Simpson Manufacturing Co., Inc.: Form 10-Q for the period ended Sep 30, 2024

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 Securities 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 (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”) 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. 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, 2023. 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 facilities; restrictions on our business and financial covenants under our credit agreement; reliance on employees subject to collective bargaining agreements; and or our ability to pay dividends and to repurchase shares of our common stock and the amounts and timing of repurchases, if any.

We caution that you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.

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 Company 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 continue to 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 United States 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 within the top quartile of our proxy peers; and
• Long-term, return to the top quartile of our proxy peers for return on invested capital.

We have made progress towards our key growth initiatives since they were first announced in 2021. 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 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; and
• Converted component manufacturers to using our truss software and purchasing our truss plate and connector solution sets, including a major component manufacture.

We believe this progress is the result of our high service levels, increasingly diverse portfolio of products and software as well as our commitment to innovation and developing complete solutions for the markets we serve. As we continue to make progress on our key growth initiatives, we believe we can continue to achieve above market growth in the North America relative to

United States housing starts for fiscal 2024 and beyond. These examples further emulate our Founder, Barclay Simpson’s, nine principles of doing business, and more specifically the focus and obsession on customers and users.

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. We believe this will also provide a better approximation of our cash flows compared to operating income. 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").

Factors Affecting Our Results of Operations

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.

Unlike lumber or other products that have a more direct correlation to United States housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. 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, rising energy costs, volatility in the steel market and stressed product transportation systems, as well as political events like elections, can also have an effect on our gross and operating profits as well. Due to efforts in diversifying our global footprint with the acquisition of ETANCO and changing our path to market in the United States, sales from our product line, customer base and customer purchases are becoming less seasonal. Changes in raw material cost could impact the amount of inventory on-hand, and negatively affect our gross profit and operating margins depending on the timing of raw material purchases or how much sales prices can be increased to offset any increases in raw material costs.

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

Business Segment Information

Historically, our North America segment has generated more revenues from wood construction products compared to concrete construction products. 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 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 $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. 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. 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 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 for 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 decreased $5.4 million primarily due to increased factory overhead, warehouse and freight costs, as a percentage of net sales. Operating income decreased $9.9 million on lower gross profits and higher operating expenses, partly offset by lower integration expenses. Fiscal 2024 operating margins will include anticipated acquisition and integration related costs estimated to range between $3.5 million to $4.0 million. We currently anticipate Europe 2024 results to be impacted by economic headwinds but also believe in the long term potential given Europe's on-going housing shortage (with an increasing use of wood construction) and new environmental regulations for which we have products and solutions.

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

Business Outlook

The Company updated its financial outlook for the full fiscal year ending December 31, 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.
• The effective tax rate is estimated to be in the range of 25.3% to 25.8%, 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 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 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:

(in thousands)

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 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 rate increased to 26.1% from 25.7%.

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 EBITDA1 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.

Net sales

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

(in thousands)

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

Gross profit

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

(in thousands)

* The statistic is not meaningful or material.

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

* The statistic is not meaningful or material.

North America

• 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.

Europe

• 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.

Asia/Pacific

• 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 nine months ended September 30, 2024, from the nine months ended September 30, 2023, and the increases or decreases for each category by segment:

(in thousands)

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 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 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 $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 EBITDA1 of $418.1 million decreased 9.4% compared to $461.4 million primarily due to lower gross profits and higher operating expenses.

Net sales

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

(in thousands)

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

Gross profit

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

(in thousands)

* The statistic is not meaningful or material

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

* The statistic is not meaningful or material.

North America

• 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.

Europe

• 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.

Asia/Pacific

• 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

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

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

(in thousands)

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:

(in thousands)

Cash flows from operating activities result primarily from our earnings before non-cash items such as depreciation, amortization, and stock-based compensation, 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 impacted by prevailing macro-economic conditions and subject to seasonality, which is cyclically associated with the volume and timing of construction project starts. For example, as a result of seasonality our trade accounts receivable are generally lowest at the end of the fourth quarter and increases during the first, second and third quarters as construction activity ramps in markets we serve.

During the 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 $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 $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 over 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

(In thousands) (Unaudited)

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

*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.

Off-Balance Sheet Arrangements

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

We have operations both within the United States and internationally, and are exposed to market risks in the ordinary course of our business.

Foreign Exchange Risk

We have foreign exchange rate risk in our international operations, and through purchases from foreign vendors. Changes in the values of currencies of foreign countries affect our financial position, income statement and cash flows when translated into U.S. Dollars. We estimate that if the exchange rate were to change by 10% in any one country where we have our operations, the change in net income would not be material to our operations taken as a whole.

We may manage our exposure to transactional exposures by entering into foreign currency forward contracts for forecasted transactions and projected cash flows for foreign currencies in future periods. In 2022 and 2023, we entered into financial contracts at various times to hedge the risk of fluctuations associated with the Euro and the Chinese Yuan during 2023. For the nine months ended September 30, 2024, we have not entered into foreign currency contracts.

Interest Rate Risk

Our primary exposure to interest rate risk results from outstanding borrowings under the Amended and Restated Credit Agreement, which bears interest at variable rates. As of September 30, 2024, the outstanding debt under the Amended and Restated Credit Agreement subject to interest rate fluctuations was $468.8 million. The variable interest rates on the Amended and Restated Credit Agreement fluctuate and expose us to short-term changes in market interest rates as our interest obligation on this instrument is based on prevailing market interest rates. Interest rates fluctuate as a result of many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.

We have an interest rate swap agreement converting the variable interest rate on the balances outstanding under our Amended and Restated Credit Agreement to fixed interest rates. The objective of the interest rate swap agreement is to eliminate the variability of the interest payment cash flows associated with the variable interest rate outstanding under the borrowings. We designated the interest rate swaps as cash flow hedges. Refer to Note 8, "Derivatives and Hedging Instruments", for further information on our interest rate swap contracts in effect as of September 30, 2024.

Commodity Price Risk

In the normal course of business, we are exposed to market risk related to our purchase of steel, a significant raw material upon which our manufacturing depends. Steel cost started to stabilize by the end of 2023 and continue to be stable through the first nine months of 2024. While steel is typically available from numerous suppliers, the price of steel is a commodity subject to fluctuations that apply across broad spectrums of the steel market. We do not use any derivative or hedging instruments to manage steel price risk. If the price of steel increases, our variable costs would also increase. While historically we have successfully mitigated these increased costs through the implementation of price increases, in the future we may not be able to successfully mitigate these costs, which could cause our operating margins to decline.

Disclosure Controls and Procedures. As of September 30, 2024, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the chief executive officer the (“CEO”) and the chief financial officer (the “CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15-d-15(e) under the Exchange Act of 1934. Based on this evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. Disclosure controls and procedures are controls and other procedures designed reasonably to assure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed reasonably to assure that this information is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including the CEO and the CFO, does not, however, expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent all fraud and material errors. Internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the facts that there are resource constraints and that the benefits of controls must be considered relative to their costs. The inherent limitations in internal control over financial reporting include the realities that judgments can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of internal control is also based in part on assumptions about the likelihood of future events, and there can be only reasonable, not absolute assurance that any design will succeed in achieving its stated goals under all potential events and conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three months ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

There have been no material changes to our risk factors reported or new risk factors identified since the filing of our Annual Report on Form 10-K for the year ended December 31, 2023.