Simpson(SSD) - 2023 Q4 - Annual Report

Part I Business Simpson Manufacturing designs and manufactures structural solutions for wood, concrete, and steel, expanding globally through product innovation and strategic acquisitions - The company is a leading manufacturer of structural solutions for wood, concrete, and steel connections, with a strong brand presence under the Simpson Strong-Tie® name[18] - The April 2022 acquisition of ETANCO significantly expanded the company's product portfolio and market presence across Europe[19] - Key growth strategies include diversifying product and software portfolios, leveraging industry relationships, and providing extensive engineering and field support[21] - The company's primary raw material is steel, with prices subject to market fluctuations, and it does not typically hedge against these changes[39][40] Employee Headcount by Region (as of Dec 31, 2023) | Region | Employee Count | | :--- | :--- | | North America | 3,274 | | Europe | 1,555 | | Asia Pacific | 668 | | Total | 5,497 | - As of December 31, 2023, approximately 9% of employees are represented by labor unions and covered by collective bargaining agreements[56] Risk Factors The company faces risks from economic volatility, cyclical markets, raw material prices, cybersecurity, and international operations - The business is significantly dependent on the housing and residential construction markets, influenced by factors like interest rates and consumer confidence[64][65] - A significant portion of net sales comes from a few large customers, where loss of any could materially reduce net sales and income[66] - Steel is the principal raw material, and its price volatility means the company may not be able to pass on all cost increases to customers[72][73] - The company faces significant cybersecurity risks, including data breaches and system disruptions, and must comply with evolving data privacy laws[77][88][89] - International operations, accounting for 26.4% of consolidated sales in 2023, expose the company to currency fluctuations, complex laws, and political instability[94][108] - The business is exposed to product liability claims and potential recalls due to the structural nature of its products, risking financial and reputational damage[110][111][113] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[140] Cybersecurity The company employs a multi-layered "defense-in-depth" cybersecurity strategy, with Board oversight, and experienced no material financial impact from a 2023 incident - The company's cybersecurity risk management employs a "defense-in-depth" strategy to identify and manage threats[141] - On October 11, 2023, a cybersecurity incident caused approximately three days of business disruption but resulted in no material financial impact[145][146] - The Audit and Finance Committee of the Board oversees the information security program and cybersecurity risks, receiving regular updates from management[148] Properties The company's headquarters are in Pleasanton, California, operating 80 owned and leased facilities globally totaling approximately 6.4 million square feet Owned and Leased Facilities by Region (as of Feb 27, 2024) | Region | Number of Properties | Owned (sq. ft. in thousands) | Leased (sq. ft. in thousands) | Total (sq. ft. in thousands) | | :--- | :--- | :--- | :--- | :--- | | North America | 32 | 2,235 | 1,271 | 3,506 | | Europe | 38 | 1,886 | 668 | 2,554 | | Asia/Pacific | 9 | 175 | 41 | 216 | | Administrative and all other | 1 | 89 | — | 89 | | Total | 80 | 4,385 | 1,980 | 6,365 | Legal Proceedings The company is involved in various legal proceedings, none of which are expected to have a material adverse effect on its financial condition or operations - The company is not currently a party to any legal proceedings expected to have a material adverse effect on its financial condition or results of operations[155] Mine Safety Disclosures This item is not applicable to the company - Not applicable[156] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on the NYSE under "SSD," with $45.2 million in dividends and $50.0 million in share repurchases in 2023, and a new $100.0 million repurchase program authorized for 2024 - The company's common stock is listed on the New York Stock Exchange (NYSE) under the trading symbol "SSD"[158] - In 2023, the company paid a total of $45.2 million in cash dividends, and a quarterly dividend of $0.27 per share was declared on January 19, 2024[159] Share Repurchases in Q4 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2023 | 128,093 | $133.12 | | Nov 1 - Nov 30, 2023 | 232,746 | $141.62 | | Dec 1 - Dec 31, 2023 | 73 | $166.97 | - The Board of Directors authorized a new share repurchase program of up to $100.0 million, effective from January 1, 2024, through December 31, 2024[165] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, net sales increased 4.6% to $2.21 billion, gross margin improved to 47.1%, and net income rose to $354.0 million, with 2024 projections for operating margin between 20.0% and 21.5% Overview The company's strategy focuses on achieving above-market revenue growth through organic opportunities and strategic acquisitions, strengthening its culture, and leading in innovation - The company's core ambitions include achieving above-market growth relative to U.S. housing starts and maintaining a top-quartile operating income margin among its peers[174] - Key achievements in 2023 include the integration of ETANCO, expansion of product lines, a path-to-market shift, and the rollout of over 50 new products[174][175] Results of Operations For 2023, net sales increased 4.6% to $2.21 billion, gross margin expanded to 47.1% due to lower material costs, and net income reached $354.0 million Consolidated Results of Operations (2023 vs. 2022) | (in thousands) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $2,213,803 | $2,116,087 | 4.6% | | Gross profit | $1,043,755 | $941,293 | 10.9% | | Gross Margin | 47.1% | 44.5% | +260 bps | | Income from operations | $475,149 | $459,067 | 3.5% | | Operating Margin | 21.4% | 21.8% | -40 bps | | Net income | $353,987 | $333,995 | 6.0% | | Diluted EPS | $8.26 | $7.76 | 6.4% | - The increase in gross margin to 47.1% was primarily due to lower material costs, with the prior year including a $13.6 million inventory fair-value adjustment from the ETANCO acquisition[188] - Operating expenses increased significantly year-over-year: R&D by 34.8%, Selling by 20.4%, and General & Administrative by 17.3%, mainly due to higher personnel costs and strategic investments[189][190][191] Business Outlook For fiscal year 2024, the company projects an operating margin between 20.0% and 21.5%, an effective tax rate of 25.0% to 26.0%, and capital expenditures of approximately $200.0 million - 2024 Operating margin is estimated to be in the range of 20.0% to 21.5%[183] - 2024 Effective tax rate is estimated to be between 25.0% and 26.0%[183] - 2024 Capital expenditures are estimated to be approximately $200.0 million, including $120.0 million for facility expansions in Ohio and Tennessee[183] Liquidity and Capital Resources The company ended 2023 with $429.8 million in cash, generated $427.0 million from operations, and returned $95.2 million to stockholders through repurchases and dividends Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from Operating activities | $427,022 | $399,821 | | Net cash used in Investing activities | ($103,251) | ($870,244) | | Net cash (used in) from Financing activities | ($199,034) | $465,526 | - As of December 31, 2023, the company had $75.0 million in borrowings under its revolving credit facility and $410.6 million under its term loan, with $375.0 million available under the revolver[220] - In 2023, the company returned $95.2 million to stockholders through $50.0 million in share repurchases and $45.2 million in dividends[226][228] Quantitative and Qualitative Disclosures About Market Risk The company manages foreign exchange and interest rate risks using derivatives but does not hedge commodity price risk for steel, its primary raw material - The company manages foreign exchange risk through foreign currency forward contracts, particularly for the Euro and Chinese Yuan[236][237][238] - Interest rate risk on variable-rate debt is managed by using interest rate swap agreements to convert variable rates to fixed rates[240][241] - The company is exposed to commodity price risk from steel, its main raw material, but does not use derivative or hedging instruments to manage this risk[242] Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023, 2022, and 2021, including the independent auditor's unqualified opinion and detailed notes Consolidated Balance Sheets As of December 31, 2023, total assets increased to $2.70 billion, driven by higher cash and property, while total liabilities decreased to $1.02 billion due to reduced long-term debt Key Balance Sheet Items (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $429,822 | $300,742 | | Total current assets | $1,312,441 | $1,179,250 | | Total assets | $2,704,724 | $2,503,971 | | Long-term debt, net | $458,791 | $554,539 | | Total liabilities | $1,024,978 | $1,090,592 | | Total stockholders' equity | $1,679,746 | $1,413,379 | Consolidated Statements of Operations For 2023, net sales reached $2.21 billion, gross profit was $1.04 billion (47.1% gross margin), and net income was $354.0 million, or $8.26 per diluted share Key Income Statement Data (in thousands, except per share data) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $2,213,803 | $2,116,087 | $1,573,217 | | Gross profit | $1,043,755 | $941,293 | $755,030 | | Income from operations | $475,149 | $459,067 | $367,793 | | Net income | $353,987 | $333,995 | $266,447 | | Diluted EPS | $8.26 | $7.76 | $6.12 | Consolidated Statements of Cash Flows In 2023, the company generated $427.0 million from operations, used $103.3 million in investing, and $199.0 million in financing, resulting in a $129.1 million increase in cash Summary of Cash Flows (in thousands) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $427,022 | $399,821 | $151,295 | | Net cash used in investing activities | ($103,251) | ($870,244) | ($58,805) | | Net cash (used in) provided by financing activities | ($199,034) | $465,526 | ($71,616) | | Net increase (decrease) in cash | $129,080 | ($413) | $26,516 | Notes to Consolidated Financial Statements Key notes include the $805.4 million ETANCO acquisition, North America's leading sales contribution, and 85% of 2023 sales from wood construction products - On April 1, 2022, the company acquired ETANCO for a total purchase consideration of $805.4 million, net of cash acquired, financed with cash on hand and borrowings[329] Net Sales by Product Group (in thousands) | Product Group | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Wood Construction | $1,881,700 | $1,831,580 | $1,361,113 | | Concrete Construction | $320,500 | $282,205 | $210,780 | | Other | $11,603 | $2,302 | $1,324 | | Total | $2,213,803 | $2,116,087 | $1,573,217 | Segment Performance - 2023 (in thousands) | Segment | Net Sales | Income from Operations | | :--- | :--- | :--- | | North America | $1,716,422 | $473,229 | | Europe | $480,756 | $45,998 | | Asia/Pacific | $16,625 | $535 | - As of December 31, 2023, the company had $485.7 million outstanding under its Amended and Restated Credit Facility, consisting of a term loan and revolver borrowings[401] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[435] Controls and Procedures The CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes identified - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[436] - Management assessed internal control over financial reporting as effective as of December 31, 2023, based on the COSO framework[438] Other Information The company reports no other information for this item - None[441] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[442] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accounting Fees Information for Items 10 through 14, covering governance, compensation, and accounting fees, is incorporated by reference from the company's 2024 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 will be contained in the company's 2024 Proxy Statement and is incorporated herein by reference[444][445][446][447][448] Part IV Exhibits and Financial Statement Schedules This section lists all consolidated financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including corporate governance documents and certifications - This section contains a list of all financial statements, schedules, and exhibits filed with the Form 10-K[450][452] Form 10-K Summary No summary is provided for this item - None[457]