The Gorman-Rupp pany(GRC) - 2024 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter 2024 Highlights The Gorman-Rupp Company reported a slight decrease in Q2 2024 net sales by 0.9% to $169.5 million, primarily due to lower volume, while Adjusted EPS increased to $0.54 and Adjusted EBITDA reached a record $35.4 million Second Quarter 2024 Key Metrics | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net Sales | $169.5 million | $171.0 million | -$1.5 million | -0.9% | | Net Income | $8.3 million | $10.5 million | -$2.2 million | -21.0% | | EPS | $0.32 | $0.40 | -$0.08 | -20.0% | | Adjusted EPS | $0.54 | $0.41 | +$0.13 | +31.7% | | Incoming Orders | $162.5 million | $154.1 million | +$8.4 million | +5.5% | | Adjusted EBITDA | $35.4 million | $33.7 million | +$1.7 million | +4.9% | - Refinanced debt is expected to reduce interest expense by over $7.0 million annually[5] Year to Date 2024 Highlights For the first six months of 2024, net sales decreased by 0.8% to $328.8 million, with net income at $16.2 million, while Adjusted EPS increased to $0.84 and gross margin improved by 190 basis points Year to Date 2024 Key Metrics | Metric | YTD 2024 | YTD 2023 | Change ($) | Change (%) | | :----- | :------- | :------- | :--------- | :--------- | | Net Sales | $328.8 million | $331.5 million | -$2.7 million | -0.8% | | Net Income | $16.2 million | $17.0 million | -$0.8 million | -4.7% | | EPS | $0.62 | $0.65 | -$0.03 | -4.6% | | Adjusted EPS | $0.84 | $0.68 | +$0.16 | +23.5% | | Gross Margin | 31.2% | 29.3% | +190 bps | | | Adjusted EBITDA | $63.6 million | $62.1 million | +$1.5 million | +2.4% | Detailed Financial Review Second Quarter 2024 Performance Analysis In Q2 2024, net sales saw a minor decline, but gross margin improved significantly due to better material costs and pricing, leading to increased operating income despite higher SG&A expenses and one-time debt-related write-offs Net Sales Net Sales Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net Sales | $169.5 million | $171.0 million | -$1.5 million | -0.9% | - Sales increased in municipal (+$6.7M), OEM (+$2.2M), repair (+$0.6M), and petroleum (+$0.3M) markets[6] - Sales decreased in fire suppression (-$8.0M), agriculture (-$1.6M), industrial (-$1.2M), and construction (-$0.5M) markets[6] - The decrease in fire suppression sales was primarily due to backlog returning to more normal levels, following a significant increase in Q2 2023[6] - Fire suppression incoming orders for Q2 2024 were up 11.2% compared to Q2 2023[6] Gross Profit and Margin Gross Profit and Margin Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (bps) | | :----- | :------ | :------ | :--------- | :----------- | | Gross Profit | $54.1 million | $51.7 million | +$2.4 million | | | Gross Margin | 31.9% | 30.2% | | +170 bps | - Gross margin improvement of 170 basis points was driven by a 280 basis point improvement in cost of material (including a 70 basis point reduction in LIFO expense) and a 210 basis point improvement from selling price increases[7] - These improvements were partially offset by a 110 basis point increase in labor and overhead expenses as a percent of sales[7] Selling, General & Administrative (SG&A) Expenses SG&A Expenses Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (% of sales) | | :----- | :------ | :------ | :--------- | :------------------ | | SG&A Expenses | $24.9 million | $24.2 million | +$0.7 million | +0.6% | | SG&A % of Sales | 14.7% | 14.1% | | | - SG&A expenses for Q2 2024 included $1.3 million of refinancing transaction costs and a $1.1 million gain on the sale of a fixed asset[8] Amortization Expense Amortization Expense Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | | :----- | :------ | :------ | :--------- | | Amortization Expense | $3.1 million | $3.2 million | -$0.1 million | Operating Income and Margin Operating Income and Margin Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (bps) | | :----- | :------ | :------ | :--------- | :----------- | | Operating Income | $26.0 million | $24.3 million | +$1.7 million | | | Operating Margin | 15.4% | 14.2% | | +120 bps | - Operating margin increased 120 basis points primarily due to improved cost of material, partially offset by increased labor, overhead, and SG&A expenses[10] Interest Expense Interest Expense Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | | :----- | :------ | :------ | :--------- | | Interest Expense | $9.0 million | $10.5 million | -$1.5 million | - The decrease in interest expense was due to debt refinancing transactions completed on May 31, 2024, which included upsizing and extending the Senior Term Loan Facility, amending and extending the revolving Credit Facility, and issuing new Senior Secured Notes to retire the unsecured Subordinated Credit Facility[11] Other Income (Expense), Net Other Income (Expense), Net Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | | :----- | :------ | :------ | :--------- | | Other Income (Expense), Net | -$6.3 million | -$0.5 million | -$5.8 million | - Other expense for Q2 2024 included a $4.4 million write-off of unamortized previously deferred debt financing fees and a $1.8 million prepayment fee related to the early retirement of the unsecured Subordinated Credit Facility[12] Net Income and Earnings Per Share (EPS) Net Income and EPS Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Net Income | $8.3 million | $10.5 million | -$2.2 million | -21.0% | | EPS | $0.32 | $0.40 | -$0.08 | -20.0% | | Adjusted EPS | $0.54 | $0.41 | +$0.13 | +31.7% | Adjusted EBITDA Adjusted EBITDA Performance | Metric | Q2 2024 | Q2 2023 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Adjusted EBITDA | $35.4 million | $33.7 million | +$1.7 million | +4.9% | | Adjusted EBITDA % of Sales | 20.8% | 19.7% | | +110 bps | Year to Date 2024 Performance Analysis For the first six months of 2024, net sales experienced a slight decline, primarily due to volume decreases, though pricing increases provided some offset, leading to improved gross margin and operating income despite higher SG&A expenses and one-time debt financing write-offs Net Sales Net Sales Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | Change (%) | | :----- | :------- | :------- | :--------- | :--------- | | Net Sales | $328.8 million | $331.5 million | -$2.7 million | -0.8% | - Sales increased in municipal (+$9.4M), OEM (+$1.4M), petroleum (+$0.7M), repair (+$0.7M), and construction (+$0.1M) markets[22] - Sales decreased in fire suppression (-$11.8M), agriculture (-$2.3M), and industrial (-$0.9M) markets[22] - The decrease in fire suppression sales was primarily due to backlog returning to more normal levels, following a significant increase in YTD 2023[22] - Fire suppression incoming orders for YTD 2024 were up 6.4% compared to YTD 2023[22] Gross Profit and Margin Gross Profit and Margin Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | Change (bps) | | :----- | :------- | :------- | :--------- | :----------- | | Gross Profit | $102.5 million | $97.2 million | +$5.3 million | | | Gross Margin | 31.2% | 29.3% | | +190 bps | - Gross margin improvement of 190 basis points included a 260 basis point improvement in cost of material (70 basis point reduction in LIFO expense, 30 basis point favorable impact from Fill-Rite backlog amortization not reoccurring, and 160 basis point improvement from selling price increases)[15] - These improvements were partially offset by a 70 basis point increase in labor and overhead expenses as a percent of sales[15] Selling, General & Administrative (SG&A) Expenses SG&A Expenses Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | Change (% of sales) | | :----- | :------- | :------- | :--------- | :------------------ | | SG&A Expenses | $49.8 million | $47.4 million | +$2.4 million | +0.9% | | SG&A % of Sales | 15.2% | 14.3% | | | - SG&A expenses for YTD 2024 included $1.3 million of refinancing transaction costs and a $1.1 million gain on the sale of a fixed asset[23] Amortization Expense Amortization Expense Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | | :----- | :------- | :------- | :--------- | | Amortization Expense | $6.2 million | $6.4 million | -$0.2 million | Operating Income and Margin Operating Income and Margin Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | Change (bps) | | :----- | :------- | :------- | :--------- | :----------- | | Operating Income | $46.5 million | $43.4 million | +$3.1 million | | | Operating Margin | 14.1% | 13.1% | | +100 bps | - Operating margin increased 100 basis points primarily due to improved cost of material, partially offset by increased labor, overhead, and SG&A expenses[24] Interest Expense Interest Expense Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | | :----- | :------- | :------- | :--------- | | Interest Expense | $19.1 million | $20.7 million | -$1.6 million | - The decrease in interest expense was due to debt refinancing transactions completed on May 31, 2024[17] Other Income (Expense), Net Other Income (Expense), Net Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | | :----- | :------- | :------- | :--------- | | Other Income (Expense), Net | -$6.6 million | -$1.0 million | -$5.6 million | - Other expense for YTD 2024 included a $4.4 million write-off of unamortized previously deferred debt financing fees and a $1.8 million prepayment fee related to the early retirement of the unsecured Subordinated Credit Facility[25] Net Income and Earnings Per Share (EPS) Net Income and EPS Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | Change (%) | | :----- | :------- | :------- | :--------- | :--------- | | Net Income | $16.2 million | $17.0 million | -$0.8 million | -4.7% | | EPS | $0.62 | $0.65 | -$0.03 | -4.6% | | Adjusted EPS | $0.84 | $0.68 | +$0.16 | +23.5% | Adjusted EBITDA Adjusted EBITDA Performance | Metric | YTD 2024 | YTD 2023 | Change ($) | Change (%) | | :----- | :------- | :------- | :--------- | :--------- | | Adjusted EBITDA | $63.6 million | $62.1 million | +$1.5 million | +2.4% | | Adjusted EBITDA % of Sales | 19.4% | 18.7% | | +70 bps | Operational Overview & Outlook Backlog and Incoming Orders The company's backlog of orders decreased year-over-year but increased since the end of 2023, with incoming orders for the first six months of 2024 showing a solid increase of 6.3% compared to the prior year Backlog of Orders | Metric | June 30, 2024 | June 30, 2023 | Dec 31, 2023 | | :----- | :------------ | :------------ | :----------- | | Backlog of Orders | $224.4 million | $249.8 million | $218.1 million | - Incoming orders for the first six months of 2024 were $341.4 million, an increase of 6.3% compared to the same period in 2023[19] Management Commentary President and CEO Scott A. King highlighted solid incoming order growth and improved gross margin and adjusted earnings due to pricing strategies, with a focus on top-line growth through backlog reduction and significant interest savings from recent refinancing - Incoming orders have continued at a solid pace, up over 6% year-to-date, leading to an increase in backlog since the end of 2023[20] - Pricing strategies contributed to improved gross margin and increased adjusted earnings[20] - Focus for the second half of the year is on top-line growth through backlog reduction, delivering strong gross margin and earnings[20] - The recent debt refinancing is expected to result in significant interest savings going forward[20] Cash Flow and Capital Expenditures Net cash provided by operating activities decreased for the first six months of 2024 due to working capital needs, with capital expenditures primarily for machinery and equipment, and total debt, net of cash, decreasing by $17.5 million Net Cash Provided by Operating Activities | Metric | YTD 2024 | YTD 2023 | Change ($) | | :----- | :------- | :------- | :--------- | | Net cash provided by operating activities | $33.4 million | $37.9 million | -$4.5 million | - Capital expenditures for the first six months of 2024 were $7.1 million, primarily for machinery and equipment[27] - Capital expenditures for the full-year 2024 are planned to be approximately $20.0 million[27] - Total debt, net of cash, decreased $17.5 million during the first six months of 2024[27] Supplemental Information About The Gorman-Rupp Company The Gorman-Rupp Company, founded in 1933, is a leading designer, manufacturer, and international marketer of pumps and pump systems for diverse liquid-handling applications across various markets - The Gorman-Rupp Company designs, manufactures, and markets pumps and pump systems for diverse liquid-handling applications in markets such as water, wastewater, construction, industrial, petroleum, agriculture, and fire suppression[28] Non-GAAP Financial Measures This section defines non-GAAP financial measures such as adjusted earnings, adjusted earnings per share, and Adjusted EBITDA, explaining their exclusion of non-comparable factors like amortization of customer backlog, debt financing write-offs, refinancing costs, and non-cash LIFO expense - Non-GAAP measures (adjusted earnings, adjusted EPS, Adjusted EBITDA) exclude items like amortization of customer backlog, write-off of deferred debt financing fees, refinancing costs, and non-cash LIFO expense[21][29] - These measures are used by management to assess comparative operations and underlying liquidity without distortion from non-comparable factors and are not intended to replace GAAP measures[21][29] LIFO Inventory Method The company primarily values inventories using the last-in, first-out (LIFO) method, stated at the lower of cost or market, with the simplified LIFO method used and interim calculations subject to quarterly adjustments based on estimated inflation - The majority of inventories are valued using the last-in, first-out (LIFO) method at the lower of cost or market[30] - The simplified LIFO method is used, with the LIFO reserve determined by the Producer Price Index for Machinery and Equipment – Pumps, Compressors and Equipment[30] - Interim LIFO calculations are estimates and subject to quarterly adjustment based on expected year-end inflation[30] Forward-Looking Statements This cautionary statement highlights that the news release contains forward-looking statements based on assumptions about operations, future results, and prospects, which are subject to various economic, political, technological, and company-specific risks and uncertainties that could cause actual results to differ materially - This release contains forward-looking statements subject to risks and uncertainties, including economic conditions, supply chain, acquisition integration, debt impact, market competition, raw material costs, cybersecurity, and regulatory compliance, which could cause actual results to differ materially. The company disclaims any obligation to update these statements[31] Financial Statements Condensed Consolidated Statements of Income Presents the unaudited income statement for the three and six months ended June 30, 2024, and 2023, detailing net sales, cost of products sold, gross profit, operating expenses, interest, other income/expense, income before taxes, provision for income taxes, net income, and earnings per share Condensed Consolidated Statements of Income (thousands of dollars, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $169,513 | $171,024 | $328,781 | $331,490 | | Cost of products sold | 115,434 | 119,366 | 226,308 | 234,309 | | Gross profit | 54,079 | 51,658 | 102,473 | 97,181 | | Selling, general and administrative expenses | 24,930 | 24,193 | 49,818 | 47,430 | | Amortization expense | 3,100 | 3,182 | 6,178 | 6,373 | | Operating income | 26,049 | 24,283 | 46,477 | 43,378 | | Interest expense | (9,048) | (10,485) | (19,120) | (20,672) | | Other income (expense), net | (6,331) | (536) | (6,603) | (969) | | Income before income taxes | 10,670 | 13,262 | 20,754 | 21,737 | | Provision for income taxes | 2,335 | 2,785 | 4,535 | 4,740 | | Net income | $8,335 | $10,477 | $16,219 | $16,997 | | Earnings per share | $0.32 | $0.40 | $0.62 | $0.65 | Condensed Consolidated Balance Sheets Presents the unaudited condensed consolidated balance sheets as of June 30, 2024, and December 31, 2023, detailing assets (current, property, other, goodwill/intangibles) and liabilities and shareholders' equity (current, pension, postretirement, long-term debt, other long-term, equity) Condensed Consolidated Balance Sheets (thousands of dollars, except share data) | Metric | June 30, 2024 | December 31, 2023 | | :----------------------------------------------- | :------------ | :---------------- | | Assets | | | | Cash and cash equivalents | $34,245 | $30,518 | | Accounts receivable, net | 96,952 | 89,625 | | Inventories, net | 101,698 | 104,156 | | Prepaid and other | 13,526 | 11,812 | | Total current assets | 246,421 | 236,111 | | Property, plant and equipment, net | 133,827 | 134,872 | | Other assets | 22,521 | 24,841 | | Goodwill and other intangible assets, net | 488,291 | 494,534 | | Total assets | $891,060 | $890,358 | | Liabilities and shareholders' equity | | | | Accounts payable | $29,082 | $23,277 | | Current portion of long-term debt | 18,500 | 21,875 | | Accrued liabilities and expenses | 53,186 | 55,524 | | Total current liabilities | 100,768 | 100,676 | | Pension benefits | 11,337 | 11,500 | | Postretirement benefits | 22,840 | 22,786 | | Long-term debt, net of current portion | 376,880 | 382,579 | | Other long-term liabilities | 20,676 | 23,358 | | Total liabilities | 532,501 | 540,899 | | Shareholders' equity | 358,559 | 349,459 | | Total liabilities and shareholders' equity | $891,060 | $890,358 | | Shares outstanding | 26,227,540 | 26,193,998 | Condensed Consolidated Statements of Cash Flows Presents the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2024, and 2023, detailing cash flows from operating, investing, and financing activities, and the effect of exchange rate changes on cash Condensed Consolidated Statements of Cash Flows (thousands of dollars, except share data) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Cash flows from operating activities: | | | | Net income | $16,219 | $16,997 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation and amortization | 14,089 | 14,158 | | LIFO expense | 2,127 | 4,440 | | Pension expense | 1,326 | 1,617 | | Stock based compensation | 1,955 | 1,606 | | Contributions to pension plans | (595) | — | | Amortization of debt issuance fees | 5,814 | 1,481 | | Gain on sale of property, plant, and equipment | (1,058) | — | | Other | 200 | 30 | | Changes in operating assets and liabilities: | | | | Accounts receivable, net | (7,693) | (8,645) | | Inventories, net | (426) | (8,959) | | Accounts payable | 5,990 | 4,435 | | Commissions payable | 241 | 142 | | Deferred revenue and customer deposits | (1,704) | 2,365 | | Income taxes | 5 | 2,374 | | Accrued expenses and other | (3,812) | 2,235 | | Benefit obligations | 719 | 3,580 | | Net cash provided by operating activities | 33,397 | 37,856 | | Cash flows from investing activities: | | | | Capital additions | (7,131) | (13,270) | | Proceeds from sale of property, plant, and equipment | 2,116 | — | | Other | 53 | 367 | | Net cash used for investing activities | (4,962) | (12,903) | | Cash flows from financing activities: | | | | Cash dividends | (9,433) | (9,148) | | Treasury share repurchases | (267) | (1,029) | | Proceeds from bank borrowings | 400,000 | 5,000 | | Payments to banks for borrowings | (413,750) | (13,750) | | Debt issuance fees | (746) | — | | Other | (34) | (534) | | Net cash used for financing activities | (24,230) | (19,461) | | Effect of exchange rate changes on cash | (478) | (102) | | Net increase in cash and cash equivalents | 3,727 | 5,390 | | Cash and cash equivalents: | | | | Beginning of period | 30,518 | 6,783 | | End of period | $34,245 | $12,173 | Non-GAAP Financial Reconciliations Provides detailed reconciliations of non-GAAP financial measures, including Adjusted earnings, Adjusted earnings per share, and Adjusted EBITDA, to their most directly comparable GAAP measures for the three and six months ended June 30, 2024, and 2023 Adjusted Earnings (thousands of dollars) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Reported net income – GAAP basis | $8,335 | $10,477 | $16,219 | $16,997 | | Amortization of acquired customer backlog | — | 344 | — | 857 | | Write-off of unamortized previously deferred debt financing fees | 3,506 | — | 3,506 | — | | Refinancing costs | 2,413 | — | 2,413 | — | | Non-GAAP adjusted earnings | $14,254 | $10,821 | $22,138 | $17,854 | Adjusted Earnings Per Share | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Reported earnings per share – GAAP basis | $0.32 | $0.40 | $0.62 | $0.65 | | Amortization of acquired customer backlog | — | 0.01 | — | 0.03 | | Write-off of unamortized previously deferred debt financing fees | 0.13 | — | 0.13 | — | | Refinancing costs | 0.09 | — | 0.09 | — | | Non-GAAP adjusted earnings per share | $0.54 | $0.41 | $0.84 | $0.68 | Adjusted EBITDA (thousands of dollars) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Reported net income – GAAP basis | $8,335 | $10,477 | $16,219 | $16,997 | | Interest expense | 9,048 | 10,485 | 19,120 | 20,672 | | Provision for income taxes | 2,335 | 2,785 | 4,535 | 4,740 | | Depreciation and amortization expense | 7,024 | 7,114 | 14,089 | 14,158 | | Non-GAAP earnings before interest, taxes, depreciation and amortization | 26,742 | 30,861 | 53,963 | 56,567 | | Amortization of acquired customer backlog | — | 434 | — | 1,085 | | Write-off of unamortized previously deferred debt financing fees | 4,438 | — | 4,438 | — | | Refinancing costs | 3,055 | — | 3,055 | — | | Non-cash LIFO expense | 1,134 | 2,409 | 2,127 | 4,440 | | Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization | $35,369 | $33,704 | $63,583 | $62,092 |