What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-23 · 171 added, 128 removed, 111 unchanged (73% of the section changed)

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For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” on page 3 of this Annual Report on Form 10-K.

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Company Overview

The Company is a leading manufacturer and provider of products and services for the renewable energy, residential, agtech, and infrastructure markets.

The Company serves customers primarily in North America including renewable energy (solar) developers, institutional and commercial growers of food and plants, home improvement retailers, wholesalers, distributors, and contractors.

Our operational infrastructure provides the necessary scale to support local, regional, and national customers in each of our markets.

The Company's operational infrastructure provides the necessary scale to support local, regional, and national customers in each of its markets.

The Company operates and reports its results in the following four reporting segments:

• Renewables;

• Residential

• Infrastructure

Demand for products and services in the segments and end markets our businesses serve are subject to economic conditions that are influenced by various factors.

Demand for products and services in the segments and end markets the Company's businesses serve are subject to economic conditions that are influenced by various factors.

These factors include but are not limited to changes in general economic conditions, interest rates, exchange rates, commodity costs, expiration of solar rebates, supply limitations that impact the availability of solar panels and therefore solar racking installations, demand for residential construction, demand for repair and remodeling, governmental policies and funding, tax policies and incentives, tariffs, trade policies, weather patterns, the level of non-residential construction and infrastructure projects, the need for protection of high value assets, demand for renewable energy sources, and climate change.

We believe the key elements of our strategy outlined in Item 1.

Business of this Annual Report on Form 10-K will allow us to respond timely to these factors.

The COVID-19 pandemic has continued to impact our operations throughout 2021 and into 2022 as new variants of the virus have been identified.

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.

Throughout 2021 and continuing into 2022, COVID-19 and supply chain challenges have impacted our ability to consistently source materials as needed and maintain sufficient quantities to meet short lead times, making it more difficult to forecast customer orders and plan purchases and, in certain instances, resulting in project delays and order fulfillment time extension.

To guard against further shortages, we have held higher than historical levels of inventory thus increasing our investment in working capital.

These market dynamics have also accelerated material, labor and logistics cost inflation, causing margin pressures.

We expect these supply chain, labor and logistics costs and availability pressures will continue in 2022.

The Company believes the key elements of its strategy outlined in Item 1.

Business of this Annual Report on Form 10-K will allow the Company to respond timely to these factors.

Recent Trends

The broader market dynamics over the past two years, which has included the residual impact of COVID-19, have resulted in impacts to the Company, including material cost inflation, labor availability issues and logistics costs increases.

The Company has also been impacted from supply constraints for materials and commodities used in its operations and from solar panels shortages used by the Company's customers in conjunction with the goods and services the Company provides.

In certain instances these constraints have resulted in project delays, cost inflation and logistical delays.

The Company continues to work with its 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.

While certain of these pressures have subsided over the latter part of 2022, the Company expects that some of these dynamics will continue into 2023 and could continue to have an impact on demand, material costs, labor and logistics.

In early 2022, the U.S.

Department of Commerce ("USDOC") was petitioned to investigate alleged circumvention of anti-dumping 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.

In December 2022, the USDOC issued a preliminary report that identified occurrences of the alleged circumvention against specific solar panel manufacturers, but also cleared other manufacturers.

No retroactive tariffs or penalties are expected against the former group.

The original complainant is expected to appeal these USDOC findings and decisions, including pursuit of a temporary restraining order.

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 are reports that solar panels continue to be held at U.S.

customs until the importer is able to prove where they have been sourced.

It is the Company's understanding that these panels are starting to be released by U.S.

customs, however, progress is slow and a significant backlog of panels continue to await review and release..

As the timing and progress of many of the Company's customers’ projects depend upon the supply of solar panels, the Company's operating results have been and could be further impacted by these actions.

The Company continues to work with customers who are assessing their ability to source panels needed to complete projects.

On August 16, 2022, the Inflation Reduction Act ("IRA") was signed into law.

Among other things, the IRA provides for Investment Tax Credits ("ITC") for renewable energy.

The IRA provides a 30% ITC for projects started prior to the guidance issued by the Department of the Treasury and published in the Federal Register on November 30, 2022,

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regarding new wage and apprenticeship standards.

Sixty days after the issuance of such guidance, January 29, 2023, the base ITC will be 6%, with an additional 24% available if the new labor standards are met or the project is less than one megawatt.

The IRA also provides the option to earn an additional 10% credit for domestic content, and separately, an additional 10% credit for siting a project in an “energy community.” Lastly, there are Manufacturers Tax Credits available to suppliers of certain, specific solar tracker components, including mechanical parts and battery storage, that are made in the U.S.

The Company expects the ITC to accrue to its downstream customers, solar investors, and expect Manufacturers Tax Credits to accrue to the Company's upstream suppliers.

The Company anticipates that these tax credits will provide stability for the industry and should reduce policy driven demand swings for the Company's products.

As provided for in the issued guidance relative to prevailing wage and sourcing provisions, the Company intends to work with its customers to maximize the tax credits available to them.

The Company enters 2023 with solid operating momentum and a plan to deliver full year growth, margin expansion, and strong cash performance for the year, as it anticipates 2023 will continue to be a fluid external environment as the Residential market is expected to return to normal demand seasonality, panel supply for the solar industry is expected to improve in the second half of the year, and Agtech projects for produce growing are expected to be finalized.

Operating Performance Measures

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 gross margin and operating margin may be useful to investors in evaluating the profitability of our segments and Company on a consolidated basis.

The Company uses certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage its businesses, set operational goals, and establish performance targets for incentive compensation for its employees.

The Company defines consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales.

The Company defines 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.

The Company believes gross margin and operating margin may be useful to investors in evaluating the profitability of its segments and the Company on a consolidated basis.

Results of Operations

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

For a discussion of our results of operations for the year ended December 31, 2020 and for a comparison of such results of operations for the year ended December 31, 2019 results please refer to "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, 2020 that was filed with the SEC on February 25, 2021.

For a discussion of the Company's results of operations for the year ended December 31, 2021 and for a comparison of such results of operations for the year ended December 31, 2020 results please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 that was filed with the SEC on February 23, 2022.

The following table sets forth selected results of operations data (in thousands) and its percentages of net sales for the years ended December 31:

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Interest expense 4,047 0.3 % 1,639 0.1 %

Other income (4,213) (0.3) % (1,272) (0.1) %

Other expense (income) 14,565 1.1 % (4,213) (0.3) %

Income before taxes 111,490 8.0 % 99,562 7.4 %

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Income from continuing operations 82,406 5.9 % 74,516 5.6 %

Income (loss) from discontinued operations 1,113 0.1 % (18,725) (1.8) %

Income from discontinued operations — — % 1,113 0.1 %

Net income $ 82,406 5.9 % $ 75,629 5.6 %

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The following table sets forth the Company’s net sales by reportable segment for the years ended December 31 (in thousands):

Change due to

2022 2021 Total

Change Acquisitions Operations

Change Acquisitions Portfolio Management Ongoing Operations

Renewables $ 377,567 $ 432,096 $ (54,529) $ — $ — $ (54,529)

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Consolidated net sales increased from 2021 by $50.2 million, or 3.7%, to $1.4 billion for 2022 compared to 2021.

The 29.8% increase in revenue was driven by the Renewables and Residential segments.

Sales generated from our 2020 acquisitions of TerraSmart, Thermo, Delta Separations and Architectural Mailboxes, contributed 20.9% or $215.7 million to the growth from the prior year.

Organic growth of 8.9%, or $91.5 million was a result of both increases in pricing to customers of 5.9% and an increase in volume of 3%, the result of strong end market demand and participation gains primarily in our Residential segment.

We expect the market environment to be dynamic for at least the first half of 2022 as inflation, labor, transportation, and pandemic challenges and related cost increases persist.

Consolidated backlog increased 16% to $344 million up from $297 million at the end of the prior year.

Net sales in our Renewables segment increased 81.5%, or $194.0 million, to $432.1 million in 2021 compared to $238.1 million in 2020.

Sales generated by the prior year acquisition of TerraSmart, contributed $187.2 million, or 78.6%, to the increase in the current year.

An increase in organic revenue of 2.9% was the net result of strong demand across our broad offering of product solutions partially offset by project delays related to supply chain and field operations disruptions.

Backlog improved 27% year over year for this segment, driven by strength in both ground mount and canopy solutions.

Net sales in our Residential segment increased 21.6%, or $112.7 million, to $635.5 million in 2021 compared to $522.8 million in 2020.

T he increase from the prior year was the result of continued pricing increases to better align price to inputs costs resulting from inflation, along with strong demand and participation gains that offset challenges from supply chain dynamics.

Sales generated by our 2020 acquisition of Architectural Mailboxes also contributed $23.9 million to the increase in the current year.

Net sales in our Agtech segment decreased 4.9%, or $10.3 million, to $199.2 million in 2021 compared to $209.5 million in 2020.

The revenue decline of $10.3 million was the result of project delays in our cannabis businesses due to supply chain disruptions, along with state licensing and permit delays.

Partially offsetting the decrease was growth in our commercial greenhouse business across its core product lines, along with $4.6 million of sales generated by the prior year acquisitions of Thermo and Delta Separations.

Order backlog increased modestly over the prior year with continued strength in its produce and commercial businesses.

Net sales in our Infrastructure segment increased 17.4%, or $10.8 million, to $73.0 million in 2021 compared to $62.2 million in 2020.

Demand for fabricated and non-fabricated products increased in the current year as the economy strengthened and state project funding improved.

Management expects to see the impact of incremental government spending on infrastructure resulting from the federal infrastructure bill toward the end of 2022.

Backlog remained strong increasing 12% compared to the prior year.

Our consolidated gross margin decreased to 21.6% for 2021 compared to 24.8% for 2020.

This decrease was largely the result of lower gross margins generated from our recent acquisitions as we continue to integrate them operationally, including the impact of backlog amortization and integration costs.

In addition, the timing and alignment of higher input costs to price increases, supply chain disruptions, and shifts in project timing in the Renewables and Agtech segments contributed to the decline, along with costs incurred related to the discontinuation of our organic solar tracker solution as we migrate towards the solution offered by our recently acquired TerraSmart business.

Partially offsetting the decrease was improved operating execution compared to the prior year.

The 3.7% increase in revenue was driven by a 2.7% or $36.2 million increase from organic revenue, the result of an 11% increase in pricing to customers partially offset by a net volume decline of 10%, and a 2.0% or $26.4 million increase generated from the current year acquisition of QAP in the Residential segment.

Partially offsetting these increases was a decline of 0.9% or $12.5 million from the Company's processing business which was reclassified as held-for-sale as of March 31, 2022;

the results of which will continue to be reported in the Company's consolidated operating results from continuing operations until the sale of the business is completed.

The organic revenue growth in the Residential segment, largely driven by price management and participation gains, and the Infrastructure segment revenue growth more than offset volume declines in both the Renewables and Agtech segments, which were primarily impacted by project delays.

Consolidated backlog decreased 12% to $301 million down from $344 million at the end of the prior year.

Net sales in the Renewables segment decreased 12.6%, or $54.5 million, to $377.6 million in 2022 compared to $432.1 million in 2021.

Revenue decreased by 12.6% from the prior year as the market demand for solar panel installation continues to be impacted by the UFLPA, which was implemented in June 2022, along with the impact of the Department of Commerce's preliminary ruling on its solar panel AD/CVD anti-circumvention investigation, which has impacted scheduling of projects.

As a result, backlog decreased 17% from the prior year for this segment, however, given the current conversations with the Company's customers and expected continued progress on the part of panel importers, the Company expects backlog to improve once there is better understanding of documentary compliance requirements relative to the UFLPA.

Net sales in the Residential segment increased 20.7%, or $131.7 million, to $767.2 million in 2022 compared to $635.5 million in 2021.

T he increase from the prior year was the result of continued pricing actions to better align price to inputs costs resulting from inflation, along with participation gains and strong market demand.

Sales generated by QAP, acquired in the third quarter of 2022, also contributed $26.4 million to the increase in the current year.

Net sales in the Agtech segment decreased 15.2%, or $30.3 million, to $168.9 million in 2022 compared to $199.2 million in 2021.

Excluding the impact of the processing equipment business which has been classified as held-for-sale as of March 31, 2022, revenue declined $17.8 million due to project delays in the Company's produce and cannabis businesses, the result of continued rescheduling and re-scoping of projects.

Partially offsetting the decrease was growth in the Company's commercial greenhouse business.

While quote activity remains robust, order backlog was also impacted by continued rescheduling and re-scoping of projects and decreased 13% year over year.

Net sales in the Infrastructure segment increased 4.5%, or $3.3 million, to $76.3 million in 2022 compared to $73.0 million in 2021.

The increase in revenue was driven by growth in demand for fabricated products.

Strong bidding activity resulted in a 23% increase in backlog from the prior year.

Management expects continued positive impact from the increased infrastructure spending related to the Infrastructure Investment and Jobs Acts in 2023.

The Company's consolidated gross margin increased to 22.9% for 2022 compared to 21.6% for 2021.

This increase was primarily the result of favorable price/cost management along with favorable product and service revenue mix, along with improved operating execution from 80/20 and lean enterprise initiatives and participation

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gains in the Residential segment.

These actions more than offset the impacts of supply chain challenges and severe weather which the Company experienced in the early part of 2022, that resulted in increased costs due to disruptions in project timing in the Renewables and Agtech segments.

Selling, general, and administrative ("SG&A") expenses increased by $3.9 million, or 2.1%, to $188.6 million for 2022 from $184.7 million for 2021.

The $35.6 million increase was primarily due to $23.7 million of incremental SG&A expenses recorded year over year for our recent acquisitions and transaction costs to complete those acquisitions.

During 2021, we have invested in our organization to ensure the ability to scale the business, enhance safety protocols and drive performance.

Furthermore, healthcare costs increased year over year as prior year spend was down due to COVID-19 related closures of medical facilities, while the current year spend was impacted by deferred treatments due to those closures.

The $3.9 million increase was primarily due to incremental SG&A expenses recorded for the recent acquisition of QAP along with higher expenses associated with investments in the Company's organization to drive performance, including investing in the Company's ERP systems to simplify and digitize its businesses.

This increase was partially offset by lower performance-based compensation expense for equity-based awards in the Company's deferred compensation plan that are valued based on its 200-day average stock price, as compared to the prior year.

Despite the above increases, SG&A expenses as a percentage of net sales decreased to 13.5% for 2022 compared to 13.8% for 2021.

During 2021, we recognized intangible asset impairment charges of $8.3 million.

The impairment was the result of a rebranding initiative in 2021 that resulted in the discontinuation of certain indefinite-lived trademarks in our Agtech segment.

During 2021, the Company recognized intangible asset impairment charges of $8.3 million.

The impairment was the result of a rebranding initiative in 2021 that resulted in the discontinuation of certain indefinite-lived trademarks in the Agtech segment.

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 years ended December 31 (in thousands):

2022 2021 Total

Change Portfolio Management Ongoing Operations

Income from operations:

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The Renewables segment generated an operating margin of 6.7% in 2022 compared to 4.7% in 2021.

The decrease in operating margin was the combined expected lower margins generated by our recent acquisitions, the result of backlog amortization and integration costs, as we continue to integrate them operationally and the result of

costs incurred during the current year related to the discontinuation of our organic solar tracker solution.

Additionally contributing to the decrease, was the impact of timing and alignment of price to input costs, the result of continued and unanticipated inflation, and field project management inefficiencies associated with market supply disruptions.

Partially offsetting the lower margin is improvement resulting from lean quote-to-cash initiatives.

Our Residential segment operating margin decreased to 16.7% in 2021 compared to 18.1% in 2020.

The decrease in operating margin was the result of accelerated inflation, material and labor availability and the timing and alignment of price actions and input costs.

We have implemented multiple price increases which has resulted in a return in improved alignment in the fourth quarter of the year.

Partially offsetting the lower margin is continued solid execution resulting from 80/20 productivity initiatives.

The increase in operating margin was the combined result of costs incurred in the prior year related to backlog amortization and integration costs from recent acquisitions not recurring in 2022.

Improved project management along with favorable alignment of material costs to customer selling prices and field operations efficiencies beginning in May and sustained through to the end of 2022 also contributed to the increase.

The Residential segment operating margin slightly decreased to 16.5% in 2022 from 16.7% in 2021.

The decrease in operating margin was the result of the expected lower margins generated by QAP as the Company continues to integrate them operationally, partially offset by the benefit of improved alignment of price actions and input costs, along with continued solid execution resulting from 80/20 productivity initiatives.

The Agtech segment generated an operating margin of 1.7% in 2022 compared to (0.5)% in 2021.

The decrease in operating margin was the combined impact of the $8.3 million intangible asset impairment charge in the current year related to indefinite-lived trademarks, due to a rebranding initiative this year that resulted in the discontinuation of certain indefinite-lived trademarks, along with impact of delays in project schedules, higher input costs, supply chain and logistical challenges incurred in the current year.

Our Infrastructure segment operating margin increased to 12.2% in 2021 compared to 11.6% in 2020.

The increase in operating margin year over year was the result of higher margin mix, and continued investment in 80/20 productivity initiatives, partially offset by unfavorable alignment of pricing to input costs, the result of steel inflation and labor availability challenges.

Unallocated corporate expenses increased $1.8 million, or 5.0%, for 2021 from $35.2 million for 2020 to $37.0 million for 2021.

During 2021, we have invested in our organization to ensure the ability to scale the business and drive performance.

Furthermore, healthcare costs increased year over year as prior year spend was down due to COVID-19 related closures of medical facilities in 2020, while the current year spend was impacted by deferred treatments due to those closures.

Excluding the impact of both a prior year $8.3 million impairment charge for an indefinite lived trademark that was discontinued as a result of a rebranding initiative in 2021, and the impact of the Processing business which has been classified as held for sale as of March 31, 2022, operating margin for the current year was essentially flat as compared to the prior year.

The Infrastructure segment operating margin decreased to 11.8% in 2022 compared to 12.2% in 2021.

The margin declined from the prior year due to the impact of plate steel inflation on fixed price contracts in the earlier part of the year largely offset by improving operating execution.

Unallocated corporate expenses decreased $3.5 million, or 9.3%, for 2022 from $37.0 million for 2021 to $33.5 million for 2022.

The decrease in expense was largely the result of lower performance-based compensation

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expense related to equity-based awards in the Company's deferred compensation plan that are valued based on its 200-day average stock price as compared to the prior year.

Interest expense increased $2.4 million to $4.0 million for 2022 from $1.6 million for 2021.

The increase in expense was primarily due to the outstanding balance on the Company's revolving credit facility throughout 2021, compared to no outstanding borrowings until the last day of 2020 which resulted from funds borrowed to help finance the acquisition of TerraSmart closed on December 31, 2020.

The outstanding balances on the revolving credit facility were $23.8 million and $85.0 million as of December 31, 2021, and 2020, respectively.

The Company recorded other income of $4.2 million in 2021 and $1.3 million in 2020..

The $2.9 million increase from the prior year was largely the result of a $4.7 million gain recognized on the sale of securities received from the sellers of Thermo to settle indemnification claims, while the prior year reflected a $1.9 million pre-tax gain on the sale of the Company's self-guided apartment tour application business within the Residential segment.

We recognized a provision for income taxes of $25.0 million, an effective tax rate of 25.2%, for 2021 compared with a provision for income taxes of $24.5 million, an effective tax rate of 22.7%, for 2020.

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.

The outstanding balances on the Company's revolving credit facility were $91.0 million and $23.8 million as of December 31, 2022, and 2021, respectively.

The Company recorded other expense of $14.6 million in 2022, compared to other income of $4.2 million in 2021.

In 2022, the Company recorded a $14.0 valuation allowance related to the write-down of the processing business to estimated fair market value, which has been classified as held-for-sale as of March 31, 2022.

In 2021, the Company recognized a $4.7 million gain on the sale of securities received from the sellers of Thermo Energy Systems, Inc.

to settle indemnification claims recorded in the prior year.

The Company recognized a provision for income taxes of $29.1 million, an effective tax rate of 26.1%, for 2022 compared with a provision for income taxes of $25.0 million, an effective tax rate of 25.2%, for 2021.

The effective tax rates for 2022 and 2021 exceeded 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.

federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by an excess tax benefit on stock-based compensation.

Liquidity and Capital Resources

The following table sets forth our liquidity position as of:

The following table sets forth the Company's liquidity position as of:

(in thousands) December 31, 2022 December 31, 2021

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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 operational excellence, growth initiatives and the development of our organization.

We have been able to weather the economic impacts of the COVID-19 pandemic and the broader market dynamics in 2021, 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 have managed our liquidity in the current inflationary cost environment through price management strategies that have allowed us to continue to generate cash from operations.

We believe our liquidity, together with the cash expected to be generated from operations, should be sufficient to fund working capital needs and growth initiatives for the foreseeable future.

Our Senior Credit Agreement provides the Company with liquidity for use by our U.S.

Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements.

As of December 31, 2021, our foreign subsidiaries held $11.3 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 9 to the Company's consolidated financial statements in Part II, Item 8, Financial Statements, of this Annual Report on Form 10-K for further information on the Company’s Senior Credit Agreement .

The Company's sources of liquidity are comprised of cash on hand and available borrowing capacity provided under the Company's Credit Agreement (the "Credit Agreement"), entered into on December 8, 2022.

This Credit Agreement replaced and paid off all amounts owed under the Sixth Amended and Restated Credit Agreement dated as of January 24, 2019.

The Credit Agreement maintains similar capacity as the prior agreement in which it provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million.

The Company can request additional financing to increase the revolving credit facility to $700 million or enter into a term loan of up to $300 million subject to conditions set forth in the Credit Agreement.

The Company believes that these sources provide the Company with ample liquidity and capital resources to invest in operational excellence, growth initiatives and the development of the organization.

The Company has been able to weather the economic impacts of the broader market dynamics, including the inflationary cost environment, while continuing to make investments that support the Company's strategy.

The Company continues to remain focused on managing its working capital, closely monitoring customer credit and collection activities, and working to extend payment terms with its vendors.

The Company believes its liquidity, together with the cash expected to be generated from operations, should be sufficient to fund working capital needs and growth initiatives for the foreseeable future.

The Company uses the Credit Agreement to provide liquidity and capital resources primarily for the Company's U.S.

Generally, the Company's foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements.

As of December 31, 2022 and 2021, the Company's foreign subsidiaries held $15.2 million and $11.3 million of cash, respectively.

Outstanding balances on the Company's revolving credit facility under the Company's Credit Agreement accrue interest at a rate, at the Company's option, equal to the applicable margin plus (a) a base rate, (b) a daily simple secured overnight financing rate ("SOFR"), (c) a term SOFR rate, or (d) for certain foreign currencies, a foreign currency rate.

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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 and to provide capital for acquisitions.

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.

The Company's 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 its revolving credit facility, capital expenditures, and other purchase obligations originating in the normal course of business for inventory purchase orders and contractual service agreements.

The Company's principal capital requirements are to fund its operations' working capital and capital improvements, as well as provide capital for acquisitions and to strategically allocate capital through repurchases of Company stock.

The Company 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 its business.

The Company intends to fund its cash requirements through cash generated from operations and, as necessary, from the availability on its revolving credit facility.

See Notes 8, 10, 12, 18 and 20 to the Company's consolidated financial statements in Part II, Item 8, Financial Statements, of this Annual Report on Form 10-K for further detail on the Company's accrued expenses, employee and retiree benefit-related obligations, operating lease obligations and historical capital expenditures .

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.

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 December 31, 2022, the Company has repurchased 1,997,366 shares for an aggregate price of $85.9 million under this repurchase program.

During 2020, the Company 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 the Company to retain $4.4 million in cash during 2020 that would have otherwise been remitted to the federal government.

Over the long-term, the Company expects that future investments, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under the Credit Agreement, new debt financing, the issuance of equity securities, or any combination of the aforementioned.

The $52.1 million preliminary purchase price for the acquisition of QAP was financed primarily through borrowing on the Company's revolving credit facility.

Additional cash payments may be required for customary adjustments as provided for in the membership interest purchase agreement.

All potential acquisitions are evaluated based on the Company's acquisition strategy, which includes the enhancement of the Company's existing products, operations, and/or capabilities, as well as expanding the Company's 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.

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, the Company's future liquidity may be adversely affected.

The following table sets forth selected cash flow data for the years ended December 31 (in thousands):

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Effect of exchange rate changes (1,242) (201)

Net decrease in cash and cash equivalents $ (19,205) $ (159,309)

Net increase (decrease) in cash and cash equivalents $ 4,759 $ (19,205)

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Operating Activities

Net cash provided by operating activities of continuing operations for 2022 of $102.7 million consisted of income from continuing operations of $82.4 million, non-cash net charges totaling $58.6 million, which include depreciation, amortization, stock compensation, held for sale valuation allowance, provision for deferred income taxes and other non-cash charges, offset by a net investment in working capital and other net assets of $38.3 million.

The net investment in working capital was largely the result of the timing and the settlement of payables in the current year related to inventory received in the prior year.

Further, offsetting the impact of the decline in payables, the Company also reduced its investment in inventory as supply chain challenges subsided in the current year and the Company was able to better align inventory levels with lower sales volumes.

The decrease in accounts receivable as a result of lower sales volume in the fourth quarter of 2022 compared to the fourth quarter of 2021 also partially offset the investment in working capital.

Net cash provided by operating activities of continuing operations for 2021 of $25.1 million consisted of income from continuing operations of $74.5 million, non-cash net charges totaling $54.6 million, which include depreciation, amortization, intangible asset impairment, stock compensation, and other non-cash charges, offset by a net investment in working capital and other net assets of $104.0 million.

The investment in working capital and other net assets was largely due to increases in inventory and accounts payable due to higher inventory input costs, such as raw materials and freight, and provisioning for potential supply chain disruptions, along with increases in accounts receivable due to the timing of invoicing project-based customers, partially offset by a decrease in accrued expenses.

Net cash provided by operating activities of continuing operations for 2020 of $73.0 million consisted of income from continuing operations of $83.3 million, non-cash net charges totaling $33.4 million, which include depreciation, amortization, gain on sale of business, stock compensation, and other non-cash charges, offset by a net investment in working capital and other net assets of $43.7 million.

The investment in working capital and other net assets was largely due to an investment of $42.4 million in Thermo, one of our recent acquisitions, which was undercapitalized at purchase, along with a decrease in accrued expenses and other non-current liabilities correlated to the timing of customer billings and payments.

Investing Activities

Net cash used in investing activities of continuing operations for 2022 of $71.7 million consisted of net cash paid of $51.6 million for the acquisition of Quality Aluminum Products in the third quarter of 2022 and capital expenditures of $20.1 million.

Net cash provided by investing activities of continuing operations for 2021 of $24.7 million consisted of net proceeds of $38.1 million from the sale of the Company's Industrial business in the first quarter of 2021, $4.1 million from the receipt of a final working capital settlement from the prior year acquisition of TerraSmart, and proceeds of $0.2 million from the sale of property and equipment, offset by capital expenditures of $17.7 million.

Net cash used in investing activities of continuing operations for 2020 of $324.7 million consisted of net cash paid of $313.7 million for the acquisitions of five businesses in 2020 and capital expenditures of $13.1 million, partially offset by net proceeds of $2.0 million from the sale of a business within the Residential segment and proceeds of $0.1 million from the sale of property and equipment.

Financing Activities

Net cash used in financing activities for 2021 of $66.6 million was consisted of $120.6 million in payments on long-term debt and $6.5 million of common stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans, offset by $59.5 million in proceeds from borrowing on our long-term credit facility and $1.0 million from the issuance of common stock from stock option exercises during the year.

Net cash provided by financing activities for 2020 of $79.5 million was primarily driven by proceeds from a draw on our revolving credit facility of $85 million, as well as the $1.1 million in net proceeds from stock option exercises, offset by $6.6 million in common stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans.

Net cash used in financing activities for 2022 of $25.0 million consisted of $89.5 million of common stock repurchases, $2.0 million payment of debt issuance costs, offset by net proceeds from borrowings of $66.5 million.

Shares repurchases of 1,997,366 shares repurchased under the Company's authorized share repurchase program totaled $85.1 million with the balance repurchased of $4.4 million of common stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans.

Net proceeds from borrowings consisted of $204.5 million in proceeds from borrowing on the Company's long-term credit facility, offset by $138.0 million in payments on long-term debt.

Net cash used in financing activities for 2021 of $66.6 million consisted of $120.6 million in payments on long-term debt and $6.5 million of common stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans, offset by $59.5 million in proceeds from borrowing on the Company's long-term credit facility and $1.0 million from the issuance of common stock from stock option exercises during the year.

Critical Accounting Estimates

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A summary of the Company’s significant accounting policies are described in Note 1 of the Company’s consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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Our most critical accounting estimates that require the most difficult, subjective and complex judgments include:

• revenue recognition on contracts;

• revenue recognition on contracts with customers;

• the estimation of fair value for acquired assets and liabilities assumed in business combination transactions;

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Management believes these estimates are reasonable, but actual results could differ from these estimates.

Revenue Recognition on Contracts

The vast majority of our sales contracts are for standard products with revenue recognized at the point in time we transfer control to the customer.

The point in time we transfer control is based on when we determine the customer has legal title, significant risks and rewards of ownership of the asset, and we have a present right to payment for the product.

However, revenue representing 47%, 40% and 41% of our 2021, 2020 and 2019 consolidated net sales, respectively, was recognized over time under the cost-to-cost method as we satisfied our performance obligations.

Revenue Recognition on Contracts with Customers

The vast majority of the Company's sales contracts are for standard products with revenue recognized at the point in time the Company transfer control to the customer.

The point in time the Company transfers control is based on when the Company determines the customer has legal title, significant risks and rewards of ownership of the asset, and the Company has a present right to payment for the product.

However, revenue representing 40%, 47% and 40% of the Company's 2022, 2021 and 2020 consolidated net sales, respectively, was recognized over time under the cost-to-cost method as the Company satisfied its performance obligations.

This method of revenue recognition pertains to activities within the Renewables, Agtech, and Infrastructure segments.

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These estimates, judgments and assumptions impact the timing and amount of net sales and cost of sales recognized on in-progress performance obligations with customers.

We continuously review our estimates and the progress and performance of the performance obligation for substantially all contracts that we recognize revenue over time under the cost-to-cost method.

The Company continuously review its estimates and the progress and performance of the performance obligation for substantially all contracts that the Company recognizes revenue over time under the cost-to-cost method.

Any adjustments or changes in these estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period.

A significant change in an estimate on one or more contracts could have a material effect on our results of operations.

A significant change in an estimate on one or more contracts could have a material effect on the Company's results of operations.

Contract costs include all direct costs related to contract performance.

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Because of inherent uncertainties in estimating costs, it is reasonably possible that changes in performance could result in revisions to cost and revenue, which are recognized in the period when the revisions are determined.

Accounting for Acquired Assets and Liabilities

When we acquire a business, we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values.

We record any premium over the fair value of net assets acquired as goodwill.

Accounting for Acquired Assets and Liabilities Assumed in a Business Combination

When the Company acquires a business, the Company allocates the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values.

The Company records any premium over the fair value of net assets acquired as goodwill.

Significant judgment is necessary to determine the fair value of the purchase price.

allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value.

The way we characterize the assets has important implications, as long-lived assets with definitive lives, for example, are depreciated or amortized, whereas goodwill is tested annually for impairment, as explained above.

The allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value.

The way the Company characterizes the assets has important implications, as long-lived assets with definitive lives, for example, are depreciated or amortized, whereas goodwill is tested annually for impairment, as explained above.

With respect to determining the fair value of assets, the most subjective estimates involve valuations of long-lived assets, such as identified intangible assets and property, plant, and equipment.

We use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.

The Company uses all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.

The fair values of long-lived assets are determined using valuation techniques that use discounted cash flow methods, independent market appraisals, and other acceptable valuation techniques.

The significant assumptions used to estimate the value of the intangible assets included discount rates, customer attrition, and certain assumptions that form the basis of the forecasted results (e.g., revenue growth rates and operating profit margin).

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revenue growth rates and operating profit margin).

The significant assumptions related to estimating the fair value of the intangible assets above are forward looking and could be affected by future economic market conditions.

Goodwill and Other Indefinite-lived Intangible Asset Impairment Testing

Our goodwill and indefinite-lived intangible asset balances of $510.9 million and $52.7 million, respectively, which in aggregate represent 46% of total assets as of December 31, 2021, are subject to impairment testing.

We test goodwill and indefinite-lived intangible assets for impairment on an annual basis as of October 31 and at interim dates when indicators of impairment are present.

The Company's goodwill and indefinite-lived intangible asset balances of $512.4 million and $55.5 million, respectively, which in aggregate represent 46% of total assets as of December 31, 2022, are subject to impairment testing.

The Company test goodwill and indefinite-lived intangible assets for impairment on an annual basis as of October 31 and at interim dates when indicators of impairment are present.

Indicators of impairment could include a significant long-term adverse change in business climate, poor indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.

We test goodwill for impairment at the reporting unit level.

We identify our reporting units by assessing whether the components of our Company constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

We have eight reporting units, all of which have goodwill.

We test our indefinite-lived intangible assets for impairment by comparing the fair value of the indefinite-lived intangible asset, determined using a discounted cash flow model, with its carrying amount.

During interim periods, we evaluate the potential for goodwill and indefinite-lived intangible asset impairment using a qualitative assessment by considering factors such as, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy, changes in key personnel, and overall financial performance.

Upon completing this assessment, if it is determined that it is more likely than not that the fair value is less than its carrying value, we proceed to a quantitative impairment test.

During the interim periods of 2021, we concluded that no indicators of impairment existed at interim dates and did not perform any quantitative interim impairment tests related to goodwill and indefinite-lived intangible assets.

The Company conducts its annual impairment test on all eight reporting units as of October 31, during which we test goodwill and other indefinite-lived intangible assets for impairment.

The Company test goodwill for impairment at the reporting unit level.

The Company identifies the Company's reporting units by assessing whether the components of the Company constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

The Company has eight reporting units, all of which have goodwill.

The Company test its indefinite-lived intangible assets for impairment by comparing the fair value of the indefinite-lived intangible asset, determined using a discounted cash flow model, with its carrying amount.

During interim periods, the Company evaluates the potential for goodwill and indefinite-lived intangible asset impairment using a qualitative assessment by considering factors such as, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company's products and services, regulatory and political developments, entity specific factors such as strategy, changes in key personnel, and overall financial performance.

Upon completing this assessment, if it is determined that it is more likely than not that the fair value is less than its carrying value, the Company proceeds to a quantitative impairment test.

During the interim periods of 2022, the Company concluded that no indicators of impairment existed at interim dates and did not perform any quantitative interim impairment tests related to goodwill and indefinite-lived intangible assets.

The Company conducts its annual impairment test on all eight reporting units as of October 31, during which the Company test goodwill and other indefinite-lived intangible assets for impairment.

On an annual basis, the quantitative goodwill impairment test consists of comparing the fair value of a reporting unit with the carrying amount of the reporting unit including goodwill.

If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds the fair value of the reporting unit.

The assumptions used to determine the fair value of our indefinite-lived intangible assets are consistent with the assumptions employed in the determination of the fair values of our reporting units.

The assumptions used to determine the fair value of the Company's indefinite-lived intangible assets are consistent with the assumptions employed in the determination of the fair values of the Company's reporting units.

An impairment loss would be recognized for the carrying amount in excess of its fair value.

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The Company performs sensitivity analyses on significant assumptions to evaluate how changes in the estimated fair values of reporting units and indefinite-lived intangible assets respond to changes in assumptions, specifically the revenue growth rates and the weighted-average cost of capital.

As a result of our quantitative testing, none of the reporting units as of our testing date had carrying values in excess of their fair values, nor were any of the reporting units "at-risk" of impairment.

As a result of the Company's quantitative testing, none of the reporting units as of the Company's testing date had carrying values in excess of their fair values, nor were any of the reporting units "at-risk" of impairment.

The Company quantitatively defines "at risk" as a percentage of the excess of the reporting unit's fair value over its carrying amount that is less than 10%.

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There were no impairment charges against goodwill recorded during the years ended December 31, 2022, 2021, and 2020.

During 2021, the Company recognized $8.3 million of impairment charges on our indefinite-lived intangible assets, due to a rebranding initiative resulting in the discontinuation of two indefinite-lived trademarks in our Agtech segment.

The Company did not recognize any impairment charges on our indefinite-lived intangible assets in 2020 and 2019.

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The Company did not recognize any impairment charges on its indefinite-lived intangible assets in 2022 and 2020.

During 2021, the Company recognized $8.3 million of impairment charges on its indefinite-lived intangible assets, due to a rebranding initiative resulting in the discontinuation of two indefinite-lived trademarks in the Agtech segment.

Recent Accounting Pronouncements

New accounting pronouncements are issued periodically that affect the Company's current and future operations.

See Note 1 to the Company's consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information on recent accounting pronouncements in accordance with U.S.

generally accepted accounting principles.

In 2020, the SEC issued a final rule about Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, which became effective on February 10, 2021.

The rule intends to eliminate duplicate disclosures and to improve and simplify the disclosures within Management's Discussion and Analysis Items 301, 302 and 303.

Early adoption is permitted on an Item-by-Item basis, provided that the Company complies fully with all areas of that Item.

We elected early adoption of the amendments of Item 301 in our Annual Report on Form 10-K for the year ended December 31, 2020 and adopted requirements of Items 302 and 303 in our Annual Report on Form 10-K for this year ended December 31, 2021.

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