Benchmark Electronics Inc: Form 10-Q for the period ended Jun 30, 2025

The financial information and the discussion below should be read in conjunction with other information, including the unaudited condensed consolidated financial statements and Notes thereto in Part I, Item 1 of this quarterly report on Form 10-Q for the quarterly period ended June 30, 2025 (this Report), the consolidated financial statements and Notes thereto appearing in the Company’s annual report on Form 10-K for the year ended December 31, 2024 (the 2024 10-K), and Part I, Item 1A, Risk Factors of the 2024 10-K. In this Report, references to Benchmark, the Company or use of the words “we,” “our” and “us” include Benchmark’s subsidiaries unless otherwise noted.

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts and may include words such as “anticipate,” “believe,” “intend,” “plan,” “project,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” “could,” “predict,” and similar expressions of the negative or other variations thereof. In particular, statements, expressed or implied, concerning the Company's outlook and guidance for quarterly periods or fiscal year 2025 results, future operating results or margins, the ability to generate sales and income or cash flow, expected revenue mix, the Company’s business strategy and strategic initiatives, the Company’s repurchases of shares of its common stock, the Company’s expectations regarding restructuring charges, stock-based compensation expense, amortization of intangibles, award of any tax incentives and capital expenditures, and the Company’s intentions concerning the payment of dividends, among others, are forward-looking statements. Although the Company believes these statements are based on and derived from reasonable assumptions, they involve risks, uncertainties and assumptions, that are beyond the Company’s ability to control or predict, relating to operations, markets and the business environment generally, including those discussed under Part I, Item 1A of the 2024 10-K and in any of the Company’s subsequent reports filed with the Securities and Exchange Commission (the SEC). Events relating to the possibility of customer demand fluctuations, supply chain constraints, continuing inflationary pressures, the effects of foreign currency fluctuations and high interest rates, geopolitical uncertainties including continuing hostilities and tensions, trade restrictions and sanctions, tariffs and retaliatory countermeasures, the ability to utilize the Company’s manufacturing facilities at sufficient levels to cover its fixed operating costs, or write-downs or write-offs of obsolete or unsold inventory, may have resulting impacts on the Company’s business, financial condition, results of operations, and the Company’s ability (or inability) to execute on its plans. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of the Company’s operations, may vary materially from those indicated. Undue reliance should not be placed on any forward-looking statements. Forward-looking statements are not guarantees of performance. All forward-looking statements included in this document are based upon information available to the Company as of the date of this document, and the Company assumes no obligation to update.

OVERVIEW

Benchmark Electronics, Inc. (the Company) is a Texas corporation that provides design engineering and advanced manufacturing services that include both electronic manufacturing services (EMS) and precision technology (PT) services. We support customers throughout their product lifecycle starting from initial product concept through volume production, including the ability to manage direct order fulfillment and provide aftermarket services. We are a trusted partner to our European and U.S. based national and multi-national original equipment manufacturers (OEMs). Served markets include: aerospace and defense (A&D), medical, industrial, semiconductor capital equipment (Semi-Cap), and advanced computing and communication (AC&C). The Company has manufacturing operations located in the United States and Mexico (the Americas), Asia and Europe.

Our customer engagement focuses on three principal areas:

• Manufacturing Services, which include printed circuit board assemblies (PCBAs) using both surface mount technologies and microelectronics, along with subsystem assembly to full system build and integration. System build and integration often involve building a finished assembly that includes PCBAs, complex subsystem assemblies, mechatronics, displays, mechanicals, and other components. These final products may be build-to-order or configured-to-order and delivered directly to the end customer across all the industries we serve. Our manufacturing services also include PT services comprised of precision machining, advanced metal joining and welding, cleaning, including complex assembly often completed in clean rooms and functional testing primarily for the Semi-Cap and A&D markets.
• Design & Engineering Services, which include designing for manufacturability, design optimization for our factory processes and supply chain, and test development, concurrent and sustaining engineering, turnkey product design and regulatory services. Our engineering services may be for systems, sub-systems, PCBAs, and components. We have the flexibility and capability to engage anywhere in the design process flow. We provide these services across all the industries we serve. We have the ability to provide complete technology solutions, which involve developing a library of building blocks or reference designs primarily in defense solutions, surveillance systems, millimeter wave radio frequency (RF) subsystems, and front-end managed connected data collection systems. We often partner with our customers to merge these solutions utilizing our engineering services to provide turnkey product development from requirements through the launch to volume production into our factories. Our building blocks can be utilized across a variety of industries, but we have significant focus and capabilities in the A&D, medical, AC&C, and the industrial markets. We have also developed differentiated capabilities in RF. The need to improve size, weight, and power to accommodate high-frequency electronics communications is important to customers in the A&D, medical, and AC&C markets.

Our core strength lies in our ability to partner with our customers to provide concept-to-production solutions through a tightly integrated and seamless set of design, test, manufacturing, supply chain, and support services. The integration of these product realization services, along with our global manufacturing presence, increases our ability to respond to our customers’ needs by providing accelerated time-to-market and time-to-volume production of high-quality products with an emphasis on complex products serving regulated markets with higher reliability requirements. These capabilities and attributes enable us to build strong strategic relationships with our customers while becoming an integral part of their business.

We believe our primary source of differentiation and value-add rests with our ability to engage with our customers at any point, from product development through volume production. This is enabled by our highly skilled personnel’s ability to provide leading-edge technical capabilities in engineering services (including full lifecycle), high-frequency RF solutions, microelectronics, optics, miniaturization, and manufacturing services (including electronics and complex precision machining). These capabilities are brought to bear across diversified commercial end-markets, many of which are government regulated. To support customers across these sectors, we have strategically invested in geographically diverse manufacturing locations and global supply chain capabilities.

In addition, we believe that a strong focus on human capital through the talent we hire and retain is critical to maintaining our competitiveness. Our people-first culture is centered on our five core values, consisting of acting with integrity, valuing inclusion, commitment to customers, promoting ingenuity, and genuine caring for each other, our customers and our communities, and we take pride in our innovative and continuous improvement mindset. Our intent is to delight our customers while delivering operational and financial performance aligned with our goals. Through our employee engagement and customer satisfaction feedback processes, we continuously solicit and act upon information to improve our Company and better support our customers and business processes. We have invested in attracting and developing leadership throughout the organization and are committed to investing in an innovative and forward-thinking workforce.

Our customers often face challenges in designing supply chains, demand planning, procuring materials and managing their inventories efficiently due to fluctuations in their customer demand, product design changes, short product life cycles and component price fluctuations.

We employ enterprise resource planning (ERP) systems and lean/six sigma methodologies to manage procurement and manufacturing processes in an efficient and cost-effective manner so that, where possible, components arrive on a just-in-time, as-and-when-needed basis. Because we are a significant purchaser of electronic components and other raw materials, we are generally able to capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts, obtain components and other raw materials that are in short supply, and return excess components. Utilizing our agility and expertise in supply chain management and our relationships with suppliers across the supply chain, we strive to help reduce our customers’ cost of goods sold and inventory exposure.

We recognize manufacturing services revenue as the customer takes control of the manufactured products built to customer specifications. We also generate revenue from our design, development and engineering services, in addition to the sale of other inventory.

Revenue is measured based on the consideration specified in a contract with a customer. Under the majority of our manufacturing contracts with customers, the customer controls all of the work-in-progress as products are being built. Revenues under these contracts are recognized progressively based on the cost-to-cost method. For other manufacturing contracts, the customer does not take control of the product until it is completed. Under these contracts, we recognize revenue upon transfer of control of the product to the customer, which is generally when the goods are shipped. Revenue from design, development and engineering services is recognized over time as the services are performed. As a general matter, we assume no significant obligations after shipment as we typically warrant workmanship only. Therefore, the warranty provisions are generally not significant.

Second Quarter of 2025 Highlights

Sales for the three months ended June 30, 2025 were $642.3 million, a 4% decrease from sales of $665.9 million during the three months ended June 30, 2024. During the second quarter of 2025, sales to customers in our various industry sectors varied from the second quarter of 2024 as follows:

 Semi-Cap increased by 11%

 Industrial remained flat

 A&D increased by 16%

 Medical decreased by 2%

 AC&C decreased by 44%

The overall revenue decrease was primarily due to lower AC&C revenue, due to general end demand softness. This was partially offset by an increase in Semi-Cap and A&D revenue, due to improving demand and new customer wins. See “Results of Operations — Sales” discussion below.

Impact of Certain Factors on Results

Our sales depend on the success of our customers, some of which operate in businesses associated with rapid technological change and consequent product obsolescence. Developments adverse to our major customers or their products, the availability of electronic component supply, or the failure of a major customer to pay for components or services have adversely affected us by not allowing us to fulfill our total customer demand. A substantial percentage of our sales are made to a small number of customers, and the loss of a major customer, if not replaced, would adversely affect us. Sales to our ten largest customers represented 53% of our total sales during both the six months ended June 30, 2025 and 2024. After a period of unprecedented global labor and supply disruptions, we have seen a general easing of certain material constraints across commodity categories, with the exception of older technologies where semiconductor OEMs are not adding incremental capacity. The lack of capacity regarding these older technologies could constrain our ability to produce the full demand forecasts we are receiving from customers needing those parts. We have experienced a significant reduction of non-cancellable and non-returnable business terms from our suppliers as lead times have improved significantly from previous highs.

We experience fluctuations in gross profit from period to period. Different programs contribute different gross profits depending on the type of services involved, location of production, size of the program, complexity of the product and level of material costs associated with the various products. Moreover, new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower, resulting in inefficiencies and unabsorbed manufacturing overhead costs. During periods of low production volume, we generally have unabsorbed manufacturing overhead costs and reduced gross profit. Gross profit can also be impacted by higher costs associated with other situations, such as supply chain constraints. In addition, a number of our new program ramps require incremental investment during the launch and ramp phase, which can exert downward pressure on our gross profit.

Inflation, interest rates, disruption in the global economy and financial markets, geopolitical instability, and government actions related to trade policies, tariffs and immigration continue to create uncertainty. Although we are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying values of our assets or liabilities as of the date we filed this Report, we continue to monitor the current economic environment and its potential impact on our business, results of operations or financial condition, as well as potential impact on our end customers whose demand for our products and services may be adversely impacted as a result of changes in policies by the U.S. or other governments, and closely manage our costs and capital resources so that we can respond appropriately as circumstances change. Our estimates may change as new events occur and additional information is obtained. Actual results could differ from these estimates under different assumptions or conditions.

RESULTS OF OPERATIONS

The following table presents the percentage relationship that certain items in our condensed consolidated statements of income bear to sales for the periods indicated.

Sales

As noted above, sales for the second quarter of 2025 decreased 4% from the second quarter of 2024.

Sales are analyzed by management by market sector and by geographic segment, which reflect our reportable segments. Our global business development strategy is based on our targeted market sectors. Management measures operational performance and allocates resources on a geographic segment basis.

Sales by market sector were as follows:

(in thousands)

Semiconductor Capital Equipment. Sales for the three months ended June 30, 2025 increased 11% to $190.4 million from $171.9 million for the three months ended June 30, 2024. Sales for the six months ended June 30, 2025 increased 14% to $385.4 million from $337.8 million for the six months ended June 30, 2024. The increases were primarily due to higher demand and new program wins.

Industrial. Sales for the three months ended June 30, 2025 and 2024 were $141.6 million and $141.7 million, respectively. Sales for the six months ended June 30, 2025 decreased 2% to $278.4 million from $282.7 million for the six months ended June 30, 2024. The decrease was primarily due to demand softness from certain existing customers partially offset by new program ramps.

Aerospace and Defense. Sales for the three months ended June 30, 2025 increased 16% to $126.3 million from $108.8 million for the three months ended June 30, 2024. Sales for the six months ended June 30, 2025 increased 16% to $248.1 million from $214.7 million for the six months ended June 30, 2024. The increases were primarily due to strong market growth in both commercial aerospace and defense.

Medical. Sales for the three months ended June 30, 2025 decreased 2% to $109.6 million from $111.6 million for the three months ended June 30, 2024. Sales for the six months ended June 30, 2025 decreased 6% to $213.2 million from $226.3 million for the six months ended June 30, 2024. The decreases were primarily due to end-demand weakness impacting medical devices and delayed ramp of new programs.

Advanced Computing and Communications. Sales for the three months ended June 30, 2025 decreased 44% to $74.5 million from $131.9 million for the three months ended June 30, 2024. Sales for the six months ended June 30, 2025 decreased 47% to $149.0 million from $280.0 million for the six months ended June 30, 2024. The decreases were primarily due to lower demand coupled with high-performance computing program transitions.

Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our 2024 10-K for factors pertaining to our international sales, fluctuations in foreign currency exchange rates and a discussion of potential adverse effects in operating results associated with the risks of doing business abroad. During the three months ended June 30, 2025 and 2024, 64% and 61%, respectively of our sales were from international operations.

Sales by geographic segment were as follows:

(in thousands)

Americas. Sales for the three months ended June 30, 2025 decreased 14% to $295.2 million from $343.1 million for the three months ended June 30, 2024. Sales for the six months ended June 30, 2025 decreased 19% to $579.5 million from $715.5 million for the six months ended June 30, 2024. The decreases were primarily due to softness in AC&C and Semi-Cap sectors partially offset by increased demand in the A&D sector.

Asia. Sales for the three months ended June 30, 2025 increased 11% to $287.1 million from $257.7 million for the three months ended June 30, 2024. Sales for the six months ended June 30, 2025 increased 11% to $571.1 million from $515.5 million for the six months ended June 30, 2024. The increases were primarily due to an increase in existing customer demand in the Semi-Cap and industrial sectors partially offset by decreased demand in the Medical and AC&C sectors.

Europe. Sales for the three months ended June 30, 2025 decreased 3% to $83.4 million from $85.9 million for the three months ended June 30, 2024. The decrease was primarily due to decreased demand in the Semi-Cap sector partially offset by an increase in the A&D sector. Sales for the six months ended June 30, 2025 increased 2% to $169.7 million from $166.4 million for the six months ended June 30, 2024. The increase was primarily due to higher demand in the A&D and Industrial sectors partially offset by a decrease in the Semi-Cap sector.

Gross Profit

Gross profit for the three months ended June 30, 2025 decreased 5% to $64.8 million from $68.0 million for the three months ended June 30, 2024. The decrease was primarily due to lower sales. Gross profit margin decreased to 10.1% for the three months ended June 30, 2025 from 10.2% for the three months ended June 30, 2024.

Gross profit for the six months ended June 30, 2025 decreased 5% to $128.0 million from $135.4 million for the six months ended June 30, 2024. The decrease was primarily due to lower sales. Gross profit margin decreased to 10.0% for the six months ended June 30, 2025 from 10.1% for the six months ended June 30, 2024.

Income from Operations

Income from operations for the three months ended June 30, 2025 decreased 25% to $20.5 million from $27.3 million in the three months ended June 30, 2024. Income from operations for the six months ended June 30, 2025 decreased 39% to $32.2 million from $52.8 million in the six months ended June 30, 2024. The decreases were primarily due to lower sales, as well as increased selling, general and administrative expenses primarily due to higher stock based compensation expense and increased restructuring expenses and other costs due to settlement of a tax assessment in the Americas as described below.

Income from operations by reportable segment was as follows:

(in thousands)

Americas. Income from operations for the three months ended June 30, 2025 decreased 18% to $10.8 million from $13.2 million for the three months ended June 30, 2024. Income from operations for the six months ended June 30, 2025 decreased 73% to $6.3 million from $23.4 million for the six months ended June 30, 2024.The decreases were primarily due to lower revenue, as well as increased restructuring expenses and other costs due to settlement of a tax assessment, partially offset by cost control. See Note 15 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for additional information on the tax assessment.

Asia. Income from operations for the three months ended June 30, 2025 increased 5% to $33.8 million from $32.1 million for the three months ended June 30, 2024. Income from operations for the six months ended June 30, 2025 increased 10% to $72.5 million from $65.9 million for the six months ended June 30, 2024. The increases were primarily due to higher revenue and cost control.

Europe. Income from operations for the three months ended June 30, 2025 was flat at $6.6 million for the three months ended June 30, 2024. Income from operations for the six months ended June 30, 2025 increased 9% to $14.7 million from $13.4 million for the six months ended June 30, 2024. The increases were primarily due to higher revenue and cost control.

Selling, General and Administrative Expenses

SG&A expenses increased to $40.6 million for the three months ended June 30, 2025 from $38.0 million for the three months ended June 30, 2024. SG&A expenses increased to $79.4 million for the six months ended June 30, 2025 from $75.4 million for the six months ended June 30, 2024. The increases were primarily due to higher stock based compensation expense, as well as professional services.

Amortization of Intangible Assets

Amortization of intangible assets was $1.2 million for the three months ended June 30, 2025 and 2024. Amortization of intangible assets was $2.4 million for the six months ended June 30, 2025 and 2024.

Restructuring Charges and Other Costs

During the three and six months ended June 30, 2025, we recognized $1.9 million and $3.3 million, respectively, of restructuring charges and other costs primarily due to capacity and workforce reductions at our sites in the Americas. Additionally, the Company incurred $0.6 million and $10.7 million of settlement costs related to a tax assessment in the Americas for the three and six months ended June 30, 2025, respectively. See Note 15 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for additional information on the tax assessment.

During the three and six months ended June 30, 2024, we recognized $1.5 million and $4.8 million, respectively, of restructuring charges and other costs primarily due to capacity and workforce reductions at our sites in the Americas.

See Note 16 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for additional information on our restructuring charges and other costs.

Interest Expense

Interest expense decreased to $6.3 million for the three months ended June 30, 2025 from $6.9 million for the three months ended June 30, 2024. Interest expense decreased to $11.6 million for the six months ended June 30, 2025 from $14.2 million for the six months ended June 30, 2024. The decreases were primarily due to decreased borrowings and a lower interest rate environment.

Interest Income

Interest income increased to $3.1 million for the three months ended June 30, 2025 from $2.5 million for the three months ended June 30, 2024. Interest income increased to $5.9 million for the six months ended June 30, 2025 from $4.5 million for the six months ended June 30, 2024. The increases were primarily due to higher cash balances partially offset by a lower interest environment.

Other Expense, Net

Other expense, net decreased to $0.7 million for the three months ended June 30, 2025 from $2.3 million for the three months ended June 30, 2024. Other expense, net decreased to $1.5 million for the six months ended June 30, 2025 from $3.5 million for the six months ended June 30, 2024. The decreases were primarily due to lower foreign currency exchange losses.

Income Tax Expense

Income tax expense of $15.6 million represented a 94.1% effective tax rate for the three months ended June 30, 2025, compared with $5.0 million for the three months ended June 30, 2024, representing an effective tax rate of 24.3%. Income tax expense of $20.4 million represented a 81.5% effective tax rate for the six months ended June 30, 2025, compared with $10.1 million for the six months ended June 30, 2024, representing an effective tax rate of 25.5%. The increase in the effective tax rate in 2025 is primarily due to the $10.4 million in discrete tax expense recorded in the second quarter for the foreign withholding taxes on repatriated dividends and recognition of deferred tax liabilities on China unremitted earnings, losses generated in a jurisdiction where no tax benefit can be recognized and to the mix of profits in our various jurisdictions.

Net Income

We reported net income of $1.0 million, or $0.03 per diluted share, for the three months ended June 30, 2025, compared with net income of $15.5 million, or $0.43 per diluted share, for the three months ended June 30, 2024. We reported net income of $4.6 million, or $0.13 per diluted share, for the six months ended June 30, 2025, compared with net income of $29.5 million, or $0.81 per diluted share, for the six months ended June 30, 2024. The decreases were primarily due to the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our organic growth and operations through funds generated from operations and occasional borrowings under our credit agreement (as amended and restated, the Credit Agreement), consisting of a term loan facility and a $550.0 million revolving credit facility, both with a maturity date of June 27, 2030. Cash, cash equivalents and restricted cash totaled $264.6 million as of June 30, 2025, which included $227.5 million held outside the United States in various foreign subsidiaries.

Management believes that our existing cash balances, funds generated from operations, and borrowing availability under our revolving credit facility will be sufficient to permit us to meet our liquidity requirements over the next 12 months. Management further believes that our ongoing cash flows from operations and any borrowings we may incur under our revolving credit facility will enable us to meet operating cash requirements in future years. If we consummate significant acquisitions in the future, our capital needs would increase and could possibly result in our need to increase available borrowings under our Credit Agreement or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on acceptable terms.

Cash Flows

Cash provided from operating activities was $28.7 million during the six months ended June 30, 2025, and primarily consisted of $4.6 million of net income, adjusted for $23.8 million of depreciation and amortization, $9.7 million of stock-based compensation expense, a $46.8 million decrease in accounts receivable, a $26.1 million decrease in inventories, partially offset by a $17.7 million decrease in accrued liabilities, a $17.2 million decrease in advance payments from customers and a $20.7 million decrease in income taxes. Working capital was $0.8 billion as of June 30, 2025.

We primarily purchase components only after customer orders or forecasts are received, which mitigates, but does not eliminate, the risk of loss on inventories. Supplies of electronic components and other materials used in operations are subject to industry-wide shortages. In certain instances, suppliers may allocate available quantities to us. When shortages of these components and other material supplies used in operations have occurred, vendors have at times been unable to ship the quantities we need for production, forcing us to delay shipments, which can increase backorders and impact cash flows. Vendors also may increase the costs of components based on the market conditions including these shortages. In certain instances, we request and receive advance payments from customers as prepayments of inventory to meet working capital demands of a contract, offset inventory risks such as inventory purchased in advance of current needs and protect the Company from the failure of other parties to fulfill obligations under a contract. For example, we have been impacted by supply chain constraints, including shortages, longer lead times and increased transit times. Furthermore, the U.S. government’s adoption of new approaches to trade policy and imposition of tariffs on certain foreign goods (as well as the possibility of imposing significant, additional tariffs in the future) may make it more difficult or costly for us to procure components and other material supplies and, in turn, may increase the cost to our customers, which may materially and adversely impact demand for our products and services, our results of operations or our financial condition.

Cash used in investing activities was $16.4 million during the six months ended June 30, 2025 primarily due to capital expenditures for property, plant and equipment of $14.4 million and purchased software of $2.1 million. The purchases of property, plant and equipment were primarily for leasehold improvements and machinery and equipment in the Americas and Asia.

Cash used in financing activities was $85.4 million during the six months ended June 30, 2025. Borrowings under the Credit Agreement were $398.6 million and principal payments under the Credit Agreement were $446.6 million. In addition, during the six months ended June 30, 2025, we paid $16.0 million for stock repurchases, $6.7 million for employee taxes in connection with the settlement of stock-based awards and $12.3 million for dividends.

Credit Agreement

On June 27, 2025, the Company entered into a $700 million second amended and restated credit agreement (the Credit Agreement) by and among the Company, certain of its subsidiaries, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swingline Lender and an L/C Issuer. The Credit Agreement is comprised of a five-year $550 million revolving credit facility and a five-year $150 million term loan facility, both with a maturity date of June 27, 2030. As of June 30, 2025, we had $150 million in borrowings outstanding under the term loan facility, $60.0 million outstanding under our revolving credit facility and $4.4 million in letters of credit outstanding under our revolving credit facility. See Note 5 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for more information regarding the terms of our Credit Agreement.

The Credit Agreement contains certain financial covenants related to interest coverage and debt leverage, and certain customary affirmative and negative covenants, including restrictions on our ability to incur additional debt and liens, pay dividends, repurchase shares, sell assets, including trade accounts receivable, and merge or consolidate with other persons. Amounts due under the Credit Agreement could be accelerated upon specified events of default, including a failure to pay amounts due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject, in some cases, to cure periods. As of June 30, 2025, we were in compliance with all of these covenants and restrictions.

As of June 30, 2025, we had $485.6 million available for borrowings under the Credit Agreement, subject to compliance with financial covenants as to interest coverage and debt leverage, in addition to other debt covenant restrictions. During the next 12 months, we believe our capital expenditures will approximate $60 million to $70 million, principally for machinery and equipment to help increase our production capacity to support anticipated revenue growth and our ongoing business around the globe.

Dividends

During the six months ended June 30, 2025 and 2024, cash dividends paid totaled $12.3 million and $11.8 million, respectively. On June 9, 2025, the Board of Directors declared a quarterly cash dividend of $0.17 per share of the Company’s common stock to shareholders of record as of June 30, 2025. The dividend of $6.1 million was paid on July 11, 2025.

The Board of Directors currently intends to continue paying quarterly dividends. However, the Company’s future dividend policy is subject to the Company’s compliance with applicable law, and dependent on, among other things, the Company’s results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the Board of Directors may deem relevant. Dividend payments are not mandatory or guaranteed; there can be no assurance that the Company will continue to pay a dividend in the future.

Share Repurchase Authorization

On February 19, 2020, the Board of Directors approved an expanded share repurchase authorization granting the Company authority to repurchase up to $150 million in common stock.

The Company repurchased 0.4 million shares for an aggregate of $16.0 million at an average price of $37.43 per share during the six months ended June 30, 2025. As of June 30, 2025, the Company had $133.5 million remaining under share repurchase authorizations. See Note 7 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for more information on the share repurchase authorization.

CONTRACTUAL OBLIGATIONS

We have certain contractual obligations for operating leases that were summarized in “Contractual Obligations” under Part II, Item 7 in our 2024 10-K. Other than items discussed in Note 5 and Note 6 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report, there have been no material changes to our contractual obligations, outside of the ordinary course of our business, since December 31, 2024.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND RECENTLY ENACTED ACCOUNTING PRINCIPLES

Management’s discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. See Note 2 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for a discussion of recently enacted accounting principles. Also, our significant accounting policies are summarized in Note 1 to the consolidated financial statements included in our 2024 10-K. There have been no changes to the items disclosed as critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2024 10-K.

Our international sales comprise a significant portion of our business. We are exposed to risks associated with operating internationally, including:

• Foreign currency exchange risk;
• Import and export duties, taxes, tariffs and regulatory changes;
• Inflationary economies or currencies; and
• Economic and political instability.

Additionally, some of our operations are in developing countries. Certain events, including natural disasters, can impact the infrastructure of a developing country more severely than they would impact the infrastructure of a developed country. A developing country can also take longer to recover from such events, which could lead to delays in our ability to resume full operations.

We transact business in various foreign countries and are subject to foreign currency fluctuation risks. We use natural hedging and forward contracts to economically hedge transactional exposure primarily associated with trade accounts receivable, other receivables and trade accounts payable that are denominated in a currency other than the functional currency of the respective operating entity. We do not use derivative financial instruments for speculative purposes. Certain forward currency exchange contracts in place as of June 30, 2025 have not been designated as accounting hedges and, therefore, changes in fair value are recorded within our unaudited condensed consolidated statements of income in Part I, Item 1 of this Report.

The Company enters into forward currency exchange contracts designated as cash flow hedges of forecasted foreign currency expenses. Changes in the fair value of the derivatives are recorded in accumulated other comprehensive loss on the condensed consolidated balance sheets until earnings are affected by the variability of the cash flows.

Our sales are substantially denominated in U.S. dollars. Our foreign currency cash flows are generated in certain European and Asian countries and Mexico.

We are also exposed to market risk for changes in interest rates on our financial instruments, a portion of which relates to our invested cash balances. We do not use derivative financial instruments in our investing activities. We place cash and cash equivalents and investments with various major financial institutions. We protect our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by generally investing in investment grade securities.

We are also exposed to interest rate risk on borrowings under our Credit Agreement. As of June 30, 2025, we had $150 million outstanding on the floating rate term loan facility, and we have an interest rate swap agreement with a notional amount of $119.8 million and a fixed interest rate of 4.039%. Under this swap agreement, we receive variable rate interest rate payments and pay fixed rate interest payments. The effect of this swap is to convert our floating rate interest expense to a fixed interest rate expense. The interest rate swap is designated as a cash flow hedge.

For additional information regarding our forward currency exchange contracts and interest rate swap agreement, see Note 13 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report.

As of the end of the period covered by this Report, the Company’s management (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)) conducted an evaluation pursuant to Rule 13a-15 under the Exchange Act of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based on this evaluation, the CEO and CFO concluded that as of the end of the period covered by this Report, such disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the last fiscal quarter covered by this Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

We are currently upgrading our ERP system, which is expected to occur in phases over the next several years. We have completed the implementation of the upgrades at certain of the Company’s locations and have revised and updated the related controls. These changes did not materially affect our internal control over financial reporting. As we implement the upgrades of this ERP system at the remaining locations over the next several years, we will continue to assess the impact on our internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by individuals’ acts, by collusion of two or more people, or by management overriding the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.