GORMAN RUPP CO (GRC)

ITEM 2. 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.

For the first six months of 2026, net sales were $362.7 million, an increase of 5.7%, or $19.7 million compared to the first six months of 2025. Net income was $37.3 million, or $1.41 per share, compared to net income of $27.9 million, or $1.06 per share, for the same period last year. Total debt decreased $33.0 million during the first six months of 2026.

Incoming orders for the first six months of 2026 were $370.8 million, or an increase of 1.4%, compared to the same period in 2025. The Company’s backlog of orders was $239.7 million at June 30, 2026 compared to $244.0 million at December 31, 2025, and $224.4 million at June 30, 2025.

On July 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 September 10, 2026, to shareholders of record as of August 14, 2026. This will mark the 306th 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

Our strong start to the year continued into the second quarter. Our record second quarter results included record net sales and earnings per share. Sales growth was broad-based across many of our markets, led by increased demand in construction and agriculture, as well as increased demand related to data centers across multiple end markets. Our margins remained strong in the second quarter and our earnings performance through the first half of 2026 helped generate solid operating cash flows. The strong cash flows allowed the Company to reduce total debt by $33.0 million during the first six months of 2026 while continuing to invest in the business. Incoming orders and backlog remained healthy, positioning the Company well for the second half of the year.

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

Net Sales

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

Net sales for the second quarter of 2026 were $186.1 million compared to net sales of $179.0 million for the second quarter of 2025, an increase of 3.9%, or $7.1 million. The increase was driven by volume growth as well as price increases taken in the first quarter of 2026. Sales increased $4.7 million in the construction market due to increased demand in mining and sales of rental equipment and $4.2 million in the agriculture market due to broad-based improvement across Fill-Rite's sales channels. In addition, sales increased $1.6 million in the industrial market and $0.9 million in the OEM market due to increased demand related to data centers. These increases were partially offset by sales decreases of $2.2 million in the fire suppression market primarily due to reduced international shipments, $1.1 million in the municipal market, $0.6 million in the repair market, and $0.4 million in the petroleum market.

Cost of Products Sold and Gross Profit

Gross profit was $60.6 million for the second quarter of 2026, resulting in gross margin of 32.6%, compared to gross profit of $56.1 million and gross margin of 31.3% for the same period in 2025. The 130 basis point increase in gross margin was driven by improved margin on material including an 80 basis point improvement due to the realization of price increases and favorable product mix, as well as a 50 basis point reduction in LIFO costs.

Selling, General and Administrative (SG&A) Expenses

Selling, general and administrative (“SG&A”) expenses were $27.1 million and 14.6% of net sales for the second quarter of 2026 compared to $26.0 million and 14.5% of net sales for the same period in 2025. SG&A expenses increased due to higher advertising expenses as well as increased freight out costs driven by increased sales.

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Operating Income

Operating income was $30.4 million for the second quarter of 2026, resulting in an operating margin of 16.3%, compared to operating income of $26.9 million and an operating margin of 15.0% for the same period in 2025. The 130 basis point increase in operating margin was driven by price increase realization, favorable product mix, and a reduction in LIFO costs.

Interest Expense

Interest expense was $4.7 million for the second quarter of 2026 compared to $6.0 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 23.4% for the second quarter of 2026 compared to 22.5% for the second quarter of 2025.

Net income was $19.4 million, or $0.74 per share, for the second quarter of 2026 compared to net income of $15.8 million, or $0.60 per share, in the second quarter of 2025.

Adjusted EBITDA was $38.2 million and 20.5% of sales for the second quarter of 2026 compared to $35.3 million and 19.7% of sales for the second quarter of 2025. Adjusted EBITDA is a non-GAAP financial measure, see "Non-GAAP Financial Information" below.

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Six Months Ended June 30, 2026 vs. Six Months Ended June 30, 2025

Net Sales

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

Net sales for the first six months of 2026 were $362.7 million compared to net sales of $343.0 million for the first six months of 2025, an increase of 5.7%, or $19.7 million. Sales increased in the majority of our markets including a sales increase of $11.2 million in the construction market due to increased demand in mining and sales of rental equipment, $8.6 million in the agriculture market due to broad-based improvement across Fill-Rite's sales channels, $5.2 million in the industrial market due to increased domestic investment, $2.6 million in the OEM market, and $1.9 million in the municipal market. Offsetting these increases was a decrease of $7.6 million in the fire suppression market primarily due to reduced international shipments. Sales also decreased $1.4 million in the repair market and $0.8 million in the petroleum market.

Cost of Products Sold and Gross Profit

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Amounts in tables in thousands of dollars, except for per share data)

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 2025, based on changes in the agriculture market over the last few years, we took steps intended to optimize our National Pump Company (NPC) footprint. We reduced the number of NPC operating facilities from six to three and expect this change to result in improved profitability by lowering our fixed operating costs with minimal impact on sales. We have transitioned the NPC facility in Olive Branch, MS to our Patterson Pump Company operations to continue to support the growth we have seen in the fire, municipal and industrial markets. During 2025, we recognized $3.0 million in one-time facility optimization costs including inventory rationalization, severance, and facility costs. We expect these changes will result in annualized savings between $2.0 million and $2.5 million in payroll, payroll related, and facility costs. We do not expect future facility optimization costs to be material.

Incoming orders for the year ending December 31, 2025, were $728.4 million, an increase of 10.5%, compared to 2024.

The Company’s backlog of orders was $244.0 million at December 31, 2025 compared to $206.0 million at December 31, 2024, an increase of 18.5%. Approximately 90% of the Company’s backlog of unfilled orders is scheduled to be shipped during 2026, with the remainder principally during the first half of 2027.

On January 22, 2026, the Board of Directors authorized the payment of a quarterly dividend of $0.19 per share, representing the 304th consecutive quarterly dividend to be paid by the Company. During 2025, the Company again paid increased dividends and thereby attained its 53rd consecutive year of increased dividends. These consecutive years of increases continue to position Gorman-Rupp in the top 50 of all U.S. public companies with respect to number of years of increased dividend payments.

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

As we begin 2026 our outlook remains positive. The 10% increase in incoming orders during 2025 increased our backlog to a healthy $244.0 million. We expect our municipal market to continue to benefit from infrastructure spending, including strong demand for flood control and storm water management, and expect a number of our markets to continue to benefit from increased demand related to data center construction. Our strong cash flow positions us well to further reduce our debt and interest expense going forward.

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Results of Operations – Year ended December 31, 2025 compared to year ended December 31, 2024:

Net Sales

Net sales for 2025 were $682.4 million compared to net sales of $659.7 million for 2024, an increase of 3.4% or $22.7 million. Sales increased in the majority of our markets, including sales increases of $8.1 million in the industrial market and $6.6 million in the fire suppression market due in part to increased demand related to data centers. Net sales also increased $5.2 million in the repair market, $4.9 million in the OEM market, $3.4 million in the municipal market, $2.4 million in the agriculture market, and $1.5 million in the petroleum market. Offsetting these increases was a decrease of $9.4 million in the construction market due to a general slowdown in construction activity, including sales into the rental market.

Cost of Products Sold and Gross Profit

Gross profit was $209.1 million for 2025, resulting in gross margin of 30.6%, compared to gross profit of $204.3 million and gross margin of 31.0% for the same period in 2024. Gross profit for 2025 included $2.7 million of one-time facility optimization costs. The 40 basis point decrease in gross margin was the result of one-time facility optimization costs recognized in the third quarter of 2025.

Selling, General and Administrative (SG&A) Expenses

Selling, general and administrative (“SG&A”) expenses were $101.4 million and 14.9% of net sales for 2025 compared to $100.5 million and 15.2% of net sales for the same period in 2024.

Operating Income

Operating income was $95.4 million for 2025, resulting in an operating margin of 14.0%, compared to operating income of $91.4 million and an operating margin of 13.9% for the same period in 2024. Operating income for 2025 included $3.0

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million of facility optimization costs. The 10 basis point increase in operating margin compared to the same period in 2024 was driven by improved leverage on labor, overhead, and SG&A expenses partially offset by facility optimization costs.

Interest Expense

Interest expense was $23.4 million for 2025 compared to $33.6 million for the same period in 2024. The decrease in interest expense was due to a series of debt refinancing transactions the Company completed on May 31, 2024, as well as a decrease in outstanding debt.

Other Income (Expense), net

Other income (expense), net was $2.8 million of expense for 2025 compared to $7.3 million of expense for the same period in 2024. Other expense for 2025 included non-cash pension settlement charges of $1.2 million. Other expense for 2024 included a $4.4 million write-off of unamortized previously deferred debt financing fees and a $1.8 million prepayment fee related to the early retirement of a subordinated credit facility.

Net Income

Net income was $53.0 million, or $2.02 per share, for 2025, compared to net income of $40.1 million, or $1.53 per share, for 2024. Adjusted earnings per share for 2025 and 2024 were $2.14 and $1.75 per share, respectively. Adjusted earnings per share is a non-GAAP financial measure, please see "Non-GAAP Financial information" below.

The Company’s effective tax rate was 23.3% for 2025 compared to 20.6% for 2024. The increase in the rate was driven 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 them permanent, thus increasing our effective tax rate. We expect our effective tax rate for 2026 to be between 21.0% and 23.0%.

Results of Operations – Year ended December 31, 2024 compared to year ended December 31, 2023:

Information pertaining to fiscal year 2023 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 beginning on page 15 under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on February 26, 2024.

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Non-GAAP Financial Information:

This discussion of Results of Operations 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 the write-off of unamortized previously deferred debt financing fees, refinancing costs, facility optimization costs, non-cash pension settlement charges, and amortization of acquired customer backlog. Adjusted earnings per share is earnings per share excluding the write-off of unamortized previously deferred debt financing fees per share, refinancing costs per share, facility optimization costs per share, non-cash pension settlement charges per share, and amortization of acquired customer backlog per share. Adjusted EBITDA is net income (loss) excluding interest, taxes, depreciation and amortization, adjusted to exclude the write-off of unamortized previously deferred debt financing fees, refinancing costs, f

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