Atkore (ATKR) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents Atkore Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 29, 2024, detailing financial performance, position, and cash flows Condensed Consolidated Statements of Operations Atkore reported decreased net sales and net income for both the three and six months ended March 29, 2024, with diluted earnings per share also declining Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 29, 2024 | Three Months Ended March 31, 2023 | Six Months Ended March 29, 2024 | Six Months Ended March 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $792,911 | $895,934 | $1,591,392 | $1,729,755 | | Gross profit | $291,575 | $352,882 | $582,115 | $687,235 | | Operating income | $178,810 | $239,891 | $354,267 | $471,471 | | Net income | $137,955 | $174,194 | $276,335 | $347,686 | | Diluted EPS | $3.67 | $4.31 | $7.28 | $8.52 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income decreased for both the three and six months ended March 29, 2024, primarily due to lower net income and negative foreign currency translation adjustments Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended March 29, 2024 | Three Months Ended March 31, 2023 | Six Months Ended March 29, 2024 | Six Months Ended March 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income | $137,955 | $174,194 | $276,335 | $347,686 | | Other comprehensive income (loss) | $(4,872) | $2,663 | $4,908 | $13,987 | | Comprehensive income | $133,083 | $176,857 | $281,243 | $361,673 | Condensed Consolidated Balance Sheets As of March 29, 2024, Atkore's total assets slightly increased, while total liabilities decreased, leading to an increase in total equity primarily driven by retained earnings Balance Sheet Highlights (in thousands) | Metric | March 29, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Total current assets | $1,575,293 | $1,538,490 | | Total Assets | $3,014,728 | $2,935,009 | | Total current liabilities | $510,403 | $564,604 | | Total Liabilities | $1,442,832 | $1,466,890 | | Total Equity | $1,571,896 | $1,468,119 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased for the six months ended March 29, 2024, while cash used in investing and financing activities also saw changes, resulting in a net decrease in cash and cash equivalents Cash Flow Summary (in thousands) | Activity | Six Months Ended March 29, 2024 | Six Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $245,323 | $403,396 | | Net cash used in investing activities | $(78,971) | $(156,074) | | Net cash used for financing activities | $(187,529) | $(284,262) | | Decrease in cash and cash equivalents | $(20,064) | $(34,409) | | Cash and cash equivalents at end of period | $368,050 | $354,342 | Condensed Consolidated Statement of Changes in Shareholders' Equity Shareholders' equity increased as of March 29, 2024, primarily due to net income, partially offset by common stock repurchases and dividends paid - Key activities impacting equity in the first six months of fiscal 2024 include net income of $276.3 million, stock repurchases totaling $156.6 million ($97.4M in Q1, $59.2M in Q2), and the declaration of $11.7 million in dividends[23] Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, business segments, the impact of the Inflation Reduction Act on solar energy tax credits, and subsequent events including share repurchases and dividends - Atkore operates through two main segments: Electrical, which manufactures products for electrical power systems, and Safety & Infrastructure, which provides solutions like metal framing and perimeter security[29][95] - Under the Inflation Reduction Act (IRA), the company began recognizing transferable solar energy tax credits in fiscal 2024. For the six months ended March 29, 2024, this resulted in a $37.9 million benefit to cost of sales and a $30.0 million reduction in revenue due to sharing the economic value with customers. All related activity is within the Safety & Infrastructure segment[40][41][44] - The company's debt as of March 29, 2024, totaled $763.8 million, consisting primarily of a Senior Secured Term Loan due 2028 and Senior Notes due 2031[77] - Subsequent to the quarter's end, the company repurchased an additional 204.8 thousand shares for $36.1 million. On May 2, 2024, the board declared a quarterly cash dividend of $0.32 per share[105] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, highlighting decreased net sales due to pricing normalization and solar energy tax credits, lower segment Adjusted EBITDA, and strong liquidity Results of Operations Net sales and gross profit decreased for both the three and six months ended March 29, 2024, primarily driven by lower average selling prices and the impact of solar energy tax credits Q2 2024 vs Q2 2023 Operations (in thousands) | Metric | Q2 2024 | Q2 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $792,911 | $895,934 | $(103,023) | (11.5)% | | Gross profit | $291,575 | $352,882 | $(61,307) | (17.4)% | | Operating income | $178,810 | $239,891 | $(61,081) | (25.5)% | | Net income | $137,955 | $174,194 | $(36,239) | (20.8)% | Drivers of Net Sales Change (Q2 2024 vs Q2 2023) | Driver | % Change | | :--- | :--- | | Volume | (0.8)% | | Average selling prices | (9.5)% | | Solar energy tax credits | (1.2)% | | Total Net Sales | (11.5)% | Six-Month 2024 vs 2023 Operations (in thousands) | Metric | 6M 2024 | 6M 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,591,392 | $1,729,755 | $(138,363) | (8.0)% | | Gross profit | $582,115 | $687,235 | $(105,120) | (15.3)% | | Operating income | $354,267 | $471,471 | $(117,204) | (24.9)% | | Net income | $276,335 | $347,686 | $(71,351) | (20.5)% | Segment Results Both the Electrical and Safety & Infrastructure segments experienced declines in net sales and Adjusted EBITDA for Q2 2024 and the six-month period, driven by lower pricing, solar tax credits, and reduced volumes Electrical Segment Performance (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $590.8M | $681.0M | (13.2)% | | Adjusted EBITDA | $195.8M | $256.9M | (23.8)% | | Adjusted EBITDA margin | 33.1% | 37.7% | -4.6 p.p. | Safety & Infrastructure Segment Performance (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $202.4M | $215.1M | (5.9)% | | Adjusted EBITDA | $25.5M | $33.2M | (23.1)% | | Adjusted EBITDA margin | 12.6% | 15.4% | -2.8 p.p. | Liquidity and Capital Resources The company maintains strong liquidity with substantial cash and available credit, despite a decrease in cash provided by operating activities primarily due to lower operating income and increased working capital usage - The company believes it has sufficient liquidity, with $368.1 million in cash and cash equivalents as of March 29, 2024[138] - Atkore has an asset-based credit facility (ABL) with $325.0 million capacity. As of March 29, 2024, there were no outstanding borrowings, and approximately $322.4 million was available[139] Cash Flow Summary (Six Months Ended) | Activity (in thousands) | March 29, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Operating activities | $245,323 | $403,396 | | Investing activities | $(78,971) | $(156,074) | | Financing activities | $(187,529) | $(284,262) | - The decrease in cash from operations was primarily due to lower operating income and a $58.0 million increase in cash used for working capital[145] Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the company's quantitative and qualitative disclosures regarding market risks since its last Annual Report on Form 10-K - There have been no material changes to market risk disclosures from the most recent Form 10-K[157] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 29, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[159] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[159] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various legal claims in the ordinary course of business, with historical 'Special Products Claims' resolved by indemnification from Johnson Controls, Inc., and no expected material adverse effects from current proceedings - The company is indemnified by Johnson Controls, Inc. (JCI) for "Special Products Claims" related to its previously manufactured anti-microbial coated steel sprinkler pipe[88] - As of the filing date, no Special Product Claims are pending against the company, as JCI has resolved all claims at its own expense[89] - Management does not believe that any existing legal proceedings will have a material adverse effect on the company's business, financial condition, or results of operations[91] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors from the most recent Form 10-K[161] Unregistered Sales of Equity Securities and Use of Proceeds The company continued its share repurchase program, utilizing a portion of its authorized funds during the second quarter of fiscal 2024, with a significant amount remaining available for future repurchases - The board of directors has authorized a total of $1.3 billion for the share repurchase program. As of March 29, 2024, $153.1 million remained available under this authorization[161] Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased (thousands) | Avg Price Paid Per Share | | :--- | :--- | :--- | | Dec 30, 2023 to Jan 26, 2024 | 137 | $153.43 | | Jan 27, 2024 to Mar 1, 2024 | 185 | $147.98 | | Mar 2, 2024 to Mar 29, 2024 | 67 | $166.85 | | Total | 389 | N/A | Defaults Upon Senior Securities This section is not applicable for the current reporting period - Not applicable[163] Mine Safety Disclosures This section is not applicable for the current reporting period - Not applicable[164] Other Information The company disclosed a new Rule 10b5-1 trading arrangement initiated by a segment President for the potential sale of company shares - Mark Lamps, President, Safety & Infrastructure, initiated a new 10b5-1 trading arrangement on February 13, 2024, for the potential sale of 2,000 shares[165] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and XBRL interactive data files[167]