What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 98 added, 96 removed, 226 unchanged (46% of the section changed)

35 unchanged sentences

Water Flow Solutions’ portfolio includes iron gate valves, specialty valves and service brass products.

Water Flow Solutions represented 50% of our fiscal 2023 net sales.

Water Flow Solutions represented approximately 50% of our fiscal 2023 net sales.

Water Management Solutions’ portfolio includes fire hydrants, repair and installation, natural gas, metering, leak detection, and pressure management and control products and solutions.

Water Management Solutions represented 50% of our fiscal 2023 net sales.

Water Management Solutions represented approximately 50% of our fiscal 2023 net sales.

Approximately 60% to 65% of our 2023 net sales were associated with the repair and replacement of municipal water infrastructure, approximately 25% to 30% were related to residential construction activity and approximately 5% to 10% of net sales were related to natural gas utilities and industrial applications.

In October 2023, the Israel-Hamas war caused a temporary shutdown of our facility in Ariel, Israel.

While we have reopened the facility, the war has caused supply interruptions and may hinder our ability to acquire the necessary materials we

need to make our products.

Supply disruptions from lack of access to materials have adversely impacted, and continue to adversely impact, our ability to produce and deliver our products from our facility in Ariel, Israel.

While we reopened the facility in November 2023, the war caused supply chain challenges and continues to hinder our ability to most efficiently manufacture our products.

These supply chain disruptions have adversely impacted, and continue to adversely impact, our ability to optimally produce and deliver our products from our facility in Ariel, Israel.

Additionally, production at this facility has been adversely impacted by limited labor availability in the region.

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In the first quarter of fiscal 2024, we incurred approximately $1.5 million of expenses related to the cybersecurity incidents.

We continue to analyze and remediate the impacts of the cybersecurity incidents, including making enhancements to our cybersecurity processes and analyzing the data accessed, exfiltrated or otherwise impacted in connection with the cybersecurity incidents.

Although we believe that our channel and customer inventory levels normalized during the first quarter of 2024, the external operating environment remains uncertain.

We expect to continue to face challenges emanating from the higher interest rate environment, the Israel-Hamas war and labor inflation and availability.

We continue to address the impacts of the cybersecurity incidents, including making enhancements to our cybersecurity processes and analyzing the data accessed, exfiltrated or otherwise impacted in connection with the cybersecurity incidents.

We believe that our channel and customer inventory levels normalized during the first quarter of 2024 and our orders and shipments reflect a more typical operating environment compared with the high backlog environment we experienced during and after the pandemic.

However, the external operating environment remains dynamic as we face uncertainties and challenges emanating from the higher interest rate environment, the Israel-Hamas war and labor inflation and availability.

From a comparable perspective, in fiscal year 2023, we benefited from fulfilling an elevated backlog for certain products, which has now become more normalized as we have reduced short-cycle backlog across our portfolio, particularly with regard to iron gate valve and hydrant products.

For fiscal year 2024, we anticipate that consolidated net sales will be flat to down two percent as compared with fiscal year 2023.

We anticipate stable demand in the municipal repair and replacement end market driven by the aging water infrastructure despite budgetary pressures on municipalities.

Additionally, we anticipate that new residential construction activity will stabilize relative to the challenges we experienced in fiscal 2023 where Census data indicates that total housing starts decreased 12.9% compared to 2022.

In April 2024, Blue Chip Economic Indicators forecasted a 0.7% increase in housing starts for the calendar year 2024 as compared to the calendar year 2023.

Finally, we anticipate that high interest rates will continue to negatively impact new lot and land development, depending on the geography.

For fiscal year 2024, we anticipate that consolidated net sales will increase between 0.7% and 1.5% as compared with fiscal year 2023.

For the remainder of fiscal 2024, we anticipate stable demand in the municipal repair and replacement end market driven by the aging water infrastructure despite budgetary pressures on municipalities.

Additionally, we anticipate that new residential construction activity, and new lot and land development, will be constrained by the higher interest rate environment, depending on the geography, after improving relative to the challenges we experienced in fiscal 2023 where Census data indicates that total housing starts decreased 12.9% compared to 2022.

In July 2024, Blue Chip Economic Indicators forecasted a 2.1% decrease in housing starts for the calendar year 2024 as compared to the calendar year 2023.

For the remainder of fiscal 2024, we anticipate that inflation will continue to modestly impact manufacturing costs, primarily due to wage inflation but also raw materials and purchased parts.

Inventory for the first half of fiscal 2024 experienced approximately 0.1% deflation.

Inventory for the first nine months of fiscal 2024 experienced approximately 0.1% inflation.

We expect external challenges to persist during the balance of fiscal year 2024.

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Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Three months ended March 31, 2024

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

Three months ended June 30, 2024

Water Flow Solutions Water Management Solutions Corporate Total

13 unchanged sentences

Net income $ 47.3

Three months ended March 31, 2023

Three months ended June 30, 2023

Water Flow Solutions Water Management Solutions Corporate Total

14 unchanged sentences

Consolidated Analysis

Net sales in the three months ended March 31, 2024 were $353.4 million as compared with $332.9 million in the prior year period, an increase of $20.5 million or 6.2%, primarily as a result of higher pricing across most product lines and overall increased volumes.

Gross profit in the three months ended March 31, 2024 was $130.4 million as compared with $97.8 million in the prior year period, an increase of $32.6 million or 33.3%, primarily as a result of an increase in both favorable manufacturing performance and pricing.

These increases were partially offset by Cost of sales inflation of approximately 2% while inflation impacted Gross profit by approximately 3%.

As a result, Gross margin was 36.9% in the three months ended March 31, 2024 as compared with 29.4% in the prior year period.

Selling, general and administrative expenses (“SG&A”) in the three months ended March 31, 2024 were $63.7 million as compared with $64.2 million in the prior year period, a decrease of $0.5 million or 0.8%, primarily due to a decrease in salary and benefit expense associated with our restructuring activities, as well as lower third-party fees, and engineering materials, partially offset by approximately 3% inflation, an increase in bad debt expense and incentives.

SG&A as a percentage of net sales was 18.0% and 19.3% for the three months ended March 31, 2024 and March 31, 2023, respectively.

Strategic reorganization and other charges in the three months ended March 31, 2024 were $3.2 million and primarily consisted of expenses associated with our previously announced leadership transition, severance and certain transaction-related expenses.

Strategic reorganization and other charges for the three months ended March 31, 2023 were $0.7 million and primarily consisted of severance and certain transaction-related expenses.

Net interest expense in the three months ended March 31, 2024 was $3.6 million as compared with $3.9 million in the prior year period, a decrease of $0.3 million or 7.7%, primarily due to higher interest income as a result of higher interest rates, partially offset by lower capitalized interest.

The components of net interest expense are provided below:

Net sales for the three months ended June 30, 2024 were $356.7 million as compared with $326.6 million in the prior year period, an increase of $30.1 million or 9.2%, primarily as a result of net higher volumes and, to a lesser extent, higher pricing.

The Israel-Hamas war negatively impacted Net sales by about 3%.

Gross profit for the three months ended June 30, 2024 was $131.4 million as compared with $100.1 million in the prior year period, an increase of $31.3 million or 31.3%, primarily as a result of favorable manufacturing performance, higher volumes and favorable price/cost.

The Israel-Hamas war negatively impacted Gross profit by about 7%.

Inflation impacted Cost of sales by approximately 2% and Gross profit by approximately 4%.

As a result, Gross margin was 36.8% in the three months ended June 30, 2024 as compared with 30.6% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2024 were $61.5 million as compared with $60.6 million in the prior year period, an increase of $0.9 million or 1.5%, primarily due to an increase in employee incentives and approximately 3% inflation, partially offset by lower salary and benefit expense associated with our restructuring activities, and lower third-party fees.

SG&A as a percentage of net sales was 17.2% and 18.6% for the three months ended June 30, 2024 and June 30, 2023, respectively.

Strategic reorganization and other charges for the three months ended June 30, 2024 were $2.9 million and consisted of $1.4 million related to a non-cash asset impairment in addition to expenses associated with our leadership transition, severance and certain transaction-related expenses.

Strategic reorganization and other charges for the three months ended June 30, 2023 were $3.9 million and consisted of severance and certain transaction-related expenses.

Net interest expense for the three months ended June 30, 2024 was $2.8 million as compared with $3.8 million in the prior year period, a decrease of $1.0 million or 26.3%, primarily due to higher interest income, partially offset by lower capitalized interest.

The components of net interest expense are as shown below:

Three months ended

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Uncertain tax positions 0.4 —

Valuation allowances 0.7 —

Other 0.9 0.2

2 unchanged sentences

Water Flow Solutions

Net sales in the three months ended March 31, 2024 were $205.8 million as compared with $157.2 million in the prior year period, an increase of $48.6 million or 30.9%, primarily as a result of higher volumes and higher pricing across most product lines.

Gross profit in the three months ended March 31, 2024 was $77.2 million as compared with $37.2 million in the prior year period, an increase of $40.0 million or 107.5%.

This increase was primarily a result of higher volumes across most product lines, favorable manufacturing performance driven by overhead, material and labor efficiencies, as well as higher pricing.

Additionally, inflation negatively impacted Cost of sales by approximately 2% and Gross profit by approximately 4%.

As a result, Gross margin was 37.5% in the three months ended March 31, 2024 and 23.7% in the prior year period.

SG&A in the three months ended March 31, 2024 was $24.6 million as compared with $22.0 million in the prior year period, an increase of $2.6 million or 11.8%, primarily as a result of higher incentives, inflation of approximately 3%, as well as increased travel expenses partially offset by lower salary and benefit expense associated with our restructuring activities, and third-party fees.

SG&A as a percentage of net sales was 12.0% and 14.0% in the three months ended March 31, 2024 and 2023, respectively.

Net sales for the three months ended June 30, 2024 were $208.1 million as compared with $150.1 million in the prior year period, an increase of $58.0 million or 38.6%, primarily as a result of higher volumes and, to a lesser extent, higher pricing across most product lines.

Gross profit for the three months ended June 30, 2024 was $81.9 million as compared with $33.6 million in the prior year period, an increase of $48.3 million or 143.8%.

This increase was primarily a result of favorable manufacturing performance driven by labor and overhead efficiencies, higher volumes across most product lines and, to a lesser extent, favorable price/cost.

Inflation negatively impacted Cost of sales by approximately 3% and Gross profit by approximately 4%.

As a result, Gross margin was 39.4% in the three months ended June 30, 2024 and 22.4% in the prior year period.

SG&A for the three months ended June 30, 2024 was $24.1 million as compared with $20.9 million in the prior year period, an increase of $3.2 million or 15.3%, primarily as a result of higher employee incentives, and inflation of approximately 3%, partially offset by lower salary and benefit expense, and third-party fees.

SG&A as a percentage of net sales was 11.6% and 13.9% in the three months ended June 30, 2024 and 2023, respectively.

Water Management Solutions

Net sales in the three months ended March 31, 2024 were $147.6 million as compared with $175.7 million in the prior year period, a decrease of $28.1 million or 16.0%, as a result of lower volumes across most products lines partially offset by higher pricing across most product lines.

Net sales were impacted nominally by the Israel-Hamas war.

Gross profit in the three months ended March 31, 2024 was $53.2 million as compared with $60.6 million in the prior year period, a decrease of $7.4 million or 12.2%.

The decrease was primarily a result of lower volumes across most product lines and impacts of the Israel-Hamas war, partially offset by favorable manufacturing performance driven by material efficiencies and lower supply chain costs and higher pricing.

Gross margin was 36.0% in the three months ended March 31, 2024 as compared with 34.5% in the prior year period.

SG&A in the three months ended March 31, 2024 was $24.2 million as compared with $28.7 million in the prior year period, a decrease of $4.5 million or 15.7%, primarily due to lower salary and benefit expense associated with our restructuring activities, third-party fees and engineering material expenses, which were partially offset by increased costs related to incentives as well as approximately 4% inflation and increased bad debt expense.

SG&A as a percentage of net sales was 16.4% and 16.3% in the three months ended March 31, 2024 and 2023, respectively.

SG&A in the three months ended March 31, 2024 was $14.9 million as compared with $13.5 million in the prior year period, an increase of $1.4 million or 10.4%, primarily as a result of higher incentive costs and third-party fees, as well as approximately 3% inflation.

Six Months Ended March 31, 2024 Compared to Six Months Ended March 31, 2023

Six months ended March 31, 2024

Net sales for the three months ended June 30, 2024 were $148.6 million as compared with $176.5 million in the prior year period, a decrease of $27.9 million or 15.8%, as a result of lower volumes, primarily with respect to fire hydrants as well as negative impacts from the Israel-Hamas war, partially offset by higher pricing across most product lines.

Gross profit for the three months ended June 30, 2024 was $49.5 million as compared with $66.5 million in the prior year period, a decrease of $17.0 million or 25.6%.

The decrease was primarily driven by lower volumes across most product lines and the impact from the Israel-Hamas war.

The decrease was partially offset by favorable price/cost.

Inflation negatively impacted Cost of sales by approximately 1%, and Gross profit by approximately 3%.

Gross margin was 33.3% in the three months ended June 30, 2024 as compared with 37.7% in the prior year period.

SG&A for the three months ended June 30, 2024 was $22.6 million as compared with $26.5 million in the prior year period, a decrease of $3.9 million or 14.7%, primarily due to lower salary and benefit expense associated with our restructuring activities, and third-party fees.

The decrease was partially offset by higher employee incentives, and approximately 4% inflation.

SG&A as a percentage of net sales was 15.2% and 15.0% in the three months ended June 30, 2024 and 2023, respectively.

SG&A for the three months ended June 30, 2024 was $14.8 million as compared with $13.2 million in the prior year period, an increase of $1.6 million or 12.1%, primarily as a result of higher employee incentive costs and third-party fees, and approximately 3% inflation.

The increase was partially offset by lower salary and benefit expense as a result of restructuring activities we undertook in the third quarter of 2023.

Nine Months Ended June 30, 2024 Compared to Nine Months Ended June 30, 2023

Nine months ended June 30, 2024

Water Flow Solutions Water Management Solutions Corporate Total

14 unchanged sentences

Net income $ 105.9

Six months ended March 31, 2023

Nine months ended June 30, 2023

Water Flow Solutions Water Management Solutions Corporate Total

14 unchanged sentences

Consolidated Analysis

Net sales in the six months ended March 31, 2024 were $609.8 million as compared with $647.7 million in the prior year period.

a decrease of $37.9 million or 5.9%, primarily as a result of a decrease in net volumes partially offset by higher pricing across most product lines.

Gross profit in the six months ended March 31, 2024 was $216.7 million as compared with $191.0 million in the prior year period, an increase of $25.7 million or 13.5%, primarily as a result of higher pricing and favorable manufacturing performance related to labor, overhead, material and logistic efficiencies, partially offset by overall lower volumes.

As a result, Gross margin increased 600 basis points to 35.5% in the six months ended March 31, 2024 as compared with 29.5% in the prior year period.

Selling, general and administrative expenses (“SG&A”) in the six months ended March 31, 2024 were $120.6 million as compared with $127.1 million in the prior year period, a decrease of $6.5 million or 5.1%, primarily due to a decrease in salary and benefit expense associated with our restructuring activities, third-party fees, commission, and engineering materials expense, partially offset by higher costs associated with approximately 3% inflation, the impact of foreign currency fluctuation and higher incentives.

SG&A as a percentage of net sales was 19.8% and 19.6% for the six months ended March 31, 2024 and March 31, 2023, respectively.

Strategic reorganization and other charges in the six months ended March 31, 2024 were $9.8 million, primarily consisting of expenses associated with our previously announced leadership transition, approximately $1.5 million of expenses related to the cybersecurity incidents, severance, and certain transaction-related expenses.

Strategic reorganization and other charges for the six months ended March 31, 2023 were a benefit of $3.0 million, which primarily consisted of a $4.0 million gain, before tax, on the sale of our Aurora, Illinois facility, which was partially offset by certain transaction-related expenses.

Net interest expense in the six months ended March 31, 2024 was $6.9 million as compared with $7.6 million in the prior year period, a decrease of $0.7 million or 9.2%, primarily due to higher interest income as a result of higher interest rates, partially offset by lower capitalized interest.

The components of net interest expense are provided below:

Six months ended

Net sales for the nine months ended June 30, 2024 were $966.5 million as compared with $974.3 million in the prior year period, a decrease of $7.8 million or 0.8%, primarily as a result of lower volumes, including a negative impact from the Israel-Hamas war of less than 2%, partially offset by higher pricing across most product lines.

Gross profit for the nine months ended June 30, 2024 was $348.1 million as compared with $291.1 million in the prior year period, an increase of $57.0 million or 19.6%, primarily as a result of favorable manufacturing performance related to labor, overhead, and logistic efficiencies, and favorable price/cost.

This increase was partially offset by overall lower volumes, negative impacts from the Israel-Hamas war of less than 4% and inflation, which impacted Cost of sales by 1% and Gross profit by 2%.

As a result, Gross margin increased 610 basis points to 36.0% in the nine months ended June 30, 2024 as compared with 29.9% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the nine months ended June 30, 2024 were $182.1 million as compared with $187.7 million in the prior year period, a decrease of $5.6 million or 3.0%, primarily due to a decrease in salary and benefit expense associated with our restructuring activities, third-party fees, and engineering materials expense, partially offset by higher employee incentives, higher costs associated with approximately 3% inflation, and the impact of foreign currency fluctuation.

SG&A as a percentage of net sales was 18.8% and 19.3% for the nine months ended June 30, 2024 and June 30, 2023, respectively.

Strategic reorganization and other charges for the nine months ended June 30, 2024 were $12.7 million, primarily consisting of $5.6 million associated with our leadership transition, certain transaction-related expenses, $1.5 million related to the cybersecurity incidents, $1.4 million related to a non-cash asset impairment, and severance.

Strategic reorganization and other charges for the nine months ended June 30, 2023 were $0.9 million, which related to severance and certain transaction-related expenses partially offset by a $4.0 million gain, before tax, on the sale of our Aurora, Illinois facility.

Net interest expense for the nine months ended June 30, 2024 was $9.7 million as compared with $11.4 million in the prior year period, a decrease of $1.7 million or 14.9%, primarily due to higher interest income, partially offset by lower capitalized interest.

The components of net interest expense are below:

Nine months ended

(in millions)

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Interest expense, net $ 9.7 $ 11.4

Other expense in the six months ended March 31, 2024 was $1.6 million from the release of an indemnification receivable related to an expired uncertain tax position.

There was no Other expense in the six months ended March 31, 2023.

Other expense for the nine months ended June 30, 2024 was $1.6 million from the release of an indemnification receivable related to an expired uncertain tax position.

There was no Other expense in the nine months ended June 30, 2023.

The reconciliation between the U.S.

federal statutory income tax rate and the effective income tax rate is presented below:

Six months ended

Nine months ended

federal statutory income tax rate 21.0 % 21.0 %

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Effective income tax rate 23.8 % 22.7 %

During the six months ended March 31, 2024, we recorded $1.6 million in income tax benefits due to the release of an uncertain tax position that expired on December 31, 2023.

During the nine months ended June 30, 2024, we recorded $1.6 million in income tax benefits due to the release of an uncertain tax position that expired on December 31, 2023 that was related to the release of an indemnification receivable recorded in Other expense.

Segment Analysis

Water Flow Solutions

Net sales in the six months ended March 31, 2024 were $347.1 million as compared with $322.8 million in the prior year period, an increase of $24.3 million or 7.5%, primarily as a result of higher pricing and higher volumes across most product lines.

Gross profit in the six months ended March 31, 2024 was $123.8 million as compared with $83.8 million in the prior year period, an increase of $40.0 million or 47.7%.

Gross margin was 35.7% in the six months ended March 31, 2024 and 26.0% in the prior year period.

This increase was primarily a result of higher pricing across most product lines, favorable manufacturing performance driven by material, labor, overhead, and logistic efficiencies, and higher volumes across most product lines.

Additionally, Cost of sales and Gross profit were negatively impacted by approximately 1% inflation.

SG&A in the six months ended March 31, 2024 was $43.8 million as compared with $44.4 million in the prior year period, a decrease of $0.6 million or 1.4%, primarily as a result of lower salary and benefit expense associated with our restructuring activities, and third-party fees, partially offset by approximately 3% inflation and increased incentives.

SG&A as a percentage of net sales was 12.6% and 13.8% in the six months ended March 31, 2024 and 2023, respectively.

Net sales for the nine months ended June 30, 2024 were $555.2 million as compared with $472.9 million in the prior year period, an increase of $82.3 million or 17.4%, primarily as a result of higher volumes and, to a lesser extent, higher pricing across most product lines.

Gross profit for the nine months ended June 30, 2024 was $205.7 million as compared with $117.4 million in the prior year period, an increase of $88.3 million or 75.2%.

Gross margin was 37.0% in the nine months ended June 30, 2024 and 24.8% in the prior year period.

This increase was primarily a result of favorable manufacturing performance driven by labor, overhead, and logistic efficiencies, as well as higher volumes and favorable price/cost across most product lines.

Additionally, Cost of sales and Gross profit were negatively impacted by approximately 1% and 2% inflation, respectively.

SG&A for the nine months ended June 30, 2024 was $67.9 million as compared with $65.3 million in the prior year period, an increase of $2.6 million or 4.0%, primarily as a result of increased employee incentives and approximately 3% inflation, partially offset by lower salary and benefit expense associated with our restructuring activities, and third-party fees.

SG&A as a percentage of net sales was 12.2% and 13.8% in the nine months ended June 30, 2024 and 2023, respectively.

Water Management Solutions

Net sales in the six months ended March 31, 2024 were $262.7 million as compared with $324.9 million in the prior year period, a decrease of $62.2 million or 19.1%, primarily as a result of lower volumes across most product lines partially offset by higher pricing across most product lines.

Gross profit in the six months ended March 31, 2024 was $92.9 million as compared with $107.2 million in the prior year period, a decrease of $14.3 million or 13.3%.

This decrease was primarily a result of lower volumes, offset by pricing and favorable manufacturing performance.

Gross margin was 35.4% in the six months ended March 31, 2024 and 33.0% in the prior year period.

Additionally, Cost of sales and Gross margin were impacted approximately 1% by deflation.

SG&A in the six months ended March 31, 2024 was $48.8 million as compared with $55.7 million in the prior year period, a decrease of $6.9 million or 12.4%, primarily due to lower salary and benefit expense associated with our restructuring activities, third-party fees, and engineering materials expense, partially offset by unfavorable foreign currency fluctuation, and higher costs associated with approximately 4% inflation and increased incentives.

SG&A as a percentage of net sales was 18.6% and 17.1% in the six months ended March 31, 2024 and 2023, respectively.

SG&A in the six months ended March 31, 2024 was $28.0 million as compared with $27.0 million in the prior year period, an increase of $1.0 million or 3.7%, primarily as a result of higher costs associated with approximately 3% inflation, increased incentives, higher third-party fees and unfavorable foreign currency fluctuation, partially offset by lower salary and benefit expense associated with our restructuring activities, and lower travel expense.

Net sales for the nine months ended June 30, 2024 were $411.3 million as compared with $501.4 million in the prior year period, a decrease of $90.1 million or 18.0%, primarily as a result of lower volumes largely due to fire hydrants, including the impact of the Israel-Hamas war, partially offset by higher pricing across most product lines.

Gross profit for the nine months ended June 30, 2024 was $142.4 million as compared with $173.7 million in the prior year period, a decrease of $31.3 million or 18.0%.

This decrease was primarily a result of inefficiencies associated with lower volumes including the impact of the Israel-Hamas war, partially offset by favorable price/cost and favorable manufacturing performance.

Gross margin was 34.6% in both the nine months ended June 30, 2024 and the prior year period.

SG&A for the nine months ended June 30, 2024 was $71.4 million as compared with $82.2 million in the prior year period, a decrease of $10.8 million or 13.1%, primarily due to lower salary and benefit expense associated with our restructuring activities, third-party fees, and engineering materials expense, partially offset by higher employee incentives, higher costs associated with approximately 4% inflation, and unfavorable foreign currency fluctuation.

SG&A as a percentage of net sales was 17.4% and 16.4% in the nine months ended June 30, 2024 and 2023, respectively.

SG&A for the nine months ended June 30, 2024 was $42.8 million as compared with $40.2 million in the prior year period, an increase of $2.6 million or 6.5%, primarily as a result of higher costs associated with increased employee incentives, approximately 3% inflation, and higher third-party fees partially offset by lower salary and benefit expense associated with restructuring activities we undertook in 2023, and lower travel expense.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of $179.2 million at March 31, 2024 and $162.6 million of additional borrowing capacity under our ABL based on March 31, 2024 data.

At March 31, 2024, cash and cash equivalents included $76.2 million, $1.7 million and $9.0 million in Israel, Canada, and China, respectively.

We declared a quarterly dividend of $0.064 per share on April 23, 2024, payable on or about May 20, 2024 to stockholders of record as of May 10, 2024, which will result in an estimated $10.0 million cash outlay.

We repurchased $10.0 million of our outstanding common stock during the six months ended March 31, 2024 under our publicly announced share repurchase program, and as of March 31, 2024, we had $80.0 million remaining under our share repurchase authorization.

We had cash and cash equivalents on hand of $243.3 million at June 30, 2024 and $162.6 million of additional borrowing capacity under our ABL based on June 30, 2024 data.

At June 30, 2024, cash and cash equivalents included $75.5 million, $8.0 million and $9.6 million in Israel, Canada, and China, respectively.

We declared a quarterly dividend of $0.064 per share on July 24, 2024, payable on or about August 20, 2024 to stockholders of record as of August 9, 2024, which will result in an estimated $10.0 million cash outlay.

We repurchased $10.0 million of our outstanding common stock during the nine months ended June 30, 2024 under our publicly announced share repurchase program, and as of June 30, 2024, we had $80.0 million remaining under our share repurchase authorization.

The ABL and 4.0% Senior Notes contain customary representations and warranties, covenants and provisions governing an event of default.

These covenants limit our ability to engage in certain specified activities, including but not limited to the payment of dividends and the redemption of our common stock.

Net cash provided by operating activities was $62.2 million during the six months ended March 31, 2024 as compared with net cash used in operating activities of $22.2 million in the prior year period.

The increase in net operating cash flow was primarily driven by higher net income and improvements in working capital compared with the prior year period, including a reduction in Inventory purchases as well as a lesser impact of Accounts payable and Other current liabilities.

Capital expenditures were $15.8 million in the six months ended March 31, 2024 as compared with $20.5 million in the prior year period.

Net cash provided by operating activities was $149.5 million during the nine months ended June 30, 2024 as compared with net cash provided by operating activities of $52.5 million in the prior year period.

The increase in net operating cash flow was primarily driven by higher net income and improvements in working capital compared with the prior year period.

Capital expenditures were $28.0 million in the nine months ended June 30, 2024 as compared with $32.4 million in the prior year period.

Capital expenditures decreased primarily as a result of lower expenditures associated with the new Decatur foundry as compared with the prior year period.

For the fiscal year 2024, we have provided guidance that our capital expenditures are expected to be between $40.0 million and $45.0 million.

We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating needs, income tax payments, capital expenditures and debt service obligations as they become due through the twelve months from the date of this filing.

However, our ability to make these payments will depend largely on our future operating performance, which may be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

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Borrowings under the ABL bear interest at a floating rate equal to SOFR plus an adjustment of 10 basis points plus an applicable margin range of 150 to 175 basis points, or a base rate, as defined in the ABL, plus an applicable margin range of 50 to 75 basis points.

At March 31, 2024, the applicable margin for SOFR-based loans was 150 basis points and for base rate loans was 50 basis points.

At June 30, 2024, the applicable margin for SOFR-based loans was 150 basis points and for base rate loans was 50 basis points.

The ABL is subject to mandatory prepayments if total outstanding borrowings under the ABL are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances.

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The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum when the unused capacity is above 50% of the credit commitments, with a step down to 25.0 basis points per annum when unused capacity is less than or equal to 50% of the credit commitments.

At March 31, 2024, the commitment fee was 37.5 basis points.

At June 30, 2024, the commitment fee was 37.5 basis points.

Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL.

Excess availability based on March 31, 2024 data was $162.6 million, as reduced by $12.2 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

Excess availability based on June 30, 2024 data was $162.6 million, as reduced by $12.2 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

4.0% Senior Unsecured Notes

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Substantially all of our United States subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL.

Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $407.7 million at March 31, 2024.

Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $411.3 million at June 30, 2024.

An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens.

There are no financial maintenance covenants associated with the Indenture.

We believe we were in compliance with these covenants at March 31, 2024.

We may redeem some or all of the 4.0% Senior Notes at any time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices.

Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption prices as set forth in the Indenture.

We believe we were in compliance with these covenants at June 30, 2024.

We may redeem some or all of the 4.0% Senior Notes at any time after June 15, 2024, at specified redemption prices.

Upon a Change of Control, as defined in the Indenture, we could be required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount if there is a Ratings Decline (as defined in the Indenture).

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Moody’s Standard & Poor’s

March 31, September 30, March 31, September 30,

June 30, September 30, June 30, September 30,

2024 2023 2024 2023

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We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures.

As of March 31, 2024, we had (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include annual cash interest payments of $18.0 million in 2024 through 2029, (ii) cumulative cash obligations of $36.6 million for operating leases through 2033 and $2.3 million for finance leases through 2028, and (iii) purchase obligations for raw materials and other parts of approximately $105.3 million which we expect to incur during the next 12 months and $0.9 million beyond March 31, 2025.

As of June 30, 2024, we had (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include annual cash interest payments of $18.0 million in 2024 through 2029, (ii) cumulative cash obligations of $34.5 million for operating leases through 2034 and $2.3 million for finance leases through 2030, and (iii) purchase obligations for raw materials and other parts of approximately $125.6 million which we expect to incur during the next 12 months and $1.7 million beyond June 30, 2025.

Additionally, we may continue to invest to strengthen our systems, cybersecurity training, policies, programs, response plans and other similar measures.

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We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

In addition, at March 31, 2024, we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases.

In addition, at June 30, 2024, we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases.

Therefore, we were not exposed to any financing, liquidity, market or credit risk that could have arisen had we engaged in such relationships.

We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations.

At March 31, 2024, we had $12.2 million of letters of credit and $13.7 million of surety bonds outstanding.

At June 30, 2024, we had $12.2 million of letters of credit and $13.4 million of surety bonds outstanding.

Our business is seasonal as a result of the impact of cold weather conditions.

Net sales and operating income historically have been lowest in the three-month periods ending December 31 and March 31 when the northern United States and most of Canada generally face weather conditions that restrict significant construction activity.

Therefore, the results of operations for the three and nine months ended June 30, 2024 are not necessarily indicative of operating results that may be achieved for any other interim period or the full year.

Critical Accounting Estimates

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We consider an accounting estimate to be critical if changes in the estimate that are reasonably likely to occur over time or the use of reasonably different estimates could have a material impact on our financial condition or results of operations.

Our critical accounting estimates can be found in the “Critical Accounting Estimates” section

in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2023 Annual Report on Form 10-K.

Our critical accounting estimates can be found in the “Critical Accounting Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2023 Annual Report on Form 10-K.

There have been no changes in the Company’s determination of critical accounting estimates since September 30, 2023.

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