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Item 2. Management’s Discussion and Analysis

2025-11-04 compared with 2025-08-07 · 81 added, 74 removed, 134 unchanged (54% of the section changed)

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

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company's results of operations, as well as liquidity and capital resources for the quarters ended June 30, 2025 and 2024.

The MD&A should be read in conjunction with the Company's consolidated financial statements and notes included in Item 1 of this Quarterly Report.

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Macroeconomic Events

As a company with a global presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, geopolitical tensions, elevated interest rates, monetary policy changes, and foreign currency fluctuations.

The global business landscape continues to be shaped by volatility, including heightened uncertainty in trade policy.

As a company with a global presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, persistent geopolitical tensions, elevated interest rates, monetary policy changes, and foreign currency fluctuations.

The global business environment remains volatile and is currently being shaped by ongoing uncertainties, including evolving trade policy dynamics.

These trade dynamics are also contributing to competitive shifts within the market.

Previously implemented U.S.

tariffs and the potential for future actions could increase input costs, disrupt supply chains, and impact customer demand as end users absorb cost increases.

These trade dynamics may also create competitive shifts within the market.

Future policy changes or retaliatory measures could increase manufacturing costs and pressure pricing, potentially reducing product demand.

We are carefully monitoring these developments to assess potential impacts and will continue to adapt as the situation evolves.

tariffs and related actions have begun to increase input costs, disrupt supply chains, and affect customer demand as end users absorb higher costs.

Ongoing policy changes and retaliatory measures continue to pressure manufacturing costs and pricing, which in turn, are influencing product demand.

We are actively monitoring these developments and adapting our operations in response to the changing environment.

Demand trends across our key markets remain mixed.

In China, recovery is slow due to market saturation impacting product sales and driving pricing competition.

In other regions like Mexico, uncertainty and rising interest rates are leading to delayed spending decisions and increased rental solutions.

In Europe, heightened competitive pressures have tempered demand for our products.

In China, while some targeted stimulus measures have been introduced, the overall economic recovery remains uneven, with market saturation continuing to impact product sales and intensify pricing competition.

In other regions like Mexico, elevated interest rates and persistent inflationary pressures are contributing to continued economic uncertainty, leading to delayed capital expenditure decisions and a sustained preference for rental solutions.

In Europe, softening economic growth combined with heightened competitive pressures have tempered demand for our products.

To manage these challenges, we are focused on cost control, operational improvements, and diversifying sourcing.

We are taking proactive pricing actions alongside supply-chain initiatives to mitigate the impact of tariffs, although some margin pressure may persist as the full benefits of our cost-out and pricing initiatives are phased in, leading to a gradual improvement in margin rates.

We are taking proactive pricing actions alongside supply chain initiatives to mitigate the impact of tariffs and other inflationary pressures.

While some margin pressure may persist as the full benefits of our cost-out and pricing initiatives are phased in, we anticipate a gradual improvement in margin rates.

At the same time, we are adapting our product and service offerings to meet evolving customer needs, and continuing to invest in innovation to support long-term demand, while maintaining disciplined spending across the organization.

As described in Part I, Item 1A - Risk Factors in the annual report on Form 10-K for the fiscal year ended December 31, 2024, we may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn as our product sales are sensitive to declines in capital spending by our customers.

Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our future results of operations, financial position, or cash flows.

Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our

future results of operations, financial position, or cash flows.

Changes in foreign currency may also adversely impact our new sales, earnings, and financial condition.

We are actively monitoring the global macroeconomic

environment, including geopolitical conflict, the potential impact of global supply chain constraints on material inflation, and change in demand for our products.

Amid ongoing economic uncertainty, we are actively managing margins through market-based pricing actions and targeted supply-chain strategies, including supplier negotiations, dual sourcing, and logistics shifts to mitigate tariff-related cost inflation.

While timing mismatches between cost increases and realization of both price increases and cost-out initiatives may pressure margins in the near term, diligent management of both levers is crucial for sustained profitability.

We continuously strive to optimize our financial performance to achieve sustainable profitability and expand our margins.

The following table compares the results of operations for the three and six months ended June 30, 2025 and 2024, respectively (in millions, except per share data and percentages):

We are actively monitoring the global macroeconomic environment, including geopolitical conflict, the potential impact of global supply chain constraints on material inflation, and change in demand for our products.

Slower global growth and the uncertain effects of higher tariffs on our international and domestic trade are forcing us to aggressively manage our margins.

Our core strategy involves market-based pricing actions and targeted supply chain initiatives, including supplier negotiations, dual sourcing, and logistics shifts, which are critical to mitigating tariff-related cost inflation and other input cost pressures.

While near-term results may reflect timing mismatches between the realization of price increases, tariff impacts, and cost-out initiatives, which could pressure margins, our disciplined execution across pricing and cost management remains essential to sustaining profitability and driving long-term margin expansion.

The following table compares the results of operations for the three and nine months ended September 30, 2025 and 2024, respectively (in millions, except per share data and percentages):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2025 % 2024 % 2025 % 2024 %

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Net income per share - diluted $ 0.80 $ 1.09 $ 2.57 $ 4.03

Consolidated net sales for the second quarter of 2025 totaled $318.6 million, a 3.7% decrease as compared to consolidated net sales of $331.0 million in the second quarter of 2024.

Consolidated net sales for the third quarter of 2025 totaled $303.3 million, a 4.0% decrease as compared to consolidated net sales of $315.8 million in the third quarter of 2024.

The components of the consolidated net sales change were as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Price 2.8% 1.5%

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Total (4.0)% (4.8)%

The 3.7% decrease in consolidated net sales in the second quarter of 2025 as compared to the same period in 2024 was driven by:

• Organic sales decline of 4.5% was primarily due to volume declines across all geographies, particularly in North America, which was lapping a significant backlog-reduction benefit in the prior-year period, partly offset by price realization;

The 4.0% decrease in consolidated net sales in the third quarter of 2025 as compared to the same period in 2024 was driven by:

• Organic sales decline of 5.4% primarily due to volume declines in North America, which lapped a significant backlog-reduction benefit in the prior-year period, partly offset by price realization;

• A net favorable impact from foreign currency exchange of approximately 1.4% primarily due to the strengthening of the Euro relative to the U.S.

The 5.2% decrease in consolidated net sales in the first six months of 2025 as compared to the same period in 2024 was driven by:

• Organic sales decline of 4.7% was primarily due to volume declines across all geographies, particularly in North America, which was lapping a significant backlog-reduction benefit in the prior-year period, partly offset by price realization;

• A net unfavorable impact from foreign currency exchange of approximately 0.7%;

partly offset by

The 4.8% decrease in consolidated net sales in the first nine months of 2025 as compared to the same period in 2024 was driven by:

• Organic sales decline of 4.9% primarily due to volume declines across all geographies, particularly in North America, which lapped a significant backlog-reduction benefit in the prior-year period, partly offset by price realization;

• Acquisition-related growth of 0.1% driven by TCS.

The following table sets forth the net sales by geographic area for the three and six months ended June 30, 2025 and 2024 (in millions, except percentages):

The following table sets forth the net sales by geographic area for the three and nine months ended September 30, 2025 and 2024 (in millions, except percentages):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2025 2024 % Change 2025 2024 % Change

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Total $ 303.3 $ 315.8 (4.0) % $ 911.9 $ 957.8 (4.8) %

Americas net sales were $213.5 million for the second quarter of 2025, a decrease of 6.3% from the second quarter of 2024 driven by:

• Organic sales decline of 5.5% was driven by volume declines, particularly in North America industrial equipment, which was lapping a significant backlog reduction benefit in the prior year period, partly offset by price realization and volume increases in commercial equipment;

• A net unfavorable impact from foreign currency exchange of approximately 0.8%.

Americas net sales were $410.8 million for the first six months of 2025, a decrease of 7.4% from the first six months of 2024 driven by:

• Organic sales decline of 6.2% was driven by volume declines, particularly in North America industrial equipment, which was lapping a significant backlog reduction benefit in the prior year period, partly offset by volume increases in commercial equipment and price realization;

Americas net sales were $203.6 million for the third quarter of 2025, a decrease of 6.9% from the third quarter of 2024 driven by:

• Organic sales decline of 7.0% primarily due to volume declines in North America, a result of lapping a significant backlog-reduction benefit in the prior-year period, and the emerging trend of softening customer sentiment.

This was partially offset by price realization;

• A net favorable impact from foreign currency exchange of approximately 0.1%.

Americas net sales were $614.4 million for the first nine months of 2025, a decrease of 7.2% from the first nine months of 2024 driven by:

• Organic sales decline of 6.4% driven by volume declines, particularly in North America industrial equipment, which lapped a significant backlog-reduction benefit in the prior-year period, partly offset by price realization and volume increases in commercial equipment;

• A net unfavorable impact from foreign currency exchange of approximately 0.8%.

Europe, Middle East and Africa ("EMEA")

EMEA net sales were $84.7 million for the second quarter of 2025, an increase of 3.9% from the second quarter of 2024 driven by:

EMEA net sales were $80.5 million for the third quarter of 2025, an increase of 5.5% from the third quarter of 2024 driven by:

• A net favorable impact from foreign currency exchange of approximately 5.9%;

partly offset by

• Organic sales decline of 1.4% was primarily due to volume declines in Germany and the Middle East region, partly offset by volume increases in the UK and Iberia, and price realization.

EMEA net sales were $160.7 million for the first six months of 2025, an increase of 1.5% from the first six months of 2024 driven by:

• Organic sales decline of 0.4% primarily due to mixed regional performance with volume declines in certain markets, partly offset by volume increases in the UK and southern Europe, and price realization.

EMEA net sales were $241.2 million for the first nine months of 2025, an increase of 2.8% from the first nine months of 2024 driven by:

• A net favorable impact from foreign currency exchange of approximately 2.8%;

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partly offset by

• Organic sales decline of 0.4% was primarily due to volume declines in Germany and the Middle East region, partly offset by volume increases in the UK and Iberia, and price realization.

• Organic sales decline of 0.4% primarily due to mixed regional performance with volume declines in certain markets, partly offset by volume increases in the UK, and price realization.

Asia Pacific ("APAC")

APAC net sales were $20.4 million for the second quarter of 2025, a decrease of 6.0% from the second quarter of 2024 driven by:

• Organic sales decline of 5.0% driven primarily by decreased volumes in China, partly offset by increased equipment volume in Australia;

APAC net sales were $19.2 million for the third quarter of 2025, a decrease of 7.7% from the third quarter of 2024 driven by:

• Organic sales decline of 6.4% driven primarily by decreased commercial equipment volume in China and industrial equipment volume in South Korea;

• A net unfavorable impact from foreign currency exchange of approximately 1.3%.

APAC net sales were $37.1 million for the first six months of 2025, a decrease of 7.9% from the first six months of 2024 driven by:

• Organic sales decline of 6.2% driven primarily by decreased volumes in China, partly offset by increased equipment volume in Australia;

APAC net sales were $56.3 million for the first nine months of 2025, a decrease of 7.9% from the first nine months of 2024 driven by:

• Organic sales decline of 6.3% driven primarily by decreased commercial equipment volume in China and industrial equipment volume in South Korea;

• A net unfavorable impact from foreign currency exchange of approximately 1.6%.

Gross profit margin of 42.1% was 100 basis points lower in the second quarter of 2025 compared to the second quarter of 2024.

Gross profit margin of 41.8% was 180 basis points lower in the first six months of 2025 compared to first six months of 2024.

The margin rate decrease in both periods was primarily attributed to a shift in product and customer mix as well as ongoing inflation and lower productivity.

Gross profit margin of 42.7% was 30 basis points higher in the third quarter of 2025 compared to the third quarter of 2024.

The margin rate improved primarily due to strong price realization driven by strategic pricing actions, supplemented by additional tariff-related pricing adjustments.

This was partially offset by lower productivity.

Gross profit margin of 42.1% was 110 basis points lower in the first nine months of 2025 compared to the first nine months of 2024.

The margin rate decrease was primarily attributed to a shift in product and customer mix as well as ongoing inflation and lower productivity.

This was partly offset by price realization.

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Selling and Administrative Expense

Selling and administrative expense ("S&A expense") was $93.7 million for the second quarter of 2025, an increase of $0.8 million compared to the second quarter of 2024.

As a percentage of net sales, S&A expense for the second quarter of 2025 increased 130 basis points to 29.4% from 28.1% in the second quarter of 2024.

The S&A expense increase was driven by higher costs linked to our strategic investments, including Enterprise Resource Planning ("ERP") costs, and a bad debt charge.

This increase was partly offset by lower variable compensation expense and discretionary spending.

S&A expense was $184.4 million for the first six months of 2025, an increase of $1.6 million compared to the first six months of 2024.

As a percentage of net sales, S&A expense for the first six months of 2025 increased 180 basis points to 30.3% from 28.5% in the first six months of 2024.

The S&A expense increase was driven by higher costs linked to our strategic investments, including ERP costs and restructuring-related charges, and a bad debt charge, partly offset by lower variable compensation expense and discretionary spending.

Selling and administrative expense ("S&A expense") was $96.6 million for the third quarter of 2025, an increase of $3.9 million compared to the third quarter of 2024.

As a percentage of net sales, S&A expense for the third quarter of 2025 increased 240 basis points to 31.8% from 29.4% in the third quarter of 2024.

The increase in S&A expense was primarily driven by $6.7 million associated with our strategic investments, $5.3 million of legal contingency costs related to an intellectual property dispute, and $1.3 million in restructuring charges.

The increase was partially offset by cost savings realized through lower variable compensation and reduced payroll expense following the restructuring actions executed at the end of the prior year.

S&A expense was $281.0 million for the first nine months of 2025, an increase of $5.5 million compared to the first nine months of 2024.

As a percentage of net sales, S&A expense for the first nine months of 2025 increased 200 basis points to 30.8% from 28.8% in the first nine months of 2024.

The increase in S&A expense was primarily driven by $19.4 million related to our strategic investments, $5.7 million of legal contingency costs related to an intellectual property dispute, a bad debt charge of $2.5 million, and $2.5 million restructuring-related charges.

This was partially offset by lower variable compensation expense.

Research and Development Expense

Research and development expense ("R&D expense") was $9.8 million, or 3.1% of net sales, for the second quarter of 2025, with R&D expense as a percentage of net sales decreasing 30 basis points compared to the second quarter of 2024.

R&D expense was $19.5 million, or 3.2% of net sales, for the first six months of 2025, with R&D expense as a percentage of net sales decreasing 10 basis points compared to the first six months of 2024.

Research and development expense ("R&D expense") was $10.5 million, or 3.5% of net sales, for the third quarter of 2025, with R&D expense as a percentage of net sales increasing 20 basis points compared to the third quarter of 2024.

R&D expense was $30.0 million, or 3.3% of net sales, for the first nine months of 2025, with R&D expense as a percentage of net sales flat to the first nine months of 2024.

We continue to invest in developing innovative products and technologies at levels necessary to propel our technology and innovative leadership position and drive growth.

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Interest Expense, Net

Interest expense, net was $2.2 million in the second quarter of 2025 compared to $2.5 million in the second quarter of 2024.

The following table compares the debt levels, average interest rate, interest income and interest expense for the three and six months ended June 30, 2025 and 2024, respectively (in millions, except percentages):

Three Months Ended June 30, Six Months Ended June 30,

Interest expense, net was $2.4 million in the third quarter of 2025 compared to $2.7 million in the third quarter of 2024.

The following table compares the debt levels, average interest rate, interest income and interest expense for the three and nine months ended September 30, 2025 and 2024, respectively (in millions, except percentages):

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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Interest expense, net $ 2.4 $ 2.7 $ 6.9 $ 7.5

Our debt portfolio as of June 30, 2025 was comprised of debt predominately in U.S.

Our debt portfolio as of September 30, 2025 was comprised of debt predominately in U.S.

The Company manages its floating rate debt exposure using fixed rate interest rate swaps to reduce the Company's risk of the possibility of increased interest costs.

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Net Foreign Currency Transaction Loss

Net foreign currency transaction loss was $0.8 million in the second quarter of 2025 compared to a gain of $0.7 million in the second quarter of 2024.

Net foreign currency translation loss was $1.0 million in the first six months of 2025 compared to a gain of $0.5 million in the first six months of 2024.

Net foreign currency transaction loss decreased by $0.4 million compared to the third quarter of 2024.

Net foreign currency translation loss was $1.0 million in the first nine months of 2025 compared to a gain of $0.1 million in the first nine months of 2024.

The unfavorable impact in both periods was primarily due to the strengthening of the Euro relative to the U.S.

The effective tax rate for the second quarter of 2025 was 26.0% compared to 24.4% for the second quarter of 2024.

The increase was primarily due to a decrease in discrete tax benefits associated with share-based compensation recognized in the second quarter of 2024.

The effective tax rate for the first six months of 2025 was 25.2% compared to 21.8% for the first six months of 2024.

The increase was primarily due to a decrease in discrete tax benefits associated with share-based compensation recognized in the first six months of 2024.

We recognized a gain on sale of a building of $0.4 million in the third quarter of 2025.

The gain was recorded in other (expense) income, net on our consolidated statements of income.

The effective tax rate for the third quarter of 2025 was 23.2% compared to 24.4% for the third quarter of 2024.

The decrease was primarily due to the recognition of discrete tax benefits from additional research credits recognized in the third quarter of 2025.

The effective tax rate for the first nine months of 2025 was 24.6% compared to 22.5% for the first nine months of 2024.

The increase was primarily due to a decrease in discrete tax benefits associated with share-based compensation recognized in the first nine months of 2024.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial.

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Liquidity and Capital Resources

Cash and cash equivalents totaled $80.1 million at June 30, 2025 compared to $99.8 million as of December 31, 2024.

Cash and cash equivalents totaled $99.4 million at September 30, 2025 compared to $99.8 million as of December 31, 2024.

Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed.

Our current ratio was 2.1 as of June 30, 2025 and 2.0 as of December 31, 2024.

Our primary working capital, which is comprised of accounts receivable, inventories and accounts payables, was $338.4 million as of June 30, 2025 and $316.0 million as of December 31, 2024.

Our debt-to-capital ratio was 24.6% as of June 30, 2025 compared to 24.3% as of December 31, 2024.

As of June 30, 2025, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $434.3 million of unused borrowing capacity on our revolving facility.

Our current ratio was 2.1 as of September 30, 2025 and 2.0 as of December 31, 2024.

Our primary working capital, which is comprised of accounts receivable, inventories and accounts payables, was $344.6 million as of September 30, 2025 and $316.0 million as of December 31, 2024.

Our debt-to-capital ratio was 27.1% as of September 30, 2025 compared to 24.3% as of December 31, 2024.

As of September 30, 2025, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $409.3 million of unused borrowing capacity on our revolving facility.

Cash Flow from Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2025 was $22.1 million compared to net cash provided by operating activities of $21.5 million during the six months ended June 30, 2024.

The increase was the result of decreased consumption of working capital, partly offset by spend on our ERP project of $28.4 million and lower operating performance.

Net cash provided by operating activities during the nine months ended September 30, 2025 was $50.8 million compared to net cash provided by operating activities of $52.2 million during the nine months ended September 30, 2024.

The decrease was the result of lower operating performance, partly offset by decreased consumption of working capital.

Cash Flow from Investing Activities

Net cash used in investing activities during the six months ended June 30, 2025 was $10.6 million compared to net cash used in investing activities of $64.9 million during the six months ended June 30, 2024.

Net cash used in investing activities during the nine months ended September 30, 2025 was $18.3 million compared to net cash used in investing activities of $69.1 million during the nine months ended September 30, 2024.

The decrease was primarily due to one-time cash outflows in the prior year related to a $32.1 million investment in Brain, Corp and a $25.7 million net cash outlay for the acquisition of TCS.

Cash Flow from Financing Activities

Net cash used in financing activities during the six months ended June 30, 2025 was $32.8 million compared to net cash provided by financing activities of $12.4 million during the six months ended June 30, 2024.

The decrease was driven by increased repurchases of common stock and lower proceeds from the exercise of stock options.

Net cash used in financing activities during the nine months ended September 30, 2025 was $36.0 million compared to net cash provided by financing activities of $8.1 million during the nine months ended September 30, 2024.

The increase was driven by increased repurchases of common stock and lower proceeds from the exercise of stock options, partly offset by lower repayments of borrowings.

Newly Issued Accounting Guidance

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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