What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-07 · 127 added, 127 removed, 191 unchanged (57% of the section changed)

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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

In 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”).

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 (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.

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 for sales and market growth, 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.

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 for sales and market growth, 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”) and recently acquired companies, 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 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 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 factors discussed under Item 1A.

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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 North America sales volumes above United States housing starts growth;

• Acquisitions of a software company and a manufacturer of equipment used by component manufacturers to expand our offering of solutions to our component manufacturer customers and potentially accelerate growth in the market;

A number of recent examples include:

• The continued 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;

• North America sales volume grew by 500 basis points ahead of U.S.

housing starts over the trailing twelve months ending September 30, 2024;

• Acquisitions of a software company and a manufacturer of equipment used by component manufacturers as well as a manufacturer of pre-engineered structural support systems to expand our offering of solutions and potentially accelerate growth in the market;

• Formed a new relationship 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 33 new products, globally, during the first two quarters 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;

• Recaptured a number of lumber dealers and a large Northwest pro-dealer in North America with the opportunity to expand the products lines;

• Developed a national relationship with a leading building products manufacturer in North America to provide connectors and fasteners for their offsite construction solutions;

• Rolled out 47 new products, globally, during the first three quarters of 2024;

• Converted component manufacturers to using our truss software and purchasing our truss plate and connector 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.

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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.

We now include consolidated Adjusted EBITDA, a non-GAAP measure.

The Company defines adjusted EBITDA as net income (loss) before income taxes, adjusted to exclude depreciation and amortization, integration, acquisition and restructuring costs, goodwill impairment, gain on bargain purchase, net loss or gain on disposal of assets, interest income or expense, and foreign exchange and other expense (income).

Non-GAAP Financial Measures

In addition to financial information prepared in accordance with GAAP, we use Adjusted EBITDA as a non-GAAP financial measure in evaluating the ongoing operating performance of our business.

The Company defines adjusted EBITDA as net income (loss) before income taxes, adjusted to exclude depreciation and amortization, integration, acquisition and restructuring costs, non-qualified deferred compensation adjustments, goodwill impairment, gain on bargain purchase, net loss or gain on disposal of assets, interest income or expense, and foreign exchange and other expense (income).

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 our operations 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.

We believe 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.

Overall housing starts decreased during the second quarter of 2024 compared to the second quarter of 2023, with a significant decrease in multi-family housing starts, which are more sensitive to interest rate increases and inflation.

Housing starts have decreased from the current quarter to the prior year quarter six out of the last eight quarters.

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

Overall housing starts decreased 1.6% over the trailing twelve months ending September, 30, 2024 compared to the trailing twelve months ending September 30, 2023.

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

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

North America net sales decreased slightly for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Our wood construction product net sales decreased 1.3% for the six months ended June 30, 2024 compared to June 30, 2023.

North America net sales decreased slightly for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Our wood construction product net sales decreased 0.9% for the nine months ended September 30, 2024 compared to September 30, 2023.

Our concrete construction product sales increased 5.9% over the same periods.

We believe the United States 2024 housing starts market will be flat to down relative to fiscal year 2023 housing starts.

For the year-to-date period, housing starts have decreased in 2024 compared to the same period in 2023, while the Company's North America sales volumes have increased by approximately 4% over that same period.

We believe the United States 2024 housing starts market will be down relative to fiscal year 2023 housing starts.

For the trailing twelve month period, housing starts have decreased compared to the prior twelve month period, while the Company's North America sales volumes increased over that same period.

With the investments we have made and continue to make, we believe we will be able to continue to grow above the US housing starts market, one of our company ambitions.

Operating income decreased $26.9 million on lower gross profits as well as increased personnel costs, professional fees, and travel expenses .

Operating income decreased $39.2 million on lower gross profits as well as increased personnel costs (including engineering services), professional fees, and advertising and trade shows costs .

Fiscal 2024 operating margins have and will include anticipated acquisition and integration related costs.

We currently anticipate North America 2024 results to be impacted by economic headwinds but also believe in the long term potential given the on-going housing shortage.

North America 2024 results were impacted by economic headwinds but we believe in the long term potential given the on-going housing shortage.

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

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 net sales decrease d 0.9% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, Wood construction product sales decrease d 1.6% f or the six months ended June 30, 2024 compared to June 30, 2023 and concrete construction product sales, which are mostly project based, increased 2.1% over the same periods.

Europe net sales decrease d slightly for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due to lower sales volumes and some regional price decreases, offset by the positive effect of $3.1 million in foreign currency translation , Wood construction product sales were flat f or the nine months ended September 30, 2024 compared to September 30, 2023 and concrete construction product sales, which are mostly project based, decreased slightly over the same periods.

Gross profit decrea sed $5.4 million primarily due to increased factory overhead, warehouse and freight costs, as a percentage of net sales .

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Business Outlook

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

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

◦ Operating margin is estimated to be in the range of 19.0% to 19.5%, including approximately $85.0 million in depreciation and amortization expense.

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◦ Capital expenditures are estimated to range between $175.0 and $185.0 million, which includes $90.0 to $100.0 million for the Columbus, Ohio facility expansion and the new Gallatin, Tennessee fastener facility construction with the remaining spend carrying over into 2025.

Results of Operations for the Three Months Ended June 30, 2024, Compared with the Three Months Ended June 30, 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 June 30, 2024, against the results of operations for the three months ended June 30, 2023.

Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended June 30, 2023 and the three months ended June 30, 2024.

Second Quarter 2024 Consolidated Financial Highlights

The following table shows the change in the Company's results of operations from the three months ended June 30, 2023 to the three months ended June 30, 2024, and the increases or decreases for each category by segment:

Results of Operations for the Three Months Ended September 30, 2024, Compared with the Three Months Ended September 30, 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 September 30, 2024, against the results of operations for the three months ended September 30, 2023.

Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended September 30, 2023 and the three months ended September 30, 2024.

Third Quarter 2024 Consolidated Financial Highlights

The following table shows the changes in the Company's results of operations from the three months ended September 30, 2023 to the three months ended September 30, 2024, 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) 2023 America Europe Pacific All Other 2024

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Acquisition and integration related costs 785 — (336) — 907 1,356

1,859 — (1,232) — 963 1,590

Net gain on disposal of assets (16) 15 (24) — — (25)

(157) (138) 68 (10) (1) (238)

Income from operations 140,213 (12,380) (2,816) (217) 54 124,854

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Net income $ 104,021 $ (24,635) $ (4,516) $ (204) $ 18,853 $ 93,519

Net sales decreased 0.1% to $597.0 million from $597.6 million.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 84.9% and 86.2% of the Company's total sales in the second 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 14.5% and 13.6% of the Company's total sales in the second quarters of 2024 and 2023, respectively.

Gross profit decreased 3.1% to $278.5 million from $287.5 million primarily due to higher factory overhead, warehouse and freight costs partially offset by lower raw material costs.

Net sales increased 1.2% to $587.2 million from $580.1 million due to a favorable sales mix and incremental sales from the Company's 2024 acquisitions.

Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 84.2% and 84.7% of the Company's total sales in the third 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 14.8% and 14.5% of the Company's total sales in the third quarters of 2024 and 2023, respectively.

Gross profit decreased 2.8% to $275.1 million from $282.9 million primarily due to changes in product mix and higher factory overhead and labor costs.

As a result, consolidated gross margins were 46.8% compared to 48.8% last year.

From a product perspective, gross margin decreased to 46.3% from 48.6% for wood construction products and increased to 49.8% from 47.9% for concrete construction products, respectively.

Research and development and engineering expense increased 5.4% to $22.7 million from $21.5 million, primarily due to an increase of $2.1 million and $1.0 million in professional fees and personnel costs, respectively, partially offset by a decrease of $1.5 million in software licensing and IT costs, net of amount capitalized and $0.7 million of variable compensation.

Selling expense increased 10.9% to $55.9 million from $50.4 million, primarily due to increases of $4.2 million in personnel costs, $0.9 million in advertising costs, $0.7 million in travel related costs and $0.5 million in software licensing and IT costs net of amount capitalized, offset by a decrease of $1.5 million of variable compensation.

General and administrative expense decreased 3.5% to $66.4 million from $68.8 million, primarily due to a decrease of $3.4 million of variable compensation, partially offset by an increase of $1.7 million in personnel costs.

Research and development and engineering expense decreased 4.3% to $23.7 million from $24.8 million, primarily due to decreases of $1.5 million in professional fees and $1.3 million in variable incentive compensation costs, partially offset by an increase of $1.1 million in personnel costs.

Selling expense increased 4.2% to $54.6 million from $52.4 million, primarily due to increases of $3.8 million in personnel costs and $1.3 million in advertising and tradeshow costs, offset by decreases of $2.9 million of variable incentive compensation costs and $0.5 million in travel related costs.

General and administrative expense increased 9.3% to $70.6 million from $64.8 million, primarily due to increases of $4.7 million in personnel costs, $4.6 million in professional fees, and $2.6 million in computer software and hardware costs, partially offset by decreases of $4.6 million of variable incentive compensation costs.

Our effective income tax rat e increased to 26.1% from 25.7%.

Consolidated net income was $97.8 million compared to $107.2 million.

Consolidated net income was $93.5 million compared to $104.0 million, primarily due to lower gross profits and higher operating expenses, as noted above.

Diluted earnings per share was $2.21 compared to $2.43.

Adjusted EBITDA 1 of $152.6 million decreased 7.8% compared to $165.6 million, primarily due to lower gross profits on lower net sales.

The following table shows net sales by segment for the three months ended June 30, 2024 and 2023, respectively:

Adjusted EBITDA 1 of $148.2 million decreased 6.7% compared to $158.8 million, primarily due to lower gross profits and higher operating expenses, as noted above.

The following table shows net sales by segment for the three months ended September 30, 2024 and 2023, respectively:

(in thousands) America Europe Pacific Total

Three months ended

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

June 30, 2024 463,022 129,877 4,079 596,978

Increase (decrease) $ (2,445) $ 2,060 $ (217) $ (602)

Percentage increase (decrease) (0.5) % 1.6 % (5.1) % (0.1) %

The following table shows segment net sales as percentages of total net sales for the three months ended June 30, 2024 and 2023, respectively:

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

September 30, 2024 461,356 121,170 4,627 587,153

$ 4,536 $ 2,127 $ 406 $ 7,069

Percentage increase

1.0 % 1.8 % 9.6 % 1.2 %

The following table shows segment net sales as percentages of total net sales for the three months ended September 30, 2024 and 2023, respectively:

America Europe Asia/

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Percentage of total 2024 net sales 78 % 21 % 1 % 100 %

The following table shows gross profit (loss) by segment for the three months ended June 30, 2024 and 2023, respectively:

The following table shows gross profit (loss) by segment for the three months ended September 30, 2024 and 2023, respectively:

North Asia/ Admin &

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Three months ended

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

June 30, 2024 231,581 45,949 1,486 (469) 278,547

Decrease $(6,664) $(1,870) $(334) $(51) $(8,919)

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

September 30, 2024 228,169 44,327 1,619 942 275,057

Increase (decrease)

$(8,282) $(788) $(152) $1,362 $(7,860)

Percentage decrease (3.5) % (1.7) % * * (2.8) %

* The statistic is not meaningful or material.

The following table shows gross margin by segment for the three months ended June 30, 2024 and 2023, respectively:

The following table shows gross margin by segment for the three months ended September 30, 2024 and 2023, respectively:

America Europe Asia/

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North America

• Net sales decreased 0.5%, primarily due to decreased sales volumes.

• Gross margin decreased to 50.0% from 51.2%, primarily due to higher labor, factory overhead, warehouse and freight costs, partially offset by lower material costs, as a percentage of net sales.

• Research, development and engineering expense increased 3.8%, primarily due to an increase of $2.1 million in professional fees, partially offset by a decrease of $1.6 million in software licensing and IT costs, net of amount capitalized.

• Selling expense increased 12.2% , primarily due to increases of $4.2 million in personnel costs, $0.6 million in advertising and trade shows, and $0.6 million in travel expense, partially offset by the decrease of $1.7 million in variable compensation.

• General and administrative expense decreased 1.1%, primarily due to decreases in $1.1 million of variable compensation, $0.6 million in professional fees, partially offset by increases of $1.0 million in personnel costs and $0.5 million of travel related expenses.

• Income from operations decreased by $11.4 million due to the factors discussed above.

• Net sales increased 1.6%, primarily due to higher sales volumes, partially offset by price decreases in some regions as well as the negative effect of $0.7 million in foreign currency translation.

• Gross margin decreased to 35.4% from 37.4% , primarily due to increased labor and factory & tooling costs as well as warehouse and freight costs, partially offset by lower material costs, as a percentage of net sales.

• Income from operations decreased by $1.9 million from $14.0 million to $12.1 million due to lower gross margins and high personnel costs, partially offset by lower integration related expenses.

• 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, 2024 and 2023.

Results of Operations for the Six Months Ended June 30, 2024, Compared with the Six Months Ended June 30, 2023

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, 2024, against the results of operations for the six months ended June 30, 2023.

Unless otherwise stated, the results announced below, when referencing “both periods,” refer to the six months ended June 30, 2023 and the six months ended June 30, 2024

• Net sales increased 1.0%, primarily due to increase in sales prices resulting from a favorable sales mix on relatively flat sales volumes and incremental sales from the Company's 2024 acquisitions.

• Gross margin decreased to 49.5% from 51.8%, primarily due to higher labor, factory overhead, warehouse and freight costs as percentages of net sales, partially offset by efficiency gains.

• Research, development and engineering expense decreased 7.1%, primarily due to decreases of $1.5 million in professional fees and $1.3 million of variable incentive compensation costs.

• Selling expense increased 4.3%, primarily due to increases of $3.4 million in personnel costs and $1.1 million in advertising and trade shows, partially offset by a decrease of $2.9 million in variable incentive compensation costs.

• General and administrative expense increased 10.6%, primarily due to increases of $3.7 million in professional fees, $2.4 million in personnel costs, partially offset by decreases of $2.3 million in variable incentive compensation costs and personnel costs as well as an increase of $1.2 million in computer and software costs, net of amounts capitalized.

• Income from operations decreased by $12.4 million due to lower gross profit and higher operating expenses as noted above.

• Net sales increased 1.8%, primarily due to increased sales volumes, partly offset by price decreases in some regions as well as the positive effect of $1.5 million in foreign currency translations.

• Gross margin decreased to 36.6% from 37.9%, primarily due to higher labor, factory and overhead, and warehouse and freight costs, partly offset by lower material costs, as a percentages of net sales.

• Income from operations decreased by $2.8 million to $12.6 million from $15.5 million due to lower gross margins and higher personnel costs, partially offset by lower variable incentive compensation 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 September 30, 2024 and 2023.

Results of Operations for the Nine Months Ended September 30, 2024, Compared with the Nine Months Ended September 30, 2023

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, 2024, against the results of operations for the nine months ended September 30, 2023.

Unless otherwise stated, the results announced below, when referencing “both periods,” refer to the nine months ended September 30, 2023 and the nine months ended September 30, 2024.

Year-to-Date (9-month) 2024 Consolidated Financial Highlights

The following table illustrates the differences in our operating results for the six months ended June 30, 2024, from the six months ended June 30, 2023, 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, 2024, from the nine months ended September 30, 2023, 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) 2023 America Europe Pacific All Other 2024

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Total operating expenses 415,799 19,513 5,398 611 (830) 440,491

273,864 15,430 3,010 546 (1,230) 291,620

Acquisition and integration related costs 4,086 — (964) — 1,870 4,992

Net gain on disposal of assets

(207) (217) (2) (10) — (436)

Net gain (loss) on disposal of assets (223) (201) (26) (10) — (460)

Income from operations 403,596 (39,243) (9,858) (1,335) (24) 353,136

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Net income $ 299,185 $ (30,180) $ (9,343) $ (1,098) $ 8,214 $ 266,778

Net sales decreased 0.4% to $1,127.6 million from $1,132.0 million driven by lower sales volumes in North America.

Wood construction product sales represented 84.8% and 85.7% of the Company's total sales in the first six months of 2024 and 2023.

Concrete construction product sales represented 14.6% and 14.0% of the Company's total sales in the first six months of 2024 and 2023.

Net sales increased 0.2% to $1,714.7 million from $1,712.1 million due to higher sales volumes and a favorable average pricing mix of product sold.

Wood construction product sales represented 84.6% and 85.4% of the Company's total sales in the first nine months of 2024 and 2023.

Concrete construction product sales represented 14.7% and 14.1% of the Company's total sales in the first nine months of 2024 and 2023.

Gross profit decreased 3.0% to $798.2 million from $823.3 million.

Gross margins decreased to 46.5% from 48.1%.

The decrease is due to higher warehouse and freight costs for the Company overall.

The decrease is due to higher factory and tooling and warehouse costs for the Company overall.

Gross margins decreased to 46.3% from 48.1% for wood construction products and increased to 48.0% from 47.0% for concrete construction products.

Research and development and engineering expense increased 5.5% to $44.6 million from $42.3 million primarily due to an increase of $2.3 million in personnel costs, $2.3 million in professional fees, $0.7 million in depreciation and amortization expense, partially offset by a decrease of $2.0 million in computer and software, net of amount capitalized and $1.1 million of variable compensation.

Selling expense increased to $110.4 million from $99.1 million, primarily due to increases of $8.7 million in personnel costs, $2.2 million in advertising costs, $1.6 million in travel related costs, and $1.1 million in computer and software cost net of amount capitalized, partially offset by a decrease of $2.6 million of variable compensation and $0.9 million of professional fees.

General and administrative expense increased to $136.6 million from $132.5 million, primarily due to increases of $5.3 million in personnel costs, $1.6 million in professional costs, and $0.7 million in travel related costs, partially offset by a decrease of $4.8 million of variable compensation.

Research and development and engineering expense increased 1.9% to $68.3 million from $67.0 million primarily due to increases of $3.4 million in personnel costs, $1.3 million in depreciation and amortization expense, and $0.9 million in professional fees, partially offset by a decrease of $2.5 million in variable incentive compensation costs.

Selling expense increased to $165.0 million from $151.5 million, primarily due to increases of $12.5 million in personnel costs, $3.5 million in advertising costs, and $1.6 million in computer and software costs, net of amount capitalized, partially offset by a decrease of $5.5 million of variable incentive compensation costs.

General and administrative expense increased to $207.2 million from $197.3 million, primarily due to increases of $10.0 million in personnel costs, $6.2 million in professional fees, $1.3 million in computer and software costs net of amount capitalized, partially offset by a decrease of $9.3 million of variable incentive compensation costs.

Our effective income tax rate decreased to 25.4% from 25.6%.

Consolidated net income was $173.3 million compared to $195.2 million.

Consolidated net income was $266.8 million compared to $299.2 million primarily due to lower gross profits and higher operating expenses, as noted above.

Diluted earnings per share was $6.28 compared to $6.98.

Adjusted EBITDA 1 of $269.9 million decreased 10.8% compared to $302.6 million primarily due to lower gross profits on lower net sales.

The following table represents net sales by segment for the six-month periods ended June 30, 2023 and 2024:

Adjusted EBITDA 1 of $418.1 million decreased 9.4% compared to $461.4 million primarily due to lower gross profits and higher operating expenses.

The following table represents net sales by segment for the nine-month periods ended September 30, 2023 and 2024:

(in thousands) America Europe Pacific Total

Six Months Ended

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

June 30, 2024 869,771 249,814 7,972 1,127,557

Decrease $ (2,026) $ (2,217) $ (210) $ (4,453)

Percentage decrease (0.2) % (0.9) % (2.6) % (0.4) %

The following table represents segment sales as percentages of total net sales for the six-month periods ended June 30, 2023 and 2024, respectively :

Nine Months Ended

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

September 30, 2024 1,331,126 370,985 12,599 1,714,710

Increase (decrease) $ 2,511 $ (89) $ 195 $ 2,617

Percentage increase

0.2 % — % 1.6 % 0.2 %

The following table represents segment sales as percentages of total net sales for the nine-month periods ended September 30, 2023 and 2024, respectively:

America Europe Asia/

2 unchanged sentences

Percentage of total 2024 net sales 78 % 22 % — % 100 %

The following table represents gross profit (loss) by segment for the six-month periods ended June 30, 2023 and 2024:

The following table represents gross profit (loss) by segment for the nine-month periods ended September 30, 2023 and 2024:

North Asia/ Admin &

(in thousands) America Europe Pacific All Other Total

Six Months Ended

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

June 30, 2024 432,117 89,761 2,162 (939) 523,101

Decrease $ (11,650) $ (4,662) $ (582) $ (346) $ (17,240)

Nine Months Ended

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

September 30, 2024 660,287 134,088 3,781 3 798,159

Increase (decrease) $ (19,931) $ (5,450) $ (734) $ 1,016 $ (25,099)

Percentage decrease

(2.9) % (3.9) % * * (3.0) %

* The statistic is not meaningful or material

The following table represents gross margin by segment for the six-month periods ended June 30, 2023 and 2024:

The following table represents gross margin by segment for the nine-month periods ended September 30, 2023 and 2024:

America Europe Asia/

5 unchanged sentences

North America

• Net sales decreased 0.2%, primarily due to decreased sales volumes and slightly higher incentives, including an increase in estimated rebates to home builders.

• Gross margin decreased to 49.7% from 50.9%, due to higher factory and tooling as well as warehouse and freight costs as a percentage of net sales, offset by lower raw material costs as a percentage of net sales.

• Research and development and engineering expense increased 4.1%, primarily due to an increase of $2.2 million in professional costs, partially offset by a decrease of $1.1 million of variable compensation.

• Selling expense increased 14.7%, primarily due to increases of $9.1 million in personnel costs, $1.6 million in advertising and trade shows expenses, $1.4 million in travel related expenses, $1.1 million in computer and software expense net of amounts capitalized, partially offset by a decrease of $2.7 million in variable compensation.

• General and administrative expense increased 4.4%, primarily due to increases of $3.1 million in personnel costs, $1.5 million in computer and software expenses, net of amounts capitalized, and $0.6 million in travel related expenses, partially offset by a decrease of $1.8 million in variable compensation.

• Income from operations decreas ed $26.9 million, du e to higher operating expenses.

• Net sales decreased 0.9%, primarily due to lower sales volumes and some regional price decreases, partially offset by the positive effect of $1.6 million in foreign currency translation.

• Gross margin decreased to 35.9% from 37.5% while gross profit decreased $4.7 million.

• Income from operations decreased $7.0 million, primarily due to lower gross profit.

• 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, 2024 and 2023.

• Net sales increased 0.2%, primarily due to higher average sales prices resulting from a favorable sales mix on a relatively flat sales volumes and incremental sales from the Company's 2024 acquisitions, partially offset by increases in rebates from a change in customer mix.

• Gross margin decreased to 49.6% from 51.2%, due to higher factory and tooling as well as warehouse and freight costs, offset by lower raw material costs, as a percentages of net sales.

• Research and development and engineering expense decreased 0.1%, primarily due to a decrease of $2.5 million in variable incentive compensation costs, partially offset by increases of $1.1 million in depreciation and amortization, $0.7 million in professional fees, and $0.6 million in personnel costs.

• Selling expense increased 10.9%, primarily due to increases of $12.4 million in personnel costs, $2.8 million in advertising and trade shows expenses and $1.6 million in computer and software expense net of amounts capitalized, partially offset by a decrease of $5.6 million in variable incentive compensation costs.

• General and administrative expense increased 6.4%, primarily due to increases of $5.5 million in personnel costs and $3.2 million in professional fees, partially offset by a decrease of $4.0 million in variable incentive compensation costs.

• Income from operations decreased $39.2 million, due to lower gross profit and higher operating expenses as noted above.

• Net sales were relatively flat, due to the positive effect of $3.1 million in foreign currency translation, partly offset by lower sales volumes and some regional price decreases.

• Gross margin decreased to 36.1% from 37.6%, primarily due to increased factory and tooling, labor and warehouse costs, partly offset by lower material costs, as percentages of net sales.

• General and administrative expense increased 7.2%, primarily due to an increase of $3.3 million in personnel costs.

• Income from operations decreased $9.9 million, primarily due to lower gross profit and higher operating expenses as noted 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 nine months ended September 30, 2024 and 2023.

Effect of New Accounting Standards

2 unchanged sentences

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

supporting capital expenditures, paying cash dividends, repurchasing the Company's common stock, and financing other investment opportunities from time to time.

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 from time to time.

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

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

As of June 30, 2024, the Company had borrowings of $75.0 million under the revolving credit facility and $399.4 million under the term loan facility, and has $375.0 million available to borrow under the revolving credit facility.

As of June 30, 2024, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions including $101.6 million that are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the U.S.

As of September 30, 2024, the Company had borrowings of $75.0 million under the revolving credit facility and $393.8 million under the term loan facility, and has $375.0 million available to borrow under the revolving credit facility.

As of September 30, 2024, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions including $118.3 million that 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.

On August 1, 2024, the Company completed its acquisition of all of the operating assets and assumed liabilities of Monet DeSauw Inc.

and certain properties of Callaway Properties, LLC for a total purchase consideration of approximately $59.0 million before normal working capital adjustments.

The following table shows selected financial information as of June 30, 2024, December 31, 2023 and June 30, 2023, respectively:

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

The following table shows selected financial information as of September 30, 2024, December 31, 2023 and September 30, 2023, respectively:

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

(in thousands) 2024 2023 2023

3 unchanged sentences

Working capital excluding cash and cash equivalents 617,388 521,362 479,624

The following table presents the significant categories of cash flows was used or provided during the six-month periods ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30,

The following table presents the significant categories of cash flows was used or provided during the nine-month periods ended September 30, 2024 and 2023, respectively:

Nine Months Ended September 30,

(in thousands) 2024 2023

7 unchanged sentences

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 six months ended June 30, 2024, operating activities provided $119.1 million in cash, as a result of $173.3 million from net income plus $47.2 million non-cash expenses such as depreciation and amortization and stock-based compensation.

During the nine months ended September 30, 2024, operating activities provided $222.4 million in cash, as a result of $266.8 million from net income plus $75.6 million non-cash expenses such as depreciation and amortization and stock-based compensation.

This amount was partly offset by $120.0 million used for the net change in operating assets and liabilities.

The net change in operating assets and liabilities included increases of $95.7 million in trade accounts receivable, $19.3 million in other current assets, partly offset by a decrease of $11.7 million in inventory.

Cash used in investing activities of $95.7 million during the six months ended June 30, 2024 was primarily used for facility expansion projects, the acquisition of Calculated Structured Designs, Inc.

(CSD), and machinery and equipment purchases.

to updated forecasts on the timing of the spend and subject to future events and circumstances, capital expenditures are estimated to range between $180.0 million and $190.0 million for 2024 including the expected spend of $100.0 million on our previously announced Columbus, Ohio facility expansion and the construction of a new Gallatin, Tennessee facility, with the remaining spend estimated to range between $55.0 million and $60.0 million carrying over to 2025.

The net change in operating assets and liabilities included increases of $73.5 million in trade accounts receivable and $28.1 million in inventory.

Cash used in investing activities of $202.1 million during the nine months ended September 30, 2024 was primarily used for facility expansion projects, and machinery and equipment purchases as well as the acquisitions of Calculated Structured Designs, Inc., Monet DeSauw Inc.

and certain properties of Callaway Properties, LLC and QuickFrames USA, LLC.

Due to updated forecasts on the timing of the spend and subject to future events and circumstances, capital expenditures are estimated to range between $175.0 million and $185.0 million for 2024 including the expected spend of $90.0 million to $100.0 million on our previously announced Columbus, Ohio facility expansion and the construction of a new Gallatin, Tennessee facility, with the remaining spend estimated to range between $65.0 million and $75.0 million carrying over to 2025.

The remaining 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 $93.1 million during the six months ended June 30, 2024 consisted primarily of $50.0 million is stock repurchases, $22.9 million used to pay dividends to our stockholders and $13.9 million used for debt repayment.

O n July 26, 2024, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.28 per share payable on October 24, 2024, to the Company's stockholders of record on October 3, 2024.

Since the beginning of 2021 through June 30, 2024, we have returned $356.4 million to stockholders, which represents 43.3% of our free cash flow from operations during the same period, and over the same period the Company has repurchased over 1.6 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.

Cash used in financing activities of $111.0 million during the nine months ended September 30, 2024 consisted primarily of $50.0 million in stock repurchases, $34.7 million used to pay dividends to our stockholders and $20.1 million used for debt repayment.

On October 23, 2024, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.28 per share payable on January 23, 2025, to the Company's stockholders of record on January 2, 2025, and authorized the Company to repurchase up to $100.0 million of the Company's common stock, effective January 1, 2025 through December 31, 2025.

From October 1, 2024 to November 5, 2024, the Company purchased 275,906 shares of the Company's common stock at an average price of $181.22 per share, for a total of $50.0 million.

Since the beginning of 2021 through November 5, 2024, we have returned $418.4 million to stockholders, which represents 47.5% of our free cash flow from operations during the same period, and over the same period the Company has repurchased ov er 1.9 million shares of the Company's common stock, which represents approximately 4.5% of the outstanding shares of the Company's common stock at the start of 2021.

Reconciliation of Non-GAAP Financial Measures

1 unchanged sentence

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

5 unchanged sentences

Adjusted EBITDA $ 148,214 $ 158,792 $ 418,058 $ 461,375

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

Includes acquisition, integration, restructuring related expenses, non-qualified deferred compensation plan adjustments, other & foreign exchange loss net, and net loss or gain on disposal of assets.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2024.

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