180,332 $ 193,263 $ (12,931) $ — $ (12,931) Residential 379,730 304,426 75,304 — 75,304 Agtech 86,108 100,435 (14,327) (7,666) (6,661) Infrastructure 38,644 37,857 787 — 787 Consolidated $ 684,814 $ 635,981 $ 48,833 $ (7,666) $ 56,499 Consolidated net sales increased by $48.8 million, or 7.7%, to $684.8 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The 7.7% increase in revenue was driven by the Residential and Infrastructure segments, which more than offset volume declines in both our Renewables and Agtech segments. The improvement year over year was driven by a 14% increase in pricing to customers, partially offset by a net volume decline of 6%. The increase in net sales during the current year was driven by price management and participation gains in our Residential segment, partially offset by continued project delays caused by supply chain challenges in the Agtech and Renewables segments. While the Company committed to a plan of sale of its Processing business within the Agtech segment, and has reclassified the assets and liabilities as held-for-sale as of March 31, 2022, the Company will continue reporting its operating results in the Company's consolidated operating results from continuing operations until the sale of the business is completed. Consolidated backlog increased 5% to $411 million up from $392 million at the end of the prior year period. 26 Table of Contents Net sales in our Renewables segment decreased $12.9 million, or 6.7%, to $180.3 million for the six months ended June 30, 2022 compared to $193.3 million for the six months ended June 30, 2021. Revenue decreased as anticipated by 6.7% during the current year as a result of solar project schedule delays, disruptions related to supply chain challenges and uncertainty related to the pending preliminary ruling surrounding the USDOC global trading investigation during the year and further impacted by the recent implementation of the UFLPA by the U.S. Custom and Border Protection Agency and the Executive Order issued by the administration with respect to solar panel tariff enforcement. As a result, backlog decreased 2% year over year, yet it is expected to improve once these trade issues are resolved. Net sales in our Residential segment increased 24.7%, or $75.3 million, to $379.7 million for the six months ended June 30, 2022 compared to $304.4 million for the six months ended June 30, 2021. The increase from the prior year was primarily driven by pricing actions, along with participation gains. Net sales in our Agtech segment decreased 14.2%, or $14.3 million, to $86.1 million for the six months ended June 30, 2022 compared to $100.4 million for the six months ended June 30, 2021. Excluding the impact of the processing equipment business which has been classified as held for sale as of March 31, 2022, revenue declined in our produce and cannabis businesses due to project delays, the result of continued licensing and permit delays. Despite these headwinds, the commercial greenhouse business continued solid growth across its core product lines. Backlog for the segment increased 28% year over year. Net sales in our Infrastructure segment increased 1.8%, or $0.8 million, to $38.6 million for the six months ended June 30, 2022 compared to $37.9 million for six months ended June 30, 2021. The increase in revenue was driven by growth in demand for fabricated products. While order backlog was essentially flat compared to the prior year period, bidding activity is strong and new bookings have accelerated early in the third quarter. Management continues to expect a positive impact from the infrastructure bill in the second half of 2022. Our consolidated gross margin increased to 22.7% for the six months ended June 30, 2022 compared to 22.2% for the six months ended June 30, 2021. The increase was primarily the result of favorable price / cost management, along with participation gains in our residential segment, favorable revenue mix and improved operating execution from lean enterprise initiatives. These actions more than offset the impacts of continued and anticipated supply chain challenges and severe weather in the early part of the year that resulted in increased costs due to project disruptions. Selling, general, and administrative ("SG&A") expenses as a percentage of net sales decreased to 13.7% for the six months ended June 30, 2022 compared to 15.2% for the six months ended June 30, 2021. The decrease of $2.9 million, or 3.0%, to $93.8 million for the current year period compared to $96.7 million for the prior year period was primarily due to lower performance-based compensation expense for equity-based awards tied to the Company's 200-day average stock price. The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the six months ended June 30, (in thousands): Impact of 2022 2021 Total Change Portfolio Management Ongoing Operations Income from operations: Renewables $ (155) (0.1) % $ 8,989 4.7 % $ (9,144) $ — $ (9,144) Residential 69,099 18.2 % 50,089 16.5 % 19,010 — 19,010 Agtech 1,573 1.8 % 1,906 1.9 % (333) (2,332) 1,999 Infrastructure 4,068 10.5 % 6,223 16.4 % (2,155) — (2,155) Unallocated Corporate Expenses (13,251) (1.9) % (22,983) (3.6) % 9,732 — 9,732 Consolidated income from operations $ 61,334 9.0 % $ 44,224 7.0 % $ 17,110 $ (2,332) $ 19,442 The Renewables segment generated an operating margin of (0.1)% in the current year compared to 4.7% in the prior year. The decrease in operating margin on lower volume was the result of project management inefficiencies related to project delays and disruptions associated with market supply chain challenges and prolonged inflation on 27 Table of Contents structural steel used in solar canopy projects. However, project execution is showing signs of improvement and the above mentioned impacts are beginning to subside resulting in double-digit margin performance in both May and Ju ne . Execution of our integration plans, including the investment in a common platform for our ERP systems, remain on track. The Residential segment generated an operating margin of 18.2% in the current year compared to 16.5% in the prior year. The increase in operating margin was the result of favorable price / cost management, segment mix, labor management, volume leverage and 80/20 initiatives. During the year, we completed the implementation a new ERP system in the mail and package business. Our Agtech segment generated an operating margin of 1.8% in the current year compared to 1.9% in the prior year. Excluding the impact of the Processing business which has been classified as held for sale as of March 31, 2022, operating profit and margin improved year over year the result of improved business mix, price / cost management, continued execution from 80/20 and lean enterprise initiatives and ongoing integration activities. Our Infrastructure segment generated an operating margin of 10.5% during the six months ended June 30, 2022 compared to 16.4% during the six months ended June 30, 2021. The margin declined year over year due to the impact of plate steel inflation on fixed price projects and unfavorable product mix. Unallocated corporate expenses decreased $9.7 million from $23.0 million during the six months ended June 30, 2021 to $13.3 million during the six months ended June 30, 2022. The decrease in expense was largely the result of lower performance-based compensation expense for equity-based awards tied to the Company's 200-day average stock price as compared to the prior year. Interest expense increased year over year with $1.1 million for the six months ended June 30, 2022 compared to $0.7 million for the six months ended June 30, 2021. The increase in expense was primarily due to higher outstanding balances on the Company's revolving credit facility during the current year along with higher interest rates compared to the prior year period. The outstanding balances on the Company's revolving credit facility were $93.5 million and $32.3 million as of June 30, 2022, and 2021, respectively. The Company recorded other expense of $0.4 million for the six months ended June 30, 2022, compared to other income of $4.4 million for the six months ended June 30, 2021. The change from income in the prior year to expense in the current year was primarily the result of the $4.7 million gain recognized on the sale of securities received from the sellers of Thermo Energy Systems, Inc. ("Thermo") to settle indemnification claims recorded in the prior year. We recognized a provision for income taxes of $15.0 million and $11.0 million, with effective tax rates of 25.1% and 23.0% for the six months ended June 30, 2022, and 2021, respectively. The effective tax rate for the six months ended June 30, 2022, and 2021, respectively, was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation. Liquidity and Capital Resources The following table sets forth our liquidity position as of: (in thousands) June 30, 2022 December 31, 2021 Cash and cash equivalents $ 17,149 $ 12,849 Availability on revolving credit facility 301,505 369,305 $ 318,654 $ 382,154 28 Table of Contents Sources of Liquidity We believe that our cash on hand and available borrowing capacity provided under our Sixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") provide us with ample liquidity and capital resources to invest in key business strategies that drive our mission. We have been able to weather the economic impacts of the COVID-19 pandemic and the broader market dynamics, including the current inflationary cost environment, while continuing to make investments that support our strategy. We continue to remain focused on managing our working capital, closely monitoring customer credit and collection activities, and working to extend payment terms. We believe our liquidity, together with the cash expected to be generated from operations, should be sufficient to fund working capital needs and to invest in operational excellence, growth initiatives and stock repurchases for the foreseeable future. We use our Senior Credit Agreement to provide liquidity and capital resources primarily for our U.S. operations. Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of June 30, 2022, our foreign subsidiaries held $15.5 million of cash. Outstanding balances on our revolving credit facility under our Senior Credit Agreement accrue interest at a rate based on LIBOR plus an additional margin. We do not expect a material change in interest expense as a result of transitioning from a LIBOR rate to a new reference rate. See Note 7 to the Company's consolidated financial statements in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further information on the Company’s Senior Credit Agreement . Uses of Cash / Cash Requirements Our material short-term cash requirements primarily include accounts payable, certain employee and retiree benefit-related obligations, operating lease obligations, interest payments on outstanding debt, repayments of borrowing on our revolving credit facility, capital expenditures, and other purchase obligations originating in the normal course of business for inventory purchase orders and contractual service agreements. Our principal capital requirements are to fund our operations' working capital and capital improvements, to provide capital for acquisitions and to strategically allocate capital through repurchases of Company stock. We will continue to invest in growth opportunities as appropriate while focusing on working capital efficiency and profit improvement opportunities to minimize the cash invested to operate our business. We intend to fund our cash requirements through cash generated from operations and, as necessary, from the availability on our revolving credit facility. In May 2022, the Company's Board of Directors authorized a share repurchase program of up to $200 million of the Company's issued and outstanding common stock. The program has a duration of three years, ending May 2, 2025. Repurchases may be made, from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions, applicable legal requirements, debt covenants and other considerations. Any such repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The repurchase program may be suspended or discontinued at any time at the Company's discretion. As of June 30, 2022, the Company has repurchased 1,194,925 shares for an aggregate price of $50 million under this repurchase program. During 2020, we opted to defer remittance of the employer portion of Social Security tax as provided in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), which allowed us to retain $4.4 million in cash during 2020 that would have otherwise been remitted to the federal government. The deferred tax payments were required to be repaid in two installments occurring near the end of each year 2021 and 2022, of which $1.9 million was repaid in 2021 and the remaining $2.5 million will be repaid by the end of 2022. Over the long-term, we expect that future investments, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under our Senior Credit Agreement, new debt financing, the issuance of equity securities, or any combination of the above. All potential acquisitions are evaluated based on our acquisition strategy, which includes the enhancement of our existing products, operations, or capabilities, expanding our access to new products, markets, and customers, with the goal of creating compounding and sustainable stockholder value. These expectations are forward-looking statements based upon currently available information and may change if conditions in the credit and equity markets deteriorate or other circumstances change. To the extent that operating cash flows are lower than current levels, or sources of financing are not available or not available at acceptable terms, our future liquidity may be adversely affected. 29 Table of Contents Except as disclosed above, there have been no material changes in our cash requirements since December 31, 2021, the end of fiscal year 2021. See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021. Cash Flows The following table sets forth selected cash flow data for the six months ended June 30, (in thousands): 2022 2021 Cash provided by (used in): Operating activities of continuing operations $ 544 $ 12,777 Investing activities of continuing operations (11,202) 30,515 Financing activities of continuing operations 16,032 (56,292) Discontinued operations — (2,178) Effect of foreign exchange rate changes (1,074) 87 Net increase (decrease) in cash and cash equivalents $ 4,300 $ (15,091) Operating Activities Net cash provided by operating activities of continuing operations for the six months ended June 30, 2022 of $0.5 million consisted of income from continuing operations of $44.8 million and non-cash net charges totaling $20.7 million, which include depreciation, amortization, stock-based compensation, exit activity costs and other non-cash charges, offset by a $64.9 million investment in working capital and other net assets. The investment in working capital and other net assets was due to increases in accounts receivable and inventory, largely the result of seasonal increases in demand along with increased raw material and freight costs impacting inventory. A decrease in accounts payable as a result of the correlation between the timing of inventory receipts and vendor payments also contributed to the increase. The overall increase was partially offset by an increase in accrued expenses and other non-current liabilities due to increases in advance payments from and billings to customers on projects. Net cash provided by operating activities of continuing operations for the six months ended June 30, 2021 of $12.8 million consisted of income from continuing operations of $36.9 million and non-cash net charges totaling $22.4 million, which include depreciation, amortization, stock-based compensation, exit activity costs and other non-cash charges, offset by a $46.5 million investment in working capital and other net assets. The investment in net working capital and other net assets was largely driven by an increase in inventory due to rising material costs and accounts receivable due to seasonal increases in demand, offset by an increase in accounts payable as the result of seasonal increases in manufacturing activity. Investing Activities Net cash used in investing activities of continuing operations for the six months ended June 30, 2022 of $11.2 million was primarily due to capital expenditures of $11.3 million. Net cash provided by investing activities of continuing operations for the six months ended June 30, 2021 of $30.5 million was primarily due to $40.0 million in net proceeds received from the sale of the Company's Industrial business, offset by capital expenditures of $9.5 million. Financing Activities Net cash provided by financing activities of continuing operations for the six months ended June 30, 2022 of $16.0 million was the result of $120.5 million in proceeds from borrowing on our long-term credit facility, offset by $51.0 million in payments on long-term debt and $53.5 million of common stock repurchases. Share repurchases of 1,194,925 under the Company’s recently authorized share repurchase program totaled $50.0 million with the balance repurchased for the net settlement of tax obligations for participants in the Company's equity incentive plans. Net cash used in financing activities of continuing operations for the six months ended June 30, 2021 of $56.3 million was primarily the result of $83.6 million in payments on long-term debt and $4.8 million of stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans, offset by 30 Table of Contents $31.2 million in proceeds from borrowing on our long-term credit facility and $0.9 million from the issuance of common stock from stock option exercises during the period. Critical Accounting Estimates There have been no material changes to our critical accounting estimates during the six months ended June 30, 2022 from those disclosed in the consolidated financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Recent Accounting Pronouncements See Note 2 to the Company's consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on recent accounting pronouncements.