What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-05-06 · 99 added, 93 removed, 230 unchanged (45% of the section changed)

40 unchanged sentences

While we reopened the facility in November 2023, the war caused supply chain disruption and labor availability challenges that hindered, and continue to hinder, our ability to most efficiently manufacture and deliver our products from our facility in Ariel, Israel.

We have made investments in recruiting and training new team members and expanding our suppliers to increase production levels, as well as expediting product shipments and increasing inventory safety stock to meet customer delivery times.

We have made investments in recruiting and training new team members, expanding our suppliers, and shifting certain Krausz branded manufacturing to our Cleveland, Tennessee facility to increase production levels, as well as expediting product shipments and increasing inventory safety stock to meet customer delivery times.

The cybersecurity incident in the first quarter of fiscal 2024 consisted of unauthorized access and deployment of ransomware by a third party to a portion of our internal information system infrastructure.

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We expect these challenges to continue during the remainder of fiscal 2025.

We continue to anticipate resilient demand in the municipal repair and replacement end market driven by the aging water infrastructure albeit moderated by budgetary and operational pressures on municipalities.

However, we anticipate that new residential construction activity and new lot and land development will be relatively constrained by the increased uncertainty and interest rate environment, depending on the geographic region.

In April 2025, Blue Chip Economic Indicators forecasted relative consistency in housing starts for the calendar year 2025 as compared to calendar year 2024.

We continue to anticipate resilient demand associated with the municipal repair and replacement end market driven by the aging water infrastructure and increasing water rates, moderated by budgetary and operational pressures on municipalities.

We anticipate that new residential construction activity and new lot and land development will be relatively constrained by the uncertainty in the economy, affordability concerns and interest rate environment, depending on the geographic region.

In July 2025, Blue Chip Economic Indicators forecasted a 2.2% decline in housing starts for the calendar year 2025 as compared to calendar year 2024.

After our short-cycle channel and customer inventory levels largely normalized during the first quarter of 2024, our orders and shipments reflected a more typical demand environment compared with the high backlog environment we experienced during and after the COVID-19 pandemic.

For the remainder of fiscal 2025, we assume that we will continue to experience a more normalized demand environment leading to more normalized seasonality for consolidated net sales.

Therefore, we anticipate quarterly consolidated net sales as a percentage of fiscal year 2025 consolidated net sales to be the highest in the third quarter and lowest in the first quarter, with a sequential increase in consolidated net sales in the second quarter as the construction season ramps up for the spring season.

Inventory costs for the first six months of 2025 experienced approximately 1.4% inflation.

For the remainder of fiscal 2025, we anticipate that inflation will rise, particularly for purchased parts due to new tariffs enacted after January 2025.

In fiscal 2025, we have experienced a more normalized demand environment.

Therefore, we anticipate quarterly consolidated net sales as a percentage of fiscal 2025 consolidated net sales to be the highest in the third quarter and lowest in the first quarter, with a sequential increase in consolidated net sales in the second quarter as the construction season ramps up for the spring season.

Accordingly, for the remainder of fiscal 2025, we assume that we will experience typical seasonality and a normalized demand environment, leading to lower consolidated net sales for the fourth quarter relative to the third quarter.

Inventory costs for the first nine months of 2025 increased approximately 1.5% due to inflation.

For the remainder of fiscal 2025, we anticipate that inflation will continue to rise, particularly for purchased parts, due to new tariffs enacted after March 2025.

At this time, excluding the impact of tariffs, we expect inflation to modestly impact manufacturing and transportation costs.

We will continue to monitor the market and economic conditions impacting our business and take appropriate actions to address inflationary and other cost pressures, including new tariffs, by implementing price increases, cost containment measures and supplier management measures, among other mitigating actions.

We have implemented targeted price increases for certain products, as well as supply chain and operations initiatives, to mitigate these higher tariffs.

We will continue to monitor the market and economic conditions impacting our business and take appropriate actions to address inflationary and other cost pressures, including increased tariffs, by implementing price increases, cost containment measures and supplier management measures, among other mitigating actions.

Results of Operations

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Three months ended March 31, 2025

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

Three months ended June 30, 2025

Water Flow Solutions Water Management Solutions Corporate Total

8 unchanged sentences

Non-operating expenses:

Pension benefit other than service (0.1)

Interest expense, net 1.7

2 unchanged sentences

Net income $ 52.5

Three months ended March 31, 2024

Three months ended June 30, 2024

Water Flow Solutions Water Management Solutions Corporate Total

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Consolidated Analysis

Net sales for the three months ended March 31, 2025 were $364.3 million as compared with $353.4 million in the prior year period, an increase of $10.9 million or 3.1%, primarily as a result of higher pricing across most product lines, as well as increased volumes.

Gross profit for the three months ended March 31, 2025 was $128.0 million as compared with $130.4 million in the prior year period, a decrease of $2.4 million or 1.8%, primarily as a result of manufacturing inefficiencies partially offset by higher volumes and favorable price/cost.

Included in the manufacturing inefficiencies was a $0.8 million write-down of other assets associated with our legacy brass foundry in Decatur, Illinois.

Inflation impacted Gross margin by approximately 3%.

As a result, Gross margin was 35.1% in the three months ended March 31, 2025 as compared with 36.9% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended March 31, 2025 were $55.7 million as compared with $63.7 million in the prior year period, a decrease of $8.0 million or 12.6%, primarily due to lower amortization, incentive and travel expenses as well as favorable foreign exchange impacts, partially offset by approximately 3% inflation.

SG&A as a percentage of net sales was 15.3% and 18.0% for the three months ended March 31, 2025 and March 31, 2024, respectively.

Strategic reorganization and other charges for the three months ended March 31, 2025 were $2.4 million and consisted of expenses associated with our leadership transition, non-cash asset impairment and certain transaction-related expenses.

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

Net interest expense for the three months ended March 31, 2025 was $2.3 million as compared with $3.6 million in the prior year period, a decrease of $1.3 million or 36.1%, primarily due to higher interest income.

Net sales for the three months ended June 30, 2025 were $380.3 million as compared with $356.7 million in the prior year period, an increase of $23.6 million or 6.6%, primarily as a result of increased volumes and higher pricing across most product lines.

Gross profit for the three months ended June 30, 2025 was $145.7 million as compared with $131.4 million in the prior year period, an increase of $14.3 million or 10.9%, primarily as a result of manufacturing efficiencies and higher volumes.

Gross profit was negatively impacted by approximately 7% due to inflation and increased tariffs.

As a result, gross margin was 38.3% in the three months ended June 30, 2025 as compared with 36.8% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2025 were $71.0 million as compared with $61.5 million in the prior year period, an increase of $9.5 million or 15.4%, primarily due to $9.1 million unfavorable foreign currency fluctuation primarily resulting from the depreciation of the U.S.

dollar versus the Israeli shekel during the quarter, inflation of approximately 3%, higher personnel-related expense and third-party fees, partially offset by lower intangible amortization and engineering expense.

The unfavorable foreign currency impact for the three months ended June 30, 2025 was $7.7 million.

SG&A as a percentage of net sales was 18.7% and 17.2% for the three months ended June 30, 2025 and June 30, 2024, respectively.

Strategic reorganization and other charges for the three months ended June 30, 2025 were $1.0 million and consisted of expenses associated with our leadership transition.

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

Net interest expense for the three months ended June 30, 2025 was $1.7 million as compared with $2.8 million in the prior year period, a decrease of $1.1 million or 39.3%, primarily due to higher interest income.

The components of net interest expense are as shown below:

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State income taxes, net of federal benefit 4.0 3.5

Excess tax (benefit) deficit related to stock-based compensation (1.0) —

Tax credits (1.4) (1.8)

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Uncertain tax positions 0.3 0.4

Valuation allowances 0.4 0.7

Other 1.6 0.9

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Water Flow Solutions

Net sales for the three months ended March 31, 2025 were $216.2 million as compared with $205.8 million in the prior year period, an increase of $10.4 million or 5.1%, primarily as a result of higher volumes of iron gate and specialty valves as well as higher pricing across most product lines, partially offset by lower volumes of service brass products.

Gross profit for the three months ended March 31, 2025 was $77.0 million as compared with $77.2 million in the prior year period, a decrease of $0.2 million or 0.3%.

This decrease was primarily a result of manufacturing inefficiencies, including a $0.8 million write-down of other assets related to our legacy brass foundry in Decatur, Illinois, partially offset by higher volumes and favorable price/cost.

Inflation impacted Gross profit by approximately 4%.

Gross margin was 35.6% in the three months ended March 31, 2025 and 37.5% in the prior year period.

SG&A for the three months ended March 31, 2025 was $21.9 million as compared with $24.6 million in the prior year period, a decrease of $2.7 million or 11.0%, primarily as a result of lower amortization, travel and incentive expenses, partially offset by higher personnel-related expenses and inflation of approximately 3%.

SG&A as a percentage of net sales was 10.1% and 12.0% in the three months ended March 31, 2025 and 2024, respectively.

Net sales for the three months ended June 30, 2025 were $216.6 million as compared with $208.1 million in the prior year period, an increase of $8.5 million or 4.1%, primarily as a result of increased volumes of iron gate and specialty valves as well as higher pricing across most product lines, partially offset by lower volumes of service brass products.

Gross profit for the three months ended June 30, 2025 was $83.8 million as compared with $81.9 million in the prior year period, an increase of $1.9 million or 2.3%.

This increase was primarily a result of increased volumes and favorable manufacturing performance.

Gross profit was negatively impacted by approximately 7% due to inflation and increased tariffs.

Gross margin was 38.7% in the three months ended June 30, 2025 and 39.4% in the prior year period.

SG&A for the three months ended June 30, 2025 was $23.3 million as compared with $24.1 million in the prior year period, a decrease of $0.8 million or 3.3%, primarily as a result of lower amortization and bad debt, partially offset by higher personnel-related expenses, third-party fees and inflation of approximately 3%.

SG&A as a percentage of net sales was 10.8% and 11.6% in the three months ended June 30, 2025 and 2024, respectively.

Water Management Solutions

Net sales for the three months ended March 31, 2025 were $148.1 million as compared with $147.6 million in the prior year period, an increase of $0.5 million or 0.3%, primarily as a result of higher pricing across most product lines, partially offset by lower volumes primarily in natural gas distribution products.

Gross profit for the three months ended March 31, 2025 was $51.0 million as compared with $53.2 million in the prior year period, a decrease of $2.2 million or 4.1%.

The decrease was primarily a result of manufacturing inefficiencies partially offset by favorable price/cost.

Inflation impacted Gross profit by approximately 2%.

Gross margin was 34.4% in the three months ended March 31, 2025 as compared with 36.0% in the prior year period.

SG&A for the three months ended March 31, 2025 was $19.6 million as compared with $24.2 million in the prior year period, a decrease of $4.6 million or 19.0%, primarily due to lower amortization, favorable foreign exchange impacts and lower travel expenses, partially offset by approximately 4% inflation.

SG&A as a percentage of net sales was 13.2% and 16.4% in the three months ended March 31, 2025 and 2024, respectively.

SG&A for the three months ended March 31, 2025 was $14.2 million as compared with $14.9 million in the prior year period, a decrease of $0.7 million or 4.7%, primarily as a result of lower compensation as well as consulting and professional fees partially offset by approximately 3% inflation.

Six months ended March 31, 2025 Compared to Six months ended March 31, 2024

Six months ended March 31, 2025

Net sales for the three months ended June 30, 2025 were $163.7 million as compared with $148.6 million in the prior year period, an increase of $15.1 million or 10.2%, primarily as a result of increased volumes of repair products and hydrants as well as higher pricing across most product lines, partially offset by lower volumes of natural gas distribution products.

Gross profit for the three months ended June 30, 2025 was $61.9 million as compared with $49.5 million in the prior year period, an increase of $12.4 million or 25.1%.

The increase was primarily a result of favorable manufacturing performance and increased volumes.

Gross profit was negatively impacted by approximately 8% due to inflation and increased tariffs.

Gross margin was 37.8% in the three months ended June 30, 2025 as compared with 33.3% in the prior year period.

SG&A for the three months ended June 30, 2025 was $31.6 million as compared with $22.6 million in the prior year period, an increase of $9.0 million or 39.8%, primarily due to $7.1 million unfavorable foreign currency impact associated with depreciation of the U.S.

dollar compared with the Israeli shekel, higher personnel-related expenses, approximately 2% inflation and higher third-party fees, partially offset by lower amortization and travel expenditures.

SG&A as a percentage of net sales was 19.3% and 15.2% in the three months ended June 30, 2025 and 2024, respectively.

SG&A for the three months ended June 30, 2025 was $16.1 million as compared with $14.8 million in the prior year period, an increase of $1.3 million or 8.8%.

Nine months ended June 30, 2025 Compared to Nine months ended June 30, 2024

Nine months ended June 30, 2025

Water Flow Solutions Water Management Solutions Corporate Total

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Net income $ 139.1

Six months ended March 31, 2024

Nine months ended June 30, 2024

Water Flow Solutions Water Management Solutions Corporate Total

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Consolidated Analysis

Net sales for the six months ended March 31, 2025 were $668.6 million as compared with $609.8 million in the prior year period, an increase of $58.8 million or 9.6%, primarily as a result of increased volumes as well as higher pricing across most product lines.

Gross profit for the six months ended March 31, 2025 was $231.0 million as compared with $216.7 million in the prior year period, an increase of $14.3 million or 6.6%, primarily as a result of higher volumes and favorable price/cost which more than offset the impact of manufacturing inefficiencies.

Included in the manufacturing inefficiencies was a $4.1 million write-down of

inventory and other assets associated with our legacy brass foundry in Decatur, Illinois.

Inflation negatively impacted Gross profit by approximately 4%.

As a result, Gross margin was 34.5% in the six months ended March 31, 2025 as compared with 35.5% in the prior year period.

Selling, general and administrative expenses (“SG&A”) for the six months ended March 31, 2025 were $109.6 million as compared with $120.6 million in the prior year period, a decrease of $11.0 million or 9.1%, primarily due to lower amortization, favorable foreign exchange impacts as well as reduced travel and incentive expenses, partially offset by approximately 3% inflation and higher personnel-related expense as well as consulting and professional fees.

SG&A as a percentage of net sales was 16.4% and 19.8% for the six months ended March 31, 2025 and March 31, 2024, respectively.

Strategic reorganization and other charges for the six months ended March 31, 2025 were $4.1 million and consisted of expenses associated with our leadership transition, non-cash asset impairment and certain transaction-related costs.

Strategic reorganization and other charges for the six months ended March 31, 2024 were $9.8 million and consisted of expenses associated with our leadership transition, severance, certain transaction-related costs, as well as cybersecurity incidents expense.

Net interest expense for the six months ended March 31, 2025 was $3.9 million as compared with $6.9 million in the prior year period, a decrease of $3.0 million or 43.5%, primarily due to higher interest income.

Net sales for the nine months ended June 30, 2025 were $1,048.9 million as compared with $966.5 million in the prior year period, an increase of $82.4 million or 8.5%, primarily as a result of increased volumes and higher pricing across most product lines.

Gross profit for the nine months ended June 30, 2025 was $376.7 million as compared with $348.1 million in the prior year period, an increase of $28.6 million or 8.2%, primarily as a result of increased volumes, higher pricing, and manufacturing efficiencies, partially offset by approximately 5% due to inflation and increased tariffs.

Manufacturing efficiencies were negatively impacted by a $4.1 million write-down of inventory and other assets associated with our legacy brass foundry in Decatur, Illinois.

As a result, gross margin was 35.9% in the nine months ended June 30, 2025 as compared with 36.0% in the prior year period.

SG&A for the nine months ended June 30, 2025 was $180.6 million as compared with $182.1 million in the prior year period, a decrease of $1.5 million or 0.8%, primarily due to lower intangible amortization, partially offset by unfavorable foreign currency fluctuation as a result of depreciation of the U.S.

dollar compared with the Israeli shekel, as well as higher personnel-related expenses, third-party fees and approximately 3% inflation.

SG&A as a percentage of net sales was 17.2% and 18.8% for the nine months ended June 30, 2025 and June 30, 2024, respectively.

Strategic reorganization and other charges for the nine months ended June 30, 2025 were $5.1 million and consisted of expenses associated with our leadership transition, non-cash asset impairment and certain transaction-related costs.

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

Net interest expense for the nine months ended June 30, 2025 was $5.6 million as compared with $9.7 million in the prior year period, a decrease of $4.1 million or 42.3%, primarily due to higher interest income.

The components of net interest expense are as shown below:

Six months ended

Nine months ended

(in millions)

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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 %

1 unchanged sentence

State income taxes, net of federal benefit 4.0 3.5

Excess tax (benefit) deficit related to stock-based compensation (2.0) 0.1

Excess tax benefit related to stock-based compensation (1.2) —

Tax credits (1.4) (1.8)

8 unchanged sentences

Water Flow Solutions

Net sales for the six months ended March 31, 2025 were $390.8 million as compared with $347.1 million in the prior year period, an increase of $43.7 million or 12.6%, primarily as a result of higher volumes as well as higher pricing across most product lines.

Gross profit for the six months ended March 31, 2025 was $132.1 million as compared with $123.8 million in the prior year period, an increase of $8.3 million or 6.7%.

This increase was primarily a result of higher volumes across most product lines and favorable price/cost, partially offset by manufacturing inefficiencies, including a $4.1 million write-down of inventory and other assets associated with our legacy brass foundry in Decatur, Illinois.

Inflation impacted Gross profit by approximately 5%.

Gross margin was 33.8% in the six months ended March 31, 2025 and 35.7% in the prior year period.

SG&A for the six months ended March 31, 2025 was $41.7 million as compared with $43.8 million in the prior year period, a decrease of $2.1 million or 4.8%, primarily as a result of lower amortization and travel expenses partially offset by higher personnel-related expense, inflation of approximately 3%, as well as consulting and professional fees.

SG&A as a percentage of net sales was 10.7% and 12.6% in the six months ended March 31, 2025 and 2024, respectively.

Net sales for the nine months ended June 30, 2025 were $607.4 million as compared with $555.2 million in the prior year period, an increase of $52.2 million or 9.4%, primarily as a result of increased volumes and higher pricing across most product lines.

Gross profit for the nine months ended June 30, 2025 was $215.9 million as compared with $205.7 million in the prior year period, an increase of $10.2 million or 5.0%.

This increase was primarily a result of increased volumes, higher pricing across most product lines and manufacturing efficiencies, partially offset by approximately 6% inflation and increased tariffs.

Manufacturing efficiencies were negatively impacted by a $4.1 million write-down of inventory and other assets associated with our legacy brass foundry in Decatur, Illinois.

Gross margin was 35.5% in the nine months ended June 30, 2025 and 37.0% in the prior year period.

SG&A for the nine months ended June 30, 2025 was $65.0 million as compared with $67.9 million in the prior year period, a decrease of $2.9 million or 4.3%, primarily as a result of lower amortization, travel, bad debt and engineering materials expenses, partially offset by higher personnel-related expense, inflation of approximately 3%, and higher third-party fees.

SG&A as a percentage of net sales was 10.7% and 12.2% in the nine months ended June 30, 2025 and 2024, respectively.

Water Management Solutions

Net sales for the six months ended March 31, 2025 were $277.8 million as compared with $262.7 million in the prior year period, an increase of $15.1 million or 5.7%, primarily as a result of higher volumes and higher pricing across most product lines.

Gross profit for the six months ended March 31, 2025 was $98.9 million as compared with $92.9 million in the prior year period, an increase of $6.0 million or 6.5%.

The increase was primarily driven by higher volume across most product lines and favorable price/cost, partially offset by manufacturing inefficiencies.

Inflation impacted Gross profit by approximately 2%.

Gross margin was 35.6% in the six months ended March 31, 2025 as compared with 35.4% in the prior year period.

SG&A for the six months ended March 31, 2025 was $39.9 million as compared with $48.8 million in the prior year period, a decrease of $8.9 million or 18.2%, primarily due to lower amortization, favorable foreign exchange impacts, lower bad debt and personnel-related expenses.

The decrease was partially offset by approximately 3% inflation as well as higher consulting and professional fees.

SG&A as a percentage of net sales was 14.4% and 18.6% in the six months ended March 31, 2025 and 2024, respectively.

SG&A for the six months ended March 31, 2025 and 2024 was $28.0 million.

Inflation of 3% and higher insurance expense were offset by decreases in incentives, favorable foreign exchange impacts and lower consulting and professional fees.

Net sales for the nine months ended June 30, 2025 were $441.5 million as compared with $411.3 million in the prior year period, an increase of $30.2 million or 7.3%, primarily as a result of increased volumes and higher pricing across most product lines.

Gross profit for the nine months ended June 30, 2025 was $160.8 million as compared with $142.4 million in the prior year period, an increase of $18.4 million or 12.9%.

The increase was primarily driven by increased volumes, higher pricing across most product lines and manufacturing efficiencies.

Gross profit was negatively impacted by approximately 4% as a result of inflation and increased tariffs.

Gross margin was 36.4% in the nine months ended June 30, 2025 as compared with 34.6% in the prior year period.

SG&A for the nine months ended June 30, 2025 was $71.5 million as compared with $71.4 million in the prior year period, an increase of $0.1 million or 0.1%, primarily due to unfavorable foreign currency fluctuation associated with the depreciation of the U.S.

dollar compared with the Israeli shekel, approximately 3% inflation, and higher consulting and professional fees,

partially offset by lower amortization, travel and bad debt expense, and engineering expenditures.

SG&A as a percentage of net sales was 16.2% and 17.4% in the nine months ended June 30, 2025 and 2024, respectively.

SG&A for the nine months ended June 30, 2025 was $44.1 million as compared with $42.8 million in the prior year period, an increase of $1.3 million or 3.0%.

Inflation of approximately 3%, and higher insurance and travel expense were partially offset by lower consulting and professional fees as well as a decrease in personnel-related expense.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of $329.2 million at March 31, 2025 and $163.0 million of additional borrowing capacity under our ABL based on March 31, 2025 data.

At March 31, 2025, cash and cash equivalents included $72.3 million, $7.5 million and $6.5 million in Israel, Canada and China, respectively.

We declared a quarterly dividend of $0.067 per share on April 30, 2025, payable on or about May 21, 2025 to stockholders of record as of May 12, 2025, which will result in an estimated $10.5 million cash outlay.

We repurchased $5.0 million of our outstanding common stock during the six months ended March 31, 2025 under our publicly announced share repurchase program, and as of March 31, 2025, we had $75.0 million remaining under our share repurchase authorization.

We had cash and cash equivalents on hand of $372.0 million at June 30, 2025 and $163.0 million of additional borrowing capacity under our ABL based on June 30, 2025 data.

At June 30, 2025, cash and cash equivalents included $78.7 million, $14.4 million and $8.1 million in Israel, Canada and China, respectively.

We declared a quarterly dividend of $0.067 per share on July 30, 2025, payable on or about August 21, 2025 to stockholders of record as of August 12, 2025, which will result in an estimated $10.5 million cash outlay.

We repurchased $15.0 million of our outstanding common stock during the nine months ended June 30, 2025 under our publicly announced share repurchase program, and as of June 30, 2025, we had $65.0 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 restrict our ability to engage in certain activities, including but not limited to, the payment of cash dividends and the redemption of our common stock.

Net cash provided by operating activities was $68.4 million during the six months ended March 31, 2025 as compared with net cash provided by operating activities of $62.2 million in the prior year period.

The increase in net operating cash flow was primarily driven by higher net income partially offset by changes in working capital, including decreases in Other current liabilities such as incentive compensation.

Capital expenditures were $21.1 million in the six months ended March 31, 2025 as compared with $15.8 million in the prior year period.

Cash flows provided by operating activities decreased $13.7 million to $135.8 million during the nine months ended June 30, 2025 compared with $149.5 million in the prior year period.

The decrease was driven by changes in working capital and other assets and liabilities of $35.2 million and non-cash adjustments of $11.7 million which more than offset the increase in net income of $33.2 million.

Working capital provided $9.6 million in year-over-year cash primarily due to increases in Accounts payable of $21.1 million offset by increases in Inventories of $11.9 million.

Other assets and liabilities used $44.8 million in year-over-year cash primarily due to decreases in compensation-related accruals and other decreases in current and noncurrent liabilities.

The decrease in non-cash adjustments was primarily due to lower amortization.

Capital expenditures were $32.8 million in the nine months ended June 30, 2025 as compared with $28.0 million in the prior year period.

Capital expenditures increased primarily as a result of timing and higher expenditures associated with our foundries, including replacement of aged lost foam equipment, and cybersecurity infrastructure improvements as compared with the prior year period.

For the fiscal year 2025, we have provided guidance that our capital expenditures are expected to be between $45.0 million and $50.0 million.

For the fiscal year 2025, our capital expenditures are expected to be between $50.0 million and $52.0 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 next twelve months from the date of this filing.

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Borrowings under the ABL bear interest at a floating rate equal to SOFR plus an adjustment of 10 basis points and 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, 2025, the applicable margin was 150 basis points for SOFR-based loans and 50 basis points for base rate loans.

At June 30, 2025, the applicable margin was 150 basis points for SOFR-based loans and 50 basis points for base rate loans.

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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Additionally, cash dividend payments in excess of such limits, repurchases of common stock and certain other Restricted Payments (as defined in the ABL) are permitted if (i) Pro Forma Availability (as defined in the ABL) is (i) greater than or equal to the greater of 17.5% of the Loan Cap (as defined in the ABL) and $30.6 million for each day during the 30-day period prior to such Restricted Payment, or (ii) Pro Forma Availability is greater than 12.5% but less than 17.5% of the Loan Cap and $21.9 million for each day during the 30-day period prior to such Restricted Payment and the fixed charge coverage ratio of the most recently ended Measurement Period (as defined in the ABL) is at least 1 to 1.

Substantially all of our United States (“U.S.”) subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings.

Substantially all of our U.S.

subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings.

Our obligations under the ABL are secured by a first-priority perfected lien on all of our U.S.

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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, 2025, the commitment fee was 37.5 basis points.

At June 30, 2025, 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.

Excess availability based on March 31, 2025 data was $163.0 million, as reduced by $11.8 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

Excess availability based on June 30, 2025 data was $163.0 million, as reduced by $11.8 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.

4.0% Senior Unsecured Notes

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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 $419.4 million at March 31, 2025.

Based on quoted market prices, the outstanding 4.0% Senior Notes had a fair value of $432.7 million at June 30, 2025.

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, 2025.

We believe we were in compliance with these covenants at June 30, 2025.

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

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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,

2025 2024 2025 2024

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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, 2025, 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 2025 through 2029, (ii) cumulative cash obligations of $32.8 million for operating leases through 2034 and $3.8 million for finance leases through 2030, and (iii) purchase obligations for raw materials and other purchased parts of approximately $110.9 million which we expect to incur during the next 12 months and $2.1 million beyond March 31, 2026.

As of June 30, 2025, 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 2025 through 2029, (ii) cumulative cash obligations of $33.1 million for operating leases through 2034 and $4.0 million for finance leases through 2030, and (iii) purchase obligations for raw materials and other purchased parts of approximately $128.7 million which we expect to incur during the next 12 months and $1.4 million beyond June 30, 2026.

Additionally, we expect 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, 2025, we did not have any undisclosed borrowings, debt, derivative contracts or synthetic leases.

In addition, at June 30, 2025, 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, 2025, we had $11.8 million of letters of credit and $12.4 million of surety bonds outstanding.

At June 30, 2025, we had $11.8 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.

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and most of Canada generally face weather conditions that restrict significant construction and other field crew activity.

Therefore, the results of operations for the three months ended March 31, 2025 are not necessarily indicative of operating results that may be achieved for any other interim period or the full year.

Therefore, the results of operations for the three and nine months ended June 30, 2025 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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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