SIMPSON MANUFACTURING CO., INC. Each of the terms the "Company," "we," "our," "us" and similar terms used herein refer collectively toSimpson Manufacturing Co., Inc. , aDelaware corporation, and its wholly-owned subsidiaries, includingSimpson 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 theSecurities and Exchange Commission (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.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements generally can be
identified by words such as "anticipate," "believe," "estimate," "expect,"
"intend," "plan," "target," "continue," "predict," "project," "change,"
"result," "future," "will," "could," "can," "may," "likely," "potentially," or
similar expressions that concern our strategy, plans, expectations or
intentions. Forward-looking statements include, but are not limited to,
statements about future financial and operating results, our plans, objectives,
business outlook, priorities, expectations and intentions, expectations for
sales growth, comparable sales, earnings and performance, stockholder value,
capital expenditures, cash flows, the housing market, the home improvement
industry, demand for services, share repurchases, the integration of the
acquisition of ETANCO, our strategic initiatives, including the impact of these
initiatives, on our strategic and operational plans and financial results, and
any statement of an assumption underlying any of the foregoing and other
statements that are not historical facts. Although we believe that the
expectations, opinions, projections and comments reflected in these
forward-looking statements are reasonable, such statements involve risks and
uncertainties and we can give no assurance that such statements will prove to be
correct. Actual results may differ materially from those expressed or implied in
such statements.
Forward-looking statements are subject to inherent uncertainties, risks and
other factors that are difficult to predict and could cause our actual results
to vary in material respects from what we have expressed or implied by these
forward-looking statements. Important factors that could cause our actual
results and financial condition to differ materially from those expressed in our
forward looking statements include, among others, the impact of the COVID-19
pandemic on our operations and supply chain, the operations of our customers,
suppliers and business partners, and the successful integration of ETANCO and
those discussed under Item 1A. Risk Factors and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2021 . Additional
risks include: the cyclicality and impact of general economic conditions?
changing conditions in global markets including the impact of sanctions and
tariffs, quotas and other trade actions and import restrictions? the impact of
pandemics, epidemics or other public health emergencies? volatile supply and
demand conditions affecting prices and volumes in the markets for both our
products and raw materials we purchase? the impact of foreign currency
fluctuations? potential limitations on our ability to access capital resources
and borrowings under our existing credit agreement; restrictions on our business
and financial covenants under our credit agreement? reliance on employees
subject to collective bargaining agreements; and or ability to repurchase shares
of our common stock and the amounts and timing of repurchases, if any. To the
extent that the COVID-19 pandemic adversely affects our business and financial
results, it may also have the effect of heightening many of such risks and other
factors.
We caution that you should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. Except as required
under the federal securities laws or the rules and regulations of the SEC , we
undertake no obligation to publicly update any forward-looking statement,
whether as a result of new information, future developments or otherwise.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the SEC that advise of
the risks and factors that may affect our business.
27
--------------------------------------------------------------------------------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:
Recent Developments
On
ETANCO's primary product applications directly align with the addressable markets in which the Company operates. Leveraging ETANCO's leading market position inEurope , following the acquisition, the Company would expand its portfolio of solutions, including mechanical anchors, fasteners and commercial building envelope solutions, as well as significantly increase its market presence acrossEurope . The acquisition of ETANCO has provided the Company access into new commercial building markets such as façades, waterproofing, safety and solar, as well as grow its share of direct business sales inEurope . Upon announcing the acquisition, the Company expected to realize operating income synergies of approximately$30.0 million , on an annual run rate basis following integration efforts. We continue to expect that these synergies will be achieved through expanding the Company's market share by selling its products into new markets and channels, incorporating ETANCO's products into the Company's existing channels, as well as procurement optimization, manufacturing and operating expense efficiencies. Finally, interest expense has and will continue to increase as a result of the incurrence of debt to finance the acquisition of ETANCO. Since we announced the transaction back in late December, planning for and initiating the integration of ETANCO has been our primary focus and we believe it has been progressing according to plan. We assembled a project management office that includes a leading globally recognized external advisory consulting group together with a multi-disciplinary team of key management from both Simpson and ETANCO. Because of our complementary cultures and values, our combined team has been working extremely well together as we develop detailed plans for each of our specific integration tracks. We believe our approach has contributed to a high employee retention rate throughout the transition. After several months, we have found no material adjustments to our previously identified synergy opportunities, although the realization of the full amount is subject to change based on the current environment inEurope . With the groundwork we have laid so far, we believe we are still well positioned to capture meaningful benefits from those synergies in the coming years. At ourMarch 23, 2021 analyst and investor day, we unveiled several key growth initiatives that we believe will help us continue our track record of achieving above market revenue growth through a combination of organic and inorganic opportunities. Our organic opportunities are focused on expansion into new markets within our core competencies of wood and concrete products. These key growth initiatives will focus on the original equipment manufacturers, repair and remodel or do-it-yourself, mass timber, concrete and structural steel markets. In order to grow in these markets, we aspire to be among the leaders in engineered load-rated construction building products and systems and building technology while leveraging our engineering expertise, deep-rooted relationships with top builders, engineers, contractors, code officials and distributors, along with our ongoing commitment to testing, research and innovation. Importantly, we currently have existing products, testing results, distribution and manufacturing capabilities for our key growth initiatives. Although these initiatives are all currently in different stages of development, our successful growth in these areas will ultimately be a function of expanding our sales and/or marketing functions to promote our products to different end users and distribution channels, expanding our customer base, and potentially introducing new products in the future.
We also highlighted our five-year ambitions during the
•Strengthen our values-based culture; •Be the business partner of choice; •Strive to be an innovative leader in the markets we operate; •Continue above market growth relative tothe United States housing starts; 28 -------------------------------------------------------------------------------- •Remain within the top quartile of our proxy peers for operating income margin; and •Remain in the top quartile of our proxy peers for return on invested capital.
We have executed on several key milestones since we first announced our key strategic initiatives back in 2021. Here are a few examples:
•We acquired ETANCO and are already seeing tangible results in our actual operations, as well as for the future including the use of Simpson and ETANCO branded commercial concrete products in the construction of certain venues for the upcoming Olympic games inParis . •Realigned our sales teams to more specifically focus on five end use markets - Residential, Commercial, OEM, National Retail andBuilding Technology , which has led to new customer and project wins within five of our key growth initiatives. •Invested in a venture capital fund focused on the home building industry and related new technologies. •Entered into a joint indirect investment in the North America Hundegger equipment sales and service representative partner,Hundegger USA, LLC to increase each parties' sales in the mass timber and component manufacturing markets by offeringNorth America customers end-to-end solutions, including integrated software from a single source. •Formed a strategic alliance with Structural Technologies that will allow both parties jointly deliver complete end-to-end strengthening solutions to engineering professionals, contractors and owners across multiple construction and repair markets, •In the OEM market, we were recently awarded the opportunity to supply our complete wood solutions, including specialty fasteners and other products, for the construction of custom wood base crates. We accomplished some key project wins within the Mass Timber space including our solutions are now being specified to construct mock-up structures from coast to coast to serve as a mass timber training course for union carpenters and are also being utilized in the construction of a new home office for a largeU.S. -based company. •Within the National Retail market, we focused on growth in the repair and remodel and do-it-yourself markets by completing a reset of some of our fastener sets with one of our key customers, and increased our publicity for Outdoor Accents in both The Home Depot and Lowe's. •Within the Commercial market, we expanded our offerings, including the expansion of our structural steel product line and our concrete solutions are being used in the construction of new graduate housing. As we make progress on our growth initiatives, we believe we can continue our above market growth relative toU.S. housing starts in fiscal 2022 and beyond. These select key examples further emulate our Founder,Barclay Simpson's , nine principles of doing business, and more specifically the focus and obsession on customers and users.
Factors Affecting Our Results of Operations
The COVID-19 pandemic andRussia's invasion ofUkraine has severely affected global economic conditions, resulting in substantial volatility in the financial markets, increased unemployment, and considerable operational challenges. The Company's management team continues to monitor and manage its ability to operate effectively and, to date, the Company has not experienced any significant disruptions within its supply chain. Our supply chain partners are supportive, and continue to do their part to ensure that service levels to our customers remain strong. To date, we have not experienced any supply-chain disruptions and continued to meet our customers' needs despite the challenges. We will continue to communicate with our supply chain partners to identify and mitigate risk and to manage inventory levels. The Company's business, financial condition and results of operations depends in part on the level ofUnited States , housing starts and residential construction activity. Though single-family housing starts increased significantly over the past twelve months, we have seen demand begin to decline during the past quarter due to supply-chain factors, inflation and interest rate increases affecting new home starts and completions. With almost a full year of recent sales price increase in effect, we believe sales will likely increase during the 3rd quarter over the prior year comparable period even if demand decreases. These increased sales prices are expected to be offset by increasing raw material costs, sourcing logistics complications and a tight labor market, which could negatively affect operating margins for 2022. Management continues to monitor the impact of rising material input and product logistics costs on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. Unlike lumber or other products that have a more direct correlation toUnited States housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. Our products are generally used in a sequential progression that follows the construction process. Residential and commercial construction begins with the 29
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foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules.
In prior years, our sales were heavily seasonal with operating results varying from quarter to quarter depending on weather conditions that could delay construction starts. Our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year. Due to efforts in diversifying our global footprint, most notably with our acquisition of ETANCO, sales from our product line, customer base and customer purchases are becoming less seasonal. Political and economic events such as rising energy costs, volatile steel market, stressed product transportation systems and increasing interest rates can also have an effect on our gross and operating profits as well as the amount of inventory on-hand. Changes in raw material cost could negatively affect our gross profit and operating margins depending on the timing of raw material purchases or how much sales prices can be increased to offset higher raw material costs. Delays in receiving products or shipping sales orders, as well as increased transportation costs, could negatively impact sales and operating profits.
Business Segment Information
Historically ourNorth America segment has generated more revenues from wood construction products compared to concrete construction products. Our wood construction product sales increased 35.2% for the quarter endedJune 30, 2022 compared toJune 30, 2021 , and our concrete construction product sales increased 24.0% over the same periods, due to product price increases throughout 2021 in an effort to offset rising raw material costs. These product price increases were also the primary contributor to gross profits and operating profits increasing over the same comparable periods. As a result of the product price increases phased in during 2021, full phased in product price increases for 2022 could result in$300.0 million in additional net sales compared to 2021. We currently anticipate further gross margin and operating margin compression beginning in the latter half of 2022 compared to 2021 as higher priced raw materials and rising average cost of steel on hand offset the product price increases. During 2022, we have been reviewing the footprint for ourU.S. operations with assistance from a third party. As a result, we identified facility expansions in theU.S. that will improve our overall service, production efficiencies and safety in the workplace, as well as reduce our reliance on certain outsourced, finished goods and component products and continue to ensure we have ample capacity to meet our customer needs. We recently announced an expansion of ourOhio facility and the project has commenced. These investments reinforce our core business model differentiators to remain the partner of choice as we continue to produce products locally and ensure superior levels of customer service. Investments in these expansions have already started this year and will continue into 2024.Europe sales increased 136.1% for the quarter endedJune 30, 2022 compared toJune 30, 2021 , primarily due to the acquisition of ETANCO, which contributed$80.3 million in net sales, along with product price increases, mostly offset by lower volumes and the negative effect of approximately$6.9 million in foreign currency translation due a strengtheningUnited States dollar. Wood construction product sales increased 135.3% for the quarter endedJune 30, 2022 compared toJune 30, 2021 with ETANCO contributing$64.9 million in wood construction product sales. Concrete construction product sales are mostly project based, and sales increased 139.2% for the quarter endedJune 30, 2022 compared toJune 30, 2021 with ETANCO contributing$15.4 million in concrete construction product sales. The Company, including ETANCO, have suspended all sales and distribution activity toRussia andBelarus . We estimate annual sales to these countries would have been less than$5.0 million .Europe gross profit of$39.0 million included$19.2 million from the acquisition of ETANCO, net of$9.2 million in fair-value adjustments for inventory costs as a result of purchase accounting, most of which is a non-recurring charge. The Company expects there will be an additional nominal amount recognized in the third quarter of 2022 for a fiscal year total of$10.5 million in fair value adjustments.Europe reported operating income of$5.6 million , including ETANCO's operating loss of$1.6 million which was net of$9.2 million in inventory adjustments as noted above,$4.2 million of amortization expense on acquired intangible assets and$5.9 million for integration costs for a total of$19.3 million . The Company expects to incur additional costs in 2022 as it continues to integrate ETANCO into its European operations. The Company has not realized any synergies from the combination to date.
Our
SinceJune 2021 , inventory pounds inNorth America , which is the bulk of our inventory, increased 14% while the weighted average cost per pound of total on hand increased approximately 31%. Based on our current expectations, we are anticipating continued raw material cost pressure for fiscal 2022. As we work through our on hand inventory and continue to buy raw material at these much higher prices, our costs of goods sold are expected to continue increasing modestly during the second 30 -------------------------------------------------------------------------------- half of fiscal 2022, even if prices for raw material decline, as the impact from averaging raw material costs typically lags our product price increases. We began to see this accelerating increase in raw material costs occur beginning in the third quarter 2021. Business Outlook The Company updated its 2022 financial outlook to include the acquisition of ETANCO, two quarters of actual results, and its latest expectations regarding demand trends, raw material costs and operating expenses as ofJuly 25, 2022 . Based on business trends and conditions, the Company's current outlook for the full fiscal year endingDecember 31, 2022 is as follows: •Operating margin is expected to be in the range of 19.0% to 21.0%, in-line with its more recent historical average as the Company has better visibility on raw material costs and expected results from its acquisition of ETANCO. The revised outlook includes$20.0 to$25.0 million in expected integration and transaction costs for the acquisition. •Interest expense on the outstanding$250.0 million Revolving Credit Facility and Term Loans, which had initial borrowings of$450.0 million , is expected to be approximately$10.4 million , including the benefit from interest rate and cross currency swaps mitigating substantially all of the volatility from changes in interest rates.
•The effective tax rate is expected to be in the range of 25.5% to 26.5%.
•Capital expenditures are expected to be in the range of
Footnotes
(1) Reflects EUR to USD exchange rate as of
Results of Operations for the Three Months Ended
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 endedJune 30, 2022 , against the results of operations for the three months endedJune 30, 2021 . Unless otherwise stated, the results announced below, when referencing "both quarters," refer to the three months endedJune 30, 2021 and the three months endedJune 30, 2022 . Beginning in 2022, the Company changed its presentation for both theNorth America and the Administrative and all other segment's statement of operations to display allocated expenses and management fees as a separate item below income from operations. During 2021, allocated expenses and management fees between the two segments were previously included in gross profit, operating expenses and in income from operations and have been adjusted herein to conform to the 2022 presentation. Consolidated income from operations, income before tax and net income for all periods presented below are not affected by the change in presentation 31
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Second Quarter 2022 Consolidated Financial Highlights
The following table shows the change in the Company's operations from the three
months ended
Three Months Three Months
Ended Increase (Decrease) in Operating Segment Ended
June 30, North Asia/ Admin & June 30,
(in thousands) 2021 America Europe Pacific All Other 2022
Net sales $ 410,281 $ 105,853 $ 76,800 $ 298 $ - $ 593,232
Cost of sales 213,835 61,538 58,075 407 44 333,899
Gross profit 196,446 44,315 18,725 (109) (44) 259,333
Research and development and other engineering
expense 14,169 2,506 225 44 (1) 16,943
Selling expense 33,167 5,190 6,690 26 1 45,074
General and administrative expense 47,410 534 6,259 (75) 4,291 58,419
Total operating expenses 94,746 8,230 13,174 (5) 4,291 120,436
Acquisition and integration related costs - - 5,864 - - 5,864
Net loss (gain) on disposal of assets (28) (15) - - - (43)
Income from operations 101,728 36,100 (313) (104) (4,335) 133,076
Interest income (expense), net and other (420) 7 (3,524) 1 564 (3,372)
Other & foreign exchange loss, net (2,216) (3,123) (329) 713 3,065 (1,890)
Income (loss) before income taxes 99,092 32,984 (4,166) 610 (706) 127,814
Provision for income taxes 26,609 9,109 (2,579) 228 877 34,244
Net income (loss) $ 72,483 $ 23,875 $ (1,587) $ 382 $ (1,583) $ 93,570
Net sales increased 44.6% to $593.2 million from $410.3 million primarily driven
by the four product price increases we implemented in 2021 to offset rising raw
material costs, and the acquisition of ETANCO which contributed $80.3 million in
net sales. Wood construction product sales, including sales of connectors, truss
plates, fastening systems, fasteners and shearwalls, represented 87% of the
Company's total sales in both the second quarters of 2022 and 2021,
respectively. Concrete construction product sales, including sales of adhesives,
chemicals, mechanical anchors, powder actuated tools and reinforcing fiber
materials, represented 13% of the Company's total sales in both the second
quarters of 2022 and 2021, respectively.
Gross profit increased 32.0% to $259.3 million from $196.4 million . Gross
margins decreased to 43.7% from 47.9%, primarily due to the acquisition of
ETANCO, which has a lower gross margin profile relative to the Company overall,
and higher raw material costs overall. Gross margins decreased to 43.7% from
47.4% for wood construction products and decreased to 43.2% from 47.5% for
concrete construction products, respectively.
Research and development and engineering expense increased 19.6% to
Selling expense increased 35.9% to$45.1 million from$33.2 million , primarily due to increases of$5.5 million in personnel costs,$1.7 million in advertising & trade shows,$1.0 million in travel related costs, and$0.5 million in professional fees. General and administrative expense increased 23.2% to$58.4 million from$47.4 million , primarily due to increases of$4.1 million in depreciation and amortization,$3.4 million in personnel costs,$1.4 million in professional and legal fees,$0.6 million in travel related costs and$0.4 million in stock compensation expense, offset by a decrease of$0.8 million in cash profit sharing expense.
Our effective income tax rate decreased to 26.8% from 26.9%.
Consolidated net income was$93.6 million , which includes a$2.0 million loss from ETANCO, compared to$72.5 million . Diluted earnings per share was$2.16 compared to$1.66 . 32 --------------------------------------------------------------------------------
Net sales
The following table shows net sales by segment for the three months ended
North Asia/
(in thousands) America Europe Pacific Total
Three months ended
June 30, 2021 $ 350,557 $ 56,438 $ 3,286 $ 410,281
June 30, 2022 456,410 133,238 3,584 593,232
Increase $ 105,853 $ 76,800 $ 298 $ 182,951
Percentage increase 30.2 % 136.1 % 9.1 % 44.6 %
The following table shows segment net sales as percentages of total net sales
for the three months ended
North Asia/
America Europe Pacific Total
Percentage of total 2021 net sales 85 % 14 % 1 %
100 % Percentage of total 2022 net sales 77 % 22 % 1 % 100 % Gross profit
The following table shows gross profit by segment for the three months ended
North Asia/ Admin &
(in thousands) America Europe Pacific All Other Total
Three months ended
June 30, 2021 $174,984 $20,298 $1,207 $(43) $196,446
June 30, 2022 219,299 39,023 1,098 (87) 259,333
Increase (decrease) $44,315 $18,725 $(109) $(44) $62,887
Percentage Increase (decrease) 25.3 % 92.3 % * * 32.0 %
* The statistic is not meaningful or material.
The following table shows gross margin by segment for the three months ended
North Asia/ Admin &
America Europe Pacific All Other Total
2021 gross margin percentage 49.9 % 36.0 % 36.7 % * 47.9 %
2022 gross margin percentage 48.0 % 29.3 % 30.6 % * 43.7 %
* The statistic is not meaningful or material.
•Net sales increased 30.2%, primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs on relatively flat volumes.
•Gross margin decreased to 48.0% from 49.9%, primarily from higher material
costs, as a percentage of net sales, partly offset by product price increases
throughout 2021.
33
-------------------------------------------------------------------------------- •Research, development and engineering expenses increased 19.5%, primarily due to increases of$1.2 million in personnel costs,$0.7 in million professional fees,$0.3 million in material and supplies consumption and$0.2 million in travel rated costs, partly offset by$0.6 higher software development expenses capitalized. •Selling expense increased 19.3%, primarily due to increases of$2.0 million in personnel cost,$1.7 million in advertising & trade show costs,$2.0 million in personnel costs,$1.5 million in travel-associated expenses and$0.5 million in professional fees, offset by a decrease$0.8 million in sales commissions.
•General and administrative expense increased 1.6%, primarily due to
•Income from operations increased by$36.1 million . The increase was primarily due to higher gross profit, partly offset by higher operating expenses including travel, entertainment and personnel costs.
•Net sales increased 136.1%, primarily due to the acquisition of ETANCO, which contributed$80.3 million in net sales along with product price increases, mostly offset by lower volumes and the negative effect of approximately$6.9 million in foreign currency translation.
•Gross margin decreased to 29.3% from 36.0%.
•Income from operations decreased by$0.3 million . This includes ETANCO's operating loss of$1.6 million which is net of$9.2 million in inventory adjustments as noted above,$4.2 million of amortization expense on acquired intangible assets and$5.9 million for integration costs for a total of$19.3 million . The Company expects to incur additional costs in 2022 as it continues to integrate ETANCO into its European operations. The Company has not realized any synergies from the combination to date.
•For information about the Company'sAsia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the three months endedJune 30, 2022 and 2021.
Results of Operations for the Six Months Ended
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 endedJune 30, 2022 , against the results of operations for the six months endedJune 30, 2021 . Unless otherwise stated, the results announced below, when referencing "both periods," refer to the six months endedJune 30, 2021 and the six months endedJune 30, 2022 Beginning in 2022, the Company changed its presentation for both theNorth America and the Administrative and all other segment's statement of operations to display allocated expenses and management fees as a separate item below income from operations. During 2021, allocated expenses and management fees between the two segments were previously included in gross profit, operating expenses and in income from operations and have been adjusted herein to conform to the 2022 presentation. Consolidated income from operations, income before tax and net income for all periods presented below are not affected by the change in presentation. 34
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Year-to-Date (6-month) 2022 Consolidated Financial Highlights
The following table illustrates the differences in our operating results for the six months endedJune 30, 2022 , from the six months endedJune 30, 2021 , 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, (in thousands) 2021 America Europe Pacific All Other 2022 Net sales$ 757,922 $ 244,020 $ 83,955 $ 905 $ -$ 1,086,802 Cost of sales 399,195 124,214 63,027 810 3,442 590,688 Gross profit 358,727 119,806 20,928 95 (3,442) 496,114 Research and development and other engineering expense 28,758 3,895 116 38 2 32,809 Selling expense 63,990 10,844 6,954 108 14 81,910 General and administrative expense 95,975 2,867 6,101 (156) 7,405 112,192 188,723 17,606 13,171 (10) 7,421 226,911 Acquisition and integration related costs - - 12,815 - - 12,815 Net gain on disposal of assets (108) (3) (1,084) 69 - (1,126) Income (loss) from operations 170,112 102,203 (3,974) 36 (10,863) 257,514 Interest income (expense), net and other (765) 25 (3,553) (6) 714 (3,585) Other & foreign exchange loss, net (3,648) (7,158) (1,243) 874 9,068 (2,107) Income (loss) before income taxes 165,699 - 95,070 - (8,770) 904 - (1,081) 251,822 Provision for income taxes 42,827 23,599 (4,249) 375 1,125 63,677 Net income$ 122,872 $ 71,471 $ (4,521) $ 529 $ (2,206) $ 188,145 Net sales increased 43.4% to$1,086.8 million from$757.9 million due to the implementation of product price increases at various times during 2021, and revenues from the acquisition of ETANCO. Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 87% of the Company's total sales in the first six months of 2022 and 2021. Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 13% of the Company's total sales in the first six months of 2022 and 2021. Gross profit increased 38.3% to$496.1 million from$358.7 million . Gross margins decreased to 45.6% from 47.3%, primarily due to the acquisition of ETANCO, which has a lower gross margin profile relative to the Company overall, and higher raw material costs overall. Gross margins decreased to 45.7% from 47.0% for wood construction products and decreased to 44.8% from 45.2% for concrete construction products.
Research and development and engineering expense increased 14.1% to
Selling expense increased to$81.9 million from$64.0 million , primarily due to increases of$6.9 million in personnel costs and sales commissions,$2.7 million in advertising & trade shows,$1.6 million in travel related costs,$0.7 million in professional fees, and$0.7 million cash profit sharing expense. General and administrative expense increased to$112.2 million from$96.0 million , primarily due to increases of$5.9 million in professional fees,$4.7 million in personnel costs,$3.4 million in depreciation and amortization expenses, and$1.1 million in travel related costs, offset by decreases of$1.6 million in stock-based compensation,$0.5 million in cash profit sharing expenses.
Our effective income tax rate decreased to 25.3% from 25.8%.
35--------------------------------------------------------------------------------
Consolidated net income was
Net sales
The following table represents net sales by segment for the six-month periods
ended
North Asia/
(in thousands) America Europe Pacific Total
Six Months Ended
June 30, 2021 $ 651,120 $ 100,734 $ 6,068 $ 757,922
June 30, 2022 895,140 184,689 6,973 1,086,802
Increase $ 244,020 $ 83,955 $ 905 $ 328,880
Percentage increase 37.5 % 83.3 % 14.9 % 43.4 %
The following table represents segment sales as percentages of total net sales
for the six-month periods ended
North Asia/
America Europe Pacific Total
Percentage of total 2020 net sales 86 % 13 % 1 %
100 % Percentage of total 2021 net sales 82 % 17 % 1 % 100 % Gross profit
The following table represents gross profit by segment for the six-month periods
ended
North Asia/ Admin &
(in thousands) America Europe Pacific All Other Total
Six Months Ended
June 30, 2021 $ 317,369 $ 35,548 $ 2,451 $ 3,359 $ 358,727
June 30, 2022 437,175 56,476 2,546 (83) 496,114
Increase (decrease) $ 119,806 $ 20,928 $ 95 $ (3,442) $ 137,387
Percentage increase 37.7 % 58.9 % * * 38.3 %
* The statistic is not meaningful or material
The following table represents gross margin by segment for the six-month periods
ended
North Asia/ Admin &
(in thousand) America Europe Pacific All Other Total
2021 gross margin percentage 48.7 % 35.3 % 40.4 % * 47.3 %
2022 gross margin percentage 48.8 % 30.6 % 36.5 % * 45.6 %
* The statistic is not meaningful or material.
•Net sales increased 37.5%, primarily due to product price increases throughout
2021 in an effort to offset rising raw material costs on small an increase in
sales volume.
36
-------------------------------------------------------------------------------- •Gross margin increased slightly to 48.8% from 48.7%, due to product price increases implemented during 2021, and lower labor, factory, freight and warehouse costs as a percentage of net sales, partly offset by higher material costs, as a percentage of net sales. •Research and development and engineering expense increased$3.9 million , primarily due to increases of$2.3 million in personnel costs,$1.6 million in professional fees,$0.5 million in travel rated costs,$0.3 million in material and supplies consumption,$0.2 million in stock-based compensation, and offset by$1.4 million higher software development expenses capitalized. •Selling expense increased$10.8 million , primarily due to increases of$3.9 million in travel related costs,$3.2 million in personnel costs,$2.7 million in advertising & trade show costs,$0.6 million in cash profit sharing expenses, and$0.4 million in professional fees, partly offset by decreases of$1.0 million in sales commissions. •General and administrative expense increased$2.9 million , primarily due to increases of$1.9 million in personnel costs,$1.2 million of bad debt expense, and$0.9 in travel related costs offset by decreases of$0.5 in stock-based compensation, and$0.2 million cash profit sharing expense.
•Income from operations increased
•Net sales increased 83.3%, primarily due to the acquisition of ETANCO, which contributed$80.3 million in net sales along with product price increases, offset by the negative effect of approximately$10.3 million in foreign currency translation. •Gross margin decreased to 30.6% from 35.3% while gross profit increased$20.9 million .Europe gross profit included$19.2 million from the acquisition of ETANCO, which is net of$9.2 million in fair-value adjustments for inventory costs as a result of purchase accounting, most of which is a non-recurring charge. •Income from operations decreased$4.0 million , primarily due to$7.0 million of first quarter 2022 acquisition costs as well as ETANCO's second quarter 2022 operating loss of$1.6 million which is net of$9.2 million in inventory adjustments,$4.2 million of amortization expense on acquired intangible assets and$5.9 million for integration costs for a total of$19.3 million .
•For information about the Company'sAsia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the six months endedJune 30, 2022 and 2021.
Effect of New Accounting Standards
See "Note 1 Basis of Presentation - Accounting Standards Not Yet Adopted " to the accompanying unaudited interim condensed consolidated financial statements.
Liquidity and Sources of Capital
We have historically met our capital needs through a combination of cash flows from operating activities and, when necessary borrowings under our credit agreements.
Our principal uses of capital include the costs and expenses associated with our operations, including financing working capital requirements and continuing our capital allocation strategy, which includes supporting capital expenditures, paying cash dividends, repurchasing the Company's common stock, and financing other investment opportunities over the next twelve months. OnMarch 30, 2022 , the Company entered into an Amended and Restated Credit Agreement, which provides for a 5-year revolving credit facility of$450.0 million , and for a 5-year term loan facility of$450.0 million . The Company borrowed$250.0 million , under the revolving credit facility and$450.0 million under the term loan facility to finance a portion of the 37 -------------------------------------------------------------------------------- purchase price of the Company's acquisition of ETANCO. We believe that our cash position, cash flows from operating activities and our expectation of continuing availability to draw upon our credit facilities are sufficient to meet our cash flow needs for the foreseeable future. As ofJune 30, 2022 , our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Cash and cash equivalents of$76.9 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated tothe United States . The Company is maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outsidethe United States .
The following table shows selected financial information as of
At June 30, At December 31, At June 30,
(in thousands) 2022 2021 2021
Cash and cash equivalents $ 246,134 $ 301,155 $ 305,796
Property, plant and equipment, net 346,184 259,869 255,353
Goodwill, intangible assets and other 862,055 170,309 164,511
Working capital less cash and cash
equivalents 597,079 453,078 363,453
The following table provides cash flow indicators for the six-month periods
ended
Six Months Ended June 30,
(in thousands) 2022 2021
Net cash provided by (used in):
Operating activities $ 138,451 $ 81,632
Investing activities (833,552) (26,214)
Financing activities 631,531 (25,603)
Cash flows from operating activities result primarily from our earnings, and are
also affected by changes in operating assets and liabilities which consist
primarily of working capital balances. Our revenues are derived from
manufacturing and sales of building construction materials. Our operating cash
flows are subject to seasonality and are cyclically associated with the volume
and timing of construction project starts. For example, trade accounts
receivable is generally at its lowest at the end of the fourth quarter and
increases during the first, second and third quarters.
During the six months ended June 30, 2022 , operating activities provided $138.5
million in cash and cash equivalents, as a result of $188.1 million from net
income and $46.1 million from non-cash expenses from net income, which included
depreciation and amortization expense, stock-based compensation expense and the
inventory fair value expense adjustment. Cash provided from net income was
partly offset by a decrease of $95.8 million in the net change in operating
assets and liabilities, including increases of $88.6 million in trade accounts
receivable, partly offset by increases of $21.9 million in other current
liabilities and $15.7 million in trade accounts payable.
Cash used in investing activities of $833.6 million during the six months ended
June 30, 2022 was mainly for the $805.4 million acquisition of ETANCO. Our
capital spending for the six months ended June 30, 2022 and June 30, 2021 was
$31.8 million and $19.3 million , respectively, which was primarily used for a
land purchase, machinery and equipment purchases and software in development.
Based on current information and subject to future events and circumstances,
total approved capital spending for 2022, will be in the $80.0 million to
$90.0 million range compared to the previous estimate of $65.0 to $70.0 million ,
primarily due to ETANCO and expansion of our Ohio facility. Other capital
spending is earmarked for both maintenance and growth to maximize efficiencies
and invest in our key initiatives.
Cash provided by financing activities of $631.5 million during the six months
ended June 30, 2022 consisted primarily of $700.0 million in loan proceeds used
for the acquisition of ETANCO, offset by $46.3 million used to repurchase
455,030 shares of the Company's common stock at an average price of $101.71 per
share and $21.6 million used to pay dividends to our stockholders.
38--------------------------------------------------------------------------------
On
Since the beginning of 2019 to the quarter endedJune 30, 2022 , we have returned$351.3 million to stockholders, which represents 64.3% of our free cash flow and over the same period the Company has repurchased over 2.7 million shares of the Company's common stock, which represents approximately 6.0% of the outstanding shares of the Company's common stock at the start of 2019. During 2022, after the acquisition of ETANCO, we changed our capital return target to 35% of our free cash flow from 50%.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
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