What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 119 added, 58 removed, 129 unchanged (58% of the section changed)

19 unchanged sentences

We evaluate segment performance and allocate resources based on several factors primarily based on sales and net income.

The following discussion describes our results of operations for the three months ended March 31, 2024 and 2023.

The following discussion describes our results of operations for the three and six months ended June 30, 2024 and 2023.

Our consolidated financial statements are prepared in conformity with United States ("U.S.") generally accepted accounting principles ("GAAP").

Our discussions of the financial results include non-GAAP measures (e.g., foreign currency impact) to provide additional information concerning our financial results and provide information that we believe is useful to the readers of our financial statements in the assessment of our performance and operating trends.

Net sales of $140.9 million decreased $40.9 million for the three months ended March 31, 2024 year-over-year.

Net sales of $138.7 million decreased $43.1 million for the three months ended June 30, 2024 year-over-year and net sales of $279.6 million decreased $84.0 million for the six months ended June 30, 2024 year-over-year, mainly due to the elevated inventory levels at PLP-USA communications markets' customers and distributors.

The inflationary headwinds we experienced in 2022 and early 2023 related to raw materials, specifically plastic resins, aluminum and sand (grit), have generally subsided.

Costs related to shipping and freight have similarly fallen from their 2022 peak.

While decreases in these underlying costs along with the impacts of our previous price increases benefited gross margins in 2023, they have not meaningfully impacted first quarter 2024 results.

Decreases in these underlying costs along with the impacts of our previous price increases benefited gross margins in 2023 and have not meaningfully impacted the results for the second quarter or six months ended June 30, 2024.

If inflationary pressures increase again, it may require further price adjustments to maintain profit margin, and any price increases may have a negative effect on demand.

Our financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S.

PLPC’s foreign currency impacts were primarily related to translating into U.S.

dollars its foreign currency denominated loans, trade receivables and royalty receivables from its foreign subsidiaries at the March 31, 2024 exchange rates.

The fluctuations of foreign currencies during the three months ended March 31, 2024 had a favorable impact on net sales of $0.7 million and an unfavorable impact of $4.6 million during the three months ended March 31, 2023.

The effect of currency translation had a de minimis impact on net income and an unfavorable impact of $0.2 million for the three months ended March 31, 2024 and 2023, respectively.

On a reportable segment basis, the impact of foreign currency translation on net sales and net income for the three months ended March 31, 2024 and 2023, respectively, was as follows:

The fluctuations of foreign currencies during the three and six months ended June 30, 2024 had a unfavorable impact on net sales of $1.1 million and $0.3 million, respectively.

The fluctuations on foreign currencies during the three and six months ended June 30, 2024 had a de minimis impact on net income.

The fluctuations of foreign currencies during the three and six months ended June 30, 2023 had an unfavorable impact on net sales of $2.5 million and $7.1 million, respectively.

The fluctuations on foreign currencies during the three and six months ended June 30, 2023 had an unfavorable impact on net income of $0.4 million and $0.6 million, respectively.

On a reportable segment basis, the impact of foreign currency translation on net sales and net income for the three and six months ended June 30, 2024, was as follows:

Foreign Currency Translation Impact

Net Income (Loss)

Three Months Ended June 30, 2024

Six Months Ended June 30, 2024

(Thousands of dollars)

Although we experienced market headwinds that have impacted our first quarter 2024 results, we believe our business portfolio and our financial position are sound and strategically well-positioned.

Although elevated inventory levels in the PLP-USA communications markets and other market headwinds have impacted our first half 2024 results, we believe our business portfolio and our financial position are sound and strategically well-positioned.

We remain focused on assessing our global market opportunities and overall manufacturing capacity in conjunction with the requirements of local manufacturing in the markets that we serve.

As necessary, we will modify redundant processes and further utilize our global manufacturing network to manage costs, increase sales volume and deliver value to our customers.

Period cost containment has been a priority for the Company in 2024, shown through a reduction in costs and expenses of nearly 13%.

Period cost containment has been a priority for the Company in 2024, shown through a reduction in costs and expenses of 13% for the six months ended June 30, 2024.

We have continued to invest in the business to expand into new markets for the Company, evaluate strategic mergers and acquisitions, improve efficiency, develop new products and increase our capacity.

As of March 31, 2024, our liquidity remains strong and our bank debt to equity percentage was 13.7%.

We can borrow needed funds at a competitive interest rate under our credit facility.

As of June 30, 2024, our liquidity remains strong with our bank debt to equity percentage at 9.2%.

We can borrow needed funds at a competitive interest rate under the Facility.

RESULTS OF OPERATIONS

The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the three months ended March 31, 2024 and 2023.

THREE MONTHS ENDED JUNE 30, 2024 COMPARED TO THREE MONTHS ENDED JUNE 30, 2023

The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the three months ended June 30, 2024 and 2023.

The Company’s past operating results are not necessarily indicative of future operating results.

Three Months Ended March 31,

Three Months Ended June 30,

(Thousands of dollars)

2 unchanged sentences

OPERATING INCOME

Other expense, net

INCOME BEFORE INCOME TAXES

Net (income) loss attributable to noncontrolling interests

NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS

In 2024, net sales were $138.7 million, a decrease of $43.1 million, or 24%, compared to 2023.

Excluding the effect of currency translation, net sales decreased 23% as summarized in the following table:

Three Months Ended June 30,

(Thousands of dollars)

The decrease in PLP-USA net sales of $37.1 million, or 38%, was primarily due to lower volumes and unfavorable product mix in communications sales and energy product sales.

International net sales for the three months ended June 30, 2024 were unfavorably affected by $1.1 million when local currencies were converted to U.S.

The following discussion of changes in net sales excludes the effect of currency translation.

The Americas net sales of $21.8 million increased $0.7 million, or 3%, primarily due to higher volumes

in energy product sales.

EMEA net sales of $32.0 million decreased $5.3 million, or 14%, primarily due to lower volume in communications sales.

Asia-Pacific net sales of $25.0 million decreased $0.4 million, or 1%, primarily due to lower volumes in special industries.

Gross profit.

Gross profit of $44.3 million for 2024 decreased $22.1 million, or 33%, compared to 2023.

Excluding the effect of currency translation, gross profit decreased $21.8 million, or 33%, as summarized in the following table:

Three Months Ended June 30,

(Thousands of dollars)

PLP-USA gross profit of $20.7 million decreased by $20.5 million, or 50%, compared to the same period in 2023, primarily due to lower sales volumes and unfavorable product mix.

International gross profit for the period ended June 30, 2024 was unfavorably impacted by $0.3 million when local currencies were translated to U.S.

The following discussion of gross profit changes excludes the effects of currency translation.

The Americas gross profit decreased $1.4 million, or 17%, which was primarily the result of unfavorable product mix and higher manufacturing costs.

EMEA gross profit decreased $0.2 million, or 2%, primarily due to lower sales volumes, partially offset by a reduction in warranty expense.

Asia-Pacific gross profit increased $0.3 million, or 4%, which was primarily driven by favorable product mix.

Costs and expenses.

Costs and expenses of $33.0 million for the three months ended June 30, 2024 decreased $5.2 million, or 14%, when compared to 2023.

Excluding the effect of currency translation, costs and expenses decreased $4.9 million, or 13%, as summarized in the following table:

Three Months Ended June 30,

(Thousands of dollars)

Costs and expenses

PLP-USA costs and expenses of $16.9 million decreased $3.5 million, or 17% year-over-year.

PLP-USA’s decrease was primarily attributable to lower selling costs and lower personnel and professional services costs, primarily as a result of cost containment efforts.

International costs and expenses for the three months ended June 30, 2024 were unfavorably impacted by $0.3 million when local currencies were translated to U.S.

The following discussion of costs and expenses excludes the effect of currency translation.

The Americas costs and expenses of $4.6 million decreased $0.3 million primarily due to lower selling, general, and administrative costs.

EMEA costs and expenses of $5.4 million decreased by $1.4 million primarily due to elevated past-due receivable collections which reduced bad debt expenses.

Asia-Pacific costs and expenses of $6.0 million increased $0.3 million due to the impact of foreign currency remeasurement.

Other expense, net.

Other expense, net of $0.1 million for the three months ended June 30, 2024 was favorable by $0.5 million when compared to Other expense, net for the three months ended June 30, 2023 of $0.6 million.

The favorable movement was due to lower interest expense from reduced debt balances and higher interest income earned on cash balances in certain international jurisdictions for the three months ended June 30, 2024.

Income taxes.

Income taxes for the three months ended June 30, 2024 and 2023 were $1.8 million and $7.1 million based on pre-tax income of $11.2 million and $27.5 million, respectively.

The tax rate for the three months ended June 30, 2024 and 2023 was 16% and 26%, respectively.

The effective tax rate for the three months ended June 30, 2024 was lower than the effective tax rate for the same period in 2023 mainly due to discrete benefits recorded as a result of amending prior year federal tax returns.

As a result of the preceding items, net income for the three months ended June 30, 2024 was $9.4 million, compared to $20.5 million for 2023.

Excluding the effect of currency translation, net income decreased $11.1 million as summarized in the following

The decrease in net income was due to decreases in operating income described above, partially offset by lower interest expense and lower tax expense:

Three Months Ended June 30,

(Thousands of dollars)

Net income (loss)

SIX MONTHS ENDED JUNE 30, 2024 COMPARED TO SIX MONTHS ENDED JUNE 30, 2023

The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the six months ended June 30, 2024 and 2023.

The Company’s past operating results are not necessarily indicative of future operating results.

Six Months Ended June 30,

(Thousands of dollars)

Cost of products sold

Costs and expenses

OPERATING INCOME

Other income (expense), net

4 unchanged sentences

Excluding the effect of currency translation, net sales decreased 23% as summarized in the following table:

Three Months Ended March 31,

Six Months Ended June 30,

(Thousands of dollars)

The decrease in PLP-USA net sales of $26.4 million, or 27%, was primarily due to lower volumes and unfavorable product mix in communications sales and lower volumes in energy product sales.

International net sales for the three months ended March 31, 2024 were favorably affected by $0.7 million when local currencies were converted to U.S.

The decrease in PLP-USA net sales of $63.5 million, or 33%, was primarily due to lower volumes and unfavorable product mix in communications sales and energy product sales.

International net sales for the six months ended June 30, 2024 were unfavorably affected by $0.3 million when local currencies were converted to U.S.

The following discussion of changes in net sales excludes the effect of currency translation.

The Americas net sales of $18.4 million decreased $5.0 million, or 22%, primarily due to lower volumes in communications sales.

EMEA net sales of $28.7 million decreased $11.2 million, or 29%, primarily due to

lower volume predominately in communications sales and to a lesser extent energy products sales.

Asia-Pacific net sales of $23.2 million increased $1.0 million, or 4%, primarily due to volume increases in energy product sales.

The Americas net sales of $40.2 million decreased $4.3 million, or 10%, primarily due to lower volumes in communications sales, partially offset by increased volumes in energy product sales.

EMEA net sales of $60.7 million decreased $16.5 million, or 22%, primarily due to lower volume in communications sales, partially offset by increased volumes in energy product sales.

Asia-Pacific net sales of $48.1 million increased $0.6 million, or 1%, primarily due to volume increases in energy product and special industries sales.

Gross profit.

1 unchanged sentence

Excluding the effect of currency translation, gross profit decreased $44.1 million, or 33%, as summarized in the following table:

Three Months Ended March 31,

Six Months Ended June 30,

(Thousands of dollars)

PLP-USA gross profit of $45.4 million decreased by $37.9 million, or 45%, compared to the same period in 2023, primarily due to lower sales volumes and unfavorable product mix.

International gross profit for the period ended March 31, 2024 was favorably impacted by $0.2 million when local currencies were translated to U.S.

International gross profit for the period ended June 30, 2024 was unfavorably impacted by $0.1 million when local currencies were translated to U.S.

The following discussion of gross profit changes excludes the effects of currency translation.

1 unchanged sentence

EMEA gross profit decreased $1.3 million, or 7%, primarily due to lower sales volumes, partially offset by favorable resolution of a warranty claim.

Asia-Pacific’s gross profit decreased $0.6 million, or 8%, which was primarily driven by higher manufacturing costs.

Asia-Pacific gross profit decreased $0.3 million, or 2%, which was primarily driven by higher manufacturing costs, partially offset by favorable product mix.

Costs and expenses.

Costs and expenses of $32.6 million for the three months ended March 31, 2024 decreased $4.7 million, or 13%, when compared to 2023.

Costs and expenses of $65.6 million for the six months ended June 30, 2024 decreased $9.9 million, or 13%, when compared to 2023.

Excluding the effect of currency translation, costs and expenses decreased $9.9 million, or 13%, as summarized in the following table:

Three Months Ended March 31,

Six Months Ended June 30,

(Thousands of dollars)

1 unchanged sentence

PLP-USA costs and expenses of $35.1 million decreased $5.3 million, or 13% year-over-year.

PLP-USA’s decrease was primarily attributable to lower sales, personnel and professional services costs.

International costs and expenses for the three months ended March 31, 2024 were unfavorably impacted by $0.3 million when local currencies were translated to U.S.

PLP-USA’s decrease was primarily attributable to lower selling costs and lower personnel and professional services costs, primarily as a result of cost containment efforts.

International costs and expenses for the six months ended June 30, 2024 had a de minimis impact when local currencies were translated to U.S.

The following discussion of costs and expenses excludes the effect of currency translation.

The Americas costs and expenses of $4.7 million decreased $1.0 million primarily due to lower sales and personnel-related costs.

EMEA costs and expenses of $6.2 million decreased by $0.7 million primarily due to lower sales-related and bad debt expenses.

The Americas costs and expenses of $9.4 million decreased $1.3 million primarily due to lower sales and the impact of foreign currency remeasurement.

EMEA costs and expenses of $11.5 million decreased by $2.1 million primarily due to lower sales-related costs and bad debt expenses.

Asia-Pacific costs and expenses of $9.6 million decreased $1.3 million primarily due to a one-time gain on the sale of capital assets.

Other (expense) income, net.

Other income, net of $0.3 million for the three months ended March 31, 2024 was favorable by $1.0 million when compared to Other expense, net for the three months ended March 31, 2023 of $0.7 million.

The favorable movement was due to higher interest income earned on cash balances in certain international jurisdictions and lower interest expense from reduced debt balances for the three months ended March 31, 2024.

Other income (expense), net.

Other income, net of $0.2 million for the six months ended June 30, 2024 was favorable by $1.5 million when compared to Other expense, net for the six months ended June 30, 2023 of $1.3 million.

Income taxes.

Income taxes for the three months ended March 31, 2024 and 2023 were $2.3 million and $6.8 million based on pre-tax income of $11.9 million and $28.3 million, respectively.

The tax rate for the three months ended March 31, 2024 and 2023 was 19% and 24%, respectively.

The effective tax rate for the three months ended March 31, 2024 was lower than the effective tax rate for the same period in 2023 mainly due to an increase in excess tax benefits on share-based compensation in relation to overall lower pre-tax book income.

As a result of the preceding items, net income for the three months ended March 31, 2024 was $9.6 million, compared to $21.4 million for 2023.

Income taxes for the six months ended June 30, 2024 and 2023 were $4.0 million and $13.9 million based on pre-tax income of $23.0 million and $55.8 million, respectively.

The tax rate for the six months ended June 30, 2024 and 2023 was 18% and 25%, respectively.

The effective tax rate for the six months ended June 30, 2024 was lower than the effective tax rate for the same period in 2023 mainly due to an increase in excess tax benefits on share-based compensation in relation to overall lower pre-tax book income as well as other discrete benefits recorded as a result of amending prior year federal tax returns.

As a result of the preceding items, net income for the six months ended June 30, 2024 was $19.0 million, compared to $41.9 million for 2023.

Excluding the effect of currency translation, net income decreased $22.9 million as summarized in the following

The decrease in net income was due to decreases in operating income described above, partially offset by higher interest income, lower interest expense, and lower tax expense:

Three Months Ended March 31,

Six Months Ended June 30,

(Thousands of dollars)

7 unchanged sentences

Our investments include expenditures required for equipment and facilities as well as expenditures in support of our strategic initiatives.

During the first three months of 2024, we used cash of $3.9 million for capital expenditures.

We ended the first three months of 2024 with $45.9 million of cash, cash equivalents and restricted cash (collectively, “Cash”).

During the first six months of 2024, we used cash of $7.6 million for capital expenditures.

We ended the first six months of 2024 with $47.4 million of cash, cash equivalents and restricted cash (collectively, “Cash”).

Our Cash is held in various locations throughout the world.

At March 31, 2024, the majority of our Cash was held outside the U.S.

At June 30, 2024, the majority of our Cash was held outside the U.S.

We expect most accumulated non-U.S.

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We currently have not identified any potential material impact on our liquidity from customer credit issues.

Total debt, including notes payable, at March 31, 2024 was $56.5 million.

At March 31, 2024, our unused availability under our credit facility (the "Facility") was $55.0 million and our bank debt to equity percentage was 13.7%.

Total debt, including notes payable, at June 30, 2024 was $38.6 million.

At June 30, 2024, our unused availability under our credit facility (the "Facility") was $73.6 million and our bank debt to equity percentage was 9.2%.

The Facility contains, among other provisions, requirements for maintaining levels of net worth and profitability.

At March 31, 2024, the Company was in compliance with these covenants.

Our Asia-Pacific segment had $0.2 million in restricted cash for both periods ended March 31, 2024 and December 31, 2023.

The restricted cash was used to secure bank debt and is included in Cash, cash equivalents and restricted cash on the Consolidated Balance Sheets.

At June 30, 2024, the Company was in compliance with these covenants.

Our Asia-Pacific segment had $0.1 million and $0.2 million in restricted cash for the periods ended June 30, 2024 and December 31, 2023, respectively.

The restricted cash was used to secure bank guarantees and is included in Cash, cash equivalents and restricted cash on the Consolidated Balance Sheets.

On January 19, 2021, the Company received funding for a term loan from PNC Equipment Finance, LLC in the principal amount of $20.5 million for the full amount of the purchase price for a new corporate aircraft.

1 unchanged sentence

The loan is payable in 119 equal monthly installments, which commenced on March 1, 2021 with a final payment of any outstanding principal and accrued interest due and payable on the final monthly payment date.

Of the $14.2 million outstanding on this debt facility at March 31, 2024, $2.1 million was classified as current.

Of the $13.7 million outstanding on this debt facility at June 30, 2024, $2.1 million was classified as current.

The loan is secured by the aircraft.

7 unchanged sentences

Sources and Uses of Cash

Net cash provided by operating activities for the three months ended March 31, 2024 was $5.8 million compared to $25.4 million in the comparable prior year three-month period.

Net cash provided by operating activities for the six months ended June 30, 2024 was $34.0 million compared to $45.9 million in the comparable prior year six-month period.

The $11.9 million decrease was primarily a result of a decrease in net income and larger payables balances, which outpaced increases in current assets, primarily accounts receivable, inventory and prepaid expenses.

Net cash used in investing activities for the three months ended March 31, 2024 was $0.7 million compared to $22.3 million in the comparable prior year three-month period.

Net cash used in investing activities for the six months ended June 30, 2024 was $4.3 million compared to $29.1 million in the comparable prior year six-month period.

The $24.8 million change was primarily a result of decreases in acquisition activity and capital expenditures during the current period.

Net cash used in financing activities for the three months ended March 31, 2024 was $11.7 million compared to $9.3 million in the comparable prior year three-month period.

The $2.4 million change was primarily the result of an increase in payments on notes payable to banks and repurchases of Company shares.

Net cash used in financing activities for the six months ended June 30, 2024 was $33.5 million compared to $11.7 million in the comparable prior year six-month period.

The $21.8 million change was primarily the result of increased net payments of long-term debt.

We have commitments under operating leases primarily for office and manufacturing space, transportation equipment, office and computer equipment and finance leases primarily for equipment.

At March 31, 2024, we had $1.5 million of current operating lease liabilities and $7.4 million of noncurrent operating lease liabilities.

Total liabilities related to finance lease obligations were less than $0.4 million at March 31, 2024.

As of March 31, 2024, the Company had total outstanding guarantees of $13.6 million.

At June 30, 2024, we had $1.6 million of current operating lease liabilities and $7.0 million of noncurrent operating lease liabilities.

Total liabilities related to finance lease obligations were less than $0.7 million at June 30, 2024.

As of June 30, 2024, the Company had total outstanding guarantees of $12.9 million.

Additionally, certain domestic and foreign customers require the Company to issue letters of credit or performance bonds as a condition of placing an order.

As of March 31, 2024, the Company had total outstanding letters of credit of $0.9 million.

As of June 30, 2024, the Company had total outstanding letters of credit of $0.9 million.

The Company has borrowing facilities at certain of its foreign subsidiaries, which consist of overdraft lines, working capital credit lines, and facilities for the issuance of letters of credit and short-term borrowing needs.

At March 31, 2024 and December 31, 2023, $7.3 million and $13.3 million was outstanding, of which $6.5 million and $11.4 million were classified as current, respectively.

At June 30, 2024, and December 31, 2023, $8.5 million and $13.3 million was outstanding, of which $7.7 million and $11.4 million were classified as current, respectively.

These facilities support commitments made in the ordinary course of business.

24 unchanged sentences

• Strikes, labor disruptions and other fluctuations in labor costs;

• Changes in significant government regulations affecting environmental compliance or other litigation matters;

• Changes in significant government regulations affecting environmental or other compliance or litigation matters;

• Security breaches or other disruptions to the Company’s information technology structure;

3 unchanged sentences

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