Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(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.

Incoming orders for the first three months of 2026 were $187.5 million, or an increase of 5.5%, compared to the same period in 2025. The Company's backlog of orders was $247.9 million at March 31, 2026 compared to $217.8 million at March 31, 2025 and $244.0 million at December 31, 2025.

On April 23, 2026, the Board of Directors authorized the payment of a quarterly dividend of $0.19 per share on the common stock of the Company, payable June 10, 2026, to shareholders of record as of May 15, 2026. This will mark the 305th 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

Demand during the first quarter of 2026 remained broad-based across most of our end markets with incoming order volumes supporting sales growth and increasing our backlog, which we believe positions us well for the remainder of the year. We also generated strong operating cash flow and reduced debt during the first quarter. As we move forward, we remain focused on disciplined execution, investing appropriately in the business, and delivering long-term profitable growth.

Three Months Ended March 31, 2026 vs. Three Months Ended March 31, 2025

Net Sales

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

Net sales for the first quarter of 2026 were $176.6 million compared to net sales of $163.9 million for the first quarter of 2025, an increase of 7.7%, or $12.7 million. The increase was driven by volume growth as well as pricing increases which averaged approximately 3.0% in both 2025 and 2026.

Sales increased in the majority of our markets, including increases of $6.3 million in the construction market due to increased demand in mining and sales of rental equipment, $4.4 million in the agriculture market due to broad based improvement across Fill-Rite's sale channels, $3.5 million in the industrial market due to increased domestic investment, $2.9 million in the municipal market due to increased water and wastewater projects related to infrastructure investment, and $1.7 million in the OEM market due to increased demand related to data centers. These increases were partially offset by a sales decrease of $5.5 million in the fire suppression market primarily due to reduced international shipments. Sales also decreased $0.3 million in the petroleum market and $0.3 million in the repair market.

Cost of Products Sold and Gross Profit

Gross profit was $57.4 million for the first quarter of 2026, resulting in gross margin of 32.5%, compared to gross profit of $50.3 million and gross margin of 30.7% for the same period in 2025. The 180 basis point increase in gross margin was driven by a 100 basis point improvement in labor and overhead leverage from increased sales and an 80 basis point improvement in cost of material due in part to favorable product mix.

Selling, General and Administrative (SG&A) Expenses

Selling, general and administrative ("SG&A") expenses were $26.8 million and 15.2% of net sales for the first quarter of 2026 compared to $25.1 million and 15.3% of net sales for the same period in 2025. SG&A expenses increased due to higher advertising expenses related to trade show activity as well as increased freight out costs driven by increased sales.

Operating Income

Operating income was $27.5 million for the first quarter of 2026, resulting in an operating margin of 15.6%, compared to operating income of $22.1 million and an operating margin of 13.5% for the same period in 2025. The 210 basis point increase in operating margin was driven by improved leverage on labor, overhead, and SG&A expenses due to increased sales and favorable product mix.

Interest Expense

Interest expense was $5.0 million for the first quarter of 2026 compared to $6.2 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 19.8% for the first quarter of 2026 compared to 21.9% for the first quarter of 2025. The decrease in the effective tax rate was driven by a favorable discrete adjustment recorded during the first quarter of 2026. The Company expects the effective tax rate for the full year 2026 to be between 22.0% and 23.0%.

Net income was $17.8 million, or $0.68 per share, for the first quarter of 2026 compared to net income of $12.1 million, or $0.46 per share, in the first quarter of 2025.

Adjusted EBITDA was $35.5 million and 20.1% of sales for the first quarter of 2026 compared to $29.7 million and 18.1% of sales for the first quarter of 2025.

Non-GAAP Financial Information

The discussion of Results of Operations above includes certain non-GAAP financial data and measures such as adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"). Adjusted earnings before interest, taxes, depreciation and amortization is net income (loss) excluding interest, taxes, depreciation and amortization, adjusted to exclude 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 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 $29.9 million at March 31, 2026. The Company had an additional $99.6 million available under the revolving credit facility after deducting $0.4 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 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 March 31, 2026, the Company had $295.8 million in total debt outstanding with $265.8 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 March 31, 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 quarter of 2026 were $4.3 million consisting of machinery and equipment and a building. 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 April 23, 2026, the Board of Directors authorized the payment of a quarterly dividend of $0.19 per share on the common stock of the Company, payable June 10, 2026, to shareholders of record as of May 15, 2026. This will mark the 305th 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 March 31, 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 three months of 2026 compared to the same period last year was primarily due to increased net income partially offset by increased working capital for the three month period ended March 31, 2026 compared to the same period last year.

During the first three months of 2026, investing activities included $4.3 million of capital expenditures for machinery and equipment and a building. During the first three months of 2025, investing activities of $3.0 million consisted of capital expenditures primarily for machinery and equipment.

Net cash used for financing activities of $22.7 million for the first three months of 2026 primarily consisted of net payments on bank borrowings of $15.0 million, dividend payments of $5.0 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 $20.6 million for the first three months of 2025 primarily consisted of net payments on bank borrowings of $14.6 million, dividend payments of $4.9 million, and $1.1 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.