What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-29 compared with 2025-07-30 · 100 added, 57 removed, 115 unchanged (58% 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 three months ended June 29, 2025 as compared to the similar period ended June 30, 2024.

The following is a discussion and analysis of our financial condition and results of operations for the three and six months ended September 28, 2025 as compared to the similar period ended September 29, 2024.

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 March 30, 2025 .

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Business Acquisitions

We completed the following acquisitions in fiscal 2025 and the first quarter of fiscal 2026.The results of operations since the date of each acquisition and the assets, including goodwill associated with these acquisitions, are included in our Water Treatment segment.

• On June 13, 2025, we acquired substantially all the assets and assumed certain liabilities of Hendrickson and Polymer Tech for approximately $1.5 million.

We completed the following acquisitions in fiscal 2025 and the first half of fiscal 2026.

The results of operations since the date of each acquisition and the assets, including goodwill associated with these acquisitions, are included in our Water Treatment segment with the exception of the MakWood lactate business which is shown in our Food & Health Sciences segment.

Certain acquisitions discussed below are not included in Note 2 to our Condensed Consolidated Financial Statements as they were not deemed to be material enough to warrant disclosure.

• On August 29, 2025, we acquired substantially all the assets and assumed certain liabilities of StillWaters Technology, Inc.

("StillWaters") for $4.3 million.

StillWaters distributes water treatment chemicals and equipment for its customers in Alabama.

• On July 2, 2025, we acquired the lactate business of MakWood, Inc.

for $1.9 million.

We had previously been party to a Distribution Agreement with MakWood for certain lactate products under the Mak Lak trade name.

This acquisition agreement terminated the Distribution Agreement, and resulted in our acquisition of the lactate distribution business, including the customer list and associated brand name.

• On July 1, 2025, we acquired substantially all the assets and assumed certain liabilities of PhillTech, LLC ("PhillTech") for $5.0 million.

PhillTech is located in Courtland, AL, and manufactures and distributes coagulants and corrosion control products for its water treatment customers.

• On June 13, 2025, we acquired substantially all the assets and assumed certain liabilities of Hendrickson and Polymer Tech (collectively, "Hendrickson") for approximately $1.5 million.

Hendrickson distributed water treatment chemicals and equipment to its customers via direct shipments from suppliers.

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

The aggregate annual revenue of these six businesses acquired in fiscal 2025 and fiscal 2026 totaled approximately $102 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

Subsequent to the end of our first quarter of fiscal 2026, we acquired substantially all the assets and assumed certain liabilities of PhillTech, LLC.

("PhillTech") for $5.0 million.

PhillTech is located in Courtland, AL, and manufactures and distributes coagulants and corrosion control products for its water treatment customers.

The aggregate annual revenue of these nine businesses acquired in fiscal 2025 and fiscal 2026 totaled approximately $106 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

Change in Reporting Segments

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

Three Months Ended

June 29, 2025 June 30, 2024

Three Months Ended Six Months Ended

September 28, 2025 September 29, 2024 September 28, 2025 September 29, 2024

Sales 100.0 % 100.0 % 100.0 % 100.0 %

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Net income 8.1 % 9.8 % 9.1 % 10.6 %

Three Months Ended June 29, 2025 Compared to Three Months Ended June 30, 2024

Sales were $293.3 million for the three months ended June 29, 2025, an increase of $37.4 million, or 15%, from sales of $255.9 million in the same period a year ago.

Each of our segments contributed to the year-over-year growth, as discussed below.

Three Months Ended September 28, 2025 Compared to Three Months Ended September 29, 2024

Sales were $280.4 million for the three months ended September 28, 2025, an increase of $33.4 million, or 14%, from sales of $247.0 million in the same period a year ago.

All of our segments contributed to the year-over-year growth, with both our Water Treatment and Industrial Solutions segments reporting double-digit growth.

Water Treatment Segment.

Water Treatment segment sales increased $32.4 million, or 28%, to $149.6 million for the three months ended June 29, 2025, from sales of $117.2 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 8% of sales dollars in the current quarter and 9% in the same period a year ago.

Sales increased as a result of $29 million of added sales from acquired businesses as well as increased sales volumes and improved pricing on certain products in our legacy business.

Water Treatment segment sales increased $26.4 million, or 21%, to $150.9 million for the three months ended September 28, 2025, from sales of $124.5 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 8% of sales dollars in both the current quarter and in the same period a year ago.

Sales increased as a result of $23 million of added sales from acquired businesses as well as increased organic sales volumes and improved pricing on certain products.

Food & Health Sciences Segment.

Food & Health Sciences segment sales increased $4.1 million, or 5%, to $89.2 million for the three months ended June 29, 2025, from sales of $85.1 million in the same period a year ago.

Sales of our agricultural products increased $4.5 million due to increased volumes, offset partially by declines in our other product lines as a result of lower selling prices driven by competitive pricing pressures.

Food & Health Sciences segment sales increased $1.5 million, or 2%, to $72.9 million for the three months ended September 28, 2025, from sales of $71.4 million in the same period a year ago.

Sales increased primarily

as result of increased sales volumes of our agricultural products as well as increased sales of our health and nutrition products.

Industrial Solutions Segment.

Industrial Solutions segment sales increased $0.9 million, or 2%, to $54.5 million for the three months ended June 29, 2025, from sales of $53.6 million in the same period a year ago.

Sales of bulk commodity products in the Industrial Solutions segment were approximately 22% of sales dollars in both the current quarter and in the same period a year ago.

Industrial Solutions segment sales increased $5.5 million, or 11%, to $56.6 million for the three months ended September 28, 2025, from sales of $51.1 million in the same period a year ago.

Sales of bulk commodity products in the Industrial Solutions segment were approximately 21% of sales dollars in the current quarter and 22% in the same period a year ago.

Sales increased primarily as a result of increased sales volumes of certain of our manufactured, blended and repackaged products.

Gross profit increased $7.7 million, or 12%, to $72.4 million, or 25% of sales, for the three months ended June 29, 2025, from $64.7 million, or 25% of sales, in the same period a year ago.

During the current quarter, the LIFO reserve increased, and gross profit decreased, by $0.6 million, primarily due to a projected increase in inventory costs and year-end inventory quantities.

In the same period a year ago, the LIFO reserve increased, and gross profit decreased, by $0.4 million.

Gross profit increased $7.4 million, or 12%, to $67.6 million, or 24% of sales, for the three months ended September 28, 2025, from $60.2 million, or 24% of sales, in the same period a year ago.

During the current quarter, the LIFO reserve increased, and gross profit decreased, by $0.3 million, primarily due to a projected increase in certain commodity volumes and costs at year-end.

In the same period a year ago, the LIFO reserve was unchanged and therefore had no impact on gross profit.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $8.5 million, or 24%, to $43.7 million, or 29% of sales, for the three months ended June 29, 2025, from $35.2 million, or 30% of sales, in the same period a year ago.

During the current quarter, the LIFO reserve increased, and gross profit decreased, by $0.2 million.

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

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

Step-up inventory adjustments of $0.8 million related to the WaterSurplus acquisition negatively impacted gross profit.

Gross profit for the Water Treatment segment increased $7.4 million, or 20%, to $43.3 million, or 29% of sales, for the three months ended September 28, 2025, from $35.9 million, or 29% of sales, in the same period a year ago.

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

Food & Health Sciences Segment.

Gross profit for the Food & Health Sciences segment decreased $0.6 million, or 3%, to $19.3 million, or 22% of sales, for the three months ended June 29, 2025, from $19.9 million, or 23% of sales, in the same period a year ago.

During the current quarter, the LIFO reserve increased, and gross profit decreased, by $0.2 million.

During the prior year quarter, the LIFO reserve decreased, and gross profit increased, by $0.2 million.

Gross profit for the Food & Health Sciences segment decreased $0.6 million, or 4%, to $15.5 million, or 21% of sales, for the three months ended September 28, 2025, from $16.1 million, or 22% of sales, in the same period a year ago.

Gross profit decreased primarily as a result of lower selling prices as a result of competitive pricing pressures.

Industrial Solutions Segment.

Gross profit for the Industrial Solutions segment decreased $0.2 million, or 2%, to $9.3 million, or 17% of sales, for the three months ended June 29, 2025, from $9.5 million, or 18% of sales, in the same period a year ago.

During the current quarter, the LIFO reserve increased, and gross profit decreased, by $0.2million.

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

Gross profit decreased primarily as a result of competitive pricing pressures and increased operating costs.

Gross profit for the Industrial Solutions segment increased $0.7 million, or 9%, to $8.9 million, or 16% of sales, for the three months ended September 28, 2025, from $8.2 million, or 16% of sales, in the same period a year ago.

Gross profit increased as a result of the increase in sales.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $6.1 million, or 24%, to $31.0 million, or 11% of sales, for the three months ended June 29, 2025, from $24.9 million, or 10% of sales, in the same period a year ago.

Expenses increased largely due to $4.9 million in added costs from the acquired business in our Water Treatment segment, including amortization of intangibles of $2.0 million and $0.9 million of acquisition costs.

In addition, expenses increased due to $1.4 million of additional compensation expense related to our non-qualified deferred compensation plan and equity compensation adjustments due to stock market increases, as well as an increase in medical expenses.

The non-qualified deferred compensation expense increase of $0.8 million was offset in Other Income.

In the current quarter, we recorded a reduction to SG&A expense of $1.9 million related to the adjustment of the fair value accretion of the earnout related to the Water Solutions acquisition due to a change in projections.

Selling, general and administrative (“SG&A”) expenses increased $7.2 million, or 27%, to $33.7 million, or 12% of sales, for the three months ended September 28, 2025, from $26.5 million, or 11% of sales, in the same period a year ago.

Expenses increased largely due to $5.6 million in added costs from the acquired businesses in our Water Treatment segment, including amortization of intangibles of $2.5 million and $0.5 million of fair value accretion on earnout liabilities.

SG&A expenses also increased due to increases in other variable costs, including variable pay and other personnel costs.

Operating Income

Operating income increased $1.5 million, or 4%, to $41.3 million, or 14% of sales, for the three months ended June 29, 2025, from $39.8 million, or 16% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Operating income increased $0.2 million, or 1%, to $33.9 million, or 12% of sales, for the three months ended September 28, 2025, from $33.7 million, or 14% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense increased $2.0 million to $3.3 million for the three months ended June 29, 2025 compared to $1.3 million in the same period a year ago.

Interest expense increased $2.4 million to $3.8 million for the three months ended September 28, 2025 compared to $1.4 million in the same period a year ago.

Interest expense increased due to increased borrowings in the current quarter, primarily to fund the acquisition of WaterSurplus.

Other income was $0.9 million for the three months ended June 29, 2025 compared to $0.2 million in the same period a year ago.

Other income was $0.7 million for the three months ended September 28, 2025 and 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 approximately 25% for both of the three months ended June 29, 2025 and for the same period a year ago.

The effective tax rate in both years was impacted by favorable tax provision adjustments recorded.

Our effective income tax rate was approximately 27% the three months ended September 28, 2025 and for the same period a year ago.

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 26% to 27%.

Six Months Ended September 28, 2025 Compared to Six Months Ended September 29, 2024

Sales were $573.7 million for the six months ended September 28, 2025, an increase of $70.8 million, or 14%, from sales of $502.9 million in the same period a year ago.

Each of our segments contributed to the year-over-year growth, with our Water Treatment segment showing 24% growth.

Water Treatment Segment.

Water Treatment segment sales increased $58.8 million, or 24%, to $300.5 million for the six months ended September 28, 2025, from sales of $241.7 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 8% of sales dollars in the current period and 9% in the same period a year ago.

Sales increased as a result of $52 million of added sales from acquired businesses as well as increased organic sales volumes and improved pricing on certain of our products.

Food & Health Sciences.

Food & Health Sciences sales increased $5.6 million or 4%, to $162.1 million for the six months ended September 28, 2025, from sales of $156.5 million in the same period a year ago.

Sales of our agricultural products increased $5.8 million due to increased volumes, partially offset by declines in some of our other product lines as a result of lower selling prices driven by competitive pricing pressures.

Industrial Solutions Segment.

Industrial Solutions segment sales increased $6.4 million, or 6%, to $111.1 million for the six months ended September 28, 2025, from sales of $104.7 million in the same period a year ago.

Sales of bulk commodity products in the Industrial Solutions segment were approximately 21% of sales dollars in the current period and 22% in the same period a year ago.

Sales increased primarily as a result of increased sales of certain of our manufactures, blended and repackaged products.

Gross profit increased $15.1 million, or 12%, to $140.0 million, or 24% of sales, for the six months ended September 28, 2025, from $124.9 million, or 25% of sales, in the same period a year ago.

During the current period, the LIFO reserve increased, and gross profit decreased, by $0.9 million due primarily to a projected increase in certain commodity volumes and costs at year end.

In the same period a year ago, the LIFO reserve increased, and gross profit decreased, by $0.4 million.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $15.9 million, or 22%, to $87.0 million, or 29% of sales, for the six months ended September 28, 2025, from $71.1 million, or 29% of sales, in the same period a year ago.

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

Food & Health Sciences.

Gross profit for the Food & Health Sciences segment decreased $1.1 million, or 3% to $34.8 million, or 21% of sales, for the six months ended September 28, 2025, from $36.0 million, or 23% of sales, in the same period a year ago.

Gross profit decreased primarily as a result of lower selling prices resulting from competitive pricing pressures.

Industrial Solutions Segment .

Gross profit for our Industrial Solutions segment increased $0.4 million, or 2%, to $18.2 million, or 16% of sales, for the six months ended September 28, 2025, from $17.8 million, or 17% of sales, in the same period a year ago.

Gross profit increased as a result of the increase in sales.

Selling, General and Administrative Expenses

SG&A expenses increased $13.4 million, or 26%, to $64.7 million, or 11% of sales, for the six months ended September 28, 2025, from $51.3 million, or 10% of sales, in the same period a year ago.

Expenses increased largely due to $10.4 million in added costs from the acquired businesses in our Water Treatment segment, including amortization of intangibles of $4.5 million, fair value accretion on earnout liability of $0.9 million, and $0.7 million of acquisition costs.

In addition, a year-over-year increase of $0.8 million in compensation expense related to our non-qualified deferred compensation plan increased SG&A expenses, with the offset in Other Income.

In the current year, we recorded a reduction to SG&A expense of $1.9 million related to fair value accretion previously recorded on the Water Solutions earnout due to a change in projections.

SG&A expenses also increased due to increases in other variable costs, including variable pay and personnel costs

Operating Income

Operating income increased $1.8 million, or 2%, to $75.3 million, or 13% of sales, for the six months ended September 28, 2025, from $73.5 million, or 15% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense increased $4.4 million to $7.1 million for the six months ended September 28, 2025, from $2.7 million in the same period a year ago.

Interest expense increased due to an increase in outstanding borrowings in the current year, primarily to fund the acquisition of WaterSurplus.

Other income was $1.7 million for the six months ended September 28, 2025 compared to $0.8 million in the same period a year ago.

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

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

Income Tax Provision

Our effective income tax rate was 26% for both the six months ended September 28, 2025 and the same period a year ago.

The effective tax rate for both the six months ended September 28, 2025 and the same period a year ago were 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 26% to 27%.

Liquidity and Capital Resources

Cash was $14.5 million at June 29, 2025, an increase of $9.4 million as compared with the $5.1 million available as of March 30, 2025.

Cash provided by operating activities was $31.5 million for the three months ended June 29, 2025, compared to cash provided by operating activities of $17.6 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities in the current period was primarily driven by favorable year-over-year changes in trade receivables and accounts payable compared to the same period a year ago.

Cash was $10.4 million at September 28, 2025, an increase of $5.3 million as compared with the $5.1 million available as of March 30, 2025.

Cash provided by operating activities was $71.0 million for the six months ended September 28, 2025, compared to cash provided by operating activities of $59.2 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities in the current period was primarily driven by favorable year-over-year changes in trade receivables 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 $164.5 million for the three months ended June 29, 2025, compared to $35.8 million in the sam e period a year ago.

In the current period, we incurred acquisition spending of $151.3 million , with the acquisitions of WaterSurplus for approximately $149.9 million paid at closing, and Hendrickson for approximately $1.5 million.

Cash u sed in investing activities was $185.8 million for the six months ended September 28, 2025, compared to $46.3 million in the sam e period a year ago.

In the current period, we incurred acquisition spending of $162.5 million , including the acquisition of WaterSurplus for approximately $149.9 million paid at closing.

Capital expenditures were $24.3 million for the current period, compared to $21.3 million in the same period a year ago.

In the current period, we had more investments in transportation equipment and containers, resulting in an increase in overall capital expenditures compared to the prior year.

Cash provided by financing activities was $142.5 million for the three months ended June 29, 2025, compared to $20.0 million of cash used in financing activities in the same period a year ago.

In the current period, we had more investments in transportation equipment, resulting in an increase in overall capital expenditures compared to the prior year.

Cash provided by financing activities was $120.1 million for the six months ended September 28, 2025, compared to $12.5 million of cash used in financing activities in the same period a year ago.

Included in financing activities in the current period were net debt borrowings of $130.0 million, compared to net debt borrowings of $5.0 million in the same period a year ago.

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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 three months ended June 29, 2025, we repurchased no shares of common stock.

In the same period a year ago, we repurchased 105,541 shares of common stock with an aggregate purchase price of $9.1 million.

As of June 29, 2025, 731,544 shares remained available to be repurchased under the share repurchase program.

During the three and six months ended September 28, 2025, we repurchased no shares of common stock.

During the three months ended September 29, 2024, we repurchased no shares of common stock and during the six months ended September 29, 2024, we repurchased 105,541 shares of common stock with an aggregate purchase price of $9.1 million.

As of September 28, 2025, 731,544 shares remained available to be repurchased under the share repurchase program.

We are party to a second amended and restated credit agreement with U.S.

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The base rate margin is between 0.00% and 0.85%, depending on our leverage ratio.

At June 29, 2025, the effective interest rate on our borrowings was 4.9%.

At September 28, 2025, the effective interest rate on our borrowings was 5.1%.

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 June 29, 2025, the unamortized balance of these costs was $0.9 million, and is reflected as a reduction of debt on our balance sheet.

As of September 28, 2025, the unamortized balance of these costs was $0.9 million, and is reflected as a reduction of debt on our balance sheet.

The Credit Agreement will require 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 3.5 to 1.0, subject to an election by us to increase the maximum total cash flow leverage ratio to 4.0 to 1.0 after certain Permitted Acquisitions subject to limitations set forth in the Credit Agreement.

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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 29, 2025 and expect to remain in compliance with all covenants for the next 12 months.

We were in compliance with all covenants of the Credit Agreement as of September 28, 2025 and expect to remain in compliance with all covenants for the next 12 months.

The Credit Agreement contains customary events of default, the occurrence of which would permit the lenders to terminate their commitments and accelerate loans under the Revolving Loan Facility, including failure to make payments under the Revolving Loan Facility, failure to comply with covenants in the Credit Agreement and other loan documents, cross default to other material indebtedness, our failure to pay or discharge material judgments, bankruptcy, and change of control of the Company.

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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