Welcome, Sarah Donnelly , who's going to host Gorman-Rupp.
You have your mic. All right. Yes. Okay, great. Thank you, Kevin.
Good afternoon, everyone. Our next speakers are from The Gorman-Rupp Company. We’re privileged to have Scott King, President and Chief Executive Officer, and Jim Kerr, Executive Vice President and Chief Financial Officer, joining us on stage this afternoon.
The Gorman-Rupp Company, headquartered in Mansfield, Ohio, designs and manufactures pumps for liquid handling, primarily water, and also fuel, across several end markets. The company has just over 26 million shares outstanding, trading at around $39, with a market capitalization of approximately $1 billion, plus $340 million of net debt, for a total enterprise value of just over $1.3 billion
Scott joined Gorman-Rupp in 2004. He was named Chief Operating Officer in April 2019 and became Chief Executive Officer three years later. Jim joined the company in 2016, previously serving as Chief Financial Officer at Jo-Ann Stores, along with other financial leadership roles at various companies.
Thank you both for joining us in New York today. We’ll now turn it over to Scott King to begin the presentation.
Good afternoon, everybody. We appreciate your interest in The Gorman-Rupp Company. Sarah, I should have asked you how to advance the slides, and I didn’t. Is it just this one?
You got it.
Great. So, Gorman-Rupp is a pump company—that’s all we do. Our customers tell us we’re the best in the industry at it, and that doesn’t happen very often.
The pump industry is extremely broad and wide-ranging. It’s approximately a $100 billion industry, according to the Hydraulic Institute, the pump industry association. We’ve been doing a good job of growing in recent years.
We primarily have a U.S.-based supply chain, which sets us apart from much of our competition, and we’re very well positioned to take advantage of the current environment—both as the economy grows and as regulations move in areas that are favorable to us.
We also have an outstanding dividend track record. We just paid our 300th consecutive quarterly dividend, marking 52 consecutive years of dividend increases. Overall, Gorman-Rupp has performed very well in the industry over the years.
A little more about the pump industry—pumps touch your daily lives all the time. There’s a good chance the water you drink today passed through one of our pumps. Your wastewater likely went through one of our pumps as well.
Your wastewater will likely have gone through one of our pumps. If it's raining in your hometown, we're probably dewatering the stormwater from your facility or your hometown. If you've been in an airplane, the fuel that's been into that airplane has likely been through one of our products. If you ate food today, we may have irrigated the crops that you were in. And I'd guarantee the farmer that either planted or harvested those crops put the fuel into his tractor or combine using our products.
So there are lots and lots of pump types out there in the world. It's an extremely fragmented industry.
Hundreds of pump companies around the world, of which we're one of them. Prior to some recent acquisitions and good organic growth, we were a little bit less than half of the pump industry, half a percent, I should say, of the pump industry as a whole in recent times, with some good organic growth and a nice acquisition. We're a little bit larger than a half a percent now .
it's a very fragmented industry. We're still very well known around the world for the products that we make. The industry as a whole is increasing in demands as the world modernizes and as the modernization of the world continues to adopt newer and newer technologies, things like HVAC and water and wastewater in areas of the world that maybe that isn't so great today.
I'll touch just briefly on company history.
In 1933, there were two unemployed guys in Mansfield, Ohio, who had an idea. One of them made a pump that could prime itself better, and the other one thought, "Gosh, if you can make it, I can sell it," and they borrowed $1,500, and that's the only money that's ever been put into the company, and we've grown into that $1.3 billion enterprise value that Sarah mentioned earlier.
It's a real story of American entrepreneurship. A lot of our employees are really proud of that history. I don't think you could borrow what's about $40,000 in today's money and start a pump company anymore, which I'm grateful for. Makes it a little harder for people to compete with us, but just a neat story that is really part of our heritage. A lot of things have transpired over the years.
Most recently, in 2022, we made the company's largest acquisition in our history. We bought a company called Fill-Rite from the Tuthill Corporation.
How many of you recently have seen either a contractor or a farmer drive his bulldozer or his combine into the gas station while you were fueling your car? Probably didn't happen. And there's a reason why. It's because, well, they're not allowed to. They're just too big. They'd run into all the equipment. Farmers and contractors fuel their equipment with auxiliary fuel tanks that they haul around in the back of their pickup trucks.
T hey use Fill-Rite's pumps to transfer that fuel from those tanks into their equipment. Or they have much larger tanks that they store at their farms or at contractors' job sites. And then we make some larger pumps with Fill-Rite. Been an amazing acquisition.
We're really fortunate to have gotten it. It is another number one brand within our quiver within the industry. And its margins are great. Its people are great. It really fit our acquisition criteria quite nicely. In 1933, J.C. Gorman and Herb Rupp had the presence of mind to create the mission statement that's up on the top right-hand portion of this slide.
I won't read it to you. But in today's world, it fits 100%. We don't have any reason to want to change this. It mentions shareholders. It mentions taking care of our employees. But primarily, it mentions taking care of our customer. And Gorman-Rupp's culture is really focused on taking care of customers. Ironically, not all of the pump industry is. And the only thing you can get in trouble for at Gorman-Rupp, if you're an employee, is not taking care of a customer.
We incentivize our employees really well to do so. We've had over 90 years of profit sharing and 90 consecutive years of profit sharing. And employees know that the customers are the ones with the money. And when we take care of our customers, they share their money with us. When the customers share the money with us, we share it with our employees when we make profits.
The six brands that you see across the center of that slide are all number one positions in the market in some way, shape, or form, despite the fact that the pump industry is very fragmented. The GR brand still has Mr. Rupp's original self-priming design that we've evolved over the years in a number one position. We're number one in aircraft fueling transfer. We're number one in package factory lift stations for municipal waste.
We're number one in fire suppression pumps for buildings like this to supplement sprinkler systems. We've got a lot of number one positions in a very fragmented industry, and we operate in the facilities that you see across the bottom. In order to be local and take care of customers and provide customized solutions that help them in their markets, all of those facilities are very well invested in. They service very well.
They're customer showcases. We bring customers to our facilities a great deal to educate them about our products. We operate a little differently than most companies. First, we start with that philosophy and culture down the left-hand side. Customers are number one. We take good care of our employees. We share our profits with them.
We invest in training our employees, our distribution, and their customers to be sure that they know how to apply our products well. And when they have a problem, that they know we're the pump people. We actually trademark that and that they can come see us when they need help. At the division level, we try and keep our operating managers extremely nimble so that they can focus and take care of customers or focus on and take care of customers, excuse me.
At the corporate level, we take all of the stuff I don't want an operating manager to be bothered by. I don't want them to be bothered by managing a 401(k) plan. I don't want them to have to come to New York City and talk to you fine folks. All those things we keep away from the operating managers.
And we solely ask them to go take care of customers and try and get a larger share of that customer's money and bring it back to Gorman-Rupp. And they do a good job of that. The pump industry as a whole is extremely diverse, as is Gorman-Rupp and our product diversity. We make pumps all the way from the pump on the bottom left of that chart, which you can hold in your hand. In Bellville, Ohio we buy electric wire. We buy copper. We buy magnets. And we buy plastic pellets.
It's our most automated facility. That little pump right now is cooling computers and data centers all around the world. All the way up to the pump on the far right, that's an actual pump. A lady standing in it. She's a normal-sized person. And that pump moves a million gallons of water per minute.
There are only a handful of pump companies in the world that can make something of that scale. We're pretty good at it. That product diversity is really helpful to us because those products can be sold into multiple markets. These are the markets that we sell into. Sometimes we don't know exactly where a pump ends up. We may sell it to a distributor who applies it in a way we don't know. This is a pretty good, reasonable estimation of that.
All of those pump types can generally be sold into most of these markets. That diversity of product and market means that we really don't have a concentration of customers that can either run to us or run away from us and materially impact our results.
Over time, we know we grow that customer base because we do a better job of taking care of customers. You might wonder which of these markets we like. We like them all. They're all great markets. Especially recently, we've had some good success in, or better success, I suppose, than the rest in municipal water, wastewater, and stormwater dewatering, and in areas related to data centers. And data centers really affect three of our markets. Every data center has a fire suppression pump in it. So some people might not think of that, but they do.
In addition, the HVAC, traditional data center cooling applications certainly show up in our industrial market.
And then as well, we sell a number of those small pumps that I mentioned you can hold in your hand to OEMs that make CDU cooling data units for in-rack cooling for water for some of the more sophisticated chips that are now coming into the market and generate more heat. So a lot of market diversity, a lot of product diversity really helps us.
It's rare that all those markets are down at the same time. Of course, it's rare that they're all up at the same time too. But in recent times, we've had a pretty good trend with that. I'm going to turn it over to Jim to talk about financials a little bit.
I'll try to go through the financial sides fairly quickly so we can leave some time for questions. But I think it's helpful to give you some context around our financials. We've had nice top-line and earnings growth over the last four years, driven by both acquisition and organic growth. Scott mentioned we did the acquisition of Fill-Rite in 2022. By far, the largest acquisition for Gorman-Rupp. They were doing about $130 million in sales at the time. What we liked about Fill-Rite, their operating margins actually are better than core Gorman-Rupp's. And we also liked their growth opportunities.
In addition to that, in 2022 and 2023, we had organic growth of 15% and 16%, respectively. So that really helped us grow that top line combined with the acquisition. We did a nice job managing our labor and overhead as we grew our sales.
And as you can see, that's resulted in significant improvement in EPS. That was mainly driven by gross margin. We've increased our gross margin significantly over the last two or three years. That adjusted earnings of $1.75 in 2024 were a record for us. Along with earnings increasing, obviously, our adjusted EBITDA has gone up nicely as well. Again, close to $125 million in 2024 was a record for us. It's about 2.5 times where we were in 2020 and represents just shy of 19% of sales. So again, nice progress both in dollars and as a percent of sales driven by leveraging that organic growth.
A little bit about our incoming and backlog. We've had nice incoming orders to support our growth, including in 2024. Our incoming was up just shy of 7%. We saw that continue all the way through the year, including in Q4.
We ended the year at backlog just over $200 million, which for us is a pretty healthy backlog. To give you some context on our backlog, we'll ship about two-thirds of that in six months, and 95+% of that we'll ship during 2025. I mentioned the acquisition of Fill-Rite. It was large for us, so we had no debt before the acquisition of Fill-Rite, but we had a very strong balance sheet.
We felt very good about the acquisition of Fill-Rite, that in the long run, it would add a lot of shareholder value, and we're very confident in our cash flow as well as the combined cash flow with Fill-Rite that we would be able to delever pretty quickly, so you can see here on a quarterly basis, since the acquisition, we've been able to delever nicely, get down to below 3%.
Still some work to do here, but nice to see the progress that we've had and how we planned it. With that improvement in leverage, we, in May of 2024, refinanced our debt. Obviously, with the leverage that we started out with, we had some high-interest debt. We refinanced our debt, extended maturities out, and saved about $7 million annually with that refinancing in terms of interest expense. Capital allocation and how we see it going forward, actually very consistent with how it's been historically.
First is invest back in the business. We spend about $20 million a year in capital. That's primarily in machinery and equipment. It's primarily in automation. It allows for increased efficiency, increased capacity, and us making those investments over the years is part of what helped us improve our gross margins as we grew the top line. Secondly, Scott mentioned dividends.
We spent about $19 million or so a year on dividends, returning that back to the shareholders. Third, continue to delever. We reduced debt by about $43 million in 2024. We'd expect that trend to continue as we move forward, if not accelerate. And then once we delever, we do see acquisitions being part of our go-forward strategy. Now, Scott put up a number of brands in one of his slides. Most of those were acquisitions. We've had success over the years. Fill-Rite's been a good success. And we'd like to be in a position to do further acquisitions.
Scott mentioned dividend, but again, 52 years of increased dividends, something we're proud of, something that's built into our go-forward capital allocation. And we'll continue to pay those dividends. Scott's going to come back up, talk briefly about strategic pillars, and then we'll turn it over for questions.
This one. Sarah says it's on. Okay, so talking a little bit about growth, Jim and I together about six years ago recast our strategic planning process because we didn't think we were growing as fast as we wanted to be. And so there's really five things that are on this slide that make up how we think of growth.
The first one is we take care of our customers or someone else will. And why is that important? The most expensive customer to go get is the one that you've lost, the one that you've annoyed, the one that's not happy with you. And so in taking care of our customers, even if we have to take one particular job on the chin, we know we're going to have them over the long haul. And we own up to what we're supposed to own up.
And we enable our employees to. That high-performing culture drives a lot of things. We have a lot of inventory to take care of customers. No one buys a pump when they don't need one. And when they need one, they want it right now. We allow our employees to be involved in our communities. We share profits, as I mentioned before. We have a nice continuous improvement program. We have the best workforce in the industry.
T hey tell analysts that we're the best company to work for in the industry. It's a great reputation to have, not one that we rest on, but we're certainly grateful for it. We've done a nice job of growing organically, first by keeping the customers that we have, but next by investing in new product development. And we can talk a little bit about what new product development looks like.
And then growing internationally in ways that we have a lot of opportunity. Only 25% of our sales are outside of the United States today. It was a little higher than that prior to Fill-Rite. And Fill-Rite was pretty North American-centric, which didn't bother us a bit in today's environment either. But we view our factories as competitive weapons. We invest very heavily in our factories. We invest in our people, high-quality products, lots of inventory to take care of customers. And then Jim mentioned the acquisition history. So we've really got five pillars we think of for organic growth as we look forward.
W e've been doing a better job of that in recent times. You may notice we were flat year-on-year, 2024 to 2023.
That's really the mix of backlog shifting over to being a mix of backlog we prefer compared to a mix of backlog we don't prefer at the end of 2023. We had a lot of product in our backlog in 2023 that should be short, immediate ship that was constrained by supply chains. That's all sorted itself out during 2024 and been replaced by longer lead custom highly engineered projects. So we're pretty excited about where things going. Incoming in 2024 was up just about 7%. So maybe I'll turn it over to Sarah for questions.
That was a fantastic overview. So you participate in a $100 billion market. You're the pump experts. Service is number one. But why else are customers coming to Gorman-Rupp for their pump products? You've mentioned wastewater, fuel, not exactly gentle environments to work in.
We make those difficult environments to work in easier to work in. First, when you buy a product from us, it's going to be a very high-quality product. We're going to help you make sure that when you select that product, it's applied appropriately so that it works. You can take a very well-performing pump in our test lab and put it into an environment it's not designed for, and it won't perform, and then it becomes a pump problem, even though the pump would perform well, so our distributors, our customers, all of our employees know how to apply our products well, and we make very high-quality products that we guarantee will perform if applied appropriately in the field, then they're easy to take care of. First, they're going to last a long time, and a pump can last decades if well cared for.
And then when it comes time to service them, not only are they going to be easy to service, we make them easy to service in their design, but we're going to have your repair parts available when you need them and at a reasonable price. Certainly, the margins are higher on repair parts than pumps. But we're not going to gild the lily because people remember when you take advantage of them when they need repair parts. 99.75% of our repair parts in 2024 were available now when you called us.
You also serve very diverse end markets. Can you walk us through perhaps the growth expectations across these markets, maybe noting which may be more advantageous near term?
Yes. All of these markets should be growing at a pace faster than GDP growth. The ones that we like the most right now are municipal, probably for obvious reasons. There's a lot of funding chasing infrastructure that's in really terrible shape, and we're really well suited to help solve some of those infrastructure problems, and then I mentioned the computer cooling. We like that.
One other thing that we have benefited from in the past, which is a little slow right now, and I suspect it'll probably come back at some point, we participate in a lot of different ways with the fracking industry. We move water to frack sites. We blend the water. We don't fracture the well. But when the well starts to produce wastewater, we transport that to get treated. Additionally, now we're talking about this forever chemical environment that's out there.
All of that is generally going to be treated in some way, shape, or form, likely by moving that water with a high-pressure pump or at least moving it to somewhere where it can be treated. So we like that over the long haul. We like all the markets, frankly. We feel like there's a lot of tailwinds for us.
Maybe we can expand on infrastructure spending and the funds that have already been earmarked. In what capacity would your pumps be included, and any sense of magnitude of when and how much spending may come to the way of pumps?
Yeah. Water, wastewater, and stormwater are where we're going to see our largest benefits. Water, we make vertical turbine pumps that move water out of the ground into treatment plants that then, through vertical turbine pumps, pressurize the grid. That's all in terrible shape by and large across the nation. Wastewater is probably obviously the same thing, just getting the water away from where it was used to the treatment plants. And then stormwater,
We're really uniquely positioned to be able to supply large volume stormwater and are involved in just about every substantial design project we're aware of that's out there at some point in time. Those come in lumpy funding. Infrastructure will help those. But ARPA funding, well, it wasn't able to be directly attributed to infrastructure.
Ironically, there were a lot of projects where we got money for municipal water and wastewater because a municipality thought, "We're going to expand our capabilities to grow our footprint," and that's a one-time good ARPA use of money, and so even in our own community in our hometown, we saw ARPA money being spent that way. I should probably touch on BABA, the Buy America, Build America provisions. Gorman-Rupp, as a pump company, is one of the most U.S.-centric in its supply chains of any pump company out there. We're very well positioned.
The EPA's been to our facility, looked at our processes, and said, "You are exactly what we're trying to foster being created with the BABA program." So we think we're pretty well suited to navigate. You see it already in our market reporting that municipals up. I think it'll continue to be up.
And then before I open it up to the audience, just you mentioned new products. What features are you adding? What are the new technologies? Are you measuring and monitoring water flow?
Sure. Historically, innovation in the pump industry occurred in the iron, in the shape and configuration of the pump, if you will, and that's still true. There are ways that that's occurring today through enhanced metallurgies, maybe to accommodate different fluids, through computational fluid dynamics where we're using AI to help us generate the geometry of the pump and make it more efficient so that it consumes less energy while it's moving water. Or maybe we're handling, because regulations have reduced the amount of water that can go through a toilet or through a urinal or what have you as you're using them. Waste in wastewater needs to be suspended in enough water to move, and it can't go below a certain amount. When it hits the pump, the more waste contents that's there, the harder it is on the pump.
So we're innovating to make sure that the pump can be more and more robust as it's encountering more solids. Incrementally, there's a lot of innovation occurring on the control side. So when does a pump operate? Does the pump have some intelligence to it in its control so it can decide how to operate? Those little computer cooling pumps I mentioned to you are the smartest pumps in the industry. The drive, the control that's on them has all the technology that's necessary. We can flash it over the air if it's not performing correctly. It's reduced the iteration cycle on R&D. There's lots going on in monitoring and in predictive maintenance for pump technology that we're participating in.
If there are any questions from the audience?
Thank you. Just to talk about Sarah's last question about innovation, the other side of that is working capital and dealing with obsolescence of product in the field. How do you deal with that as a 100-year-old or 70-year-old company?
Yeah. So the great news is, by and large, pump parts don't go stale. So if they're on the shelf, they may be slower-moving than we prefer them to be in some cases. But there's a pretty good chance we're going to be able to use them over time. And of course, we've got a rigorous process by which we review obsolete and slow-moving inventory and attempt to, maybe as an example, somebody buys a pump that's an iron pump, but we've got too much stainless sitting on the shelf in our inventory. Maybe we substitute a stainless component because we can use up some of that inventory.
Yeah. They're typically incremental enhancements that don't obsolete the product we're selling. So we don't have any obsolete issues to speak of.
Scott, you have such embedded and accumulated knowledge. I'll give you just a couple of questions. We've had three conferences, two or three coming up on the PFAS. We're seeing a lot of the municipal water companies, like 40,000 of them, that are trying to say, "We can't afford the..." What does that do for you? Is it a plus or minus if they are buying equipment differently? And that's part A of my questions.
Okay. I mean, it's going to impact us a couple of ways, Mario. One, we're going to sell pumps into the treatment environments where PFAS is removed, forever chemicals are removed from water. That's inevitably going to be a part of it. The interesting part about it on the flip side is we're spending a bunch of money to collect all of the PFAS that we actually use and consume in our operations. It's useless expense. The government's approaching that part of it all the wrong way. They should go after the folks that make the PFAS, not the poor suckers that used it, just my opinion.
Is there a rule of thumb of how much you can make from PFAS collection at a municipal? It depends on the number of customers or anything like that?
Not yet.
All right. The second part is... You know, I can go with the fracking and processed water, but let's talk about how much do you know about every pump that you've ever made? Do you know where they are?
No, we don't necessarily know where they are.
You can sell them through distributors, but...
Yeah. So every serial number, we know the content of that pump. We know what the test was when it was in our facility. We know what we can back it up that it didn't have asbestos in it or whatever. We've got all that information all the way back to Mr. Rupp's system.
So let's assume there's X amount of pumps in your system.
Yes.
When you say parts of 10% of your revenues, is that because somebody buys a new pump as opposed to a part, or is that because somebody else is selling parts?
No, it's certainly not that somebody else is selling parts. They're out there, but they're not taking a huge portion of that share. First is the pumps last a long time, so they don't necessarily consume the parts. Next is we sell those parts through our distributors who are generally servicing the product in the field and taking care of those folks. I don't necessarily know where they all go. I would like that portion to be higher. A couple of problems. The Fill-Rite pumps are really robust. They don't consume a bunch of repair parts, and when they break, farmers throw them away and buy a new one. And next, if this fire pump that's in this building, how often does it run? Almost never until the insurance company tells the Harvard Club they have to exercise it periodically for test.
Really only operates if there's a fire, and then they throw it away. So we unfortunately have a couple of pumps that don't consume a lot of repair parts, but they're great pumps nonetheless.
One last question because we're just over time.
Yeah. So your priority is to focus on customers?
Yes.
Just trying to get a little background, a little color on how you go about doing that. Do you study other companies in your industry, how they focus on customers? Do you have a special department that does it?
No. The Gormans over the years. J.C. Gorman was one of the founders of the company. His son, Jim, and now our chairman, Jeff, did an outstanding job establishing a culture that right from the gate, when you start, the expectations are very clear for you that that's what we do. And we invest a lot of money through Gorman-Rupp Academy to make sure we train our employees that they're enabled to take care of customers. And they've got the knowledge to do so. And then they're not going to get in trouble if they spend a little bit of money.
With that, unfortunately, we're at time, but I want to thank Scott and Jim for joining us today.
Thank you all for your interest.