Mueller Water Products Inc
For the period ended Mar 31, 2024. Filed May 7, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 7, 2024
MWA$24.05-2.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-09.
0001350593-24-000013
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-03-31; filed 2024-05-07.
0001350593-24-000042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 66 previous paragraphs and 85 current paragraphs.
29 unchanged; 30 reworded; 24 added; 7 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 4 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (24)
Current report
Net sales in the three months ended March 31, 2024 were $353.4 million as compared with $332.9 million in the prior year period, an increase of $20.5 million or 6.2%, primarily as a result of higher pricing across most product lines and overall increased volumes.
Current report
Gross profit in the three months ended March 31, 2024 was $130.4 million as compared with $97.8 million in the prior year period, an increase of $32.6 million or 33.3%, primarily as a result of an increase in both favorable manufacturing performance and pricing. These increases were partially offset by Cost of sales inflation of approximately 2% while inflation impacted Gross profit by approximately 3%. As a result, Gross margin was 36.9% in the three months ended March 31, 2024 as compared with 29.4% in the prior year period.
Current report
Selling, general and administrative expenses (“SG&A”) in the three months ended March 31, 2024 were $63.7 million as compared with $64.2 million in the prior year period, a decrease of $0.5 million or 0.8%, primarily due to a decrease in salary and benefit expense associated with our restructuring activities, as well as lower third-party fees, and engineering materials, partially offset by approximately 3% inflation, an increase in bad debt expense and incentives. SG&A as a percentage of net sales was 18.0% and 19.3% for the three months ended March 31, 2024 and March 31, 2023, respectively.
Current report
Net sales in the three months ended March 31, 2024 were $205.8 million as compared with $157.2 million in the prior year period, an increase of $48.6 million or 30.9%, primarily as a result of higher volumes and higher pricing across most product lines.
Current report
Gross profit in the three months ended March 31, 2024 was $77.2 million as compared with $37.2 million in the prior year period, an increase of $40.0 million or 107.5%. This increase was primarily a result of higher volumes across most product lines, favorable manufacturing performance driven by overhead, material and labor efficiencies, as well as higher pricing. Additionally, inflation negatively impacted Cost of sales by approximately 2% and Gross profit by approximately 4%. As a result, Gross margin was 37.5% in the three months ended March 31, 2024 and 23.7% in the prior year period.
Current report
SG&A in the three months ended March 31, 2024 was $24.6 million as compared with $22.0 million in the prior year period, an increase of $2.6 million or 11.8%, primarily as a result of higher incentives, inflation of approximately 3%, as well as increased travel expenses partially offset by lower salary and benefit expense associated with our restructuring activities, and third-party fees. SG&A as a percentage of net sales was 12.0% and 14.0% in the three months ended March 31, 2024 and 2023, respectively.
Current report
Net sales in the three months ended March 31, 2024 were $147.6 million as compared with $175.7 million in the prior year period, a decrease of $28.1 million or 16.0%, as a result of lower volumes across most products lines partially offset by higher pricing across most product lines. Net sales were impacted nominally by the Israel-Hamas war.
Current report
Gross profit in the three months ended March 31, 2024 was $53.2 million as compared with $60.6 million in the prior year period, a decrease of $7.4 million or 12.2%. The decrease was primarily a result of lower volumes across most product lines and impacts of the Israel-Hamas war, partially offset by favorable manufacturing performance driven by material efficiencies and lower supply chain costs and higher pricing. Gross margin was 36.0% in the three months ended March 31, 2024 as compared with 34.5% in the prior year period.
Current report
SG&A in the three months ended March 31, 2024 was $24.2 million as compared with $28.7 million in the prior year period, a decrease of $4.5 million or 15.7%, primarily due to lower salary and benefit expense associated with our restructuring activities, third-party fees and engineering material expenses, which were partially offset by increased costs related to incentives as well as approximately 4% inflation and increased bad debt expense. SG&A as a percentage of net sales was 16.4% and 16.3% in the three months ended March 31, 2024 and 2023, respectively.
Current report
SG&A in the three months ended March 31, 2024 was $14.9 million as compared with $13.5 million in the prior year period, an increase of $1.4 million or 10.4%, primarily as a result of higher incentive costs and third-party fees, as well as approximately 3% inflation.
Current report
Six Months Ended March 31, 2024 Compared to Six Months Ended March 31, 2023
Current report
Consolidated Analysis
Current report
Net sales in the six months ended March 31, 2024 were $609.8 million as compared with $647.7 million in the prior year period. a decrease of $37.9 million or 5.9%, primarily as a result of a decrease in net volumes partially offset by higher pricing across most product lines.
Current report
Gross profit in the six months ended March 31, 2024 was $216.7 million as compared with $191.0 million in the prior year period, an increase of $25.7 million or 13.5%, primarily as a result of higher pricing and favorable manufacturing performance related to labor, overhead, material and logistic efficiencies, partially offset by overall lower volumes. As a result, Gross margin increased 600 basis points to 35.5% in the six months ended March 31, 2024 as compared with 29.5% in the prior year period.
Current report
Segment Analysis
Current report
Water Flow Solutions
Current report
Net sales in the six months ended March 31, 2024 were $347.1 million as compared with $322.8 million in the prior year period, an increase of $24.3 million or 7.5%, primarily as a result of higher pricing and higher volumes across most product lines.
Current report
SG&A in the six months ended March 31, 2024 was $43.8 million as compared with $44.4 million in the prior year period, a decrease of $0.6 million or 1.4%, primarily as a result of lower salary and benefit expense associated with our restructuring activities, and third-party fees, partially offset by approximately 3% inflation and increased incentives. SG&A as a percentage of net sales was 12.6% and 13.8% in the six months ended March 31, 2024 and 2023, respectively.
Current report
Water Management Solutions
Current report
Gross profit in the six months ended March 31, 2024 was $92.9 million as compared with $107.2 million in the prior year period, a decrease of $14.3 million or 13.3%. This decrease was primarily a result of lower volumes, offset by pricing and favorable manufacturing performance. Gross margin was 35.4% in the six months ended March 31, 2024 and 33.0% in the prior year period. Additionally, Cost of sales and Gross margin were impacted approximately 1% by deflation.
Current report
Corporate
Current report
SG&A in the six months ended March 31, 2024 was $28.0 million as compared with $27.0 million in the prior year period, an increase of $1.0 million or 3.7%, primarily as a result of higher costs associated with approximately 3% inflation, increased incentives, higher third-party fees and unfavorable foreign currency fluctuation, partially offset by lower salary and benefit expense associated with our restructuring activities, and lower travel expense.
Current report
On March 28, 2024, we amended our ABL to, among other things, (i) extend the maturity date from July 29, 2025 to the earlier of (a) March 28, 2029 and (b) 91 days prior to the stated maturity date of the Company’s 4.0% Senior Notes due June 15, 2029 (as may be extended from time to time in accordance with the Indenture governing the notes) if the 4.0% Senior Notes are then outstanding, (ii) decrease the grid-based interest rate margins by approximately 50 basis points to 150 basis points for Secured Overnight Financing Rate (“SOFR”) loans and 50 basis points for base rate loans when average availability is greater than 50% of the aggregate revolving commitments, and to 175 basis points for SOFR loans and 75 basis points for base rate loans, when average availability is less than or equal to 50% of the aggregate revolving credit commitments and (iii) replace the previously fixed 37.5 basis point unused commitment fee with a grid-based, quarterly unused commitment fee equal to (a) 37.5 basis points if average daily outstanding credit extensions for such quarter under the ABL (“Total Outstandings”) are less than or equal to 50% of the aggregate revolving credit commitments or (b) 25.0 basis points if Total Outstandings for such quarter are greater than or equal to 50% of the aggregate revolving credit commitments. We incurred approximately $0.8 million in debt issuance costs in connection with the ABL amendment which were capitalized and will be amortized over the term of the ABL.
Current report
The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum when the unused capacity is above 50% of the credit commitments, with a step down to 25.0 basis points per annum when unused capacity is less than or equal to 50% of the credit commitments. At March 31, 2024, the commitment fee was 37.5 basis points.
Removed paragraphs (7)
Previous report
Net sales in the three months ended December 31, 2023 decreased $58.4 million or 18.6% to $256.4 million as compared with $314.8 million in the prior year period primarily as a result of a decrease in volumes in both Water Flow Solutions and Water Management Solutions, which were partially offset by higher pricing across most product lines.
Previous report
Gross profit in the three months ended December 31, 2023 decreased $6.9 million or 7.4% to $86.3 million from $93.2 million in the prior year period primarily as a result of lower volumes in both Water Flow Solutions and Water Management Solutions. This decrease was partially offset by higher pricing across most of our product lines, favorable manufacturing performance within both of our segments as well as lower manufacturing and supply chain costs. As a result, Gross margin was 33.7% in the three months ended December 31, 2023 as compared with 29.6% in the prior year period.
Previous report
The reconciliation between the U.S. federal statutory income tax rate and the effective income tax rate is presented below:
Previous report
SG&A in the three months ended December 31, 2023 decreased $3.2 million to $19.2 million from $22.4 million in the prior year period primarily as a result of lower personnel expenses and sales commission expense partially offset by higher costs associated with inflation. SG&A as a percentage of net sales was 13.6% and 13.5% in the three months ended December 31, 2023 and 2022, respectively.
Previous report
Net sales in the three months ended December 31, 2023 decreased $34.1 million or 22.9% to $115.1 million as compared with $149.2 million in the prior year period primarily as a result of lower volumes in certain product lines partially offset by higher pricing across most product lines and an increase in volumes in gas products.
Previous report
Gross profit in the three months ended December 31, 2023 was $39.7 million as compared with $46.6 million in the prior year period. Gross margin increased to 34.5% in the three months ended December 31, 2023 as compared with 31.2% in the prior year period primarily as a result of higher pricing across most products lines, favorable manufacturing performance driven by labor and overhead efficiencies, as well as lower manufacturing and supply chain costs, which were partially offset by lower volumes across most product lines.
Previous report
SG&A decreased $0.4 million to $13.1 million in the three months ended December 31, 2023 as compared with $13.5 million in the three months ended December 31, 2022 primarily as a result of lower personnel expenses partially offset by unfavorable foreign currency fluctuations, and higher costs associated with inflation.
Reworded paragraphs (30)
Previous wording
Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including, without limitation, legal, reputational, audit and financial risks resulting from previously reported cybersecurity incidents and possible future cybersecurity incidents, the effectiveness of the Company’s business continuity plans related thereto, and the Company’s ability to recover under its cybersecurity insurance policies; logistical challenges and supply chain disruptions, geopolitical conditions, including the Israel-Hamas war, public health crises, or other events; inventory and in-stock positions of our distributors and end customers; an inability to realize the anticipated benefits from our operational initiatives, including our large capital investments in Chattanooga and Kimball, Tennessee, and Decatur, Illinois, plant closures, and reorganization and related strategic realignment activities; an inability to attract or retain a skilled and diverse workforce, including executive officers, increased competition related to the workforce and labor markets; an inability to protect the Company’s information systems against further service interruption, misappropriation of data or breaches of security; failure to comply with personal data protection and privacy laws; cyclical and changing demand in core markets such as municipal spending, residential construction, and natural gas distribution; government monetary or fiscal policies; the impact of adverse weather conditions; the impact of manufacturing and product performance; the impact of wage, commodity and materials price inflation; foreign exchange rate fluctuations; the impact of warranty charges and claims, and related accommodations; the strength of our brands and reputation; an inability to successfully resolve significant legal proceedings or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; climate change and legal or regulatory responses thereto; changing regulatory, trade and tariff conditions; the failure to integrate and/or realize any of the anticipated benefits of acquisitions or divestitures; an inability to achieve some or all of our Environmental, Social, and Governance goals; and other factors that are described in the section entitled “RISK FACTORS” in Item 1A of the Company’s most recent Annual Report on Form 10-K and later filings on Form 10-Q, as applicable.
Current wording
Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including, without limitation, legal, reputational, audit and financial risks resulting from previously reported cybersecurity incidents and possible future cybersecurity incidents, the effectiveness of the Company’s business continuity plans related thereto, and the Company’s ability to recover under its cybersecurity insurance policies; logistical challenges and supply chain disruptions, geopolitical conditions, including the Israel-Hamas war, public health crises, or other events; inventory and in-stock positions of our distributors and end customers; an inability to realize the anticipated benefits from our operational initiatives, including our large capital investments in Chattanooga and Kimball, Tennessee, and Decatur, Illinois, plant closures, and reorganization and related strategic realignment activities; an inability to attract or retain a skilled and diverse workforce, including executive officers, increased competition related to the workforce and labor markets; an inability to protect the Company’s information systems against further service interruption, misappropriation of data or breaches of security; failure to comply with personal data protection and privacy laws; cyclical and changing demand in core markets such as municipal spending, residential construction, and natural gas distribution; government monetary or fiscal policies; the impact of adverse weather conditions; the impact of manufacturing and product performance; the impact of wage, commodity and materials price inflation; foreign exchange rate fluctuations; the impact of higher interest rates; the impact of warranty charges and claims, and related accommodations; the strength of our brands and reputation; an inability to successfully resolve significant legal proceedings or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; climate change and legal or regulatory responses thereto; changing regulatory, trade and tariff conditions; the failure to integrate and/or realize any of the anticipated benefits of acquisitions or divestitures; an inability to achieve some or all of our Environmental, Social and Governance goals; and other factors that are described in the section entitled “RISK FACTORS” in Item 1A of the Company’s most recent Annual Report on Form 10-K and later filings on Form 10-Q, as applicable.
Previous wording
In October 2023, the Israel-Hamas war caused a temporary shutdown of our facility in Ariel, Israel. While we have reopened the facility, the war increases the likelihood of supply interruptions and may hinder our ability to acquire the necessary materials we need to make our products. Supply disruptions from lack of access to materials have impacted, and continue to impact, our ability to produce and deliver our products from our facility in Ariel, Israel. Additionally, production has been impacted by labor availability.
Current wording
In October 2023, the Israel-Hamas war caused a temporary shutdown of our facility in Ariel, Israel. While we have reopened the facility, the war has caused supply interruptions and may hinder our ability to acquire the necessary materials we need to make our products. Supply disruptions from lack of access to materials have adversely impacted, and continue to adversely impact, our ability to produce and deliver our products from our facility in Ariel, Israel. Additionally, production at this facility has been adversely impacted by limited labor availability in the region. We have made investments in recruiting and training new team members, expanding our suppliers and expediting product shipments to increase production levels and meet customer delivery times.
Previous wording
As announced on October 28, 2023, we identified a cybersecurity incident impacting certain internal operations and information technology systems. Based on the information reviewed to date, we believe the unauthorized activity has been contained. All of our facilities are operational and have returned to normalized operations.
Current wording
As announced on October 28, 2023, we identified a cybersecurity incident impacting certain internal operations and information technology systems. We believe we have contained and eliminated the unauthorized access and activity. All of our facilities are fully operational and have returned to normalized operations.
Previous wording
The cybersecurity incident consisted of unauthorized access and deployment of ransomware by a third party to a portion of our internal information infrastructure. The incident caused temporary disruptions and limitations of access to portions of our business applications supporting aspects of our operations including shipping, receiving and payment functions. Operational delays and investigation and remediation costs in connection with the incident adversely impacted our results for the first quarter of 2024. We have restored the impacted applications and systems. As reported on November 29, 2023, we identified a separate cybersecurity incident, which primarily related to a system that was at the end of its useful life and was already in the process of being replaced in the ordinary course of business.
Current wording
The cybersecurity incident consisted of unauthorized access and deployment of ransomware by a third party to a portion of our internal information system infrastructure. The incident caused temporary disruptions and limitations of access to portions of our business applications supporting aspects of our operations including shipping, receiving and payment functions. Operational delays and investigation and remediation costs in connection with the incident adversely impacted our results for the first quarter of 2024; however, on a fiscal year-to-date basis, there was no impact to our consolidated net sales. We have restored the impacted applications and systems. As reported on November 29, 2023, we identified a separate cybersecurity incident, which primarily related to a system that was at the end of its useful life and was already in the process of being replaced in the ordinary course of business and the replacement of this system was concluded during our second quarter.
Previous wording
Although we believe that our channel and customer inventory levels normalized during the first quarter of 2024, the external operating environment remains uncertain. We expect to continue to face challenges emanating from the higher interest rate environment, the Israel-Hamas war, and labor inflation and availability. From a comparable perspective, in fiscal 2023, we benefited from fulfilling an elevated backlog for certain products, which has now become more normalized at lower levels with respect to many of our product lines as we have reduced short-cycle backlog across our portfolio, particularly with regard to iron gate valves and hydrant products. For our fiscal year 2024, we anticipate that consolidated net sales will decrease between 2 and 6 percent as compared with our fiscal year 2023. We anticipate stable demand in the municipal repair and replacement end market despite budgetary pressures on municipalities driven by the aging water infrastructure. Additionally, we anticipate that new residential construction activity will stabilize relative to the challenges in the preceding year where total housing starts decreased 12.9% in fiscal 2023 compared with the prior year according to Census data. In January 2024, Blue Chip Economic Indicators forecasted a 1.5% increase in housing starts for the calendar year 2024 as compared to the calendar year 2023. Finally, we anticipate that high interest rates will continue to impact new lot and land development, depending on the geography.
Current wording
Although we believe that our channel and customer inventory levels normalized during the first quarter of 2024, the external operating environment remains uncertain. We expect to continue to face challenges emanating from the higher interest rate environment, the Israel-Hamas war and labor inflation and availability. From a comparable perspective, in fiscal year 2023, we benefited from fulfilling an elevated backlog for certain products, which has now become more normalized as we have reduced short-cycle backlog across our portfolio, particularly with regard to iron gate valve and hydrant products. For fiscal year 2024, we anticipate that consolidated net sales will be flat to down two percent as compared with fiscal year 2023. We anticipate stable demand in the municipal repair and replacement end market driven by the aging water infrastructure despite budgetary pressures on municipalities. Additionally, we anticipate that new residential construction activity will stabilize relative to the challenges we experienced in fiscal 2023 where Census data indicates that total housing starts decreased 12.9% compared to 2022. In April 2024, Blue Chip Economic Indicators forecasted a 0.7% increase in housing starts for the calendar year 2024 as compared to the calendar year 2023. Finally, we anticipate that high interest rates will continue to negatively impact new lot and land development, depending on the geography.
Previous wording
For the remainder of fiscal 2024, we anticipate that inflation will continue leading to a modest increase in manufacturing costs. We expect external challenges to persist during the balance of our fiscal year 2024. We will continue to monitor the market and economic conditions impacting our business and to take appropriate actions related thereto.
Current wording
For the remainder of fiscal 2024, we anticipate that inflation will continue to modestly impact manufacturing costs, primarily due to wage inflation but also raw materials and purchased parts. Inventory for the first half of fiscal 2024 experienced approximately 0.1% deflation. We expect external challenges to persist during the balance of fiscal year 2024. We will continue to monitor the market and economic conditions impacting our business and take appropriate actions to address inflationary and other cost pressures such as price increases, cost containment measures and supplier management, among other things.
Previous wording
Net interest expense in the three months ended December 31, 2023 declined $0.4 million or 10.8% to $3.3 million as compared with $3.7 million in the prior year period primarily due to higher interest income as a result of higher interest rates, partially offset by lower capitalized interest. The components of net interest expense are provided below:
Current wording
Net interest expense in the three months ended March 31, 2024 was $3.6 million as compared with $3.9 million in the prior year period, a decrease of $0.3 million or 7.7%, primarily due to higher interest income as a result of higher interest rates, partially offset by lower capitalized interest. The components of net interest expense are provided below:
Previous wording
Selling, general and administrative expenses (“SG&A”) in the three months ended December 31, 2023 decreased $6.0 million or 9.5% to $56.9 million from $62.9 million in the prior year period primarily due to a decrease in personnel expense and sales commission expense, partially offset by foreign exchange effects and higher costs associated with inflation. SG&A as a percentage of net sales was 22.2% and 20.0% for the three months ended December 31, 2023 and December 31, 2022, respectively.
Current wording
Selling, general and administrative expenses (“SG&A”) in the six months ended March 31, 2024 were $120.6 million as compared with $127.1 million in the prior year period, a decrease of $6.5 million or 5.1%, primarily due to a decrease in salary and benefit expense associated with our restructuring activities, third-party fees, commission, and engineering materials expense, partially offset by higher costs associated with approximately 3% inflation, the impact of foreign currency fluctuation and higher incentives. SG&A as a percentage of net sales was 19.8% and 19.6% for the six months ended March 31, 2024 and March 31, 2023, respectively.
Previous wording
Strategic reorganization and other charges in the three months ended December 31, 2023 was $6.6 million which primarily consisted of expenses associated with our previously announced leadership transition, approximately $1.5 million of expenses related to the cybersecurity incidents, and certain transaction-related expenses. Strategic reorganization and other charges for the three months ended December 31, 2022 was a benefit of $3.7 million, which primarily consisted of a $4.0 million gain, before tax, on the sale of the Aurora, Illinois facility, which was partially offset by certain transaction-related expenses.
Current wording
Strategic reorganization and other charges in the six months ended March 31, 2024 were $9.8 million, primarily consisting of expenses associated with our previously announced leadership transition, approximately $1.5 million of expenses related to the cybersecurity incidents, severance, and certain transaction-related expenses. Strategic reorganization and other charges for the six months ended March 31, 2023 were a benefit of $3.0 million, which primarily consisted of a $4.0 million gain, before tax, on the sale of our Aurora, Illinois facility, which was partially offset by certain transaction-related expenses.
Previous wording
Other expense in the three months ended December 31, 2023 was $1.6 million from the release of an indemnification receivable related to an expired uncertain tax position. There was no Other expense in the three months ended December 31, 2022.
Current wording
Other expense in the six months ended March 31, 2024 was $1.6 million from the release of an indemnification receivable related to an expired uncertain tax position. There was no Other expense in the six months ended March 31, 2023.
Previous wording
During the three months ended December 31, 2023, we recorded $1.6 million in income tax benefits due to the release of an uncertain tax position that expired on December 31, 2023.
Current wording
During the six months ended March 31, 2024, we recorded $1.6 million in income tax benefits due to the release of an uncertain tax position that expired on December 31, 2023.
Previous wording
Gross profit in the three months ended December 31, 2023 remained unchanged at $46.6 million as compared with the prior year period. Gross margin was 33.0% in the three months ended December 31, 2023 and 28.1% in the prior year period. This increase was primarily a result of higher pricing across most product lines, favorable manufacturing performance driven by overhead, material and labor efficiencies, as well as lower manufacturing and supply chain costs, which were partially offset by lower volumes across most product lines.
Current wording
Gross profit in the six months ended March 31, 2024 was $123.8 million as compared with $83.8 million in the prior year period, an increase of $40.0 million or 47.7%. Gross margin was 35.7% in the six months ended March 31, 2024 and 26.0% in the prior year period. This increase was primarily a result of higher pricing across most product lines, favorable manufacturing performance driven by material, labor, overhead, and logistic efficiencies, and higher volumes across most product lines. Additionally, Cost of sales and Gross profit were negatively impacted by approximately 1% inflation.
Previous wording
Net sales in the three months ended December 31, 2023 decreased $24.3 million or 14.7% to $141.3 million as compared with $165.6 million in the prior year period primarily as a result of lower volumes for most product lines partially offset by higher pricing across most product lines.
Current wording
Net sales in the six months ended March 31, 2024 were $262.7 million as compared with $324.9 million in the prior year period, a decrease of $62.2 million or 19.1%, primarily as a result of lower volumes across most product lines partially offset by higher pricing across most product lines.
Previous wording
SG&A in the three months ended December 31, 2023 decreased $2.4 million to $24.6 million from $27.0 million in the prior year period primarily due to lower personnel expenses, engineering fees, and sales commission expenses, which were partially offset by unfavorable foreign currency fluctuation and higher costs associated with inflation. SG&A as a percentage of net sales was 21.4% and 18.1% in the three months ended December 31, 2023 and 2022, respectively.
Current wording
SG&A in the six months ended March 31, 2024 was $48.8 million as compared with $55.7 million in the prior year period, a decrease of $6.9 million or 12.4%, primarily due to lower salary and benefit expense associated with our restructuring activities, third-party fees, and engineering materials expense, partially offset by unfavorable foreign currency fluctuation, and higher costs associated with approximately 4% inflation and increased incentives. SG&A as a percentage of net sales was 18.6% and 17.1% in the six months ended March 31, 2024 and 2023, respectively.
Previous wording
We had cash and cash equivalents on hand of $216.7 million at December 31, 2023 and $162.4 million of additional borrowing capacity under our ABL based on December 31, 2023 data. However, during the waiver period, as described more fully below, credit extensions were temporarily limited to $50.0 million. At December 31, 2023, cash and cash equivalents included $78.5 million, $9.2 million, and $6.8 million in Israel, Canada, and China, respectively.
Current wording
We had cash and cash equivalents on hand of $179.2 million at March 31, 2024 and $162.6 million of additional borrowing capacity under our ABL based on March 31, 2024 data. At March 31, 2024, cash and cash equivalents included $76.2 million, $1.7 million and $9.0 million in Israel, Canada, and China, respectively.
Previous wording
We did not repurchase any of our outstanding common stock during the three months ended December 31, 2023 under our publicly announced program and had $90.0 million remaining under our share repurchase authorization.
Current wording
We repurchased $10.0 million of our outstanding common stock during the six months ended March 31, 2024 under our publicly announced share repurchase program, and as of March 31, 2024, we had $80.0 million remaining under our share repurchase authorization.
Previous wording
The ABL and 4.0% Senior Notes contain customary representations and warranties, covenants and provisions governing an event of default. The covenants restrict our ability to engage in certain specified activities, including but not limited to the payment of dividends and the redemption of our common stock.
Current wording
The ABL and 4.0% Senior Notes contain customary representations and warranties, covenants and provisions governing an event of default. These covenants limit our ability to engage in certain specified activities, including but not limited to the payment of dividends and the redemption of our common stock.
Previous wording
Net cash provided by operating activities was $67.9 million during the three months ended December 31, 2023 as compared with net cash used in operating activities of $6.5 million in the prior year period. The increase in net operating cash flow was primarily driven by improvements in working capital compared with the prior year period. These included a smaller increase in Inventories, higher Receivables collections, and lower Accounts payable turnover partially as a result of payment delays associated with the cybersecurity incidents.
Current wording
Net cash provided by operating activities was $62.2 million during the six months ended March 31, 2024 as compared with net cash used in operating activities of $22.2 million in the prior year period. The increase in net operating cash flow was primarily driven by higher net income and improvements in working capital compared with the prior year period, including a reduction in Inventory purchases as well as a lesser impact of Accounts payable and Other current liabilities.
Previous wording
Capital expenditures were $5.7 million in the three months ended December 31, 2023 as compared with $9.9 million in the prior year period. Capital expenditures decreased primarily as a result of lower expenditures associated with the new Decatur foundry as compared with the prior year period. For fiscal year 2024, we have provided guidance that our capital expenditures are expected to be between $45.0 million and $50.0 million.
Current wording
Capital expenditures were $15.8 million in the six months ended March 31, 2024 as compared with $20.5 million in the prior year period. Capital expenditures decreased primarily as a result of lower expenditures associated with the new Decatur foundry as compared with the prior year period. For the fiscal year 2024, we have provided guidance that our capital expenditures are expected to be between $40.0 million and $45.0 million.
Previous wording
Our ABL is provided by a syndicate of banking institutions and consists of a revolving credit facility of $175.0 million in borrowing capacity that expires on July 29, 2025. Included in the ABL is the ability to borrow up to $25.0 million of swing line loans and up to $60.0 million of letters of credit. The ABL permits us to increase the size of the credit facility by an additional $150.0 million in certain circumstances subject to adequate borrowing base availability.
Current wording
Our ABL is provided by a syndicate of banking institutions and consists of a revolving credit facility for up to $175.0 million in borrowings that matures the earlier of (a) March 16, 2029, which is ninety-one days prior to the stated maturity date of our 4.0% Senior Notes if the Notes are still outstanding on that date or (b) March 28, 2029. The ABL includes the ability to borrow up to $25.0 million of swing line loans and up to $60.0 million of letters of credit. The ABL permits us to increase the size of the credit facility by an additional $150.0 million in certain circumstances subject to adequate borrowing base availability.
Previous wording
In December 2023, we obtained a waiver under our ABL (“ABL Waiver”) to provide for additional time associated with certain technical reporting requirements that were delayed as a result of the cybersecurity incident announced on October 28, 2023. Under the ABL Waiver, the maximum aggregate amount of borrowings and other credit extensions under the ABL was limited to $50.0 million at any time outstanding until all of the required reports were delivered. During our first fiscal quarter of 2024, we delivered the required reports and on February 6, 2024, the ABL Waiver was terminated. Accordingly, we are no longer subject to any additional restrictions or borrowing limitations under the ABL, including the $50.0 million temporary limit on credit extensions.
Current wording
In December 2023, we obtained a waiver under our ABL (“ABL Waiver”) to provide for additional time associated with certain reporting requirements that were delayed as a result of the cybersecurity incident announced on October 28, 2023. Under the ABL Waiver, the maximum aggregate amount of borrowings and other credit extensions under the ABL was limited to $50.0 million at any time outstanding until all of the required reports were delivered. During our first fiscal quarter of 2024, we delivered the required reports, and on February 6, 2024, the ABL Waiver was terminated. Accordingly, we are no longer subject to any additional restrictions or borrowing limitations under the ABL, including the $50.0 million temporary limit on credit extensions.
Previous wording
Borrowings under the ABL bear interest at a floating rate equal to the Secured Overnight Financing Rate (“SOFR”) plus an adjustment of 10 basis points plus an applicable margin ranging from 200 to 225 basis points, or a base rate, as defined in the ABL, plus an applicable margin range from 100 to 125 basis points. At December 31, 2023, the applicable margin was 200 basis points for SOFR-based loans, and 100 basis points for base rate loans.
Current wording
Borrowings under the ABL bear interest at a floating rate equal to SOFR plus an adjustment of 10 basis points plus an applicable margin range of 150 to 175 basis points, or a base rate, as defined in the ABL, plus an applicable margin range of 50 to 75 basis points. At March 31, 2024, the applicable margin for SOFR-based loans was 150 basis points and for base rate loans was 50 basis points.
Previous wording
The ABL is subject to mandatory prepayments if total outstanding borrowings under the ABL are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventories or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves. Prepayments can be made at any time without penalty.
Current wording
The ABL is subject to mandatory prepayments if total outstanding borrowings under the ABL are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less certain reserves. Prepayments can be made at any time without penalty.
Previous wording
Substantially all of our U.S. subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings. Our obligations under the ABL are secured by a first-priority perfected lien on all of our U.S. inventories, accounts receivable, certain cash and other related assets.
Current wording
Substantially all of our United States subsidiaries are borrowers under the ABL and are jointly and severally liable for outstanding borrowings. Our obligations under the ABL are secured by a first-priority perfected lien on all of our United States inventory, accounts receivable, certain cash balances and other supporting assets.
Previous wording
The ABL includes a commitment fee for any unused borrowing capacity of 37.5 basis points per annum. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL. Excess availability based on December 31, 2023 data was $162.4 million, as reduced by $12.4 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.
Current wording
Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $17.5 million and 10% of the Loan Cap as defined in the ABL. Excess availability based on March 31, 2024 data was $162.6 million, as reduced by $12.2 million of outstanding letters of credit and $0.2 million of accrued fees and expenses.
Previous wording
On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature on June 15, 2029 and bear interest at 4.0%, paid semi-annually in June and December. We capitalized $5.5 million of financing costs, which are being amortized over the term of the 4.0% Senior Notes using the effective interest method. Substantially all of our U.S. subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL. Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $413.0 million at December 31, 2023.
Current wording
On May 28, 2021, we privately issued $450.0 million of 4.0% Senior Unsecured Notes (“4.0% Senior Notes”), which mature on June 15, 2029, and bear interest at 4.0%, paid semi-annually in June and December. We capitalized $5.5 million of financing costs which are being amortized over the term of the 4.0% Senior Notes using the effective interest method. Substantially all of our United States subsidiaries guarantee the 4.0% Senior Notes, which are subordinate to borrowings under our ABL. Based on quoted market prices, which is a Level 1 measurement, the outstanding 4.0% Senior Notes had a fair value of $407.7 million at March 31, 2024.
Previous wording
An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. We believe we were in compliance with these covenants at December 31, 2023. There are no financial maintenance covenants associated with the Indenture.
Current wording
An indenture governing the 4.0% Senior Notes (“Indenture”) contains customary covenants and events of default, including covenants that limit our ability to incur certain debt and liens. There are no financial maintenance covenants associated with the Indenture. We believe we were in compliance with these covenants at March 31, 2024.
Previous wording
We may redeem some or all of the 4.0% Senior Notes at any time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices. Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption prices as set forth in the Indenture. Upon a change in control, as defined in the Indenture, we would be required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount.
Current wording
We may redeem some or all of the 4.0% Senior Notes at any time prior to June 15, 2024 at certain “make-whole” redemption prices and on or after June 15, 2024 at specified redemption prices. Additionally, we may redeem up to 40% of the aggregate principal amount of the 4.0% Senior Notes at any time prior to June 15, 2024 with the net proceeds of specified equity offerings at specified redemption prices as set forth in the Indenture. Upon a Change of Control, as defined in the Indenture, we could be required to offer to purchase the 4.0% Senior Notes at a price equal to 101% of the outstanding principal amount if there is a Ratings Decline (as defined in the Indenture).
Previous wording
We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures. As of December 31, 2023, we have (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include annual cash interest payments of $18.0 million in 2024 through 2029, (ii) cumulative cash obligations of $37.4 million for operating leases through 2033 and $1.1 million for finance leases through 2028, and (iii) purchase obligations for raw materials and other parts of approximately $107.4 million which we expect to incur during the next 12 months and $2.0 million beyond December 31, 2024. Additionally, we may continue to strengthen our systems, cybersecurity training, policies, programs, response plans and other similar measures as a result of the cybersecurity incidents. We expect to fund these cash requirements from cash on hand and cash generated from operations.
Current wording
We enter into a variety of contractual obligations as part of our normal operations in addition to capital expenditures. As of March 31, 2024, we had (i) debt obligations related to our $450.0 million 4.0% Senior Notes which mature in 2029 and include annual cash interest payments of $18.0 million in 2024 through 2029, (ii) cumulative cash obligations of $36.6 million for operating leases through 2033 and $2.3 million for finance leases through 2028, and (iii) purchase obligations for raw materials and other parts of approximately $105.3 million which we expect to incur during the next 12 months and $0.9 million beyond March 31, 2025. Additionally, we may continue to invest to strengthen our systems, cybersecurity training, policies, programs, response plans and other similar measures. We expect to fund these cash requirements from cash on hand and cash generated from operations.
Previous wording
We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations. At December 31, 2023, we had $12.4 million of letters of credit and $13.7 million of surety bonds outstanding.
Current wording
We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations. At March 31, 2024, we had $12.2 million of letters of credit and $13.7 million of surety bonds outstanding.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Strategic reorganization and other charges in the three months ended March 31, 2024 were $3.2 million and primarily consisted of expenses associated with our previously announced leadership transition, severance and certain transaction-related expenses. Strategic reorganization and other charges for the three months ended March 31, 2023 were $0.7 million and primarily consisted of severance and certain transaction-related expenses.
Current report — wording carried from elsewhere
Net interest expense in the six months ended March 31, 2024 was $6.9 million as compared with $7.6 million in the prior year period, a decrease of $0.7 million or 9.2%, primarily due to higher interest income as a result of higher interest rates, partially offset by lower capitalized interest. The components of net interest expense are provided below: