Financial Data and Key Metrics Changes - Consolidated sales for Q3 2023 were $538.4 million, a year-over-year decrease of 2%, while sales were flat excluding foreign currency translation [39] - Consolidated gross profit was $186.3 million, down from $190.6 million in Q3 2022, with gross profit as a percentage of net sales at 34.6% [17] - Consolidated operating income was $78.1 million, a decrease of 2% from $80.0 million in Q3 2022, with an operating income margin of 14.5% [18] - Fully diluted earnings per share were $1.23 for Q3 2023, compared to $1.24 for Q3 2022 [63] Business Line Data and Key Metrics Changes - Water Systems sales in the U.S. and Canada decreased by 1%, while international sales increased by 4%, with operating income reaching a record $52.7 million, up 16% year-over-year [15][40] - Fueling Systems sales were $77.7 million, a 14% decrease compared to Q3 2022, with operating income at $25.8 million, down from $28.6 million [41][71] - Distribution sales decreased by 2% to $189.2 million, with operating income of $10.7 million, down $8.3 million year-over-year [16] Market Data and Key Metrics Changes - The Water Systems segment experienced strong demand for large dewatering pumps, particularly in the U.S., while international sales were impacted by unfavorable foreign exchange and weather conditions [33] - Fueling Systems faced challenges due to destocking and delays in new station builds, with higher interest rates affecting market conditions [9][10] Company Strategy and Development Direction - The company is focusing on products and systems that move and monitor water, fuel, and electricity, with confidence in underlying demand despite macroeconomic challenges [12] - Investments are being made in Grid Solutions and on-site inventory for large contractors to enhance customer service and product availability [36][37] - The company revised its full-year 2023 guidance, expecting sales between $2.05 billion and $2.15 billion, and earnings per share between $4.07 and $4.17 [38] Management's Comments on Operating Environment and Future Outlook - Management noted that the third quarter was solid but more challenging than anticipated due to commodity price pressures and destocking impacting demand [5] - There is an expectation that macroeconomic factors, including higher interest rates, will continue to affect new station builds into 2024 [10] - Management expressed confidence in the underlying demand for surface pumping and groundwater equipment, supported by positive customer feedback from industry conferences [8] Other Important Information - The company generated approximately $198 million of operating cash flow in the first nine months of 2023, a significant improvement from $7 million in the same period of 2022 [68] - SG&A expenses were $107.7 million, a decrease from $109.4 million in Q3 2022, maintaining a consistent percentage of net sales at 20.0% [42] Q&A Session Summary Question: Water Systems' margins and sustainability - Management acknowledged that Water Systems achieved a record operating margin of 17.8%, with expectations of normal seasonality impacting margins in the upcoming quarters [20][47] Question: Duration of the destocking cycle and project delays - Management indicated that the destocking phenomenon and project delays are expected to persist, but improvements in the Fueling business are anticipated in 2024 [23][24] Question: Future margin expectations - Management stated that while current margins are strong, they expect to see a return to a more typical range of 15% to 17% in the future [47][48]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Franklin Electric Co., Inc. [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Franklin Electric Co., Inc., including statements of income, comprehensive income, balance sheets, and cash flows, along with detailed notes explaining accounting policies, acquisitions, financial instruments, and segment information for the second quarter and six months ended June 30, 2023 and 2022 [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section provides a summary of the company's revenues, expenses, and net income for the specified periods Condensed Consolidated Statements of Income (In thousands) | Metric (In thousands) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Net sales | $569,181 | $551,138 | $1,053,732 | $1,002,608 | | Gross profit | $188,481 | $189,288 | $350,746 | $334,622 | | Operating income | $80,903 | $80,982 | $133,509 | $120,923 | | Net income | $60,160 | $59,763 | $97,736 | $89,882 | | Net income attributable to Franklin Electric Co., Inc. | $59,600 | $59,364 | $96,925 | $89,129 | | Basic EPS | $1.29 | $1.27 | $2.09 | $1.91 | | Diluted EPS | $1.27 | $1.26 | $2.06 | $1.89 | [Condensed Consolidated Statements of Comprehensive Income/(Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%2F(Loss)) This section details the company's comprehensive income, including net income and other comprehensive income or loss components Condensed Consolidated Statements of Comprehensive Income/(Loss) (In thousands) | Metric (In thousands) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Net income | $60,160 | $59,763 | $97,736 | $89,882 | | Other comprehensive income/(loss), net of tax | $4,911 | $(18,581) | $11,822 | $(9,057) | | Comprehensive income | $65,071 | $41,182 | $109,558 | $80,825 | | Comprehensive income attributable to Franklin Electric Co., Inc. | $64,498 | $40,870 | $108,711 | $80,197 | - Foreign currency translation adjustments **significantly impacted** other comprehensive income, moving from a **$(19,505) thousand loss** in Q2 2022 to a **$4,495 thousand gain** in Q2 2023, and from a **$(10,913) thousand loss** in 6 months 2022 to a **$10,989 thousand gain** in 6 months 2023[17](index=17&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (In thousands) | Metric (In thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Total assets | $1,803,081 | $1,694,201 | | Total current assets | $966,390 | $858,090 | | Total liabilities | $653,970 | $598,468 | | Total equity | $1,149,501 | $1,070,134 | - Total assets **increased** by **$108.88 million** (**6.4%**) from December 31, 2022, to June 30, 2023, **driven by** increases in receivables and inventories[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities Cash Flow Activities (In thousands) | Cash Flow Activity (In thousands) | 6 Months 2023 | 6 Months 2022 | | :-------------------------------- | :------------ | :------------ | | Net cash flows from operating activities | $43,026 | $(62,541) | | Net cash flows from investing activities | $(26,880) | $(21,451) | | Net cash flows from financing activities | $(5,418) | $79,339 | | Net change in cash and cash equivalents | $7,437 | $(7,311) | | Cash and cash equivalents at end of period | $53,227 | $33,225 | - Net cash flows from operating activities **significantly improved**, moving from a **$(62,541) thousand outflow** in the first six months of 2022 to a **$43,026 thousand inflow** in the same period of 2023[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Condensed Consolidated Financial Statements](index=11&type=section&id=Note%201.%20Condensed%20Consolidated%20Financial%20Statements) This note clarifies the basis of presentation and nature of the interim financial statements - The interim financial statements are unaudited and prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted[30](index=30&type=chunk) - Operating results for the second quarter and six months ended June 30, 2023, are **not necessarily indicative** of the full fiscal year's results[30](index=30&type=chunk) [Note 2. Accounting Pronouncements](index=12&type=section&id=Note%202.%20Accounting%20Pronouncements) This note discusses recently adopted accounting standards and their impact on the financial statements - The Company adopted ASU 2021-08 (Business Combinations) and ASU 2022-04 (Supplier Finance Programs) on January 1, 2023[31](index=31&type=chunk)[32](index=32&type=chunk) - Neither ASU had a **material impact** on the Company's consolidated financial position, results of operations, or cash flows[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 3. Acquisitions](index=12&type=section&id=Note%203.%20Acquisitions) This note provides details on business acquisitions completed during the reporting period - In Q1 2023, the Company acquired Phil-Good Products, Inc. (injection molded plastics) and Hydropompe S.r.l. (pump manufacturer)[33](index=33&type=chunk) - The combined **all-cash purchase price** for both acquisitions was **$8.7 million**[33](index=33&type=chunk) - The results of operations for both acquisitions are **immaterial** and not presented separately[33](index=33&type=chunk) [Note 4. Fair Value Measurements](index=12&type=section&id=Note%204.%20Fair%20Value%20Measurements) This note describes the methodologies and hierarchy used for fair value measurements of financial instruments - Fair value measurements are categorized into a three-level hierarchy based on input observability (Level 1: quoted prices in active markets, Level 2: **significant** observable inputs, Level 3: **significant** unobservable inputs)[36](index=36&type=chunk) Fair Value Measurements (In millions) | (In millions) | June 30, 2023 (Level 1) | June 30, 2023 (Level 2) | Dec 31, 2022 (Level 1) | Dec 31, 2022 (Level 2) | | :------------ | :---------------------- | :---------------------- | :--------------------- | :--------------------- | | Cash equivalents | $11.7 | — | $7.9 | — | | Share swap transaction | $0.9 | — | $0.1 | — | | Forward currency contracts | — | $0.1 | — | — | | Total debt (estimated fair value) | N/A | $244.9 | N/A | $213.2 | [Note 5. Financial Instruments](index=14&type=section&id=Note%205.%20Financial%20Instruments) This note explains the company's use of financial instruments, including derivatives, for risk management - The Company uses share swap transactions to mitigate exposure to stock price fluctuations for its non-employee directors' deferred compensation stock program[39](index=39&type=chunk) - Changes in the fair value of the share swap resulted in a **$1.7 million gain** for Q2 2023 and a **$4.7 million gain** for the six months ended June 30, 2023, largely offsetting deferred compensation liability changes[41](index=41&type=chunk) - Forward currency contracts are used to reduce foreign currency exchange rate volatility, with notional amounts of **$27.9 million** **outstanding** as of June 30, 2023[42](index=42&type=chunk) [Note 6. Goodwill and Other Intangible Assets](index=16&type=section&id=Note%206.%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides information on the carrying amounts and changes in goodwill and other intangible assets Intangible Assets (In millions) | Intangible Asset (In millions) | June 30, 2023 Gross Carrying Amount | June 30, 2023 Accumulated Amortization | Dec 31, 2022 Gross Carrying Amount | Dec 31, 2022 Accumulated Amortization | | :----------------------------- | :---------------------------------- | :------------------------------------- | :--------------------------------- | :------------------------------------ | | Definite-lived intangibles | $312.1 | $(131.1) | $311.6 | $(122.6) | | Indefinite-lived intangibles (Trade names) | $43.0 | — | $42.3 | — | | Total intangibles | $355.1 | $(131.1) | $353.9 | $(122.6) | Goodwill by Segment (In millions) | Goodwill by Segment (In millions) | Balance as of Dec 31, 2022 | Acquisitions | Foreign currency translation | Balance as of June 30, 2023 | | :-------------------------------- | :------------------------- | :----------- | :--------------------------- | :-------------------------- | | Water Systems | $211.9 | $1.0 | $1.1 | $214.0 | | Fueling Systems | $70.3 | — | $0.2 | $70.5 | | Distribution | $45.8 | — | — | $45.8 | | Consolidated | $328.0 | $1.0 | $1.3 | $330.3 | - Amortization expense for intangible assets was **$4.3 million** for Q2 2023 and **$8.5 million** for the six months ended June 30, 2023[43](index=43&type=chunk) [Note 7. Employee Benefit Plans](index=18&type=section&id=Note%207.%20Employee%20Benefit%20Plans) This note details the net periodic benefit costs associated with the company's pension and post-retirement plans Net Periodic Benefit Cost (In millions) | Net Periodic Benefit Cost (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------------ | :------ | :------ | :------------ | :------------ | | Pension Benefits | $0.7 | $0.7 | $1.1 | $1.4 |\ | Other Post-Retirement Benefits | $0.0 | $0.0 | $0.1 | $0.1 | [Note 8. Accrued Expenses and Other Current Liabilities](index=18&type=section&id=Note%208.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) This note provides a breakdown of various accrued expenses and other current liabilities Accrued Expenses (In millions) | Accrued Expenses (In millions) | June 30, 2023 | December 31, 2022 | | :----------------------------- | :------------ | :---------------- | | Salaries, wages, and commissions | $40.3 | $57.9 | | Product warranty costs | $10.7 | $11.2 | | Insurance | $3.0 | $1.7 | | Employee benefits | $8.9 | $13.5 | | Other | $32.2 | $36.3 | | Total | $95.1 | $120.6 | [Note 9. Income Taxes](index=18&type=section&id=Note%209.%20Income%20Taxes) This note explains the company's income tax expense and effective tax rates for the reporting periods Effective Tax Rate | Effective Tax Rate | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------- | :------ | :------ | :------------ | :------------ | | Effective Tax Rate | **19.1%** | **21.9%** | **20.0%** | **21.2%** | - The **decrease** in **effective tax rates** for both the second quarter and first six months of 2023 was **primarily due to** more **favorable** discrete events, specifically excess tax benefits from share-based compensation[49](index=49&type=chunk) [Note 10. Debt](index=20&type=section&id=Note%2010.%20Debt) This note provides details on the company's outstanding debt, including credit agreements and maturities Debt Components (In millions) | Debt Component (In millions) | June 30, 2023 | December 31, 2022 | | :--------------------------- | :------------ | :---------------- | | New York Life Agreement | $75.0 | $75.0 | | Credit Agreement | $158.3 | $122.8 | | Tax increment financing debt | $14.7 | $15.3 | | Foreign subsidiary debt | $0.6 | $3.1 | | Total Debt | $248.5 | $216.1 | | Less: current maturities | $(159.8) | $(126.8) | | Long-term debt | $88.7 | $89.3 | - As of June 30, 2023, the Company had **$158.3 million outstanding borrowings** under its Credit Agreement with a weighted-average interest rate of **5.9%**, and **$188.1 million of available capacity**[51](index=51&type=chunk) [Note 11. Earnings Per Share](index=20&type=section&id=Note%2011.%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share Earnings Per Share Metrics (In millions, except per share) | EPS Metric (In millions, except per share) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------------------------------- | :------ | :------ | :------------ | :------------ | | Net income available to common shareholders | $59.4 | $59.2 | $96.6 | $88.7 | | Basic weighted average common shares outstanding | 46.2 | 46.3 | 46.2 | 46.4 | | Diluted weighted average common shares outstanding | 46.9 | 46.9 | 46.9 | 47.1 | | Basic earnings per share | $1.29 | $1.27 | $2.09 | $1.91 | | Diluted earnings per share | $1.27 | $1.26 | $2.06 | $1.89 | [Note 12. Equity Roll Forward](index=22&type=section&id=Note%2012.%20Equity%20Roll%20Forward) This note details the changes in each component of shareholders' equity over the reporting period Equity Roll Forward (In thousands) | Equity Component (In thousands) | Balance as of Dec 31, 2022 | Net Income | Dividends | Common Stock Issued | Common Stock Repurchased | Share-based Compensation | Currency Translation Adjustment | Pension & Other Post Retirement Plans, net of taxes | Balance as of June 30, 2023 | | :------------------------------ | :------------------------- | :--------- | :-------- | :------------------ | :----------------------- | :----------------------- | :------------------------------ | :-------------------------------------------------- | :-------------------------- | | Common Stock | $4,619 | — | — | $22 | $(27) | $12 | — | — | $4,626 | | Additional Paid in Capital | $325,426 | — | — | $8,988 | — | $6,398 | — | — | $340,812 | | Retained Earnings | $969,261 | $96,925 | $(20,872) | — | $(24,431) | — | — | — | $1,020,883 | | Accumulated Other Comprehensive Loss | $(231,448) | — | — | — | — | — | $10,953 | $833 | $(219,662) | | Noncontrolling Interest | $2,276 | $530 | — | — | — | — | $36 | — | $2,842 | | Total Equity | $1,070,134 | $97,455 | $(20,872) | $9,010 | $(24,458) | $6,410 | $10,989 | $833 | $1,149,501 | [Note 13. Accumulated Other Comprehensive Income/(Loss)](index=24&type=section&id=Note%2013.%20Accumulated%20Other%20Comprehensive%20Income%2F(Loss)) This note provides a breakdown of the components of accumulated other comprehensive income or loss Accumulated Other Comprehensive Income/(Loss) Components (In millions) | Component (In millions) | Balance as of Dec 31, 2022 | Other comprehensive income/(loss) before reclassifications | Amounts reclassified from accumulated other comprehensive income/(loss) | Net other comprehensive income/(loss) | Balance as of June 30, 2023 | | :---------------------- | :------------------------- | :------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------ | :-------------------------- | | Foreign Currency Translation Adjustments | $(191.3) | $10.9 | — | $10.9 | $(180.4) | | Pension and Post-Retirement Plan Benefit Adjustments | $(40.1) | — | $0.8 | $0.8 | $(39.3) | | Total | $(231.4) | $10.9 | $0.8 | $11.7 | $(219.7) | [Note 14. Segment and Geographic Information](index=24&type=section&id=Note%2014.%20Segment%20and%20Geographic%20Information) This note presents financial data disaggregated by the company's operating segments and geographic regions Segment Net Sales (In millions) | Segment (In millions) | Q2 2023 Net Sales | Q2 2022 Net Sales | 6 Months 2023 Net Sales | 6 Months 2022 Net Sales | | :-------------------- | :---------------- | :---------------- | :---------------------- | :---------------------- | | Water Systems | $321.7 | $310.5 | $628.3 | $583.1 | | Distribution | $193.1 | $191.1 | $336.1 | $326.0 | | Fueling Systems | $80.4 | $86.0 | $153.1 | $158.5 | | Consolidated | $569.1 | $551.1 | $1,053.7 | $1,002.6 | Segment Operating Income (In millions) | Segment (In millions) | Q2 2023 Operating Income | Q2 2022 Operating Income | 6 Months 2023 Operating Income | 6 Months 2022 Operating Income | | :-------------------- | :----------------------- | :----------------------- | :----------------------------- | :----------------------------- | | Water Systems | $50.8 | $49.0 | $99.8 | $82.2 | | Distribution | $17.8 | $23.3 | $22.5 | $32.7 | | Fueling Systems | $26.7 | $26.1 | $47.5 | $43.8 | | Consolidated | $80.9 | $81.0 | $133.5 | $120.9 | Segment Total Assets (In millions) | Segment (In millions) | June 30, 2023 Total Assets | December 31, 2022 Total Assets | | :-------------------- | :------------------------- | :----------------------------- | | Water Systems | $1,058.6 | $1,017.5 | | Distribution | $412.4 | $360.4 | | Fueling Systems | $276.6 | $269.1 | | Consolidated | $1,803.1 | $1,694.2 | [Note 15. Commitments and Contingencies](index=26&type=section&id=Note%2015.%20Commitments%20and%20Contingencies) This note discloses the company's legal proceedings, warranty accruals, and other significant commitments - The Company is involved in a legal proceeding regarding alleged issues with underground piping connections in French filling stations, with total damages estimated at approximately **9.5 million Euro**[65](index=65&type=chunk) - Management believes other claims and legal actions can be resolved without a **material effect** on financial position, results of operations, or cash flows[66](index=66&type=chunk) Warranty Accrual (In millions) | Warranty Accrual (In millions) | Amount | | :----------------------------- | :----- | | Balance as of December 31, 2022 | $11.2 | | Accruals related to product warranties | $6.4 | | Reductions for payments made | $(6.9) | | Balance as of June 30, 2023 | $10.7 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance for the second quarter and first six months of 2023, discussing net sales, gross profit, operating expenses, and segment-specific results. It also covers capital resources, liquidity, cash flow changes, and factors that may affect future results [Overview](index=27&type=section&id=Overview) This section provides a high-level summary of the company's financial performance and key highlights for the reporting period - Net sales **increased** **3%** in Q2 2023 and **5%** in the first six months of 2023 compared to prior-year periods, **primarily due to** price realization and volume, partially offset by negative foreign currency impact[69](index=69&type=chunk) - Diluted EPS **increased** to **$1.27** for Q2 2023 (up **$0.01**) and **$2.06** for the first six months of 2023 (up **$0.17**)[69](index=69&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including net sales, gross profit, and operating expenses, across different segments [Net Sales](index=27&type=section&id=Net%20Sales) This section analyzes the company's revenue performance by segment, highlighting key drivers and impacts Segment Net Sales (In millions) | Segment (In millions) | Q2 2023 Net Sales | Q2 2022 Net Sales | Change (2023 vs 2022) | | :-------------------- | :---------------- | :---------------- | :-------------------- | | Water Systems | $321.7 | $310.5 | $11.2 | | Fueling Systems | $80.4 | $86.0 | $(5.6) | | Distribution | $193.1 | $191.1 | $2.0 | | Consolidated | $569.1 | $551.1 | $18.0 | Segment Net Sales (In millions) | Segment (In millions) | YTD June 30, 2023 Net Sales | YTD June 30, 2022 Net Sales | Change (2023 vs 2022) | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Water Systems | $628.3 | $583.1 | $45.2 | | Fueling Systems | $153.1 | $158.5 | $(5.4) | | Distribution | $336.1 | $326.0 | $10.1 | | Consolidated | $1,053.7 | $1,002.6 | $51.1 | - Foreign currency **unfavorably impacted** consolidated net sales by **2 percentage points** in Q2 2023 and **3 percentage points** in the first six months of 2023, **mainly due to** the strengthening U.S. Dollar against the Turkish Lira and Argentine Peso[70](index=70&type=chunk) - Water Systems net sales **increased** **4%** in Q2 and **8%** in the first six months of 2023, **driven by** price and volume, despite negative foreign exchange impacts and **unfavorable** weather conditions[71](index=71&type=chunk) - Fueling Systems net sales **decreased** **7%** in Q2 and **3%** in the first six months of 2023, **primarily due to** **lower** volumes and the divestiture of the above-ground storage tank business in 2022[73](index=73&type=chunk) - Distribution net sales **increased** **1%** in Q2 and **3%** in the first six months of 2023, **driven by** price and volume, but negatively impacted by wet weather, **declining** commodity prices, and customer inventory normalization[74](index=74&type=chunk) [Gross Profit and Expenses Ratios](index=28&type=section&id=Gross%20Profit%20and%20Expenses%20Ratios) This section examines the company's gross profit margins and key expense ratios relative to net sales Gross Profit and SG&A Expense Ratios (In millions) | Metric (In millions) | Q2 2023 | Q2 2023 % of Net Sales | Q2 2022 | Q2 2022 % of Net Sales | | :------------------- | :------ | :--------------------- | :------ | :--------------------- | | Gross Profit | $188.5 | **33.1%** | $189.3 | **34.3%** | | SG&A Expense | $107.4 | **18.9%** | $108.3 | **19.7%** | Gross Profit and SG&A Expense Ratios (In millions) | Metric (In millions) | 6 Months 2023 | 6 Months 2023 % of Net Sales | 6 Months 2022 | 6 Months 2022 % of Net Sales | | :------------------- | :------------ | :--------------------------- | :------------ | :--------------------------- | | Gross Profit | $350.7 | **33.3%** | $334.6 | **33.4%** | | SG&A Expense | $217.0 | **20.6%** | $213.0 | **21.2%** | - Gross profit margin **decreased** in Q2 2023 **due to** wet weather and margin compression from **unfavorable commodity pricing** in the Distribution business[76](index=76&type=chunk) - SG&A expenses **decreased** in Q2 2023 **due to** **lower** advertising and marketing, but **increased** in the first half of 2023 **due to** **higher** compensation costs[77](index=77&type=chunk) [Restructuring Expenses](index=28&type=section&id=Restructuring%20Expenses) This section details the costs associated with the company's restructuring activities Restructuring Expenses (In millions) | Restructuring Expenses (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------------------------- | :------ | :------ | :------------ | :------------ | | Restructuring (income)/expense | $0.1 | $(0.0) | $0.3 | $0.7 | - Restructuring expenses in 2023 were **primarily from** continued miscellaneous manufacturing realignment activities, branch closings, and consolidations[78](index=78&type=chunk) [Operating Income](index=28&type=section&id=Operating%20Income) This section analyzes the company's operating income performance by segment, including margin changes Segment Operating Income (In millions) | Segment (In millions) | Q2 2023 Operating Income | Q2 2022 Operating Income | Change (2023 vs 2022) | | :-------------------- | :----------------------- | :----------------------- | :-------------------- | | Water Systems | $50.8 | $49.0 | $1.8 | | Fueling Systems | $26.7 | $26.1 | $0.6 | | Distribution | $17.8 | $23.3 | $(5.5) | | Consolidated | $80.9 | $81.0 | $(0.1) | Segment Operating Income (In millions) | Segment (In millions) | YTD June 30, 2023 Operating Income | YTD June 30, 2022 Operating Income | Change (2023 vs 2022) | | :-------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | | Water Systems | $99.8 | $82.2 | $17.6 | | Fueling Systems | $47.5 | $43.8 | $3.7 | | Distribution | $22.5 | $32.7 | $(10.2) | | Consolidated | $133.5 | $120.9 | $12.6 | - Water Systems operating income **increased** **due to** **higher** sales, with its operating income margin **increasing** by **180 basis points** in the first six months of 2023 to **15.9%**[81](index=81&type=chunk) - Fueling Systems operating income **increased** **due to** a **favorable product and geographic mix** of net sales, with its operating income margin **increasing** by **340 basis points** in the first six months of 2023 to **31.0%**[82](index=82&type=chunk) - Distribution operating income **decreased** **due to** wet weather, **unfavorable commodity pricing**, and **inventory destocking**, with its operating income margin **decreasing** by **330 basis points** in the first six months of 2023 to **6.7%**[83](index=83&type=chunk) [Interest Expense](index=29&type=section&id=Interest%20Expense) This section discusses the company's interest expenses and the factors influencing them Interest Expense (In millions) | Interest Expense (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :----------------------------- | :------ | :------ | :------------ | :------------ | | Interest expense | $(4.2) | $(2.9) | $(7.3) | $(4.4) | - The **increase** in interest expense for both periods was **primarily driven by** **higher** interest rates[85](index=85&type=chunk) [Other Income or Expense](index=31&type=section&id=Other%20Income%20or%20Expense) This section reports on non-operating income and expenses, including miscellaneous items Other Income/(Expense), net (In millions) | Other Income/(Expense), net (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :---------------------------------------- | :------ | :------ | :------------ | :------------ | | Other income/(expense), net | $1.2 | $(1.2) | $1.6 | $(1.5) | [Foreign Exchange](index=31&type=section&id=Foreign%20Exchange) This section details the impact of foreign currency fluctuations on the company's financial results Foreign Exchange Expense (In millions) | Foreign Exchange Expense (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------------- | :------ | :------ | :------------ | :------------ | | Foreign exchange expense | $(3.6) | $(0.3) | $(5.6) | $(0.9) | - The **significant increase** in foreign exchange expense in 2023 was **primarily due to** transaction **losses** associated with the Turkish Lira, Argentine Peso, and Mexican Peso relative to the U.S. dollar[88](index=88&type=chunk) [Income Taxes](index=31&type=section&id=Income%20Taxes) This section analyzes the company's income tax expense and effective tax rate Income Tax Metrics (In millions) | Income Tax Metric (In millions) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------ | :------ | :------ | :------------ | :------------ | | Income tax expense | $14.2 | $16.8 | $24.4 | $24.2 | | Effective tax rate | **19.1%** | **21.9%** | **20.0%** | **21.2%** | - The **decrease** in **effective tax rates** for both periods in 2023 was **due to** more **favorable** discrete events, **mainly** excess tax benefits from share-based compensation[89](index=89&type=chunk) [Net Income](index=31&type=section&id=Net%20Income) This section summarizes the company's overall profitability and earnings per share Net Income Metrics (In millions, except per share) | Net Income Metric (In millions, except per share) | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :------------------------------------------------ | :------ | :------ | :------------ | :------------ | | Net income | $60.2 | $59.8 | $97.7 | $89.9 | | Net income attributable to Franklin Electric Co., Inc. | $59.6 | $59.4 | $96.9 | $89.1 | | Diluted EPS | $1.27 | $1.26 | $2.06 | $1.89 | [Capital Resources and Liquidity](index=31&type=section&id=Capital%20Resources%20and%20Liquidity) This section discusses the company's financial resources and its ability to meet short-term and long-term obligations [Sources of Liquidity](index=31&type=section&id=Sources%20of%20Liquidity) This section identifies the primary means by which the company generates and accesses cash - **Primary liquidity sources** include cash on hand, cash flows from operations, revolving credit agreements, and long-term debt funds[91](index=91&type=chunk) - As of June 30, 2023, the Company had a **$350.0 million** revolving credit facility with **$188.1 million available capacity**[92](index=92&type=chunk) - The Company also maintains a private shelf agreement with NYL Investors LLC, with a remaining borrowing capacity of **$125.0 million**[93](index=93&type=chunk) - The Company held **$45.9 million** in cash and cash equivalents in foreign jurisdictions, intended for foreign operations[94](index=94&type=chunk) [Cash Flows](index=31&type=section&id=Cash%20Flows) This section analyzes the company's cash generation and usage from operating, investing, and financing activities Cash Flow Activities (In millions) | Cash Flow Activity (In millions) | 6 Months 2023 | 6 Months 2022 | | :------------------------------- | :------------ | :------------ | | Net cash flows from operating activities | $43.0 | $(62.5) | | Net cash flows from investing activities | $(26.9) | $(21.5) | | Net cash flows from financing activities | $(5.4) | $79.3 | | Change in cash and cash equivalents | $7.4 | $(7.3) | - Net cash **provided by operating activities significantly improved** to **$43.0 million** in the first six months of 2023, compared to **$62.5 million used** in the prior-year period, **primarily due to decreased working capital requirements**[98](index=98&type=chunk) - Net cash **used in investing activities increased** to **$26.9 million** in the first six months of 2023, **mainly due to increased acquisition activity**[99](index=99&type=chunk) - Net cash **used by financing activities** was **$5.4 million** in the first six months of 2023, a change from **$79.3 million provided** in the prior-year period, **primarily due to decreased borrowings** under the revolving credit facility[100](index=100&type=chunk) [Factors That May Affect Future Results](index=33&type=section&id=Factors%20That%20May%20Affect%20Future%20Results) This section outlines potential risks and uncertainties that could influence the company's future financial performance - The report contains forward-looking statements subject to risks and uncertainties, including economic and currency conditions, market demand, competitive factors, supply constraints, raw material costs, and litigation[101](index=101&type=chunk) - Actual results may differ **materially** from forward-looking statements **due to** various factors detailed in the Company's SEC filings[101](index=101&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no significant changes in the Company's exposure to market risk during the second quarter ended June 30, 2023 - **No significant changes** in the Company's exposure to market risk occurred during the second quarter ended June 30, 2023[103](index=103&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023, and there have been no material changes to internal control over financial reporting - The Company's disclosure controls and procedures were **effective** as of June 30, 2023[104](index=104&type=chunk) - **No changes** in internal control over financial reporting **materially** affected or are reasonably likely to **materially** affect the Company's internal control over financial reporting during the last fiscal quarter[105](index=105&type=chunk) [PART II. OTHER INFORMATION](index=35&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 15 for a description of material legal proceedings and states management's opinion that other claims and legal actions can be resolved without a material financial impact - **Material** legal proceedings are described in Note 15 to the Condensed Consolidated Financial Statements[108](index=108&type=chunk) - Management believes other claims and legal actions can be defended or resolved without a **material effect** on the Company's financial position, results of operations, and net cash flows[108](index=108&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section confirms that there have been no material changes to the Company's risk factors as previously disclosed in its annual report on Form 10-K - There have been **no material changes** to the Company's risk factors as set forth in the annual report on Form 10-K for the fiscal year ended December 31, 2022[109](index=109&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's common stock repurchase program, including recent board approvals for additional shares and the number of shares repurchased during the second quarter of 2023 - In February 2023, the Board of Directors approved an **increase** of **1,000,000 shares** for repurchase[110](index=110&type=chunk) - The Company repurchased **9,480 shares** for approximately **$0.9 million** during the second quarter of 2023[110](index=110&type=chunk)[111](index=111&type=chunk) - As of June 30, 2023, **1,116,392 shares** remained **available for repurchase** under the plan[110](index=110&type=chunk)[111](index=111&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including employment agreements, certifications, and the interactive data file - Exhibits include Employment Security Agreement, Confidentiality and Non-Compete Agreement, CEO and CFO Certifications (Sarbanes-Oxley Act), and the Cover Page Interactive Data File (Inline XBRL)[112](index=112&type=chunk) [Signatures](index=37&type=section&id=Signatures) This section contains the duly authorized signatures of the registrant's principal executive officer and principal financial and accounting officer, certifying the report - The report is signed by Gregg C. Sengstack, Chairperson and Chief Executive Officer, and Jeffery L. Taylor, Vice President and Chief Financial Officer, on July 28, 2023[115](index=115&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q _________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 0-362 FRANKLIN ELECTRIC CO., INC. (Exact name of registrant as specified in its charter) Indiana 35-0827455 (State or oth ...

Financial Data and Key Metrics Changes - The company achieved record first quarter consolidated sales of $484.6 million, a year-over-year increase of 7% despite a 3% headwind from foreign currency translation [6][10] - Gross profit for the first quarter was $162.3 million, representing a 12% year-over-year increase, with gross profit as a percentage of net sales rising to 33.5% from 32.2% [9][93] - Operating income for the first quarter was $52.6 million, up 32% from $39.9 million in the prior year, despite a foreign exchange headwind of approximately $3 million [10][93] - The effective tax rate was 21% for the quarter, compared to 20% in the prior year [84] Business Line Data and Key Metrics Changes - Water Systems segment delivered record first quarter sales and operating income, with revenues growing 12% and operating income increasing 48% [90] - Distribution segment's first quarter sales were a record $143 million, a 6% increase from $134.9 million in the prior year, but operating income decreased by $4.7 million year-over-year [7][101] - Fueling Systems sales reached $72.7 million, with a 4% increase in the US and Canada, despite a 1% decrease due to foreign currency translation [8][102] Market Data and Key Metrics Changes - Water Systems sales in the US and Canada increased by 21% year-over-year, driven by price and volume [6] - Outside the US and Canada, Water Systems sales were flat overall, with a 12% decrease due to foreign currency translation [32] - The distribution segment was negatively impacted by weather conditions, which delayed contractor installations [29][33] Company Strategy and Development Direction - The company is focused on a balanced capital allocation strategy, including internal investments and monitoring M&A opportunities [30] - Management emphasized the importance of sustainability and employee well-being, with a sustainability report expected to be released soon [5] - The company plans to invest in expanding its footprint and developing new products, which may put pressure on operating margins but is expected to drive growth [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's growth trajectory, citing improved supply chain conditions and a positive outlook for the remainder of the year [39][40] - The company raised its full-year 2023 sales guidance to a range of $2.15 billion to $2.25 billion and EPS guidance to between $4.25 and $4.45 [92] - Management acknowledged ongoing macroeconomic and geopolitical pressures but remains optimistic about demand in key markets [92] Other Important Information - The company announced a quarterly cash dividend of $0.225, payable on May 18 to shareholders of record as of May 4 [11] - The remaining share repurchase authorization is approximately 1.1 million shares [11] Q&A Session Summary Question: Any changes in macro assumptions or channel inventory? - Management noted no significant shifts in macroeconomic perspectives and indicated that the business is moving forward positively as it enters Q2 [38] Question: Insights on water treatment results and sales expectations? - Management expressed caution regarding near-term results due to residential exposure and macro sensitivity but indicated positive order patterns into early Q2 [12] Question: Outlook for margin expansion in water treatment? - Management expects margins to remain in the low double-digit range while investing in business expansion and new product development [13] Question: Year-over-year pricing realization and expectations for 2023? - Management anticipates moderation in year-over-year price impact as they lap previous price increases, expecting low to mid single-digit price realization in the latter half of the year [16] Question: Comments on M&A environment and expectations? - Management highlighted a separation in price expectations between buyers and sellers, indicating a cautious approach to M&A opportunities [17] Question: Insights on Water Systems margins and sales trends? - Management noted strong sales in the Water Systems segment, with expectations for continued growth driven by robust demand [20][47]

Investor Presentation 1Q-2023 | --- | --- | |-------|-------| | | | | | | STRATEGIC FOCUS: To grow as a global provider of water and fuel systems, through geographic expansion and product line extensions, leveraging our global platform and competency in system design. Investment Highlights1 4 1) At 12/31/21 WATER SYSTEMS $1,158M (54%) FUELING SYSTEMS $334M (15%) 5 | --- | --- | --- | |-----------------------------------------------------------------|---------------------------------------------------------- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K _________ ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 0-362 FRANKLIN ELECTRIC CO., INC. (Exact name of registrant as specified in its charter) Indiana 35-0827455 (State or other ju ...

Franklin Electric Co., Inc. (NASDAQ:FELE) Q4 2022 Results Conference Call February 14, 2023 9:00 AM ET Company Participants Jeff Taylor - Chief Financial Officer Gregg Sengstack - Chairperson and Chief Executive Officer Conference Call Participants Mike Halloran - R.W. Baird Matt Summerville - D.A. Davidson Walter Liptak - Seaport Global Operator Good day. And welcome to the Franklin Electric Reports Fourth Quarter 2022 Sales and Earnings Conference Call. At this time, all participants are in a listen only ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________ FORM 10-Q _________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 0-362 FRANKLIN ELECTRIC CO., INC. (Exact name of registrant as specified in its charter) Indiana 35-0827455 ...

Financial Data and Key Metrics Changes - The company achieved record third quarter performance with consolidated sales of $551.7 million, a 20% increase from $459 million in Q3 2021 [24] - Fully diluted earnings per share were $1.24 for Q3 2022, compared to $0.98 for Q3 2021 [23] - Consolidated operating income was $80 million, up 41% from $56.6 million in Q3 2021, with an operating income margin of 14.5% [37][38] Business Line Data and Key Metrics Changes - Water Systems segment reported a 12% revenue growth and a 25% increase in operating income, with an operating margin of 15.5% [11] - Distribution segment achieved record sales of $193.2 million, a 38% increase, and operating income of $19 million, up from $12.3 million [29] - Fueling Systems segment also reached record sales of $90.2 million, an 11% increase, with operating income growing to $28.6 million [30][33] Market Data and Key Metrics Changes - The backlog remains elevated at approximately $250 million, down $40 million from the previous quarter due to shipment progress and seasonality [8] - Organic growth in Water Systems outside the U.S. and Canada was 27%, driven by strong demand in Europe, the Middle East, and Africa [27] - Fueling Systems sales in India and EMEA increased, offsetting weaker sales in China [16][55] Company Strategy and Development Direction - The company is focused on reducing inventory levels and improving cash flow while navigating supply chain challenges [9] - Capital allocation strategy includes investments for growth and returning cash to shareholders through dividends and share repurchases [20] - The company aims to expand its product offerings, particularly in developing regions, to capitalize on strong global demand [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged inflationary pressures and geopolitical conflicts affecting supply chains but remains optimistic about long-term demand for water and fueling systems [18] - The company revised its full-year 2022 net sales guidance to between $2 billion and $2.1 billion, with earnings per share guidance adjusted to $4.08 - $4.18 [21] - Management expressed confidence in maintaining higher profitability in the distribution business despite potential seasonal fluctuations [44] Other Important Information - The effective tax rate for Q3 2022 was approximately 19%, with a projected full-year tax rate of about 21% [40] - A quarterly cash dividend of $0.195 was announced, payable on November 17 to shareholders of record on November 3 [40] Q&A Session Summary Question: Inquiry about distribution business profitability - Management indicated that distribution business profitability is expected to remain strong due to operating leverage, despite some mix-related challenges [42][44] Question: Comments on fueling business and project funnel - Management noted strong demand in fueling systems, with some indications of reduced capital deployment by marketers in 2023 [50] Question: Geographic variances in fueling sales - Management highlighted strong growth in India and EMEA, while sales in China have been weaker due to regulatory delays [52][55] Question: Variance between groundwater and surface pumping demand - Management explained that groundwater business has been strong due to dry conditions and demographic shifts, while surface pumping demand is driven by energy security investments [57][59] Question: Impact of water scarcity on business - Management stated that water scarcity is driving demand for larger and more efficient pumping systems, benefiting the company [81][84] Question: Inventory destocking cycle impact - Management acknowledged some destocking in the distribution business but emphasized strong demand and order visibility [86][88]

Investor Presentation 3Q‐2022 Gregg Sengstack, Chairperson and CEO Jeff Taylor, VP – Chief Financial Officer July 2022 | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ...