Good afternoon. I'm sorry. Good morning, everybody. My name is John Franzreb. I'm a senior analyst here at Sidoti & Company. Our next presentation of the day is Gorman-Rupp, ticker GRC. For those of you not familiar with Gorman-Rupp, Gorman is a manufacturer of pumps and pump-related systems across an ever-widening range of end markets. We are fortunate to have with us today CEO Scott King, CFO Jim Kerr, and Vice President of Finance Ron Stoops. Following the presentation, there will be time for Q&A. Please utilize the Q&A icon to submit questions, and I'll present them to management. With that said, gentlemen, thanks for being with us today. The floor is yours.
John, thank you. Good morning, everyone, and thanks for your interest in the Gorman-Rupp Company. I'm Scott King, President and CEO. I've been with Gorman-Rupp for 20 years and CEO for over three. Today, we're going to make some forward-looking statements that are based on our current expectations and assumptions, just asking that you take those into account as we discuss our outlook. As John mentioned, Gorman-Rupp is a pump company. That's all we do, and our customers tell us that we're the best in the industry at that kind of work. They tell us that because we ask our employees to only focus on taking care of customers. We make a wide range of high-quality products. Those products are applied across numerous markets. We have very solid brand reputations, and those brand reputations help us navigate changing market conditions. Our supply chains are more U.S.-centric than our competition.
That's always been helpful to us, but it's especially helpful in today's macroeconomic environment, especially relative to the subject of tariffs. Gorman-Rupp has an outstanding dividend track record: 300 consecutive dividend payments quarterly in our history and 52 consecutive years of increased payments to shareholders. We're doing a pretty solid job of growing, whether that's through our own organic growth or additional inorganic growth through acquisitions over the years. Pumps are vital to our daily lives. You use our products every day, even though you may not know that you use them. We deliver irrigation and potable water, irrigation to farmers' fields and potable water to municipalities. We transport and collect and help treat wastewater. We transfer jet fuel and diesel fuel within critical mission applications.
Our products are used in heating, ventilation, and air conditioning applications, in industrial applications, in some high-tech applications like transportation and computer cooling, and in supplementing fire suppression systems in industrial and commercial facilities. The applications really are numerous, and we benefit from the variety of products that we manufacture. The pump industry is extremely fragmented. We believe it's about an $80 billion annual industry globally or around the world each year. As a result of its fragmentation, that has presented a number of opportunities for us to make acquisitions of pump companies over our history. There literally are hundreds of pump companies around the world, and demand is continuing to increase at levels higher than GDP as the world modernizes and as demand for moving the fluids continues to grow. The company has a pretty storied history. In 1933, J.C.
Gorman and Herb Rupp were both unemployed in Mansfield, Ohio. That's not a great time to be unemployed for those of you who are history buffs. That's the height of the Great Depression. They borrowed $1,500 here locally, and Gorman-Rupp has grown that $1,500 into what we are today with a start of an innovation Mr. Rupp came up with to help a pump prime itself better. Our growth into what we are today has been both organic and supplemented by numerous acquisitions, including our most recent. In 2022, we bought Fill-Rite from the Tuthill Corporation. Fill-Rite is North America's leading provider of fuel transfer pumps for farmers and contractors, and it's been a great acquisition. We're pleased to have it as part of the company. The mission statement that's at the top right hand of this slide has been the same since Mr. Rupp and Mr.
Gorman got together in 1933. We do not have any plans of changing it. I think it is important enough that I will actually read it. And that is to provide a quality product, competitively priced, delivered on time, backed by reliable service, and a profit that provides an equitable return to our shareholders as well as providing our employees with competitive wages and benefits. I think it took a lot of foresight to come up with a mission statement like that in 1933. I think we have done a good job of living up to it and certainly do not have any plans to change it. Within the company, the six world-class brands that are across the bottom of this page span multiple locations, and those locations allow us to provide localized solutions while maintaining high standards of quality and service for our customers.
Our operating model is designed to ensure efficiency and effectiveness across all functions while focusing on taking care of customers. It really starts with culture on the left side of this slide. We make high-quality products. We have well-trained employees who are able to take care of customers, and those employees are incentivized by profit sharing at every level of the company. We train our distributors heavily. We have high levels of product availability and inventory, and we stay active in the communities where we operate because we want them to be nice places to live and work. We attempt to keep most administrative aspects of the business at the corporate level, the area that's at the green in the top portion of this slide.
We do not want our operating leaders to have to be concerned about things like IT benefits, cash management, investor relations, those kinds of things, and instead allow them to focus on the things that are in the blue section at the bottom right. Those employees at the local level can respond swiftly to market changes and customer needs and ensure that we continue to take care of customers to grow. Diversity in our product offering is really a key strength of Gorman-Rupp. We manufacture pumps that you can hold in your hand, like the one on the bottom left of this slide, that cool server racks with pumps. Then we make pumps that move over a million gallons of storm water per minute and really everywhere in between. The one at the bottom right-hand slide is a good example of something that can move a million gallons per minute.
The diversity of this product line allows us to capitalize on opportunities across different industries, even during challenging economic conditions. We don't always know where a pump is applied, but this is a pretty reasonable representation of the markets we serve. It's rare that all of the markets are up at the same time, but it's also extremely rare that they would all be down at the same time. The application of pumps across a wide array of applications really reduces risk during economic cycles. When economic cycles are strong, the diversity of the product allows us to take advantage of all these markets. Gorman-Rupp primarily sells its products through distribution and sales rep. There really isn't a concentration within one particular distributor. Most of this distribution is exclusive by geography and the markets that they serve. Our well-performing distribution has bricks and mortar. They stock inventory.
They can service the product in the field. They have a well-trained sales force, and they're sufficiently capitalized with a plan to focus on Gorman-Rupp that helps them to grow. We do have some retail and e-commerce sales. Primarily, those came to us as part of the Fill-Rite acquisition for some of Fill-Rite's smaller products that are more suited to that type of sales channel. In addition to those, we do have some direct sales to certain customers and sales to other OEM manufacturers of equipment that integrate our products into theirs. I'm going to turn things over to Ron Stoops now for some comments on our recent financial performance.
Thanks, Scott. I'm going to cover, as he mentioned, I'll cover a financial overview and then go over some capital allocation priorities, and then I'll turn it back over to Scott to cover some of our growth initiatives. Net sales and adjusted EPS, we've actually had significant growth in both of those over the last four years. That's been a combination of two things. One is the Fill-Rite acquisition that was done in 2022. We've also had significant organic growth over that time period. In 2022, our organic growth was 15%, and in 2023, that organic growth was 16%. We certainly have some benefit of some pricing increases in there, but we've also been able to gain share over that time period. Some of the things that have been driving that, we do maintain strong inventory positions and strong long-term relationships with our supply chain.
Those things are both critical in reducing our lead time, which allowed us to gain some share in the market. I think the third thing is our strategic planning process. We revamped that probably six or seven years ago, and I think we're starting to see the benefits of that in the top line here in 2022 and 2023. In 2024, sales were actually flat, but Q1 in 2025 is actually up 3% year to date, and incoming orders continue to be strong. When we acquired Fill-Rite back in 2022, they were doing about $130 million in sales, and we were very confident in, like, their margin profile, which is a little better than GRC's legacy businesses and their top-line growth potential. The increase in the top line has benefited our adjusted EPS, which has allowed us to leverage our organic sales growth, as I mentioned earlier.
Our 2024 adjusted EPS of $1.75 was actually a record. Both adjusted EBITDA in terms of dollar and a percent of sales have increased significantly with our top-line growth. In 2024, adjusted EBITDA was a record at nearly $125 million. The increase in 2024 from 2023 was impressive, given that our sales were relatively flat, and it actually got us up to 18% or close to 19% of sales. A little bit on our Q1 P&L for 2025. As I mentioned, sales increased 3% over the same period last year. The biggest contributors to that were our municipal and repair markets, which benefited from ongoing infrastructure investment. That has actually been a tailwind for us over the last several quarters.
Operating income improved 8% over the same period last year of 70 basis points, largely driven by the realization of selling price increases taken in Q1, as well as managing our fixed costs, primarily in SG&A. When combined with the interest savings, which I'll cover a little bit more about that here in a minute, our EPS was up $0.16 , which is over a 50% increase over the same period last year. Incoming orders and backlog. Our incoming orders have remained strong, and as a result, our backlog has stayed at a pretty healthy level. 2024 gross incoming orders were up 6.8% compared to 2023, and that was across most of our major markets. The 2024 incoming orders included a record Q1 incoming orders of $179 million. For comparability, in Q1 2025, we were just short of that $178 million.
Backlog at the end of the year, at the end of 2024, was $206 million, and that actually increased to $218 million at the end of Q1, given the strong incoming orders, which positions us well for the remainder of 2025. A little bit on the balance sheet. If we look at our leverage, prior to the acquisition of Fill-Rite in 2022, the company was actually debt-free and has been debt-free for most of its history. We were able to leverage the strength of the balance sheet to complete the Fill-Rite acquisition. As I mentioned, we were confident in that, given its margin profile and growth potential. I felt very strongly this was the right acquisition and the right time for us, given it would provide a good return to our shareholders.
We were confident in our ability of the legacy businesses as well as Fill-Rite to generate cash and use that cash to bring down the leverage. Our leverage has actually come down as planned, as you can see on the slide. It's actually a little bit ahead of schedule. In addition to the improved EBITDA, which I had already covered earlier, our debt has actually decreased. That was decreased by $43 million in 2024 and expects something similar in 2025 with $15 million already coming through Q1. Our improved leverage allowed us to refinance our debt, which we did in May of last year. That was May in 2024. As part of that, we amended and extended our existing term loan facility and did a small fixed-rate private placement. This reduced our overall debt and allowed us to eliminate our high-interest unsecured debt.
The net result of this is an annual savings of over $7 million in interest expense. If you look at our Q1 2025 results, we're showing improvement of about $4 million in interest, and that was in comparison to the pre-refinancing structure we had in Q1 of 2024. We will continue to see a benefit as we move into Q2, but that's going to be tougher as we get into Q3 and Q4 and get comparability after the refinancing. We do have an interest rate swap on half of the senior term loan. All told, about 50% of our debt is variable and 50% is fixed. A little bit on capital allocation. Our historical capital allocation is on the left and our current priorities on the right. We've been spending about $20 million annually in CapEx.
We're investing back in the business, and most of that's been in machinery and equipment. A lot of times when we're replacing old equipment, we're improving our capacity and productivity. A lot of times that comes with improved ability to have unmanned hours or automation. Talk a little bit more about the dividends here in the next slide. We have historically made acquisitions, but most of those have been smaller than what we've done with Fill-Rite. Looking forward, capital priorities are similar to what we've had in the past. We're going to reinvest. The first priority is reinvesting back in the business to the tune of about $20 million annually. We're going to continue our dividend track record. The third priority is to delever. We'll continue to use the cash generated to pay down that debt. We expect to get back long-term.
I think we expect to get back to acquisitions, but that will not happen until our leverage comes down closer to two times EBITDA. As I mentioned, we have a long history of dividends. It is actually over 75 years of consecutive quarterly dividends and 52 years of dividend increases. That puts us in the top 50 of all U.S. publicly traded companies, often referred to as the dividend king. I am now turning it back over to Scott to talk about some of our growth plans.
Thanks, Ron. The pillars for growth outlined here are really core to our strategy. It all starts with that blue line across the top of the slide. We take care of our customers, or we know ultimately someone else will have to. Our high-performing culture, which is focused on organic growth, really positioned our operations as competitive weapons, and will also make strategic acquisitions for sustainable growth in the future. We do have the best culture in the pump industry. We only ask that our employees take care of customers, and our customers tell us that they're pretty good at it. Our governance is rock solid. We invest in our employees and in our distribution. We've shared our profits consistently with our employees for 90 consecutive years. We're active in the communities we operate in. One analyst has actually referred to us as old school in our ESG approach.
We're continuing to expand our market share. We think the pump industry is about an $80 billion industry that gives us a lot of opportunity to continue to expand that share. First, we're doing so by taking care of customers so they stick with us. The hardest customer to go get is one that you've made angry and doesn't want to come back to you. We really focus on taking care of them. We also continue to innovate and make new products that our customers see value in, and we train and educate our employees in our distribution to make sure they're the most knowledgeable people in the industry. We have a solid new product development program focused on solving challenging applications and customer problems. These days, it's focused on improvements in energy efficiency and emissions.
Whether we're in our facilities, at distributors' facilities, or at customer locations, Gorman-Rupp offers the industry's best training on the proper selection and application of pumps. That's pretty important. Distributors, especially, sell what they know, and you want them to know what they're going to sell. International growth continues to present a significant opportunity for the company. By leveraging our existing facilities and expanding our distribution network, we're capitalizing on favorable market drivers such as population growth, increasing infrastructure needs across regions. Today, approximately one quarter of our sales are outside of the United States, and we expect that portion to continue to grow. Our operations are well invested in. They carry inventory to support customers. After all, pumps are usually emergency purchases. We sell through the best distribution in the industry, and we offer industry-leading technical expertise.
I just finished a term as chairman of the Hydraulic Institute, and technical standards development for the Hydraulic Institute is led by one of our directors of engineering. The company's history of supplementing growth through acquisitions is going to be a continued strategic priority over time. By selectively acquiring companies that complement our existing product lines, we enhance our capabilities and drive long-term growth. We develop a strong reputation in the industry as being a good place for a pump company to land once it becomes available. In summary, customers tell us we're the best pump company that they deal with. Our culture really does set us apart from the industry. We've done a good job of growing recently, and we're well positioned to continue to grow both organically and at some point through further acquisitions in the future.
We have a strong track record of both reinvesting in our business and in returning capital to shareholders. Thanks for your attention today, and we will turn things back over to John. I would be happy to take questions today.
Thank you, Scott. Thank you, Ron. If you have a question, please type it in the Q&A box, and I'll present to management. Gentlemen, I'd like to start off with some of your opening comments, Scott, about the tariff environment. We've had a couple of months to absorb the potential impacts. Can you kind of share with us how it's impacting your industry?
It is impacting the industry in a much broader way than it is impacting Gorman-Rupp because our supply chains are more U.S.-centric than a lot of our competition. We have always wanted to be in a place where our supply chains were U.S.-centric. That always made sense to us. During COVID, as an example, that was certainly an advantage. It helped us gain market share through COVID. We think it is going to help us gain market share as now the U.S. is taking a bit more aggressive approach in making sure that product from some lower-cost countries is not dumped in the United States and certainly should help us continue to be more competitive. We are not going to attempt to gild the lily with pricing as we go through this.
We'll be fair about pricing with customers and view it as an opportunity for us to continue to increase volumes and shares, which should also help us from a margin standpoint, expand our margins a bit as we increase volume in our existing facilities.
Did you see any of your distributor customer base do some advanced buying ahead of the tariff implementation?
Not really, no. That was not something that we thought was a strong position that any of them took. I think there was enough uncertainty around all of it that it was really difficult for somebody to make the decision to put capital to risk in that way. As we have seen, I do not want to call it certainty yet. It still seems to be pretty uncertain. As we have seen, I guess, less uncertainty, demand's held up really quite well. I think we are pleased with where things stand. We like the quality of our backlog today. It is substantial, and it is timed well. The things that should be coming in and out of our order book quickly are doing so. The things that are longer lead and require some custom work and longer gestations are in the backlog.
We like the backlog, and customers' distribution continue to tell us that they're pretty optimistic about things looking forward.
Since you touched on it, can you talk a little bit more about the backlog profile? I know we've characterized it in the past as elevated relative to historic norms. Do you think there's a reset going on? Is it a market share grab? What can you attribute that high backlog level relative to at least certainly recent normal levels?
Yeah. I do think we have taken market share. That is a thing. If I go back to prior to, let us go back to 2021, we think we were slightly less than 0.5% of the world's pump market. Now we think we are slightly less than 1% of the world's pump market, which is great. Market share is a factor in it. In addition, the municipal market has been extremely strong, and those tend to be longer lead projects. That has a factor in increasing backlogs over a period of time. Still, about 75% of our backlog tends to ship within six months, and almost all of it ships within a year of a period of time. Of course, repair parts, we want to generally be available today if a customer needs them.
Question from the audience about the importance of customer relationships. You touched on that in the presentation. Maybe about price sensitivity. Can you talk a little bit about price sensitivity versus reliability? What matters most to the customer?
There is some price sensitivity, certainly with repair parts. We're not the least expensive pump manufacturer in the business. We really don't intend to be because we make very high-quality products. We stand behind them. They're going to last. People buy them on a value proposition as opposed to on price. You can, one could advance pump repair part prices to the point where customers would be annoyed that the cost of that repair was so substantial compared to the cost of a new pump. We're mindful of that as we price repair parts. Do we get pushback? The industry's pretty stable. It's been around for a long time. The pricing models are pretty consistent. We have stickiness in pricing. We don't get a lot of pushback when it's necessary to raise prices.
We also have very solid knowledge of what our costs are and base our decisions on pricing, knowing what the cost drivers and inflationary pressures are within the business. Today, maybe we're less impacted by tariffs than some of our competition. There are still other inflationary pressures out there. Wages, healthcare, energy, things like that are continuing to go up. We're mindful of what all of those things are and factor them into our pricing decisions.
Certainly. Certainly. You also touched on, I'm sorry, Ron brought this up, that M&A would likely pick up when you got the leverage ratio maybe below two. Can you talk a little bit about, do you have potential candidates set up or you're waiting to get to that threshold first? What's your thought about M&A size, scope, timeout?
Yeah. In the longer version of the investor relations deck, which is on at gormanrupp.com, we do lay out the criteria we look at for acquisitions. Gorman-Rupp, over its long history, has developed a strong reputation of being a good place for a pump company to land when the owners are no longer interested or able to keep it. We do a pretty good job of treating employees well as they become part of the organization, of focusing on customers and not taking our eye off the ball of a great business that we were interested in buying. As a result of that reputation, we get a look at a lot of things. Jim, Ron, and I are staying pretty active in looking at opportunities, while being honest with ourselves about our readiness of doing that. We like the acquisition criteria that are out on gormanrupp.com.
Phil Wright really affirmed that those are the right ones. I think we can value the next opportunity when the time comes, by those criteria. I do not know that I'd ever see us going back up to a 4.8 times leverage. Phil Wright was kind of a, we were out fishing. We caught a whale, if you will. It has been great. It has been a wonderful addition to the company. I think our target size would be something a little smaller than that, at least from a leverage standpoint. I do not know that I'd see us going up to anything near four.
Our readiness is purely from a financial standpoint. Operationally, we would have been ready a year ago or even longer than that.
Yeah. The integration of that business was really smooth.
Yeah. Yeah. We've got that part down pretty well. We've got a good playbook for that. Once we get leverage down, we'll get back to it. We'll also be patient, too. We're not going to force one and do one to do one. We're going to wait for the right one.
Yeah.
Makes sense, Jim. I guess one last question. How do you think about new product development in light of what you just said about M&A? Introducing new products, entering new markets, is it more internally developed, or maybe there is some benefit to doing strategic M&A that comes with a client list that gets you into a market faster?
We view new product development as continuing to lead in the niches for the product types that we have. As an example, in 1933, Herb Rupp came up with a way to make a pump prime itself better. Gorman-Rupp today continues to be the leader in self-priming pump technology. We are continuing to innovate and focus our R&D around self-priming pump technology. Fill-Rite was a good example of why that fit well with us. Fill-Rite is a rotary vane fuel transfer pump that generally handles somewhere between three and 35 gallons per minute in fuel transfer. We were familiar with fuel transfer because we make products that the military and aircraft refuelers use for 50 gallons per minute up in a centrifugal pump technology. We did not have a rotary vane pump technology.
It made sense for us to acquire that type of technology as opposed to try and develop it internally, where our centrifugal fueler technology, we're continuing to innovate in that. Phil-Rite will continue to innovate around rotary vane fuel transfer. I think that's how we think about it. For pump types that we're familiar with and we know, we're going to continue to research and add additional capabilities around those that solve customer problems. That's really the main driver. If a customer is having a challenge, how do we solve those problems? Then let's go acquire products that are complementary to the ones we have in likely known markets that we know.
Makes sense. Gentlemen, we're just about out of time. Any closing remarks?
I would just appreciate everybody's attention today. If you have other questions, certainly feel free to get them to John. We're happy to interact as we go forward. We appreciate the time.
Thank you. Thank you all. If you have any questions, I'll filter to management. Thank you all. Everybody have a great day.
Thank you.
Thanks.