What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 146 added, 210 removed, 91 unchanged (80% of the section changed)

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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

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.

This Quarterly Report on Form 10-Q we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance.

Such statements are 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 (the “Exchange Act”).

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.

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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 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.

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 effects of inflation and labor and supply shortages, on our operations, the operations of our customers, suppliers and business partners, and our ongoing integration of ETANCO and those discussed under Item 1A.

Risk Factors and Item 7.

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North America, Europe and Asia/Pacific.

Recent Developments

In 2021, 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 expanding the markets for wood and concrete structural connections and solutions.

These key growth initiatives will focus on the OEM, repair and remodel or do-it-yourself, mass timber, concrete and structural steel markets.

In order to grow in these markets, we aspire to be among the leaders in engineered load-rated construction building products and systems and building technology while leveraging our engineering expertise, deep-rooted relationships with top builders, engineers, contractors, code officials and distributors, along with our ongoing commitment to testing, research and innovation.

Importantly, we currently have existing products, testing results, distribution and manufacturing capabilities for our key growth initiatives.

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.

We have continued to make progress towards our key growth initiatives that were first announced in 2021.

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 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, 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;

• Expanding our product line and off-shelf merchandising efforts within the home center channel, including our Outdoor Accents decorative hardware line;

• 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.

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

Our organic opportunities focused on expanding our product line with our current customers while also identifying new opportunities within our core competencies of wood and concrete products.

These new growth opportunities focused on gaining share with our primary customer markets.

In order to grow in these markets, we aspire to be among the leaders in engineered load-rated construction building products and systems and digital product offerings while leveraging our engineering expertise, deep-rooted relationships with top builders, engineers, contractors, code officials and distributors, along with our ongoing commitment to testing, research and innovation.

Importantly, we currently have existing products, testing results, distribution and manufacturing capabilities to support our Company ambitions and key growth initiatives.

This 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.

In the past two years, we have reorganized our sales teams to customer market focused teams dedicated to serving the following markets:

• Residential;

• Commercial;

• Original Equipment Manufacturers ("OEM");

• National Retail;

• Component Manufacturers

Our commitment to continuous improvement has fostered our core Company ambitions, which we continue to pursue including:

• Strengthen our values-based culture;

• Be the business partner of choice;

• Strive to be an innovative leader in the markets we operate;

• Continue above market growth relative to the United States housing starts;

• Remain within the top quartile of our proxy peers for operating income margin;

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

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

housing starts in fiscal 2023 and beyond.

• Be the partner of choice;

• Be an innovative leader in the markets we operate;

• Above market growth relative to the United States housing starts;

• An operating income margin within the top quartile of our proxy peers;

• Integrate ETANCO and restoring our return on invested capital to be within the top quartile of our proxy peers.

We have made progress towards our key growth initiatives since they were first announced in 2021.

A few recent examples include:

• The integration of ETANCO which has resulted in additional scale for our legacy European operations, as well as the opportunity to realize synergies in those operations;

• Continued growing United States sales volumes above United States housing starts growth;

• Formed a new partnership agreement with a large independent co-op serving more than 12,000 retail hardware stores, home centers, and pro lumber dealers, which led to significant conversions of our connectors, fasteners and anchor products;

• Recaptured a number of lumber dealers in North America with the opportunity to expand the products lines;

• Rolled out 14 new products, globally, during the first quarter of 2024;

• Expansion of our Outdoor Accents® decorative hardware, fasteners and anchors product lines, which contributed to our growth in the do-it-yourself ("DIY") or construction contractor segments of our national retail market;

• Converted component manufacturers to using our truss software and purchasing our truss plate and connectors solution sets, including a major component manufacture;

• Completed our path-to-market shift away from two-step distribution in North America, enabling us to sell our complete product line and drive additional market share gains.

We believe this progress is the result of our high service levels, increasingly diverse portfolio of products and software as well as our commitment to innovation and developing complete solutions for the markets we serve.

As we continue to make progress on our key growth initiatives, we believe we can continue to achieve above market growth in the United States relative to United States housing starts for fiscal 2024 and beyond.

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 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.

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.

Beginning this quarter, we now include consolidated Adjusted EBITDA, a non-GAAP measure.

We use Adjusted EBITDA to provide additional insight into the Company’s operating performance in light of the significant levels of growth investment we are continuing to make in the business and the effect accelerated depreciation and acquisition and integration costs will have on our operating results.

This will also provide a better approximation of our cash flows compared to operating income.

Factors Affecting Our Results of Operations

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

Though single-family housing starts increased in prior years, we have seen demand decline from 2022, though not as much as initially projected entering the year.

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 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.

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, if any.

Overall housing starts increased slightly during the first quarter of 2024 compared to the first quarter of 2023, with single family starts increasing significantly during the first quarter of 2024.

The increase in single family starts was mostly offset by lower multi-family housing starts, which are more sensitive to interest rate increases and inflation.

Lower housing starts in the United States could result in lower demand, which would affect the Company's sales and possibly operating profit.

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 than historically.

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.

Due to efforts in diversifying our global footprint with the acquisition of ETANCO and changing our path to market in the United States, sales from our product line, customer base and customer purchases are becoming less seasonal.

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 any increases in raw material costs.

Our operations also expose us to risks associated with pandemics, epidemics or other public health crises.

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 1.7% 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 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.

North America net sales increased slightly for the quarter ended March 31, 2024 compared to March 31, 2023, due to higher sales volumes of 8%, measured by pounds shipped, which were offset by price decreases implemented during 2023 and increased rebates due to increased volume sales, as well as an increase in estimated rebates to home builders.

Our wood construction product net sales decreased 0.6% for the quarter ended March 31, 2024 compared to March 31, 2023 as described above.

Our concrete construction product sales increased 6.0% over the same periods, due to higher volumes.

Over the last several years, our historical average volume growth in North America has exceeded the housing starts market growth by approximately 250 basis points.

We believe the United States 2024 housing starts market will grow in the low single digits relative to fiscal year 2023 housing starts and one of our ambitions is to continue to grow above market.

With the investments we have made and continue to make, we believe we are well positioned to achieve that ambition.

During 2024, work continued on our Columbus facility expansion as well as the building of the replacement of our Gallatin facility.

We expect the expansion and replacement of these facilities 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.

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.

Europe sales decreased 3.4% for the quarter ended March 31, 2024 compared to March 31, 2023, primarily due to lower sales volumes, primarily in the residential market, which was partly offset by the positive effect of approximately $2.2 million in foreign currency translation.

Wood construction product sales decreased 3.2% for the quarter ended March 31, 2024 compared to March 31, 2023 and concrete construction product sales, which are mostly project based, decreased 4.6% for the quarter ended March 31, 2024 compared to March 31, 2023.

Gross profit decreased $2.8 million primarily due to lower net sales as well as a lower gross profit margin, mostly on higher warehouse and freight costs.

Operating income decreased $5.2 million on higher operating and integration expenses, offset partly from a release of contingent tax liability associated with an acquisition and an increase in foreign currency gains.

Fiscal 2024 operating margins will include anticipated integration costs estimated to range between $4.0 million to $5.0 million.

We currently anticipate Europe 2024 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.

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.

Business Outlook

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 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.

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:

The Company updated its financial outlook for the full fiscal year ending December 31, 2024 based on one quarter of actual results, and its latest expectations regarding demand trends, raw material costs and operating expenses as of follow:

◦ Operating margin is estimated to be in the range of 20.0% to 21.5%, including approximately $85.5 million in depreciation and amortization expense.

◦ The effective tax rate is estimated to be in the range of 24.5% to 25.5%, including both federal and state income tax rates as well as international income tax rates, and assuming no tax law changes are enacted.

◦ Capital expenditures are estimated to be approximately $185 million, which includes $105 million for the Columbus, Ohio facility expansion and the new Gallatin, Tennessee fastener facility construction.

Results of Operations for the Three Months Ended March 31, 2024, Compared with the Three Months Ended March 31, 2023

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, 2024, against the results of operations for the three months ended March 31, 2023.

Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended March 31, 2023 and the three months ended March 31, 2024.

First Quarter 2024 Consolidated Financial Highlights

The following table shows the change in the Company's results of operations from the three months ended March 31, 2023 to the three months ended March 31, 2024, and the increases or decreases for each category by segment:

Three Months Ended Three Months Ended

Increase (Decrease) in Operating Segment

September 30, North Asia/ Admin & September 30,

March 31, North Asia/ Admin & March 31,

(in thousands) 2023 America Europe Pacific All Other 2024

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Total operating expenses 133,121 10,581 1,886 190 832 146,610

Acquisition and integration related costs 1,866 — (1,070) — (11) 785

Net loss (gain) on disposal of assets (100) 41 26 18 (1) (16)

Integration costs 1,442 — 604 — — 2,046

Net gain on disposal of assets

(50) (78) (70) — (198)

Income from operations 118,363 (15,488) (5,212) (438) (1,127) 96,098

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Provision for income taxes 29,441 (4,474) (284) (73) (1,622) 22,988

$ 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.

Net income $ 87,954 $ (4,257) $ (1,674) $ (127) $ (6,466) $ 75,430

Net sales decreased 0.7% to $530.6 million from $534.4 million.

As noted above, North America sales volume increased 8%, measured in pounds, and were offset by price decreases implemented during 2023, increased volume rebates as a result of increased volume sales, and an increase in estimated rebates to home builders, as well as a decrease in Europe sales volumes.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85% of the Company's total sales in the first quarters of 2024 and 2023, respectively.

Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 15% and 14% of the Company's total sales in the first quarters of 2024 and 2023, respectively.

Gross profit decreased 3.3% to $244.6 million from $252.9 million primarily due to higher overhead costs partially offset by lower raw material costs.

As a result, consolidated gross margins were 46.1% compared to 47.3% 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 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 increased to 25.7% from 25.3%.

From a product perspective, gross margin decreased to 46.1% from 47.1% for wood construction products and decreased to 46.5% from 47.1% for concrete construction products, respectively.

Research and development and engineering expense increased 5.6% to $21.9 million from $20.7 million, primarily due to increased personnel costs of $1.3 million, $0.4 million in depreciation and amortization offset by a decrease of $0.5 million of variable compensation.

Selling expense increased 12.0% to $54.5 million from $48.7 million, primarily due to increased personnel costs of $4.5 million, $1.2 million in advertising and trade shows costs, and $0.9 million in travel related costs offset by a decrease of $1.1 million of variable compensat ion .

General and administrative expense increased 10.2% to $70.2 million from $63.7 million, primarily due to increased personnel costs of $3.5 million, $2.6 million in software licensing & Information Technology ("IT") costs, and $1.9 million in professional service fees offset by a decrease of $1.4 million of variable compensatio n .

Our effective income tax rat e decreased to 23.4% from 25.1%.

Consolidated net income was $75.4 million compared to $88.0 million.

Diluted earnings per share was $1.77 compared to $2.05.

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

Adjusted EBITDA 1 of $117.3 million decreased 14.4% compared to $137.0 million, primarily due to lower gross profits on lower net sales as well as increased personnel costs, IT costs and professional service fees, which were partly offset by decreases in variable compensation costs.

The following table shows net sales by segment for the three months ended March 31, 2024 and 2023, respectively:

(in thousands) America Europe Pacific Total

Three months ended

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/

Pacific Total

Percentage of total 2022 net sales 79 % 20 % 1 % 100 %

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

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

North Asia/ Admin &

(in thousands) America Europe Pacific All Other Total

Three months ended

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

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

March 31, 2023 $ 406,330 $ 124,215 $ 3,885 $ 534,430

March 31, 2024 406,749 119,938 3,892 530,579

Increase (decrease)

Percentage Increase 13.7 % 28.1 % * * 15.7 %

* The statistic is not meaningful or material.

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

America Europe Asia/

Pacific Admin &

All Other Total

2022 gross margin percentage 47.5 % 31.5 % 35.1 % * 44.2 %

2023 gross margin percentage 51.8 % 37.9 % 42.0 % * 48.8 %

* The statistic is not meaningful or material.

North America

• Net sales increased 4.4%, primarily due to higher volumes.

• 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 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 $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 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 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

Net sales $ 1,640,464 $ (4,296) $ 74,482 $ 1,443 $ — $ 1,712,093

Cost of sales 899,828 (39,348) 26,635 876 844 888,835

Gross profit 740,636 35,052 47,847 567 (844) 823,258

Research and development and other engineering

expense 49,892 15,520 1,731 (140) 32 67,035

Selling expense 124,449 17,237 9,492 327 (8) 151,497

General and administrative expense 172,511 9,552 13,761 537 906 197,267

$ 419 $ (4,277) $ 7 $ (3,851)

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

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

Other & foreign exchange gain (loss), net (3,814) 5,006 1,292 (348) (3,607) (1,471)

Income (Loss) before income taxes 369,948 190 30,651 (530) 1,884 402,143

Provision for income taxes 93,559 (465) 9,299 (101) 666 102,958

Net income $ 276,389 $ 655 $ 21,352 $ (429) $ 1,218 $ 299,185

Net sales increased 4.4% to $1,712.1 million from $1,640.5 million driven by ETANCO's extra quarter of net sales in 2023 vs.

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 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 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 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.

Our effective income tax rate increased to 25.6% from 25.3%.

Consolidated net income was $299.2 million compared to $276.4 million.

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

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

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) 0.1 % (3.4) % 0.2 % (0.7) %

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

The following table shows segment net sales as percentages of total net sales for the three months ended March 31, 2024 and 2023, respectively:

America Europe Asia/

2 unchanged sentences

Percentage of total 2024 net sales 76 % 23 % 1 % 100 %

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

The following table shows gross profit (loss) by segment for the three months ended March 31, 2024 and 2023, respectively:

North Asia/ Admin &

(in thousands) America Europe Pacific All Other Total

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

Percentage increase 5.4 % 52.2 % * * 11.2 %

Three months ended

March 31, 2023 $205,522 $46,604 $924 $(174) $252,876

March 31, 2024 200,537 43,812 676 (469) 244,556

$(4,985) $(2,792) $(248) $(295) $(8,320)

Percentage (decrease)

(2.4) % (6.0) % * * (3.3) %

* The statistic is not meaningful or material.

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

(in thousand) North

The following table shows gross margin by segment for the three months ended March 31, 2024 and 2023, respectively:

America Europe Asia/

4 unchanged sentences

* The statistic is not meaningful or material.

1 Adjusted EBITDA is a non-GAAP financial measure.

For a reconciliation of Adjusted EBITDA to U.S.

generally accepted accounting principles ("GAAP") net income see the schedule titled "Reconciliation of Net Income to Adjusted EBITDA."

North America

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

• 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 $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.

Europe's gross profit included ETANCO's increased profit of $50.0 million.

ETANCO gross margin increased from 28.8% to 38.0% with the non-recurring inventory adjustment of $12.8 million reflected in 2022.

• Income from operations increased $31.5 million, primarily due to higher gross profit.

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 nine months ended September 30, 2023 and 2022.

• Net sales increased 0.1%, primarily due to increased sales volumes offset by price decreases implemented during 2023 and increased volume discounts on increased sales volumes, including an increase in estimated rebates to home builders.

• Gross margin decreased to 49.3% from 50.6%, primarily due to higher warehouse and freight costs, partially offset by lower material costs, as a percentage of net sales.

• Research, development and engineering expense increased 4.5%, primarily due to increased personnel costs of $0.3 million and $0.3 million in depreciation and amortization.

• Selling expense increased 17.3% , primarily due to increased personnel costs of $4.9 million, $0.9 million in advertising and trade shows cost, $0.8 million in travel related costs, and $0.7 million in software licensing and IT costs, net of amounts capitalized, offset by a decrease of $1.0 million of variable compensation.

• General and administrative expense increased 9.9%, primarily due to increased personnel costs of $2.1 million, $1.9 million in software licensing and IT costs, net of amounts capitalized, offset by a decrease of $0.7 million in variable compensation.

• Income from operations decreased by $15.5 million due to the factors discussed above.

• Net sales decreased 3.4%, primarily due to lower sales volumes, partially offset by the positive effect of $2.2 million in foreign currency translation.

• Gross margin decreased to 36.5% from 37.5%.

Europe gross profit of $43.8 million decreased 6.0% from $46.6 million, primarily due to increased warehouse and freight costs, as a percentage of net sales.

• Income from operations decreased by $5.2 million from $13.5 million to $8.3 million due to lower gross margins and high personnel 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 March 31, 2024 and 2023.

Reconciliation of Non-GAAP Financial Measures

(In thousands) (Unaudited)

A reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, is set forth below.

Three Months Ended March 31,

Net Income $ 75,430 $ 87,954

Provision for income taxes 22,988 29,441

Interest (income) expense, net and other financing costs (351) 570

Depreciation and amortization 19,189 17,365

Other* 26 1,704

Adjusted EBITDA $ 117,282 $ 137,034

Includes acquisition integration and restructuring related expenses, other & foreign exchange loss net, and net loss or gain on disposal of assets.

Effect of New Accounting Standards

See "Note 1 Basis of Presentation — Accounting Standards Not Yet Adopted ” to the accompanying unaudited interim Condensed Consolidated Financial Statements.

Liquidity and Sources of Capital

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.

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 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 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.

Liquidity and Capital Resources

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

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 million and for a 5-year term loan facility of $450.0 million.

As of March 31, 2024, the Company had borrowings of $75.0 million under the revolving credit facility and $405.0 million under the term loan facility, and has $375.0 million available to borrow under the revolving credit facility.

As of March 31, 2024, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions includes $91.7 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the U.S.

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

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

The following table shows selected financial information as of March 31, 2024, December 31, 2023 and March 31, 2023, respectively:

As of March 31, As of December 31, As of March 31,

(in thousands) 2024 2023 2023

3 unchanged sentences

Working capital excluding cash and cash equivalents 607,191 521,362 639,334

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,

The following table presents the significant categories of cash flows was used or provided during the three-month periods ended March 31, 2024 and 2023, respectively:

Three Months Ended March 31,

(in thousands) 2024 2023

5 unchanged sentences

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 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 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 $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.

Our operating cash flows are impacted by prevailing macro-economic conditions and subject to seasonality, which is cyclically associated with the volume and timing of construction project starts.

For example, as a result of seasonality our 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 three months ended March 31, 2024, operating activities provided $7.9 million in cash, as a result of $75.4 million from net income plus $24.8 million non-cash expenses such as depreciation and amortization and stock-based compensation.

This amount was partly offset by $92.3 million used for the net change in operating assets and liabilities.

The net change in operating assets and liabilities included an increases of $61.3 million in trade accounts receivable, $12.8 million in other current assets, and $9.1 million in inventory.

Cash used in investing activities of $39.4 million during the three months ended March 31, 2024, which was primarily used for facility expansion projects and machinery and equipment purchases.

Due to updated forecasts on the timing of the spend and subject to future events and circumstances, capital expenditures are estimated to be approximately $185.0 million for 2024 (down from the previously forecasted $200.0 million) including the expected spend of $105.0 million on our previously announced Columbus, Ohio facility expansion and replacement of Gallatin, Tennessee facility, with some spend potentially carrying over to 2025.

The remaining $80.0 million in capital expenditures will be primarily focused on purchases of new equipment to support increased productivity and efficiencies, enhancements to our existing facilities to expand our manufacturing footprint in-line with increasing customer needs, as well as investments for adjacencies and key growth initiatives .

Cash used in financing activities of $24.8 million during the three months ended March 31, 2024 consisted primarily of $11.4 million used to pay dividends to our stockholders, $7.5 million used to pay income taxes on behalf of employees for shares withheld with respect to their vested restricted stock units and $7.1 million used for debt repayment.

On May 1, 2024, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.28 per share payable on July 25, 2024, to the Company's stockholders of record on July 4, 2024 ( due to July 4 being a U.S.

holiday, the effective record date is July 3, 2024).

From April 1, 2024 to May 2, 2024, the Company purchased 283,273 shares of the Company's common stock at an average price of $176.51 per share, for a total of $50.0 million.

Since the beginning of 2021 through May 2, 2024, we have returned $344.9 million to stockholders, and includes repurchasing over 1.7 million shares of the Company's common stock, which represents approximately 3.9% of the outstanding shares of the Company's common stock at the start of 2021.

Off-Balance Sheet Arrangements

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

We did not have any off-balance sheet arrangements as of March 31, 2024.

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