What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-06 · 225 added, 129 removed, 115 unchanged (75% of the section changed)

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Forward-looking statements generally can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “target,” “continue,” “predict,” “project,” “change,” “result,” “future,” “will,” “could,” “can,” “may,” “likely,” “potentially,” or similar expressions that concern our strategy, plans, expectations or intentions.

Forward-looking statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, stockholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, our strategic initiatives, including the impact of these initiatives, such as the acquisition of ETANCO, on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts.

Forward-looking statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, stockholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, the integration of the acquisition of ETANCO, our strategic initiatives, including the impact of these initiatives, on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts.

Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct.

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Forward-looking statements are subject to inherent uncertainties, risks and other factors that are difficult to predict and could cause our actual results to vary in material respects from what we have expressed or implied by these forward-looking statements.

Important factors that could cause our actual results and financial condition to differ materially from those expressed in our forward looking statements include, among others, the impact of the COVID-19 pandemic on our operations and supply chain, the operations of our customers, suppliers and business partners, and the successful integration of ETANCO and those discussed under Item 1A.

Risk Factors and Item 7.

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Additional risks include:

the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; the impact of pandemics, epidemics or other public health emergencies, such as the recent outbreak of a novel strain of coronavirus (COVID-19); volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and borrowings under our existing credit agreement;

the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; the impact of pandemics, epidemics or other public health emergencies; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and borrowings under our existing credit agreement;

restrictions on our business and financial covenants under our credit agreement; reliance on employees subject to collective bargaining agreements;

and or ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any.

To the extent that the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of such risks and other factors.

We caution that you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report.

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North America, Europe and Asia/Pacific.

At our March 23, 2021 analyst and investor day, we unveiled several key growth initiatives that we believe will help us continue our track record of above market revenue growth through a combination of organic and inorganic opportunities.

Recent Developments

On April 1, 2022, the Company successfully completed the acquisition of ETANCO, a manufacturer of fixing and fastener products headquartered in France, for $805.4 million (730 million euros (1) ) net of cash.

ETANCO's primary product applications directly align with the addressable markets in which the Company operates.

Leveraging ETANCO's leading market position in Europe, following the acquisition, the Company would expand its portfolio of solutions, including mechanical anchors, fasteners and commercial building envelope solutions, as well as significantly increase its market presence across Europe.

The acquisition of ETANCO has provided the Company access into new commercial building markets such as façades, waterproofing, safety and solar, as well as grow its share of direct business sales in Europe.

Upon announcing the acquisition, the Company expected to realize operating income synergies of approximately $30.0 million, on an annual run rate basis following integration efforts.

We continue to expect that these synergies will be achieved through expanding the Company's market share by selling its products into new markets and channels, incorporating ETANCO's products into the Company's existing channels, as well as procurement optimization, manufacturing and operating expense efficiencies.

Finally, interest expense has and will continue to increase as a result of the incurrence of debt to finance the acquisition of ETANCO.

Since we announced the transaction back in late December, planning for and initiating the integration of ETANCO has been our primary focus and we believe it has been progressing according to plan.

We assembled a project management office that includes a leading globally recognized external advisory consulting group together with a multi-disciplinary team of key management from both Simpson and ETANCO.

Because of our complementary cultures and values, our combined team has been working extremely well together as we develop detailed plans for each of our specific integration tracks.

We believe our approach has contributed to a high employee retention rate throughout the transition.

After several months, we have found no material adjustments to our previously identified synergy opportunities, although the realization of the full amount is subject to change based on the current environment in Europe.

With the groundwork we have laid so far, we believe we are still well positioned to capture meaningful benefits from those synergies in the coming years.

At our March 23, 2021 analyst and investor day, we unveiled several key growth initiatives that we believe will help us continue our track record of achieving above market revenue growth through a combination of organic and inorganic opportunities.

Our organic opportunities are focused on expansion into new markets within our core competencies of wood and concrete products.

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Although these initiatives are all currently in different stages of development, our successful growth in these areas will ultimately be a function of expanding our sales and/or marketing functions to promote our products to different end users and distribution channels, expanding our customer base, and potentially introducing new products in the future.

Also during the March analyst and investor day, we highlighted our five-year ambitions, which are as follows:

We also highlighted our five-year ambitions during the March 2021 analyst and investor day, which are as follows:

• Strengthen our values-based culture;

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• Remain in the top quartile of our proxy peers for return on invested capital.

We will make periodic updates related to material developments to our key growth initiatives and with our five-year ambitions.

Acquisitions and Investments

On April 1, 2022, the Company successfully completed the acquisition of ETANCO, a manufacturer of fastener products headquartered in France, for $800.0 million (725 million euros (1) ) net of cash.

For the 12 months ending September 30, 2021, ETANCO's net sales and operating income margin were approximately $291.0 million (approximately €258 million (2) ) and 19.7% (2) , respectively.

ETANCO's primary product applications directly align with the addressable markets in which the Company operates.

Leveraging ETANCO's leading market position in Europe, following the proposed acquisition, the Company would expand its portfolio of solutions, including mechanical anchors, fasteners and commercial building envelope solutions, as well as significantly increase its market presence across Europe.

The transaction would allow the Company to enter into new commercial building markets such as façades, waterproofing, safety and solar, as well as grow its share of direct business sales in Europe.

The Company expects to realize operating income synergies of approximately $30 million, on an annual run rate basis, within 36 months following the proposed acquisition.

These synergies would be achieved through expanding the Company's market share by selling its products into new markets and channels, incorporating ETANCO's products into the Company's existing channels, as well as procurement optimization, manufacturing and operating expense efficiencies.

The Company expects to scale its European net sales and operating income margin performance, which is anticipated to result in an approximate 500 basis point increase in Europe operating income margins by 2025.

Additionally, the Company also expects that its interest expense will increase as a result of the incurrence of debt to finance the acquisition of ETANCO.

Other accomplishments over the past year included the following:

We have executed on several key milestones since we first announced our key strategic initiatives back in 2021.

Here are a few examples:

• We acquired ETANCO and are already seeing tangible results in our actual operations, as well as for the future including the use of Simpson and ETANCO branded commercial concrete products in the construction of certain venues for the upcoming Olympic games in Paris.

• Realigned our sales teams to more specifically focus on five end use markets – Residential, Commercial, OEM, National Retail and Building Technology, which has led to new customer and project wins within five of our key growth initiatives.

• Invested in a venture capital fund focused on the home building industry and related new technologies.

• Entered into a joint indirect investment in the North America Hundegger equipment sales and service representative partner, Hundegger USA, LC to increase each parties' sales in the mass timber and component manufacturing markets by offering North America customers end-to-end solutions, including integrated software from a single source.

• Formed an strategic alliance with Structural Technologies that will allow both parties jointly deliver complete end-to-end strengthening solutions to engineering professionals, contractors and owners across multiple construction and repair markets,

• Within the National Retail market, we focused on growth in the repair and remodel and do-it-yourself markets by completing a reset of some of our fastener sets with one of our key customers, and

• Within the Commercial market, we expanded our offerings, including the expansion of our structural steel product line.

The COVID-19 pandemic has severely impacted global economic conditions, resulting in substantial volatility in the financial markets, increased unemployment, and operational challenges resulting from measures that governments have imposed to control its spread.

We continue to monitor the COVID-19 pandemic for potential impact on our business.

We have undertaken numerous steps and instituted additional precautions to comply with health and safety guidelines and to protect our employees, suppliers and customers, as their safety and well-being is one of our top priorities, and to comply with health and safety guidelines.

These steps and precautions include enhanced deep cleaning, staggered shifts, temperature checking, use of face masks, practicing social distancing and limiting non-employees at our locations, amongst other safety related policies and procedures.

• Entered into a joint indirect investment in the North America Hundegger equipment sales and service representative partner, Hundegger USA, LLC to increase each parties' sales in the mass timber and component manufacturing markets by offering North America customers end-to-end solutions, including integrated software from a single source.

• Formed a strategic alliance with Structural Technologies that will allow both parties jointly deliver complete end-to-end strengthening solutions to engineering professionals, contractors and owners across multiple construction and repair markets,

• In the OEM market, we were recently awarded the opportunity to supply our complete wood solutions, including specialty fasteners and other products, for the construction of custom wood base crates.

We accomplished some key project wins within the Mass Timber space including our solutions are now being specified to construct mock-up structures from coast to coast to serve as a mass timber training course for union carpenters and are also being utilized in the construction of a new home office for a large U.S.-based company.

• Within the National Retail market, we focused on growth in the repair and remodel and do-it-yourself markets by completing a reset of some of our fastener sets with one of our key customers, and increased our publicity for Outdoor Accents in both The Home Depot and Lowe’s.

• Within the Commercial market, we expanded our offerings, including the expansion of our structural steel product line and our concrete solutions are being used in the construction of new graduate housing.

As we make progress on our growth initiatives, we believe we can continue our above market growth relative to U.S.

housing starts in fiscal 2022 and beyond.

These select key examples further emulate our Founder, Barclay Simpson’s, nine principles of doing business, and more specifically the focus and obsession on customers and users.

Factors Affecting Our Results of Operations

The COVID-19 pandemic and Russia’s invasion of Ukraine has severely affected global economic conditions, resulting in substantial volatility in the financial markets, increased unemployment, and considerable operational challenges.

The Company’s management team continues to monitor and manage its ability to operate effectively and, to date, the Company has not experienced any significant disruptions within its supply chain.

Our supply chain partners have been very supportive and continue to do their part to ensure that service levels to our customers remain strong and, to date, we have not experienced any supply-chain disruptions and continued to meet our customers’ needs despite the challenges presented by the COVID-19 pandemic.

Our supply chain partners are supportive, and continue to do their part to ensure that service levels to our customers remain strong.

To date, we have not experienced any supply-chain disruptions and continued to meet our customers’ needs despite the challenges.

We will continue to communicate with our supply chain partners to identify and mitigate risk and to manage inventory levels.

The Company's Crisis Management Team, which includes members of senior management, meets periodically to review and assess the status of the Company's operations and the health and safety of its employees.

The Company’s business, financial condition and results of operations depends in part on the level of United States, housing starts and residential construction activity.

Though single-family housing starts increased significantly in the last year, we believe there is uncertainty current demand will remain at the current level due to supply-chain factors, inflation and interest rate increases affecting new home starts and completions.

With recent sales price increases, we believe sales will likely increase in future periods even if demand does not decrease.

However, increased selling prices are expected to be offset by increasing material costs, sourcing logistics complications and a tight labor market, which could negatively affect operating margins for 2022.

Though single-family housing starts increased significantly over the past twelve months, we have seen demand begin to decline during the past quarter due to supply-chain factors, inflation and interest rate increases affecting new home starts and completions.

With almost a full year of recent sales price increase in effect, we believe sales will likely increase during the 3rd quarter over the prior year comparable period even if demand decreases.

These increased sales prices are expected to be offset by increasing raw material costs, sourcing logistics complications and a tight labor market, which could negatively affect operating margins for 2022.

Management continues to monitor the impact of rising material input and product logistics costs on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce.

Factors Affecting Our Results of Operations

Unlike lumber or other products that have a more direct correlation to United States housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events.

Our products are generally used in a sequential process that follows the construction process.

Residential and commercial construction begins with the foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules.

Our sales also tend to be seasonal, with operating results varying from quarter to quarter.

With some exceptions, our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year, as our customers tend to purchase construction materials in the late spring and summer months for the construction season.

Weather conditions, such as extended cold or wet weather, which affect and sometimes delay installation of some of our products, could negatively affect our results of operations.

Political and economic events such as tariffs and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputes can also have an effect on our gross and operating profits as well as the amount of inventory on-hand.

Our operations can also be affected by a volatile steel market and stressed product

transportation systems.

Our products are generally used in a sequential progression that follows the construction process.

Residential and commercial construction begins with the

foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules.

In prior years, our sales were heavily seasonal with operating results varying from quarter to quarter depending on weather conditions that could delay construction starts.

Our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year.

Due to efforts in diversifying our global footprint, most notably with our acquisition of ETANCO, sales from our product line, customer base and customer purchases are becoming less seasonal.

Political and economic events such as rising energy costs, volatile steel market, stressed product transportation systems and increasing interest rates can also have an effect on our gross and operating profits as well as the amount of inventory on-hand.

Changes in raw material cost could negatively affect our gross profit and operating margins depending on the timing of raw material purchases or how much sales prices can be increased to offset higher raw material costs.

Delays in receiving products or shipping sales orders, as well as increased transportation costs, could negatively impact sales and operating profits.

Our operations also expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic.

Business Segment Information

Historically our North America segment has generated more revenues from wood construction products compared to concrete construction products.

Our wood construction product sales increased 49.0% for the quarter ended March 31, 2022 compared to March 31, 2021, and our concrete construction product sales increased 27.5% for the quarter ended March 31, 2022 compared to March 31, 2021, due to product price increases throughout 2021 in an effort to offset rising raw material costs.

These price increases were also the primary contributor to gross profits and operating profits increasing over the same comparable periods.

Our wood construction product sales increased 35.2% for the quarter ended June 30, 2022 compared to June 30, 2021, and our concrete construction product sales increased 24.0% over the same periods, due to product price increases throughout 2021 in an effort to offset rising raw material costs.

These product price increases were also the primary contributor to gross profits and operating profits increasing over the same comparable periods.

As a result of the product price increases phased in during 2021, full phased in product price increases for 2022 could result in $300.0 million in additional net sales compared to 2021.

We currently anticipate gross margin and operating margin compression beginning in the latter half of 2022 as higher priced raw materials and rising average cost of steel on hand offset the price increases.

Our Europe segment also generates more revenues from wood construction products than concrete construction products.

Europe sales increased 16.2% for the quarter ended March 31, 2022 compared to March 31, 2021, primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs, partly offset by the negative effect of approximately $3.7 million in foreign currency translation due a strengthening United States dollar.

Wood construction product sales increased 14.7% for the quarter ended March 31, 2022 compared to March 31, 2021.

Concrete construction product sales are mostly project based, and sales increased 26.2% for the quarter ended March 31, 2022 compared to March 31, 2021.

We currently anticipate further gross margin and operating margin compression beginning in the latter half of 2022 compared to 2021 as higher priced raw materials and rising average cost of steel on hand offset the product price increases.

During 2022, we have been reviewing the footprint for our U.S.

operations with assistance from a third party.

As a result, we identified facility expansions in the U.S.

that will improve our overall service, production efficiencies and safety in the workplace, as well as reduce our reliance on certain outsourced, finished goods and component products and continue to ensure we have ample capacity to meet our customer needs.

We recently announced an expansion of our Ohio facility and the project has commenced.

These investments reinforce our core business model differentiators to remain the partner of choice as we continue to produce products locally and ensure superior levels of customer service.

Investments in these expansions have already started this year and will continue into 2024.

Europe sales increased 136.1% for the quarter ended June 30, 2022 compared to June 30, 2021, primarily due to the acquisition of ETANCO, which contributed $80.3 million in net sales, along with product price increases, mostly offset by lower volumes and the negative effect of approximately $6.9 million in foreign currency translation due a strengthening United States dollar.

Wood construction product sales increased 135.3% for the quarter ended June 30, 2022 compared to June 30, 2021 with ETANCO contributing $64.9 million in wood construction product sales.

Concrete construction product sales are mostly project based, and sales increased 139.2% for the quarter ended June 30, 2022 compared to June 30, 2021 with ETANCO contributing $15.4 million in concrete construction product sales.

The Company, including ETANCO, have suspended all sales and distribution activity to Russia and Belarus.

We estimate annual sales to these countries are less $5.0 million.

Gross margins decreased, primarily due to higher factory & tooling costs, as a percentage of net sales.

Europe reported an operating loss of $1.4 million, primarily due to professional fees of $7.0 million associated with the ETANCO acquisition, offset by a $1.1 million gain on the sale of a property and increased gross profits.

We anticipate incurring approximately $15 million to $17 million in integration and transaction costs related to the ETANCO acquisition, of which $8 million to $10 million are incremental.

Including increased steel costs, product sourcing complications with the Ukraine conflict, Europe's net sales and operating margins for the full year 2022 will likely be negatively impacted.

We estimate annual sales to these countries would have been less than $5.0 million.

Europe gross profit of $39.0 million included $19.2 million from the acquisition of ETANCO, net of $9.2 million in fair-value adjustments for inventory costs as a result of purchase accounting, most of which is a non-recurring charge.

The Company expects there will be an additional nominal amount recognized in the third quarter of 2022 for a fiscal year total of $10.5 million in fair value adjustments.

Europe reported operating income of $5.6 million, including ETANCO's operating loss of $1.6 million which was net of $9.2 million in inventory adjustments as noted above, $4.2 million of amortization expense on acquired intangible assets and $5.9 million for integration costs for a total of $19.3 million.

The Company expects to incur additional costs in 2022 as it continues to integrate ETANCO into its European operations.

The Company has not realized any synergies from the combination to date.

Our Asia/Pacific segment has generated revenues from both wood and concrete construction products.

We believe that the Asia/Pacific segment is not significant to our overall performance.

Since March 2021, inventory pounds in North America, which is the bulk of our inventory, remained flat while the weighted average cost per pound of total on hand increased approximately 56%.

Since June 2021, inventory pounds in North America, which is the bulk of our inventory, increased 14% while the weighted average cost per pound of total on hand increased approximately 31%.

Based on our current expectations, we are anticipating continued raw material cost pressure for fiscal 2022.

As we work through our on hand inventory and continue to buy raw material at these much higher prices, our anticipated costs of goods sold are expected to increase during fiscal 2022, even if prices for raw material decline, as the impact from averaging raw material costs typically lags our price increases.

We began to see this sequential accelerating increase in material costs occur beginning in the third quarter 2021.

As we work through our on hand inventory and continue to buy raw material at these much higher prices, our costs of goods sold are expected to continue increasing modestly during the second

half of fiscal 2022, even if prices for raw material decline, as the impact from averaging raw material costs typically lags our product price increases.

We began to see this accelerating increase in raw material costs occur beginning in the third quarter 2021.

Business Outlook

The Company updated its 2022 financial outlook to include the acquisition of ETANCO, which closed on April 1, 2022, one quarter of actual results, and its latest expectations regarding demand trends, raw material costs and operating expenses.

Based on business trends and conditions as of April 25, 2022, the Company's outlook for the full fiscal year ending December 31, 2022 is as follows:

• Operating margin is expected to be in the range of 19.0% to 20.0%, mostly attributable to an improved outlook for the overall market and Simpson.

In addition, the revised outlook includes projected results for ETANCO, including $15.0 to $17.0 million in integration and transaction costs.

• Interest expense on the outstanding borrowings of $250.0 million on the Revolving Credit Facility and $450.0 million Term Loan is expected to be approximately $12.0 million, including the effect of interest hedges and bank fee amortizations.

The Company updated its 2022 financial outlook to include the acquisition of ETANCO, two quarters of actual results, and its latest expectations regarding demand trends, raw material costs and operating expenses as of July 25, 2022.

Based on business trends and conditions, the Company's current outlook for the full fiscal year ending December 31, 2022 is as follows:

• Operating margin is expected to be in the range of 19.0% to 21.0%, in-line with its more recent historical average as the Company has better visibility on raw material costs and expected results from its acquisition of ETANCO.

The revised outlook includes $20.0 to $25.0 million in expected integration and transaction costs for the acquisition.

• Interest expense on the outstanding $250.0 million Revolving Credit Facility and Term Loans, which had initial borrowings of $450.0 million, is expected to be approximately $10.4 million, including the benefit from interest rate and cross currency swaps mitigating substantially all of the volatility from changes in interest rates.

• The effective tax rate is expected to be in the range of 25.5% to 26.5%.

• Capital expenditures are expected to be in the range of $65.0 million to $70.0 million.

As part of the integration process for ETANCO, Simpson management is in the process of assessing additional capital expenditures in support of ETANCO's operations.

(1) Reflects EUR to USD exchange rate as of March 21, 2022.

(2) For the last 12 months ending September 30, 2021, in accordance with French GAAP.

Subject to change following conversion to IFRS or U.S.

GAAP accounting standards and reflects EUR to USD exchange rate as of December 22, 2021.

Results of Operations for the Three Months Ended March 31, 2022, Compared with the Three Months Ended March 31, 2021

Unless otherwise stated, the below results, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the three months ended March 31, 2022, against the results of operations for the three months ended March 31, 2021.

Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended March 31, 2021 and the three months ended March 31, 2022.

The Company changed its presentation of its North America and Administrative and all other segment statement of operations to account for allocated expenses and management fees as a separate item below income from operations.

Allocated expenses and management fees between the two segments were previously included in operating expenses and in income from operations.

Income from operations for the North America and Administrative and all other segments for the quarter ended March 31, 2022 presented below was not affected by the change in presentation.

Consolidated income from operations, income before tax and net income for the quarters ended March 31, 2022 and March 31, 2021 presented below were not affected by the change in presentation.

First Quarter 2022 Consolidated Financial Highlights

The following table shows the change in the Company's operations from the three months ended March 31, 2021 to the three months ended March 31, 2022, and the increases or decreases for each category by segment:

• Capital expenditures are expected to be in the range of $80.0 million to $90.0 million including amounts attributable to ETANCO and expansion of the Ohio facility.

(1) Reflects EUR to USD exchange rate as of April 1, 2022.

Results of Operations for the Three Months Ended June 30, 2022, Compared with the Three Months Ended June 30, 2021

Unless otherwise stated, the below results, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the three months ended June 30, 2022, against the results of operations for the three months ended June 30, 2021.

Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended June 30, 2021 and the three months ended June 30, 2022.

Beginning in 2022, the Company changed its presentation for both the North America and the Administrative and all other segment's statement of operations to display allocated expenses and management fees as a separate item below income from operations.

During 2021, allocated expenses and management fees between the two segments were previously included in gross profit, operating expenses and in income from operations and have been adjusted herein to conform to the 2022 presentation.

Consolidated income from operations, income before tax and net income for all periods presented below are not affected by the change in presentation

Second Quarter 2022 Consolidated Financial Highlights

The following table shows the change in the Company's operations from the three months ended June 30, 2021 to the three months ended June 30, 2022, and the increases or decreases for each category by segment:

Three Months Ended Three Months Ended

Increase (Decrease) in Operating Segment

March 31, North Asia/ Admin & March 31,

June 30, North Asia/ Admin & June 30,

(in thousands) 2021 America Europe Pacific All Other 2022

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Total operating expenses 94,746 8,230 13,174 (5) 4,291 120,436

Acquisition related costs — 6,951 — 6,951

Acquisition and integration related costs — — 5,864 — — 5,864

Net loss (gain) on disposal of assets (28) (15) — — — (43)

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Interest income (expense), net and other (420) 7 (3,524) 1 564 (3,372)

Income before income taxes 66,605 58,686 (4,604) 294 3,028 124,009

Other & foreign exchange loss, net

(2,216) (3,123) (329) 713 3,065 (1,890)

Income (loss) before income taxes 99,092 32,984 (4,166) 610 (706) 127,814

Provision for income taxes 26,609 9,109 (2,579) 228 877 34,244

Net income $ 50,387 $ 44,196 $ (2,934) $ 146 $ 2,781 $ 94,576

Net sales increased 42.0% to $493.6 million from $347.6 million primarily driven by the four product price increases we implemented in 2021 to offset rising raw material costs.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 88% and 87% of the Company's total sales in both the first quarters of 2022 and 2021, respectively.

Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 12% and 13% of the Company's total sales in both the first quarters of 2022 and 2021, respectively.

Net income (loss) $ 72,483 $ 23,875 $ (1,587) $ 382 $ (1,583) $ 93,570

Net sales increased 44.6% to $593.2 million from $410.3 million primarily driven by the four product price increases we implemented in 2021 to offset rising raw material costs, and the acquisition of ETANCO which contributed $80.3 million in net sales.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 87% of the Company's total sales in both the second quarters of 2022 and 2021, respectively.

Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 13% of the Company's total sales in both the second quarters of 2022 and 2021, respectively.

Gross profit increased 32.0% to $259.3 million from $196.4 million.

Gross margins increased to 48.0% from 46.7%, primarily due to product price increases contributing to lower costs, each as a percentage of sales, in warehouse/freight, factory & tooling, and labor costs, which were negatively offset by higher raw material costs.

Gross margins increased to 48.1% from 46.6% for wood construction products and increased to 46.9% from 42.5% for concrete construction products, respectively.

Research and development and engineering expense increased 8.7% to $15.9 million from $14.6 million, primarily due to increases of $1.6 million in personnel costs and $0.4 million in professional fees, offset by $0.9 higher software development expenses capitalized.

Selling expense increased 19.5% to $36.8 million from $30.8 million, primarily due to increases of $2.4 million in travel related costs, $1.6 million in personnel costs, $0.9 million in advertising & trade shows, and $0.6 million in cash profit sharing expense.

General and administrative expense increased 10.7% to $53.8 million from $48.6 million, primarily due to increases of $3.5 million in professional fees, $2.6 million in personnel costs, $0.4 in travel related costs, and $0.3 million in cash profit sharing expense, offset by a decrease of $1.9 million in stock-based compensation expense.

Gross margins decreased to 43.7% from 47.9%, primarily due to the acquisition of ETANCO, which has a lower gross margin profile relative to the Company overall, and higher raw material costs overall.

Gross margins decreased to 43.7% from 47.4% for wood construction products and decreased to 43.2% from 47.5% for concrete construction products, respectively.

Research and development and engineering expense increased 19.6% to $16.9 million from $14.2 million, primarily due to increases of $2.4 million in personnel costs and $0.4 million in material and supplies consumption.

Selling expense increased 35.9% to $45.1 million from $33.2 million, primarily due to increases of $5.5 million in personnel costs, $1.7 million in advertising & trade shows, $1.0 million in travel related costs, and $0.5 million in professional fees.

General and administrative expense increased 23.2% to $58.4 million from $47.4 million, primarily due to increases of $4.1 million in depreciation and amortization, $3.4 million in personnel costs, $1.4 million in professional and legal fees, $0.6 million in travel related costs and $0.4 million in stock compensation expense, offset by a decrease of $0.8 million in cash profit sharing expense.

Our effective income tax rate decreased to 26.8% from 26.9%.

Consolidated net income was $94.6 million compared to $50.4 million.

Consolidated net income was $93.6 million, which includes a $2.0 million loss from ETANCO, compared to $72.5 million.

Diluted earnings per share was $2.16 compared to $1.66.

The following table shows net sales by segment for the three months ended March 31, 2022 and 2021, respectively:

The following table shows net sales by segment for the three months ended June 30, 2022 and 2021, respectively:

(in thousands) America Europe Pacific Total

Three months ended

March 31, 2021 $ 300,564 $ 44,296 $ 2,782 $ 347,642

March 31, 2022 438,731 51,451 3,388 493,570

June 30, 2021 $ 350,557 $ 56,438 $ 3,286 $ 410,281

June 30, 2022 456,410 133,238 3,584 593,232

Increase $ 105,853 $ 76,800 $ 298 $ 182,951

Percentage increase 30.2 % 136.1 % 9.1 % 44.6 %

The following table shows segment net sales as percentages of total net sales for the three months ended March 31, 2022 and 2021, respectively:

The following table shows segment net sales as percentages of total net sales for the three months ended June 30, 2022 and 2021, respectively:

America Europe Asia/

2 unchanged sentences

Percentage of total 2022 net sales 77 % 22 % 1 % 100 %

The following table shows gross profit by segment for the three months ended March 31, 2022 and 2021, respectively:

The following table shows gross profit by segment for the three months ended June 30, 2022 and 2021, respectively:

North Asia/ Admin &

1 unchanged sentence

Three months ended

March 31, 2021 $145,830 $15,250 $1,244 $(42) $162,282

March 31, 2022 217,919 17,453 1,448 (39) 236,781

June 30, 2021 $174,984 $20,298 $1,207 $(43) $196,446

June 30, 2022 219,299 39,023 1,098 (87) 259,333

Increase (decrease) $44,315 $18,725 $(109) $(44) $62,887

Percentage Increase (decrease) 25.3 % 92.3 % * * 32.0 %

* The statistic is not meaningful or material.

The following table shows gross margin by segment for the three months ended June 30, 2022 and 2021, respectively:

America Europe Asia/

Pacific Admin &

All Other Total

2021 gross margin percentage 49.9 % 36.0 % 36.7 % * 47.9 %

2022 gross margin percentage 48.0 % 29.3 % 30.6 % * 43.7 %

* The statistic is not meaningful or material.

North America

• Net sales increased 30.2%, primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs on relatively flat volumes.

• Gross margin decreased to 48.0% from 49.9%, primarily from higher material costs, as a percentage of net sales, partly offset by product price increases throughout 2021.

• Research, development and engineering expenses increased 19.5%, primarily due to increases of $1.2 million in personnel costs, $0.7 in million professional fees, $0.3 million in material and supplies consumption and $0.2 million in travel rated costs, partly offset by $0.6 higher software development expenses capitalized.

• Selling expense increased 19.3%, primarily due to increases of $2.0 million in personnel cost, $1.7 million in advertising & trade show costs, $2.0 million in personnel costs, $1.5 million in travel–associated expenses and $0.5 million in professional fees, offset by a decrease $0.8 million in sales commissions.

• General and administrative expense increased 1.6%, primarily due to $1.1 million in personnel costs offset by $0.5 million for cash profit sharing expense.

• Income from operations increased by $36.1 million.

The increase was primarily due to higher gross profit, partly offset by higher operating expenses including travel, entertainment and personnel costs.

• Net sales increased 136.1%, primarily due to the acquisition of ETANCO, which contributed $80.3 million in net sales along with product price increases, mostly offset by lower volumes and the negative effect of approximately $6.9 million in foreign currency translation.

• Gross margin decreased to 29.3% from 36.0%.

Europe gross profit of $39.0 million included $19.2 million from the acquisition of ETANCO, which is net of $9.2 million in fair-value adjustments for inventory costs as a result of purchase accounting, most of which is a non-recurring charge.

The Company expects there will be an additional nominal amount recognized in the third quarter of 2022 for a fiscal year total of $10.5 million in fair value adjustments.

• Income from operations decreased by $0.3 million.

This includes ETANCO's operating loss of $1.6 million which is net of $9.2 million in inventory adjustments as noted above, $4.2 million of amortization expense on acquired intangible assets and $5.9 million for integration costs for a total of $19.3 million.

The Company expects to incur additional costs in 2022 as it continues to integrate ETANCO into its European operations.

The Company has not realized any synergies from the combination to date.

• For information about the Company's Asia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the three months ended June 30, 2022 and 2021.

Results of Operations for the Six Months Ended June 30, 2022, Compared with the Six Months Ended June 30, 2021

Unless otherwise stated, the results announced below, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the six months ended June 30, 2022, against the results of operations for the six months ended June 30, 2021.

Unless otherwise stated, the results announced below, when referencing “both periods,” refer to the six months ended June 30, 2021 and the six months ended June 30, 2022

Consolidated income from operations, income before tax and net income for all periods presented below are not affected by the change in presentation.

Year-to-Date (6-month) 2022 Consolidated Financial Highlights

The following table illustrates the differences in our operating results for the six months ended June 30, 2022, from the six months ended June 30, 2021, and the increases or decreases for each category by segmen t:

Six Months Ended Increase (Decrease) in Operating Segment Six Months Ended

June 30, North Asia/ Admin & June 30,

(in thousands) 2021 America Europe Pacific All Other 2022

Net sales $ 757,922 $ 244,020 $ 83,955 $ 905 $ — $ 1,086,802

Cost of sales 399,195 124,214 63,027 810 3,442 590,688

Gross profit 358,727 119,806 20,928 95 (3,442) 496,114

Research and development and other engineering

expense 28,758 3,895 116 38 2 32,809

Selling expense 63,990 10,844 6,954 108 14 81,910

General and administrative expense 95,975 2,867 6,101 (156) 7,405 112,192

188,723 17,606 13,171 (10) 7,421 226,911

Acquisition and integration related costs — — 12,815 — — 12,815

Net gain on disposal of assets (108) (3) (1,084) 69 — (1,126)

Income (loss) from operations 170,112 102,203 (3,974) 36 (10,863) 257,514

Interest income (expense), net and other (765) 25 (3,553) (6) 714 (3,585)

Other & foreign exchange loss, net

(3,648) (7,158) (1,243) 874 9,068 (2,107)

Income (loss) before income taxes 165,699 — 95,070 — (8,770) 904 — (1,081) 251,822

Provision for income taxes 42,827 23,599 (4,249) 375 1,125 63,677

Net income $ 122,872 $ 71,471 $ (4,521) $ 529 $ (2,206) $ 188,145

Net sales increased 43.4% to $1,086.8 million from $757.9 million due to the implementation of product price increases at various times during 2021, and revenues from the acquisition of ETANCO.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 87% of the Company's total sales in the first six months of 2022 and 2021.

Gross profit increased 38.3% to $496.1 million from $358.7 million.

Gross margins decreased to 45.6% from 47.3%, primarily due to the acquisition of ETANCO, which has a lower gross margin profile relative to the Company overall, and higher raw material costs overall.

Gross margins decreased to 45.7% from 47.0% for wood construction products and decreased to 44.8% from 45.2% for concrete construction products.

Research and development and engineering expense increased 14.1% to $32.8 million from $28.8 million primarily due to increases of $3.9 million in personnel costs, $0.4 million in material and supplies consumption, and $0.2 million in professional fees.

Selling expense increased to $81.9 million from $64.0 million, primarily due to increases of $6.9 million in personnel costs and sales commissions, $2.7 million in advertising & trade shows, $1.6 million in travel related costs, $0.7 million in professional fees, and $0.7 million cash profit sharing expense.

General and administrative expense increased to $112.2 million from $96.0 million, primarily due to increases of $5.9 million in professional fees, $4.7 million in personnel costs, $3.4 million in depreciation and amortization expenses, and $1.1 million in travel related costs, offset by decreases of $1.6 million in stock-based compensation, $0.5 million in cash profit sharing expenses.

Our effective income tax rate decreased to 25.3% from 25.8%.

Consolidated net income was $188.1 million compared to $122.9 million.

Diluted earnings per share was $4.34 compared to $2.82.

The following table represents net sales by segment for the six-month periods ended June 30, 2021 and 2022:

(in thousands) America Europe Pacific Total

Six Months Ended

June 30, 2021 $ 651,120 $ 100,734 $ 6,068 $ 757,922

June 30, 2022 895,140 184,689 6,973 1,086,802

Increase $ 244,020 $ 83,955 $ 905 $ 328,880

Percentage increase 37.5 % 83.3 % 14.9 % 43.4 %

The following table represents segment sales as percentages of total net sales for the six-month periods ended June 30, 2021 and 2022, respectively:

America Europe Asia/

Pacific Total

Percentage of total 2020 net sales 86 % 13 % 1 % 100 %

Percentage of total 2021 net sales 82 % 17 % 1 % 100 %

The following table represents gross profit by segment for the six-month periods ended June 30, 2021 and 2022:

North Asia/ Admin &

(in thousands) America Europe Pacific All Other Total

Six Months Ended

June 30, 2021 $ 317,369 $ 35,548 $ 2,451 $ 3,359 $ 358,727

June 30, 2022 437,175 56,476 2,546 (83) 496,114

Increase (decrease) $ 119,806 $ 20,928 $ 95 $ (3,442) $ 137,387

Percentage increase 37.7 % 58.9 % * * 38.3 %

* The statistic is not meaningful or material

The following table shows gross margin by segment for the three months ended March 31, 2022 and 2021, respectively:

The following table represents gross margin by segment for the six-month periods ended June 30, 2021 and 2022:

(in thousand) North

America Europe Asia/

5 unchanged sentences

North America

• Net sales increased 46.0%,primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs.

Canada's net sales increased primarily due to product price increases offset by lower sales volumes.

• Gross margin increased to 49.7% from 48.5%, primarily due to product price increases throughout 2021, contributing to lower costs, each as a percentage of sales, in warehouse/freight, factory & tooling, and labor costs, which were negatively offset by higher raw material costs.

• Research, development and engineering expenses increased 10.3%, primarily due to increases of $1.3 million in personnel costs and $0.9 million in professional fees, offset by $0.9 higher software development expenses capitalized.

• Selling expense increased 22.5%, primarily due to increases of $2.2 million in travel–associated expenses, $1.8 million in personnel costs, $0.9 million in advertising & trade show costs, $0.6 million in cash profit sharing expense, offset by a decrease $0.3 million in stock-based compensation expense.

• General and administrative expense increased 6.8%, primarily due to increases of $2.7 million in professional fees,$1.0 million in personnel costs, $0.4 million for cash profit sharing expense, partly offset by decreases of $0.7 million in stock-based compensation and $0.6 million in depreciation and amortization.

• Income from operations increased by $62.7 million, primarily due to higher gross profit, partly offset by higher operating expenses

• Net sales increased 16.2%, primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs, partly offset by the negative effect of approximately $3.7 million in foreign currency translation.

• Gross margin decreased slightly to 33.9% from 34.4%, primarily due to higher factory & tooling costs, as a percentage of net sales.

• Income from operations decreased by $3.7 million, primarily due to professional fees of $7.0 million associated with the ETANCO acquisition, offset by a $1.1 million gain on the sale of a property and increased gross profits.

• For information about the Company's Asia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the three months ended March 31, 2022 and 2021.

• Net sales increased 37.5%, primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs on small an increase in sales volume.

• Gross margin increased slightly to 48.8% from 48.7%, due to product price increases implemented during 2021, and lower labor, factory, freight and warehouse costs as a percentage of net sales, partly offset by higher material costs, as a percentage of net sales.

• Research and development and engineering expense increased $3.9 million, primarily due to increases of $2.3 million in personnel costs, $1.6 million in professional fees, $0.5 million in travel rated costs, $0.3 million in material and supplies consumption, $0.2 million in stock-based compensation, and offset by $1.4 million higher software development expenses capitalized.

• Selling expense increased $10.8 million, primarily due to increases of $3.9 million in travel related costs, $3.2 million in personnel costs, $2.7 million in advertising & trade show costs, $0.6 million in cash profit sharing expenses, and $0.4 million in professional fees, partly offset by decreases of $1.0 million in sales commissions.

• General and administrative expense increased $2.9 million, primarily due to increases of $1.9 million in personnel costs, $1.2 million of bad debt expense, and $0.9 in travel related costs offset by decreases of $0.5 in stock-based compensation, and $0.2 million cash profit sharing expense.

• Income from operations increased $102.2 million, mostly due to increased sales and gross profit, partly offset by higher operating expenses.

• Net sales increased 83.3%, primarily due to the acquisition of ETANCO, which contributed $80.3 million in net sales along with product price increases, offset by the negative effect of approximately $10.3 million in foreign currency translation.

• Gross margin decreased to 30.6% from 35.3% while gross profit increased $20.9 million.

Europe gross profit included $19.2 million from the acquisition of ETANCO, which is net of $9.2 million in fair-value adjustments for inventory costs as a result of purchase accounting, most of which is a non-recurring charge.

• Income from operations decreased $4.0 million, primarily due to $7.0 million of first quarter 2022 acquisition costs as well as ETANCO's second quarter 2022 operating loss of $1.6 million which is net of $9.2 million in inventory adjustments, $4.2 million of amortization expense on acquired intangible assets and $5.9 million for integration costs for a total of $19.3 million.

• For information about the Company's Asia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the six months ended June 30, 2022 and 2021.

Effect of New Accounting Standards

1 unchanged sentence

Liquidity and Sources of Capital

On March 30, 2022, the Company entered into an Amended and Restated Credit Agreement.

The Amended and Restated Credit Agreement provides for a 5-year revolving credit facility of $450.0 million, which includes a letter of credit-sub-facility up to $50.0 million, and for a 5-year term loan facility of $450.0 million.

The Company borrowed $250.0 million, under the revolving credit facility and $450.0 million under the term loan facility to finance a portion of the purchase price of the Company’s acquisition of ETANCO.

We have historically met our capital needs through a combination of cash flows from operating activities and, when necessary borrowings under our credit agreements.

Our principal uses of capital include the costs and expenses associated with our operations, including financing working capital requirements and continuing our capital allocation strategy, which includes supporting capital expenditures, paying cash dividends, repurchasing the Company's common stock, and financing other investment opportunities over the next twelve months.

As of March 31, 2022, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions.

On March 30, 2022, the Company entered into an Amended and Restated Credit Agreement, which provides for a 5-year revolving credit facility of $450.0 million, and for a 5-year term loan facility of $450.0 million.

The Company borrowed $250.0 million, under the revolving credit facility and $450.0 million under the term loan facility to finance a portion of the

purchase price of the Company’s acquisition of ETANCO.

We believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future.

As of June 30, 2022, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions.

Cash and cash equivalents of $76.9 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the United States.

On April 1, 2022, the Company used approximately $800 million of the funds held in our foreign operations to acquire ETANCO.

The Company is maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outside the United States.

The following table shows selected financial information as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively:

At March 31, At December 31, At March 31,

The following table shows selected financial information as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively :

At June 30, At December 31, At June 30,

(in thousands) 2022 2021 2021

3 unchanged sentences

Working capital less cash and cash equivalents 597,079 453,078 363,453

The following table provides cash flow indicators for the three-month periods ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

The following table provides cash flow indicators for the six-month periods ended June 30, 2022 and 2021, respectively:

Six Months Ended June 30,

(in thousands) 2022 2021

4 unchanged sentences

Cash flows from operating activities result primarily from our earnings, and are also affected by changes in operating assets and liabilities which consist primarily of working capital balances.

Our revenues are derived from manufacturing and sales of

building construction materials.

Our revenues are derived from manufacturing and sales of building construction materials.

Our operating cash flows are subject to seasonality and are cyclically associated with the volume and timing of construction project starts.

For example, trade accounts receivable is generally at its lowest at the end of the fourth quarter and increases during the first, second and third quarters.

During the three months ended March 31, 2022, operating activities provided $44.7 million in cash and cash equivalents, as a result of $94.6 million from net income and $14.9 million from non-cash expenses from net income, which included depreciation and amortization expense and stock-based compensation expense.

During the six months ended June 30, 2022, operating activities provided $138.5 million in cash and cash equivalents, as a result of $188.1 million from net income and $46.1 million from non-cash expenses from net income, which included depreciation and amortization expense, stock-based compensation expense and the inventory fair value expense adjustment.

Cash provided from net income was partly offset by a decrease of $95.8 million in the net change in operating assets and liabilities, including increases of $88.6 million in trade accounts receivable, partly offset by increases of $21.9 million in other current liabilities and $15.7 million in trade accounts payable.

Cash used in investing activities of $17.1 million during the three months ended March 31, 2022 was mainly for capital expenditures, offset by proceeds from the sale of a property.

Our capital spending for the three months ended March 31, 2021 and the three months ended March 31, 2022 was $10.5 million and $17.8 million, respectively, which was primarily used for a land purchase, machinery and equipment purchases and software in development.

Based on current information and subject to future events and circumstances, total approved capital spending for 2022, will be in the $65.0 million to $70.0 million range.

Capital spending will be dedicated to maintenance with the remainder focused on growth to maximize efficiencies, expand our manufacturing footprint and invest in our key growth initiatives.

As part of the integration process for ETANCO, Simpson management is in the process of assessing additional capital expenditures in support of ETANCO's operations.

Cash provided by financing activities of $650.6 million during the three months ended March 31, 2022 consisted primarily of $700.0 million loan proceeds used for the acquisition of ETANCO, offset by $21.3 million used to repurchase 194,745 shares of common stock at an average price of $109.28 per share, $10.8 million used to pay dividends to our stockholders, $9.5 million used to pay income taxes on behalf of the employees for shares withheld with respect to their vested restricted stock units, and $6.8 million in bank fees paid in connection with the Amended and Restated Credit Agreement.

On May 4, 2022, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.26 per share payable on July 28, 2022, to the Company's stockholders of record on July 7, 2022.

During 2022, the Board also approved changing our capital return target to 35% of our free cash flow from 50%.

Since the beginning of 2019 to the quarter ended March 31, 2022, we have returned $315.5 million to stockholders, which represents 67.7% of our free cash flow and over the same period the Company has repurchased over 2,442,456 shares of the Company's common stock, which represents approximately 5.4% of the outstanding shares of the Company's common stock at the start of 2019.

Cash used in investing activities of $833.6 million during the six months ended June 30, 2022 was mainly for the $805.4 million acquisition of ETANCO.

Our capital spending for the six months ended June 30, 2022 and June 30, 2021 was $31.8 million and $19.3 million, respectively, which was primarily used for a land purchase, machinery and equipment purchases and software in development.

Based on current information and subject to future events and circumstances, total approved capital spending for 2022, will be in the $80.0 million to $90.0 million range compared to the previous estimate of $65.0 to $70.0 million, primarily due to ETANCO and expansion of our Ohio facility.

Other capital spending is earmarked for both maintenance and growth to maximize efficiencies and invest in our key initiatives.

Cash provided by financing activities of $631.5 million during the six months ended June 30, 2022 consisted primarily of $700.0 million in loan proceeds used for the acquisition of ETANCO, offset by $46.3 million used to repurchase 455,030 shares of the Company's common stock at an average price of $101.71 per share and $21.6 million used to pay dividends to our stockholders.

On July 27, 2022, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.26 per share payable on October 27, 2022, to the Company's stockholders of record on October 6, 2022.

Since the beginning of 2019 to the quarter ended June 30, 2022, we have returned $351.3 million to stockholders, which represents 64.3% of our free cash flow and over the same period the Company has repurchased over 2.7 million shares of the Company's common stock, which represents approximately 6.0% of the outstanding shares of the Company's common stock at the start of 2019.

During 2022, after the acquisition of ETANCO, we changed our capital return target to 35% of our free cash flow from 50%.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2022.

We did not have any off-balance sheet arrangements as of June 30, 2022.

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