What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-03-11 compared with 2024-09-06 · 104 added, 182 removed, 117 unchanged (71% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of July 31, 2024, and for the three and nine months ended July 31, 2024 and 2023, included elsewhere herein.

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of January 31, 2025, and for the three months ended January 31, 2025 and 2024, included elsewhere herein.

For additional information pertaining to our business, including risk factors which should be considered before investing in our common stock, refer to our Annual Report on Form 10-K for the fiscal year ended October 31, 2024.

We manufacture components for original equipment manufacturers (OEMs) in the building products industry.

These components can be categorized as window and door (“fenestration”) components and kitchen and bath cabinet components.

Examples of fenestration components include (1) energy-efficient flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, and (4) precision-formed metal and wood products.

We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry.

In addition, we provide certain other non-fenestration components and products, which include custom mixing, solar panel sealants, trim moldings, vinyl decking, vinyl fencing, customized compounds, water retention barriers, and conservatory roof components.

We use low-cost, short lead-time production processes and engineering expertise to provide our customers with specialized products for their specific window, door, and cabinet applications.

We believe these capabilities provide us with unique competitive advantages.

We serve a primary customer base in North America and the U.K., and also serve customers in international markets through our operating plants in the U.K.

and Germany, as well as through sales and marketing efforts in other countries.

We continue to invest in organic growth initiatives and we intend to continue evaluating business acquisitions that allow us to expand our existing fenestration and cabinet component footprint, enhance our product offerings, provide new complementary technology, enhance our leadership position within the markets we serve and expand into new markets or service lines.

We are a leading manufacturer and component supplier to original equipment manufacturers (OEMs) in various industries, including window, door, solar, refrigeration, custom mixing, building access, and cabinetry markets.

The majority of these components can be categorized as window and door (fenestration) components and kitchen and bath cabinet components.

Examples of fenestration components include energy -efficient flexible insulating glass spacers, extruded vinyl profiles, window and door screens, precision-formed metal and wood products, window and door seals, and window and door hardware.

In addition, we provide certain other non-fenestration components and products, which include solar panel sealants, trim moldings, vinyl decking, water retention barriers, conservatory roof components, and building access solutions.

For additional discussion of our reportable business segments, see Note 14, “Segment Information.” We leverage efficient production and distribution processes and engineering expertise to provide our customers with specialized products for their specific hardware, extrusion, and custom applications.

We believe these capabilities enhance our ability to prov ide value to our customers.

We serve a primary customer base in North America and the United Kingdom (U.K.), and also serve customers in international markets through our operating locations in the U.K., Germany, Mexico, Canada and Italy, as well as through sales and marketing efforts in other countries.

We continue to invest in organic growth initiatives and we intend to continue evaluating business acquisitions that allow us to expand our manufacturing and distribution footprint, enhance our product offerings, provide new complementary technology, enhance our leadership position within the markets we serve and expand into new markets or service lines.

We have disposed of non-core businesses in the past, and continue to evaluate our business portfolio to ensure that we are investing in markets where we believe there is potential future growth.

We currently have three reportable business segments:

(1) North American Fenestration segment (“NA Fenestration”), comprising four operating segments, manufacturing vinyl profiles, IG spacers, screens, custom compound mixing, and other fenestration components;

We currently have four reportable business segments:

(1) North American Fenestration segment (“NA Fenestration”), comprising four operating segments, consisting of vinyl profiles, IG spacers, screens, custom compound mixing and other fenestration components;

(2) European Fenestration segment (“EU Fenestration”), comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles and conservatories, and the European insulating glass business manufacturing IG spacers;

and (3) North American Cabinet Components segment (“NA Cabinet Components”), comprising our North American cabinet door and components business and two wood-manufacturing plants.

We maintain a grouping called Unallocated Corporate & Other, which includes transaction expenses, stock-based compensation, long-term incentive awards based on the performance of our common stock and other factors, certain severance, legal, and other costs not deemed to be allocable to all segments, depreciation of corporate assets, interest expense, other, net, income taxes and inter-segment eliminations, and executive incentive compensation and medical expense fluctuations relative to planned costs as determined during the annual planning process.

Other corporate general and administrative costs have been allocated to the reportable business segments, based upon a relative measure of profitability in order to more accurately reflect each reportable business segment's administrative costs.

We allocate corporate expenses to businesses acquired mid-year from the date of acquisition.

The accounting policies of our operating segments are the same as those used to prepare our accompanying condensed consolidated financial statements.

(3) North American Cabinet Components segment (“NA Cabinet Components”), comprising our North American cabinet door and components business and two wood-manufacturing plants, and (4) Tyman, which was acquired on August 1, 2024, comprising a leading international supplier of engineered fenestration components and access solutions to the construction industry.

We maintain a grouping called Unallocated Corporate & Other, which includes transaction expenses, stock-based compensation, long-term incentive awards based on the performance of our common stock and other factors, certain severance and legal costs not deemed to be allocable to all segments, depreciation of corporate assets, interest expense, other, net, income taxes and inter-segment eliminations, and executive incentive compensation and medical expense fluctuations relative to planned costs as determined during the annual planning process.

Other general and administrative costs associated with the corporate office are allocated to the reportable segments, based upon a relative measure of profitability in order to more accurately reflect each reportable business segment's administrative costs.

Recent Transactions and Events

On August 1, 2024, we completed our Tyman Acquisition of Tyman plc, a company incorporated in England and Wales (“Tyman”).

We are monitoring the rapidly evolving tariff and global trade policies and we are working with our suppliers to mitigate potential impacts on our business.

The extent and duration of the tariffs and the resulting impact on general economic conditions on our business are uncertain and depend on various factors, such as negotiations between the U.S.

and affected countries, the responses of other countries or regions, exemptions that may be granted, availability and cost of alternative sources of supply and demand for our products in affected markets.

On August 1, 2024, we completed the acquisition of Tyman plc, a company incorporated in England and Wales (the “Tyman Acquisition”).

The aggregate consideration due pursuant to the Tyman Acquisition at closing comprised of 14,139,477 New Quanex Shares and cash consideration of approximately $504.1 million (being the Pound Sterling amount of cash consideration of £392.2 million in respect of all of the Tyman Shares converted to U.S.

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New Quanex Shares issued in connection with the Tyman Acquisition on the New York Stock Exchange took effect on August 2, 2024 and Tyman’s shares on the London Stock Exchange were canceled.

On November 1, 2022, we entered into an Asset Purchase Agreement with LMI and the equity owners of LMI, Lauren International, Ltd.

and Meteor-US-Beteiligungs GMBH.

Under the Asset Purchase Agreement, we acquired substantially all of the operating assets comprising LMI’s polymer mixing and rubber compound production business and also agreed to assume certain liabilities.

As consideration for the Purchased Assets, we paid $91.3 million in cash utilizing funds borrowed under our Credit Facility.

In connection with the LMI Acquisition, we amended our existing finance lease with Lauren Real Estate Holding LLC for the purpose of adding an additional lease renewal option and increasing rental space by approximately 60,000 square feet of rental space which was added to the 313,595 square feet of rentable area located in Cambridge, Ohio.

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the military conflicts currently ongoing in Ukraine and Gaza.

Although the length and impact of these ongoing military conflicts are highly unpredictable, the conflicts could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

Although the length and impact of these ongoing military conflicts

are highly unpredictable, the conflicts could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

Russia, Europe’s largest provider of natural gas, has significantly reduced the export of natural gas compared to the beginning of the conflict resulting in the increase in natural gas prices and the potential for natural gas shortages.

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Market Overview and Outlook

We believe the primary drivers of our operating results continue to be North American new home construction and residential remodeling and replacement (R&R) activity.

We believe the primary drivers of our operating results continue to be North American residential remodeling and replacement (R&R) and new home construction activity.

We believe that housing starts and window shipments are indicators of activity levels in the homebuilding and window industries, and we use this data, as published by or derived from third-party sources, to evaluate the market.

We have evaluated the market using data from the National Association of Homebuilders (NAHB) with regard to housing starts, and published reports by Ducker Worldwide, LLC (Ducker), a consulting and research firm, with regard to window shipments in the U.S.

We obtain market data from Catalina Research, a consulting and research firm, for insight into the U.S.

residential wood cabinet demand.

In July 2024 , the NAHB forecasted calendar-year housing starts to be approximately 1.3 million, 1.4 million and 1.5 million in the 2024, 2025 and 2026 calendar-years, respectively.

In August 2024 , the Ducker forecast indicated that total window shipments are expected to decrease 3.3% in calendar-year 2024 and increase 3.1% in 2025.

Several commodities in our business are subject to pricing fluctuations, including polyvinyl resin (PVC), titanium dioxide (TiO2), petroleum products, aluminum and wood.

For the majority of our customers and critical suppliers, we have price adjusters in place which effectively share the impact of pass-through price changes for our primary commodities with our customers commensurate with the market at large.

Our long -term exposure to these price fluctuations is somewhat mitigated due to the contractual component of the adjuster programs.

We have historically evaluated the market using data from the National Association of Homebuilders (NAHB) with regard to housing starts and R&R activity, and published reports by Ducker Worldwide, LLC (Ducker), a consulting and research firm, with regard to window shipments in the U.S.

In February 2025 , the NAHB forecasted calendar-year housing starts to be approximately 1.3 million and 1.4 million in the 2025 and 2026 calendar-years, respectively.

I n February 2025 , the Ducker forecast indicated that total window shipments are expected to decrease 2.5% in calendar-year 2025.

Several commodities in our business are subject to pricing fluctuations, including polyvinyl resin (PVC), titanium dioxide (TiO2), petroleum products, stainless steel, zinc, aluminum and wood.

For the majority of our customers and critical suppliers, we have price adjusters in place which effectively share the base pass-through price changes for our primary commodities with our customers commensurate with the market at large.

Our long-term exposure to these price fluctuations is somewhat mitigated due to the contractual component of the adjuster program.

However, these adjusters are not in place with all customers and for all commodities, and there is a level of exposure to such volatility due to the lag associated with the timing of price updates in accordance with our customer agreements, particularly with regard to hardwoods.

In addition, some of these commodities are in high demand, particularly in Europe, which can affect the cost of the raw materials, a portion of which we may not be able to fully recover.

The global economy remains uncertain due to currency devaluations, political unrest, terror threats, global pandemics such as COVID-19, and even the political landscape in the U.S.

The global economy remains uncertain due to currency devaluations, political unrest, terror threats, global pandemics, and even the political landscape in the U.S.

These and other macro-economic factors have impacted the global financial markets, which may have contributed to significant changes in foreign currencies.

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Results of Operations

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

Three Months Ended July 31,

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

Three Months Ended January 31,

2025 2024 Change $ % Variance

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Selling, general and administrative 66,650 32,363 34,287 106 %

Restructuring charges 7,904 — 7,904 100 %

Depreciation and amortization 24,740 11,152 13,588 122 %

Operating income 23,442 37,463 (14,021) (37) %

Operating (loss) income (6,978) 7,917 (14,895) (188) %

Interest expense (14,186) (1,068) (13,118) 1,228 %

Other, net 1,229 1,042 187 18 %

Income tax expense (6,688) (4,099) (2,589) 63 %

Net income $ 25,350 $ 31,698 $ (6,348) (20) %

Income tax benefit (expense) 5,050 (1,642) 6,692 (408) %

Net (loss) income $ (14,885) $ 6,249 $ (21,134) (338) %

Our period-over-period results by reportable segment follow.

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NA Fenestration

Three Months Ended July 31,

Three Months Ended January 31,

2025 2024 $ Change % Variance

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Operating income margin 5 % 6 %

Net s ales decreased $6.8 million, or 4%, for the three months ended July 31, 2024 compared to the same period in 2023, which was primarily driven by a $8.8 million decrease in volumes due to softer market demand driven by weaker consumer confidence partially offset by an increase in price and raw material indexes of $2.0 million.

Net sales decreased $13.7 million, or 9%, for the three months ended January 31, 2025 compared to the same period in 2024, which was primarily driven by a $15.3 million decrease in volumes mainly due to softer market demand driven by weaker consumer confidence partially offset by a $1.6 million increase in price and raw material indexes.

Cost of Sales.

The cost of sales decreased $4.8 million, or 4%, for the three months ended July 31, 2024 compared to the same period in 2023.

Cost of sales decreased primarily due to decrease in volumes partially offset by pricing and inflation of raw materials during the period.

Selling, General and Administrative.

S elling, general and administrative expenses increased $2.7 million, or 19%, for the three months ended July 31, 2024 compared to the sa me period in 2023.

The increase is primarily due to increases in labor costs and professional fees year-over-year.

The cost of sales decreased $11.8 million, or 10%, for the three months ended January 31, 2025 as compared to the same period in 2024.

Cost of sales, including labor, decreased primarily due to a decrease in volumes partially offset by inflation of raw materials during the period.

Se lling, General and Administrative.

S elling, general and administrative expenses increased $0.2 million, or 1%, for the three months ended January 31, 2025 as compared to the same period in 2024.

The increase is primarily due to increases in labor costs partially offset by a decrease in professional fees year-over-year.

EU Fenestration

Three Months Ended July 31,

Three Months Ended January 31,

2025 2024 $ Change Variance %

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Operating income margin 15 % 15 %

Net sales decreased $8.3 million, or 12%, for the three months ended July 31, 2024 compared to the same period in 2023, which was primarily driven by a $5.6 million decrease in volumes largely due to softer market demand driven by weaker consumer confidence, $1.8 million of base price decreases and $0.9 million of foreign currency rate change.

Net sales decreased $1.0 million, or 2%, comparing the three months ended January 31, 2025 to the same period in 2024, which was primarily driven by a $0.5 million decrease in volumes largely due to softer market demand driven by weaker consumer confidence and $0.9 million of negative foreign currency rate change, partially offset by $0.4 million of base price increases.

Cost of Sales.

The cost of sales decreased $4.3 million, or 11%, for the three months ended July 31, 2024 compared to the same period in 2023.

Cost of sales decreased primarily due to lower volumes, the deflation of the price of raw materials and foreign currency rate changes during the period.

The cost of sales decreased $1.1 million, or 3%, for the three months ended January 31, 2025 compared to the same period in 2024.

Cost of sales decreased primarily due to a decrease in volumes and foreign currency impacts, partially offset by inflation in the price of raw materials.

Selling, General and Administrative.

Selling, general and administrative expense decreased $0.6 million, or 8%, for the three months ended July 31, 2024 compared to the same period in 2023.

The decrease is primarily due to a decrease in labor costs and a decrease in professional fees year-over-year.

Selling, general and administrative expense increased $0.2 million, or 2%, for the three months ended January 31, 2025 compared to the same period in 2024.

The increase is primarily an increases in labor costs year-over-year.

NA Cabinet Components

Three Months Ended July 31,

2024 2023 $ Change Variance %

(Dollars in thousands)

Net sales $ 51,448 $ 55,385 $ (3,937) (7)%

Cost of sales (excluding depreciation and amortization) 42,911 44,935 (2,024) (5)%

Selling, general and administrative 5,162 5,095 67 1%

Depreciation and amortization 3,093 3,084 9 —%

Operating income $ 282 $ 2,271 $ (1,989) (88)%

Operating income margin 1 % 4 %

N et sales decreased $3.9 million, or 7%, for the three months ended July 31, 2024 compared to the same period in 2023, which was driven by a $4.6 million decrease in volumes due to softer market demand driven by weaker consumer confidence partially offset by a $0.7 million increase in price and raw material surcharges.

Cost of Sales .

Cost of sales decreased $2.0 million, or 5%, for the three months ended July 31, 2024 compared to the same period in 2023.

Cost of sales decreased primarily due to lower volumes partially offset by lumber price inflation during the period.

Selling, General and Administrative .

Selling, general and administrative expense remained flat for the three months ended July 31, 2024 compared to the same period in 2023.

Unallocated Corporate & Other

Three Months Ended July 31,

Three Months Ended January 31,

2025 2024 $ Change Variance %

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Operating loss $ (3,882) $ (3,797) $ (85) 2%

Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the three months ended July 31, 2024 and 2023.

Cost of Sales .

Cost of sales for Unallocated Corporate & Other consists of the elimination of inter-segment sales, profit in inventory, and other costs.

Selling, General and Administrative .

Selling, general and administrative expenses increased $3.9 million, or 125%, for the three months ended July 31, 2024 compared to the same period in 2023.

This increase is primarily attributable to a $5.6 increase in transaction and advisory fees partially offset by lower compensation expense including the valuations of our stock-based compensation awards during the three months ended July 31, 2024 as compared to the prior year period.

Changes related to Non-Operating Items:

Interest Exp ense .

Interest expense decreased $1.2 million for the three months ended July 31, 2024 compared to the same period in 2023 as a result of lower borrowings outstanding during the three months ended July 31, 2024 as compared to the prior year period.

Income Taxes .

We recorded income tax expense of $6.7 million on pre-tax income of $32.0 million for the three months ended July 31, 2024, an effective rate of 20.9%, and income tax expense of $4.1 million on pre-tax income of $35.8 million for the three months ended July 31, 2023, an effective rate of 11.5%.

The increase in the effective tax rate year-over-year was primarily driven by an increase in non-deductible permanent differences.

Nine Months Ended July 31, 2024 Compared to Nine Months Ended July 31, 2023

Nine Months Ended July 31,

2024 2023 Change $ % Variance

(Dollars in thousands)

Net sales $ 785,701 $ 835,091 $ (49,390) (6) %

Cost of sales (excluding depreciation and amortization) 597,127 637,586 (40,459) (6) %

Selling, general and administrative 103,579 94,631 8,948 9 %

Depreciation and amortization 32,999 31,672 1,327 4 %

Operating income 51,996 71,202 (19,206) (27) %

Interest expense (2,896) (6,571) 3,675 (56) %

Other, net 10,520 591 9,929 1,680 %

Income tax expense (12,644) (10,103) (2,541) 25 %

Net income $ 46,976 $ 55,119 $ (8,143) (15) %

Our period-over-period results by reportable segment follow.

Changes Related to Operating Income by Reportable Segment:

NA Fenestration

Nine Months Ended July 31,

2024 2023 $ Change % Variance

(Dollars in thousands)

Net sales $ 478,027 $ 487,036 $ (9,009) (2)%

Cost of sales (excluding depreciation and amortization) 370,930 382,315 (11,385) (3)%

Selling, general and administrative 46,558 41,707 4,851 12%

Depreciation and amortization 15,887 15,328 559 4%

Operating income $ 44,652 $ 47,686 $ (3,034) (6)%

Operating income margin 9 % 10 %

Net sales decreased $9.0 million, or 2%, for the nine months ended July 31, 2024 compared to the same period in 2023, which was primarily driven by a $10.5 million decrease in volumes mainly due to softer market demand driven by weaker consumer confidence partially offset by a $1.5 million increase in price and raw material indexes.

Cost of Sales.

The cost of sales decreased $11.4 million, or 3%, for the nine months ended July 31, 2024 as compared to the same period in 2023.

Cost of sales, including labor, decreased primarily due to a decrease in volumes partially offset by inflation of raw materials during the period.

Se lling, General and Administrative.

S elling, general and administrative expenses increased $4.9 million, or 12%, for the nine months ended July 31, 2024 as compared to the same period in 2023.

The increase is primarily due to increases in labor costs and professional fees year-over-year.

EU Fenestration

Nine Months Ended July 31,

2024 2023 $ Change Variance %

(Dollars in thousands)

Net sales $ 165,637 $ 186,604 $ (20,967) (11)%

Cost of sales (excluding depreciation and amortization) 104,327 119,421 (15,094) (13)%

Selling, general and administrative 23,008 23,996 (988) (4)%

Depreciation and amortization 7,705 7,135 570 8%

Operating income $ 30,597 $ 36,052 $ (5,455) (15)%

Operating income margin 18 % 19 %

Net sales decreased $21.0 million, or 11%, comparing the nine months ended July 31, 2024 to the same period in 2023, which was primarily driven by a $18.4 million decrease in volumes largely due to softer market demand driven by weaker consumer confidence and $3.3 million of base price decreases, partially offset by $0.7 million benefit from foreign currency rate change.

Operating loss margin (9) % (9) %

Net sales increased $0.7 million, or 2%, for the three months ended January 31, 2025 compared to the same period in 2024, which was driven by a $2.1 million increase in raw material surcharges partially offset by a $1.4 million decrease in volumes due to softer market demand driven by weaker consumer confidence.

Cost of Sales .

The cost of sales decreased $15.1 million, or 13%, for the nine months ended July 31, 2024 compared to the same period in 2023.

Cost of sales decreased primarily due to a decrease in volumes and deflation in the price of raw materials, partially offset by foreign currency impacts.

Cost of sales increased $0.7 million, or 2%, for the three months ended January 31, 2025 compared with the same period in 2024.

Cost of sales increased primarily as a result of inflation of raw materials partially offset by lower volumes year-over-year.

Selling, General and Administrative .

Selling, general and administrative expense decreased $1.0 million, or 4%, for the nine months ended July 31, 2024 compared to the same period in 2023.

The decrease is primarily due to a decrease in professional fees and decrease in labor costs, year-over-year.

NA Cabinet Components

Nine Months Ended July 31,

2024 2023 $ Change Variance %

Selling, general and administrative expense increased $0.1 million, or 3%, for the three months ended January 31, 2025 compared to the same period in 2024.

This increase is primarily due to a decrease in labor costs and professional fees year-over-year.

The Tyman reportable segment is comprised solely of the business acquired on August 1, 2024.

For additional discussion of our acquisition of Tyman, see Note 2, “Acquisition.” The results for the three months ended January 31, 2025 are summarized in the following table (including the effect of the amortization of the step-up of inventory of approximately $9.0 million and $7.9 million of reorganization charges incurred to support the acquisition during the three months ended January 31, 2025 ):

Three Months Ended January 31, 2025

(Dollars in thousands)

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Selling, general and administrative 34,378

Restructuring charges 7,904

Depreciation and amortization 14,263

Operating (loss) income $ (3,209) $ 1,928 $ (5,137) (266)%

Operating (loss) income margin (2) % 1 %

Net sales decreased $17.9 million, or 11%, for the nine months ended July 31, 2024 compared to the same period in 2023, which was driven by an $11.8 million decrease in volumes due to softer market demand driven by weaker consumer confidence and a $6.1 million decrease in raw material surcharges.

Cost of Sales .

Cost of sales decreased $12.4 million, or 9%, for the nine months ended July 31, 2024 compared with the same period in 2023.

Cost of sales decreased primarily as a result of lower volumes year-over-year.

Selling, General and Administrative .

Selling, general and administrative expense decreased $0.6 million, or 4%, for the nine months ended July 31, 2024 compared to the same period in 2023.

This decrease is primarily due to a decrease in labor costs and professional fees year-over-year.

Operating loss $ (13,665)

Operating loss margin (8) %

Unallocated Corporate & Other

Nine Months Ended July 31,

Three Months Ended January 31,

2025 2024 $ Change Variance %

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Operating loss $ (3,588) $ (3,959) $ 371 (9)%

Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the nine months ended July 31, 2024 and 2023.

Net sales for Unallocated Corporate & Other represents the elimination of inter-segment sales for the three months ended January 31, 2025 and 2024.

Cost of Sales .

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Selling, General and Administrative .

Selling, general and administrative expenses increased $5.7 million, or 44%, for the nine months ended July 31, 2024 compared to the same period in 2023.

This increase is primarily attributable to a $7.4 million increase in transaction and advisory fees and an increase in medical claims expense partially offset by lower compensation expense including the valuations of our stock-based compensation awards during the nine months ended July 31, 2024 as compared to the prior year period.

Selling, general and administrative expenses decreased $0.6 million, or 18%, for the three months ended January 31, 2025 compared to the same period in 2024.

This decrease is primarily attributable to a lower compensation expense including the valuations of our stock-based compensation awards partially offset by reorganization costs during the three months ended January 31, 2025 as compared to the prior year period.

Changes related to Non-Operating Items:

Interest Exp ense .

Interest expense decreased $3.7 million for the nine months ended July 31, 2024 compared to the same period in 2023 primarily as a result of lower borrowings outstanding during the nine months ended July 31, 2024 as compared to the prior year period.

Interest expense increased $13.1 million for the three months ended January 31, 2025 compared to the same period in 2024 primarily as a result of higher borrowings outstanding during the three months ended January 31, 2025 as compared to the prior year period.

Income Taxes .

We recorded income tax expense of $12.6 million on pre-tax income of $59.6 million for the nine months ended July 31, 2024, an effective rate of 21.2%, and income tax expense of $10.1 million on a pre-tax income of $65.2 million for the nine months ended July 31, 2023, an effective rate of 15.5%.

The increase in the effective tax rate year-over-year was primarily driven by an increase in non-deductible permanent differences.

We recorded income tax benefit of $5.1 million on pre-tax loss of $19.9 million for the three months ended January 31, 2025, an effective rate of 25.3%, and income tax expense of $1.6 million on a pre-tax income of $7.9 million for the three months ended January 31, 2024, an effective rate of 20.8%.

The increase in the effective tax rate year-over-year was primarily driven by a reduction in tax credits and tax deductions.

Liquidity and Capital Resources

Historically, our principal sources of funds have been cash on hand, cash flow from operations, and borrowings under our credit facilities.

We maintain a $325.0 million revolving credit facility (the Existing Credit Agreement) that matures in 2027 (5-year term) and requires interest payments calculated at a variable market rate depending upon our Consolidated Net Leverage Ratio.

The applicable rate during the nine months ended July 31, 2024 was RFR Rate + 1.25%.

Our cost of capital could increase depending upon the Consolidated Net Leverage Ratio at the end of any given quarter.

In addition to the Con solidated Net Leverage Ratio covenant, we are required to meet a Consolidated Interest Coverage Ratio covenant, and there are limitations on certain transactions including our ability to incur indebtedness, incur liens, dispose of material assets, acquire businesses, make restricted payments and pay dividends (limited to $25.0 million per year).

We are amortizing deferred financing fees of $0.9 million straight-line over the remaining term of the facility.

For further details of the Existing Credit Agreement , refer to Note 6, “Debt and Finance Lease Obligations” to the accompanying unaudited condensed consolidated financial statements contained elsewhere herein.

Historic ally, our principal sources of funds have been cash on hand, cash flow from operations, and borrowings under our credit facilities.

On June 12, 2024, in connection with the Tyman Acquisition, the Company, Wells Fargo Bank, National Association (“Wells Fargo Bank”, acting as agent, swingline lender and issuing lender, the “Agent”), the other entities therein specified in the capacities therein specified, and the lenders parties thereto, entered into an amendment to the Second Amended and Restated Credit Agreement, dated as of July 6, 2022 (the “Existing Credit Agreement”, and the Existing Credit Agreement as so amended, the “Amended Credit Agreement”).

The Amended Credit Agreement did not become effective until August 1, 2024 upon the completion the Tyman Acquisition.

For further information regarding the Tyman Acquisition and the Amended Credit Agreement, refer to Note 16, “Subsequent Events.”

The Amended Credit Agreement will (i) increase the senior secured revolving credit facility to an aggregate principal amount of $475 million (the “Revolving Credit Facility”) and (ii) provide for a senior secured term loan A facility in an aggregate principal amount of $500 million (the “Term A Facility” and together with the Revolving Credit Facility, the “Facilities”).

The Revolving Credit Facility will include alternative currency, letter of credit, and swing-line sub-facilities of $100 million, $30 million, and $15 million, respectively.

The Amended Credit Agreement became effective on August 1, 2024 upon the completion of the Tyman Acquisition.

The Amended Credit Agreement (i) increased the senior secured revolving credit facility to an aggregate principal amount of $475 million (the “Revolving Credit Facility”) and (ii) provides for a senior secured term loan A facility in an aggregate principal amount of $500 million (the “Term A Facility” and together with the Revolving Credit Facility, the “Facilities”).

The Revolving Credit Facility includes alternative currency, letter of credit, and swing-line sub-facilities of $100 million, $30 million, and $15 million, respectively.

We capitalized $13.8 million of deferred financing fees related to the Amended Credit Agreement.

The maturity date of the Facilities will be five years after the acquisition effective date, maturing on August 1, 2029.

As of July 31, 2024, we had $94.0 million of cash and equivalents, zero outstanding under the Existing Credit Agreement , $3.7 million of outstanding letters of credit and $55.0 million outstanding under finance leases and other debt.

The Term A Facility amortizes on a quarterly basis at 5% per annum of the original principal amount of the Term A Facility, with the remainder due at maturity.

The Term A Facility must be prepaid with 100% of the net cash proceeds of the issuance or incurrence of debt and 100% of the net cash proceeds of all asset sales, insurance and condemnation recoveries, and other asset dispositions.

Borrowings under the Facilities bear interest, at our option, at (1) the Base Rate plus an applicable margin or (2) Adjusted Term SOFR plus an applicable margin.

The applicable margin will range from 1.0% to 1.75% for Base Rate loans and 2.0 to 2.75% for Adjusted Term SOFR loans.

In addition, we are subject to commitment fees for the unused portion of the Revolving Credit Facility.

As of January 31, 2025, we had $50.0 million of cash and equivalents, $705.0 million outstanding under the Facilities $6.0 million of outstanding letters of credit and $59.3 million outstanding under finance leases and other debt.

Of the $59.3 million outstanding under finance leases and other debt, $55.1 million relates to real estate leases.

We had $321.3 million available for use under the Existing Credit Agreement at July 31, 2024.

We had $251.5 million available for use under the Revolving Credit Agreement at January 31, 2025.

During December 2021, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to $75.0 million worth of shares of our common stock.

Repurchases under the program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors.

During the three months ended July 31, 2024, we did not purchase any shares under this program and as of July 31, 2024 we had a maximum of $62.8 million available to purchase shares under this program.

During the three months ended January 31, 2025, we purchased 150,000 shares under this program and as of January 31, 2025 we have a maximum of $59.1 million available to purchase shares under this program.

The program does not have an expiration date or a limit on the number of shares that may be purchased.

We repatriated $33.2 million and $30.2 million of f oreign cash during the nine months ended July 31, 2024 and 2023, respectively.

We repatriated $11.5 million and $3.6 million of f oreign cash during the three months ended January 31, 2025 and 2024, respectively.

We expect to repatriate excess cash moving forward and use the funds to retire debt or meet current working capital needs.

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Analysis of Cash Flow

The following table summarizes our cash flow results for the nine months ended July 31, 2024 and 2023:

Nine Months Ended

The following table summarizes our cash flow results for the three months ended January 31, 2025 and 2024:

Three Months Ended

(Dollars in thousands)

Cash provided by operating activities $ 83,333 $ 102,559

Cash (used for) provided by operating activities $ (12,510) $ 3,854

Cash used for investing activities $ (11,455) $ (9,549)

Cash (used for) provided by financing activities $ (25,456) $ 26,687

Operating A ctivities .

Cash provided by operating activities decreased $19.2 million for the nine months ended July 31, 2024 compared to the same period in 2023.

The decrease in operating cash flow is primarily due to a decrease in net income year-over-year and unfavorable changes to net working capital.

The unfavorable changes in working capital were largely driven by a decrease in cash inflows related to inventory in 2024 as compared to the prior year, partially offset by a decrease in income tax receivables.

Cash used for financing activities $ (21,972) $ (9,117)

Operating Activities .

Cash provided by operating activities decreased $16.4 million for the three months ended January 31, 2025 compared to the same period in 2024.

The decrease in operating cash flow is primarily due to a decrease in net income as a result of restructuring charges and amortization of inventory step-up charges related to the acquisition of Tyman, as well as year-over-year and unfavorable changes to net working capital.

Investing Activities.

Cash used for investing activities decreased $90.2 million for the nine months ended July 31, 2024 compared to the same period in 2023, primarily as a result of no business acquisitions during the nine months ended July 31, 2024 compared to the $91.3 million acquisition of LMI in the prior year period.

Cash used for investing activities increased $1.9 million for the three months ended January 31, 2025 compared to the same period in 2024, primarily as a result of an increase in capital expenditures during the three months ended January 31, 2025 compared to the prior year period.

Financing Activities.

Cash used for financing activities was $25.5 million for the nine months ended July 31, 2024 compared to cash provided by financing activities of $26.7 million for the same period in 2023.

The change in investing cash flows is primarily as a result of a decrease in net borrowings of long-term debt partially offset by a decrease in the purchase of treasury shares.

Cash used for financing activities increased $12.9 million for the three months ended January 31, 2025 compared to the same period in 2024.

The change in investing cash flows is primarily as a result of an increase in the repayment of long-term debt and the purchase of treasury shares.

Liquidity Requirements

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Other uses of cash include paying cash dividends to our shareholders and repurchasing our common stock.

During the nine months ended July 31, 2024 and 2023, we repatriated $33.2 million and $30.2 million, respectively, of foreign earnings from our foreign locations.

We maintain cash balances in foreign countries which total $16.0 million as of July 31, 2024.

During the three months ended January 31, 2025 and 2024, we repatriated $11.5 million and $3.6 million, respectively, of foreign earnings from our foreign locations.

We maintain cash balances in foreign countries which total $37.3 million as of January 31, 2025.

Critical Accounting Policies and Estimates

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For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2024.

Our critical accounting policies and estimates have not changed materially during the nine months ended July 31, 2024.

Our critical accounting policies and estimates have not changed materially during the three months ended January 31, 2025.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standards setting bodies that we adopt as of the specified effective date.

We did not adopt any new accounting pronouncements during the three and nine months ended July 31, 2024.

We did not adopt any new accounting pronouncements during the three months ended January 31, 2025.

Accounting Standards Not Yet Adopted

In November 2023, the FASB issued “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted.

The guidance is to be applied retrospectively to all prior periods presented in the financial statements.

In November 2024, the FASB issued “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses,” which requires expanded disclosures of expense information, including the amounts of inventory purchases, employee compensation, depreciation and amortization within commonly presented expense captions during the period.

The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted.

The amendments should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date or (2) retrospectively to any or all prior periods presented in the financial statements.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

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We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

In November 2023, the FASB issued “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted.

The guidance is to be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

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