What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 152 added, 82 removed, 148 unchanged (61% of the section changed)

21 unchanged sentences

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 March 31, 2023, the Company operated 33 facilities, comprised of 25 manufacturing facilities, one distribution center, and seven offices, which are located in 15 states, Canada, China, and Japan.

At June 30, 2023, the Company operated 30 facilities, comprised of 22 manufacturing facilities, one distribution center, and seven offices, which are located in 15 states, Canada, China, and Japan.

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

Recent Trends

The broader market dynamics over the past few years, 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 shortages in solar panels 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.

The Company expects that some of these dynamics will continue in 2023 and could continue to have an impact on demand, material costs, labor and logistics.

The broader market dynamics over the past few years have resulted in impacts to the Company.

Supply chains continue to recover from global disruptions experienced over the last few year including shortages of solar modules used by the Company's customers in conjunction with the goods and services the Company provides and for which

such shortages have resulted in project delays.

We continue working to minimize supply chain challenges which have and may continue to adversely impact our performance and our financial results.

In addition, the uncertainty of the current environment and potential worsening of macro-economic conditions present risks for the Company.

Although such uncertainty did not significantly impact our financial results in the first half of 2023, the Company expects that some of these dynamics, along with higher interest rates, will continue in 2023.

In June 2022, the Uyghur Forced Labor Prevention Act ("UFLPA") was enacted.

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While a few of the historically significant suppliers have begun to have panels cleared for importation, the clearance is still on a shipment-by-shipment basis, and formal documentation requirements have not yet been published.

Some of the Company's larger customers have continued to shift sourcing to modules manufactured outside of China in efforts to clear U.S.

Some of the Company's larger customers have continued to shift sourcing to modules manufactured outside of the typical southeast Asia manufacturers in efforts to clear U.S.

customs more efficiently and ramp up the execution of solar projects.

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The Business System pillar challenges existing operating paradigms, drives day-to-day performance, forces prioritization of resources, tests the Company's business models, and drives new product and services innovation.

efficiently deployed to deliver sustainable, profitable growth while increasing its relevance with customers and shaping its markets.

In 2022, the Company acquired Quality Aluminum Products ("QAP") in the Residential segment and made the decision to divest its non-core Processing business within the Agtech segment to help achieve these objectives.

Portfolio Management is focused on optimizing the Company’s business portfolio in higher growth markets with leadership positions while ensuring its financial capital and human resources are effectively and efficiently deployed to deliver sustainable, profitable growth while increasing its relevance with customers and shaping its markets.

Recent acquisitions to help achieve these objectives include the assets of a small privately held manufacturing and distributing company of roof flashing and accessory products in July 2023 and Quality Aluminum Products ("QAP") in 2022, both within the Residential segment.

To further these objectives, the Company made the decision in 2022 to divest its non-core Processing business and is currently in the final stages of liquidation of this business.

Organization Development drives the Company’s continuous focus on ensuring it has the right design and structure to scale the organization in order to execute the Company’s plans and meet commitments.

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The Company believes doing so helps it attract and retain the best people to execute its business plans.

The Company believes the key elements of the Company's strategy have, and will continue to, enable the Company to respond timely to changes in the end markets the Company serves, including the broader market dynamics experienced over the past two years.

The Company has and expects to continue to examine the need for restructuring of the Company's operations, including consolidation of facilities, reducing overhead costs, curtailing investments in working capital, and managing the Company's business to generate incremental cash.

The Company believes the key elements of the Company's strategy enable the Company to respond timely to changes in the end markets the Company serves, including the broader market dynamics experienced over the past two years.

The Company continues to examine the need for restructuring of the Company's operations, including consolidation of facilities, reducing overhead costs, curtailing investments in working capital, and managing the Company's business to generate incremental cash.

The Company believes its strategy enables the Company to respond to volatility in commodity and other input costs and fluctuations in customer demand, along with striving to maintain and improve margins.

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Recent Developments

On July 5, 2023, the Company acquired the assets of a Utah based privately held company that manufactures and distributes roof flashing and accessory products, for $10.4 million.

On December 8, 2022, the Company entered into a Credit Agreement (the "Credit Agreement"), and concurrently with entering into the Credit Agreement, the Company paid off all amounts owed under the Sixth Amended and Restated Credit Agreement dated as of January 24, 2019, which was terminated with no prepayment penalties.

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The Credit Agreement contains two financial covenants.

As of March 31, 2023, the Company was in compliance with both financial covenants.

As of June 30, 2023, the Company was in compliance with both financial covenants.

The Credit Agreement terminates on December 8, 2027.

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The repurchase program may be suspended or discontinued at any time at the Company's discretion.

As of March 31, 2023, the Company has repurchased 2,150,903 shares for an aggregate price of $93.2 million under this repurchase program.

As of June 30, 2023, the Company has repurchased 2,518,941 shares for an aggregate price of $111.0 million under this repurchase program.

Results of Operations

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

The following table sets forth selected results of operations data and its percentage of net sales for the three months ended March 31 (in thousands):

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

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):

Net sales $ 364,914 100.0 % $ 366,949 100.0 %

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Net income $ 30,723 8.4 % $ 29,307 8.0 %

The following table sets forth the Company’s net sales by reportable segment for the three months ended March 31, (in thousands):

The following table sets forth the Company’s net sales by reportable segment for the three months ended June 30, (in thousands):

2023 2022 Total

5 unchanged sentences

Consolidated $ 364,914 $ 366,949 $ (2,035) $ 25,563 $ (1,983) $ (25,615)

Consolidated net sales decreased by $24.6 million, or 7.7%, to $293.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The 7.7% decrease in revenue was driven by a $39.6 million or 12.4% decrease in organic revenue, largely the result of a 14% volume decline, partially offset by a 1% increase in pricing to customers.

Partially offsetting the year over year decrease were $14.3 million of revenues generated by QAP, which was acquired during the third quarter of 2022 and reported as part of the Company's Residential segment.

Consolidated backlog decreased 18% to $360 million down from $437 million at the end of the prior year quarter.

Net sales in the Company's Renewables segment decreased $19.6 million, or 24.9%, to $59.2 million for the three months ended March 31, 2023 compared to $78.8 million for the three months ended March 31, 2022.

Revenue declined as the demand for solar panel installation continues to be impacted by panel importation challenges resulting from the UFLPA, which was implemented in June 2022.

Additionally, adverse winter weather conditions experienced in the current year quarter impacted the scheduling of projects.

As a result, backlog decreased 20% from the prior year, however, the Company expects backlog to improve once there is better understanding of documentary compliance requirements relative to the UFLPA.

Net sales in the Company's Residential segment were flat at $179.5 million for both the three months ended March 31, 2023 and 2022, respectively.

The positive impact of participation gains along with $14.3 million of sales generated by QAP, acquired in the third quarter of 2022, offset headwinds of channel inventory correction, the market's return to normal seasonal demand, and adverse winter weather in key regions of the U.S.

Net sales in the Company's Agtech segment decreased 15.3%, or $6.6 million, to $35.9 million for the three months ended March 31, 2023 compared to $42.4 million for the three months ended March 31, 2022.

Revenue declined in

the Company's produce businesses as customers re-scope and re-prioritize project launch of fruit and vegetable growing facilities.

While the active project pipeline continues to grow, backlog decreased 32% year over year.

Net sales in the Company's Infrastructure segment increased 8.7%, or $1.5 million, to $18.7 million for the three months ended March 31, 2023 compared to $17.2 million for the three months ended March 31, 2022.

The increase in revenue was due to continued solid market demand, which also resulted in an 38% increase in backlog year over year.

Management expects continued positive momentum from increased infrastructure spending related to the Infrastructure Investment and Jobs Act, and ongoing efforts to increase market participation.

The Company's consolidated gross margin increased to 26.2% for the three months ended March 31, 2023 compared to 20.4% for the three months ended March 31, 2022.

The increase was driven by business mix, field operations productivity and improvement in supply chain management and efficiencies along with continuing progress in the Company's business operating system.

Selling, general, and administrative ("SG&A") expenses increased by $3.9 million, or 9.0% to $47.6 million for the three months ended March 31, 2023 compared to $43.6 million for the three months ended March 31, 2022.

The $3.9 million increase was the combined result of higher performance-based compensation expense as compared to the prior year, largely the result of equity-based awards in the Company's deferred compensation plan that are valued based on its 200-day average stock price, along with incremental SG&A expenses incurred by QAP, acquired in the third quarter of 2022.

SG&A expenses as a percentage of net sales increased to 16.2% for the three months ended March 31, 2023 compared to 13.7% for the three months ended March 31, 2022.

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 March 31, (in thousands):

Consolidated net sales decreased by $2.0 million, or 0.5%, to $364.9 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

The net sales decrease was largely due to a $25.6 million or 7.0% decrease in organic revenue, the net result of a 8% volume decline and a 1% increase in pricing to customers, essentially offset by $25.6 million of revenues generated from QAP, which was acquired during the third quarter of 2022 and reported as part of the Company's Residential segment.

Consolidated backlog remained flat at $411 million, as compared to the end of the prior year quarter.

Net sales in the Company's Renewables segment decreased $24.1 million, or 23.6%, to $77.5 million for the three months ended June 30, 2023 compared to $101.5 million for the three months ended June 30, 2022.

Revenue declined as a result of the continued lower demand for solar module installations impacted by importation challenges resulting from the UFLPA implemented in June 2022, along with timing delays experienced by new projects due to lengthier permitting processes.

New order bookings continued to accelerate during the quarter and backlog increased 6% from the prior year, as customers and solar module importers gain a better understanding of documentary compliance requirements relative to the UFLPA.

Net sales in the Company's Residential segment increased $28.0 million, or 14.0%, to $228.2 million for the three months ended June 30, 2023 compared to $200.2 million for the three months ended June 30, 2022.

Sales of $25.6 million generated by QAP, acquired in the third quarter of 2022, along with the positive impact of participation gains offset the year over year impact of market price adjustments made in prior quarters in response to lower commodity prices and some remaining channel inventory right-sizing.

Net sales in the Company's Agtech segment decreased 19.9%, or $8.7 million, to $35.0 million for the three months ended June 30, 2023 compared to $43.7 million for the three months ended June 30, 2022.

Revenue declined as the commercial business experienced customer-driven delays in project starts.

While backlog decreased 24% year

over year, primarily because of a slower commercial end market, the Company expects new produce projects to drive improved revenue in the second half of 2023.

Net sales in the Company's Infrastructure segment increased 12.6%, or $2.7 million, to $24.2 million for the three months ended June 30, 2023 compared to $21.5 million for the three months ended June 30, 2022.

The increase in revenue was due to continued solid market demand supported by the Infrastructure Investment and Jobs Act and ongoing efforts to increase market participation.

Backlog also benefited from these efforts resulting in a 46% increase year over year.

The Company's consolidated gross margin increased to 26.5% for the three months ended June 30, 2023 compared to 24.6% for the three months ended June 30, 2022.

The increase was driven by improved price to material cost alignment, solid execution in field operations and continued operational efficiencies, along with favorable business and product mix.

Selling, general, and administrative ("SG&A") expenses increased by $3.5 million, or 7.0% to $53.7 million for the three months ended June 30, 2023 compared to $50.1 million for the three months ended June 30, 2022.

The $3.5 million increase was primarily due to higher performance-based compensation expense as compared to the prior year quarter.

SG&A expenses as a percentage of net sales increased to 14.7% for the three months ended June 30, 2023 compared to 13.7% for the three months ended June 30, 2022.

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):

2023 2022 Total

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The Renewables segment generated an operating margin of 7.6% in the current year quarter compared to 6.7% in the prior year quarter.

The increase in operating margin was driven by field operations productivity and improved supply chain management that offset lower volumes, along with restructuring costs recorded in the prior year quarter.

The increase in operating margin was driven by field operations efficiencies, favorable price to cost alignment and improved supply chain management that offset lower volumes and restructuring charges incurred in the current year quarter.

The Residential segment generated an operating margin of 19.3% in the current year quarter compared to 17.8% in the prior year quarter.

The decrease in operating margin was the result of expected compression in price to material cost alignment and the anticipated lower margins from the Company's recent acquisition of QAP.

The Company expects margins to improve as seasonal volume accelerates, price / material cost are better aligned, and QAP integration benefits are realized.

The expansion in operating margin was the result of increased volume, improved alignment of price/cost, implementation of additional 80/20 initiatives, and favorable product line mix.

The Agtech segment generated an operating margin of (3.2)% in the current year quarter compared to 3.5% in the prior year quarter.

Operating margin improved year over year, the result of business mix, improvement in its business operating system, along with supply chain productivity and efficiency improvement.

The Infrastructure segment generated an operating margin of 14.5% during the three months ended March 31, 2023 compared to 6.9% during the three months ended March 31, 2022.

The margin improved year over year driven by strong operating execution, volume leverage, and supply chain productivity.

Unallocated corporate expenses increased $1.0 million from $6.5 million during the three months ended March 31, 2022 to $7.5 million during the three months ended March 31, 2023.

The increase in expense was primarily the

result of higher 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 quarter.

Interest expense increased year over year with $1.5 million for the three months ended March 31, 2023 compared to $0.5 million for the three months ended March 31, 2022.

The increase in expense was due to both higher interest rates compared to the prior year quarter along with higher outstanding balances on the Company's revolving credit facility during the quarter.

The outstanding balances on the Company's revolving credit facility were $49.9 million and $42.4 million as of March 31, 2023, and 2022, respectively.

The Company recorded other income of $0.4 million for the three months ended March 31, 2023, compared to other expense of $0.2 million recorded for the three months ended March 31, 2022.

The change year over year is primarily the result of foreign currency translation fluctuations.

The Company recognized a provision for income taxes of $7.2 million and $5.1 million, with effective tax rates of 25.4% and 24.8% for the three months ended March 31, 2023, and 2022, respectively.

The effective tax rate for the three months ended March 31, 2023, and 2022, 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.

Operating margin declined year over year, due to portfolio management charges related to the liquidation of the processing business recorded in the current quarter, partially offset by 80/20 initiatives, supply chain optimization initiatives, and improvement in project management systems.

The Infrastructure segment generated an operating margin of 24.1% during the three months ended June 30, 2023 compared to 13.4% during the three months ended June 30, 2022.

The margin improved year over year driven by strong operating execution, 80/20 productivity, supply chain efficiency, and product line mix.

Unallocated corporate expenses increased $4.7 million from $6.8 million during the three months ended June 30, 2022 to $11.5 million during the three months ended June 30, 2023.

The increase in expense was primarily the result of higher performance-based compensation expense as compared to the prior year quarter.

Interest expense increased $0.6 million to $1.3 million for the three months ended June 30, 2023 compared to $0.7 million for the three months ended June 30, 2022.

The increase in interest expense was primarily due to higher interest rates as rates more than tripled as compared to the prior year quarter.

Average outstanding balances on the Company's revolving credit facility were $61.9 million and $60.9 million for the three months ended June 30, 2023, and 2022, respectively.

The Company recorded other income of $0.5 million for the three months ended June 30, 2023, compared to other expense of $0.3 million recorded for the three months ended June 30, 2022.

The change year over year is the combined result of foreign currency translation fluctuations and changes in the fair market valuation allowance related to the liquidation of the processing business.

The Company recognized a provision for income taxes of $11.6 million and $9.9 million, with effective tax rates of 27.3% and 25.2% for the three months ended June 30, 2023, and 2022, respectively.

The effective tax rate for the three months ended June 30, 2023, and 2022, 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, 2023 Compared to the Six Months Ended June 30, 2022

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):

Net sales $ 658,181 100.0 % $ 684,814 100.0 %

Cost of sales 484,513 73.6 % 529,699 77.3 %

Gross profit 173,668 26.4 % 155,115 22.7 %

Selling, general, and administrative expense 101,221 15.4 % 93,781 13.7 %

Income from operations 72,447 11.0 % 61,334 9.0 %

Interest expense 2,799 0.4 % 1,141 0.2 %

Other (income) expense (906) (0.1) % 434 0.1 %

Income before taxes 70,554 10.7 % 59,759 8.7 %

Provision for income taxes 18,732 2.8 % 14,996 2.2 %

Net income $ 51,822 7.9 % $ 44,763 6.5 %

The following table sets forth the Company’s net sales by reportable segment for the six months ended June 30, (in thousands):

2023 2022 Total

Change Acquisitions Portfolio Management Ongoing Operations

Renewables $ 136,664 $ 180,332 $ (43,668) $ — $ — $ (43,668)

Residential 407,729 379,730 27,999 39,829 — (11,830)

Agtech 70,880 86,108 (15,228) — (1,292) (13,936)

Infrastructure 42,908 38,644 4,264 — — 4,264

Consolidated $ 658,181 $ 684,814 $ (26,633) $ 39,829 $ (1,292) $ (65,170)

Consolidated net sales decreased by $26.6 million, or 3.9%, to $658.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The 3.9% decrease in revenue was driven by a $65.2 million or 9.5% decrease in organic revenue, the net result of a 11% volume decline and a 1% increase in pricing to customers which primarily occurred in the first quarter of 2023.

Partially offsetting the year over year decrease were $39.8 million of revenues generated by QAP, which was acquired during the third quarter of 2022 and reported as part of the Company's Residential segment.

Consolidated backlog remained flat at $411 million, as compared to the end of the prior year period.

Net sales in the Company's Renewables segment decreased $43.7 million, or 24.2%, to $136.7 million for the six months ended June 30, 2023 compared to $180.3 million for the six months ended June 30, 2022.

The decline was the result of decreased demand for solar module installations, which continues to be impacted by importation challenges resulting from the UFLPA implemented in June 2022, along with timing delays incurred due to lengthier permitting processes.

New order bookings continued to accelerate during the year and backlog increased 6% from the prior year, as customers and solar module importers gain a better understanding of documentary compliance requirements relative to the UFLPA.

Net sales in the Company's Residential segment increased $28.0 million, or 7.4%, to $407.7 million for the six months ended June 30, 2023 compared to $379.7 million for the six months ended June 30, 2022.

Sales of $39.8 million generated by QAP, acquired in the third quarter of 2022, along with the positive impact of participation gains more than offset channel inventory correction, price declines related to commodity cost reductions, and adverse winter weather conditions in the earlier months of 2023.

Net sales in the Company's Agtech segment decreased 17.7%, or $15.2 million, to $70.9 million for the six months ended June 30, 2023 compared to $86.1 million for the six months ended June 30, 2022.

Revenue declined as both the segment's commercial business and produce projects experienced delayed project starts, the latter the result of key project re-scoping and prioritizing.

While backlog decreased 24% year over year, primarily because of a slower commercial end market, the Company expects new produce projects to drive improved revenue in the second half of 2023.

Net sales in the Company's Infrastructure segment increased 11.1%, or $4.3 million, to $42.9 million for the six months ended June 30, 2023 compared to $38.6 million for the six months ended June 30, 2022.

The increase in revenue was due to continued solid market demand supported by the Infrastructure Investment and Jobs Act and ongoing efforts to increase market participation.

Backlog also benefited from these efforts resulting in a 46% increase year over year.

The Company's consolidated gross margin increased to 26.4% for the six months ended June 30, 2023 compared to 22.7% for the six months ended June 30, 2022.

The increase was driven by improved price to material cost alignment, solid execution in field operations, improvement in supply chain management and continued operational efficiencies, along with favorable business and product mix.

Selling, general, and administrative ("SG&A") expenses increased by $7.4 million, or 7.9%, to $101.2 million for the six months ended June 30, 2023 compared to $93.8 million for the six months ended June 30, 2022.

The $7.4 million increase was primarily due to higher performance-based compensation expense as compared to the prior year.

Incremental SG&A expenses incurred by QAP, acquired in the third quarter of 2022, also contributed to the increase.

SG&A expenses as a percentage of net sales increased to 15.4% for the six months ended June 30, 2023 compared to 13.7% for the six months ended June 30, 2022.

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):

2023 2022 Total

Change Portfolio Management Ongoing Operations

Income from operations:

Renewables $ 8,177 6.0 % $ (155) (0.1) % $ 8,332 $ — $ 8,332

Residential 73,468 18.0 % 69,099 18.2 % 4,369 — 4,369

Agtech 1,213 1.7 % 1,573 1.8 % (360) (1,223) 863

Infrastructure 8,542 19.9 % 4,068 10.5 % 4,474 — 4,474

Unallocated Corporate Expenses (18,953) (2.9) % (13,251) (1.9) % (5,702) — (5,702)

Consolidated income from operations $ 72,447 11.0 % $ 61,334 9.0 % $ 11,113 $ (1,223) $ 12,336

The Renewables segment generated an operating margin of 6.0% in the current year compared to (0.1)% in the prior year.

The increase in operating margin was driven by field operations productivity, favorable price to cost alignment and improved supply chain management that offset lower volumes.

The Residential segment generated an operating margin of 18.0% in the current year compared to 18.2% in the prior year.

The decrease in operating margin was the result of the anticipated lower margins from the Company's recent acquisition of QAP largely offset by continued price/cost rebalancing, 80/20 activities and mix.

The Agtech segment generated an operating margin of 1.7% in the current year compared to 1.8% in the prior year.

Operating margin declined year over year, due to portfolio management charges related to the liquidation of the processing business recorded in the current year, largely offset by 80/20 initiatives, supply chain optimization initiatives, and improvement in project management systems.

The Infrastructure segment generated an operating margin of 19.9% during the six months ended June 30, 2023 compared to 10.5% during the six months ended June 30, 2022.

The margin improved year over year driven by strong operating execution, 80/20 productivity, supply chain efficiency, and product line mix.

Unallocated corporate expenses increased $5.7 million from $13.3 million during the six months ended June 30, 2022 to $19.0 million during the six months ended June 30, 2023.

The increase in expense was primarily due to higher performance-based compensation expense as compared to the prior year.

Interest expense increased year over year with $2.8 million for the six months ended June 30, 2023 compared to $1.1 million for the six months ended June 30, 2022.

The increase in expense was largely due to higher interest rates which more than tripled compared to the prior year.

Higher average outstanding balances on the Company's revolving credit facility of $72.5 million and $55.4 million for the six months ended June 30, 2023, and 2022, respectively, also contributed to the increased expense.

The Company recorded other income of $0.9 million for the six months ended June 30, 2023, compared to other expense of $0.4 million recorded for the six months ended June 30, 2022.

The change year over year is the combined result of foreign currency translation fluctuations and changes in the fair market valuation allowance related to the liquidation of the processing business.

The Company recognized a provision for income taxes of $18.7 million and $15.0 million, with effective tax rates of 26.6% and 25.1% for the six months ended June 30, 2023 and 2022, respectively.

The effective tax rate for the six months ended June 30, 2023, and 2022, 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 the Company's liquidity position as of (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 18,621 $ 17,608

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Sources of Liquidity

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

The 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.

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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.

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

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

operations when necessary.

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 March 31, 2023 and December 31, 2022, the Company's foreign subsidiaries held $7.5 million and $15.2 million of cash, respectively.

As of June 30, 2023 and December 31, 2022, the Company's foreign subsidiaries held $16.4 million and $15.2 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.

See Note 8 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 Credit Agreement.

See Note 8 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 Credit Agreement.

Uses of Cash / Cash Requirements

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 material short-term cash requirements primarily include accounts payable, certain employee and retiree benefit-related obligations, operating lease obligations, interest and 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.

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The repurchase program may be suspended or discontinued at any time at the Company's discretion.

As of March 31, 2023, the Company has repurchased 2,150,903 shares for an aggregate price of $93.2 million under this repurchase program, including 153,537 shares repurchased for an aggregate price of $7.4 million during the three months ended March 31, 2023.

As of June 30, 2023, the Company has repurchased 2,518,941 shares for an aggregate price of $111.0 million under this repurchase program, including 521,575 shares repurchased for an aggregate price of $25.2 million during the six months ended June 30, 2023.

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.

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See Part II, Item 7 "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, 2022.

The following table sets forth selected cash flow data for the three months ended March 31, (in thousands):

The following table sets forth selected cash flow data for the six months ended June 30, (in thousands):

Cash provided by (used in):

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Effect of foreign exchange rate changes (381) (1,074)

Net (decrease) increase in cash and cash equivalents $ (10,111) $ 2,724

Net increase in cash and cash equivalents $ 1,013 $ 4,300

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2023 of $38.0 million consisted of net income of $21.1 million, non-cash net charges totaling $9.3 million, which include depreciation, amortization, stock-based compensation, exit activity recoveries and other non-cash charges, and $7.6 million of cash generated from working capital and other net assets.

The cash generated from working capital and other net assets was due to an increase in accounts payable as a result of the timing of purchases and vendor payments, offset by an increase in accounts receivable as revenues increased in the latter part of the quarter.

Net cash used in operating activities for the three months ended March 31, 2022 of $7.7 million consisted of income from continuing operations of $15.5 million and non-cash net charges totaling $10.3 million, which include

depreciation, amortization, stock compensation, exit activity costs and other non-cash charges, offset by a $33.5 million investment in working capital and other net assets.

The investment in working capital and other net assets was due to increases in inventory as a result of provisioning for potential supply chain disruptions and raw material and freight costs, along with an increase in accounts receivable as the result of seasonal increases in demand and a decrease in accounts payable as the result of timing of vendor payments.

This was offset by an increase in accrued expenses and other non-current liabilities due to an increase in unbilled project revenues.

Net cash provided by operating activities for the six months ended June 30, 2023 of $114.1 million consisted of net income of $51.8 million, non-cash net charges totaling $21.6 million, which include depreciation, amortization, stock-based compensation, exit activity recoveries and other non-cash charges, and $40.7 million of cash generated from working capital and other net operating assets.

The cash generated from working capital and other net operating assets was largely due to increases in accounts payable, the result of the timing of purchases and vendor payments, and billings in excess of costs, the result of increased advance payments from and billings to customers on projects.

In addition, cash was generated due to the Company's focus on reducing its investment in inventory to better align with lower sales volumes while still meeting customer demand.

These activities were partially offset by an increase in accounts receivable largely the result of seasonal increases in demand.

Net cash provided by operating activities 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.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2023 of $1.6 million was primarily due to capital expenditures of $2.2 million, offset by receipt of the $0.6 million final working capital settlement resulting from the 2022 acquisition of QAP.

Net cash used in investing activities for the three months ended March 31, 2022 of $4.4 million was primarily due to capital expenditures of $4.4 million.

Net cash used in investing activities for the six months ended June 30, 2023 of $4.7 million was primarily due to capital expenditures of $5.3 million, offset by receipt of the $0.6 million final working capital settlement resulting from the 2022 acquisition of QAP.

Net cash used in investing activities for the six months ended June 30, 2022 of $11.2 million was primarily due to capital expenditures of $11.3 million.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2022 of $46.5 million consisted of net long-term debt payments of $39.0 million and $7.5 million of common stock repurchases.

Net cash used in financing activities for the six months ended June 30, 2023 of $108.0 million consisted of net long-term debt payments of $79.2 million and $28.8 million of common stock repurchases.

Net long-term debt payments consisted of $120.0 million in long-term debt payments, offset by $40.8 million in proceeds from borrowing on the Company's long-term debt credit facility.

The Company repurchased 153,537 shares under the Company's authorized share repurchase program which totaled $5.6 million paid during the three months ended March 31, 2023 with the balance repurchased common stock of $1.9 million related to the net settlement of tax obligations for participants in the Company's equity incentive plans.

Net cash provided by financing activities for the three months ended March 31, 2022 of $15.0 million was the result of $47.5 million in proceeds from borrowing on the Company's long-term credit facility, offset by $29.0 million in payments on long-term debt and $3.5 million of common stock repurchases related to the net settlement of tax obligations for participants in the Company's equity incentive plans.

The Company paid $26.0 million during the six months ended June 30, 2023 related to repurchase of 538,575 shares under the Company's authorized share repurchase program.

The remainder of the repurchased common stock of $2.8 million related to the net settlement of tax obligations for participants in the Company's equity incentive plans.

Net cash provided by financing activities 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 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.

Critical Accounting Estimates

There have been no material changes to the Company's critical accounting estimates during the three months ended March 31, 2023 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, 2022.

There have been no material changes to the Company's critical accounting estimates during the six months ended June 30, 2023 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, 2022.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis