The Gorman-Rupp pany(GRC) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details unaudited financial statements, management's discussion and analysis, market risk, and internal controls Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Q3 and nine months ended September 30, 2023 and 2022, along with detailed notes on accounting policies and the Fill-Rite acquisition Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $167,456 | $153,792 | $498,946 | $375,026 | | Gross profit | $48,134 | $40,563 | $145,315 | $94,299 | | Operating income | $21,875 | $15,311 | $65,253 | $27,676 | | Net income | $8,978 | $2,221 | $25,975 | $8,768 | | Earnings per share | $0.34 | $0.09 | $0.99 | $0.34 | Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $233,129 | $225,526 | | Total assets | $891,377 | $872,830 | | Total current liabilities | $102,446 | $85,213 | | Total liabilities | $544,597 | $541,636 | | Total equity | $346,780 | $331,194 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $71,659 | $12,508 | | Net cash used for investing activities | ($16,309) | ($537,242) | | Net cash provided by (used for) financing activities | ($43,404) | $411,087 | | Net increase (decrease) in cash | $11,406 | ($114,906) | - On May 31, 2022, the Company acquired Fill-Rite for cash consideration of $528.0 million, funded with new debt and cash on hand, with acquisition results included from that date[20][21] Net Sales by End Market - Nine Months Ended Sep 30 (in thousands) | End Market | 2023 | 2022 | | :--- | :--- | :--- | | Industrial | $103,886 | $72,452 | | Fire | $109,211 | $88,237 | | Agriculture | $65,292 | $37,571 | | Construction | $66,723 | $42,581 | | Municipal | $55,831 | $51,940 | | Petroleum | $16,440 | $11,506 | | OEM | $28,223 | $25,802 | | Repair parts | $53,340 | $44,937 | | Total net sales | $498,946 | $375,026 | - As of September 30, 2023, the company's backlog was $237.5 million, expected to be recognized as revenue within one year[27] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, analyzing revenue, profitability, liquidity, and cash flows for the periods presented - The company's order backlog was $237.5 million at September 30, 2023, a decrease from $266.7 million in 2022, though incoming orders for the first nine months of 2023 increased by 6.9%[58] - The Board of Directors authorized a quarterly dividend of $0.18 per share, marking the company's 295th consecutive quarterly dividend[59] - The company maintains an optimistic outlook, supported by a strong backlog and expanded capacity from the new Fill-Rite manufacturing facility[61] Results of Operations - Three Months Ended Sep 30, 2023 vs 2022 Q3 2023 net sales grew 8.9% to $167.5 million, with gross margin improving 230 basis points and net income increasing over 300%, driven by sales leverage and favorable cost management Q3 Net Sales by Market (in thousands) | End Market | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Industrial | $34,777 | $32,093 | $2,684 | 8.4% | | Fire | $35,986 | $31,785 | $4,201 | 13.2% | | Construction | $23,388 | $19,886 | $3,502 | 17.6% | | Petroleum | $5,801 | $4,832 | $969 | 20.1% | | OEM | $9,730 | $7,767 | $1,963 | 25.3% | | Repair parts | $17,698 | $15,250 | $2,448 | 16.1% | | Total net sales | $167,456 | $153,792 | $13,664 | 8.9% | - Gross margin for Q3 2023 increased to 28.7% from 26.4% in Q3 2022, a 230 basis point improvement driven by better material costs and price realization, partially offset by higher labor and overhead[64] - Q3 2023 operating income rose 42.9% to $21.9 million (13.1% margin) from $15.3 million (10.0% margin) in Q3 2022, driven by improved gross margin and sales leverage[68] - Net income for Q3 2023 was $9.0 million ($0.34 per share), a 304.2% increase from $2.2 million ($0.09 per share) in Q3 2022, with the prior year impacted by a $4.8 million non-cash pension settlement charge[70][71][72] Results of Operations - Nine Months Ended Sep 30, 2023 vs 2022 For the first nine months of 2023, net sales rose 33.0% to $498.9 million, driven by the Fill-Rite acquisition and organic growth, resulting in substantial improvements in gross margin, operating income, and net income - Net sales for the first nine months of 2023 increased 33.0% to $498.9 million, driven by full nine-month Fill-Rite sales, increased volume, and 4.0% - 5.0% pricing increases[73] - Gross margin for the first nine months of 2023 improved by 400 basis points to 29.1% from 25.1%, due to favorable material costs, price realization, and better labor/overhead leverage from higher sales volume[76] - Operating income for the nine-month period was $65.3 million (13.1% margin), a 135.8% increase from $27.7 million (7.4% margin) in 2022, with the prior year including $7.0 million in one-time acquisition costs and $1.4 million in inventory step-up amortization[79] - Net income for the first nine months of 2023 was $26.0 million ($0.99 per share), compared to $8.8 million ($0.34 per share) for the same period in 2022[84] Non-GAAP Financial Information This section reconciles GAAP to non-GAAP financial measures, including adjusted EPS, by excluding specific non-recurring items to provide a clearer view of underlying operational performance Reconciliation of Reported to Non-GAAP Adjusted EPS | | Three Months Ended Sep 30, | Nine Months Ended Sep 30, | | :--- | :--- | :--- | | Per Share Data | 2023 | 2022 | 2023 | 2022 | | Reported EPS – GAAP basis | $0.34 | $0.09 | $0.99 | $0.34 | | Plus: Pension settlement charge | - | $0.14 | - | $0.19 | | Plus: One-time acquisition costs | - | - | - | $0.21 | | Plus: Amortization of inventory step-up | - | - | - | $0.04 | | Plus: Amortization of customer backlog | - | $0.02 | $0.03 | $0.03 | | Non-GAAP adjusted EPS | $0.34 | $0.25 | $1.02 | $0.81 | Liquidity and Capital Resources The company's liquidity relies on cash from operations and its credit facility, with significant operational cash flow growth and planned capital expenditures, while maintaining compliance with debt covenants - Primary liquidity sources are cash from operations and the credit facility, with $18.2 million cash and $96.3 million available under the revolving credit facility as of September 30, 2023[87] - Total debt outstanding was $420.1 million as of September 30, 2023, with the company in compliance with all debt covenants[88] - Full-year 2023 capital expenditures are planned to be approximately $20 million, primarily for building improvements and machinery[89] Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $71,659 | $12,508 | | Net cash used for investing activities | ($16,309) | ($537,242) | | Net cash provided by (used for) financing activities | ($43,404) | $411,087 | Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate and foreign currency fluctuations, managing interest rate risk with swaps and foreign currency risk by invoicing in local currencies - The company's primary market risks are changes in interest rates and foreign currency exchange rates[98] - To mitigate interest rate risk on variable-rate debt, the company uses interest rate swap agreements designated as cash flow hedges[100] - A hypothetical 100 basis point increase in interest rates is estimated to increase annual interest expense by approximately $2.6 million[101] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with ongoing integration of Fill-Rite's internal controls and no other material changes during the quarter - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2023[104] - The company is integrating the internal controls of the acquired Fill-Rite business, with no other material changes to internal controls during the quarter[105] PART II. OTHER INFORMATION This section covers other required disclosures, reporting no material changes to legal proceedings or risk factors, no share repurchases in Q3, and no defaults on senior securities Legal Proceedings This section reports no material changes to legal proceedings since the company's last annual report on Form 10-K - No material changes to legal proceedings were reported since the fiscal year-end 2022 Form 10-K[106] Risk Factors This section reports no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to risk factors were reported since the fiscal year-end 2022 Form 10-K[107] Issuer Purchases of Equity Securities During Q3 2023, the company did not repurchase any common shares, with approximately $48.1 million remaining available under the repurchase program Issuer Purchases of Common Shares - Q3 2023 | Period | Total number of shares purchased | Average price paid per share | Approximate dollar value of shares that may yet be purchased under the program | | :--- | :--- | :--- | :--- | | July 2023 | - | - | $48,067 | | August 2023 | - | - | $48,067 | | September 2023 | - | - | $48,067 | | Total | - | - | $48,067 |