A. O. Smith 10-Q 2024-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

For the quarterly period ended September 30, 2024.

or

For the transition period from __________ to __________

Commission File Number 1-475

________________________________

A. O. Smith Corporation

(Exact name of registrant as specified in its charter)

________________________________

Delaware

(State of Incorporation)

11270 West Park Place, Milwaukee, Wisconsin

(Address of Principal Executive Office)

39-0619790

(I.R.S. Employer

Identification No.)

53224-9508

(Zip Code)

(414) 359-4000

(Registrant’s telephone number, including area code)

_________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) ☐ Yes ☒ No

Class A Common Stock Outstanding as of October 21, 2024 - 25,885,433 shares

Common Stock Outstanding as of October 21, 2024 - 119,110,030 shares

Index

A. O. Smith Corporation

PART I - FINANCIAL INFORMATION

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions, except for per share data)

(unaudited)

(1)Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(dollars in millions)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions)

See accompanying notes to unaudited condensed consolidated financial statements.

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

(unaudited)

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Overview

Our company is comprised of two reporting segments: North America and Rest of World. Our Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas, heat pump and electric water heaters, boilers, tanks, and water treatment products. Both segments primarily manufacture and market in their respective region of the world.

Our supply chain has been relatively stable. However, we continue to monitor potential disruptions and increase our safety stock of key components when we believe it is warranted. We remain in close contact with our suppliers and logistics providers to resolve supply chain constraints as they arise.

We continue to seek acquisitions that enable geographic growth, expand our core business, and establish adjacencies. On July 15, 2024, we signed an agreement to acquire Pureit from Unilever for $120 million, subject to customary adjustments. We expect to close on the acquisition by the end of 2024. Pureit, a leading water purification business in South Asia, offers a broad range of residential water purification solutions and has annual sales of approximately USD $60 million, primarily in India. The acquisition fits squarely in the Company’s core capabilities and would double the Company’s market penetration in the South Asia region. In the first quarter of 2024, we acquired Impact Water Products, a privately-held water treatment company. The acquisition supports our growth strategy by expanding the West Coast presence of our water treatment business.

Also, we continue to look for opportunities to add to our existing product portfolio in high growth regions demonstrated by our previous introductions of kitchen products in China. We also recently introduced our internally designed and manufactured gas tankless water heaters in North America. In addition, we are expanding our commercial water heater capacity in preparation for the new efficiency rule for commercial water heaters that the Department of Energy (DOE) has adopted that will take effect in 2026.

In our North America segment, we saw soft residential and commercial water heater order demand in the third quarter after a strong first half of the year. We believe that a pre-buy ahead of our March 1st price increase pulled forward some demand into the first half of the year. We also believe our third quarter order demand was negatively impacted by our improved lead times. Those factors along with caution around softening end market demand may have driven some customers to reduce their inventory levels in the quarter. We project 2024 industry residential unit volumes will be flat after approximately six percent growth in 2023. Proactive replacement has been above historical levels for the last several years and we project that will continue in 2024. We believe that new home construction remains in a deficit and will be flat compared to 2023. We anticipate that commercial water heater industry volumes will be approximately flat in 2024 compared to 2023 as growth in commercial electric water heaters greater than 55 gallons will be offset by lower shipments of commercial gas water heaters.Sales of our boilers and water treatment products were negatively impacted by elevated channel inventories in 2023. We believe that channel inventories returned to near normal levels at the beginning of 2024 for both product categories and we saw a return to growth in the second quarter. We expect our boilers sales to grow approximately eight percent in 2024 compared to 2023 as we continue to benefit from the transition to higher efficiency boilers. We anticipate sales of our North America water treatment products will increase approximately eight to ten percent in 2024, compared to 2023, as we continue our geographic expansion.

In our Rest of World segment, after local currency third-party sales growth in China of four percent in the first half of 2024, our third quarter China sales declined 17 percent year-over-year as consumer demand headwinds were more significant than we expected. We project our third-party sales in China to decrease six to eight percent in 2024 in local currency compared to 2023 as we expect consumer demand softness will persist through the remainder of 2024.

Combining all of these factors, we expect our 2024 consolidated sales to be approximately flat to 2023. Our guidance excludes the impacts from potential future acquisitions.

Results of Operations

Our sales in the third quarter of 2024 were $902.6 million, or 3.7 percent lower than the third quarter 2023 sales of $937.5 million. Sales in the first nine months of 2024 were $2,905.7 million, or 1.4 percent higher than $2,864.7 million in the same period last year. Compared to the prior year quarter, our net sales decrease was primarily driven by lower sales in China and lower residential and commercial water heater volumes in North America, which more than offset our higher boiler sales, pricing actions, and favorable currency translation of approximately $1 million due to the appreciation of foreign currencies compared to the U.S. dollar. Our net sales increase in the first nine months of 2024 was primarily driven by pricing actions and higher water heater and boiler sales in North America, offset by unfavorable currency translation of approximately $16 million due to the depreciation of foreign currencies compared to the U.S. dollar. Our 2024 and 2023 acquisitions of water treatment companies in North America added approximately $6 million and $14 million of incremental net sales in the third quarter and first nine months of 2024, respectively.

Our gross profit margin in the third quarter of 2024 was 37.4 percent, a decrease compared to 38.0 percent in the third quarter of 2023. Gross profit margin in the first nine months of 2024 was 38.5 percent compared to the gross profit margin of 38.9 percent in the first nine months of 2023. The lower gross profit margin in the third quarter was primarily due to lower volumes and the associated negative impact on our operational efficiencies compared to the third quarter of 2023. The lower gross profit margin in the first nine months of 2024 compared to the same period last year was primarily due to higher production costs, which outpaced our pricing actions.

Selling, general, and administrative (SG&A) expenses in the third quarter of 2024 increased by $1.7 million compared to the third quarter of 2023. SG&A expenses increased $14.9 million in the first nine months of 2024 compared to the prior year. The increase in SG&A expenses in the third quarter and first nine months of 2024 compared to the prior year periods was primarily due to higher employee costs from increased wages and management incentives in addition to higher selling expenses to support our sales initiatives.

Impairment expense in the first nine months of 2023 was $15.6 million related to the sale of our business in Turkey. Of the $15.6 million impairment, $12.5 million was recorded in the Rest of World segment and $3.1 million in Corporate Expense. There was no impairment expense recorded in the first nine months of 2024.

Interest expense in the third quarter of 2024 was $1.5 million compared to $2.4 million in the same period last year. Interest expense in the first nine months of 2024 was $4.3 million compared to $10.9 million in the same period the previous year. The decrease in interest expense in the third quarter and first nine months of 2024 compared to the same period last year was primarily due to lower average debt levels.

Other expense (income), net was $2.6 million in the third quarter of 2024 essentially flat to the third quarter of 2023. Other expense (income), net was $0.5 million in the first nine months of 2024 compared to ($10.5) million in the same period last year. The decrease in Other expense (income), net in the first nine months of 2024 was primarily due to the absence of non-recurring pension settlement income of $6.0 million realized in the second quarter of 2023, higher foreign currency translation losses and lower interest income.

Our effective income tax rate for the three and nine months ended September 30, 2024 was 23.3 percent and 23.7 percent, respectively. The effective income tax rate for the three and nine months ended September 30, 2023 was 23.2 percent and 24.7 percent, respectively. The change in the effective income tax rate for the three months ended September 30, 2024 compared to the prior year quarter was primarily due to a change in geographical earnings mix. The change in the effective income tax rate for the nine months ended September 30, 2024 compared to the prior year period was primarily due to a change in geographical earnings mix and the $15.6 million impairment expense recorded in the prior year period with no associated tax benefit. We estimate that our annual effective income tax rate for the full year of 2024 will be approximately 24 percent.

We are providing non-U.S. Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense) that exclude the impact of the 2023 impairment expense and pension settlement income. Reconciliations from GAAP measures to non-GAAP measures are provided in the Non-GAAP Measures section below. We believe that the measures of adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense provide useful information to investors about our performance and allow management and our investors to better understand our performance between periods without regard to items that we do not consider to be a component of our core operating performance.

North America Segment

Sales in our North America segment were $703.3 million in the third quarter of 2024, or $6.6 million lower than sales of $709.9 million in the third quarter of 2023. Sales in the first nine months of 2024 were $2,260.3 million, or $75.4 million higher than sales of $2,184.9 million in the same period last year. Compared to the prior year quarter, our net sales decrease was driven by lower residential and commercial water heater volumes, which more than offset our higher boiler sales and pricing actions. Higher water heater and commercial boiler sales and pricing actions primarily drove our net sales increase in the first nine months of 2024. Our 2024 and 2023 acquisitions of water treatment companies added approximately $6 million and $14 million of incremental net sales in the third quarter and first nine months of 2024, respectively.

North America segment earnings were $162.5 million in the third quarter of 2024, or $7.5 million lower than segment earnings of $170.0 million in the third quarter of 2023. Segment earnings in the first nine months of 2024 were $559.6 million, an increase of $1.9 million compared to segment earnings of $557.7 million in the first nine months of 2023. Segment margins were 23.1 percent and 23.9 percent in the third quarter of 2024 and 2023, respectively. Segment margins were 24.8 percent and 25.5 percent in the first nine months of 2024 and 2023, respectively.

Lower segment earnings and margin in the third quarter of 2024 compared to the prior year were primarily due to lower volumes of residential and commercial water heaters and higher production costs, which were partially offset by higher commercial boiler volumes. Slightly higher segment earnings in the first nine months of 2024 compared to the prior year period were primarily due to pricing actions, partially offset by higher selling expenses to support our sales growth initiatives. Lower segment margin in the first nine months of 2024 compared to the prior year period was primarily due to higher production costs and higher selling expenses that outpaced our pricing actions. We estimate our 2024 North America segment margin will be approximately 24.5 percent.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 were $552.7 million and 25.3 percent, respectively. Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 exclude $5.0 million of pension settlement income.

Rest of World Segment

Sales in the Rest of World segment were $210.3 million in the third quarter of 2024, or $23.1 million lower than sales of $233.4 million in the third quarter of 2023. Sales in the first nine months of 2024 were $682.0 million, or $14.7 million lower than sales of $696.7 million in the same period last year. Compared to the prior year quarter, the net sales decrease was primarily due to lower volumes of our core water heating and water treatment products, partially offset by favorable currency translation of approximately $2 million. Lower net sales in the first nine months of 2024 were primarily driven by the decrease in sales of our core products mentioned above with an incremental approximately $14 million of unfavorable currency translation. The decline in sales in the first nine months of 2024 were partially offset by higher volumes of kitchen products in China and included increased inter-segment sales of approximately $12 million related to our tankless water heaters manufactured in China and shipped to the U.S. market.

Rest of World segment earnings were $13.6 million in the third quarter of 2024 and lower compared to $23.2 million in the third quarter of 2023. Segment earnings in the first nine months of 2024 were $56.7 million, essentially flat to the first nine months of 2023. Segment margins were 6.5 percent and 9.9 percent in the third quarter of 2024 and 2023, respectively. Segment margins were 8.3 percent and 8.2 percent in the first nine months of 2024 and 2023, respectively.

Lower volumes of our core water heating and water treatment products primarily drove lower segment earnings and segment margin in the third quarter of 2024.

Essentially flat segment earnings and segment margin in the first nine months of 2024 were primarily driven by lower volumes of our core water heating and water treatment products and an unfavorable product mix and sales promotions in China, offset by the absence of the nonrecurring impairment expense of $12.5 million associated with the sale of our business in Turkey recorded in the first quarter of 2023. We estimate our 2024 Rest of World segment margin will be approximately eight percent.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 were $69.3 million and 9.9 percent, respectively. Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 exclude the $12.5 million of impairment expense.

Outlook

We expect our consolidated sales in 2024 to be flat to 2023. Our sales projection is driven by expected flat industry residential and commercial unit water heater volumes in North America compared to the prior year. We expect to see an eight percent increase in our sales of boilers in 2024 compared to 2023 as we continue to benefit from the transition to higher-efficiency boilers. We anticipate sales of our North America water treatment products will increase by approximately eight to ten percent in 2024, compared to 2023, as we continue our geographic expansion. In our Rest of the World segment, we expect sales in China to decrease six to eight percent in local currency compared to 2023, driven by expected softness in consumer demand. We expect to achieve full-year earnings of between $3.70 and $3.85 per share. Our guidance excludes the impacts from potential future acquisitions.

Liquidity & Capital Resources

Our working capital was $568.3 million at September 30, 2024, compared with $555.0 million at December 31, 2023. The increase in working capital was primarily related to higher inventory balances, lower accounts payable and lower payroll-related accruals, partially offset by lower cash and receivable balances. As of September 30, 2024, cash balances were negatively impacted by $1.7 million due to changes in foreign currency during the year. Cash and cash equivalents used to fund our operations are primarily generated through operating activities and our existing credit facilities. We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We use a global cash pooling arrangement, intercompany borrowing, and some local credit lines to meet funding needs and allocate capital resources among various entities. We have historically made and anticipate future cash repatriations from certain foreign subsidiaries. In the first nine months of 2024, we repatriated approximately $88 million of cash from our foreign subsidiaries and used the proceeds to pay down outstanding debt balances and fund an acquisition.

Cash provided by operations in the first nine months of 2024 was $359.9 million and lower than $439.0 million in the first nine months of 2023, primarily as a result of higher incentive payments associated with record sales and profits earned in 2023 and higher inventory balances, which more than offset lower trade receivable balances. Our free cash flow in the third quarter of 2024 and 2023 was $282.5 million and $396.3 million, respectively. We expect cash provided by operating activities to be approximately $525 million in 2024. We expect free cash flow to be approximately $415 million in 2024. Free cash flow is a non-GAAP measure described in more detail in the Non-GAAP Measures section below.

Capital expenditures totaled $77.4 million in the first nine months of 2024 compared with $42.7 million in the same period last year. Higher capital expenditures compared to the prior year period was primarily due to our capacity expansion projects. We project 2024 capital expenditures will be between $105 million and $115 million and full-year depreciation and amortization expense will be approximately $80 million.

During the third quarter of 2024, we renewed and amended our $500 million revolving credit facility ("renewed facility") which now expires on August 23, 2029. The renewed facility is with a group of nine banks and has an accordion provision that allows it to be increased up to $1 billion if certain conditions (including lender approval) are satisfied, which is an increase of $150 million from the amount prior to the renewal and amendment. Borrowing rates under the renewed facility are determined by our leverage ratio. The renewed facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of September 30, 2024, and expect to be in compliance for the foreseeable future. The renewed facility backs up commercial paper and credit line borrowings. At September 30, 2024, we had no borrowings outstanding under the renewed facility and an available borrowing capacity of $500.0 million. We believe the combination of available borrowing capacity and operating cash flows will provide sufficient funds to finance our existing operations for the foreseeable future.

Our total debt decreased by $7.6 million in the first nine months of 2024 as we used available cash to pay down outstanding debt balances. Our leverage, as measured by the ratio of total debt to total capitalization, was 5.9 percent at September 30, 2024, compared with 6.5 percent at December 31, 2023.

In the first quarter of 2024, our Board of Directors approved adding 2,000,000 shares of common stock to our existing discretionary share repurchase authority. Under our share repurchase program, we may purchase our common stock through a combination of a Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The stock repurchase authorization remains effective until terminated by our Board of Directors, which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. During the first nine months of 2024, we repurchased 2,850,500 shares of our stock at a total cost of $237.1 million. At September 30, 2024, we had 2,650,962 shares remaining on the share repurchase authority. Depending on factors such as stock price, working capital requirements, and alternative investment opportunities, we expect to spend approximately $300 million on stock repurchases in 2024 through a combination of any renewed Rule 10b5-1 automatic trading plan and open market repurchases.

On October 7, 2024, our Board of Directors declared a regular quarterly cash dividend of $0.34 per share on our Common Stock and Class A common stock. The dividend is payable on November 15, 2024, to shareholders of record on October 31, 2024.

Non-GAAP Financial Information

We provide non-GAAP measures of free cash flow, adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense. We define free cash flow as cash provided by operating activities less capital expenditures. Our adjusted earnings, adjusted EPS, adjusted segment earnings, and adjusted corporate expenses exclude the impact of the 2023 impairment expense and pension settlement income.

We believe that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. We believe that the measure of adjusted earnings, adjusted EPS, adjusted segment earnings and adjusted corporate expense provides useful information to investors about our performance and allows management and our investors to better understand our performance between periods without regard to items we do not consider to be a component of our core operating performance.

A. O. SMITH CORPORATION

Adjusted Earnings and Adjusted Earnings Per Share

(dollars in millions, except per share data)

(unaudited)

The following is a reconciliation of net earnings and diluted earnings per share to adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP):

(1)Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.

A. O. SMITH CORPORATION

Adjusted Segment Earnings

(dollars in millions)

(unaudited)

The following is a reconciliation of reported earnings before provision for income taxes to total segment earnings (non-GAAP) and adjusted segment earnings (non-GAAP):

A. O. SMITH CORPORATION

Free Cash Flow

(dollars in millions)

(unaudited)

The following is a reconciliation of reported cash flow from operating activities to free cash flow (non-GAAP):

A. O. SMITH CORPORATION

2024 EPS Guidance and 2023 Adjusted EPS

(unaudited)

The following is a reconciliation of diluted EPS to adjusted EPS (non-GAAP) (all items are net of tax):

(1)Includes pre-tax restructuring and impairment expenses of $15.7 million and $3.1 million, within the Rest of World segment and Corporate expenses, respectively.

Critical Accounting Policies

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The critical accounting policies that we believe could have the most significant effect on our reported results or require complex judgment by management are contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2023. We believe that at September 30, 2024, there was no material change to this information.

Recent Accounting Pronouncements

Refer to Recent Accounting Pronouncements in Note 1 – Basis of Presentation in the notes to our condensed consolidated financial statements included in Part 1 Financial Information.

Forward Looking Statements

This filing contains statements that the Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “continue,” “guidance,” “outlook” or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this filing. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: further softening in U.S. residential and commercial water heater demand; negative impacts to the Company, particularly the demand for its products, resulting from global inflationary pressures or a potential recession in one or more of the markets in which the Company participates; the Company’s ability to continue to obtain commodities, components, parts and accessories on a timely basis through its supply chain and at expected costs; negative impacts to demand for the Company’s products, particularly commercial products, as a result of changes in commercial property usage that followed the COVID-19 pandemic; further weakening in North American residential or commercial construction or instability in the Company's replacement markets; inability of the Company to implement or maintain pricing actions; inconsistent recovery of the Chinese economy or a further decline in the growth rate of consumer spending or housing sales in China; the availability, timing or effects of China stimulus programs; negative impact to the Company’s businesses from international tariffs, trade disputes and geopolitical differences, including the conflicts in Ukraine, the Middle East and attacks on commercial shipping vessels in the Red Sea; potential further weakening in the high-efficiency gas boiler segment in the U.S.; substantial defaults in payment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; foreign currency fluctuations; the Company’s inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; the possibility that the parties will fail to obtain necessary regulatory approvals or to satisfy any of the other conditions to the proposed acquisition; failure to realize the expected benefits of acquisitions or expected synergies; failure to realize the expected benefits, timing and extent, of regulatory changes; competitive pressures on the Company’s businesses; including new technologies and new competitors; the impact of potential information technology or data security breaches; negative impact of changes in government regulations or regulatory requirements; the inability to respond to secular trends toward decarbonization and energy efficiency and adverse developments in general economic, political and business conditions in key regions of the world. A more detailed description of these risks is contained under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Forward-looking statements included in this filing are made only as of the date of this filing, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company, or persons acting on its behalf, are qualified entirely by these cautionary statements.

As is more fully described in our Annual Report on Form 10-K for the year ended December 31, 2023, we are exposed to various types of market risks, including currency and certain commodity risks. Our quantitative and qualitative disclosures about market risk have not materially changed since that report was filed. We monitor our currency and commodity risks on a continuous basis and generally enter into forward and futures contracts to minimize these exposures. The majority of the contracts are for periods of less than one year. Our Company does not engage in speculation in our derivative strategies. It is important to note that gains and losses from our forward and futures contract activities are offset by changes in the underlying costs of the transactions being hedged.

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon this evaluation of these disclosure controls and procedures, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of September 30, 2024 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

There have been no material changes in the legal and environmental matters discussed in Part 1, Item 3 and Note 16 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

In the first quarter of 2024, our Board of Directors approved adding 2,000,000 shares of common stock to the existing discretionary share repurchase authority. Under the share repurchase program, the Common Stock may be purchased through a combination of Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, as well as working capital requirements, general business conditions and other factors, including alternative investment opportunities. The stock repurchase authorization remains effective until terminated by our Board of Directors which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. In the third quarter of 2024, we repurchased 1,016,500 shares at an average price of $82.63 per share and at a total cost of $84.0 million. As of September 30, 2024, there were 2,650,962 shares remaining on the existing repurchase authorization.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.

During the three months ended September 30, 2024, none of our directors or Section 16 officers adopted or terminated a “Rule 10b5-1trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Refer to the Exhibit Index on page 30 of this report.

INDEX TO EXHIBITS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on its behalf by the undersigned.