Mueller Water Products(MWA) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Presents unaudited financials showing Q2 profitability growth despite a six-month sales decline, driven by improved margins Condensed Consolidated Financial Statements (Balance Sheet, Operations, Cash Flow) Financials show a slight asset increase, doubled Q2 net income, and significantly improved six-month operating cash flow Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Total current assets | $748.6 | $706.8 | | Total assets | $1,539.4 | $1,505.0 | | Total current liabilities | $212.3 | $218.8 | | Long-term debt | $448.0 | $446.7 | | Total liabilities | $784.9 | $793.5 | | Total stockholders' equity | $754.5 | $711.5 | Condensed Consolidated Statements of Operations (in millions, except per share amounts) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $353.4 | $332.9 | $609.8 | $647.7 | | Gross profit | $130.4 | $97.8 | $216.7 | $191.0 | | Operating income | $63.5 | $32.9 | $86.3 | $66.9 | | Net income | $44.3 | $21.3 | $58.6 | $43.8 | | Diluted EPS | $0.28 | $0.14 | $0.37 | $0.28 | Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Category | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $62.2 | $(22.2) | | Net cash used in investing activities | $(15.7) | $(15.4) | | Net cash used in financing activities | $(31.4) | $(20.1) | | Net change in cash and cash equivalents | $18.9 | $(57.3) | Notes to Condensed Consolidated Financial Statements Disclosures detail segment performance, amended borrowing arrangements, stock compensation, and various contingencies - The company operates in two segments, Water Flow Solutions and Water Management Solutions, with business being seasonal[25][27] - On March 28, 2024, the company amended its Asset-Based Lending (ABL) agreement, extending the maturity date to March 2029 and decreasing interest rate margins[55] - Stock-based compensation expense was $3.0 million for the three months and $6.4 million for the six months ended March 31, 2024[78] Segment Net Revenue and Operating Income (in millions) | Segment / Period | Net Revenue (Q2'24) | Net Revenue (Q2'23) | Operating Income (Q2'24) | Operating Income (Q2'23) | | :--- | :--- | :--- | :--- | :--- | | Water Flow Solutions | $205.8 | $157.2 | $52.6 | $15.2 | | Water Management Solutions | $147.6 | $175.7 | $29.0 | $31.7 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 sales growth driven by pricing, significant margin expansion, and provides a full-year outlook Overview Management addresses operational challenges, including supply interruptions and a cybersecurity incident, and provides a fiscal 2024 outlook - The Israel-Hamas war caused a temporary shutdown and ongoing supply interruptions at the company's facility in Ariel, Israel[103][104] - A cybersecurity incident in October 2023 caused temporary operational disruptions, incurring approximately $1.5 million of related expenses in Q1 2024[105][106][107] - For fiscal year 2024, the company anticipates consolidated net sales will be flat to down two percent compared with fiscal year 2023[108] Results of Operations A detailed analysis reveals consolidated Q2 sales growth and margin expansion, driven by the Water Flow Solutions segment Q2 2024 vs Q2 2023 Consolidated Performance (in millions) | Metric | Q2 2024 | Q2 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $353.4 | $332.9 | +6.2% | | Gross Profit | $130.4 | $97.8 | +33.3% | | Gross Margin | 36.9% | 29.4% | +750 bps | Q2 2024 Segment Net Sales Performance (in millions) | Segment | Q2 2024 | Q2 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Water Flow Solutions | $205.8 | $157.2 | +30.9% | | Water Management Solutions | $147.6 | $175.7 | -16.0% | Six Months 2024 vs 2023 Consolidated Performance (in millions) | Metric | H1 2024 | H1 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $609.8 | $647.7 | -5.9% | | Gross Profit | $216.7 | $191.0 | +13.5% | | Gross Margin | 35.5% | 29.5% | +600 bps | Liquidity and Capital Resources The company maintains a solid liquidity position, details capital allocation activities, and projects capital expenditures for fiscal 2024 - As of March 31, 2024, the company had $179.2 million in cash and $162.6 million of additional borrowing capacity under its ABL[141] - During the six months ended March 31, 2024, the company repurchased $10.0 million of its common stock, with $80.0 million remaining under authorization[142] - Net cash provided by operating activities was $62.2 million for the six months ended March 31, 2024, a significant improvement from a $22.2 million use of cash in the prior year[144] - Capital expenditures are expected to be between $40.0 million and $45.0 million for fiscal year 2024[145] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[167] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2024, that materially affected internal controls[165] PART II. OTHER INFORMATION Legal Proceedings The company refers to financial statement notes for details on legal proceedings arising from normal business operations - For details on legal proceedings, the report refers to Note 10 of the financial statements[171] Risk Factors The report references the 2023 Annual Report for a comprehensive discussion of risk factors, with no material changes noted - The company states that readers should consider the factors discussed in PART I, "Item 1A. RISK FACTORS" in its 2023 Annual Report on Form 10-K[172] Unregistered Sales of Equity Securities and Use of Proceeds The company details its Q2 share repurchase activity and the remaining authorization under its stock buyback program - As of March 31, 2024, the company had $80.0 million remaining under its share repurchase authorization[174] Share Repurchase Activity (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | :--- | | Jan 2024 | — | $— | — | $90.0 | | Feb 2024 | 646,741 | $15.68 | 636,789 | $80.0 | | Mar 2024 | — | $— | — | $80.0 | Exhibits This section lists key exhibits filed with the report, including credit agreement amendments and executive certifications - Key exhibits filed include the Seventh Amendment to the Credit Agreement, CEO/CFO certifications, and financial data in XBRL format[178]