What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-02-05 compared with 2024-10-30 · 98 added, 90 removed, 156 unchanged (55% of the section changed)

2 unchanged sentences

Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters.

The quarter ended September 30, 2024 was the second quarter of fiscal 2025.

Fiscal 2024 acquisitions and dispositions

The quarter ended December 31, 2024 was the third quarter of fiscal 2025.

Acquisitions and dispositions

On March 1, 2024, we acquired Scott Springfield Mfg.

5 unchanged sentences

The sale of these businesses, which produce air- and liquid-cooled products for internal combustion, diesel and gasoline engines for the European automotive market, supports our strategic prioritization of resources towards higher-margin technologies.

In December 2024, we signed a definitive agreement to sell our technical service center and administrative support facility in Germany to a real estate investment firm for €11.5 million ($11.9 million).

Earlier this fiscal year, we closed the technical service center and reduced headcount in light of the sale of the three automotive businesses in Germany.

We expect the sale transaction will close during the first half of fiscal 2026, subject to remaining closing conditions.

We expect to record a gain on sale, net of costs to sell, of approximately $3.0 million when the transaction is completed.

See Note 2 of the Notes to Consolidated Financial Statements for further information.

Second quarter highlights

Net sales in the second quarter of fiscal 2025 increased $37.5 million, or 6 percent, from the second quarter of fiscal 2024, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment.

Third quarter highlights

Net sales in the third quarter of fiscal 2025 increased $55.4 million, or 10 percent, from the third quarter of fiscal 2024, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment.

The higher Climate Solutions segment sales included $73.6 million of incremental sales from the acquired Scott Springfield Manufacturing business.

The lower Performance Technologies segment sales included a $21.9 million impact of the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

The lower Performance Technologies segment sales included an $8.0 million impact of the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

Cost of sales increased $33.1 million, or 8 percent.

1 unchanged sentence

Selling, general and administrative (“SG&A”) expenses increased $14.0 million and included higher compensation-related expenses and incremental expenses from Scott Springfield Manufacturing, including amortization expense for acquired intangible assets.

Operating income of $75.3 million during the second quarter of fiscal 2025 increased $9.6 million from the prior year, primarily due to higher earnings in our operating segments, partially offset by higher SG&A and restructuring expenses.

Operating income of $59.3 million during the third quarter of fiscal 2025 decreased $2.4 million from the prior year, primarily due to higher SG&A and restructuring expenses and the absence of a $4.0 million gain on sale of three automotive businesses in Germany in the third quarter of fiscal 2024, partially offset by higher gross profit.

Year-to-date highlights

Net sales in the first six months of fiscal 2025 increased $76.6 million, or 6 percent, from the same period last year, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment.

Net sales in the first nine months of fiscal 2025 increased $132.0 million, or 7 percent, from the same period last year, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment.

The higher Climate Solutions segment sales included $168.1 million of incremental sales from the acquired Scott Springfield Manufacturing and Napps businesses.

The lower Performance Technologies segment sales were largely driven by the $46.2 million impact of the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

The lower Performance Technologies segment sales included a $54.2 million impact of the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

Cost of sales increased $44.5 million, or 3 percent, from the same period last year.

1 unchanged sentence

SG&A expenses increased $52.3 million and included higher compensation-related expenses and incremental expenses from Scott Springfield Manufacturing, including amortization expense for acquired intangible assets.

Operating income of $149.7 million during the first six months of fiscal 2025 increased $17.5 million from the prior year, primarily due to higher earnings in our operating segments, partially offset by higher SG&A and restructuring expenses.

Operating income of $209.0 million during the first nine months of fiscal 2025 increased $15.1 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of a $4.0 million gain on sale of three automotive businesses in Germany in fiscal 2024.

CONSOLIDATED RESULTS OF OPERATIONS

The following table presents our consolidated financial results on a comparative basis for the three and six months ended September 30, 2024 and 2023:

Three months ended September 30,

Six months ended September 30,

The following table presents our consolidated financial results on a comparative basis for the three and nine months ended December 31, 2024 and 2023:

Three months ended December 31,

Nine months ended December 31,

(in millions)

2 unchanged sentences

Restructuring expenses

Gain on sale of assets

Operating income

Interest expense

Other (expense) income – net

Other income (expense) – net

Earnings before income taxes

Provision for income taxes

Comparison of the three months ended September 30, 2024 and 2023

Second quarter net sales of $658.0 million were $37.5 million, or 6 percent, higher than the second quarter of the prior year, primarily due to $77.2 million of higher sales in our Climate Solutions segment, driven by $53.4 million of incremental sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation data center customers.

The higher sales in Climate Solutions were partially offset by lower sales in our Performance Technologies segment, which decreased $39.8 million, including a $21.9 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

Second quarter cost of sales increased $7.0 million, or 1 percent, primarily due to higher labor and inflationary costs, higher sales volume, and higher raw material costs, which increased approximately $3.0 million, partially offset by improved operating efficiencies.

As a percentage of sales, cost of sales decreased 340 basis points to 74.8 percent, primarily due to favorable sales mix, higher average selling prices, and the favorable impact of commercial pricing settlements and the recognition of sales tax credits in Brazil within the Climate Solutions and Performance Technologies segments, respectively.

As a result of higher sales and lower cost of sales as a percentage of sales, second quarter gross profit increased $30.5 million and gross margin improved 340 basis points to 25.2 percent.

Second quarter SG&A expenses increased $16.9 million, or 25 percent.

Comparison of the three months ended December 31, 2024 and 2023

Third quarter net sales of $616.8 million were $55.4 million, or 10 percent, higher than the third quarter of the prior year, primarily due to $106.8 million of higher sales in our Climate Solutions segment, driven by $73.6 million of incremental sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation data center customers.

The higher sales in Climate Solutions were partially offset by lower sales in our Performance Technologies segment, which decreased $48.7 million, largely due to market weakness and an $8.0 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

Third quarter cost of sales increased $33.1 million, or 8 percent, primarily due to higher sales volume and, to a lesser extent, higher raw material costs, which increased approximately $4.0 million, and higher labor and inflationary costs.

These drivers, which increased cost of sales, were partially offset by improved operating efficiencies.

As a percentage of sales, cost of sales decreased 160 basis points to 75.7 percent, primarily due to favorable sales mix.

As a result of higher sales and lower cost of sales as a percentage of sales, third quarter gross profit increased $22.3 million and gross margin improved 160 basis points to 24.3 percent.

Third quarter SG&A expenses increased $14.0 million, or 21 percent.

As a percentage of sales, SG&A expenses increased by 120 basis points.

The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $11.0 million and included incremental expenses from the acquired Scott Springfield Manufacturing business and increased incentive compensation resulting from improved financial results.

In addition, SG&A expenses in the second quarter of fiscal 2025 included $4.7 million of incremental amortization expense for acquired intangible assets.

In addition, SG&A expenses in the third quarter of fiscal 2025 included $4.6 million of incremental amortization expense for acquired intangible assets.

These increases were partially offset by lower environmental charges related to previously-owned facilities in the U.S., which decreased $1.0 million.

Restructuring expenses increased $4.0 million compared with the second quarter of fiscal 2024, primarily due to higher severance expenses and product line transfer costs in the Performance Technologies and Climate Solutions segments, respectively.

Operating income of $75.3 million in the second quarter of fiscal 2025 increased $9.6 million compared with the second quarter of fiscal 2024, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses.

Interest expense during the second quarter of fiscal 2025 increased $1.3 million compared with the second quarter of fiscal 2024, primarily due to higher borrowings on our revolving credit facility, which we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing.

The provision for income taxes was $20.0 million and $12.8 million in the second quarter of fiscal 2025 and 2024, respectively.

The $7.2 million increase was primarily due to higher earnings and changes in the mix and amount of foreign and U.S.

earnings in the current year, as compared with the same period in the prior year.

In addition, the provision for income taxes in the prior year was favorably impacted by the release of a $1.8 million unrecognized tax benefit during the second quarter of fiscal 2024.

Comparison of six months ended September 30, 2024 and 2023

Fiscal 2025 year-to-date net sales of $1,319.5 million were $76.6 million, or 6 percent, higher than the same period last year, primarily due to $147.8 million of higher sales in our Climate Solutions segment, including $94.5 million of incremental sales from the acquired Scott Springfield Manufacturing and Napps businesses, partially offset by $73.9 million of lower sales in our Performance Technologies segment, including a $46.2 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

From a product group perspective, compared with the same period last year, sales of data center cooling products increased $174.5 million, while sales of liquid-cooled and heat transfer products decreased $58.0 million and $44.8 million, respectively.

Fiscal 2025 year-to-date cost of sales of $991.3 million increased $11.4 million, or 1 percent, primarily due to higher sales volume, higher labor and inflationary costs, partially offset by lower raw material costs, which decreased approximately $6.0 million, and improved operating efficiencies.

Restructuring expenses increased $6.7 million compared with the third quarter of fiscal 2024, primarily due to higher severance expenses in the Performance Technologies segment.

We recorded a $4.0 million gain on sale at Corporate during the third quarter of fiscal 2024 as a result of the sale of three automotive businesses based in Germany.

Operating income of $59.3 million in the third quarter of fiscal 2025 decreased $2.4 million compared with the third quarter of fiscal 2024, primarily due to higher SG&A and restructuring expenses and the absence of the $4.0 million gain on the sale of the automative businesses in Germany.

These drivers, which negatively impacted operating income, were partially offset by higher gross profit.

Interest expense during the third quarter of fiscal 2025 increased $0.4 million compared with the third quarter of fiscal 2024, primarily due to higher borrowings on our revolving credit facility, which we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing, partially offset by favorable changes in interest rates.

The provision for income taxes was $13.0 million and $10.3 million in the third quarter of fiscal 2025 and 2024, respectively.

The $2.7 million increase was primarily due to the absence of a $3.1 million tax benefit related to the sale of the automotive businesses in Germany during the third quarter of fiscal 2024.

Comparison of the nine months ended December 31, 2024 and 2023

Fiscal 2025 year-to-date net sales of $1,936.3 million were $132.0 million, or 7 percent, higher than the same period last year, primarily due to $254.6 million of higher sales in our Climate Solutions segment, including $168.1 million of incremental sales from the acquired Scott Springfield Manufacturing and Napps businesses and organic sales growth to hyperscale and colocation data center customers.

The higher sales in Climate Solutions were partially offset by $122.6 million of lower sales in our Performance Technologies segment, including a $54.2 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

Fiscal 2025 year-to-date cost of sales of $1,458.5 million increased $44.5 million, or 3 percent, primarily due to higher sales volume and higher labor and inflationary costs, partially offset by lower raw material costs, which decreased approximately $2.0 million, and improved operating efficiencies.

In addition, we recorded $1.6 million of cost of sales at Corporate during the first quarter of fiscal 2025 related to an inventory purchase accounting adjustment for the acquisition of Scott Springfield Manufacturing.

4 unchanged sentences

The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $37.0 million and included incremental expenses from the acquired businesses and increased incentive compensation resulting from improved financial results.

In addition, SG&A expenses in the first six months of fiscal 2025 included $9.3 million of incremental amortization expense for acquired intangible assets.

Restructuring expenses during the first six months of fiscal 2025 increased $9.4 million compared with the same period last year, primarily due to higher severance expenses and product line transfer costs in the Performance Technologies and Climate Solutions segments, respectively.

Operating income of $149.7 million in the first six months of fiscal 2025 increased $17.5 million compared with the same period last year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses.

Interest expense during the first six months of fiscal 2025 increased $2.9 million compared with the same period last year, primarily due to higher borrowings on our revolving credit facility, which we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing.

The provision for income taxes was $38.8 million and $27.5 million during the first six months of fiscal 2025 and 2024, respectively.

In addition, SG&A expenses in the first nine months of fiscal 2025 included $13.9 million of incremental amortization expense for acquired intangible assets.

Restructuring expenses during the first nine months of fiscal 2025 increased $16.1 million compared with the same period last year, primarily due to higher severance expenses and product line transfer costs in the Performance Technologies and Climate Solutions segments, respectively.

We recorded a $4.0 million gain on sale at Corporate during the third quarter of fiscal 2024 as a result of the sale of three automotive businesses based in Germany.

Operating income of $209.0 million in the first nine months of fiscal 2025 increased $15.1 million compared with the same period last year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of the $4.0 million gain on the sale of the automative businesses in Germany.

Interest expense during the first nine months of fiscal 2025 increased $3.3 million compared with the same period last year, primarily due to higher borrowings on our revolving credit facility, which we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing.

The provision for income taxes was $51.8 million and $37.8 million during the first nine months of fiscal 2025 and 2024, respectively.

The $14.0 million increase was primarily due to higher earnings and changes in the mix and amount of foreign and U.S.

earnings in the current year, as compared with the same period in the prior year.

In addition, the provision for income taxes in the prior year was favorably impacted by the release of a $1.8 million unrecognized tax benefit during the second quarter of fiscal 2024.

In addition, the provision for income taxes in the prior year was favorably impacted by both the release of a $1.8 million unrecognized tax benefit during the second quarter as well as a $3.1 million tax benefit related to the sale of the automotive businesses in Germany during the third quarter.

SEGMENT RESULTS OF OPERATIONS

3 unchanged sentences

Segment financial information for fiscal 2024 has been recast to conform to the current presentation.

The following is a discussion of our segment results of operations for the three and six months ended September 30, 2024 and 2023:

The following is a discussion of our segment results of operations for the three and nine months ended December 31, 2024 and 2023:

Climate Solutions

Three months ended September 30,

Six months ended September 30,

Three months ended December 31,

Nine months ended December 31,

(in millions)

3 unchanged sentences

Operating income

Comparison of the three months ended September 30, 2024 and 2023

Climate Solutions net sales increased $77.2 million, or 27 percent, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025, primarily due to higher sales volume, and, to a lesser extent, higher average selling prices.

Comparison of the three months ended December 31, 2024 and 2023

Climate Solutions net sales increased $106.8 million, or 42 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to higher sales volume.

The higher sales volume includes $73.6 million of incremental sales from the acquired Scott Springfield Manufacturing business.

Compared with the second quarter of the prior year, sales of data center cooling and HVAC&R products increased $80.1 million and $12.9 million, respectively.

The increase in sales of data center products includes sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation customers.

Sales of heat transfer products decreased $15.8 million.

The decrease in heat transfer products largely resulted from lower sales of heat transfer coils for heat pumps and other commercial and residential applications, partially offset by commercial pricing settlements with heat pump customers in Europe.

Climate Solutions cost of sales increased $47.8 million, or 23 percent, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025, primarily due to higher sales volume, higher raw material costs, which increased approximately $5.0 million, and, to a lesser extent, higher labor and inflationary costs.

These increases were partially offset by lower warranty expense, which decreased approximately $3.0 million.

As a percentage of sales, cost of sales decreased 240 basis points to 71.0 percent, primarily due to favorable sales mix and the favorable impact of the commercial pricing settlements during the quarter.

Compared with the third quarter of the prior year, sales of data center cooling and HVAC&R products increased $106.4 million and $13.7 million, respectively.

The increase in sales of data center cooling products includes sales from Scott Springfield Manufacturing and organic sales growth to hyperscale and colocation customers.

Sales of heat transfer products decreased $13.4 million, largely due to lower sales of heat transfer coils for heat pumps and other commercial and residential applications.

Climate Solutions cost of sales increased $73.8 million, or 40 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to higher sales volume and, to a lesser extent, higher raw material costs, which increased approximately $4.0 million.

As a percentage of sales, cost of sales decreased 100 basis points to 71.4 percent, primarily due to favorable sales mix and the impact of higher sales volume.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $33.0 million and gross margin improved 100 basis points to 28.6 percent.

Climate Solutions SG&A expenses increased $10.6 million compared with the second quarter of the prior year.

As a percentage of sales, SG&A expenses increased by 80 basis points.

Climate Solutions SG&A expenses increased $11.3 million compared with the third quarter of the prior year.

As a percentage of sales, SG&A expenses decreased by 10 basis points.

The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $6.0 million and included expenses from the acquired Scott Springfield Manufacturing business, and $4.6 million of incremental amortization expense related to acquired intangible assets.

Restructuring expenses of $1.5 million during the second quarter of fiscal 2025 primarily consisted of costs related to transferring production and warehousing for certain product lines among the Climate Solutions segment’s facilities.

Operating income of $64.7 million increased $17.6 million from the second quarter of fiscal 2024 to the second quarter of fiscal 2025, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Comparison of six months ended September 30, 2024 and 2023

Restructuring expenses decreased $0.3 million compared with the third quarter of fiscal 2024, primarily due to lower equipment transfer costs and severance expenses.

Operating income of $62.4 million increased $22.0 million from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Comparison of the nine months ended December 31, 2024 and 2023

Climate Solutions year-to-date net sales increased $254.6 million, or 31 percent, from the same period last year, primarily due to higher sales volume, including $168.1 million of incremental sales from the acquired Scott Springfield Manufacturing and Napps businesses.

Compared with the same period in the prior year, sales of data center cooling and HVAC&R products increased $280.9 million and $31.7 million, respectively.

The increase in sales of data center products includes sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation customers.

The increase in sales of data center cooling products includes sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation customers.

Sales of heat transfer products decreased $58.2 million, largely due to lower sales of heat transfer coils for heat pumps and other commercial and residential applications, partially offset by commercial pricing settlements with heat pump customers in Europe.

5 unchanged sentences

The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $16.0 million, and $13.9 million of incremental amortization expense related to acquired intangibles assets.

Restructuring expenses during the first six months of fiscal 2025 increased $1.4 million compared with the same period last year, primarily due to higher costs related to transferring production and warehousing for certain product lines.

Operating income of $124.5 million during the first six months of fiscal 2025 increased $28.8 million from the same period last year, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Restructuring expenses during the first nine months of fiscal 2025 increased $1.1 million compared with the same period last year, primarily due to higher costs related to transferring production and warehousing for certain product lines.

Operating income of $186.9 million during the first nine months of fiscal 2025 increased $50.8 million from the same period last year, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Performance Technologies

Three months ended September 30,

Six months ended September 30,

Three months ended December 31,

Nine months ended December 31,

(in millions)

3 unchanged sentences

Operating income

Comparison of the three months ended September 30, 2024 and 2023

Performance Technologies net sales decreased $39.8 million, or 12 percent, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025, primarily due to lower sales volume, including $21.9 million of lower sales from three automotive businesses in Germany that we sold during the third quarter of fiscal 2024.

These decreases were partially offset by higher average selling prices and, to a lesser extent, the recognition of sales tax credits in Brazil.

Compared with the second quarter of the prior year, sales of liquid-cooled and air-cooled products decreased $27.3 million and $18.1 million, respectively.

Sales of advanced solutions products increased $5.7 million.

Performance Technologies cost of sales decreased $42.3 million, or 15 percent, from the second quarter of fiscal 2024 to the second quarter of fiscal 2025, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies and lower raw material costs, which decreased approximately $2.0 million.

These favorable drivers were partially offset by higher labor and inflationary costs.

As a percentage of sales, cost of sales decreased 310 basis points to 79.8 percent, primarily due to higher average selling prices, the favorable impact of the sales tax credits recognized in Brazil, and improved operating efficiencies.

As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit increased $2.5 million and gross margin improved 310 basis points to 20.2 percent.

Performance Technologies SG&A expenses increased $0.1 million compared with the second quarter of the prior year.

Comparison of the three months ended December 31, 2024 and 2023

Performance Technologies net sales decreased $48.7 million, or 16 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to lower sales volume to automotive, off-highway and commercial vehicle customers, largely due to market-related declines.

In addition, the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024 negatively impacted sales by $8.0 million.

Compared with the third quarter of the prior year, sales of air-cooled, liquid-cooled, and advanced solutions products decreased $28.1 million, $20.8 million and $2.4 million, respectively.

Performance Technologies cost of sales decreased $38.4 million, or 15 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies.

These drivers, which decreased cost of sales, were partially offset by higher labor and inflationary costs.

As a percentage of sales, cost of sales increased 50 basis points to 82.2 percent, primarily due to the impact of lower sales volume.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $10.3 million and gross margin declined 50 basis points to 17.8 percent.

Performance Technologies SG&A expenses decreased $1.9 million compared with the third quarter of the prior year.

As a percentage of sales, SG&A expenses increased by 90 basis points.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased approximately $2.0 million, partially offset by decreases across other general and administrative expenses.

Restructuring expenses increased $2.8 million compared with the second quarter of the prior year, primarily due to higher severance expenses in Europe.

Operating income of $30.8 million decreased $0.4 million from the second quarter of fiscal 2024 to the second quarter of fiscal 2025, primarily due to higher restructuring expenses, partially offset by higher gross profit.

Comparison of six months ended September 30, 2024 and 2023

Performance Technologies year-to-date net sales decreased $73.9 million, or 11 percent, from the same period last year, primarily due to lower sales volume, including $46.2 million of lower sales from three automotive businesses in Germany that we sold during the third quarter of fiscal 2024.

The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $1.0 million, and decreases across other general and administrative expenses.

Restructuring expenses increased $5.3 million compared with the third quarter of the prior year, primarily due to higher severance expenses in North America and Europe.

Operating income of $15.8 million decreased $13.7 million from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to lower gross profit and higher restructuring expenses, partially offset by lower SG&A expenses.

Comparison of the nine months ended December 31, 2024 and 2023

Performance Technologies year-to-date net sales decreased $122.6 million, or 12 percent, from the same period last year, primarily due to lower sales volume, including a $54.2 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

These decreases were partially offset by higher average selling prices and, to a lesser extent, the recognition of sales tax credits in Brazil.

2 unchanged sentences

Performance Technologies year-to-date cost of sales decreased $126.4 million, or 15 percent, from the same period last year, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies and lower raw material costs, which decreased approximately $9.0 million.

These favorable drivers were partially offset by higher labor and inflationary costs.

These drivers, which decreased cost of sales, were partially offset by higher labor and inflationary costs.

As a percentage of sales, cost of sales decreased 280 basis points to 80.4 percent, primarily due to higher average selling prices, improved operating efficiencies, lower material costs, and the favorable impact of the sales tax credits recognized in Brazil, partially offset by higher labor and inflationary costs.

4 unchanged sentences

This increase was partially offset by decreases across other general and administrative expenses.

Restructuring expenses during the first six months of fiscal 2025 increased $8.0 million compared with the same period last year, primarily due to higher severance expenses in Europe and product line transfer costs.

Operating income of $62.3 million during the first six months of fiscal 2025 increased $3.5 million from the same period last year, primarily due to higher gross profit, partially offset by higher restructuring and SG&A expenses.

Restructuring expenses during the first nine months of fiscal 2025 increased $13.3 million compared with the same period last year, primarily due to higher severance expenses in Europe and North America and product line transfer costs.

Operating income of $78.1 million during the first nine months of fiscal 2025 decreased $10.2 million from the same period last year, primarily due to higher restructuring expenses, partially offset by higher gross profit.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of September 30, 2024 of $78.6 million, and available borrowing capacity of $190.8 million under our revolving credit facility.

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of December 31, 2024 of $83.8 million, and available borrowing capacity of $210.8 million under our revolving credit facility.

Given our extensive international operations, approximately $80.0 million of our cash and cash equivalents are held by our non-U.S.

5 unchanged sentences

Net cash provided by operating activities

Net cash provided by operating activities for the six months ended September 30, 2024 was $97.8 million, which represents a $13.0 million decrease compared with the same period in the prior year.

This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, as compared with the same period in the prior year, partially offset by the favorable impact of higher earnings.

Net cash provided by operating activities for the nine months ended December 31, 2024 was $158.5 million, which represents a $16.5 million decrease compared with the same period in the prior year.

The unfavorable changes in working capital include a decrease in customer deposits associated with sales contracts with long inventory lead times and higher payments for incentive compensation, as compared with the same period in the prior year.

These unfavorable changes in working capital were partially offset by the favorable impact of lower inventory levels.

Capital expenditures

Capital expenditures of $40.3 million during the first six months of fiscal 2025 increased $14.1 million compared with the same period in the prior year.

Capital expenditures of $56.3 million during the first nine months of fiscal 2025 increased $12.5 million compared with the same period in the prior year.

The fiscal 2025 capital expenditures include investments supporting several of our strategic growth initiatives, including increasing production capacity for data center products.

8 unchanged sentences

We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of at least three times consolidated interest expense.

As of September 30, 2024, we were in compliance with our debt covenants.

As of December 31, 2024, we were in compliance with our debt covenants.

We expect to remain in compliance with our debt covenants during the remainder of fiscal 2025 and beyond.

6 unchanged sentences

Share repurchase program

During the first six months of fiscal 2025, we did not repurchase any of our common stock under our share repurchase program.

During the first six months of fiscal 2024, we repurchased $9.0 million of our common stock under our share repurchase program.

As of September 30, 2024, we had $32.1 million of share repurchase authorization remaining under the current repurchase program, which expires in November 2024.

Our decision whether and to what extent to repurchase additional shares will depend on a number of factors, including business conditions, other cash priorities, and stock price.

Our share repurchase program expired in November 2024.

We did not repurchase any common stock under the program during fiscal 2025.

During the first nine months of fiscal 2024, we repurchased $13.3 million of our common stock under the share repurchase program.

Forward-looking statements

5 unchanged sentences

Market risks:

● The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, supply chain challenges, logistical disruptions, including those related to sea, land or air freight, tariffs, sanctions and other trade issues or cross-border trade restrictions (and any potential resulting trade war), and military conflicts, including the current conflicts in Ukraine and in the Middle East and heightened tension in the Red Sea;

● The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, government incentive or funding programs, supply chain challenges, logistical disruptions, including those related to sea, land or air freight, tariffs, sanctions and other trade issues or cross-border trade restrictions (and any potential resulting trade war), and military conflicts, including the conflicts in Ukraine and in the Middle East and tension in the Red Sea;

● The impact of other economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including foreign currency exchange rate fluctuations;

1 unchanged sentence

recession and recovery therefrom;

and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade that have been or may be implemented in the U.S.

and the general uncertainties about the impact of statutory, regulatory and/or policy changes, including those related to tax and trade that have been or may be implemented in the U.S.

● The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased component inventory including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums or fabrication costs.

1 unchanged sentence

This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, including through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions;

● Our ability to be at the forefront of technological advances in order to differentiate ourselves from our competitors and provide innovative products and services to our customers, and the impacts of any changes in or the adoption rate of technologies that we expect to drive sales growth, including those related to data center cooling and electric vehicles;

● Our ability to be at the forefront of technological advances to differentiate ourselves from our competitors and provide innovative products and services to our customers, the impacts of any changes in or the adoption rate of technologies that we expect to drive sales growth, including those related to data center cooling and electric vehicles, and the impacts of any threats or changes to the market growth prospects for our customers;

● Our ability to mitigate increases in labor costs and labor shortages;

33 unchanged sentences

we do not assume any obligation to update any forward-looking statements.

Quantitative and Qualitative Disclosures About Market Risk.

The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A.

of the Company’s Annual Report on Form 10-K for the year ended March 31, 2024.

The Company’s market risks have not materially changed since the fiscal 2024 Form 10-K was filed.

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