Encore Wire 10Q 2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________

FORM 10-Q

___________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-20278

__________________________________________________________

ENCORE WIRE CORPORATION

(Exact name of registrant as specified in its charter)

__________________________________________________________


Delaware		75-2274963
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1329 Millwood Road
McKinney	Texas	75069
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (972) 562-9473

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	WIRE	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated Filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of Common Stock, par value $0.01, outstanding as of October 25, 2023: 15,776,307

ENCORE WIRE CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

Table of Contents


			Page No.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 2023 (Unaudited) and December 31, 2022			1
Statements of Income - Quarter and Nine Months Ended September 30, 2023 and 2022 (Unaudited)			2
Statements of Stockholders' Equity - Quarter and Nine Months Ended September 30, 2023 and 2022 (Unaudited)			3
Statements of Cash Flow - Nine Months Ended September 30, 2023 and 2022 (Unaudited)			4
Notes to Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			8
Item 3. Quantitative and Qualitative Disclosures About Market Risk			12
Item 4. Controls and Procedures			12
PART II—OTHER INFORMATION
Item 1. Legal Proceedings			13
Item 1A. Risk Factors			13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			13
Item 5. Other Information			13
Item 6. Exhibits			14
Signatures			15

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Encore Wire Corporation

Balance Sheets

(In thousands, except share and per share data)


	September 30, 2023		December 31, 2022
	(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents	$	581,753	$	730,557
Accounts receivable, net of allowance of $2,455 and $3,800	495,179		498,762
Inventories, net	158,991		153,187
Income tax receivable	19,867		15,143
Prepaid expenses and other	8,766		3,992
Total current assets	1,264,556		1,401,641
Property, plant and equipment, net	713,937		616,601
Other assets	496		490
Total assets	$	1,978,989	$	2,018,732

Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	80,914	$	62,780
Accrued liabilities	80,502		81,381

Total current liabilities	161,416		144,161
Long-term liabilities:
Deferred income taxes and other	55,881		55,905
Total long-term liabilities	55,881		55,905
Total liabilities	217,297		200,066
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value:
Authorized shares – 2,000,000; none issued	—		—
Common stock, $.01 par value:
Authorized shares – 40,000,000;
Issued shares – 27,257,531 and 27,139,611	273		271
Additional paid-in capital	99,984		83,622
Treasury stock, at cost – 11,185,224 and 8,999,732 shares	(781,244)		(402,639)
Retained earnings	2,442,679		2,137,412
Total stockholders’ equity	1,761,692		1,818,666
Total liabilities and stockholders’ equity	$	1,978,989	$	2,018,732

See accompanying notes.

Encore Wire Corporation

Statements of Income

(In thousands, except per share data)


	Quarter Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(Unaudited)				(Unaudited)

Net sales	$	636,991	$	762,363	$	1,933,944	$	2,323,670
Cost of goods sold	488,749		462,916		1,414,469		1,459,704
Gross profit	148,242		299,447		519,475		863,966

Selling, general, and administrative expenses	50,279		55,291		147,654		141,908
Operating income	97,963		244,156		371,821		722,058

Net interest and other income	8,601		3,087		25,842		3,850
Income before income taxes	106,564		247,243		397,663		725,908

Provision for income taxes	24,512		55,470		91,387		162,065
Net income	$	82,052	$	191,773	$	306,276	$	563,843
Earnings per common and common equivalent share – basic	$	4.93	$	10.11	$	17.73	$	28.98
Earnings per common and common equivalent share – diluted	$	4.82	$	9.97	$	17.40	$	28.57
Weighted average common and common equivalent shares outstanding – basic	16,638		18,968		17,271		19,459
Weighted average common and common equivalent shares outstanding – diluted	17,007		19,243		17,597		19,733
Cash dividends declared per share	$	0.02	$	0.02	$	0.06	$	0.06

See accompanying notes.

Encore Wire Corporation

Statements of Stockholders' Equity

(In thousands, except per share data)


2023	Common Stock			Additional Paid-In Capital		Treasury Stock			Retained Earnings		Total Stockholders' Equity
(Unaudited)	Shares	Amount				Shares	Amount
Balance at December 31, 2022	27,139	$	271	$	83,622	(9,000)	$	(402,639)	$	2,137,412	$	1,818,666
Net income	—	—		—		—	—		119,483		119,483
Exercise of stock options	10	—		316		—	—		—		316
Stock-based compensation	93	1		4,040		—	—		—		4,041
Dividend declared—$0.02 per share	—	—		—		—	—		(350)		(350)
Purchase of treasury stock	—	—		—		(702)	(128,252)		—		(128,252)
Balance at March 31, 2023	27,242	$	272	$	87,978	(9,702)	$	(530,891)	$	2,256,545	$	1,813,904
Net income	—	—		—		—	—		104,741		104,741
Exercise of stock options	2	—		103		—	—		—		103
Stock-based compensation	9	—		6,387		—	—		—		6,387
Dividend declared—$0.02 per share	—	—		—		—	—		(336)		(336)
Purchase of treasury stock	—	—		—		(773)	(127,907)		—		(127,907)
Balance at June 30, 2023	27,253	$	272	$	94,468	(10,475)	$	(658,798)	$	2,360,950	$	1,796,892
Net income	—	—		—		—	—		82,052		82,052

Stock-based compensation	5	1		5,516		—	—		—		5,517
Dividend declared—$0.02 per share	—	—		—		—	—		(323)		(323)
Purchase of treasury stock	—	—		—		(710)	(122,446)		—		(122,446)
Balance at September 30, 2023	27,258	$	273	$	99,984	(11,185)	$	(781,244)	$	2,442,679	$	1,761,692


2022	Common Stock			Additional Paid-In Capital		Treasury Stock			Retained Earnings		Total Stockholders' Equity
(Unaudited)	Shares	Amount				Shares	Amount
Balance at December 31, 2021	27,083	$	271	$	72,753	(6,944)	$	(155,014)	$	1,421,079	$	1,339,089
Net income	—	—		—		—	—		161,531		161,531
Exercise of stock options	3	—		155		—	—		—		155
Stock-based compensation	42	—		1,939		—	—		—		1,939
Dividend declared—$0.02 per share	—	—		—		—	—		(394)		(394)
Purchase of treasury stock	—	—		—		(501)	(58,383)		—		(58,383)
Balance at March 31, 2022	27,128	$	271	$	74,847	(7,445)	$	(213,397)	$	1,582,216	$	1,443,937
Net income	—	—		—		—	—		210,538		210,538

Stock-based compensation	5	—		3,276		—	—		—		3,276
Dividend declared—$0.02 per share	—	—		—		—	—		(382)		(382)
Purchase of treasury stock	—	—		—		(607)	(73,473)		—		(73,473)
Balance at June 30, 2022	27,133	$	271	$	78,123	(8,052)	$	(286,870)	$	1,792,372	$	1,583,896
Net income	—	—		—		—	—		191,773		191,773
Exercise of stock options	1	—		52		—	—		—		52
Stock-based compensation	6	—		2,755		—	—		—		2,755
Dividend declared—$0.02 per share	—	—		—		—	—		(367)		(367)
Purchase of treasury stock	—	—		—		(786)	(93,392)		—		(93,392)
Balance at September 30, 2022	27,140	$	271	$	80,930	(8,838)	$	(380,262)	$	1,983,778	$	1,684,717

See accompanying notes.

Encore Wire Corporation

Statements of Cash Flow

(In thousands)


	Nine Months Ended September 30,
	2023		2022
	(Unaudited)

Operating Activities:
Net income	$	306,276	$	563,843
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,891		19,035
Provision for bad debt	1,345		—
Deferred income taxes	4		10,339
Stock-based compensation attributable to equity awards	15,943		7,971
Other	2,217		110
Changes in operating assets and liabilities:
Accounts receivable	2,238		(70,543)
Inventories	(5,804)		(35,371)
Other assets	(4,855)		(17,020)
Trade accounts payable and accrued liabilities	8,858		(9,796)
Current income taxes receivable / payable	(4,724)		(2,255)
Net cash provided by operating activities	345,389		466,313

Investing Activities:
Purchases of property, plant and equipment	(118,564)		(105,509)
Proceeds from sale of assets	12		—

Net cash used in investing activities	(118,552)		(105,509)

Financing Activities:

Purchase of treasury stock	(375,008)		(225,248)


Proceeds from issuance of common stock, net	421		206
Dividends paid	(1,054)		(1,170)
Net cash used in financing activities	(375,641)		(226,212)

Net increase (decrease) in cash and cash equivalents	(148,804)		134,592
Cash and cash equivalents at beginning of period	730,557		438,990
Cash and cash equivalents at end of period	$	581,753	$	573,582

See accompanying notes.

ENCORE WIRE CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

September 30, 2023

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited financial statements of Encore Wire Corporation (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Results of operations for interim periods presented do not necessarily indicate the results that may be expected for the entire year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In March 2020, the World Health Organization (the "WHO") declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide, and, in May 2023, the WHO determined COVID-19 is now an established and ongoing health issue that no longer constitutes a public health emergency of international concern. The Company has not experienced a material impact on its business or its liquidity on account of COVID-19 and is unable to predict any reemergence of any outbreak or its potential long-term impact on our business.

Revenue Recognition

Our revenue is derived by fulfilling customer orders for the purchase of our products, which include electrical building wire and cable. We recognize revenue at the point in time that control of the ordered products is transferred to the customer, which is typically upon shipment to the customer from our manufacturing facilities and based on agreed upon shipping terms on the related purchase order. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis through standard payment terms.

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. The amount of consideration we expect to receive includes estimates for trade payment discounts and customer rebates, which are estimated using historical experience and other relevant factors, and are recorded within the same period that the revenue is recognized. We review and update these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments resulting from updated estimates of trade payment discounts and customer rebates were not material.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative U.S. GAAP, along with the Securities and Exchange Commission (“SEC”) and Public Company Accounting Oversight Board (“PCAOB”) issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standard Update (“ASU”) to communicate changes to the codification. The Company considers the applicability and impact of all ASUs. No new standards have been adopted in 2023.

NOTE 2 – INVENTORIES

Inventories consist of the following:


In Thousands	September 30, 2023		December 31, 2022

Raw materials	$	52,442	$	69,567
Work-in-process	53,586		42,611
Finished goods	151,041		138,943
Total Inventory at FIFO cost	257,069		251,121
Adjust to LIFO cost	(98,078)		(97,934)

Inventory, net	$	158,991	$	153,187

Inventories are stated at the lower of cost, determined by the last-in, first-out (“LIFO”) method, or market. The Company maintains two inventory pools for LIFO purposes. As permitted by U.S. GAAP, the Company maintains its inventory costs and cost of goods sold on a first-in, first-out (“FIFO”) basis and makes a monthly adjustment to total inventory and cost of goods sold from FIFO to LIFO. The Company applies the lower of cost or market (“LCM”) test by comparing the LIFO cost of its raw materials, work-in-process and finished goods inventories to estimated market values, which are based primarily on the most recent quoted market price of copper and other material prices as of the end of each reporting period. The Company performs a lower of cost or market calculation quarterly. As of September 30, 2023, no LCM adjustment was required. However, decreases in copper and other material prices could necessitate establishing an LCM reserve in future periods. Additionally, future reductions in the quantity of inventory on hand could cause copper or other raw materials that are carried in inventory at costs different from the cost of copper and other raw materials in the period in which the reduction occurs to be included in costs of goods sold for that period at the different price.

In the third quarter of 2023, LIFO adjustments were recorded that decreased cost of goods sold by $5.1 million, compared to LIFO adjustments that decreased cost of goods sold by $24.4 million in the third quarter of 2022. In the nine months ended September 30, 2023, LIFO adjustments were recorded that increased cost of goods sold by $0.1 million, compared to LIFO adjustments that decreased cost of goods sold by $23.0 million in the nine months ended September 30, 2022.

NOTE 3 - PROPERTY, PLANT and EQUIPMENT

Property, plant and equipment consists of the following:


In Thousands	September 30, 2023		December 31, 2022

Land and land improvements	$	89,730	$	85,286
Construction-in-progress	164,158		125,809
Buildings and improvements	283,574		232,758
Machinery and equipment	459,542		438,303
Furniture and fixtures	16,123		15,178
Property, plant and equipment, gross	1,013,127		897,334
Accumulated depreciation	(299,190)		(280,733)
Property, plant and equipment, net	$	713,937	$	616,601

In the third quarter of 2023, depreciation expense was $8.1 million, compared to $6.5 million in the third quarter of 2022. Depreciation expense was $23.8 million in the nine months ended September 30, 2023, compared to $19.0 million in the nine months ended September 30, 2022.

NOTE 4 – ACCRUED LIABILITIES

Accrued liabilities consist of the following:


In Thousands	September 30, 2023		December 31, 2022

Sales rebates payable	$	34,838	$	40,909
SAR Liability	18,125		20,282
Property taxes payable	4,792		5,287
Accrued salaries	16,596		7,616
Other accrued liabilities	6,151		7,287
Total accrued liabilities	$	80,502	$	81,381

NOTE 5 – INCOME TAXES

Income taxes were accrued at an effective rate of 23.0% in the third quarter of 2023 versus 22.4% in the third quarter of 2022, consistent with the Company’s estimated liabilities. In all periods, the differences between the provisions for income taxes and the income taxes computed using the federal income tax statutory rate are due primarily to the incremental taxes accrued for state and local taxes and the Section 162(m) limitation on executive compensation.

NOTE 6 – EARNINGS PER SHARE

Earnings per common and common equivalent share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding during each period. If dilutive, the effect of stock awards, treated as common stock equivalents, is calculated using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share:


	Quarter Ended September 30,				Nine Months Ended September 30,
In Thousands	2023		2022		2023		2022

Numerator:
Net income	$	82,052	$	191,773	$	306,276	$	563,843

Denominator:
Denominator for basic earnings per share – weighted average shares	16,638		18,968		17,271		19,459

Effect of dilutive securities:
Employee stock awards	369		275		326		274

Denominator for diluted earnings per share – weighted average shares	17,007		19,243		17,597		19,733

There were no anti-dilutive employee stock awards excluded from the determination of diluted earnings per common and common equivalent shares for the third quarter or nine months ended September 30, 2023 or 2022.

NOTE 7 – DEBT

On February 9, 2021, the Company terminated its previous credit agreement and entered into a new Credit Agreement (the “2021 Credit Agreement”) with two banks, Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as syndication agent. The 2021 Credit Agreement extends through February 9, 2026 and provides for maximum borrowings of $200.0 million. At our request, and subject to certain conditions, the commitments under

the 2021 Credit Agreement may be increased by a maximum of up to $100.0 million as long as existing or new lenders agree to provide such additional commitments.

The 2021 Credit Agreement contains provisions to replace LIBOR with a replacement rate as described in the 2021 Credit Agreement. On October 20, 2022, the Company entered into the First Amendment to the 2021 Credit Agreement (the "Amended 2021 Credit Agreement") which replaced LIBOR with BSBY as permitted under the 2021 Credit Agreement. Borrowings under the line of credit bear interest, at the Company’s option, at either (1) BSBY plus a margin that varies from 1.000% to 1.875% depending upon the Leverage Ratio (as defined in the 2021 Credit Agreement), or (2) the base rate (which is the highest of the federal funds rate plus 0.5%, the prime rate, or BSBY plus 1.0%) plus 0% to 0.375% (depending upon the Leverage Ratio). A commitment fee ranging from 0.200% to 0.325% (depending upon the Leverage Ratio) is payable on the unused line of credit. As of September 30, 2023, there were no borrowings outstanding under the Amended 2021 Credit Agreement, and letters of credit outstanding in the amount of $0.3 million left $199.7 million of credit available under the Amended 2021 Credit Agreement. Obligations under the Amended 2021 Credit Agreement are the only contractual borrowing obligations or commercial borrowing commitments of the Company. The foregoing description of the Amended 2021 Credit Agreement is not complete and is qualified in its entirety by reference to the full text of the Amended 2021 Credit Agreement (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, and incorporated herein by reference).

Obligations under the Amended 2021 Credit Agreement are unsecured and contain customary covenants and events of default. The Company was in compliance with the covenants as of and for the period ended September 30, 2023.

NOTE 8 – STOCKHOLDERS’ EQUITY

On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an authorized number of shares of its common stock from time to time in open market or private transactions, at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently in June 2023, authorizing the repurchase of up to 2,000,000 shares of our common stock. As of September 30, 2023, 1,289,917 shares remained authorized for repurchase through March 31, 2024. The Company repurchased 2,185,492 shares of our stock in the nine months ended September 30, 2023 compared to 1,893,769 shares in the nine months ended September 30, 2022.

NOTE 9 - CONTINGENCIES

There are no material pending proceedings to which the Company is a party or to which any of its property is subject. However, the Company is from time to time involved in litigation, certain other claims and arbitration matters arising in the ordinary course of its business.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Encore Wire Corporation is a leading manufacturer of a broad range of copper and aluminum electrical wire and cables, supplying power generation and distribution solutions to meet our customers’ needs today and in the future. The Company focuses on maintaining a low-cost of production while providing exceptional customer service and quickly shipping complete orders coast-to-coast. Our products are proudly made in America at our vertically-integrated, single-site, Texas campus.

As discussed in Note 1, the reemergence of an outbreak of COVID-19, or any of its ongoing variants, and its potential long-term impact on our business remains uncertain. Although the Company has not experienced a material impact on its business or its liquidity on account of COVID-19, we have limited visibility into the extent to which market demand for our products, as well as sector manufacturing and distribution capacity, would be impacted by the reemergence of an outbreak.

The Company’s operating results in any given period are driven by several key factors, including the volume of product produced and shipped, the cost of copper and other raw materials, the competitive pricing environment in the wire industry and the resulting influence on gross margin, and the efficiency with which the Company’s plants operate during the period, among others. Price competition for electrical wire and cable is intense, and the Company sells its products in accordance with prevailing market prices. Copper, a commodity product, is the principal raw material used by the Company in manufacturing its products. The price of copper fluctuates depending on general economic conditions, in relation to supply and demand, and other factors, which causes monthly variations in the cost of the Company’s purchased copper. Additionally, the SEC allows shares of certain physically backed copper exchange-traded funds (“ETFs”) to be listed and publicly traded. Such funds and other copper ETFs like them hold copper cathode as collateral against their shares. The acquisition of copper cathode by copper ETFs may materially decrease or interrupt the availability of copper for immediate delivery in the United States, which could materially increase the Company’s cost of copper. In addition to raising copper prices and potential supply shortages, we believe that ETFs and similar copper-backed derivative products could lead to increased price volatility for copper. The Company cannot predict copper prices or the effect of fluctuations in the cost of copper on the Company’s future operating

results. Wire prices can, and frequently do, change on a daily basis. This competitive pricing market for wire does not always mirror changes in copper prices, making margins highly volatile. The tables below highlight the range of closing prices of copper on a per pound basis on the Comex exchange for the periods shown.

COMEX COPPER CLOSING PRICE 2023


	July 2023		August 2023		September 2023		Quarter Ended September 30, 2023		Nine Months Ended September 30, 2023
High	$	3.99	$	3.89	$	3.81	$	3.99	$	4.27
Low	3.72		3.65		3.63		3.63		3.55
Average	3.84		3.76		3.72		3.77		3.90

COMEX COPPER CLOSING PRICE 2022


	July 2022		August 2022		September 2022		Quarter Ended September 30, 2022		Nine Months Ended September 30, 2022
High	$	3.62	$	3.71	$	3.63	$	3.71	$	4.93
Low	3.21		3.47		3.31		3.21		3.21
Average	3.40		3.62		3.48		3.50		4.12

The following discussion and analysis relate to factors that have affected the operating results of the Company for the quarters and nine months ended September 30, 2023 and 2022. Reference should also be made to the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

Quarter Ended September 30, 2023 Compared to Quarter Ended September 30, 2022

Net sales were $637.0 million in the third quarter of 2023 compared to $762.4 million in the third quarter of 2022. Copper unit volume, measured in pounds of copper contained in the wire sold, increased 6.4% in the third quarter of 2023 versus the third quarter of 2022. Aluminum wire represented 12.5% of net sales in the third quarter of 2023 compared to 17.4% of net sales in the third quarter of 2022. The decrease in net sales dollars was driven by an anticipated decrease in the average selling price in the third quarter of 2023 compared to the third quarter of 2022.

Cost of goods sold was $488.7 million, or 76.7% of net sales, in the third quarter of 2023, compared to $462.9 million, or 60.7% of net sales in the third quarter of 2022. Gross profit decreased to $148.2 million, or 23.3% of net sales, in the third quarter of 2023 from $299.4 million, or 39.3% of net sales in the third quarter of 2022.

Gross profit percentage for the third quarter of 2023 was 23.3% compared to 39.3% in the third quarter of 2022. The average selling price of wire per copper pound sold decreased 16.8% in the third quarter of 2023 versus the third quarter of 2022, while the average cost of copper per pound purchased increased 4.6%. This resulted in the continued gradual, albeit slowing, abatement of copper spreads during the quarter, primarily driven by the decrease in the average selling price of copper pounds sold noted above, which resulted in the decreased gross profit margin in the third quarter of 2023 compared to the third quarter of 2022.

Total raw material cost as a percentage of sales increased to 66.2% in the third quarter of 2023, from 52.6% in the third quarter of 2022. Overhead costs increased to 10.5% of net sales in the third quarter of 2023, from 8.1% of net sales in the third quarter of 2022. Overhead costs contain some fixed and semi-fixed components which do not fluctuate as much as sales dollars fluctuate.

Selling expenses, consisting of commissions and freight, for the third quarter of 2023 were $28.6 million, or 4.5% of net sales, compared to $34.8 million, or 4.6% of net sales in the third quarter of 2022. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales dollars and exhibited little change as a percentage of sales. Freight costs as a percentage of net sales were 2.0% of net sales in the third quarter of 2023, consistent with such percentage in the third quarter of 2022. General and administrative (“G&A”) expenses for the third quarter of 2023 were $21.6 million, or 3.4% of net sales, compared to $20.5 million, or 2.7% of net sales, in the third quarter of 2022.

Net interest and other income was $8.6 million in the third quarter of 2023 compared to $3.1 million in the third quarter of 2022. The increase in net interest and other income was primarily driven by an increase in interest income.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net sales for the first nine months of 2023 were $1.934 billion compared to net sales of $2.324 billion for the first nine months of 2022. Copper unit volume, measured in pounds of copper contained in the wire sold, increased 2.7% in the first nine months of 2023 versus the first nine months of 2022. Aluminum wire represented 13.8% of net sales in the first nine months of 2023 compared to 14.7% in the first nine months of 2022. The decrease in net sales dollars was driven by an anticipated decrease in the average selling price in the first nine months of 2023 compared to the first nine months of 2022.

Cost of goods sold was $1.414 billion, or 73.1% of net sales, in the first nine months of 2023, compared to $1.460 billion, or 62.8% of net sales in the first nine months of 2022. Gross profit decreased to $519.5 million, or 26.9% of net sales, in the first nine months of 2023 from $864.0 million, or 37.2% of net sales in the first nine months of 2022.

Gross profit percentage for the nine months ended September 30, 2023 was 26.9% compared to 37.2% during the first nine months of 2022. The average selling price of wire per copper pound sold decreased 18.1% in the first nine months of 2023 versus the first nine months of 2022, while the average cost of copper per pound purchased decreased 5.3%. This resulted in the gradual abatement of copper spreads during the first nine months of 2023 versus the first nine months of 2022.

During the first nine months of 2023, LIFO adjustments increasing cost of goods sold by $0.1 million were recorded. During the same period in 2022, LIFO adjustments were recorded decreasing cost of goods sold by $23.0 million. Based on current copper prices, no LCM adjustment was recorded. Future reductions in the price of copper could require the Company to record an LCM adjustment against the related inventory balance, which would result in a negative impact on net income.

Selling expenses for the first nine months of 2023 decreased to $86.5 million, or 4.5% of net sales, from $101.7 million, or 4.4% of net sales in the same period of 2022. Commissions paid to independent manufacturers’ representatives are paid as a relatively stable percentage of sales dollars and exhibited little change as a percentage of sales. Freight costs for the first nine months of 2023 were 2.0% of net sales, compared to 1.9% for the same period in 2022. G&A expenses were $62.5 million, or 3.2% of net sales in the first nine months of 2023 compared to $40.2 million, or 1.7% of net sales in the first nine months of 2022. The increase in G&A in the first nine months of 2023 was primarily due to an increase in Stock Appreciation Rights ("SARs") expense charges driven by the increase in our stock price at September 30, 2023 versus December 31, 2022. We recorded $16.9 million in SARs expense in the first nine months of 2023 compared to a breakeven SARs benefit in the first nine months of 2022, resulting in a $16.9 million increase in SARs expense. No SARs were granted subsequent to January of 2020. The increased SARs expense was partially offset by a decrease in selling expenses period-over-period.

Net interest and other income was $25.8 million in the first nine months of 2023 compared to $3.9 million in the first nine months of 2022. The increase in net interest and other income was primarily driven by an increase in interest income.

Liquidity and Capital Resources

The Company maintains a substantial inventory of finished products to satisfy customers’ delivery requirements promptly. As is customary in the building wire industry, the Company provides payment terms to most of its customers that exceed terms that it receives from its suppliers. Copper suppliers generally give very short payment terms (less than 15 days) while the Company and the building wire industry give customers much longer terms. In general, the Company’s standard payment terms result in the collection of a significant majority of net sales within approximately 75 days of the date of invoice. As a result of this timing difference, building wire companies must have sufficient cash and access to capital resources to finance their working capital needs, thereby creating a barrier to entry for companies who do not have sufficient liquidity and capital resources. The two largest components of working capital, receivables and inventory, and to a lesser extent, capital expenditures, are the primary drivers of the Company’s liquidity needs. Generally, these needs will cause the Company’s cash balance to rise and fall inversely to the receivables and inventory balances. The Company’s receivables and inventories will rise and fall in concert with several factors, most notably the price of copper and other raw materials and the level of unit sales. Capital expenditures have historically been necessary to expand and update the production capacity of the Company’s manufacturing operations. The Company has historically satisfied its liquidity and capital expenditure needs with cash generated from operations and borrowings under its various debt arrangements. The Company historically uses its revolving credit facility to manage day to day operating cash needs as required by daily fluctuations in working capital and has the facility in place should such a need arise in the future.

For more information on the Company’s revolving credit facility, see Note 7 to the Company’s financial statements included in Item 1 to this report, which is incorporated herein by reference.

Cash provided by operating activities was $345.4 million in the first nine months of 2023 compared to cash provided of $466.3 million in the first nine months of 2022. The following changes in components of cash flow from operations were notable. The Company had net income of $306.3 million in the first nine months of 2023 compared to net income of $563.8 million in the first nine months of 2022. Accounts receivable decreased $2.2 million in the first nine months of 2023 compared to increasing

$70.5 million in the first nine months of 2022. Accounts receivable generally fluctuates in proportion to dollar sales and, to a lesser extent, are affected by the timing of when sales occur during a given quarter. With an average of 60 to 75 days of sales outstanding, quarters in which sales are more back-end loaded will have higher accounts receivable balances outstanding at quarter-end. Inventory net increased $5.8 million in the first nine months of 2023 compared to increasing $35.4 million in the first nine months of 2022. Trade accounts payable and accrued liabilities favorably impacted cash by $8.9 million in the first nine months of 2023 versus negatively impacting cash by $9.8 million in the first nine months of 2022. In the first nine months of 2023, changes in current and deferred taxes negatively impacted cash by $4.7 million versus $8.1 million of favorable impact in the first nine months of 2022. These changes in cash flow were the primary drivers of the $120.9 million decrease in cash flows provided by operating activities in the first nine months of 2023 compared to the first nine months of 2022.

Cash used in investing activities increased to $118.6 million in the first nine months of 2023 from $105.5 million in the first nine months of 2022.

Cash used in financing activities in the first nine months of 2023 consisted of $375.0 million paid to purchase our stock, $1.1 million of cash dividends paid, and $0.4 million of proceeds from exercised stock options. These activities in cash flow used $375.6 million of cash in financing activities for the first nine months of 2023 compared to $226.2 million used in the first nine months of 2022. For the nine months ended September 30, 2023 and 2022, the Company did not access its revolving line of credit.

The Company’s cash balance was $581.8 million at September 30, 2023 compared to $573.6 million at September 30, 2022.

During the remainder of 2023, the Company expects its capital expenditures will consist primarily of expenditures related to the purchases of manufacturing equipment throughout its facilities to update equipment and the previously announced expansion plans which remain on schedule. The incremental investments previously announced continue in earnest, focused on broadening our position as a low-cost manufacturer in the sector and increasing manufacturing capacity to drive growth. In 2022 we began construction on a new, state of the art, cross-link polyethylene (XLPE) compounding facility to deepen vertical integration related to wire and cable insulation. XLPE insulation today is used in many applications including Data Centers, Oil and Gas, Transit, Waste-Water Treatment facilities, Utilities and Wind and Solar applications. The new facility is substantially complete. Capital spending in the remainder of 2023 through 2025 will further expand vertical integration in our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency and improve our position as a sustainable and environmentally responsible company. Total capital expenditures were $148.4 million in 2022. We expect total capital expenditures to range from $160 - $170 million in the full year of 2023, $150 - $170 million in 2024, and $80 - $100 million in 2025. We expect to continue to fund these investments with existing cash reserves and operating cash flows.

Critical Accounting Estimates and Policies

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s financial statements, which have been prepared in accordance with U.S. GAAP. The Company’s unaudited financial statements are impacted by the accounting policies used and the estimates and assumptions made by management in their preparation. See Note 1 to the notes to the financial statements for information on the Company’s significant accounting policies.

As of September 30, 2023, there have been no significant changes to the Company’s critical accounting policies and related estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Information Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains various “forward-looking statements” within the meaning of 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 can be identified by words such as: “anticipate”, “intend”, “plan”, “goal”, “seek”, “believe”, “project”, “estimate”, “expect”, “strategy”, “future”, “likely”, “may”, “should”, “will” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Therefore, you should not rely on any of these forward-looking statements. Examples of such uncertainties and risks include, but are not limited to, statements about the pricing environment of copper, aluminum and other raw materials, the duration, magnitude and impact of the ongoing COVID-19 global pandemic, along with any ongoing variants, our order fill rates, profitability and stockholder value, payment of future dividends, future purchases of stock, the impact of competitive pricing and other risks detailed from time to time in the Company’s reports filed with the SEC. Actual results may vary materially from those anticipated. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. For more information regarding “forward-looking statements,” see “Information Regarding Forward-Looking Statements” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which is hereby incorporated by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes from the information provided in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures.

The Company maintains controls and procedures designed to ensure that information required to be disclosed by it in the reports it files with or submits to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure. Based on an evaluation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report conducted by the Company’s management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files with or submits to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive and Chief Financial Officers, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the period covered by this report.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

For information on the Company’s legal proceedings, see Note 9 to the Company’s financial statements included in Item 1 to this report and incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes to the Company’s risk factors as disclosed in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Note 8 to the Company’s financial statements included in Item 1 to this report is hereby incorporated herein by reference.

The following table provides information relating to our purchases of shares of our common stock during the three months ended September 30, 2023.


	(a)	(b)		(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 2023	—	$	—	—	2,000,000
August 2023	116,269	163.86		116,269	1,883,731
September 2023	593,814	172.08		593,814	1,289,917
	710,083	$	170.73	710,083

(1) On November 10, 2006, the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an authorized number of shares of its common stock from time to time in open market or private transactions, at the Company's discretion. This authorization originally expired on December 31, 2007, and the Company’s Board of Directors has authorized several increases and annual extensions of this stock repurchase program, most recently in June 2023, authorizing the repurchase of up to 2,000,000 shares of our common stock. As of September 30, 2023, 1,289,917 shares remained authorized for repurchase through March 31, 2024. The Company repurchased 2,185,492 shares of its stock in the nine months ended September 30, 2023 compared to 1,893,769 shares in the nine months ended September 30, 2022.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

During the quarter and nine months ended September 30, 2023, none of our executive officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."

Item 6. Exhibits.


Exhibit Number			Description
3.1			Certificate of Incorporation of Encore Wire Corporation and all amendments thereto (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, and incorporated herein by reference).
3.2			Third Amended and Restated Bylaws of Encore Wire Corporation, as amended through February 27, 2012 (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
4.1			Form of certificate for Common Stock (filed as Exhibit 1 to the Company’s registration statement on Form 8-A, filed with the SEC on June 4, 1992, and incorporated herein by reference).
31.1			Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, dated October 26 , 2023 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification by Bret J. Eckert, Executive Vice President and Chief Financial Officer of the Company, dated October 26 , 2023 and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification by Daniel L. Jones, Chairman, President and Chief Executive Officer of the Company, dated October 26 , 2023 as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification by Bret J. Eckert, Executive Vice President and Chief Financial Officer of the Company, dated October 26 , 2023 as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			ENCORE WIRE CORPORATION
			(Registrant)

Dated: October 26, 2023			/s/ DANIEL L. JONES
			Daniel L. Jones Chairman, President and Chief Executive Officer

Dated: October 26, 2023			/s/ BRET J. ECKERT
			Bret J. Eckert Executive Vice President and Chief Financial Officer

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Encore Wire (WIRE) 10-Q2023 Q3 Quarterly report

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