Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Simpson Manufacturing Co., Inc., a Delaware corporation, and its wholly-owned subsidiaries, including Simpson Strong-Tie Company Inc., unless otherwise stated. The Company regularly uses its website to post information regarding its business and governance. The Company encourages investors to use http://www.simpsonmfg.com as a source of information about the Company. The information on our website is not incorporated by reference into this report or other material we file with or furnish to the SEC, except as explicitly noted or as required by law.
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s consolidated financial condition and results of operations. This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and notes thereto included in this report.
“Strong-Tie” and our other trademarks appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
1 Average price paid per share of common shares repurchased excludes excise tax. As of January 1, 2024, the Company's share repurchases are subjected to a 1.0% excise tax enacted by the Inflation Reduction Act of 2022. The amount of excise tax incurred is included in the Company's Consolidated Statement of Stockholders' Equity for the year ended December 31, 2024.
2 Pursuant to the $100.0 million repurchase authorization from the Board of Directors on October 19, 2023, and which expired on December 31,
2024. See "Note 5 — Stockholder's Equity".
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Overview
We design, manufacture and sell building construction products that are of high quality and performance, easy to use and cost-effective for customers. We operate in three business segments determined by geographic region: North America, Europe and Asia/Pacific. Within the North America segment, our sales efforts are aligned to customer market teams dedicated to serving the following markets:
• Residential;
• Commercial;
• Original Equipment Manufacturers ("OEM");
• National Retail; and
• Component Manufacturers
Our organic growth opportunities are focused on expanding our product lines with our current customers while also identifying new market share gain opportunities within our core product and market competencies.
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. We also aspire to leverage 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 ambitions. 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 introducing new products in the future.
Our commitment to continuous improvement has fostered our core Company ambitions, which we will pursue including:
• Strengthen our values-based culture;
• Be the partner of choice;
• Be an innovative leader in the markets we operate;
• Above market growth relative to the U.S. housing starts (exceeding our historical average volume performance in North America of approximately 250 basis points above the housing starts market);
• An operating income margin at or above 20%; and
• Earnings per share growth exceeding net revenue growth.
Since announced in 2021, we made great progress on our key growth initiatives. Examples include:
• Added approximately $1.0 billion in revenue and $200.0 million in operating profit.
• Realigned our sales team by end market, significantly reduced two-step distribution, and made significant investments in our field sales and engineering teams.
• Made significant footprint investments in both production and warehouses. Our investment in our new Gallatin Tennessee facility enables us to onshore additional fastener and anchor production, and the operation will in-source key manufacturing processes such as heat treating and coating of fasteners. Additional warehouse capabilities will also enhance next day delivery for our North American customers.
• Invested significantly in digital solutions, combined with the other initiatives strengthened our business model, which drove hardware sales, created value for our customers and made us a partner of choice.
• Strengthened our senior leadership team through a combination of internal development and external experts.
As a result, we are now in an even stronger market position in connectors with significant gains in both fasteners and anchors. In addition, due to 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, we believe we can continue to achieve above market growth in the North America relative to U.S. housing starts for fiscal 2025 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.
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
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provide additional insight into the Company’s operating performance in light of the significant levels of growth investment we have made in our operations, the effect depreciation as well as acquisition and integration costs will have on our operating results. 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 depend in large part on the level of U.S. housing starts and residential construction activity. Overall housing starts decreased 3.9% over the trailing twelve months ending December 31, 2024 compared to the trailing twelve months ending December 31, 2023. Lower housing starts in the U.S. 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 U.S. housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. Our products are generally used in a sequential progression that follows the construction process. Residential and commercial construction begins with the foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules.
In prior years, our sales were heavily seasonal with operating results varying from quarter to quarter depending on weather conditions that could delay construction starts. Our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year. Increasing interest rates, tariffs, political uncertainty due to rising energy costs, volatility in the steel market and stressed product transportation systems, can also have an effect on our gross and operating profits as well. Due to efforts in diversifying our geographic footprint, product offerings, and changing our path to market in the U.S., sales from our product lines, 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. Changes in labor, freight and warehousing costs, could also negatively impact gross profit depending on timing and amount of sales price can be increased to offset the higher 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. North America net sales increased 1.1% for the year ended December 31, 2024 compared to December 31, 2023. Our wood construction product net sales increased 0.5% for the year ended December 31, 2024 compared to December 31, 2023, primarily due to increased sales volumes, partly offset by product price decreases implemented during the first quarter of 2023. Our concrete construction product sales increased 5.0% over the same periods. For 2025, U.S. housing starts could improve in the low-single digit range from 2024 levels, with growth weighted towards the second half of the year. With the investments we have made, we believe we will be able to continue to grow net sales above the US housing starts market, one of our company ambitions.
Operating income decreased 7.1% to $439.6 million from $473.2 million on lower gross profits as well as increased personnel costs software and hardware costs and professional fees, party offset by lower incentive costs. Fiscal year 2024 operating margins were also affected by recent acquisitions including acquisition and integration related costs. For 2025, incremental investments in the current business will be limited until the U.S. housing market shows long-term improvement.
During 2024, work continued on our Columbus, Ohio facility expansion as well as the construction of our new Gallatin, Tennessee facility. We expect the expansion and operation of these facilities to be completed and commence in 2025. The expanded and new 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 decreased slightly for the fiscal year December 31, 2024 compared to December 31, 2023, due to lower sales volumes, offset by the positive effect of $3.7 million in foreign currency translation. Both wood and concrete construction product sales decreased for the twelve months ended December 31, 2024 compared to the twelve months ended December 31, 2023. Gross profit decreased $8.1 million primarily due to increased factory overhead, warehouse and freight costs, as a percentage of net sales. Operating income decreased $12.2 million on lower gross profits and increased costs supporting the optimization of the European footprint, including the realization of defensive Etanco related synergies, which resulted in $5.7
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million in restructuring and severance charges for fiscal year 2024. As a result of these efforts and projected increased sales, we currently anticipate Europe's 2025 operating margin to improve compared to fiscal year 2024.
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
Based on business trends and conditions, the Company's outlook for the full fiscal year ending December 31, 2025 is as follows:
• Given the uncertainty regarding 2025 U.S. housing starts compared to prior year housing starts, consolidated operating margin is estimated to be in the range of 18.5% to 20.5% with the low end of the range based on flat to declining 2025 housing starts compared to prior year. The operating margin range includes a projected gain between $10.0 million to $12.0 million from the sale of the old Gallatin facility based on a $19.0 million contracted sale price.
• The effective tax rate is estimated to be in the range of 25.5% to 26.5%, 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 $150.0 million to $170.0 million, which includes $75.0 million for the Columbus, Ohio facility expansion and construction of the new Gallatin, Tennessee facility.
Results of Operations
Our discussion of our results focuses on 2024 and 2023 and year-to-year comparisons between those periods. Discussions of 2022 results and year-to-year comparison between 2023 and 2022 results are not included in this Annual Report on Form 10-K and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The following table sets forth, for the years indicated, the Company’s operating results as a percentage of net sales for the years ended December 31, 2024, 2023 and 2022, respectively:
Years Ended December 31,
2024 2023 2022
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 54.0 % 52.9 % 55.5 %
Gross profit 46.0 % 47.1 % 44.5 %
Research and development and other engineering expenses 4.2 % 4.2 % 3.2 %
Selling expense 9.8 % 9.2 % 8.0 %
General and administrative expense 12.4 % 12.1 % 10.8 %
Total operating expense 26.4 % 25.5 % 22.0 %
Acquisition and integration related costs 0.3 % 0.2 % 0.8 %
Net gain on disposal of assets — % — % (0.1) %
Income from operations 19.3 % 21.4 % 21.8 %
Interest income and other finance costs, net 0.2 % 0.2 % (0.4) %
Other and foreign exchange loss, net
(0.1) % (0.1) % (0.2) %
Income before taxes 19.4 % 21.5 % 21.2 %
Provision for income taxes 5.0 % 5.5 % 5.4 %
Net income 14.4 % 16.0 % 15.8 %
Comparison of the Years Ended December 31, 2024 and 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 year ended December 31, 2024, against the results of operations for the year ended December 31, 2023.
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The following table shows the change in the Company’s operations from 2023 to 2024, and the increases or decreases from the prior year, for each category by segment:
Increase (Decrease) in Operating Segment
North America Asia/
Pacific Admin &
All Other
(in thousands)
2023 Europe 2024
Net sales $ 2,213,803 $ 19,457 $ (1,701) $ 580 — $ 2,232,139
Cost of sales 1,170,048 31,511 6,365 461 (2,097) 1,206,288
Gross profit 1,043,755 (12,054) (8,066) 119 2,097 1,025,851
Operating expenses:
Research and development and other engineering expense 92,167 (292) 991 710 — 93,576
Selling expense 203,980 14,330 453 639 — 219,402
General and administrative expense 268,103 7,717 3,603 (378) (1,513) 277,532
Operating expenses 564,250 21,755 5,047 971 (1,513) 590,510
Net gain on disposal of assets
(276) (145) 26 (24) (28) (447)
Acquisition and integration related costs 4,632 — (947) — 2,128 5,813
Income from operations 475,149 (33,664) (12,192) (828) 1,510 429,975
Interest income and other financing costs, net
3,391 597 763 (578) 1,104 5,277
Other and foreign exchange loss, net
(1,993) (3,844) (3,397) 1,485 6,540 (1,209)
Income before taxes 476,547 (36,911) (14,826) 79 9,154 434,043
Provision for income taxes 122,560 (10,762) (2,103) (42) 2,166 111,819
Net income $ 353,987 $ (26,149) $ (12,723) $ 121 $ 6,988 $ 322,224
Net Sales increased approximately 0.8% to $2.2 billion from prior year, primarily due to higher sales volumes, incremental sales from the Company's 2024 acquisitions, and the positive effect of $3.7 million in foreign currency translation related mostly to Europe's currencies weakening against the United States dollar. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85.1% and 85.4% of the Company’s total net sales for the years ended December 31, 2024 and 2023, respectively. Concrete construction product net 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 net sales for the years ended December 31, 2024 and 2023, respectively.
Gross profit decreased approximately 1.7% to $1.0 billion from prior year, primarily due to lower gross margins. Gross margins decreased to 46.0% from 47.1%, primarily due to higher factory and overhead as well as warehouse and freight costs, partly offset by lower material costs, as a percentage of net sales. Gross margins, including some inter-segment expenses, which were eliminated upon consolidation, and excluding certain expenses that are allocated according to product group, decreased from 47.2% to 45.6% for wood construction products and increased from 46.0% to 47.5% for concrete construction products.
Research and development and other engineering expens e increased 1.5% to $93.6 million from $92.2 million, primarily due increased personnel costs of $4.6 million partially offset by a decrease of $3.2 million in variable incentive compensation costs.
Selling expense increased 7.6% to $219.4 million from $204.0 million, primarily due to increases of $17.3 million in personnel costs and $4.0 million in advertising and trade shows, partially offset by a decrease of $7.9 million in variable compensation costs.
General and administrative expense increased 3.5% to $277.5 million from $268.1 million, primarily due to increases of $12.8 million in personnel costs, $7.1 million in professional fees, and $1.6 million in depreciation and amortization, partially offset by a decrease of $13.2 million in variable compensation costs.
Our effective income tax rate increased to 25.8% from 25.7%.
Consolidated net income was $322.2 million compared to $354.0 million. Diluted net income per share of common stock was $7.60 compared to $8.26.
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Adjusted EBITDA 1 of $520.1 million decreased 6.2% compared to $554.2 million, primarily due to lower gross profits and higher operating expenses, as noted above.
Net Sales
The following table shows net sales by segment for the years ended December 31, 2024 and 2023, respectively:
(in thousands)
North
America Europe Asia/
Pacific Total
December 31, 2023 $ 1,716,422 $ 480,756 $ 16,625 $ 2,213,803
December 31, 2024 1,735,879 479,055 17,205 2,232,139
Increase (decrease)
$ 19,457 $ (1,701) $ 580 $ 18,336
Percentage increase (decrease)
1.1 % (0.4) % 3.5 % 0.8 %
The following table shows segment net sales as percentages of total net sales for the years ended December 31, 2024 and 2023, respectively:
North
America Europe Asia/
Pacific Total
Percentage of total 2023 net sales 77.5 % 21.7 % 0.8 % 100.0 %
Percentage of total 2024 net sales 77.8 % 21.5 % 0.7 % 100.0 %
Gross Profit
The following table shows gross profit by segment for the years ended December 31, 2024 and 2023, respectively:
(in thousands) North
America Europe Asia/
Pacific Admin &
All Other Total
December 31, 2023 $ 862,557 $ 177,048 $ 5,679 $ (1,529) $ 1,043,755
December 31, 2024 850,504 168,982 5,798 567 1,025,851
Increase (decrease) (12,053) (8,066) 119 2,096 (17,904)
Percentage decrease
(1.4) % (4.6) % * * (1.7) %
* The statistic is not meaningful or material.
The following table shows gross margins by segment for the years ended December 31, 2024 and 2023, respectively:
North
America Europe Asia/
Pacific Admin &
All Other Total
2023 gross margin 50.3 % 36.8 % 34.2 % * 47.1 %
2024 gross margin 49.0 % 35.3 % 33.7 % * 46.0 %
* The statistic is not meaningful or material.
North America
• Net sales increased 1.1% primarily due to higher sales volumes and incremental sales from the Company's 2024 acquisitions.
• Gross margin decreased to 49.0% from 50.3%, primarily due to higher factory and overhead as well as warehouse costs, partially offset by lower material costs, as a percentage of net sales.
• Research and development and engineering expense decreased $0.3 million.
• Selling expense increased $14.3 million, primarily due to increases of $16.9 million in personnel costs, $2.9 million in advertising and trade shows, partially offset by a decrease of $7.7 million in variable compensation costs.
1 Adjusted EBITDA is a non-GAAP financial measure and it is defined in the Non-GAAP Financial Measures Item 7. For a reconciliation of Adjusted EBITDA to U.S. GAAP ("GAAP) net income see the schedule titled "Reconciliation of Non-GAAP Financial Measures."
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• General and administrative expense increased $7.7 million, primarily due to increases of $7.3 million in personnel costs and $4.6 million in professional and legal fees, partially offset by a decrease of $5.7 million in variable compensation costs.
• Income from operations decreased $33.7 million, primarily due to lower gross profit as well as increases in operating expenses. The operating expense increases were driven by higher personnel costs, professional fees, and travel-related expenses, which were partially offset by a decrease in variable compensation costs.
Europe
• Net sales de creased 0.4%, primarily due to lower sales volumes. Net sales benefited from the positive effect of approximately $3.7 million in foreign currency translation.
• Gross margin decreased to 35.3% from 36.8% , p rimarily due to higher factory and overhead as well as warehouse and freight costs, partly offset by lower material costs, as a percentage of net sales.
• Income from operations decreased $12.2 million, primarily due to lower gross profit as well as $5.0 million in higher operating expenses including personnel costs.
Asia/Pacific
• For information about the Company’s Asia/Pacific segment, please refer to the table above setting forth changes in our operating results for the years ended December 31, 2024 and 2023.
Administrative and All Other
• General and administrative expense decreased $1.5 million, primarily due to a decrease of $6.1 million in variable compensation costs, partially offset by increases of $2.3 million in professional and legal fees and $1.9 million in personnel costs.
Critical Accounting Policies and Estimates
The critical accounting policies described below affect the Company’s more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. If the Company’s business conditions change or if it uses different assumptions or estimates in the application of these and other accounting policies, the Company’s future results of operations could be adversely affected.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value (market). Cost includes all costs incurred in bringing each product to its present location and condition, as follows:
• Raw materials and purchased finished goods — principally valued at a cost determined on a weighted average basis; and
• In-process products and finished goods — the cost of direct materials and labor plus attributable overhead based on a normal level of activity.
The Company applies net realizable value and makes estimates for obsolescence to the gross value of inventory. The Company estimates net realizable value is based on estimated selling price less further costs expected to be incurred t hrough completion and disposal. The Company impairs slow-moving products by comparing inventories on hand to projected demand. If on-hand supply of a product exceeds projected demand or if the Company believes the product is no longer marketable, the product is considered obsolete inventory. The Company revalues obsolete inventory to its net realizable value and has consistently applied this methodology. The Company believes that this approach is suitable for impairments of slow-moving and obsolete inventory. When impairments are established, a new cost basis of the inventory is created. Unexpected changes in market demand, building codes or buyer preferences could reduce the rate of inventory turnover and require the Company to recognize more obsolete inventory.
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Business Combinations.
Accounting for business combinations requires us to make significant estimates and assumptions. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.
Critical estimates in valuing certain of the intangible assets and goodwill we have acquired are:
• future expected cash flows from operations;
• historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
• assumptions about the period of time the acquired trade name will continue to be used in our offerings; and
• discount rates.
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Goodwill and Other Intangible Assets
Our goodwill balance is not amortized to expense, and we may assess quantitative or qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments. The Company evaluates the recoverability of goodwill in accordance with Accounting Standard Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other,” annually, or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount.
Intangible assets acquired are recognized at their fair value at the date of acquisition. Finite-lived intangibles are amortized over their applicable useful lives. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization or depreciation period. We test these assets for potential impairment annually and whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company tests goodwill for impairment at the reporting unit level on an annual basis (in the fourth quarter for the Company). The Company also reviews goodwill for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or disposition or relocation of a significant portion of a reporting unit.
During fiscal year 2023, we re-evaluated our European reporting units after a full year of operations from our acquisition of ETANCO as it has become further integrated into our other European operations resulting in changes to the management, product distribution, and operations structure of our European operations. As a result of this re-evaluation, all European reporting units were consolidated for reporting purposes into one overall Europe reporting unit. A qualitative assessment was performed immediately preceding the reporting unit change and determined that it was not more likely than not that any impairment existed prior to the reporting unit change.
We determined that the U.S. reporting unit includes four components: Northwest United States, Southwest United States, Northeast United States and Southeast United States. The Australia reporting unit includes two components: Australia and New Zealand. For each of these reporting units, the Company aggregated the components because management concluded that they are economically similar, and that the goodwill is recoverable from these components working in concert.
We applied the ("Step 0") approach in the fourth quarter of 2024 to assess qualitative factors related to the goodwill of the reporting units to determine whether it is necessary to perform an impairment test. For this qualitative assessment, we assessed various assumptions, events and circumstances that could have affected the estimated fair value of the reporting units. Based on the qualitative assessment performed, the Company concluded that there was no evidence of events or circumstances that would indicate a material change from the Company’s prior year quantitative assessment by reporting unit and therefore, it was more likely than not that the estimated fair value of reporting units exceeded their respective carrying values. The annual testing of goodwill for impairment did not result in impairment charges.
Revenue from Contracts with Customers
Generally, the Company's revenue contract with a customer exists when (1) the goods are shipped, services are rendered, and the related invoice is generated, (2) the duration of the contract does not extend beyond the promised goods or services already transferred and (3) the transaction price of each distinct promised product or service specified in the invoice is based on its
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relative stated standalone selling price. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer at a point in time. The Company's shipping terms provide the primary indicator of the transfer of control. The general shipping terms are Incoterm C.P.T. (F.O.B. shipping point), where the title, and risk and rewards of ownership transfer at the point when the products are no longer on the Company's premises. Other Incoterms are allowed as exceptions depending on the product or service being sold and the nature of the sale. The Company recognizes revenue based on the consideration specified in the invoice with a customer, excluding any sales incentives, discounts, and amounts collected on behalf of third parties (i.e., governmental tax authorities).
Volume rebates, discounts and rights of return are accounted for as variable considerations because the transaction price is either uncertain until the customer completes or fails the specified volumes or returned product are not returned by the return period. The Company estimates allowances based on historical experience from prior periods and the customer’s historical purchasing pattern. These estimates are deducted from revenues and are reevaluated periodically during the reporting period.
Effect of New Accounting Standards
See "Note 1 — Operations and Summary of Significant Accounting Policies" for effects of new accounting standards on the Company’s consolidated financial statements.
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. 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 December 31, 2024, the Company had no borrowings under the revolving credit facility and $388.1 million under the term loan facility, and has $450.0 million available to borrow under the revolving credit facility.
The Company has certain contractual obligations, primarily debt interest, operating leases, and purchase obligations, which include annual facility fees. Refer to "Note 12 - Leases", "Note 14 - Debt" and "Note 15 - Commitment and Contingencies" in Part II, Item 8 for details related to the Company's obligations and debt annual facility fees. The Company did not have any significant off-balance sheet commitments as of December 31, 2024.
As of December 31, 2024, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions, and includes $111.6 million 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 presents selected financial information as of December 31, 2024, 2023 and 2022, respectively:
As of December 31,
(in thousands) 2024 2023 2022
Cash and cash equivalents $ 239,371 $ 429,822 $ 300,742
Property, plant and equipment, net 531,655 418,612 361,555
Equity investment, goodwill and intangible assets 903,498 883,079 872,699
Non-cash net working capital
570,602 521,362 529,945
The following table presents the significant categories of cash flows for the twelve months ended December 31, 2024, 2023 and 2022, respectively:
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Years Ended December 31,
(in thousands) 2024 2023 2022
Net cash provided by (used in):
Operating activities $ 338,160 $ 427,022 $ 399,821
Investing activities (259,259) (103,251) (870,244)
Financing activities (261,464) (199,034) 465,526
Cash flows from operating activities result primarily from our earnings before non-cash items such as depreciation, amortization, and stock based compensation, and are affected by changes in operating assets and liabilities which consist primarily of working capital balances. Our revenues are derived from manufacturing and sales of building construction materials. Our 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 is generally at its lowest at the end of the fourth quarter and increases during the first, second and third quarters as construction activity ramps up in markets we serve.
In 2024, cash provided by operating activities of $338.2 million in cash and cash equivalents as a result of $322.2 million from net income and adding back $113.4 million for non-cash adjustments from net income which includes depreciation and amortization, stock-based compensation and non-cash lease expense, partially offset by a decrease of $97.5 million for the net change in operating assets and liabilities. The net change in operating assets and liabilities included increases of $50.4 million in inventory and $12.7 million in other current assets as well as a $17.0 million net change in other non-current assets and liabilities.
Cash used in investing activities of $259.3 million during the year ended December 31, 2024, was primarily for capital spending of $180.4 million for facility expansion projects, and machinery and equipment purchases as well as $79.2 million for the acquisitions of Calculated Structured Designs, Inc.; Monet DeSauw, Inc. and certain properties of Callaway Properties, LLC ("Monet"); and QuickFrames USA, LLC. In which Monet was acquired for $48.7 million net of cash received. Based on current forecasts, capital expenditures are estimated to range between $150.0 million to $170.0 million for 2025 including the expected spend of $75.0 million to complete the Columbus, Ohio facility expansion and replacement of Gallatin, Tennessee facility. The remaining $75.0 million to $95.0 million in capital expenditures will be primarily focused on purchases of new equipment to support increased productivity and efficiencies, the timing of which is subject to future events and circumstances.
Cash used in financing activities of $261.5 million during the year ended December 31, 2024, consisted primarily of $100.8 million in loan principal payments, $100.0 million for the repurchase of the Company’s common stock and $46.5 million used to pay cash dividends. The Company purchased and received approximately 559 thousand shares of it’s common stock on the open market at an average price of $178.83 per share.
On October 23, 2024, the Company's Board of Directors (the "Board") 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 February 1, 2025 to February 28, 2025, the Company repurchased 146,640 shares of the Company’s common stock in the open market at an average price of $170.48 per share for a total of approximately $25.0 million. Further, on January 31, 2025, the Board declared a quarterly cash dividend of $0.28 per share payable on April 23, 2025 to stockholders of record on April 3, 2025, and estimated to be $11.8 million in total.
For the fiscal year ended December 31, 2024, the Company returned $146.5 million to the Company's shareholders, which represents 92.8% of our free cash flow from operations during the same period. Since the beginning of 2021 to the fiscal year ended December 31, 2024, the Company has returned $430.0 million to shareholders, which represents 45.7% of our free cash flow. During the same period the Company has repurchased approximately 2.0 million shares of the Company's common stock, which represents approximately 4.5% of the outstanding shares of the Company's common stock.
Cash flows from operating activities years ended December 31, 2023 and 2022 are incorporated by reference to Form 10-K 2023 filing.
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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.
Twelve Months Ended December 31,
2024 2023
Net Income $ 322,224 $ 353,987
Provision for income taxes 111,819 122,560
Interest (income) expense, net and other financing costs (5,277) (3,391)
Depreciation and amortization 84,584 74,707
Other* 6,732 6,382
Adjusted EBITDA $ 520,082 $ 554,245
*Other: 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.
Contingencies
From time to time, we are subject to various claims, lawsuits, legal proceedings (including litigation, arbitration or regulatory actions) and other matters arising in the ordinary course of business. Periodically, we evaluate the status of each matter and assess our potential financial exposure.
The Company records a liability when we believe that it is both probable that a loss has been incurred, and the amount is reasonably estimable. Significant judgment is required to determine both probability of a loss and the estimated amount. The outcomes of claims, lawsuits, legal proceedings and other matters brought against the Company are subject to significant uncertainty, some of which are inherently unpredictable and/or beyond our control. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these matters were resolved against the Company for amounts in excess of management’s expectations, they could have a material adverse impact on our business, results of operations, financial position and liquidity.
See “Item 3 — Legal Proceedings” above and “Note 15 — Commitments and Contingencies” to the Company’s consolidated financial statements.
Inflation and Raw Materials
Inflation rates continued to increase during fiscal year 2024, which negatively affected labor costs and other costs of doing business, and as such may adversely affect our operating profits if we cannot recover the higher costs through price increases. Our main raw material is steel, and as such, increases in steel prices may adversely affect our gross margin if we cannot recover the higher costs through price increases. See “Item 1 — Raw Materials” and “Item 1A — Risk Factors.”
Indemnification
In the normal course of business, to facilitate transactions of services and products, we have agreed to indemnify certain parties with respect to certain matters. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and the Company’s bylaws as permitted by the Company’s certificate of incorporation require the Company to indemnify corporate servants, including our officers and directors, to the fullest extent permitted by law. The Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations. The Company has not incurred significant obligations under indemnification provisions historically, and does not expect to incur significant obligations in the future. It is not possible to determine the maximum potential amount under these indemnities due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Accordingly, the Company has not recorded any liability for costs related to these indemnities through December 31, 2024 .
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