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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-01-31 · 88 added, 131 removed, 85 unchanged (72% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations for the nine months ended December 31, 2023 as compared to the similar period ended January 1, 2023.

This discussion should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included in this quarterly report on Form 10-Q and Item 8 of our Annual Report on Form 10-K for the fiscal year ended April 2, 2023 .

The following is a discussion and analysis of our financial condition and results of operations for the three months ended June 30, 2024 as compared to the similar period ended July 2, 2023.

We derive substantially all of our revenues from the sale of chemicals and specialty ingredients to our customers in a wide variety of industries.

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Over the years, we have maintained the strong customer focus and have expanded our business by increasing our sales of value-added chemicals and specialty ingredients, including manufacturing, blending, and repackaging certain products.

Business Acquisitions and Asset Sales

On October 31, 2023, we acquired substantially all the assets of Miami Products & Chemical Company ("Miami Products") for $15.5 million, under the terms of an asset purchase agreement with Miami Products and its shareholders.

Business Acquisitions

On June 28, 2024, we acquired substantially all the assets of Wofford Water Service, Inc.

("Wofford") for $3.4 million.

Wofford distributed water treatment chemicals and equipment to customers mainly in Mississippi.

The results of operations since the acquisition date and the assets are included in our Water Treatment segment.

On June 3, 2024, we acquired substantially all the assets of Intercoastal Trading, Inc.

and certain related entities ("Intercoastal") for $22.0 million.

Intercoastal distributes water treatment chemicals and equipment to its customers in Maryland, Delaware and Virginia.

The purchase price allocation is not yet complete due to the timing of the acquisition.

The results of operations since the acquisition date and the assets are included in our Water Treatment segment.

In the fourth quarter of fiscal 2024, we acquired substantially all the assets of Industrial Research Corporation ("Industrial Research") for $4.6 million.

Industrial Research was a distributor of water treatment chemicals and equipment for its customers in central to northern Louisiana, eastern Texas and southern Arkansas.

The results of operations since the acquisition and the assets are included in our Water Treatment segment.

In the third quarter of fiscal 2024, we acquired substantially all the assets of Miami Products & Chemical Company ("Miami Products") for $15.5 million.

Miami Products is a bleach manufacturer and distributor serving customers primarily throughout Ohio and the surrounding region.

The results of operations and the assets, including goodwill associated with this acquisition, are included as part of our Water Treatment segment from the date of acquisition forward.

On October 27, 2023, we acquired substantially all the assets of Water Solutions Unlimited, Inc.

("Water Solutions") for $60 million and an additional amount to be paid after three years based on achieving certain targets, under the terms of an asset purchase agreement with Water Solutions and its shareholders.

In the third quarter of fiscal 2024, we acquired substantially all the assets of Water Solutions Unlimited, Inc.

("Water Solutions") for $60 million and an additional amount to be paid after three years based on achieving certain targets.

The total purchase price was estimated to be $70.7 million, including the estimated potential earnout to be paid of $10.7 million.

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The results of operations and the assets, including goodwill associated with this acquisition, are included as part of our Water Treatment segment from the date of acquisition forward.

On July 14, 2023, we acquired substantially all the assets of EcoTech Enterprises, Inc.

("EcoTech") for $3.4 million, under the terms of an asset purchase agreement with EcoTech and its shareholders.

In the second quarter of fiscal 2024, we acquired substantially all the assets of EcoTech Enterprises, Inc.

("EcoTech") for $3.4 million.

EcoTech was a manufacturer and distributor of water treatment chemicals serving customers throughout Arkansas and surrounding states.

The results of operations and the assets are included as part of our Water Treatment segment from the date of acquisition forward.

The aggregate annual revenue of these three businesses acquired in fiscal 2024 totaled approximately $66 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

In the fourth quarter of fiscal 2023, we sold certain assets in our Industrial segment related to our consumer bleach packaging business for $7 million.

These assets were not deemed core to our Industrial segment operations.

The assets sold included plant equipment, inventory, and intangible assets, all related to the packaging of bleach.

We realized a gain of $3 million on this sale, which was recorded as a reduction to selling, general and administrative expenses.

The aggregate annual revenue of these six businesses acquired in fiscal 2024 and fiscal 2025 totaled approximately $85 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

Share Repurchase Program

We have in place a share repurchase program for up to 2.6 million shares of our common shares.

As of December 31, 2023, 937,487 shares remain available to be repurchased under this program.

As of June 30, 2024, 831,946 shares remain available to be repurchased under this program.

Financial Results

We focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales, as sales dollars tend to fluctuate as raw material prices rise and fall, particularly in our Industrial and Water Treatment segments.

The costs for certain of our raw materials can rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.

We use the last in, first out (“LIFO”) method of valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs to be recognized in our income statement.

The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices.

We use the last in, first out (“LIFO”) method of valuing the majority of our inventory in our Water Treatment and Industrial segments, which causes the most recent product costs to be recognized in our income statement.

The LIFO inventory

valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices.

Inventories in our Health and Nutrition segment are valued using the first-in, first-out (“FIFO”) method.

We disclose the sales of our bulk commodity products as a percentage of total sales dollars for our Industrial and Water Treatment segments.

We disclose the sales of our bulk commodity products as a percentage of total sales dollars for our Water Treatment and Industrial segments.

Our definition of bulk commodity products includes products that we do not modify in any way, but receive, store, and ship from our facilities, or direct ship to our customers in large quantities.

We disclose the percentage of

our overall sales that consist of sales of bulk commodity products as these products are generally distributed and we do not add significant value to these products in comparison to our non-bulk products.

We disclose the percentage of our overall sales that consist of sales of bulk commodity products as these products are generally distributed and we do not add significant value to these products in comparison to our non-bulk products.

Sales of these products are generally highly competitive and price sensitive.

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The following table sets forth the percentage relationship of certain items to sales for the period indicated:

Three Months Ended Nine Months Ended

December 31, 2023 January 1, 2023 December 31, 2023 January 1, 2023

Three Months Ended

June 30, 2024 July 2, 2023

Sales 100.0 % 100.0 %

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Net income 11.4 % 9.2 %

Three Months Ended December 31, 2023 Compared to Three Months Ended January 1, 2023

Sales were $208.5 million for the three months ended December 31, 2023, a decrease of $10.7 million, or 5%, from sales of $219.2 million in the same period a year ago.

Increased sales in our Water Treatment segment were more than offset by decreased sales in our Industrial and Health and Nutrition segments.

Industrial Segment.

Industrial segment sales decreased $21.4 million or 19%, to $93.0 million for the three months ended December 31, 2023, from sales of $114.4 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 14% of sales dollars in the three months ended December 31, 2023 and 18% in the same period of the prior year.

The sale of our consumer bleach packaging business at the end of fiscal 2023 resulted in a $2.7 million decrease in sales in the current quarter.

In addition, sales declined due to overall lower volumes as well as lower selling prices on certain products driven by lower raw material costs and competitive pricing pressures.

Three Months Ended June 30, 2024 Compared to Three Months Ended July 2, 2023

Sales were $255.9 million for the three months ended June 30, 2024, an increase of $4.8 million, or 2%, from sales of $251.1 million in the same period a year ago.

Increased sales in our Water Treatment segment more than offset decreased sales in our Industrial and Health and Nutrition segments.

Water Treatment Segment.

Water Treatment segment sales increased $13.5 million, or 20%, to $82.0 million for the three months ended December 31, 2023, from sales of $68.5 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in the three months ended December 31, 2023 and 10% in the same period a year ago.

Sales increased as a result of increased selling prices on many of our products as well as increased sales volumes of certain of our products, including $8.2 million of added sales from acquired businesses.

Health & Nutrition Segment.

Health and Nutrition segment sales decreased $2.7 million, or 7%, to $33.5 million for the three months ended December 31, 2023, from sales of $36.2 million in the same period a year ago.

The decrease in sales was a result of lower sales of our manufactured products, offset somewhat by increased sales of our specialty distributed products.

Gross profit increased $5.9 million, or 16%, to $42.2 million, or 20% of sales, for the three months ended December 31, 2023, from $36.3 million, or 17% of sales, in the same period a year ago.

During the three months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $2.5 million due primarily to decreasing raw material prices.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $3.7 million due primarily to rising raw material prices.

Water Treatment segment sales increased $23.5 million, or 25%, to $117.2 million for the three months ended June 30, 2024, from sales of $93.7 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in the three months ended June 30, 2024 and 8% in the same period a year ago.

Sales increased as a result of added sales from acquired businesses.

Industrial Segment.

Gross profit for the Industrial segment increased $0.5 million, or 3%, to $16.5 million, or 18% of sales, for the three months ended December 31, 2023, from $16.0 million, or 14% of sales, in the same period a year ago.

During the three months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $2.1 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by

$2.0 million due primarily to rising raw material prices.

Gross profit increased as the LIFO benefit offset lower unit margins on certain products.

Industrial segment sales decreased $17.7 million or 15%, to $103.2 million for the three months ended June 30, 2024, from sales of $120.9 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 13% of sales dollars in both the three months ended June 30, 2024 and the same period of the prior year.

The decrease in sales was primarily driven by lower selling prices on certain products driven by lower raw material costs and competitive pricing pressures.

Health & Nutrition Segment.

Health and Nutrition segment sales decreased $1.1 million, or 3%, to $35.5 million for the three months ended June 30, 2024, from sales of $36.6 million in the same period a year ago.

Decreased sales of our manufactured products were largely offset by increased sales of our specialty distributed products.

Gross profit increased $12.7 million, or 24%, to $64.7 million, or 25% of sales, for the three months ended June 30, 2024, from $52.0 million, or 21% of sales, in the same period a year ago.

During the three months ended June 30, 2024, the LIFO reserve increased, and gross profit decreased, by $0.4 million due primarily to an increase in our forecasted year-end quantities.

In the same quarter a year ago, the LIFO reserve decreased, and gross profit increased, by $0.2 million.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $6.9 million, or 52%, to $20.2 million, or 25% of sales, for the three months ended December 31, 2023, from $13.3 million, or 19% of sales, in the same period a year ago.

During the three months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $0.4 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $1.7 million due primarily to rising raw material prices.

Gross profit increased as a result of higher per-unit margins on many of our products as well as increased sales, including the added sales from our acquired businesses.

Gross profit for the Water Treatment segment increased $8.6 million, or 33%, to $35.0 million, or 30% of sales, for the three months ended June 30, 2024, from $26.4 million, or 28% of sales, in the same period a year ago.

During the three months ended June 30, 2024, the LIFO reserve increased, and gross profit decreased, by $0.2 million due primarily to increased raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $0.1 million.

Gross profit increased primarily as a result of increased sales from our acquired businesses.

Industrial Segment.

Gross profit for the Industrial segment increased $2.6 million, or 13%, to $21.9 million, or 21% of sales, for the three months ended June 30, 2024, from $19.3 million, or 16% of sales, in the same period a year ago.

During the three months ended June 30, 2024, the LIFO reserve increased, and gross profit decreased, by $0.2 million due primarily to an increase in our forecasted year-end quantities.

In the same quarter a year ago, the LIFO reserve decreased, and gross profit increased, by $0.3 million.

Gross profit increased as a result of higher unit margins on certain products.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $1.5 million, or 21%, to $5.5 million, or 16% of sales, for the three months ended December 31, 2023, from $7.0 million, or 19% of sales, in the same period a year ago.

Gross profit decreased as a result of decreased sales.

Gross profit for our Health and Nutrition segment increased $1.5 million, or 24%, to $7.8 million, or 22% of sales, for the three months ended June 30, 2024, from $6.3 million, or 17% of sales, in the same period a year ago.

Gross profit increased as a result of higher margins on certain products.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $2.8 million, or 13%, to $23.8 million, or 11% of sales, for the three months ended December 31, 2023, from $21.0 million, or 10% of sales, in the same period a year ago.

Expenses increased due to acquisition costs of $0.7 million as well as added costs from the acquired businesses in our Water Treatment segment of $2.2 million, including $0.7 million of amortization of intangibles.

Selling, general and administrative (“SG&A”) expenses increased $5.4 million, or 28%, to $24.9 million, or 10% of sales, for the three months ended June 30, 2024, from $19.5 million, or 8% of sales, in the same period a year ago.

Expenses increased primarily due to added costs from the acquired businesses in our Water Treatment segment and increased variable pay.

Operating Income

Operating income increased $3.2 million, or 21%, to $18.5 million, or 9% of sales, for the three months ended December 31, 2023, from $15.3 million, or 7% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Operating income increased $7.3 million, or 22%, to $39.8 million, or 16% of sales, for the three months ended June 30, 2024, from $32.5 million, or 13% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $1.2 million for the three months ended December 31, 2023 and $1.5 million the same period a year ago.

The decrease was due to a decrease in outstanding borrowings.

Other (Expense) Income

Other income was $0.9 million for the three months ended December 31, 2023 compared to $0.5 million in the same period a year ago.

Interest expense was $1.3 million for the three months ended June 30, 2024 and $1.1 million the same period a year ago.

Interest expense increased slightly due to an increase in outstanding borrowings in the current year as compared to a year ago as well as a slightly higher interest rate.

Other income was $0.2 million for the three months ended June 30, 2024 compared to $0.3 million in the same period a year ago.

The income represents gains recorded on investments held for our non-qualified deferred compensation plan.

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Income Tax Provision

Our effective income tax rate was 18% for the three months ended December 31, 2023 and 24% for the three months ended January 1, 2023.

The effective tax rate in the third quarter of both years was impacted by favorable tax provision adjustments recorded.

The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Our effective tax rate for the full year is expected to be approximately 25 to 26%.

Nine Months Ended December 31, 2023 Compared to Nine Months Ended January 1, 2023

Sales were $696.1 million for the nine months ended December 31, 2023, a decrease of $10.9 million, or 2%, from sales of $707.0 million in the same period a year ago.

Increased sales in our Water Treatment segment were more than offset by decreased sales in our Industrial and Health and Nutrition segments.

Industrial Segment.

Industrial segment sales decreased $40.7 million or 12%, to $312.4 million for the nine months ended December 31, 2023, from sales of $353.1 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 13% of sales dollars in the nine months ended December 31, 2023 and 17% in the same period of the prior year.The sale of our consumer bleach packaging business at the end of fiscal 2023 resulted in and $11.4 million decrease in sales in the nine months ended December 31, 2023.

In addition, sales declined due to overall lower sales volumes.

Water Treatment Segment.

Water Treatment segment sales increased $43.1 million, or 18%, to $276.6 million for the nine months ended December 31, 2023, from sales of $233.5 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in both the nine months ended December 31, 2023 and in the same period a year ago.

Sales increased as a result of increased selling prices on many of our products as well as increased sales volumes of certain of our products, including $9.8 million of added sales from acquired businesses.

Health & Nutrition Segment.

Health and Nutrition segment sales decreased $13.2 million, or 11%, to $107.1 million for the nine months ended December 31, 2023, from sales of $120.3 million in the same period a year ago.

The decrease in sales was a result of lower sales volumes of both our manufactured products and our specialty distributed products.

Gross profit increased $18.7 million, or 14%, to $148.1 million, or 21% of sales, for the nine months ended December 31, 2023, from $129.4 million, or 18% of sales, in the same period a year ago.

During the nine months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $6.0 million due primarily to decreasing raw material prices.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $12.7 million due primarily to rising raw material prices.

Industrial Segment.

Gross profit for the Industrial segment was relatively flat at $53.6 million, or 17% of sales, for the nine months ended December 31, 2023, and $53.7 million, or 15% of sales, in the same period a year ago.

During the nine months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $5.0 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $8.5 million due primarily to rising raw material prices.

Gross profit was relatively unchanged as the decreased margins as a result of the sales decline was offset by improved per-unit margins on certain products.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $23.3 million, or 44%, to $76.0 million, or 27% of sales, for the nine months ended December 31, 2023, from $52.7 million, or 23% of sales, in the same period a year ago.

During the nine months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $0.9 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $4.2 million due primarily to rising raw material prices.

Gross profit increased as a result of improved per-unit margins on many of our products as well as increased sales, including the added sales from our acquired businesses.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $4.4 million, or 19%, to $18.5 million, or 17% of sales, for the nine months ended December 31, 2023, from $23.0 million, or 19% of sales, in the same period a year ago.

Gross profit decreased as a result of the decreased sales.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $4.5 million, or 7%, to $64.2 million, or 9% of sales, for the nine months ended December 31, 2023, from $59.7 million, or 8% of sales, in the same period a year ago.

In the current period, we recorded compensation expense of $0.9 million as a result of gains recorded on investments held for our non-qualified deferred compensation plan, as compared to a $0.7 million decrease in compensation expense in the same period a year ago as a result of losses incurred.

These amounts were offset by similar amounts recorded in other income (expense).

SG&A expenses also increased due to added costs from the acquired businesses in our Water Treatment segment of $2.4 million, including $0.8 million of amortization of intangibles, increased variable pay of $1.7 million, and acquisition costs of $0.8 million, offset somewhat by decreases in other variable expenses.

Operating Income

Operating income increased $14.3 million, or 21%, to $84.0 million, or 12% of sales, for the nine months ended December 31, 2023, from $69.7 million, or 10% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $3.0 million for the nine months ended December 31, 2023 and $3.9 million the same period a year ago.

The decrease was primarily due to a decrease in outstanding borrowings.

Other (Expense) Income

Other income was $0.9 million for the nine months ended December 31, 2023 compared to other expense of $0.7 million in the same period a year ago.

The current year income represents gains recorded on investments held for our non-qualified deferred compensation plan, whereas the prior year expense represented losses recorded on those investments.

The amounts recorded as a gain or loss were offset by similar amounts recorded as an increase or decrease to compensation expense within SG&A expenses.

Income Tax Provision

Our effective income tax rate was 25% for the nine months ended December 31, 2023 and 26% the nine months ended January 1, 2023.

Our effective income tax rate was 25% for the three months ended June 30, 2024 and 26% for the three months ended July 2, 2023.

The effective tax rate in the first quarter of both years was impacted by favorable tax provision adjustments recorded.

The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Our effective tax rate for the full year is currently expected to be approximately 25 to 26%.

Our effective tax rate for the full year is expected to be approximately 26-27%.

Liquidity and Capital Resources

Cash was $5.7 million at December 31, 2023, a decrease of $1.8 million as compared with the $7.6 million available as of April 2, 2023.

Cash provided by operating activities was $117.6 million for the nine months ended December 31, 2023, compared to cash provided by operating activities of $44.5 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities in the first nine months of the current year was primarily driven by decreased cash expended for inventory, along with increased customer collections and increased net income compared to the same period a year ago.

Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, timing of purchases can result in significant changes in working capital investment and the resulting operating cash flow.

Cash u sed in investing activities was $106.4 million for the nine months ended December 31, 2023, compared to $32.0 million in the same period a year ago.

Capital expenditures were $28.2 million for the nine months ended December 31, 2023, compared to $32.3 million in the same period a year ago.

In the first nine months of the current year, we invested $5.1 million to complete an expansion of one of our Minnesota manufacturing facilities.

In the prior year, we invested nearly $4 million on rail expansion projects at three of our facilities, an additional $1.1 million to complete an expansion of our Illinois manufacturing facility, purchased a previously leased facility for $0.9 million, and had larger investments in safety equipment resulting in larger overall capital investments compared to the current year.

In addition, we acquired substantially all the assets of Water Solutions Unlimited for $60.0 million, Miami Products & Ch emical for $15.5 million and EcoTech for $3.4 million in the first nine months of the current year.

Cash used in financing activities was $13.1 million for the nine months ended December 31, 2023, compared to $9.9 million of cash provided by financing activities in the same period a year ago.

Included in financing activities in the first nine months of the current year were net debt proceeds of $8.0 million, compared to net debt proceeds of $5.0 million in the first nine months of the prior year.

In addition, we repurchased $11.3 million of our common stock in the first nine months of the current year, compared to $6.6 million in the same period of the prior year.

Cash was $8.9 million at June 30, 2024, an increase of $1.7 million as compared with the $7.2 million available as of March 31, 2024.

Cash provided by operating activities was $17.6 million for the three months ended June 30, 2024, compared to cash provided by operating activities of $34.9 million in the same period a year ago.

The year-over-year decrease in cash provided by operating activities in the first three months of the current year was primarily driven by unfavorable year-over-year changes in inventory and accounts payable, slightly offset by increased net income compared to the same period a year ago.

Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, the timing of purchases can result in significant changes in working capital investment and the resulting operating cash flow.

Cash u sed in investing activities was $35.8 million for the three months ended June 30, 2024, compared to $7.8 million in the sam e period a year ago.

In the first three months of the current year, we incurred acquisition spending of $25.4 million, with the acquisitions of Intercoastal for $22.0 million and Wofford for $3.4 million.

Capital expenditures were $10.6 million for the three months ended June 30, 2024, compared to $7.9 million in the same period a year ago.

In the first quarter of fiscal 2025, we purchased a building in Texas for $2.5 million and had larger investments in equipment, resulting in larger overall capital expenditures compared to the prior year.

In the prior year, we invested $5.1 million to complete an expansion of one of our Minnesota manufacturing facilities.

Cash provided by financing activities was $20.0 million for the three months ended June 30, 2024, compared to $27.6 million of cash used in financing activities in the same period a year ago.

Included in financing activities in the first three months of the current year were net debt proceeds of $35.0 million, compared to net debt payments of $23.4 million in the first three months of the prior year.

In addition, we repurchased $9.1 million of our common stock in the first three months of the current year, compared to no shares being repurchased in the same period of the prior year.

We expect our cash balances and funds available under our credit facility, discussed below, along with cash flows generated from operations, will be sufficient to fund the cash requirements of our ongoing operations for the foreseeable future.

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The primary objective of the share repurchase program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program.

During the nine months ended December 31, 2023, we repurchased 191,861 shares of common stock with an aggregate purchase price of $11.3 million.

During the nine months ended January 1, 2023, we repurchased 181,657 shares at an aggregate purchase price of $6.6 million.

As of December 31, 2023, 937,487 shares remained available to be repurchased under the share repurchase program.

During the three months ended June 30, 2024, we repurchased 105,541 shares of common stock with an aggregate purchase price of $9.1 million.

During the three months ended July 2, 2023, no shares were repurchased.

As of June 30, 2024, 831,946 shares remained available to be repurchased under the share repurchase program.

We are party to a second amended and restated credit agreement (the “Credit Agreement”) with U.S.

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The Revolving Loan Facility is secured by substantially all of our personal property assets and those of our subsidiaries.

We may use the amount available under the Revolving Loan Facility for working capital, capital expenditures,

share repurchases, restricted payments and acquisitions permitted under the Credit Agreement, and other general corporate purposes.

We may use the amount available under the Revolving Loan Facility for working capital, capital expenditures, share repurchases, restricted payments and acquisitions permitted under the Credit Agreement, and other general corporate purposes.

Borrowings under the Revolving Loan Facility bear interest at a rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio:

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The base rate margin is between 0.00% and 0.35%, depending on our leverage ratio.

At December 31, 2023, the effective interest rate on our borrowings was 4.6%.

At June 30, 2024, the effective interest rate on our borrowings was 4.8%.

In addition to paying interest on the outstanding principal under the Revolving Loan Facility, we are required to pay a commitment fee on the unutilized commitments thereunder.

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Debt issuance costs paid to the Lenders are being amortized as interest expense over the term of the Credit Agreement.

As of December 31, 2023, the unamortized balance of these costs was $0.3 million, and is reflected as a reduction of debt on our balance sheet.

As of June 30, 2024, the unamortized balance of these costs was $0.2 million, and is reflected as a reduction of debt on our balance sheet.

The Credit Agreement requires us to maintain (a) a minimum fixed charge coverage ratio of 1.15 to 1.00 and (b) a maximum total cash flow leverage ratio of 3.0 to 1.0.

The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on our assets or enter into rate management transactions, subject to certain limitations.

We are permitted to make distributions, pay dividends and repurchase shares so long as no default or event of default exists or would exist as a result thereof.

We were in compliance with all covenants of the Credit Agreement as of December 31, 2023 and expect to remain in compliance with all covenants for the next 12 months.

We are permitted to make distributions, pay dividends and repurchase shares so long as no default or event of default exists

or would exist as a result thereof.

We were in compliance with all covenants of the Credit Agreement as of June 30, 2024 and expect to remain in compliance with all covenants for the next 12 months.

The Credit Agreement contains customary events of default, including failure to comply with covenants in the Credit Agreement and other loan documents, cross default to other material indebtedness, failure by us to pay or discharge material judgments, bankruptcy, and change of control.

7 unchanged sentences

Critical Accounting Estimates

There were no material changes in our critical accounting estimates since the filing of our Annual Report on Form 10-K for the fiscal year ended April 2, 2023 .

There were no material changes in our critical accounting estimates since the filing of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 .

Forward-Looking Statements

5 unchanged sentences

These factors could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

Additional information concerning potential factors that could affect future financial results is included in our Annual Report on Form 10-K for the fiscal year ended April 2, 2023 .

Additional information concerning potential factors that could affect future financial results is included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 .

We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis