Federal Signal (FSS) 10-Q2024 Q1 Quarterly report

Products manufactured and services rendered by the Company are divided into two reportable segments: Environmental Solutions Group and Safety and Security Systems Group. The individual operating businesses are organized as such because they share certain characteristics, including technology, marketing, distribution and product application, which create long-term synergies. These segments are discussed in Note 11 – Segment Information.

These condensed consolidated financial statements include all normal and recurring adjustments that we considered necessary to present a fair statement of our results of operations, financial condition and cash flow. Intercompany balances and transactions have been eliminated in consolidation. In addition, certain prior-year amounts have been reclassified to conform to current-year presentation.

On April 3, 2023, the Company completed the acquisition of substantially all the assets and operations of Trackless Vehicles Limited and Trackless Vehicles Asset Corp, including the wholly-owned subsidiary Work Equipment Ltd. (collectively, “Trackless”), a leading Canadian manufacturer of off-road, multi-purpose maintenance vehicles and attachments. The Company expects that the Trackless acquisition will further bolster its position as an industry leading diversified industrial manufacturer of specialized vehicles for maintenance and infrastructure markets with leading brands of premium, value-adding products, and a strong supporting aftermarket platform.

During the three months ended March 31, 2024, the Company recognized measurement period adjustments, which primarily resulted from obtaining third-party valuations of contingent consideration and acquired intangible assets, that reduced the estimated fair value of contingent consideration by $0.2 million and increased the carrying value of acquired intangible assets by $1.1 million, resulting in a corresponding $1.3 million decrease to the carrying value of Goodwill, from the $8.0 million previously recognized as of December 31, 2023. The measurement period adjustments did not have a material impact on the Company’s Consolidated Statements of Operations for the three months ended March 31, 2024. As of March 31, 2024, the Company’s purchase price allocation for the Trackless acquisition is considered to be final.

The following table presents the Company’s Net sales disaggregated by geographic region, based on the location of the end customer, and by major product line:

The following table summarizes the components of Inventories:

The following table summarizes the components of Long-term borrowings and finance lease obligations:

As more fully described within Note 12 – Fair Value Measurements, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value of the Company’s long-term borrowings and finance lease obligations is based on interest rates that we believe are currently available to us for issuance of debt with similar terms and remaining maturities (Level 2 input). The carrying amounts of the Company’s long-term borrowings and finance lease obligations approximate their fair values as of March 31, 2024 and December 31, 2023.

The 2022 Credit Agreement is a senior secured credit facility which provides the Company and certain of its foreign subsidiaries access to an aggregate principal amount of $800 million, consisting of (i) a revolving credit facility in an amount up to $675 million (the “Revolver”) and (ii) a term loan facility in an amount up to $125 million. The 2022 Credit Agreement matures on October 21, 2027.

Borrowings under the 2022 Credit Agreement bear interest, at the Company’s option, at a base rate or an Adjusted Term Secured Overnight Financing Rate (“SOFR”), Adjusted Eurocurrency Rate or Adjusted Daily Simple SONIA Rate (as each is defined in the 2022 Credit Agreement), plus, in each case, an applicable margin. The applicable margin ranges from zero to 0.75% for base rate borrowings and 1.00% to 1.75% for Adjusted Term SOFR, Adjusted Eurocurrency Rate or Adjusted Daily Simple SONIA Rate borrowings. The Company must also pay a commitment fee to the lenders ranging between 0.10% to 0.25% per annum on the unused portion of the Revolver along with other standard fees. Applicable margin, issuance fees and other customary expenses are payable on outstanding letters of credit.

The Company is subject to certain net leverage ratio and interest coverage ratio financial covenants under the 2022 Credit Agreement that are measured at each fiscal quarter-end. The Company was in compliance with all such covenants as of March 31, 2024.

As of March 31, 2024, there was $147.5 million of cash drawn on the Revolver, $123.4 million outstanding under the term loan facility and $11.1 million of undrawn letters of credit under the 2022 Credit Agreement, with $516.4 million of net availability for borrowings. As of December 31, 2023, there was $173.2 million of cash drawn on the Revolver, $124.2 million outstanding under the term loan facility and $9.1 million of undrawn letters of credit under the 2022 Credit Agreement, with $492.7 million of net availability for borrowings.

The following table summarizes the gross borrowings and gross payments under the Company’s revolving credit facilities:

On July 11, 2023, the Company entered into an additional interest rate swap (the “2023 Swap”) with a notional amount of $75.0 million, as a means of fixing the floating interest rate component on $75.0 million of its variable-rate debt. The 2023 Swap is designated as a cash flow hedge, with an original maturity date of August 1, 2025.

As a result of the application of hedge accounting treatment, all unrealized gains and losses related to the derivative instruments are recorded in Accumulated other comprehensive loss and are reclassified into operations in the same period in which the hedged transaction affects earnings. Hedge effectiveness is assessed quarterly. The Company does not use derivative instruments for trading or speculative purposes.

The fair value of the Company’s interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve (Level 2 inputs) and measured on a recurring basis in our Condensed Consolidated Balance Sheets.

At March 31, 2024 and December 31, 2023, the fair value of the Company’s interest rate swaps was an asset of $0.5 million and a liability of $0.7 million, which were included in Other long-term assets and Other long-term liabilities on the Condensed Consolidated Balance Sheets, respectively. During the three months ended March 31, 2024 and 2023, unrealized pre-tax gains of $1.2 million and unrealized pre-tax losses of $0.5 million, respectively, were recorded in Accumulated other comprehensive loss. No ineffectiveness was recorded in either period.

In connection with entering into the 2022 Credit Agreement in October 2022, the Company terminated an interest rate swap initially entered into in 2019, receiving proceeds of $4.3 million upon settlement. The settlement gain was recorded in Accumulated other comprehensive loss and is being amortized into earnings ratably through the original maturity date of July 30, 2024. During the three months ended March 31, 2024 and 2023, the Company recognized non-cash settlement gains of $0.6 million and $0.6 million, respectively, as a component of Interest expense, net on the Condensed Consolidated Statements of Operations. At March 31, 2024 and December 31, 2023, an unrealized settlement gain of $0.8 million and $1.4 million, respectively, was included in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets.

During the year ended December 31, 2023, the Company filed amended U.S. federal income tax returns for the 2015 through 2018 tax years to claim a worthless stock deduction. As of December 31, 2023, the amended tax returns were under examination by the applicable tax authorities and recovery of the refund claim was not considered more-likely-than-not. Accordingly, the aggregate refund claim of $13.6 million, including interest of $1.8 million, was recorded as an income tax receivable as of December 31, 2023, fully offset by a corresponding liability for unrecognized tax benefits.

During the three months ended March 31, 2024, the tax authorities notified the Company that the amended tax returns had been approved, at which point receipt of the refund claim was considered more-likely-than-not. As a result, the Company released the associated liability for unrecognized tax benefits and recognized a $13.0 million discrete tax benefit for the refund claim, net of taxes on the associated interest, during the three months ended March 31, 2024. The associated income tax receivable is recognized within Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of March 31, 2024.

Including the aforementioned discrete tax benefit and the recognition of $0.8 million in excess tax benefits associated with stock-based compensation activity, the Company recognized an income tax benefit of $0.7 million during the three months ended March 31, 2024, compared to income tax expense of $7.3 million during the prior-year quarter, with the impact of the discrete tax benefit being partially offset by higher pre-tax income levels. The Company’s effective tax rate for the three months ended March 31, 2024 was a benefit of 1.4%, compared to expense of 21.0% in the prior-year quarter.

The following table summarizes the changes in the Company’s warranty liabilities during the three months ended March 31, 2024 and 2023:

The Company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the Company’s results of operations or financial condition. However, in the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the Company’s results of operations, financial condition or cash flow.

The Company also filed motions to dismiss cases involving firefighters who worked for fire departments located outside of Illinois based on improper venue. On February 24, 2017, the Circuit Court of Cook County dismissed the cases of 1,770 such firefighter plaintiffs. In 2017, the Company entered into a global settlement agreement (the “2017 Settlement Agreement”) with two attorneys who represented approximately 1,090 of these plaintiffs offering to pay $700 per plaintiff to settle these cases, and 717 plaintiffs accepted this offer as a final settlement. The 2017 Settlement Agreement did not require the payment of any attorney fees by the Company. The attorneys representing these plaintiffs agreed to withdraw from representing plaintiffs who did not respond to the settlement offer. It is the Company’s position that the non-settling plaintiffs who failed to timely refile their cases are barred from doing so by the statute of limitations.

The Company was also sued on this issue outside of the Cook County, Illinois venue. Between 2007 and 2009, lawsuits involving 71 plaintiffs were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. Three of these cases were dismissed pursuant to pretrial motions, one case was voluntarily dismissed, and others were settled for nominal sums. Three trials were held in these cases. In the first trial, a jury returned a verdict for the plaintiff, finding that the Company’s siren was not defectively designed but that the Company negligently constructed the siren. The jury awarded damages in an amount less than $0.1 million. In 2010, a jury returned a defense verdict for the Company as to the claims of nine plaintiffs. In a third trial, the jury returned a defense verdict for the Company as to the claims of nine plaintiffs. Following the defense verdicts in the last two Philadelphia trials, in order to avoid the inconvenience, uncertainty and distraction of the lawsuits, the Company entered into a global settlement agreement (the “2010 Settlement Agreement”) on behalf of 1,125 claimants (the “Claimants”). The 2010 Settlement Agreement provided that the Company pay a total amount of $3.8 million to settle the claims (including the costs, fees and other expenses of the law firm in connection with its representation of the Claimants), subject to certain terms, conditions and procedures set forth in the 2010 Settlement Agreement. On April 22, 2011, the Company confirmed that the terms and conditions of the 2010 Settlement Agreement had been met and made an adjusted payment of $3.6 million to conclude the settlement. The amount was based upon the Company’s receipt of 1,069 signed releases provided by Claimants. The Company generally denies the allegations made in the lawsuits and denies that its products caused any injuries to the Claimants.

From 2007 through 2009, firefighters also brought hearing loss claims against the Company in New Jersey, Missouri, Maryland and Kings County, New York, all of which were dismissed prior to trial.

In 2012, 20 new cases were filed in Philadelphia on behalf of 20 Philadelphia firefighters against various defendants in addition to the Company. Five of these cases were dismissed. The first trial involving these cases occurred in December 2014 and involved three firefighter plaintiffs. The jury returned a verdict in favor of the Company. Following the trial, the parties agreed to settle cases involving seven firefighter plaintiffs for nominal amounts.

In January 2015, plaintiffs’ attorneys filed two new complaints in Philadelphia on behalf of approximately 70 additional firefighter plaintiffs. One of the complaints, which involved 11 firefighter plaintiffs from the District of Columbia, was removed to federal court in the Eastern District of Pennsylvania. Plaintiffs voluntarily dismissed all claims in that case on May 31, 2016. The Company thereafter moved to recover fees and costs in this case, asserting that plaintiffs’ counsel failed to properly investigate the claims prior to filing suit. The Court granted the motion, awarding $0.1 million to the Company, and the United States Court of Appeals for the Third Circuit affirmed the decision awarding fees and costs to the Company. The Court granted the Company’s motion to dismiss the remaining out-of-state firefighters. In 2015, another nine new cases involving a total of 193 firefighters were filed in Philadelphia. The court dismissed all claims filed by out-of-state firefighters, a decision affirmed by the appellate court.

In 2016 and 2017, plaintiffs filed new cases involving a total of 155 Philadelphia firefighters in Philadelphia state court, and the cases were transferred to the mass tort program in Philadelphia for pretrial purposes. In November 2017, a trial involving one Philadelphia firefighter occurred, and the jury returned a verdict in favor of the Company.

In 2014, an action was brought in the Court of Common Pleas of Erie County, Pennsylvania on behalf of 61 firefighters against various defendants in addition to the Company. Also in 2014, 20 lawsuits involving a total of 193 Buffalo Fire Department firefighters were filed in the Supreme Court of the State of New York, Erie County. In 2015, the Company was served with a complaint filed in Union County, New Jersey state court, involving 34 New Jersey firefighters. In 2016, nine cases were filed in Suffolk County, Massachusetts state court, naming the Company as a defendant. These cases involved 194 firefighters who lived and worked in the Boston area. In 2017, plaintiffs’ attorneys filed additional hearing loss cases in Florida. Prior to a dismissal of these cases pursuant to the Tolling Agreement discussed below, there was a total of 1084 firefighters involved in these cases.

In 2013, cases were filed in Allegheny County, Pennsylvania on behalf of 247 plaintiff firefighters from Pittsburgh and against various defendants including the Company. In 2016, cases were filed against an additional 19 Pittsburgh firefighters. After the Company filed pretrial motions, the Court dismissed claims of 55 Pittsburgh firefighter plaintiffs. Prior to the first scheduled trial, the Court granted the Company’s motion for summary judgment and dismissed all claims asserted by plaintiff firefighters involved in this trial. Following an appeal by the plaintiff firefighters, the appellate court affirmed this dismissal. A jury rendered a verdict in favor of the Company in 2017.

A second trial involving Pittsburgh firefighters began in 2018. At the outset of this trial, plaintiffs’ attorneys, who represent all firefighters who filed cases in Allegheny County, Philadelphia, Buffalo, New Jersey, Massachusetts, and Florida requested that the Company consider settlement of various cases. In March 2018, the parties agreed in principle on a framework (the “Settlement Framework”) to resolve hearing loss claims and cases in all jurisdictions involved in the hearing loss litigation except Cook County, Illinois and Lackawanna County, Pennsylvania and a case involving one firefighter in New York City, cases being handled by different attorneys. The Company later settled the cases in Lackawanna County and settled the case involving one firefighter in New York City for nominal amounts.

In order to minimize the parties’ respective legal costs and expenses during this settlement process, on July 5, 2018, the parties entered into a tolling agreement (the “Tolling Agreement”). Pursuant to the Tolling Agreement, counsel for the settling firefighters agreed to dismiss the pending lawsuits in all jurisdictions except for the Allegheny County (Pittsburgh), Pennsylvania cases, and the Company agreed to a tolling of any statute of limitations applicable to the dismissed cases. The Tolling Agreement continued in place until the parties executed a global settlement agreement (the “2019 Settlement Agreement”) on November 4, 2019. After execution of the 2019 Settlement Agreement, the Allegheny County (Pittsburgh) cases were dismissed.

Pursuant to the 2019 Settlement Agreement, the Company would pay $700 to each firefighter who filed a lawsuit and is eligible to be part of the settlement and $300 to each firefighter who has not yet filed a case and is eligible to be part of the settlement. To be eligible for settlement, among other things, firefighters must provide proof that they have high frequency noise-induced hearing loss. There are approximately 2,160 firefighters whose claims may be considered as part of this settlement, including approximately 921 firefighters who have ongoing filed lawsuits. The 2019 Settlement Agreement requires plaintiffs’ attorneys

to withdraw from representing firefighters who elect not to participate in the settlement and does not include the payment of any attorney fees by the Company. Pursuant to the 2019 Settlement Agreement, the parties are now in the process of determining how many of the approximately 2,160 firefighters will be eligible to participate in the settlement.

As of March 31, 2024, the Company has recognized an estimated liability for the potential settlement amount under the Settlement Framework. While it is reasonably possible that the ultimate resolution of this matter may result in a loss in excess of the amount accrued, the incremental loss is not expected to be material.

Basic EPS is computed by dividing income available to common stockholders by the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the period.

Diluted EPS is computed using the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the year, plus the effect of dilutive potential common shares outstanding during the period. The dilutive effect of common stock equivalents is determined using the more dilutive of the two-class method or alternative methods. The Company uses the treasury stock method to determine the potentially dilutive impact of our employee stock options and restricted stock units, and the contingently issuable method for our performance-based restricted stock unit awards.

For both the three months ended March 31, 2024 and 2023, the number of options to purchase shares of the Company’s stock that had an antidilutive effect on EPS was immaterial.

The following table reconciles Net income to basic and diluted EPS:

The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax, in the three months ended March 31, 2024 and 2023 and the affected line item in the Condensed Consolidated Statements of Operations:

The Company has two reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group. Business units are organized under each reportable segment because they share certain characteristics, such as technology, marketing, distribution and product application, which create long-term synergies.

The following tables summarize the Company’s operations by segment, including Net sales, Operating income (loss), and Total assets:

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. The three levels of inputs are classified as follows:

In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below.

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2024:

(a)    Included as a component of Acquisition and integration-related expenses, net on the Condensed Consolidated Statements of Operations.

As described in Note 11 – Segment Information to the accompanying condensed consolidated financial statements, the Company’s business units are organized in two reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group.

Income before income taxes for the three months ended March 31, 2024 increased by $16.2 million, or 47%, compared to the prior-year quarter. The increase resulted from the higher operating income and a $1.5 million reduction in interest expense, partially offset by a $0.1 million increase in other expense.

Net income for the three months ended March 31, 2024 increased by $24.2 million compared to the prior-year quarter, largely due to the aforementioned increase in income before taxes and a $8.0 million reduction in income tax expense. The effective tax rate for the three months ended March 31, 2024 was a benefit of 1.4%, compared to expense of 21.0% in the prior-year quarter. We currently expect our full-year effective tax rate to be approximately 20%, excluding additional discrete items.

Total orders for the three months ended March 31, 2024 were $503 million, an increase of $28 million, or 6%, as compared to the prior-year quarter. Our Environmental Solutions Group reported total orders of $428 million in the three months ended March 31, 2024, an increase of $32 million, or 8% in comparison to the prior-year quarter. Orders in the three months ended March 31, 2024 within our Safety and Security Systems Group were $75 million, a decrease of $4 million, or 5%, compared to the prior-year quarter.

Our consolidated backlog at March 31, 2024 was $1.10 billion, an increase of $132 million, or 14%, compared to the prior-year quarter.

During the year ended December 31, 2023, the Company filed amended U.S. federal income tax returns for the 2015 through 2018 tax years to claim a worthless stock deduction. As of December 31, 2023, the amended tax returns were under examination by the applicable tax authorities and recovery of the refund claim was not considered more-likely-than-not. Accordingly, the aggregate refund claim of $13.6 million, including interest of $1.8 million, was recorded as an income tax receivable as of December 31, 2023, fully offset by a corresponding liability for unrecognized tax benefits.

During the three months ended March 31, 2024, the tax authorities notified the Company that the amended tax returns had been approved, at which point receipt of the refund claim was considered more-likely-than-not. As a result, the Company released the associated liability for unrecognized tax benefits and recognized a $13.0 million discrete tax benefit for the refund claim, net of taxes on the associated interest, during the three months ended March 31, 2024. The associated income tax receivable is recognized within Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of March 31, 2024.

Including the aforementioned discrete tax benefit and the recognition of $0.8 million in excess tax benefits associated with stock-based compensation activity, the Company recognized an income tax benefit of $0.7 million during the three months ended March 31, 2024, compared to income tax expense of $7.3 million during the prior-year quarter, with the impact of the discrete tax benefit being partially offset by higher pre-tax income levels. The Company’s effective tax rate for the three months ended March 31, 2024 was a benefit of 1.4%, compared to expense of 21.0% in the prior-year quarter.

Total orders for the three months ended March 31, 2024 increased by $31.9 million, or 8%, compared to the prior-year quarter. U.S. orders decreased by $15.7 million, primarily due to reductions in orders for street sweepers, safe-digging trucks, trailers and industrial vacuum loaders of $26.7 million, $8.8 million, $8.5 million and $5.4 million, respectively. Partially offsetting these reductions were improvements in orders of dump truck bodies, sewer cleaners, refuse trucks and waterblasting equipment of $20.5 million, $9.0 million, $2.3 million and $1.9 million, respectively. Non-U.S. orders increased by $47.6 million, largely due to a $31.3 million improvement in orders for refuse trucks, inclusive of certain large fleet orders, as well as increases in orders for multi-purpose maintenance vehicles, metal extraction support equipment, aftermarket offerings and street sweepers of $31.3 million, $5.4 million, $3.9 million, $3.3 million and $2.8 million, respectively.

Cost of sales for the three months ended March 31, 2024 increased by $18.7 million, or 8%, compared to the prior-year quarter, primarily related to higher sales volumes, inclusive of the effects of acquisitions, and increased material costs. Gross profit margin for the three months ended March 31, 2024 was 24.5%, compared to 22.0% in the prior-year quarter, with the improvement primarily attributable to improved operating leverage from higher sales volumes and benefits from pricing actions.

SEG&A expenses for the three months ended March 31, 2024 increased by $2.3 million, or 8%, compared to the prior-year quarter, primarily due to additional costs from acquired businesses, as well as increases in sales commissions and incentive-based compensation expense. As a percentage of net sales, SEG&A expenses were 8.7% in the current-year quarter, down from 9.0% in the prior-year quarter.

Operating income for the three months ended March 31, 2024 increased by $14.1 million, or 38%, compared to the prior-year quarter, largely due to a $16.5 million improvement in gross profit, partially offset by the $2.3 million increase in SEG&A expenses and a $0.1 million increase in acquisition and integration-related costs.

Backlog was $1.04 billion at March 31, 2024, compared to $902 million at March 31, 2023.

Total orders for the three months ended March 31, 2024 decreased by $3.9 million, or 5%, compared to the prior-year quarter. U.S. orders increased by $4.1 million, primarily due to improvements in orders for public safety equipment and industrial signaling equipment of $4.7 million and $1.1 million, respectively, partially offset by a $1.7 million reduction in orders for warning systems. Non-U.S. orders decreased by $8.0 million, primarily due to a $6.9 million reduction in orders for public safety equipment in comparison to the prior-year quarter, which included a large fleet order from a customer in Mexico.

Cost of sales for the three months ended March 31, 2024 increased by $0.5 million, or 1%, compared to the prior-year quarter, primarily related to higher sales volumes. Gross profit margin for the three months ended March 31, 2024 was 41.3%, compared to 38.4% in the prior-year quarter, with the improvement primarily attributable to improved operating leverage from higher sales volumes and benefits from pricing actions.

SEG&A expenses for the three months ended March 31, 2024 increased by $2.0 million, or 15%, compared to the prior-year quarter, primarily due to higher sales commissions and incentive-based compensation expense. As a percentage of net sales, SEG&A expenses were 21.9% in the current-year quarter, compared to 20.2% in the prior-year quarter.

Operating income for the three months ended March 31, 2024 increased by $1.7 million, or 14%, compared to the prior-year quarter, primarily due to a $3.7 million improvement in gross profit, partially offset by the $2.0 million increase in SEG&A expenses.

Backlog was $62 million at March 31, 2024, compared to $66 million at March 31, 2023.

The Company’s cash and cash equivalents totaled $48.9 million and $61.0 million as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, $26.4 million of cash and cash equivalents was held by foreign subsidiaries. Cash and cash equivalents held by subsidiaries outside the U.S. typically are held in the currency of the country in which it is located. The Company uses this cash to fund the operating activities of its foreign subsidiaries and for further investment in foreign operations. Generally, the Company has considered such cash to be permanently reinvested in its foreign operations and the Company’s current plans do not demonstrate a need to repatriate such cash to fund U.S. operations. However, in the event that these funds are needed to fund U.S. operations or to satisfy U.S. obligations, they generally could be repatriated. The repatriation of these funds may cause the Company to incur additional U.S. income tax expense, dependent on income tax laws and other circumstances at the time any such amounts are repatriated.

Net cash of $31.3 million was provided by operating activities in the three months ended March 31, 2024, compared to $7.1 million in the prior-year period, with the year-over-year increase primarily due to working capital improvements and higher net income, partially offset by higher incentive-based compensation payments.

Net cash of $7.6 million was used for investing activities in the three months ended March 31, 2024, compared to $19.4 million in the prior-year period. During the three months ended March 31, 2024, the Company funded $8.4 million of capital expenditures. During the three months ended March 31, 2023, the Company paid initial consideration of $13.4 million to acquire Blasters, and funded $6.0 million of capital expenditures.

Net cash of $35.3 million was used for financing activities in the three months ended March 31, 2024, whereas in the prior-year period, net cash of $3.1 million was provided by financing activities. In the three months ended March 31, 2024, the Company paid down $23.5 million of borrowings under its revolving credit facility and $0.8 million under its term loan facility, funded cash dividends and share repurchases of $7.3 million and $0.1 million, respectively, and redeemed $4.1 million of stock in order to remit funds to tax authorities to satisfy employees’ tax withholdings following the vesting of stock-based compensation and the exercise of stock options. In the three months ended March 31, 2023, the Company increased debt borrowings by $12.6 million, funded cash dividends of $5.5 million and redeemed $3.8 million of stock in order to remit funds to tax authorities to satisfy employees’ tax withholdings following the vesting of stock-based compensation and the exercise of stock options. During the three months ended March 31, 2023, the Company also paid $0.5 million to settle the contingent consideration obligation due to the former owners of MRL.

The Company is subject to certain net leverage ratio and interest coverage ratio financial covenants under the 2022 Credit Agreement that are measured at each fiscal quarter-end. The Company was in compliance with all such covenants as of March 31, 2024.

The Company anticipates that capital expenditures for 2024 will be in the range of $35 million to $40 million.

The Company believes that its financial resources and major sources of liquidity, including cash flow from operations and borrowing capacity, will be adequate to meet its operating needs, capital needs and financial commitments.

As a matter of practice, the Company’s management continues to review and document internal control and procedures for financial reporting. From time to time, the Company may make changes aimed at enhancing the effectiveness of the controls and ensuring that the systems evolve with the business. There were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting during the three months ended March 31, 2024.

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.