Gorman Rupp Co: Form 10-Q for the period ended Sep 30, 2026

(Dollars in thousands, except for per share amounts)

The following discussion and analysis of the Company’s financial condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements, and notes thereto, and the other financial data included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, 2025.

Executive Overview

The Gorman-Rupp Company (“we”, “our”, “Gorman-Rupp” or the “Company”) is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire suppression, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications. The Company attributes its success to long-term product quality, applications and performance combined with timely delivery and service, and continually seeks to develop initiatives to improve performance in these key areas.

We regularly invest in training for our employees, in new product development and in modern manufacturing equipment, technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced historically.

During the third quarter of 2025, based on changes to the agriculture market, we sought to optimize our National Pump Company (NPC) footprint by reducing the number of operating facilities from six to three. The footprint optimization improved profitability by lowering our fixed operating costs with minimal impact on sales. We transitioned the NPC facility in Olive Branch, MS to our Patterson Pump Company to continue to support growth in the HVAC market. During the third quarter of 2025 we recognized $3.0 million in one-time facility optimization costs including inventory rationalization, severance, and facility costs.

For the first nine months of 2026, net sales were $555.9 million, an increase of 7.8%, or $40.1 million, compared to the first nine months of 2025. Net income was $60.0 million, or $2.27 per share, compared to net income of $39.3 million, or $1.49 per share, for the same period last year. Adjusted earnings per share for the first nine months of 2026 and 2025 were $2.27 and $1.58, respectively (see "Non-GAAP Financial Information" below). Total debt decreased $58.0 million during the first nine months of 2026.

Incoming orders for the first nine months of 2026 were $562.2 million, or an increase of 2.2%, compared to the same period in 2025. The Company’s backlog of orders was $236.8 million at September 30, 2026 compared to $244.0 million at December 31, 2025, and $234.2 million at September 30, 2025.

On October 22, 2026, the Board of Directors authorized the payment of a quarterly dividend of $0.20 per share on the common stock of the Company, payable December 10, 2026, to shareholders of record as of November 13, 2026. This will mark the 307th consecutive quarterly dividend paid by The Gorman-Rupp Company.

The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

Outlook

We are very pleased with our third-quarter results, which included record net sales, gross margin, and earnings per share. This marks the third consecutive quarter with record earnings per share and the second consecutive quarter with record sales. Our sales growth was broad-based with all of our markets showing growth over the same quarter last year. Our margins remained strong as increased volumes drove leverage on labor, overhead and SG&A expenses. These operating improvements, together with lower interest expense, contributed to record earnings and strong cash generation. Solid operating cash flow allowed us to reduce total debt by $58.0 million during the first nine months of the year while also continuing to invest in the business. Incoming orders and backlog remain healthy, and our diverse markets and strong financial position provide a solid foundation as we enter the fourth quarter.

Three Months Ended September 30, 2026 vs. Three Months Ended September 30, 2025

Net Sales

The following table presents the Company’s disaggregated net sales by its end markets:

Net sales for the third quarter of 2026 were $193.3 million compared to net sales of $172.8 million for the third quarter of 2025, an increase of 11.8%, or $20.4 million. Sales increased across all of our markets driven by volume growth as well as price increases taken in the first quarter of 2026. Sales increased $4.7 million in the agriculture market, $3.5 million in the construction market, and $3.4 million in the industrial market in each case due in part to improvement across Fill-Rite’s sales channels. Sales in the construction market also benefited from increased sales of rental equipment and industrial sales benefited from increased HVAC demand. Sales increased $3.8 million in the fire suppression market due to increased international sales. In addition, sales increased $2.0 million in the municipal market, $1.4 million in the OEM market, $1.0 million in the petroleum market, and $0.6 million in the repair market.

Cost of Products Sold and Gross Profit

Gross profit was $64.5 million for the third quarter of 2026, resulting in gross margin of 33.4%, compared to gross profit of $50.4 million and gross margin of 29.2% for the same period in 2025. Gross profit for the third quarter of 2025 included $2.7 million of one-time facility optimization costs. The 420 basis point increase in gross margin was driven by a 190 basis point improvement in labor and overhead expense (130 basis points driven by leverage on increased sales and 60 basis points driven by favorable medical expenses), a 160 basis point improvement from 2025 facility optimization costs that did not recur, and a 70 basis point reduction in LIFO expense.

Selling, General and Administrative (SG&A) Expenses

14

Selling, general and administrative (“SG&A”) expenses were $27.5 million and improved to 14.3% of net sales for the third quarter of 2026 compared to $25.9 million and 15.0% of net sales for the same period in 2025. The decrease in SG&A expense as a percent of net sales was driven by improved leverage on SG&A expenses from increased sales.

Operating Income

Operating income was $33.9 million for the third quarter of 2026, resulting in an operating margin of 17.5%, compared to operating income of $21.5 million and an operating margin of 12.4% for the same period in 2025. Operating income for the third quarter of 2025 included $3.0 million of one-time facility optimization costs. The 510 basis point increase in operating margin was driven by a 420 basis point improvement in gross margin as well as a 90 basis point improvement in leverage on SG&A and amortization.

Interest Expense

Interest expense was $4.3 million for the third quarter of 2026 compared to $5.8 million for the same period in 2025. The decrease in interest expense was due primarily to a decrease in outstanding debt.

Net Income

The Company’s effective tax rate was 23.9% for the third quarter of 2026 compared to 26.0% for the third quarter of 2025. The 26.0% tax rate for the third quarter 2025 was driven by unfavorable discrete adjustments made in the third quarter of 2025 and by changes in U.S. tax regulations passed under the One Big Beautiful Bill Act. The updated tax regulations accelerated temporary tax benefits that reduced our foreign tax benefits and made the benefits permanent, thus increasing our effective tax rate in third quarter of 2025. The resulting impact to the effective tax rate in the third quarter of 2025 was more significant than the impact to the 2025 year to date period as the quarter included a true-up of year to date activity.

Net income was $22.7 million, or $0.86 per share, for the third quarter of 2026 compared to net income of $11.3 million, or $0.43 per share, in the third quarter of 2025. Adjusted earnings per share for the third quarter of 2026 and 2025 were $0.86 and $0.52, respectively. Adjusted earnings per share is a non-GAAP financial measure, see "Non-GAAP Financial Information" below.

Adjusted EBITDA was $41.8 million and 21.6% of sales for the third quarter of 2026 compared to $32.3 million and 18.7% of sales for the third quarter of 2025. Adjusted EBITDA is a non-GAAP financial measure, see "Non-GAAP Financial Information" below.

Nine Months Ended September 30, 2026 vs. Nine Months Ended September 30, 2025

Net Sales

The following table presents the Company’s disaggregated net sales by its end markets:

Net sales for the first nine months of 2026 were $555.9 million compared to net sales of $515.8 million for the first nine months of 2025, an increase of 7.8%, or $40.1 million. Sales increased in the majority of our markets including a sales increase of $14.7 million in the construction market due to increased demand in mining and sales of rental equipment, $13.3 million in the agriculture market due to broad-based improvement across Fill-Rite's sales channels, $8.6 million in the industrial market due to increased domestic investment, $4.0 million in the OEM market, $3.9 million in the municipal market, and $0.2 million in the petroleum market. Offsetting these increases were a decrease of $3.8 million in the fire suppression market and a decrease of $0.8 million in the repair market.

Cost of Products Sold and Gross Profit

Gross profit was $182.5 million for the first nine months of 2026, resulting in gross margin of 32.8%, compared to gross profit of $156.8 million and gross margin of 30.4% for the same period in 2025. Gross profit for the first nine months of 2025 included $2.7 million of one-time facility optimization costs. The 240 basis point increase in gross margin included a 100 basis point improvement in margin on material (30 basis points of which was attributable to a decrease in LIFO expense), a 90 basis point improvement in leverage on labor and overhead expense resulting from increased sales, and a 50 basis point improvement from 2025 facility optimization costs that did not recur.

Selling, General and Administrative (SG&A) Expenses

SG&A expenses were $81.5 million and improved to 14.7% of net sales for the first nine months of 2026 compared to $77.0 million and 14.9% of net sales for the same period in 2025. SG&A expenses increased due to increased incentive based payroll expenses, higher advertising expenses, and increased freight out costs driven by increased sales. The decrease in SG&A expense as a percent of net sales was driven by improved leverage on SG&A expenses from increased sales.

Operating Income

Operating income was $91.8 million for the first nine months of 2026, resulting in an operating margin of 16.5%, compared to operating income of $70.5 million and an operating margin of 13.7% for the same period in 2025. Operating income for the first nine months of 2025 included $3.0 million of one-time facility optimization costs. The 280 basis point increase in operating margin was driven by a 240 basis point improvement in gross margin as well as a 40 basis point improvement in leverage on SG&A and amortization.

Interest Expense

Interest expense was $13.9 million for the first nine months of 2026 compared to $18.0 million for the same period in 2025. The decrease in interest expense was primarily due to a decrease in outstanding debt.

Net Income

The Company’s effective tax rate was 22.6% for the first nine months of 2026 compared to 23.4% for the first nine months of 2025.

Net income was $60.0 million, or $2.27 per share, for the first nine months of 2026 compared to net income of $39.3 million, or $1.49 per share, for the first nine months of 2025. Adjusted earnings per share for the first nine months of 2026 and 2025 were $2.27 per share and $1.58 per share, respectively. Adjusted earnings per share is a non-GAAP financial measure, see "Non-GAAP Financial Information" below.

Adjusted EBITDA was $115.5 million and 20.8% of net sales for the first nine months of 2026 compared to $97.3 million and 18.9% of net sales for the first nine months of 2025. Adjusted EBITDA is a non-GAAP financial measure, see "Non-GAAP Financial Information" below.

Non-GAAP Financial Information

The discussion of Results of Operations above includes certain non-GAAP financial data and measures such as adjusted earnings, adjusted earnings per share, and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). Adjusted earnings is earnings excluding 2025 facility optimization costs. Adjusted earnings per share is earnings per share excluding 2025 facility optimization costs per share. Adjusted EBITDA is net income (loss) excluding interest, taxes, depreciation and amortization, adjusted to exclude 2025 facility optimization costs, and non-cash LIFO expense. Management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors. The inclusion of these adjusted measures should not be construed as an indication that the Company’s future results will be unaffected by unusual or infrequent items or that the items for which the Company has made adjustments are unusual or infrequent or will not recur. Further, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which LIFO method they may elect. The Gorman-Rupp Company believes that these non-GAAP financial data and measures also will be useful to investors in assessing the strength of the Company’s underlying operations and liquidity from period to period. These non-GAAP financial measures are not intended to replace GAAP financial measures, and they are not necessarily standardized or comparable to similarly titled measures used by other companies. Provided below is a reconciliation of adjusted earnings, adjusted earnings per share, and adjusted EBITDA to its corresponding GAAP financial measure, which includes a description of actual adjustments made in the current period and the corresponding prior period.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and borrowings under our Credit Facility. Cash and cash equivalents totaled $59.3 million at September 30, 2026. The Company had an additional $99.9 million available under the revolving credit facility after deducting $0.1 million in outstanding letters of credit primarily related to customer orders. We believe we have adequate liquidity from funds on hand and borrowing capacity to execute our financial and operating strategy, as well as comply with debt obligations and financial covenants, for at least the next 12 months. The Company has made payments on the Senior Term Loan Facility in excess of the required minimum installment payments and, as a result, has no required quarterly installment payments due on the Senior Term Loan Facility within the next 12 months.

As of September 30, 2026, the Company had $252.8 million in total debt outstanding with $222.8 million due in 2029 and $30.0 million due in 2031. The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at September 30, 2026 and December 31, 2025. See “Note 9 – Financing Arrangements” in the Notes to Consolidated Financial Statements included in this Form 10-Q for a further description of our outstanding debt.

Capital expenditures for the first nine months of 2026 were $14.7 million and consisted primarily of machinery and equipment. Capital expenditures for the full-year 2026 are presently planned to be approximately $22.0 - $24.0 million primarily for machinery and equipment, and are expected to be financed through cash from operations.

On October 22, 2026, the Board of Directors authorized the payment of a quarterly dividend of $0.20 per share on the common stock of the Company, payable December 10, 2026, to shareholders of record as of November 13, 2026. This will mark the 307th consecutive quarterly dividend paid by The Gorman-Rupp Company. The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

The Board of Directors has authorized a share repurchase program of up to $50.0 million of the Company’s common shares. The actual number of shares repurchased will depend on prevailing market conditions, alternative uses of capital and other factors, and will be determined at management’s discretion. The Company is not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. As of September 30, 2026, the Company had $48.1 million available for repurchase under the share repurchase program.

Financial Cash Flow

The increase in cash provided by operating activities in the first nine months of 2026 compared to the same period last year was primarily due to increased net income as well as an increase in taxes payable, a decrease in inventory and an increase in benefit obligations, partially offset by an increase in accounts receivable during the nine months ended September 30, 2026 compared to the same period last year.

During the first nine months of 2026, investing activities of $14.3 million consisted of capital expenditures for machinery and equipment. During the first nine months of 2025, investing activities of $12.4 million consisted of capital expenditures for machinery and equipment.

Net cash used for financing activities of $75.8 million for the first nine months of 2026 primarily consisted of payments on bank borrowings of $58.0 million, dividend payments of $15.0 million, and $2.6 million of payments in the surrender of common shares to cover taxes upon the vesting of stock awards. Net cash used for financing activities of $60.8 million for the first nine months of 2025 primarily consisted of net payments on bank borrowings of $45.0 million, dividend payments of $14.6 million, and $1.2 million of payments in the surrender of common shares to cover taxes upon the vesting of stock awards.

Critical Accounting Policies

Our critical accounting policies are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended December 31, 2025 contained in our Annual Report on Form 10-K for the year ended December 31, 2025. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

Cautionary Note Regarding Forward-Looking Statements

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, The Gorman-Rupp Company provides the following cautionary statement: This Form 10-Q contains various forward-looking statements based on assumptions concerning The Gorman-Rupp Company’s operations, future results and prospects. These forward-looking statements are based on current expectations about important economic, political, and technological factors, among others, and are subject to risks and uncertainties, which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

Such uncertainties include, but are not limited to, our estimates of future earnings and cash flows, general economic conditions and supply chain conditions and any related impact on costs and availability of materials, retention of supplier and customer relationships and key employees, and the ability to service and repay indebtedness. Other factors include, but are not limited to: company specific risk factors including (1) loss of key personnel; (2) intellectual property security; (3) growth through acquisitions; (4) the Company’s indebtedness and how it may impact the Company’s financial condition and the way it operates its business; (5) impairment in the value of intangible assets, including goodwill; (6) defined benefit pension plan settlement expense; (7) LIFO inventory method; and (8) family ownership of common equity; and general risk factors including (9) continuation of the current and projected future business environment; (10) highly competitive markets; (11) availability and costs of raw materials and labor; (12) cybersecurity threats; (13) artificial intelligence risk and challenges that can impact our business; (14) compliance with, and costs related to, a variety of import and export laws and regulations; (15) the impact of U.S. trade policy, including resulting tariffs; (16) environmental compliance costs and liabilities; (17) exposure to fluctuations in foreign currency exchange rates; (18) conditions in foreign countries in which The Gorman-Rupp Company conducts business; (19) changes in our tax rates and exposure to additional income tax liabilities; and (20) risks described from time to time in our reports filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Exposure to foreign exchange rate risk is due to certain costs and revenue being denominated in currencies other than one of the Company’s subsidiaries functional currency. The Company is also exposed to market risk as the result of changes in interest rates which may affect the cost of financing. We continually monitor these risks and regularly develop appropriate strategies to manage them. Accordingly, from time to time, we may enter into certain derivative or other financial instruments. These financial instruments are used to mitigate market exposure and are not used for trading or speculative purposes.

Interest Rate Risk

The results of operations are exposed to changes in interest rates primarily with respect to borrowings under the Company’s Senior Term Loan Facility and Credit Facility. Borrowings under the Senior Term Loan Facility and Credit Facility may be made either at (i) a base rate plus the applicable margin, which ranges from 0.50% to 1.25%, or at (ii) an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 1.5% to 2.25%. At September 30, 2026, the Company had $222.8 million in borrowings under the Senior Term Loan Facility and no borrowings under the Credit Facility. As of September 30, 2026, the applicable interest rates under the Senior Secured Credit Agreement were Adjusted Term SOFR plus 1.75% or 5.8%. See Note 9 “Financing Arrangements” in the notes to our Consolidated Financial Statements.

To reduce the exposure to changes in the market rate of interest, effective October 31, 2022, the Company entered into interest rate swap agreements for a portion of the Senior Term Loan Facility. Terms of the interest rate swap agreements require the Company to receive a fixed interest rate and pay a variable interest rate. The interest rate swap agreements are designated as a cash flow hedge, and as a result, the mark-to-market gains or losses will be deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to interest expense in the period during which the hedged transactions affect earnings. See “Derivative Financial Instruments” and “Interest Rate Derivatives” in the Notes to our Consolidated Financial Statements.

The Company estimates that a hypothetical increase of 100 basis points in interest rates would increase interest expense by approximately $1.0 million on an annual basis.

Foreign Currency Risk

The Company’s foreign currency exchange rate risk is limited primarily to the Euro, Canadian Dollar, South African Rand and British Pound. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as is used in the market of the source of products. The foreign currency transaction gains (losses) for the nine months ended September 30, 2026 and 2025 were ($0.1) million and ($0.3) million respectively, and are reported within Other (expense) income, net on the Consolidated Statements of Income.

Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on that evaluation, the principal executive officer and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2026.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.