What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-07 · 116 added, 113 removed, 185 unchanged (55% of the section changed)

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

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 and market 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 FIXCO Invest S.A.S ("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.

Actual results may differ materially from those expressed or implied in such statements.

Forward-looking statements are all statements other than those of historical fact and 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 and market 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 ongoing integration of FIXCO Invest S.A.S ("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.

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 prolonged impact of the COVID-19 pandemic or the effects of similar pandemics or widespread public health crises and their effects on the global economy, including inflation and labor and supply shortages, on our operations, the operations of our customers, suppliers and business partners, and the successful integration of ETANCO and those discussed under Item 1A.

Important factors that could cause our actual results and financial condition to differ materially from those expressed in or implied by our forward-looking statements include, the effect of global pandemics such as the COVID-19 pandemic and other widespread public health crises and their effects on the global economy, the effects of inflation and labor and supply shortages, on our operations, the operations of our customers, suppliers and business partners, and our ongoing integration, as well as of ETANCO and those discussed under Item 1A.

Risk Factors and Item 7.

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

Except as required under the federal securities laws or the rules and regulations of the SEC, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.

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Select highlights that include both organic and inorganic growth from 2022 and 2023 were:

• Acquiring ETANCO which has resulted in additional scale for our European operations and was accretive to earnings in the first half of 2023;

• Acquiring ETANCO which has resulted in additional scale for our European operations and was accretive to earnings in the first nine-months of 2023;

• Improving our market share by converting a Northeast pro dealer chain;

• Increasing our number of commercial market customers including the specification of our solutions for our first ventilated façade application on a building in New York city;

• Growing our OEM business across many opportunities, while continuing to develop the market for mass timber, such as designing, building and installing many critical connections in the construction of a 112-foot wood building that was used for the successful testing of the world’s tallest shake table test;

• Growing our OEM business across many opportunities, including offering our complete wood-to-wood connections product line to shed manufacturers while also continuing to develop the market for mass timber by offering new solutions such as our new Timber Drive fastening system;

• Growing our Building Technology and truss market share by converting a large Midwest based component manufacturer with fifteen manufacturing locations;

• Opened three regional warehouses in the Northwest in support of our path-to-market customer transition;

• Expanding our wood product and concrete product lines by acquiring intellectual property;

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• 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.

• As part of our partner of choice initiative, we anticipate completing our path-to-market customer transition by the end of this year.

We also highlighted our core Company ambitions, which were previously referred to as our five-year ambitions in 2021, which are as follows:

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

During 2022, we reviewed the footprint for our U.S.

operations with assistance from a third party.

As a result, we identified opportunities to expand our facilities in the U.S.

We believe that these expansions 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.

During 2022, we evaluated the footprint for our U.S.

operations with assistance from a third-party consultant.

As a result of this evaluation, we identified opportunities to expand our facilities in the U.S that we believe 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.

We expect that this will allow us to continue to ensure we have ample capacity to meet our customer needs.

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.

Facility investments started in 2022 with the expansion of the Columbus facility expected to be completed in late 2024, and recently announced greenfield opportunity to replace our facility in Gallatin, Tennessee.

This process started in 2022 with investments to expand our Columbus facility, which we expect to be completed in late 2024, and the recently announced greenfield opportunity to replace our facility in Gallatin, Tennessee.

Factors Affecting Our Results of Operations

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The decline in demand is attributed to unfavorable economic conditions, including rising interest rates, inflation, recession fears and supply-chain factors, resulting in lower new home starts and completions.

However, the Company also supplies product used in multifamily housing construction, which decreased less then single-family housing starts through the first half of 2023.

During 2021, we increased prices to offset significantly higher raw material costs arising from supply constraints related to the COVID 19 pandemic.

During the first half of 2023, we reduced prices for our customers in response to marginally lower raw material costs, while a tight labor market and unusually wet winter in the western region of the United States did negatively affect housing starts and operating margins for 2023 compared to 2022.

Future changes in raw material cost could impact the amount of inventory on-hand, and 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.

However, the Company also supplies product used in multifamily housing construction, which decreased less then single-family housing starts through the first nine-months of 2023.

During 2021, we increased prices to offset significantly higher raw material costs arising from supply-chain constraints related to the COVID-19 pandemic.

During the first nine months of 2023, we reduced prices for our customers in response to marginally lower raw material costs, while a tight labor market and unusually wet winter in the western region of the United States negatively affected housing starts and operating margins for 2023.

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.

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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, volatility in the steel market, stressed product transportation systems and increasing interest rates can also have an effect on our gross and operating profits as well.

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 than historically.

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 1.0% for the quarter ended June 30, 2023 compared to June 30, 2022, mostly due to higher sales volumes, partly offset by lower sales prices, and our concrete construction product sales increased 8.2% over the same periods, due to product price increases in an effort to offset rising raw material costs and by higher volumes.

Previously announced price decreases on certain wood products lines will likely negatively affect 2023 net sales compared to 2022.

We currently anticipate flat to slight compression of our operating margin for fiscal 2023 compared to 2022 due to the effects of our product price decreases and increases in operating expenses including amortization, partly offset by lower average priced steel in cost of sales relative to much of the prior year, and lower purchase accounting adjustments and integration expenses from our acquisition of ETANCO.

Europe sales decreased 4.1% for the quarter ended June 30, 2023 compared to June 30, 2022, primarily due to lower sales volumes.

Wood construction product sales decreased 4.0% for the quarter ended June 30, 2023 compared to June 30, 2022 and concrete construction product sales, which are mostly project based, decreased 4.2% for the quarter ended June 30, 2023 compared to June 30, 2022.

Europe reported income from operations of $14.0 million for the quarter ended June 30, 2023 compared to $5.6 million for the quarter ended June 30, 2022, which included a $9.2 million inventory fair-value adjustment as a result of purchase accounting with respect to the acquisition of ETANCO and acquisition and integration costs of $4.0 million.

Our wood construction product sales increased 1.7% for the quarter ended September 30, 2023 compared to September 30, 2022, mostly due to higher sales volumes, partly offset by lower sales prices.

Previously announced price decreases on certain wood product lines have negatively effected 2023 net sales compared to 2022.

Our concrete construction product sales increased 16.1% over the same periods, due to product price increases offsetting rising raw material costs and higher volumes.

We currently anticipate a flat to slight increase in our operating margin for fiscal 2023 compared to 2022 due to lower average priced steel in cost of sales relative to much of the prior year, and lower purchase accounting adjustments and integration expenses from our acquisition of ETANCO, largely offset by the effects of our product price decreases on our wood products and increases in operating expenses including amortization.

Europe sales increased 6.4% for the quarter ended September 30, 2023 compared to September 30, 2022, primarily due to the positive effect of approximately $7.9 million in foreign currency translation, partly offset by lower volumes.

Wood construction product sales increased 6.7% for the quarter ended September 30, 2023 compared to September 30, 2022 and concrete construction product sales, which are mostly project based, increased 5.3% for the quarter ended September 30, 2023 compared to September 30, 2022.

Europe reported income from operations of $15.5 million for the quarter ended September 30, 2023

compared to $6.1 million for the quarter ended September 30, 2022, which included a $2.9 million inventory fair-value adjustment as a result of purchase accounting with respect to the acquisition of ETANCO plus acquisition and integration costs of $1.9 million.

We currently anticipate 2023 results to be impacted by economic headwinds but also believe in the long term potential given Europe's on-going housing shortage (with an increasing use of wood construction) and new environmental regulations for which we have products and solutions.

In addition, we expect to incur additional costs in 2023 as originally planned, to continue integrating ETANCO.

In addition, we expect to incur additional costs through 2023 and beyond as originally planned, to continue integrating ETANCO.

Our Asia/Pacific segment has generated revenues from both wood and concrete construction products, which we believe is not significant to our overall performance.

Business Outlook

The Company has updated its financial outlook for the full fiscal year ending December 31, 2023 based on two quarters of performance to reflect its latest expectations regarding demand trends, raw material costs and operating expense as of July 24, 2023 as follows:

The Company updated its financial outlook for the full fiscal year ending December 31, 2023 to include three quarters of actual results, and its latest expectations regarding demand trends, raw material costs and operating expenses as of follow:

• Operating margin is now estimated to be in the range of 22.0% to 22.5%.

• The effective tax rate is estimated to be in the range of 25% to 26%, including both federal and state income tax rates and assuming no tax law changes are enacted.

• Capital expenditures are estimated to be in the range of $105.0 million to $115.0 million.

• Capital expenditures are estimated to be approximately $100.0 million depending on a number of various external factors.

• The Company continues to make progress on its efforts to integrate ETANCO into its operations and to realize previously identified offensive and defensive synergies in the years ahead.

However, these efforts will continue to result in additional costs in 2023 that have been planned since the Company announced the transaction.

Management continues to believe the Company remains well positioned to capture meaningful benefits from these synergies, subject to macroeconomic changes, which are expected to delay realization of some of the offensive synergy opportunities.

Results of Operations for the Three Months Ended June 30, 2023, Compared with the Three Months Ended June 30, 2022

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, 2023, against the results of operations for the three months ended June 30, 2022.

Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended June 30, 2022 and the three months ended June 30, 2023.

Second Quarter 2023 Consolidated Financial Highlights

The following table shows the change in the Company's operations from the three months ended June 30, 2022 to the three months ended June 30, 2023, and the increases or decreases for each category by segment:

The Company expects these efforts will result in ongoing integration costs through 2023 and beyond.

Results of Operations for the Three Months Ended September 30, 2023, Compared with the Three Months Ended September 30, 2022

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 September 30, 2023, against the results of operations for the three months ended September 30, 2022.

Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended September 30, 2022 and the three months ended September 30, 2023.

Third Quarter 2023 Consolidated Financial Highlights

The following table shows the change in the Company's operations from the three months ended September 30, 2022 to the three months ended September 30, 2023, and the increases or decreases for each category by segment:

Three Months Ended Three Months Ended

Increase (Decrease) in Operating Segment

June 30, North Asia/ Admin & June 30,

September 30, North Asia/ Admin & September 30,

(in thousands) 2022 America Europe Pacific All Other 2023

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Other & foreign exchange gain (loss), net (1,707) 1,075 753 (238) (1,312) (1,429)

Income (loss) before income taxes 127,814 9,568 9,807 727 (3,243) 144,673

Income before income taxes 118,125 11,066 9,834 3 1,048 140,076

Provision for income taxes 29,882 4,255 912 118 888 36,055

Net income (loss) $ 93,570 $ 10,363 $ 5,469 $ 596 $ (2,787) $ 107,211

Net sales increased 0.7% to $597.6 million from $593.2 million primarily due to higher sales volumes in North America which offset Europe's lower sales volumes.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 86% and 87% of the Company's total sales in the second quarters of 2023 and 2022, respectively.

Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 14% and 13% of the Company's total sales in the second quarters of 2023 and 2022, respectively.

Gross profit increased 10.8% to $287.5 million from $259.3 million primarily due to ETANCO gross margin improvement of 38.1% from 23.9% last year, which in prior year included an inventory fair-value adjustment of $9.2 million, which resulted in a consolidated gross margin of 48.1% compared to 43.7% last year.

$ 88,243 $ 6,811 $ 8,922 $ (115) $ 160 $ 104,021

Net sales increased 4.8% to $580.1 million from $553.7 million primarily due to higher sales volumes in North America and favorable foreign currency translation from sales in Europe, partially offset by price decreases in effect earlier in 2023.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 84.7% and 86.4% of the Company's total sales in the third quarters of 2023 and 2022, respectively.

Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 14.5% and 13.5% of the Company's total sales in the third quarters of 2023 and 2022, respectively.

Gross profit increased 15.7% to $282.9 million from $244.5 million primarily due to lower raw material costs and ETANCO gross margin improvement of 37.5% from 28.8% last year, which in the prior year included an inventory fair-value adjustment of $2.9 million.

As a result, consolidated gross margins were 48.8% compared to 44.2% last year .

From a product perspective, gross margin increased to 48.6% from 44.2% for wood construction products and increased to 47.9% from 43.8% for concrete construction products, respectively.

Research and development and engineering expense increased 27.1% to $21.5 million from $16.9 million, primarily due to increases of $2.9 million in personnel costs, $1.0 million for variable compensation and $0.3 million in depreciation and amortization.

Selling expense increased 11.9% to $50.4 million from $45.1 million, primarily due to increases of $2.4 million of variable compensation, $2.1 million in personnel costs and $0.4 million in professional fees.

General and administrative expense increased 17.7% to $68.8 million from $58.4 million, primarily due to increases of $3.3 million in personnel costs, $2.1 million in computer and software expenses net of amounts capitalized, $1.8 million in variable compensation, $0.9 million in depreciation and amortization, $0.7 million in professional fees, $0.3 million in travel related costs, offset by a decrease of $1.3 million for bad debt expenses .

Research and development and engineering expense increased 44.9% to $24.8 million from $17.1 million, primarily due to increased personnel costs of $3.2 million and professional fees of $2.8 million associated with our strategic growth initiatives and to further our Building Technologies offering, $1.4 million for variable compensation, and $0.3 million in depreciation and amortization.

Selling expense increased 23.2% to $52.4 million from $42.5 million, primarily due to increases of $3.8 million of variable compensation, $3.5 million in personnel costs, $0.9 million in travel related costs, and $0.6 million in advertising costs.

General and administrative expense increased 7.4% to $64.8 million from $60.3 million, primarily due to increases of $3.7 million on variable compensation and $1.9 million in personnel costs

Acquisition and integration costs related to ETANCO were $1.1 million lower.

Our effective income tax rat e decreased to 25.9% from 26.8%.

Our effective income tax rat e increased to 25.7% from 25.3%.

Consolidated net income was $104.0 million compared to $88.2 million.

Diluted earnings per share was $2.43 compared to $2.06.

The following table shows net sales by segment for the three months ended June 30, 2023 and 2022, respectively:

The following table shows net sales by segment for the three months ended September 30, 2023 and 2022, respectively:

(in thousands) America Europe Pacific Total

Three months ended

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

June 30, 2023 465,467 127,817 4,296 597,580

Increase (decrease) $ 9,057 $ (5,421) $ 712 $ 4,348

Percentage increase (decrease) 2.0 % (4.1) % 19.9 % 0.7 %

The following table shows segment net sales as percentages of total net sales for the three months ended June 30, 2023 and 2022, respectively:

September 30, 2022 $ 437,770 $ 111,903 $ 3,989 $ 553,662

September 30, 2023 456,820 119,043 4,221 580,084

Increase $ 19,050 $ 7,140 $ 232 $ 26,422

Percentage increase 4.4 % 6.4 % 5.8 % 4.8 %

The following table shows segment net sales as percentages of total net sales for the three months ended September 30, 2023 and 2022, respectively:

America Europe Asia/

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Percentage of total 2023 net sales 79 % 20 % 1 % 100 %

The following table shows gross profit by segment for the three months ended June 30, 2023 and 2022, respectively:

The following table shows gross profit (loss) by segment for the three months ended September 30, 2023 and 2022, respectively:

North Asia/ Admin &

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Three months ended

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

June 30, 2023 238,245 47,819 1,820 (418) 287,466

September 30, 2022 $207,948 $35,215 $1,402 $(42) $244,523

September 30, 2023 236,451 45,115 1,771 (420) 282,917

Increase (decrease) $28,503 $9,900 $369 $(378) $38,394

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* The statistic is not meaningful or material.

The following table shows gross margin by segment for the three months ended June 30, 2023 and 2022, respectively:

The following table shows gross margin by segment for the three months ended September 30, 2023 and 2022, respectively:

America Europe Asia/

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• Gross margin increased to 51.8% from 47.5%, primarily from lower raw material costs, partially offset by higher factory and tooling, warehouse and freight costs, as a percentage of net sales.

• Research, development and engineering expenses increased 26.8%, primarily due to increases of $1.6 million in personnel costs, $0.9 million in variable compensation, $0.4 million in professional fees, and $0.2 million depreciation and amortization.

• Selling expense increased 15.6%, primarily due to increases of $2.5 million in personnel costs, $1.8 million in variable compensation, and $0.2 million in professional fees.

• General and administrative expense increased 10.8%, primarily due to increases of $2.5 million in personnel cost and $2.2 million in computer and software expense net of amounts capitalized, offset by decreases of $2.2 million in professional fees and $1.4 million in bad debt expense.

• Income from operations increased by $6.1 million due to the factors discussed above.

• Net sales decreased 4.1%, primarily by lower sales volumes.

• Research, development and engineering expenses increased 46.4%, primarily due to increased professional fees of $2.8 million and personnel costs of $2.1 million associated with our strategic growth initiative and to further our Building Technology offering, and $1.4 million in variable compensation.

• Selling expense increased 26.0%, primarily due to increases of $3.4 million in personnel costs and $3.2 million in variable compensation.

• General and administrative expense increased 15.0%, primarily due to increases of $1.8 million in variable compensation, $1.2 million in personnel cost, $0.6 in depreciation and amortization, $0.5 million in bad debt, and $0.2 million in computer and software expense net of amounts capitalized.

• Income from operations decreased by $8.3 million due to the factors discussed above.

• Net sales increased 6.4%, primarily due to the positive effect from $7.9 million in foreign currency translation, partially offset by lower sales volumes.

• Gross margin increased to 37.9% from 31.5%.

Europe gross profit of $47.8 million included $30.3 million from ETANCO which contributed 38.1% gross margin compared to last year of 23.9%, which included the fair value adjustment of $9.2 million.

• Income from operations increased by $8.4 million, which includes ETANCO's operating income of $7.6 million which is net of $4.3 million of amortization expense on acquired intangible assets, and $1.9 million in integration costs.

• 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, 2023 and 2022.

Results of Operations for the Six Months Ended June 30, 2023, Compared with the Six Months Ended June 30, 2022

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, 2023, against the results of operations for the six months ended June 30, 2022.

Unless otherwise stated, the results announced below, when referencing “both periods,” refer to the six months ended June 30, 2022 and the six months ended June 30, 2023

Europe gross profit of $45.1 million increased 28.1% from $35.2 million, which included an inventory fair value adjustment of $2.9 million related to the acquisition of ETANCO, representing 2.6 percentage points of Europe's gross margin improvement.

• Income from operations increased by $9.3 million from $6.1 million to $15.5 million due to the factors discussed above.

• 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 September 30, 2023 and 2022.

Results of Operations for the Nine Months Ended September 30, 2023, Compared with the Nine Months Ended September 30, 2022

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 nine months ended September 30, 2023, against the results of operations for the nine months ended September 30, 2022.

Unless otherwise stated, the results announced below, when referencing “both periods,” refer to the nine months ended September 30, 2022 and the nine months ended September 30, 2023

On April 1, 2022, the Company acquired ETANCO (Note 3) and subsequently began recording and reporting its financial operation results through the second quarter of 2022 and future quarters.

Due to the date we acquired ETANCO, 2023 results for our Financial Highlights include two quarters of ETANCO whereas 2022 included one quarter, and the year to date results between 2023 and 2022 for our Financial Highlights impacts only our Consolidated and Europe segment.

Due to the date we acquired ETANCO, 2023 results for our Financial Highlights include three quarters of ETANCO whereas 2022 included two quarters, and the year to date results between 2023 and 2022 for our Financial Highlights impacts only our Consolidated and Europe segment.

As a result, all financial and margin changes for our Consolidated and Europe segment may reflect large financial and percentage increases through the 2023 year-to-date reporting cycle.

Year-to-Date (9-month) 2023 Consolidated Financial Highlights

The following table illustrates the differences in our operating results for the six months ended June 30, 2023, from the six months ended June 30, 2022, and the increases or decreases for each category by segment:

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

June 30, North Asia/ Admin & June 30,

The following table illustrates the differences in our operating results for the nine months ended September 30, 2023, from the nine months ended September 30, 2022, and the increases or decreases for each category by segment:

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

September 30, North Asia/ Admin & September 30,

(in thousands) 2022 America Europe Pacific All Other 2023

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Acquisition and integration related costs 14,681 — (9,602) — (993) 4,086

Net gain on disposal of assets (1,126) 7 906 5 1 (207)

Income (loss) from operations 257,514 (15,239) 23,254 (423) (1,723) 263,383

Net gain (loss) on disposal of assets (1,227) 48 932 23 1 (223)

Income from operations 380,330 (7,305) 31,533 (180) (782) 403,596

Interest income (expense), net and other (6,568) 2,489 (2,174) (2) 6,273 18

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2022 offset by lower sales volumes in North America.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 86% of the Company's total sales in the first six months of 2023 and 2022.

Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 14% of the Company's total sales in the first six months of 2023 and 2022.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85.4% of the Company's total sales in the first nine months of 2023 and 2022.

Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 14.1% of the Company's total sales in the first nine months of 2023 and 2022.

Gross profit increased 11.2% to $823.3 million from $740.6 million.

Gross margins increased to 47.7% from 45.6%, The increase includes a 2022 non-recurring charge of $9.2 million for the fair value step-up of inventory acquired from ETANCO, which did not occur in 2023, as well as lower raw material costs for the Company overall.

Gross margins increased to 48.1% from 45.1%.

The increase includes a 2022 non-recurring charge of $12.8 million for the fair value step-up of inventory acquired from ETANCO, which did not occur in 2023, as well as lower raw material costs for the Company overall.

Gross margins increased to 48.1% from 45.2% for wood construction products and increased to 47.0% from 44.5% for concrete construction products.

Research and development and engineering expense increased 28.9% to $42.3 million from $32.8 million primarily due to increases of $5.7 million in personnel costs, $1.3 million in variable compensation, $0.7 million in professional fees, $0.6 million in depreciation and amortization and $0.5 million in travel related costs.

Selling expense increased to $99.1 million from $81.9 million, primarily due to increases of $8.0 million in personnel costs, $3.2 million in variable compensation, $1.8 million in travel related costs, $1.5 million in professional fees, and $0.6 million in advertising and trade shows.

General and administrative expense increased to $132.5 million from $112.2 million, primarily due to increases of $6.3 million in personnel costs, $6.2 million in depreciation and amortization expenses, $3.2 million computer and software expenses net of amounts capitalized and $1.1 million in travel related costs.

Research and development and engineering expense increased 34.4% to $67.0 million from $49.9 million primarily due to increases of $8.8 million in personnel costs and $3.5 million in professional fees associated with our strategic growth initiatives and to further our Building Technology offering, $2.7 million in variable compensation, $0.9 million in depreciation and amortization, and $0.5 million in travel related costs.

Selling expense increased to $151.5 million from $124.4 million, primarily due to increases of $11.5 million in personnel costs, $7.1 million in variable compensation, $2.8 million in travel related costs, $1.6 million in professional fees, $1.1 million in advertising and trade shows, and $0.7 million in lease costs.

General and administrative expense increased to $197.3 million from $172.5 million, primarily due to increases of $8.2 million in personnel costs, $6.6 million in depreciation and amortization expenses, $4.1 million in variable compensation, $3.9 million computer and software expenses net of amounts capitalized, $1.4 million in travel related costs, and $0.3 million in bad debt expense offset by decrease of $3.9 million in professional fees.

Acquisition and integration costs related to ETANCO were $3.7 million lower.

2 unchanged sentences

Diluted earnings per share was $6.98 compared to $6.40.

The following table represents net sales by segment for the six-month periods ended June 30, 2022 and 2023:

The following table represents net sales by segment for the nine-month periods ended September 30, 2022 and 2023:

(in thousands) America Europe Pacific Total

Six Months Ended

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

June 30, 2023 871,797 252,031 8,182 1,132,010

Nine Months Ended

September 30, 2022 $ 1,332,911 $ 296,592 $ 10,961 $ 1,640,464

September 30, 2023 1,328,615 371,074 12,404 1,712,093

Increase (decrease) $ (4,296) $ 74,482 $ 1,443 $ 71,629

Percentage increase (decrease) (0.3) % 25.1 % 13.2 % 4.4 %

The following table represents segment sales as percentages of total net sales for the six-month periods ended June 30, 2022 and 2023, respectively:

The following table represents segment sales as percentages of total net sales for the nine-month periods ended September 30, 2022 and 2023, respectively:

America Europe Asia/

2 unchanged sentences

Percentage of total 2023 net sales 78 % 22 % — % 100 %

The following table represents gross profit by segment for the six-month periods ended June 30, 2022 and 2023:

The following table represents gross profit (loss) by segment for the nine-month periods ended September 30, 2022 and 2023:

North Asia/ Admin &

(in thousands) America Europe Pacific All Other Total

Six Months Ended

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

June 30, 2023 443,767 94,423 2,744 (593) 540,341

Nine Months Ended

September 30, 2022 $ 645,166 $ 91,691 $ 3,948 $ (169) $ 740,636

September 30, 2023 680,218 139,538 4,515 (1,013) 823,258

Increase (decrease) $ 35,052 $ 47,847 $ 567 $ (844) $ 82,622

1 unchanged sentence

* The statistic is not meaningful or material

The following table represents gross margin by segment for the six-month periods ended June 30, 2022 and 2023:

The following table represents gross margin by segment for the nine-month periods ended September 30, 2022 and 2023:

(in thousand) North

7 unchanged sentences

• Net sales decreased 0.3%, primarily due to lower volumes.

• Gross margin increased to 50.9% from 48.8%, due to lower raw material costs as a percentage of net sales, which were partially offset by higher labor, factory & tooling and warehouse costs as a percentage of net sales.

• Research and development and engineering expense increased 27.3%, primarily due to increases of $3.1 million in personnel costs, $1.2 million in variable compensation, $0.9 million in professional fees, $0.5 million in depreciation and amortizations and $0.4 million in travel related costs.

• Selling expense increased 14.2%, primarily due to increases of $4.0 million in personnel costs, $1.7 million in variable compensation, $1.2 million in professional fees and $1.1 million in travel related costs.

• Gross margin increased to 51.2% from 48.4%, due to lower raw material costs as a percentage of net sales, which were partially offset by factory & tooling, warehouse and freight costs as a percentage of net sales .

• Research and development and engineering expense increased 33.8%, primarily due to increases of $5.2 million in personnel costs, $3.7 million in professional fees, $2.6 million in variable compensation, $0.7 million in depreciation and amortizations, and $0.4 million in travel related costs.

• Selling expense increased 18.2%, primarily due to increases of $7.4 million in personnel costs, $4.9 million in variable compensation, $1.9 million in travel related costs, $1.2 million in professional fees, and $0.5 million in advertising and trade shows.

• General and administrative expense increased 9.2%, primarily due to increases of $4.5 million in personnel costs, $3.3 million in computer and software expenses net of amounts capitalized, and $0.7 million in travel related costs offset by $3.5 million in professional fees.

• Income from operations decreased $15.2 million, due to decreased gross profit and higher operating expenses.

• Net sales increased 36.5%, primarily due to the ETANCO acquisition providing one quarter of sales year to date in 2022 compared with two quarters of sales year to date in 2023.

The increase in sales were partly offset by the negative effect of approximately $3.1 million in foreign currency translation.

• Income from operations decreased $7.3 million, due to higher operating expenses offset by increased gross profit.

• Net sales increased 25.1%, primarily due to the ETANCO acquisition providing two quarter of sales year to date in 2022 compared with three quarters of sales year to date in 2023.

• Gross margin increased to 37.6% from 30.9% while gross profit increased $47.8 million.

3 unchanged sentences

Included in income from operations was ETANCO's increased profit of $19.3 million, which included $13.3 million of amortization expense on acquired intangible assets, and $4.1 million for integration costs for a total of $16.8 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, 2023 and 2022.

• For information about the Company's Asia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the nine months ended September 30, 2023 and 2022.

Effect of New Accounting Standards

4 unchanged sentences

On March 30, 2022, the Company entered into an Amended and Restated Credit Agreement to finance a portion of its acquisition of ETANCO, 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.

As of June 30, 2023, the Company had borrowings of $150.0 million under the revolving credit facility and $421.9 million under the term loan facility, and has $300.0 million available to borrow under the revolving credit

As of September 30, 2023, the Company had borrowings of $150.0 million under the revolving credit facility and $416.3 million under the term loan facility, and has $300.0 million available to borrow under the revolving credit

We believe that our cash position and cash flows from operating activities are sufficient to meet our cash flow needs for the next twelve months and the foreseeable future, including repayments of amounts of outstanding debt under the Amended and Restated Credit Agreement.

As of June 30, 2023, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions.

As of September 30, 2023, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions.

Cash and cash equivalents of $103.1 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the United States.

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 June 30, 2023, December 31, 2022 and June 30, 2022, respectively:

As of June 30, As of December 31, As of June 30,

The following table shows selected financial information as of September 30, 2023, December 31, 2022 and September 30, 2022, respectively:

As of September 30, As of December 31, As of September 30,

(in thousands) 2023 2022 2022

3 unchanged sentences

Working capital excluding cash and cash equivalents 479,624 529,945 576,719

The following table provides information on how cash was used or provided during the six-month periods ended June 30, 2023 and 2022, respectively:

Six Months Ended June 30,

The following table provides information on how cash was used or provided during the nine-month periods ended September 30, 2023 and 2022, respectively:

Nine Months Ended September 30,

(in thousands) 2023 2022

7 unchanged sentences

For example, trade accounts receivable are generally lowest at the end of the fourth quarter and increases during the first, second and third quarters as construction activity ramps in markets we serve.

During the six months ended June 30, 2023, operating activities provided $197.2 million in cash, as a result of $195.2 million from net income plus $45.2 million non-cash expenses such as depreciation, amortization, and stock-based compensation.

This amount was partly offset by $43.1 million used for the net change in operating assets and liabilities, including an increase of $118.9 million in trade accounts receivable and decreases of $49.0 million in other current liabilities and $34.9 million in inventory.

Cash used in investing activities of $48.0 million during the six months ended June 30, 2023 was mainly for capital expenditures and acquisition related activities.

Our capital spending for the six months ended June 30, 2023 and June 30, 2022 was $37.9 million and $31.8 million, respectively, which was primarily used for machinery and equipment purchases and real estate improvements.

Based on current information and subject to future events and circumstances, total approved capital spending for 2023 will be in the $105.0 million to $115.0 million range, compared to the previous estimate of $85.0 to $95.0 million, primarily due to the recently announced greenfield opportunity to replace our facility in Gallatin, Tennessee for both maintenance and growth to maximize efficiencies and invest in our key initiatives.

During the nine months ended September 30, 2023, operating activities provided $398.2 million in cash, as a result of $299.2 million from net income plus $69.3 million non-cash expenses such as depreciation and amortization and stock-based compensation as well as $29.7 million provided by the net change in operating assets and liabilities.

The net change in operating assets and liabilities included a decrease of $50.2 million in inventory and an increase of $79.5 million in income taxes payable, partly offset by an increase of $85.2 million in trade accounts receivable.

Cash used in investing activities of $66.6 million during the nine months ended September 30, 2023 was mainly for capital expenditures and acquisition related activities.

Our capital spending for the nine months ended September 30, 2023 and September 30, 2022 was $57.5 million and $41.6 million, respectively, which was primarily used for machinery and equipment purchases and real estate improvements.

Based on current information and subject to future events and circumstances, total approved capital spending for 2023 will be approximately $100.0 million, compared to the previous estimate of $105.0 to $115.0 million, primarily due to our Columbus facility expansion, for capital expenditures for maintenance, efficiency gains and growth opportunities and for the acquisition of land to construct our recently announced fastener factory.

Our acquisition activities were primarily for expanding our product line.

Cash used in financing activities of $41.0 million during the six months ended June 30, 2023 consisted primarily of $22.2 million used to pay dividends to our stockholders, $11.7 million used for debt repayment and $7.4 million used to pay income taxes on behalf of employees for shares withheld with respect to their vested restricted stock units.

On July 28, 2023, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.27 per share payable on October 26, 2023, to the Company's stockholders of record on October 5, 2023.

Since the beginning of 2019 to the quarter ended June 30, 2023, we have returned $428.1 million to stockholders, which represents 46.7% of our free cash flow and includes repurchasing over 3.1 million shares of the Company's common stock, which represents approximately 6.8% of the outstanding shares of the Company's common stock at the start of 2019.

Cash used in financing activities of $58.2 million during the nine months ended September 30, 2023 consisted primarily of $33.7 million used to pay dividends to our stockholders, $17.4 million used for debt repayment and $7.4 million used to pay income taxes on behalf of employees for shares withheld with respect to their vested restricted stock units.

On October 19, 2023, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.27 per share payable on January 25, 2024, to the Company's stockholders of record on January 4, 2024.

On the same date, the Board authorized the Company to repurchase up to $100.0 million of the Company's common stock, effective January 1, 2024 through December 31, 2024.

From October 1, 2023 to November 6, 2023, the Company purchased 333,469 shares of the Company's common stock at an average price of $138.09 per share, for a total of $46.1 million.

Since the beginning of 2019 to the quarter ended September 30, 2023 and including shares repurchased from October 1,2023 to November 6, 2023, we have returned $485.7 million to stockholders, which represents approximately 42.8% of our free cash flow and includes repurchasing over 3.3 million shares of the Company's common stock, which represents approximately 7.5% of the outstanding shares of the Company's common stock at the start of 2019.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2023.

We did not have any off-balance sheet arrangements as of September 30, 2023.

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