CSW INDUSTRIALS INC
For the period ended Jun 30, 2024. Filed Jul 31, 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.
Jun 30, 2024 · Filed Jul 31, 2024
CSW$271.74-1.8%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 2024-02-01.
0001624794-24-000007
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-31.
0001624794-24-000058
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 107 previous paragraphs and 87 current paragraphs.
45 unchanged; 32 reworded; 9 added; 28 removed; 2 previous and 1 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 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 (9)
Current report
Many of our products are used to protect the capital assets of our customers that are expensive to repair or replace and are critical to their operations. We have a source of recurring revenue from the maintenance, repair and overhaul and consumable nature of many of our products. We also provide some custom engineered products that strengthen and enhance our customer relationships. The reputation of our product portfolio is built on more than 100 well-respected brand names, such as AC Guard®, Air Sentry®, Balco®, Cover Guard®, Deacon®, Dust Free®, Falcon Stainless®, Greco®, Jet-Lube®, Kopr-Kote®, Leak Freeze®, Metacaulk®, No. 5®, OilSafe®, RectorSeal®, Safe-T-Switch®, Shoemaker Manufacturing®, Smoke Guard®, TRUaire® and Whitmore®.
Current report
Gross profit for the three months ended June 30, 2024 increased $15.3 million, or 16.6%, as compared with the three months ended June 30, 2023. The increase was primarily a result of the increased net revenue and increased operating leverage from the additional volume. Gross profit margin of 47.5% for the three months ended June 30, 2024 increased as compared to 45.3% for the three months ended June 30, 2023. The increase was driven by a favorable product mix, improved leverage from volume increase and pricing actions, which offset an increase in ocean freight.
Current report
Other income, net of $0.3 million for the three months ended June 30, 2024 was comparable to the net income for the three months ended June 30, 2023.
Current report
The Organization for Economic Cooperation and Development introduced a framework under Pillar Two which includes a global minimum tax rate of 15%. Many jurisdictions in which we do business have started to enact laws implementing Pillar Two. We are monitoring these developments and currently do not believe these rules will have a material impact on our financial condition and/or consolidated results.
Current report
Operating income for the three months ended June 30, 2024 increased $10.2 million, or 25.8%, as compared with the three months ended June 30, 2023. The increase was driven by increased net revenue, partially offset by increases in operating expenses and ocean freight. Operating margin of 31.1% for the three months ended June 30, 2024 increased as compared to 28.3% for the three months ended June 30, 2023. This increase was due to gross margin improvement driven primarily by a favorable product mix and increased operating leverage from the additional volume, combined with the management of operating expenses.
Current report
Operating income for the three months ended June 30, 2024 increased $0.2 million, or 2.7%, as compared with the three months ended June 30, 2023. The slight increase was driven by an immaterial inventory adjustment. Operating margin of 19.4% for the three months ended June 30, 2024 increased as compared to 18.5% for the three months ended June 30, 2023. This increase was primarily due to the aforementioned inventory adjustment.
Current report
•During the three months ended June 30, 2024, $0.5 million was paid to acquire a long-term investment.
Current report
•During the three months ended June 30, 2024, $0.5 million was received as a final working capital true-up for the Dust Free acquisition.
Current report
•Dividend payments of $3.3 million and $2.9 million during the three months ended June 30, 2024 and 2023, respectively.
Removed paragraphs (28)
Previous report
We continue to assess and proactively manage the impacts of COVID-19 on all aspects of our business and geographies, including with respect to our employees, customers, communities and supply chain. During the three months ended December 31, 2023, the COVID-19 pandemic had no direct or indirect material impact on our consolidated operating results. While the Federal COVID-19 Public Health Emergency Declaration expired on May 11, 2023, the extent to which the COVID-19 pandemic may impact our business, results of operations, and financial condition will depend on future developments, which are uncertain and cannot be predicted.
Previous report
We continue to monitor the Russian invasion of Ukraine and its global impact. We have no operations, employees or assets in Russia, Belarus or Ukraine, nor do we source goods or services of any material amount from those countries, whether directly or indirectly. Since shortly after the Russian invasion of Ukraine began in February 2022, we have had no commercial activities including sales in Russia, Belarus or Ukraine. While the conflict continues to evolve and the outcome remains highly uncertain, we do not currently believe the Russia-Ukraine conflict will have a material impact on our business and results of operations. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic or political disruptions and uncertainty, our business and results of operations could be materially impacted as a result.
Previous report
We are monitoring the Israel and the Gaza Strip conflict and its global impact. While the conflict continues to evolve and the outcome remains uncertain, we do not currently believe the conflict will have a material impact on our business and results of operations.
Previous report
Net revenues for the three months ended December 31, 2023 increased $3.9 million, or 2.3%, as compared with the three months ended December 31, 2022. Revenue growth was entirely organic, driven primarily by increased unit volumes and pricing actions. Net revenue increased in the architecturally-specified building products, plumbing, HVAC/R, energy and mining end markets and decreased in the rail transportation and general industrial end markets.
Previous report
Gross profit for the three months ended December 31, 2023 increased $8.2 million, or 12.4%, as compared with the three months ended December 31, 2022. The increase was primarily a result of the ocean and domestic freight expense reduction and increased net revenue. Gross profit margin of 42.3% for the three months ended December 31, 2023 increased as compared to 38.5% for the three months ended December 31, 2022. The increase was driven by reduced ocean and domestic freight expenses and pricing actions.
Previous report
Gross profit for the nine months ended December 31, 2023 increased $24.2 million, or 10.4%, as compared with the nine months ended December 31, 2022. The increase was primarily a result of pricing actions, the ocean and domestic freight expense reduction, and the acquisitions of CG, ACG and Falcon. Gross profit margin of 44.2% for the nine months ended December 31, 2023 increased as compared to 41.4% for the nine months ended December 31, 2022. The increase was driven by pricing actions and reduced ocean and domestic freight expenses as compared to the prior year period.
Previous report
Operating expenses for the nine months ended December 31, 2023 increased $8.8 million, or 6.6%, as compared with the nine months ended December 31, 2022. The increase was primarily due to increased expenses related to employee compensation, travel, insurance and sales commissions driven by revenue growth. Operating expense as a percentage of revenues increased to 24.5% for the nine months ended December 31, 2023 as compared to 23.8% for the nine months ended December 31, 2022.
Previous report
Net interest expense of $10.1 million for the nine months ended December 31, 2023 increased $1.0 million as compared to the nine months ended December 31, 2022. The increase was due to higher interest rates, partially offset by reduced borrowing under our Revolving Credit Facility as a result of strong operating cash flows generated during the nine months ended December 31, 2023 and the benefit from our current $100 million interest rate swap.
Previous report
Other expense, net increased $7.7 million to net expense of $8.4 million for the three months ended December 31, 2023 as compared with net expense of $0.7 million for the three months ended December 31, 2022. The increase was due to the non-cash $8.5 million release of tax indemnification assets related to the TRUaire and Falcon acquisitions, as discussed in Note 14 to our condensed financial statements included in this Quarterly report, in addition to gains arising from transactions in currencies other than functional currencies.
Previous report
Other expense, net increased $5.7 million to net expense of $6.2 million for the nine months ended December 31, 2023 as compared with net expense of $0.5 million for the nine months ended December 31, 2022. The increase was due to the non-cash $8.5 million release of tax indemnification assets related to the TRUaire and Falcon acquisitions, as discussed in Note 14 to our condensed financial statements included in this Quarterly report, partially offset by losses arising from transactions in currencies other than functional currencies and by a gain of $1.4 million recognized from the sale of a property previously held for investment.
Previous report
For the three months ended December 31, 2023, we earned $16.4 million from operations before taxes and provided for income taxes of $7.1 million, resulting in an effective tax rate of 43.2%. For the nine months ended December 31, 2023, we earned $98.5 million from operations before taxes and provided for income taxes of $28.0 million resulting in an effective tax rate of 28.4%. The provision for income taxes differed from the statutory rate for the three and nine months ended December 31, 2023 primarily due to the tax impact on the release of the indemnification assets related to the T.A. Industries, Inc. ("TRUaire") and Falcon acquisitions, the release of related uncertain tax positions ("UTP"), the impact of US federal provision to return adjustments, state income tax (net of federal benefit), executive compensation limitations, and the inclusions related to foreign operations.
Previous report
In connection with the TRUaire acquisition that closed in December 2020, the Company recognized a UTP of $17.3 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the TRUaire acquisition agreement, the seller provided a contractual indemnification to the Company for up to $12.5 million related to UTPs taken in pre-acquisition years and we recognized a tax indemnification asset of $12.5 million. This tax indemnification asset will either be settled or expire by December 2023. During the three months ended March 31, 2021, as a result of the audit closure of a pre-acquisition tax period for TRUaire, $5.0 million of the tax indemnification asset was released along with the relevant UTP of $5.3 million. During the three months ended December 31, 2022, TRUaire's Vietnam entity concluded its audit for the tax periods from January 1, 2019 to March 31, 2022 and received an audit closing letter from the tax authority. As a result, $1.5 million of the UTP accrual (including penalties and interests accrued post-acquisition) was released and recorded as an income tax benefit for the three months ended December 31, 2022. During the three months ended December 31, 2023, the remaining $7.5 million tax indemnification asset expired and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. As of December 31, 2023, the UTP accrual related to TRUaire's pre-acquisition tax periods was $14.3 million and is expected to be released in the future as the statutes on the open tax years expire.
Previous report
In connection with the Falcon acquisition that closed in October 2022, the Company recognized a UTP of $3.0 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the Falcon acquisition agreement, the sellers provided a contractual indemnification to the Company for up to $4.5 million related to UTPs taken in pre-acquisition years, and we recognized an initial tax indemnification asset of $3.0 million through purchase accounting, which will increase as additional interest and penalties on UTPs are accrued. This tax indemnification asset will either be settled or expire upon the closure of the tax statutes for the pre-acquisition periods. During the three months ended December 31, 2023, as a result of the statute expiration of the 2019 federal tax return, $1.0 million UTP was released and the related $1.0 million tax indemnification asset expired concurrently and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. As of December 31, 2023, the UTP reserve and offsetting indemnification asset related to Falcon's pre-acquisition period were $2.4 million. The Falcon UTP reserves and offsetting indemnification asset will either be settled or expire upon the closure of the tax statutes.
Previous report
Net revenues for the nine months ended December 31, 2023 increased $15.4 million, or 4.1%, as compared with the nine months ended December 31, 2022. Inorganic revenue increased $7.5 million, or 2.0%, due the acquisitions of CG, ACG and Falcon. Excluding the impact of acquisitions, organic revenue increased $7.9 million, or 2.1%, primarily as a result of pricing actions, partially offset by a slight decrease in unit volumes. Net revenue increased in all end markets served.
Previous report
Operating income for the three months ended December 31, 2023 increased $3.9 million, or 18.0%, as compared with the three months ended December 31, 2022. The increase was driven by a reduction in ocean and domestic freight expenses and increased net revenue, partially offset by an increase in operating expenses. Operating margin of 22.3% for the three months ended December 31, 2023 increased as compared to 19.5% for the three months ended December 31, 2022. This increase was due to gross margin improvement driven primarily by the aforementioned reduction in ocean and domestic freight expenses.
Previous report
Operating income for the nine months ended December 31, 2023 increased $14.0 million, or 15.5%, as compared with the nine months ended December 31, 2022. The increase was due to the increased net revenue, a reduction in ocean and domestic freight expenses, and the inclusion of the CG, ACG and Falcon acquisitions, partially offset by an increase in operating expenses. Operating margin of 26.4% for the nine months ended December 31, 2023 increased as compared to 23.8% for the nine months ended December 31, 2022. This increase was due to gross margin improvement driven primarily by pricing actions and the aforementioned reduction in ocean and domestic freight expenses.
Previous report
Net revenues of $33.7 million for the three months ended December 31, 2023 decreased $2.6 million, or 7.2%, to the three months ended December 31, 2022. This decrease was primarily driven by a temporary shipment delay at quarter-end, which was partially offset by pricing actions. Net revenue increased in the energy and mining end markets and decreased in the rail transportation and general industrial end markets.
Previous report
Operating income for the three months ended December 31, 2023 decreased $0.2 million, or 4.6%, as compared with the three months ended December 31, 2022. The slight decrease was driven by the decrease in revenue. Operating margin of 11.1% for the three months ended December 31, 2023 increased as compared to 10.8% for the three months ended December 31, 2022. This increase was primarily due to gross margin improvement.
Previous report
Operating income for the nine months ended December 31, 2023 increased $1.9 million, or 13.7%, as compared with the nine months ended December 31, 2022. The increase was due to an improvement in gross margin driven by pricing actions. Operating margin of 14.4% for the nine months ended December 31, 2023 increased as compared to 12.5% for the nine months ended December 31, 2022. This increase was primarily due to gross margin improvement.
Previous report
Operating income for the nine months ended December 31, 2023 increased $2.9 million or 28.1% as compared to the nine months ended December 31, 2022. The increase was driven by increased net revenue and improved operating leverage. Operating margin of 15.4% for the nine months ended December 31, 2023 increased as compared to 12.9% for the nine months ended December 31, 2022. This increase was primarily due to gross margin improvement resulting from pricing actions, improved operating leverage and reduced operating expense as a percentage of revenue.
Previous report
•During the nine months ended December 31, 2023, $1.7 million cash was received from the sale of a property previously held for investment.
Previous report
•During the nine months ended December 31, 2023, $2.4 million cash was paid for immaterial product line acquisitions. In addition, the full deferred payment of $2.5 million as part of the Falcon acquisition was remitted to the Falcon sellers due to the performance obligation being met.
Previous report
•During the nine months ended December 31, 2022, the full contingent consideration payment of $2.0 million as part of the Shoemaker Manufacturing, LLC ("Shoemaker") acquisition was remitted to the Shoemaker sellers due to the performance obligation being met.
Previous report
•During the nine months ended December 31, 2022, we acquired certain CG and ACG assets and related intellectual property for $19.5 million in cash considerations, as discussed in Note 2 to our condensed financial statements included in this Quarterly report.
Previous report
•During the nine months ended December 31, 2022, we acquired Falcon for an aggregate purchase price of $37.1 million, including $34.6 million in cash consideration at closing, as discussed in Note 2 to our condensed financial statements included in this Quarterly report.
Previous report
•Proceeds from the redeemable noncontrolling interest shareholder for its investment in the consolidated Whitmore JV of $0 and $2.0 million during the nine months ended December 31, 2023 and 2022, respectively, as discussed in Note 3 to our condensed consolidated financial statements included in this Quarterly Report.
Previous report
•Dividend payments of $8.9 million and $7.9 million during the nine months ended December 31, 2023 and 2022, respectively.
Previous report
•short and long-term effects of the COVID-19 pandemic;
Reworded paragraphs (32)
Previous wording
The following discussion and analysis of our operations financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report, as well as our consolidated financial statements and related notes for the fiscal year ended March 31, 2023 included in our Annual Report. This discussion and analysis contains forward-looking statements based on current expectations relating to future events and our future performance that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” below. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those risk factors set forth in our Annual Report and in this Quarterly Report.
Current wording
The following discussion and analysis of our operations financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this Quarterly Report, as well as our consolidated financial statements and related notes for the fiscal year ended March 31, 2024 included in our Annual Report. This discussion and analysis contains forward-looking statements based on current expectations relating to future events and our future performance that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” below. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those risk factors set forth in our Annual Report and in this Quarterly Report.
Previous wording
Drawing on our innovative and proven technologies, we seek to deliver solutions primarily to contractors that place a premium on superior performance and reliability. We believe our brands are well-known in the specific end markets we serve and have a reputation for high quality. The reputation of our product portfolio is built on more than 100 well-respected brand names, such as AC Guard®, Air Sentry®, Balco®, Cover Guard TM, Deacon®, Falcon TM, Greco®, Jet-Lube®, Kopr-Kote®, Leak Freeze®, Metacaulk®, No. 5®, OilSafe®, RectorSeal®, Safe-T-Switch®, Shoemaker Manufacturing®, Smoke Guard®, TRUaire® and Whitmore®. These products are distributed through an extensive wholesale distribution network serving the HVAC/R, architecturally-specified buildings products, plumbing, general industrial, energy, rail transportation and mining end markets. Our desire to develop solutions for our contractors, combined with the differentiated nature of our niche product offerings, drives loyalty to our brands. We rely on both organic growth and inorganic growth through acquisitions to provide an increasingly broad portfolio of performance optimizing solutions that meet our customers’ ever-changing needs. We have a successful record of making attractive and synergistic acquisitions that support expansion of our broad portfolio of solutions, and we remain focused on identifying additional acquisition opportunities in our core end markets.
Current wording
Drawing on our innovative and proven technologies, we seek to deliver solutions primarily to contractors that place a premium on superior performance and reliability. We believe our brands are well-known in the specific end markets we serve and have a reputation for high quality. We rely on both organic growth and inorganic growth through acquisitions to provide an increasingly broad portfolio of performance optimizing solutions that meet our customers’ ever-changing needs. We have a successful record of making attractive, synergistic acquisitions in support of this objective, and we remain focused on identifying additional acquisition opportunities in our core end markets.
Previous wording
The following discussion provides an analysis of our condensed consolidated results of operations and results for each of our segments.
Current wording
The following discussion provides an analysis of our consolidated results of operations and results for each of our segments.
Previous wording
All acquisitions are described in Note 2 to our condensed consolidated financial statements included in this Quarterly Report. Falcon Stainless, Inc. ("Falcon") activity has been included in our results within our Contractor Solutions segment since the October 4, 2022 acquisition date. Cover Guard, Inc. (“CG”) and AC Guard, Inc. ("ACG") activities have been included in our results within our Contractor Solutions segment since the July 8, 2022 acquisition date.
Current wording
All acquisitions are described in Note 2 to our consolidated financial statements included in this Quarterly Report. Dust Free, LP. ("Dust Free") activity has been included in our results within our Contractor Solutions segment since the February 6, 2024 acquisition date.
Previous wording
Net revenues for the nine months ended December 31, 2023 increased $19.8 million, or 3.5%, as compared with the nine months ended December 31, 2022. Excluding the impact of acquisitions, organic revenue increased $12.3 million, or 2.2% from the prior year period, driven by pricing actions. Inorganic revenue increased $7.5 million, or 1.3%, due to the acquisitions of CG, ACG and Falcon. Net revenue increased in the plumbing, architecturally-specified building products, general industrial, HVAC/R, mining and energy end markets and decreased in the rail transportation end market.
Current wording
Net revenues for the three months ended June 30, 2024 increased $22.8 million, or 11.2%, as compared with the three months ended June 30, 2023. The increase was due to organic sales growth of $15.6 million, or 7.7%, from the prior year period, driven primarily by increased unit volumes and pricing actions, as well as growth from the Dust Free acquisition of $7.2 million, or 3.5%. Net revenue increased in the HVAC/R, architecturally-specified building products, general industrial, plumbing and rail transportation end markets and decreased in the mining and energy end markets.
Previous wording
Operating expenses for the three months ended December 31, 2023 increased $3.7 million, or 8.7%, as compared with the three months ended December 31, 2022. The increase was primarily due to increased expenses related to employee compensation and travel. Operating expense as a percentage of revenues increased to 26.5% for the three months ended December 31, 2023 as compared to 24.9% for the three months ended December 31, 2022.
Current wording
Operating expenses for the three months ended June 30, 2024 increased $5.4 million, or 11.5%, as compared with the three months ended June 30, 2023. The increase was due to the inclusion of Dust Free and increased expenses related to employee compensation, business integrations, and strategic development activities. Operating expenses as a percentage of revenues increased slightly to 23.2% for the three months ended June 30, 2024 as compared to 23.1% for the three months ended June 30, 2023.
Previous wording
Operating income for the three months ended December 31, 2023 increased $4.5 million, or 19.3%, as compared with the three months ended December 31, 2022, as a result of the increase in gross profit, partially offset by the increase in operating expenses, as discussed above.
Current wording
Operating income for the three months ended June 30, 2024 increased $9.9 million, or 21.8%, as compared with the three months ended June 30, 2023, as a result of the increase in gross profit, partially offset by the increase in operating expenses, as discussed above.
Previous wording
Net interest expense of $2.8 million for the three months ended December 31, 2023 decreased $1.4 million as compared to the three months ended December 31, 2022. The decrease was due to reduced borrowing under our Revolving Credit Facility as a result of strong operating cash flows generated during the three months ended December 31, 2023 and the benefit from our current $100 million interest rate swap, partially offset by higher interest rates.
Current wording
Net interest expense of $2.5 million for the three months ended June 30, 2024 decreased $1.5 million as compared to the three months ended June 30, 2023. The decrease was due to reduced borrowing under our Revolving Credit Facility as a result of strong operating cash flows generated.
Previous wording
For the three months ended December 31, 2022, we earned $18.2 million from operations before taxes and provided for income taxes of $2.7 million, resulting in an effective tax rate of 14.7%. For the nine months ended December 31, 2022, we earned $89.7 million from operations before taxes and provided for income taxes of $20.2 million, resulting in an effective tax rate of 22.6%. The provision for income taxes differed from the statutory rate for the three and nine months ended December 31, 2022 primarily due to a net decrease in the reserves for uncertain tax positions ("UTP"), excess tax deductions related to stock compensation, excess tax deductions related to Foreign-derived intangible income ("FDII") and the impact of US federal provision to return adjustment, partially offset by state income tax, net of federal benefit and executive compensation limitations.
Current wording
For the three months ended June 30, 2024, we earned $52.8 million from operations before taxes and provided for income taxes of $13.9 million, resulting in an effective tax rate of 26.4%. The provision for income taxes differed from the statutory rate for the three months ended June 30, 2024 primarily due to state income tax (net of federal benefit), provision for global intangible low-taxed income ("GILTI"), executive compensation limitations, and increases to penalties and interest on uncertain tax positions ("UTP"); offset by foreign tax credits and excess tax deductions related to equity compensation and foreign-derived intangible income ("FDII").
Previous wording
The Company expects $0.8 million of existing reserves for UTPs to either be settled or expire within the next 12 months as the statute of limitations expire. One of our Canadian subsidiaries received proposed assessments resulting from audits by the taxing authority for tax years 2017-2020, and we have included the immaterial impact of the proposed assessments in the income tax expense for the nine months ended December 31, 2023.
Current wording
The Company expects $3.6 million of reserves for UTPs to either be settled or expire within the next 12 months as the statutes of limitations expire.
Previous wording
Net revenues for the three months ended December 31, 2023 increased $3.5 million, or 3.1%, as compared with the three months ended December 31, 2022. This increase was due entirely to organic revenue growth, resulting primarily from a slight increase in unit volumes. Net revenue increased in all end markets served.
Current wording
Net revenues for the three months ended June 30, 2024 increased $20.5 million, or 14.6%, as compared with the three months ended June 30, 2023. This increase was due to increased unit volumes and growth from the acquisition of Dust Free ($7.2 million or 5.1%), as well as a slight increase from pricing actions. Net revenue increased in all end markets served.
Previous wording
Net revenues for the nine months ended December 31, 2023 decreased $0.9 million, or 0.8%, as compared to the nine months ended December 31, 2022. The slight decrease was primarily due to a temporary shipment delay at quarter-end, which was partially offset by pricing actions. Net revenue increased in the general industrial, mining, and energy end markets and decreased in the rail transportation end market.
Current wording
Net revenues of $36.8 million for the three months ended June 30, 2024 decreased $0.9 million, or 2.4%, to the three months ended June 30, 2023. This decrease was driven by a slight volume decrease. Net revenue decreased in the mining and energy end markets and increased in the general industrial and rail transportation end markets.
Previous wording
Net revenues for the three months ended December 31, 2023 increased $3.2 million, or 13.2%, as compared with the three months ended December 31, 2022 driven by the continued conversion of strong project bookings into revenue and pricing actions.
Current wording
Net revenues for the three months ended June 30, 2024 increased $3.3 million, or 12.0%, as compared with the three months ended June 30, 2023 driven by the continued conversion of strong project bookings into revenue, market expansion through innovative products and focused efforts on high-growth markets.
Previous wording
Operating income for the three months ended December 31, 2023 increased $1.3 million or 56.7% as compared to the three months ended December 31, 2022. The increase was driven by the increased net revenue and improved operating leverage. Operating margin of 12.7% for the three months ended December 31, 2023 increased as compared to 9.2% for the three months ended December 31, 2022. This increase was primarily due to gross margin improvement resulting from pricing actions, improved operating leverage and reduced operating expense as a percentage of revenue.
Current wording
Operating income for the three months ended June 30, 2024 increased $1.5 million or 34.4% as compared to the three months ended June 30, 2023. The increase was driven by the increased net revenue and improved operating leverage. Operating margin of 18.5% for the three months ended June 30, 2024 increased as compared to 15.4% for the three months ended June 30, 2023. This increase was primarily due to gross margin improvement resulting from improved operating leverage, manufacturing optimization and materials sourcing strategies, as well as reduced operating expense as a percentage of revenue.
Previous wording
Existing cash on hand, cash generated by operations and borrowings available under our Revolving Credit Facility ("Revolver Borrowings") are our primary sources of short-term liquidity. Our ability to consistently generate strong cash flow from our operations is one of our most significant financial strengths; it enables us to invest in our people and our brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock. We use our Revolver Borrowings to support our working capital requirements, capital expenditures and strategic acquisitions. We seek to maintain adequate liquidity to meet working capital requirements, fund capital expenditures, and make scheduled interest payments on debt. Absent deterioration of market conditions, we believe that cash flows from operating and financing activities, primarily in the form of Revolver Borrowings, will provide adequate resources to satisfy our working capital, scheduled principal and interest payments on debt, anticipated dividend payments, periodic share repurchases, and anticipated capital expenditure requirements for both our short-term and long-term capital needs.
Current wording
Existing cash on hand, cash generated by operations and borrowings available under our Revolving Credit Facility ("Revolver Borrowings") are our primary sources of short-term liquidity. Our ability to consistently generate strong cash flow from our operations is one of our most significant financial strengths; it enables us to invest in our people and our brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock. Additionally, we use our Revolver Borrowings to support our working capital requirements, capital expenditures and strategic acquisitions. We seek to maintain adequate liquidity to meet working capital requirements, fund capital expenditures, make scheduled interest payments on debt and meet our contingent consideration obligations. Absent deterioration of market conditions, we believe that cash flows from operating and financing activities, primarily Revolver Borrowings, will provide adequate resources to satisfy our working capital, scheduled interest payments on debt, anticipated dividend payments, periodic share repurchases, contingent consideration obligations and anticipated capital expenditure requirements for both our short-term and long-term capital needs.
Previous wording
Our cash balance (including cash and cash equivalents) as of December 31, 2023 was $25.0 million, as compared with $18.5 million at March 31, 2023.
Current wording
Our cash balance (including cash and cash equivalents) as of June 30, 2024 was $18.9 million, as compared with $22.2 million at March 31, 2024.
Previous wording
For the nine months ended December 31, 2023, our cash provided by operating activities was $141.9 million, as compared with $84.1 million for nine months ended December 31, 2022.
Current wording
For the three months ended June 30, 2024, our cash provided by operating activities was $62.7 million, as compared with $50.3 million for three months ended June 30, 2023.
Previous wording
•Working capital used cash for the nine months ended December 31, 2022 due to higher inventories ($28.3 million), higher prepaid expenses and other current assets ($8.3 million) and lower accounts payable and other current liabilities ($7.3 million), partially offset by lower accounts receivable ($22.0 million).
Current wording
•Working capital provided cash for the three months ended June 30, 2024 due to higher accounts payable and other current liabilities ($10.9 million) and lower prepaid expenses and other current assets ($3.4 million), partially offset by higher inventories ($6.8 million) and higher accounts receivable ($1.0 million).
Previous wording
•Working capital provided cash for the nine months ended December 31, 2023 due to lower accounts receivable ($17.8 million), higher accounts payable and other current liabilities ($9.6 million) and lower inventories ($7.8 million), partially offset by higher prepaid expenses and other current assets ($6.7 million).
Current wording
•Working capital provided cash for the three months ended June 30, 2023 due to higher accounts payable and other current liabilities ($3.2 million), lower prepaid expenses and other current assets ($2.4 million), and lower inventories ($2.1 million), partially offset by higher accounts receivable ($4.3 million).
Previous wording
Cash flows used in investing activities during the nine months ended December 31, 2023 were $15.1 million, as compared with $63.7 million used in investing activities for the nine months ended December 31, 2022.
Current wording
Cash flows used in investing activities during the three months ended June 30, 2024 were $3.3 million, as compared with $5.1 million used in investing activities for the three months ended June 30, 2023.
Previous wording
•Capital expenditures during the nine months ended December 31, 2023 and 2022 were $11.7 million and $8.3 million, respectively. Our capital expenditures (including $2.5 million and $3.6 million during the current and prior year periods, respectively, for the Whitmore JV) have been focused on capacity expansion, new product introductions, continuous improvement and automation of manufacturing facilities.
Current wording
•Capital expenditures during the three months ended June 30, 2024 and 2023 were $3.1 million and $5.0 million, respectively. Our capital expenditures (including $0.2 million and $1.9 million during the current and prior year periods, respectively, for the Whitmore JV) have been focused on capacity expansion, new product introductions, continuous improvement and automation of manufacturing facilities.
Previous wording
Cash flows used in financing activities during the nine months ended December 31, 2023 and 2022 were $119.5 million and $21.6 million, respectively. Cash outflows resulted from:
Current wording
Cash flows used in financing activities during the three months ended June 30, 2024 and 2023 were $62.2 million and $48.8 million, respectively. Cash outflows resulted from:
Previous wording
•Net (repayments) borrowings on our Revolving Credit Facility and term loan (as discussed in Note 7 to our condensed consolidated financial statements included in this Quarterly Report) of $(100.0) million and $23.8 million during the nine months ended December 31, 2023 and 2022, respectively.
Current wording
•Net repayments on our Revolving Credit Facility (as discussed in Note 7 to our consolidated financial statements included in this Quarterly Report) of $51.0 million and $43.0 million during the three months ended June 30, 2024 and 2023, respectively.
Previous wording
•Repurchases of shares under our share repurchase program (as discussed in Note 11 to our condensed consolidated financial statements included in this Quarterly Report) of $5.8 million and $35.7 million during the nine months ended December 31, 2023 and 2022, respectively.
Current wording
•As discussed in Note 11 to our consolidated financial statements included in this Quarterly Report, repurchases of shares under our share repurchase program of $4.6 million and $0.0 million during the three months ended June 30, 2024 and 2023, respectively. In connection with the vesting of share awards, $3.3 million and $2.9 million were tendered by employees to satisfy minimum tax withholding requirements during the three months ended June 30, 2024 and 2023, respectively.
Previous wording
We regularly evaluate acquisition opportunities of various sizes. The cost and terms of any financing to be raised in conjunction with any acquisition, including our ability to raise capital, is a critical consideration in any such evaluation. Note 2 to our condensed consolidated financial statements included in this Quarterly Report contains a discussion of the recent acquisitions.
Current wording
We regularly evaluate acquisition opportunities of various sizes. The cost and terms of any financing to be raised in conjunction with any acquisition, including our ability to raise capital, is a critical consideration in any such evaluation. Note 2 to our consolidated financial statements included in this Quarterly Report contains a discussion of the recent acquisitions.
Previous wording
See Note 7 to our condensed consolidated financial statements included in this Quarterly Report for a discussion of our indebtedness. We were in compliance with all covenants as of December 31, 2023. See Note 9 to our condensed consolidated financial statements included in this Quarterly Report for a discussion of our interest rate swaps.
Current wording
See Note 7 to our consolidated financial statements included in this Quarterly Report for a discussion of our indebtedness. We were in compliance with all covenants as of June 30, 2024. See Note 9 to our consolidated financial statements included in this Quarterly Report for a discussion of our interest rate swaps.
Previous wording
Management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements and related footnotes contained within this Quarterly Report. Our critical accounting policies used in the preparation of our condensed consolidated financial statements were discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report. No significant changes to these policies, as described in our Annual Report, have occurred in the nine months ended December 31, 2023.
Current wording
Management’s discussion and analysis of financial condition and results of operations are based on our consolidated financial statements and related footnotes contained within this Quarterly Report. Our critical accounting policies used in the preparation of our consolidated financial statements were discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report. No significant changes to these policies, as described in our Annual Report, have occurred in the three months ended June 30, 2024.
Previous wording
The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenues and expenses. These estimates and assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates.
Current wording
The process of preparing consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenues and expenses. These estimates and assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates.
Previous wording
Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations. This is not to suggest that other general risk factors, such as changes in worldwide demand, changes in material costs, performance of acquired businesses and others, could not adversely impact our consolidated financial condition, results of operations and cash flows in future periods. See “Cautionary Note Regarding Forward-Looking Statements” below.
Current wording
Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations. This is not to suggest that other general risk factors, such as changes in worldwide demand, changes in material costs, performance of acquired businesses and others, could not adversely impact our consolidated financial condition, results of operations and cash flows in future periods. See “Cautionary Note Regarding Forward-Looking Statements” below.
Previous wording
We have presented the information about pronouncements not yet implemented in Note 1 to our condensed consolidated financial statements included in this Quarterly Report, if any.
Current wording
We have presented the information about pronouncements not yet implemented in Note 1 to our consolidated financial statements included in this Quarterly Report, if any.
Previous wording
•potential disruptions from wars and military conflicts, including Russia's invasion of Ukraine;
Current wording
•potential disruptions from wars and military conflicts, including geopolitical uncertainty due to the conflicts in the Middle East and Ukraine;
Previous wording
•other factors listed under "Risk Factors" in our Annual Report and other filings with the SEC.
Current wording
•the other factors listed under “Risk Factors” in our Annual Report and other filings with the SEC.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
For the three months ended June 30, 2023, we earned $41.5 million from operations before taxes and provided for income taxes of $10.5 million, resulting in an effective tax rate of 25.2%. The provision for income taxes differed from the statutory rate for the three months ended June 30, 2023 primarily due to state income tax (net of federal benefit), executive compensation limitations, stock-based compensation deferred tax asset ("DTA") write-offs, and GILTI; offset by excess tax deductions related to FDII, non-controlling interest, foreign tax credits and R&D credits.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Operating income for the nine months ended December 31, 2023 increased $15.5 million, or 15.6%, as compared with the nine months ended December 31, 2022, as a result of the increase in gross profit, partially offset by the increase in operating expenses, as discussed above.
Previous report — wording carried elsewhere
Net revenues for the nine months ended December 31, 2023 increased $5.7 million, or 7.2%, as compared with the nine months ended December 31, 2022 driven by the continued conversion of strong project bookings into revenue and pricing actions.