Market Newsdesk

~ Second Half 2023 to Benefit from Targeted 2023 Capital Spending Program and Recently Announced Acquisition ~

THE WOODLANDS, Texas, Aug. 03, 2023 (GLOBE NEWSWIRE) — Ring Energy, Inc. (NYSE American: REI) (“Ring” or the “Company”) today reported operational and financial results for the second quarter of 2023. In addition, the Company reaffirmed its pro forma guidance for the third and fourth quarters of 2023 assuming completion of its recently announced transaction to acquire additional assets in the Central Basin Platform (“CBP”) of the Permian Basin from Founders Oil & Gas IV, LLC (“Founders”) for $75 million in cash, subject to customary closing adjustments (the “Founders Acquisition”).

Second
Quarter
2023
Highlights and Recent Key Items

• Sold 17,271 barrels of oil equivalent per day (“Boe/d”) (69% oil) compared to 18,292 Boe/d (69% oil) for the first quarter of 2023;
  • Primarily impacting sequential quarterly sales volumes were the previously-announced sale of the Company’s non-core asset position in the Delaware Basin, and the deferral of certain well drilling and workover projects due to lower commodity prices and the anticipated funding and incremental benefits of the Founders Acquisition;
• Reported net income of $28.8 million, or $0.15 per diluted share, in the second quarter of 2023, versus net income of $32.7 million, or $0.17 per diluted share in the first quarter of 2023;
  • Second quarter 2023 included a gain on derivative contracts of $3.3 million, while first quarter 2023 included a gain on derivative contracts of $9.5 million;
  • Second quarter 2023 also included a benefit from income taxes of $6.4 million primarily due to the partial release of the valuation allowance. First quarter 2023 included a provision for income taxes of $2.0 million;
• Achieved Adjusted Net Income¹ of $28.0 million, or $0.14 per diluted share, for the second quarter of 2023 versus $25.0 million, or $0.13 per diluted share, in the first quarter of 2023;
• Generated Adjusted EBITDA¹ of $53.5 million for the second quarter of 2023 compared to $58.6 million in the first quarter of 2023;
• Incurred Lease Operating Expense (“LOE”) of $10.14 per Boe in the second quarter of 2023, which was 9% lower than the mid-point of guidance of $11.00 to $11.40 per Boe and a 4% reduction from $10.61 per Boe the first quarter of 2023;
• Delivered Net Cash Provided by Operating Activities of $43.4 million in the second quarter of 2023;
  • Increased Adjusted Free Cash Flow¹ by 20% to $12.6 million from $10.5 million in the first quarter of 2023;
  • Remained cash flow positive for the 15^th consecutive quarter;
• Paid down $25.0 million in debt during the second quarter of 2023;
• Ended second quarter 2023 with liquidity of $204.0 million and a Leverage Ratio² of 1.64x;
  • Reaffirmed borrowing base of $600 million under Ring’s $1.0 billion senior revolving credit facility (the “Credit Facility”) during the second quarter of 2023;
• Continued the 2023 development program, including drilling and completing four horizontal (“Hz”) wells in the Northwest Shelf (“NWS”) and two vertical wells in the CBP, as well as performed three recompletions in the CBP. Capital expenditures were $31.6 million on an accrual basis during the second quarter of 2023, which was 12% lower than the mid-point of guidance of $34 million to $38 million;
• Completed the sale of its non-core asset position in the West Texas Delaware Basin for net cash proceeds of $8.0 million (the “Delaware Transaction”) during the second quarter of 2023;
• Entered into agreements in April 2023 with certain holders of the Company’s outstanding warrants for the early exercise of an aggregate of 14.5 million warrants (14.5 million shares of Common Stock) that resulted in net cash proceeds of $8.7 million (the “Early Warrant Exercise”). As of June 30, 2023, 78,200 warrants to purchase shares of Ring’s Common Stock remained outstanding;
• Announced on July 11, 2023 the Company’s agreement to acquire the CBP assets of Founders for $75 million in cash with closing expected later this month and an effective date of April 1, 2023; and
• Reiterated guidance for the third and fourth quarters of 2023 based on its outlook for sales volumes, operating expenses and capital spending, which assumes the anticipated completion of the Founders Acquisition.

  _________________________________
  ^{¹ A non-GAAP financial measure; see “Non-GAAP Information” section in this release for more information including reconciliations to the most comparable GAAP measures.
  ² Refer to the “Non-GAAP Information” section in this release for calculation of the Leverage Ratio based on our Credit Agreement.}

Mr. Paul D. McKinney, Chairman of the Board and Chief Executive Officer, commented, “During the second quarter, we benefited from the Stronghold acquisition executed in the second half of 2022, continued strong performance from our legacy assets, implemented our targeted 2023 capital spending program, and continued ongoing efforts to drive further cost efficiencies in the business. While second quarter sales volumes fell short of earlier developed expectations due to a combination of factors, we were pleased with our overall financial results despite the backdrop of decreased realized oil and natural gas prices. This includes posting a 20% sequential quarterly increase in Adjusted Free Cash Flow. In addition to the increase in Adjusted Free Cash Flow, we benefited from the sale of our non-core assets in the Delaware Basin and the Early Warrant Exercise, which allowed us to pay down $25 million of debt.”

Mr. McKinney continued, “We remain focused on the disciplined execution of our 2023 capital spending program and maximizing our Adjusted Free Cash Flow by prioritizing high rate-of-return drilling and recompletion projects. In short, we will continue to execute our value focused proven strategy designed to further improve our balance sheet and position the Company to return capital to stockholders in the future. To make our stock more appealing to a wider cross-section of the investment community, we believe achieving greater size and scale is a key priority. As a result, pursuing immediately accretive and balance sheet enhancing acquisition opportunities continues to be a core focus.”

Mr. McKinney concluded, “We are excited by our pending Founders transaction to acquire additional assets located near our existing operations, where we are deeply familiar with the operating and development characteristics. We look forward to quickly integrating these assets into our operations after closing. As we have previously stated, the Founders Acquisition is immediately accretive, expands our proved reserves, lowers our leverage ratio, accelerates our ability to pay down debt, increases our inventory of low-risk and high rate-of-return drilling locations, improves capital allocation flexibility, and strategically expands our core operating area that allows us to capture further operating and G&A cost synergies. We will continue to pursue additional opportunities to strategically expand our operational footprint.”

Financial Overview: For the second quarter of 2023, the Company reported net income of $28.8 million, or $0.15 per diluted share, which included a $3.1 million before-tax non-cash unrealized commodity derivative gain, $2.3 million in before-tax share-based compensation, and $0.2 million in before-tax transaction related costs for the Delaware Transaction. The Company’s Adjusted Net Income (which excludes the after-tax impact of the adjustments) was $28.0 million, or $0.14 per diluted share. In the first quarter of 2023, the Company reported net income of $32.7 million, or $0.17 per diluted share, which included a $10.1 million before-tax non-cash unrealized commodity derivative gain and $1.9 million for before-tax share-based compensation. The Company’s Adjusted Net Income for the first quarter of 2023 was $25.0 million, or $0.13 per diluted share. For the second quarter of 2022, Ring reported net income of $41.9 million, or $0.32 per diluted share, which included a $12.2 million before-tax non-cash unrealized commodity derivative gain and $1.9 million in before-tax share-based compensation. Adjusted Net Income in the second quarter of 2022 was $31.3 million, or $0.24 per diluted share.

Adjusted EBITDA was $53.5 million for the second quarter of 2023 versus $58.6 million for the first quarter of 2023, and 13% higher than $47.4 million for the second quarter of 2022.

Adjusted Free Cash Flow for the second quarter of 2023 was $12.6 million, which was 20% higher than $10.5 million for the first quarter of 2023. Positively impacting the current period was a $7.3 million decrease in capital spending. Second quarter 2023 Adjusted Free Cash Flow increased 405% over the same period in 2022. Primarily contributing to the increase was $10.2 million in lower capital spending in the second quarter of 2023.

Adjusted Cash Flow from Operations was $44.0 million for the second quarter of 2023 compared to $49.4 million for the first quarter of 2023 and $44.3 million for the second quarter of 2022.

Adjusted Net Income, Adjusted EBITDA, Adjusted Free Cash Flow, and Adjusted Cash Flow from Operations are non-GAAP financial measures, which are described in more detail and reconciled to the most comparable GAAP measures, in the tables shown later in this release under “Non-GAAP Information.”

Sales Volumes, Prices and Revenues: As previously disclosed, beginning July 1, 2022, the Company began reporting revenues on a three-stream basis, separately reporting oil, natural gas, and natural gas liquids (“NGLs”) sales. For periods prior to July 1, 2022, sales and reserve volumes, prices, and revenues for NGLs were included in natural gas.

Sales volumes for the second quarter of 2023 were 17,271 Boe/d (69% oil, 16% natural gas and 15% NGLs), or 1,571,668 Boe, compared to 18,292 Boe/d (69% oil, 16% natural gas and 15% NGLs), or 1,646,306 Boe, for the first quarter of 2023. As noted above, second quarter 2023 sales volumes were below Ring’s original guidance due to the previously announced sale of the Company’s non-core Delaware Basin assets and the deferral of certain drilling and workover projects due to lower commodity prices and the anticipated funding and incremental benefits of the Founders Acquisition. In the second quarter of 2022, sales volumes were 9,341 Boe/d (86% oil and 14% natural gas), or 850,017 Boe. Second quarter 2023 sales volumes were comprised of 1,079,379 barrels (“Bbls”) of oil, 1,557,545 thousand cubic feet (“Mcf”) of natural gas and 232,698 Bbls of NGLs.

For the second quarter of 2023, the Company realized an average sales price of $72.30 per barrel of crude oil, $(0.71) per Mcf of natural gas and $10.35 per barrel of NGLs. The combined average realized sales price for the period was $50.49 per Boe, down 6% versus $53.50 per Boe for the first quarter of 2023, and down 49% from $99.95 per Boe in the second quarter of 2022. The average oil price differential the Company experienced from NYMEX WTI futures pricing in the second quarter of 2023 was a negative $1.77 per barrel of crude oil, while the average natural gas price differential from NYMEX futures pricing was a negative $3.07 per Mcf. The negative realized price of natural gas in the second quarter of 2023 was driven by processing costs that exceeded Henry Hub pricing less basis differentials.

Revenues were $79.3 million for the second quarter of 2023 compared to $88.1 million for the first quarter of 2023 and $85.0 million for the second quarter of 2022. The 10% decrease in second quarter 2023 revenues from the first quarter of 2023 was driven by lower realized pricing and sales volumes.

Lease Operating Expense (“LOE”): LOE, which includes expensed workovers and facilities maintenance, was $15.9 million, or $10.14 per Boe, in the second quarter of 2023 versus $17.5 million, or $10.61 per Boe, in the first quarter of 2023. LOE for the second quarter of 2022 was $8.3 million, or $9.77 per Boe. Contributing to the decrease in absolute LOE from the first quarter was the sale of the Delaware Basin assets and lower variable costs associated with reduced production volumes. LOE for the second quarter of 2023 was below the low end of guidance of $11.00 to $11.40 per BOE.

Gathering, Transportation and Processing (“GTP”) Costs: As previously disclosed, due to a contractual change effective May 1, 2022, the Company no longer maintains ownership and control of natural gas through processing. As a result, GTP costs are now reflected as a reduction to the natural gas sales price and not as an expense item.

Ad Valorem Taxes: Ad valorem taxes were $1.06 per Boe for the second quarter of 2023 compared to $1.01 per Boe in the first quarter of 2023 and $1.12 per Boe for the second quarter of 2022.

Production Taxes: Production taxes were $2.55 per Boe in the second quarter of 2023 compared to $2.68 per Boe in the first quarter of 2023 and $4.89 per Boe in second quarter of 2022. Production taxes ranged between 4.9% to 5.1% of revenue for all three periods.

Depreciation, Depletion and Amortization (“DD&A”) and Asset Retirement Obligation Accretion: DD&A was $13.23 per Boe in the second quarter of 2023 versus $12.92 per Boe for the first quarter of 2023 and $12.65 per Boe in the second quarter of 2022. Asset retirement obligation accretion was $0.23 per Boe in the second quarter of 2023 compared to $0.22 per Boe for the first quarter of 2023 and $0.22 per Boe in the second quarter of 2022.

Operating Lease Expense: Operating lease expense was $115,353 for the second quarter of 2023, $113,138 for the first quarter of 2023, and $83,590 in the second quarter of 2022. These expenses are primarily associated with the Company’s office leases.

General and Administrative Expenses (“G&A”): G&A was $6.8 million ($4.33 per Boe) for the second quarter of 2023 versus $7.1 million ($4.33 per Boe) for the first quarter of 2023 and $5.8 million ($6.86 per Boe) for the second quarter of 2022. G&A, excluding non-cash share-based compensation, was $4.5 million ($2.89 per Boe) for the second quarter of 2023 versus $5.2 million ($3.15 per Boe) for the first quarter of 2023 and $3.9 million ($4.63 per Boe) for the second quarter of 2022. G&A, excluding non-cash share-based compensation and Delaware Transaction costs was $4.3 million ($2.75 per Boe), which represents a 13% and 41% respective decrease from first quarter 2023 and second quarter 2022 on a per Boe basis.

Interest Expense: Interest expense was $10.6 million in the second quarter of 2023 versus $10.4 million for the first quarter of 2023 and $3.3 million for the second quarter of 2022 due to increased borrowings and higher interest rates.

Derivative (Loss) Gain: In the second quarter of 2023, Ring recorded a net gain of $3.3 million on its commodity derivative contracts, including a realized $0.2 million cash commodity derivative gain and an unrealized $3.1 million non-cash commodity derivative gain. This compares to a net gain of $9.5 million in the first quarter of 2023, including a realized $0.6 million cash commodity derivative loss and an unrealized $10.1 million non-cash commodity derivative gain, and a net loss on commodity derivative contracts of $7.4 million in the second quarter of 2022, including a realized $19.6 million cash commodity derivative loss and an unrealized $12.2 million non-cash commodity derivative gain.

A summary listing of the Company’s outstanding derivative positions at June 30, 2023 is included in the tables shown later in this release.

For the remainder (July through December) of 2023, the Company has approximately 1.2 million barrels of oil (approximately 52% of oil sales guidance midpoint) hedged and approximately 1.3 billion cubic feet of natural gas (approximately 39% of natural gas sales guidance midpoint) hedged.

Income Tax: The Company recorded a non-cash income tax benefit of $6.4 million in the second quarter of 2023 versus a non-cash income tax provision of $2.0 million in the first quarter of 2023 and a non-cash income tax provision of $1.5 million for the second quarter of 2022. The non-cash tax benefit in the second quarter of 2023 was primarily due to the partial release of the valuation allowance.

Balance Sheet and Liquidity: Total liquidity (defined as cash and cash equivalents plus borrowing base availability) at the end of the second quarter of 2023 was $204.0 million, a 14% increase from March 31, 2023 and a 150% increase from June 30, 2022. Liquidity at June 30, 2023 consisted of cash and cash equivalents of $1.7 million and $202.2 million of availability under Ring’s revolving credit facility, which included a reduction of $0.8 million for letters of credit. On June 30, 2023, the Company had $397.0 million in borrowings outstanding on its Credit Facility that has a current borrowing base of $600.0 million. Upon completion of the Founders Acquisition, the Company is targeting further future debt reduction dependent on market conditions, the timing and level of capital spending, and other considerations.

Capital Expenditures: During the second quarter of 2023, accrued capital expenditures were $31.6 million, which was below the low end of guidance of $34 million to $38 million. In the NWS, the Company drilled and completed two 1.5-mile Hz wells (one with a working interest (“WI”) of 100% and the other with a WI of 75.4%) and two 1-mile wells (both with a WI of 91.1%). In the CBP, Ring drilled and completed two vertical wells (both with a WI of 100%) and performed three vertical well recompletions (each with a WI of 100%). Also included in capital spending were costs for capital workovers, infrastructure upgrades, and leasing costs.

Quarter		Area		Wells Drilled		Wells Completed		Re- completions
1Q 2023		Northwest Shelf		4		4		—
		Central Basin Platform (Vertical)		3		3		6
		Total		7		7		6
2Q 2023		Northwest Shelf		4		4		—
		Central Basin Platform (Vertical)		2		2		3
		Total		6		6		3

2023 Capital Investment, Sales Volumes, and Operating Expense Guidance

For the second half of 2023, Ring reiterates the pro forma third and fourth quarter of 2023 guidance provided on July 11, 2023 that reflects the Delaware Transaction completed in the second quarter and the positive impact from its pending Founders Acquisition.

The Company is targeting total pro forma capital expenditures in the second half of 2023 of $67 million to $77 million that includes a balanced and capital efficient combination of drilling Hz and vertical wells, as well as performing recompletions. Additionally, the capital spending program includes funds for targeted capital workovers, infrastructure upgrades, leasing costs, and non-operated drilling, completion, and capital workovers.

All projects and estimates are based on assumed WTI oil prices of $65 to $85 per barrel. As in the past, Ring has designed its spending program with flexibility to respond to changes in commodity prices and other market conditions as appropriate.

Based on the $72 million mid-point of spending guidance, the Company expects the following estimated allocation of capital investments, including:

• 73% for drilling, completion, and related infrastructure;
• 19% for recompletions and capital workovers; and
• 8% for land, environmental and safety, and non-operated capital.

The Company remains squarely focused on continuing to generate Adjusted Free Cash Flow in 2023. All 2023 planned capital expenditures will be fully funded by cash on hand and cash from operations, and excess Adjusted Free Cash Flow is currently targeted for further debt reduction upon completion of the Founders Acquisition.

The pro forma guidance in the table below represents the Company’s current good faith estimate of the range of likely future results assuming a closing date for the Founders Acquisition of August 15, 2023, and also reflect the Delaware Transaction. Guidance could be affected by the factors discussed below in the “Safe Harbor Statement” section.

		PRO FORMA
		Q3		Q4
		2023		2023
Sales Volumes:
Total (Boe/d)		18,100 – 18,600		18,900 – 19,500
Mid Point (Boe/d)		18,350		19,200
Oil (%)		68%		69%
NGLs (%)		15%		15%
Gas (%)		17%		16%
Capital Program:
Capital spending(1)(millions)		$37 – $42		$30 – $35
Hz wells drilled		5 – 7		3 – 4
Vertical wells drilled		1 – 2		3 – 4
Wells completed and online		5 – 6		7 – 8
Operating Expenses:
LOE (per Boe)		$10.50 – $11.00		$10.50 – $11.00
(1) In addition to Company-directed drilling and completion activities, the capital spending outlook includes funds for targeted well recompletions, capital workovers, and infrastructure upgrades. Also included is anticipated spending for leasing costs, and non-operated drilling, completion, and capital workovers.

Conference Call Information

Ring will hold a conference call on Friday, August 4, 2023 at 11:00 a.m. ET to discuss its second quarter 2023 operational and financial results. An updated investor presentation will be posted to the Company’s website prior to the conference call.

To participate in the conference call, interested parties should dial 833-953-2433 at least five minutes before the call is to begin. Please reference the “Ring Energy Second Quarter 2023 Earnings Conference Call”. International callers may participate by dialing 412-317-5762. The call will also be webcast and available on Ring’s website at www.ringenergy.com under “Investors” on the “News & Events” page. An audio replay will also be available on the Company’s website following the call.

About Ring Energy, Inc.

Ring Energy, Inc. is an oil and gas exploration, development, and production company with current operations focused on the development of its Permian Basin assets. For additional information, please visit www.ringenergy.com.

Safe Harbor Statement

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve a wide variety of risks and uncertainties, and include, without limitation, statements with respect to the Company’s strategy and prospects. The forward-looking statements include statements about the expected benefits of the Founders Acquisition to Ring and its stockholders, the anticipated completion of the Founders Acquisition or the timing thereof, the expected future reserves, production, financial position, business strategy, revenues, earnings, costs, capital expenditures and debt levels of the Company, and plans and objectives of management for future operations. Forward-looking statements are based on current expectations and assumptions and analyses made by Ring and its management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform to expectations is subject to a number of material risks and uncertainties, including but not limited to: the ability to complete the Founders Acquisition on anticipated terms and timetable; Ring’s ability to integrate its combined operations successfully after the Founders Acquisition and achieve anticipated benefits from it; the possibility that various closing conditions for the Transaction may not be satisfied or waived; risks relating to any unforeseen liabilities of Ring or Founders; declines in oil, natural gas liquids or natural gas prices; the level of success in exploration, development and production activities; adverse weather conditions that may negatively impact development or production activities; the timing of exploration and development expenditures; inaccuracies of reserve estimates or assumptions underlying them; revisions to reserve estimates as a result of changes in commodity prices; impacts to financial statements as a result of impairment write-downs; risks related to level of indebtedness and periodic redeterminations of the borrowing base and interest rates under the Credit Facility; Ring’s ability to generate sufficient cash flows from operations to meet the internally funded portion of its capital expenditures budget; the impacts of hedging on results of operations; and Ring’s ability to replace oil and natural gas reserves. Such statements are subject to certain risks and uncertainties which are disclosed in the Company’s reports filed with the SEC, including its Form 10-K for the fiscal year ended December 31, 2022, and its other filings. Ring undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.

Contact Information

Al Petrie Advisors
Al Petrie, Senior Partner
Phone: 281-975-2146
Email: [email protected]

RING ENERGY, INC. Condensed Statements of Operations
		(Unaudited)												(Unaudited)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
Oil, Natural Gas, and Natural Gas Liquids Revenues		$	79,348,573			$	88,082,912			$	84,961,875			$	167,431,485			$	153,142,907
Costs and Operating Expenses
Lease operating expenses			15,938,106				17,472,691				8,301,443				33,410,797				17,254,608
Gathering, transportation and processing costs			(1,632	)			(823	)			549,389				(2,455	)			1,846,247
Ad valorem taxes			1,670,343				1,670,613				949,239				3,340,956				1,901,193
Oil and natural gas production taxes			4,012,139				4,408,140				4,157,457				8,420,279				7,375,819
Depreciation, depletion and amortization			20,792,932				21,271,671				10,749,204				42,064,603				20,530,491
Asset retirement obligation accretion			353,878				365,847				186,303				719,725				374,545
Operating lease expense			115,353				113,138				83,590				228,491				167,180
General and administrative expense			6,810,243				7,130,139				5,832,302				13,940,382				11,354,579
Total Costs and Operating Expenses			49,691,362				52,431,416				30,808,927				102,122,778				60,804,662
Income from Operations			29,657,211				35,651,496				54,152,948				65,308,707				92,338,245
Other Income (Expense)
Interest income			79,745				—				—				79,745				—
Interest (expense)			(10,550,807	)			(10,390,279	)			(3,279,299	)			(20,941,086	)			(6,677,660	)
Gain (loss) on derivative contracts			3,264,660				9,474,905				(7,457,018	)			12,739,565				(35,053,159	)
Gain (loss) on disposal of assets			(132,109	)			—				—				(132,109	)			—
Other income			116,610				9,600				—				126,210				—
Net Other Income (Expense)			(7,221,901	)			(905,774	)			(10,736,317	)			(8,127,675	)			(41,730,819	)
Income Before Benefit from (Provision for) Income Taxes			22,435,310				34,745,722				43,416,631				57,181,032				50,607,426
Benefit from (Provision for) Income Taxes			6,356,295				(2,029,943	)			(1,472,209	)			4,326,352				(1,550,961	)
Net Income		$	28,791,605			$	32,715,779			$	41,944,422			$	61,507,384			$	49,056,465
Basic Earnings per share		$	0.15			$	0.18			$	0.39			$	0.33			$	0.47
Diluted Earnings per share		$	0.15			$	0.17			$	0.32			$	0.32			$	0.39
Basic Weighted-Average Shares Outstanding			193,077,859				177,984,323				106,390,776				185,545,775				103,291,669
Diluted Weighted-Average Shares Outstanding			195,866,533				190,138,969				130,597,589				193,023,966				126,251,705

RING ENERGY, INC. Condensed Operating Data (Unaudited)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
Net sales volumes:
Oil (Bbls)			1,079,379				1,139,413				729,484				2,218,792				1,405,699
Natural gas (Mcf)			1,557,545				1,601,407				723,196				3,158,952				1,455,479
Natural gas liquids (Bbls)(1)			232,698				239,992				—				472,690				—
Total oil, natural gas and natural gas liquids (Boe)(1)(2)			1,571,668				1,646,306				850,017				3,217,974				1,648,279
% Oil			69	%			69	%			86	%			69	%			85	%
Average daily equivalent sales (Boe/d)			17,271				18,292				9,341				17,779				9,107
Average realized sales prices:
Oil ($/Bbl)		$	72.30			$	73.36			$	109.24			$	72.85			$	101.81
Natural gas ($/Mcf)			(0.71	)			0.66				7.29				(0.01	)			6.89
Natural gas liquids ($/Bbls)(1)			10.35				14.30				—				12.35				—
Barrel of oil equivalent ($/Boe)		$	50.49			$	53.50			$	99.95			$	52.03			$	92.91
Average costs and expenses per Boe ($/Boe):
Lease operating expenses		$	10.14			$	10.61			$	9.77			$	10.38			$	10.47
Gathering, transportation and processing costs			—				—				0.65				—				1.12
Ad valorem taxes			1.06				1.01				1.12				1.04				1.15
Oil and natural gas production taxes			2.55				2.68				4.89				2.62				4.47
Depreciation, depletion and amortization			13.23				12.92				12.65				13.07				12.46
Asset retirement obligation accretion			0.23				0.22				0.22				0.22				0.23
Operating lease expense			0.07				0.07				0.10				0.07				0.10
General and administrative expense (including share-based compensation)			4.33				4.33				6.86				4.33				6.89
G&A (excluding share-based compensation)			2.89				3.15				4.63				3.03				4.81
G&A (excluding share-based compensation and transaction costs)			2.75				3.15				4.63				2.96				4.81
(1) Beginning July 1, 2022, revenues were reported on a three-stream basis, separately reporting crude oil, natural gas, and natural gas liquids volumes and sales. For periods prior to July 1, 2022, volumes and sales for natural gas liquids were presented with natural gas. (2) Boe is determined using the ratio of six Mcf of natural gas to one Bbl of oil (totals may not compute due to rounding.) The conversion ratio does not assume price equivalency and the price on an equivalent basis for oil, natural gas, and natural gas liquids may differ significantly.

RING ENERGY, INC. Condensed Balance Sheets
		(Unaudited)
		June 30, 2023				December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents		$	1,749,975			$	3,712,526
Accounts receivable			32,044,159				42,448,719
Joint interest billing receivables, net			2,617,815				983,802
Derivative assets			8,307,537				4,669,162
Inventory			7,327,295				9,250,717
Prepaid expenses and other assets			3,061,216				2,101,538
Total Current Assets			55,107,997				63,166,464
Properties and Equipment
Oil and natural gas properties, full cost method			1,524,510,887				1,463,838,595
Financing lease asset subject to depreciation			3,144,038				3,019,476
Fixed assets subject to depreciation			2,762,370				3,147,125
Total Properties and Equipment			1,530,417,295				1,470,005,196
Accumulated depreciation, depletion and amortization			(331,153,213	)			(289,935,259	)
Net Properties and Equipment			1,199,264,082				1,180,069,937
Operating lease asset			1,628,832				1,735,013
Derivative assets			10,555,937				6,129,410
Deferred financing costs			15,458,204				17,898,973
Total Assets		$	1,282,015,052			$	1,268,999,797
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	90,021,106			$	111,398,268
Income tax liability			98,481				—
Financing lease liability			761,110				709,653
Operating lease liability			394,404				398,362
Derivative liabilities			7,848,580				13,345,619
Notes payable			1,412,674				499,880
Deferred cash payment			—				14,807,276
Asset retirement obligations			408,958				635,843
Total Current Liabilities			100,945,313				141,794,901
Non-current Liabilities
Deferred income taxes			4,074,183				8,499,016
Revolving line of credit			397,000,000				415,000,000
Financing lease liability, less current portion			765,753				1,052,479
Operating lease liability, less current portion			1,263,936				1,473,897
Derivative liabilities			10,829,096				10,485,650
Asset retirement obligations			28,296,455				29,590,463
Total Liabilities			543,174,736				607,896,406
Commitments and contingencies
Stockholders’ Equity
Preferred stock – $0.001 par value; 50,000,000 shares authorized; no shares issued or outstanding			—				—
Common stock – $0.001 par value; 450,000,000 shares authorized; 195,350,672 shares and 175,530,212 shares issued and outstanding, respectively			195,350				175,530
Additional paid-in capital			791,450,835				775,241,114
Accumulated deficit			(52,805,869	)			(114,313,253	)
Total Stockholders’ Equity			738,840,316				661,103,391
Total Liabilities and Stockholders’ Equity		$	1,282,015,052			$	1,268,999,797

RING ENERGY, INC. Condensed Statements of Cash Flows (Unaudited)
		(Unaudited)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
Cash Flows From Operating Activities
Net income		$	28,791,605			$	32,715,779			$	41,944,422			$	61,507,384			$	49,056,465
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization			20,792,932				21,271,671				10,749,203				42,064,603				20,530,490
Asset retirement obligation accretion			353,878				365,847				186,303				719,725				374,545
Amortization of deferred financing costs			1,220,385				1,220,384				189,274				2,440,769				388,548
Share-based compensation			2,260,312				1,943,696				1,899,245				4,204,008				3,421,155
Bad debt expense			19,315				2,894				—				22,209				—
Deferred income tax expense (benefit)			(6,548,363	)			1,972,653				1,485,022				(4,575,710	)			1,550,961
Excess tax expense (benefit) related to share-based compensation			150,877				—				—				150,877				—
(Gain) loss on derivative contracts			(3,264,660	)			(9,474,905	)			7,457,018				(12,739,565	)			35,053,159
Cash received (paid) for derivative settlements, net			179,595				(658,525	)			(19,617,265	)			(478,930	)			(33,732,766	)
Changes in operating assets and liabilities:
Accounts receivable			5,320,051				3,428,287				(4,315,730	)			8,748,338				(14,393,828	)
Inventory			1,480,824				442,598				—				1,923,422				—
Prepaid expenses and other assets			(1,489,612	)			529,934				(2,470,602	)			(959,678	)			(2,267,717	)
Accounts payable			(5,471,391	)			(9,589,898	)			4,328,968				(15,061,289	)			6,847,979
Settlement of asset retirement obligation			(429,567	)			(490,319	)			(1,113,208	)			(919,886	)			(1,666,576	)
Net Cash Provided by Operating Activities			43,366,181				43,680,096				40,722,650				87,046,277				65,162,415
Cash Flows From Investing Activities
Payments for the Stronghold Acquisition			—				(18,511,170	)			—				(18,511,170	)			—
Payments to purchase oil and natural gas properties			(819,644	)			(59,099	)			(383,003	)			(878,743	)			(743,851	)
Payments to develop oil and natural gas properties			(35,611,915	)			(36,939,307	)			(35,793,923	)			(72,551,222	)			(49,654,172	)
Payments to acquire or improve fixed assets subject to depreciation			(11,324	)			(14,570	)			(81,646	)			(25,894	)			(91,760	)
Sale of fixed assets subject to depreciation			332,230				—				126,100				332,230				134,600
Proceeds from divestiture of equipment for oil and natural gas properties			—				54,558				25,066				54,558				25,066
Receipt from sale of Delaware properties			7,992,917				—				—				7,992,917				—
Net Cash (Used in) Investing Activities			(28,117,736	)			(55,469,588	)			(36,107,406	)			(83,587,324	)			(50,330,117	)
Cash Flows From Financing Activities
Proceeds from revolving line of credit			28,500,000				56,000,000				40,500,000				84,500,000				50,500,000
Payments on revolving line of credit			(53,500,000	)			(49,000,000	)			(50,500,000	)			(102,500,000	)			(70,500,000	)
Proceeds from issuance of common stock from warrant exercises			8,687,655				3,613,941				5,163,126				12,301,596				5,163,126
Payments for taxes withheld on vested restricted shares, net			(141,682	)			(134,381	)			(257,694	)			(276,063	)			(257,694	)
Proceeds from notes payable			1,565,071				—				928,626				1,565,071				928,626
Payments on notes payable			(152,397	)			(499,880	)			(253,360	)			(652,277	)			(620,741	)
Payment of deferred financing costs			—				—				—				—				—
Reduction of financing lease liabilities			(182,817	)			(177,014	)			(111,864	)			(359,831	)			(230,642	)
Net Cash Provided by (Used in) Financing Activities			(15,224,170	)			9,802,666				(4,531,166	)			(5,421,504	)			(15,017,325	)
Net Increase (Decrease) in Cash			24,275				(1,986,826	)			84,078				(1,962,551	)			(185,027	)
Cash at Beginning of Period			1,725,700				3,712,526				2,139,211				3,712,526				2,408,316
Cash at End of Period		$	1,749,975			$	1,725,700			$	2,223,289			$	1,749,975			$	2,223,289

RING ENERGY, INC. Financial Commodity Derivative Positions As of June 30, 2023
The following tables reflect the details of current derivative contracts as of June 30, 2023 (Quantities are in barrels (Bbl) for the oil derivative contracts and in million British thermal units (MMBtu) for the natural gas derivative contracts.):
		Oil Hedges (WTI)
		Q3 2023			Q4 2023			Q1 2024			Q2 2024			Q3 2024			Q4 2024			Q1 2025			Q2 2025			Q3 2025			Q4 2025
Swaps:
Hedged volume (Bbl)			181,700			138,000			170,625			156,975			282,900			368,000			—			—			—			—
Weighted average swap price		$	74.19		$	74.52		$	67.40		$	66.40		$	65.49		$	68.43		$	—		$	—		$	—		$	—
Deferred premium puts:
Hedged volume (Bbl)			230,000			165,600			45,500			45,500			—			—			—			—			—			—
Weighted average strike price		$	80.47		$	83.78		$	84.70		$	82.80		$	—		$	—		$	—		$	—		$	—		$	—
Weighted average deferred premium price		$	10.60		$	14.61		$	17.15		$	17.49		$	—		$	—		$	—		$	—		$	—		$	—
Two-way collars:
Hedged volume (Bbl)			211,163			274,285			339,603			325,847			230,000			128,800			474,750			464,100			—			—
Weighted average put price		$	55.56		$	56.73		$	64.20		$	64.30		$	64.00		$	60.00		$	57.06		$	60.00		$	—		$	—
Weighted average call price		$	69.25		$	70.77		$	79.73		$	79.09		$	76.50		$	73.24		$	75.82		$	69.85		$	—		$	—
Three-way collars:
Hedged volume (Bbl)			16,242			15,598			—			—			—			—			—			—			—			—
Weighted average first put price		$	45.00		$	45.00		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Weighted average second put price		$	55.00		$	55.00		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Weighted average call price		$	80.05		$	80.05		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

		Gas Hedges (Henry Hub)
		Q3 2023			Q4 2023			Q1 2024			Q2 2024			Q3 2024			Q4 2024			Q1 2025			Q2 2025			Q3 2025			Q4 2025
NYMEX Swaps:
Hedged volume (MMBtu)			144,781			203,706			152,113			138,053			121,587			644,946			616,199			591,725			—			—
Weighted average swap price		$	3.36		$	3.35		$	3.62		$	3.61		$	3.59		$	4.45		$	3.78		$	3.43		$	—		$	—
Two-way collars:
Hedged volume (MMBtu)			404,421			579,998			591,500			568,750			552,000			—			—			—			—			—
Weighted average put price		$	3.17		$	3.15		$	4.00		$	4.00		$	4.00		$	—		$	—		$	—		$	—		$	—
Call hedged volume (MMBtu)			404,421			579,998			591,500			568,750			552,000			—			—			—			—			—
Weighted average call price		$	4.55		$	4.50		$	6.29		$	6.29		$	6.29		$	—		$	—		$	—		$	—		$	—

		Oil Hedges (basis differential)
		Q3 2023			Q4 2023			Q1 2024			Q2 2024			Q3 2024			Q4 2024			Q1 2025			Q2 2025			Q3 2025			Q4 2025
Argus basis swaps:
Hedged volume (MMBtu)			305,000			460,000			364,000			364,000			368,000			368,000			270,000			273,000			276,000			276,000
Weighted average spread price(1)		$	1.10		$	1.10		$	1.15		$	1.15		$	1.15		$	1.15		$	1.00		$	1.00		$	1.00		$	1.00

		Gas Hedges (basis differential)
		Q3 2023			Q4 2023			Q1 2024			Q2 2024			Q3 2024			Q4 2024			Q1 2025			Q2 2025			Q3 2025			Q4 2025
Waha basis swaps:
Hedged volume (MMBtu)			332,855			324,021			—			—			—			—			—			—			—			—
Weighted average spread price(1)		$	0.55		$	0.55		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
El Paso Permian Basin basis swaps:
Hedged volume (MMBtu)			329,529			459,683			—			—			—			—			—			—			—			—
Weighted average spread price(1)		$	0.63		$	0.63		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
(1) The oil basis swap hedges are calculated as the fixed price (weighted average spread price above) less the difference between WTI Midland and WTI Cushing, in the issue of Argus Americas Crude. The gas basis swap hedges are calculated as the Henry Hub natural gas price less the fixed amount specified as the weighted average spread price above.

RING ENERGY, INC.

Non-GAAP Information

Certain financial information included in this release are not measures of financial performance recognized by accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures are “Adjusted Net Income”, “Adjusted EBITDA”, “Adjusted Free Cash Flow” or “AFCF,” “Adjusted Cash Flow from Operations” or “ACFFO,” “G&A Excluding Share-Based Compensation” “G&A Excluding Share-Based Compensation and Transaction Costs,” and “Leverage Ratio.” Management uses these non-GAAP financial measures in its analysis of performance. In addition, Adjusted EBITDA is a key metric used to determine the Company’s incentive compensation awards. These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures which may be reported by other companies.

Reconciliation of Net Income to Adjusted Net Income

“Adjusted Net Income” is calculated as Net Income minus the estimated after-tax impact of share-based compensation, ceiling test impairment, unrealized gains and losses on changes in the fair value of derivatives, and related transaction costs. Adjusted Net Income is presented because the timing and amount of these items cannot be reasonably estimated and affect the comparability of operating results from period to period, and current period to prior periods. The Company believes that the presentation of Adjusted Net Income provides useful information to investors as it is one of the metrics management uses to assess the Company’s ongoing operating and financial performance, and also is a useful metric for investors to compare our results with our peers.

		(Unaudited for All Periods)
		Three Months Ended																								Six Months Ended
		June 30,								March 31,								June 30,								June 30,								June 30,
			2023								2023								2022								2023							2022
		Total				Per share – diluted				Total				Per share – diluted				Total				Per share – diluted				Total				Per share – diluted				Total				Per share – diluted
Net Income		$	28,791,605			$	0.15			$	32,715,779			$	0.17			$	41,944,422			$	0.32			$	61,507,384			$	0.32			$	49,056,465			$	0.39
Share-based compensation			2,260,312				0.01				1,943,696				0.01				1,899,245				0.01				4,204,008				0.02				3,421,155				0.03
Unrealized loss (gain) on change in fair value of derivatives			(3,085,065	)			(0.02	)			(10,133,430	)			(0.05	)			(12,160,246	)			(0.09	)			(13,218,495	)			(0.07	)			1,320,393				0.01
Transaction costs – executed A&D			220,191				—				—				—				—				—				220,191				—				—				—
Tax impact on adjusted items			(171,282	)			—				478,467				—				(347,939	)			—				307,185				—				145,314				—
Adjusted Net Income		$	28,015,761			$	0.14			$	25,004,512			$	0.13			$	31,335,482			$	0.24			$	53,020,273			$	0.27			$	53,943,327			$	0.43
Diluted Weighted-Average Shares Outstanding			195,866,533								190,138,969								130,597,589								193,023,966								126,251,705
Adjusted Net Income per Diluted Share		$	0.14							$	0.13							$	0.24							$	0.27							$	0.43

Reconciliation of Net Income to Adjusted EBITDA

The Company defines “Adjusted EBITDA” as net income (loss) plus net interest expense, unrealized loss (gain) on change in fair value of derivatives, ceiling test impairment, income tax (benefit) expense, depreciation, depletion and amortization, asset retirement obligation accretion, transaction costs for executed acquisitions and divestitures (A&D), share-based compensation, loss (gain) on disposal of assets, and backing out the effect of other income. Company management believes Adjusted EBITDA is relevant and useful because it helps investors understand Ring’s operating performance and makes it easier to compare its results with those of other companies that have different financing, capital and tax structures. Adjusted EBITDA should not be considered in isolation from or as a substitute for net income, as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. Adjusted EBITDA, as Ring calculates it, may not be comparable to Adjusted EBITDA measures reported by other companies. In addition, Adjusted EBITDA does not represent funds available for discretionary use.

		(Unaudited for All Periods)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
Net Income		$	28,791,605			$	32,715,779			$	41,944,422			$	61,507,384			$	49,056,465
Interest expense, net			10,471,062				10,390,279				3,279,299				20,861,341				6,677,660
Unrealized loss (gain) on change in fair value of derivatives			(3,085,065	)			(10,133,430	)			(12,160,246	)			(13,218,495	)			1,320,393
Income tax (benefit) expense			(6,356,295	)			2,029,943				1,472,209				(4,326,352	)			1,550,961
Depreciation, depletion and amortization			20,792,932				21,271,671				10,749,204				42,064,603				20,530,491
Asset retirement obligation accretion			353,878				365,847				186,303				719,725				374,545
Transaction costs – executed A&D			220,191				—				—				220,191				—
Share-based compensation			2,260,312				1,943,696				1,899,245				4,204,008				3,421,155
Loss (gain) on disposal of assets			132,109				—				—				132,109				—
Other income			(116,610	)			(9,600	)			—				(126,210	)			—
Adjusted EBITDA		$	53,464,119			$	58,574,185			$	47,370,436			$	112,038,304			$	82,931,670
Adjusted EBITDA Margin			67	%			66	%			56	%			67	%			54	%

Reconciliations of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow and Adjusted EBITDA to Adjusted Free Cash Flow

The Company defines “Adjusted Free Cash Flow” or “AFCF” as Net Cash Provided by Operating Activities less changes in operating assets and liabilities (as reflected on our statements of cash flows); plus transaction costs for executed acquisitions and divestitures; current tax expense (benefit); proceeds from divestitures of equipment for oil and natural gas properties; loss (gain) on disposal of assets; and less capital expenditures; bad debt expense; and other income. For this purpose, our definition of capital expenditures includes costs incurred related to oil and natural gas properties (such as drilling and infrastructure costs and the lease maintenance costs) but excludes acquisition costs of oil and gas properties from third parties that are not included in our capital expenditures guidance provided to investors. Our management believes that Adjusted Free Cash Flow is an important financial performance measure for use in evaluating the performance and efficiency of our current operating activities after the impact of accrued capital expenditures and net interest expense and without being impacted by items such as changes associated with working capital, which can vary substantially from one period to another. Other companies may use different definitions of Adjusted Free Cash Flow.

		(Unaudited for All Periods)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
Net Cash Provided by Operating Activities		$	43,366,181			$	43,680,096			$	40,722,650			$	87,046,277			$	65,162,415
Adjustments – Condensed Statements of Cash Flows
Changes in operating assets and liabilities			589,695				5,679,398				3,570,574				6,269,093				11,480,143
Transaction Costs – executed A&D			220,191				—				—				220,191				—
Income tax expense (benefit) – current			41,191				57,290				(12,813	)			98,481				—
Capital expenditures			(31,608,483	)			(38,925,497	)			(41,810,442	)			(70,533,980	)			(61,554,135	)
Proceeds from divestiture of equipment for oil and natural gas properties			—				54,558				25,066				54,558				25,066
Bad debt expense			(19,315	)			(2,894	)			—				(22,209	)			—
Loss (gain) on disposal of assets			132,109				—				—				132,109				—
Other income			(116,610	)			(9,600	)			—				(126,210	)			—
Adjusted Free Cash Flow		$	12,604,959			$	10,533,351			$	2,495,035			$	23,138,310			$	15,113,489

		(Unaudited for All Periods)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
Adjusted EBITDA		$	53,464,119			$	58,574,185			$	47,370,436			$	112,038,304			$	82,931,670
Net interest expense (excluding amortization of deferred financing costs)			(9,250,677	)			(9,169,895	)			(3,090,025	)			(18,420,572	)			(6,289,112	)
Capital expenditures			(31,608,483	)			(38,925,497	)			(41,810,442	)			(70,533,980	)			(61,554,135	)
Proceeds from divestiture of equipment for oil and natural gas properties			—				54,558				25,066				54,558				25,066
Adjusted Free Cash Flow		$	12,604,959			$	10,533,351			$	2,495,035			$	23,138,310			$	15,113,489

Reconciliation of Net Cash Provided by Operating Activities to Adjusted Cash Flow from Operations

The Company defines “Adjusted Cash Flow from Operations” or “ACFFO” as Net Cash Provided by Operating Activities, per the Condensed Statements of Cash Flows, less the changes in operating assets and liabilities, including accounts receivable, inventory, prepaid expenses and other assets, accounts payable, and settlement of asset retirement obligation, which are subject to variation due to the nature of the Company’s operations. Accordingly, the Company believes this non-GAAP measure is useful to investors because it is used often in its industry and allows investors to compare this metric to other companies in its peer group as well as the E&P sector.

		(Unaudited for All Periods)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
Net Cash Provided by Operating Activities		$	43,366,181			$	43,680,096			$	40,722,650			$	87,046,277			$	65,162,415
Changes in operating assets and liabilities			589,695				5,679,398				3,570,572				6,269,093				11,480,143
Adjusted Cash Flow from Operations		$	43,955,876			$	49,359,494			$	44,293,222			$	93,315,370			$	76,642,558

Reconciliation of General and Administrative Expense (G&A) to G&A Excluding Share-Based Compensation and Transaction Costs

		(Unaudited for All Periods)
		Three Months Ended												Six Months Ended
		June 30,				March 31,				June 30,				June 30,				June 30,
			2023				2023				2022				2023				2022
General and administrative expense (G&A)		$	6,810,243			$	7,130,139			$	5,832,302			$	13,940,382			$	11,354,579
Shared-based compensation			2,260,312				1,943,696				1,899,245				4,204,008				3,421,155
G&A excluding share-based compensation			4,549,931				5,186,443				3,933,057				9,736,374				7,933,424
Transaction costs – executed A&D			220,191				—				—				220,191				—
G&A excluding share-based compensation and transaction costs		$	4,329,740			$	5,186,443			$	3,933,057			$	9,516,183			$	7,933,424

Calculation of Leverage Ratio

“Leverage” or the “Leverage Ratio” is calculated under our existing senior revolving credit facility and means as of any date, the ratio of (i) our consolidated total debt as of such date to (ii) our Consolidated EBITDAX for the four consecutive fiscal quarters ending on or immediately prior to such date for which financial statements are required to have been delivered under our existing senior revolving credit facility; provided that for the purposes of the definition of ‘Leverage Ratio’, (a) for the fiscal quarter ended September 30, 2022, Consolidated EBITDAX is calculated by multiplying Consolidated EBITDAX for such fiscal quarter by four, (b) for the fiscal quarter ended December 31, 2022, Consolidated EBITDAX is calculated by multiplying Consolidated EBITDAX for the two fiscal quarter period ended on December 31, 2022 by two, (c) for the fiscal quarter ended March 31, 2023, Consolidated EBITDAX is calculated by multiplying Consolidated EBITDAX for the three fiscal quarter period ended on March 31, 2023 by four-thirds, and (d) for each fiscal quarter thereafter, Consolidated EBITDAX will be calculated by adding Consolidated EBITDAX for the four consecutive fiscal quarters ending on such date.

The Company defines “Consolidated EBITDAX” in accordance with our existing senior revolving credit facility and it means for any period an amount equal to the sum of (i) consolidated net income for such period plus (ii) to the extent deducted in determining consolidated net income for such period, and without duplication, (A) consolidated interest expense, (B) income tax expense determined on a consolidated basis in accordance with GAAP, (C) depreciation, depletion and amortization determined on a consolidated basis in accordance with GAAP, (D) exploration expenses determined on a consolidated basis in accordance with GAAP, and (E) all other non-cash charges acceptable to our senior revolving credit facility administrative agent determined on a consolidated basis in accordance with GAAP, in each case for such period minus (iii) all noncash income added to consolidated net income for such period; provided that, for purposes of calculating compliance with the financial covenants set forth in our senior revolving credit facility, to the extent that during such period we shall have consummated an acquisition permitted by the senior revolving credit facility or any sale, transfer or other disposition of any person, business, property or assets permitted by the senior revolving credit facility, Consolidated EBITDAX will be calculated on a pro forma basis with respect to such person, business, property or assets so acquired or disposed of.

Also set forth in our existing senior revolving credit facility is the maximum permitted Leverage Ratio of 3.00. The following table shows the leverage ratio calculation for the Company’s most recent fiscal quarter.

		(Unaudited)
		Three Months Ended
		September 30,				December 31,				March 31,				June 30,				Last Four Quarters
			2022				2022				2023				2023
Consolidated EBITDAX Calculation:
Net Income (Loss)		$	75,085,891			$	14,492,669			$	32,715,779			$	28,791,605			$	151,085,944
Plus: Interest expense			7,021,381				9,468,688				10,390,279				10,550,807				37,431,155
Plus: Income tax provision (benefit)			4,315,783				2,541,980				2,029,943				(6,356,295	)			2,531,411
Plus: Depreciation, depletion and amortization			14,324,502				20,885,774				21,271,671				20,792,932				77,274,879
Plus: non-cash charges acceptable to Administrative Agent			(45,926,132	)			7,962,406				(7,823,887	)			(470,875	)			(46,258,488	)
Consolidated EBITDAX		$	54,821,425			$	55,351,517			$	58,583,785			$	53,308,174			$	222,064,901
Plus: Pro Forma Acquired Consolidated EBITDAX		$	22,486,182			$	—			$	—			$	—			$	22,486,182
Less: Pro Forma Divested Consolidated EBITDAX			(355,824	)			(507,709	)			(683,723	)			(201,859	)		$	(1,749,115	)
Pro Forma Consolidated EBITDAX		$	76,951,783			$	54,843,808			$	57,900,062			$	53,106,315			$	242,801,968
Non-cash charges acceptable to Administrative Agent
Asset retirement obligation accretion		$	243,140			$	365,747			$	365,847			$	353,878
Unrealized loss (gain) on derivative assets			(47,712,305	)			5,398,615				(10,133,430	)			(3,085,065	)
Share-based compensation			1,543,033				2,198,044				1,943,696				2,260,312
Total non-cash charges acceptable to Administrative Agent		$	(45,926,132	)		$	7,962,406			$	(7,823,887	)		$	(470,875	)
		As of
		June 30,
			2023
Leverage Ratio Covenant:
Total Debt		$	397,000,000
Pro Forma Consolidated EBITDAX		$	242,801,968
Leverage Ratio			1.64
Maximum Allowed		≤ 3.00x

Achieved Net Sales of $326.6 Million

Delivered Net Income per Diluted Share of $0.16

Generated Adjusted Net Income per Diluted Share of $0.18

ATLANTA, Aug. 03, 2023 (GLOBE NEWSWIRE) — Mueller Water Products, Inc. (NYSE: MWA) announced financial results for its fiscal 2023 third quarter ended June 30, 2023.

In the third quarter of 2023, the Company:

• Achieved net sales of $326.6 million as compared with $333.2 million in the prior year quarter
• Reported operating income of $35.6 million as compared with $36.9 million in the prior year quarter and adjusted operating income of $39.5 million as compared with $42.0 million in the prior year quarter, resulting in an adjusted operating margin of 12.1 percent as compared with 12.6 percent in the prior year quarter
• Reported net income of $24.5 million as compared with $26.5 million in the prior year quarter and adjusted net income of $27.6 million as compared with $30.5 million in the prior year quarter
• Reported net income per diluted share of $0.16 and adjusted net income per diluted share of $0.18 as compared with reported net income per diluted share of $0.17 and adjusted net income per diluted share of $0.19 in the prior year quarter
• Generated adjusted EBITDA of $54.4 million as compared with $57.8 million in the prior year quarter, resulting in an adjusted EBITDA margin of 16.7 percent as compared with 17.3 percent in the prior year quarter
• Increased net cash provided by operating activities for the nine-month period by $32.0 million to $52.5 million as compared with $20.5 million in the prior year and increased free cash flow by $36.3 million to $20.1 million as compared with $(16.2) million in the prior year

“While the fundamental growth drivers of our business remain intact, our third quarter net sales were below expectations as we are experiencing a more prolonged inventory correction than previously anticipated. With lead times returning to pre-pandemic levels and end markets continuing to adjust to higher interest rates, we are seeing lower order rates for the majority of our short-cycle products. We are revising our annual guidance for 2023 based on current expectations for channel inventories, order levels and brass production levels. We have taken actions to deliver approximately $25 million in annual SG&A savings to help mitigate the headwinds from lower volumes and inflationary pressures,” said Scott Hall, President and Chief Executive Officer of Mueller Water Products.

“Despite an increasingly challenging demand environment, I am encouraged by our execution in the third quarter as we improved margins sequentially. Our past pricing actions across most product lines again more than offset ongoing inflationary pressures. Water Management Solutions delivered strong results primarily driven by higher pricing and increased volumes of hydrants. However, Water Flow Solutions continued to experience challenges from lower volumes of iron gate valves, relatively low brass production levels and higher costs associated with inefficiencies and start-up costs for the new brass foundry.

“Though the external environment continues to evolve, we believe our end markets have strong long-term fundamentals, especially with the future benefits from the federal infrastructure bill’s funding for water infrastructure projects. Our new brass foundry remains on track to fully ramp up by the end of fiscal 2024, positioning us to capture increased demand related to lead service line replacement projects. Looking beyond 2024, we remain confident that our growth strategies, operational improvements and capital investments will help deliver net sales growth and a return to pre-pandemic margins in 2025,” Hall concluded.

Consolidated Results

Net sales for the 2023 third quarter decreased $6.6 million, or 2.0 percent, to $326.6 million as compared with $333.2 million in the prior year quarter, with a decrease in volumes at Water Flow Solutions partially offset by higher pricing in both segments and volume growth at Water Management Solutions.

Operating income decreased $1.3 million, or 3.5 percent, to $35.6 million for the 2023 third quarter as compared with $36.9 million in the prior year quarter as a result of a decrease in volumes, unfavorable manufacturing performance and increased costs associated with inflation, partially offset by benefits from higher pricing. Additionally, the prior year quarter included a $4.5 million warranty accrual charge.

During the quarter, the Company incurred $3.9 million of strategic reorganization and other charges that have been excluded from adjusted results.

Adjusted operating income decreased $2.5 million, or 6.0 percent, to $39.5 million for the quarter as compared with $42.0 million in the prior year quarter.

Adjusted EBITDA of $54.4 million decreased $3.4 million, or 5.9 percent, as compared with $57.8 million in the prior year quarter. Adjusted EBITDA margin was 16.7 percent for the 2023 third quarter as compared with 17.3 percent in the prior year quarter.

Segment Results

Water Flow Solutions

Net sales for the 2023 third quarter decreased $45.8 million, or 23.4 percent, to $150.1 million as compared with $195.9 million in the prior year quarter. This decrease was primarily due to lower volumes in our iron gate valve products, partially offset by higher pricing across most product lines and volume growth in specialty valve products.

Operating income and adjusted operating income for the quarter were $12.6 million and $12.7 million, respectively. Adjusted operating income decreased $25.4 million, or 66.7 percent, compared with the prior year quarter. Benefits from higher pricing and lower SG&A expenses were more than offset by lower volumes in our iron gate valve products, unfavorable manufacturing performance and higher costs associated with inflation.

Adjusted EBITDA of $20.9 million decreased $24.8 million, or 54.3 percent, as compared with $45.7 million in the prior year quarter. Adjusted EBITDA margin was 13.9 percent as compared with 23.3 percent in the prior year quarter.

Water Management Solutions

Net sales for the 2023 third quarter increased $39.2 million, or 28.6 percent, to $176.5 million as compared with $137.3 million in the prior year quarter. This increase was due to higher pricing across most product lines and increased volumes, primarily in hydrant and water application products.

Operating income and adjusted operating income for the quarter were $39.0 million and $40.0 million, respectively. Adjusted operating income increased $23.5 million, or 142.4 percent, as compared with $16.5 million in the prior year quarter. Benefits from higher pricing and increased volumes more than offset unfavorable manufacturing performance, the impact of foreign exchange and higher costs associated with inflation.

Adjusted EBITDA of $47.6 million increased $23.9 million, or 100.8 percent, as compared with $23.7 million in the prior year quarter. Adjusted EBITDA margin was 27.0 percent as compared with 17.3 percent in the prior year quarter.

Interest Expense, Net

Interest expense, net, for the 2023 third quarter declined to $3.8 million as compared with $4.2 million in the prior year quarter primarily as a result of higher interest income.

Income Taxes

Income tax expense for the 2023 third quarter was $6.4 million, or 20.7 percent of income before taxes. Income tax expense in the prior year quarter was $7.1 million, or 21.1 percent of income before taxes.

Cash Flow and Balance Sheet

Net cash provided by operating activities for the nine-month period increased by $32.0 million to $52.5 million as compared with $20.5 million in the prior year, primarily driven by improvements in working capital compared with the prior year period, including a sequential decrease in inventories during the third quarter.

The Company invested $11.9 million in capital expenditures during the third quarter as compared with $10.7 million in the prior year quarter. For the nine-month period, the Company has invested $32.4 million in capital expenditures as compared with $36.7 million in the prior year.

Free cash flow (defined as net cash provided by operating activities less capital expenditures) for the nine-month period increased by $36.3 million to $20.1 million as compared with free cash flow of $(16.2) million in the comparable prior year period, due to the increase in net cash provided by operating activities and lower capital expenditures, as previously mentioned.

As of June 30, 2023, Mueller Water Products had $447.5 million of total debt outstanding and $141.2 million of cash and cash equivalents, resulting in a debt leverage ratio of 2.4 times and net debt leverage ratio of 1.7 times. There are no maturities on the Company’s debt financings until June 2029, and its 4.0 percent Senior Notes have no financial maintenance covenants. Based on June 30, 2023, data, the Company had approximately $162.3 million of excess availability under its ABL Agreement, bringing its total liquidity to $303.5 million.

Full-Year Fiscal 2023 Outlook

Based on current market conditions, including expectations for channel inventories and order levels, and anticipated brass production levels, the Company anticipates annual consolidated net sales will be between flat and down 2 percent compared with the prior year and adjusted EBITDA will be between flat and down 5 percent compared with the prior year. This outlook considers pension expense other than service, which is excluded from adjusted operating income, of approximately $3.8 million in 2023 compared with a benefit of $3.9 million in the prior year. The Company expects free cash flow as a percentage of adjusted net income to be more than 30 percent for the full-year fiscal 2023.

The Company’s expectations for certain financial metrics for the full-year fiscal 2023 are as follows:

• Total SG&A expenses between $246 million and $248 million
• Net interest expense between $15 million and $16 million
• Effective income tax rate between 23 percent and 24 percent
• Depreciation and amortization between $62 million and $63 million
• Capital expenditures between $50 million and $55 million

Conference Call Webcast

Mueller Water Products’ quarterly earnings conference call will take place Friday, Aug. 4, 2023, at 10 a.m. ET. Members of Mueller Water Products’ leadership team will discuss the Company’s recent financial performance and respond to questions from financial analysts. A live webcast of the call will be available on the Investor Relations section of the Company’s website. Please go to the website (www.muellerwaterproducts.com) at least 15 minutes prior to the start of the call to register, and to download and install any necessary software. A replay of the call will be available for 30 days and can be accessed by dialing 1-866-510-4837. An archive of the webcast will also be available for at least 90 days on the Investor Relations section of the Company’s website.

Use of Non-GAAP Measures

In an effort to provide investors with additional information regarding the Company’s results as determined by accounting principles generally accepted in the United States (“GAAP”), the Company also provides non-GAAP information that management believes is useful to investors. These non-GAAP measures have limitations as analytical tools, and securities analysts, investors and other interested parties should not consider any of these non-GAAP measures in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

The Company presents adjusted net income, adjusted net income per diluted share, adjusted operating income, adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin as performance measures because management uses these measures to evaluate the Company’s underlying performance on a consistent basis across periods and to make decisions about operational strategies. Management also believes these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of the Company’s recurring performance.

The Company presents net debt and net debt leverage as performance measures because management uses them to evaluate its capital management and financial position, and the investment community commonly uses them as measures of indebtedness. The Company presents free cash flow to assist management and investors in analyzing the Company’s ability to generate liquidity from its operating activities.

The calculations of these non-GAAP measures and reconciliations to GAAP results are included as an attachment to this press release, which has been posted online at www.muellerwaterproducts.com. The Company does not reconcile forward-looking non-GAAP measures to the comparable GAAP measures, as permitted by Regulation S-K, as certain items, e.g., expenses related to corporate development activities, transactions, pension expenses/(benefits) and corporate restructuring, may have not yet occurred, are out of the Company’s control and/or cannot be reasonably predicted without unreasonable efforts. Additionally, such reconciliation would imply a degree of precision and certainty regarding relevant items that may be confusing to investors. Such items could have a substantial impact on GAAP measures of the Company’s financial performance.

Forward-Looking Statements

This press release contains certain statements that may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements that address activities, events or developments that the Company intends, expects, plans, projects, believes or anticipates will or may occur in the future are forward-looking statements, including, without limitation, statements regarding outlooks, projections, forecasts, expectations, commitments, trend descriptions and the ability to capitalize on trends, value creation, Board and committee composition plans, long-term strategies and the execution or acceleration thereof, operational improvements, inventory positions, the benefits of capital investments, financial or operating performance including improving sales growth and driving increased margins, capital allocation and growth strategy plans, the Company’s product portfolio positioning and the demand for the Company’s products. Forward-looking statements are based on certain assumptions and assessments made by the Company in light of the Company’s experience and perception of historical trends, current conditions and expected future developments.

Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, without limitation, including the future impact of the COVID-19 pandemic on the Company’s operations and results, including effects on the financial health of customers (including collections and inventory positions); logistical challenges and supply chain disruptions, geopolitical conditions, or other events; an inability to realize the anticipated benefits from our operational initiatives, including our large capital investments in Chattanooga and Kimball, Tennessee, and Decatur, Illinois, plant closures, and our reorganization and related strategic realignment activities; an inability to attract or retain a skilled and diverse workforce, increased competition related to the workforce and labor markets; an inability to protect the Company’s information systems against service interruption, misappropriation of data or breaches of security; failure to comply with personal data protection and privacy laws; cyclical and changing demand in core markets such as municipal spending, residential construction, and natural gas distribution; government monetary or fiscal policies; the impact of adverse weather conditions; the impact of manufacturing and product performance; the impact of wage, commodity and materials price inflation; foreign exchange rate fluctuations; the impact of warranty claims; an inability to successfully resolve significant legal proceedings or government investigations; compliance with environmental, trade and anti-corruption laws and regulations; climate change and legal or regulatory responses thereto; changing regulatory, trade and tariff conditions; the failure to integrate and/or realize any of the anticipated benefits of recent acquisitions or divestitures; an inability to achieve some or all of our Environmental, Social, and Governance goals; and other factors that are described in the section entitled “RISK FACTORS” in Item 1A of the Company’s most recent Annual Report on Form 10-K and later filings on Form 10-Q, as applicable.

Forward-looking statements do not guarantee future performance and are only as of the date they are made. The Company undertakes no duty to update its forward-looking statements except as required by law. Undue reliance should not be placed on any forward-looking statements. You are advised to review any further disclosures the Company makes on related subjects in subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the U.S. Securities and Exchange Commission.

About Mueller Water Products, Inc.

Mueller Water Products, Inc. is a leading manufacturer and marketer of products and services used in the transmission, distribution and measurement of water in North America. Our broad product and service portfolio includes engineered valves, fire hydrants, pipe connection and repair products, metering products, leak detection, pipe condition assessment, pressure management products, and software technology that provides critical water system data. We help municipalities increase operational efficiencies, improve customer service and prioritize capital spending, demonstrating why Mueller Water Products is Where Intelligence Meets Infrastructure^®. Visit us at www.muellerwaterproducts.com.

Mueller refers to one or more of Mueller Water Products, Inc. (MWP), a Delaware corporation, and its subsidiaries. MWP and each of its subsidiaries are legally separate and independent entities when providing products and services. MWP does not provide products or services to third parties. MWP and each of its subsidiaries are liable only for their own acts and omissions and not those of each other. Mueller brands include Mueller

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, Echologics

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, Hydro Gate

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, Hydro-Guard

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, HYMAX

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, i2O

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, Jones

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, Krausz

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, Mi.Net

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, Milliken

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, Pratt

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, Pratt Industrial

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, Sentryx

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, Singer

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, and U.S. Pipe Valve & Hydrant. Please see muellerwp.com/brands to learn more.

Investor Relations Contact: Whit Kincaid
770-206-4116
[email protected]

Media Contact: Robin Keegan
404-206-4152
[email protected]

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
	June 30,				September 30,
		2023				2022
	(in millions, except share amounts)
Assets:
Cash and cash equivalents	$	141.2			$	146.5
Receivables, net of allowance for credit losses of $6.4 million and $5.6 million		210.3				228.0
Inventories, net		312.7				278.7
Other current assets		27.2				26.8
Total current assets		691.4				680.0
Property, plant and equipment, net		306.9				301.6
Intangible assets, net		341.9				361.2
Goodwill, net		97.0				98.6
Other noncurrent assets		56.1				56.7
Total assets	$	1,493.3			$	1,498.1
Liabilities and stockholders’ equity:
Current portion of long-term debt	$	0.8			$	0.8
Accounts payable		101.0				122.8
Other current liabilities		98.1				117.4
Total current liabilities		199.9				241.0
Long-term debt		446.7				446.1
Deferred income taxes		80.0				86.3
Other noncurrent liabilities		52.5				55.4
Total liabilities		779.1				828.8
Commitments and contingencies
Preferred stock: par value $0.01 per share; 60,000,000 shares authorized; none outstanding at June 30, 2023, and September 30, 2022		—				—
Common stock: par value $0.01 per share; 600,000,000 shares authorized; 156,424,123 and 155,844,138 shares outstanding at June 30, 2023, and September 30, 2022, respectively		1.6				1.6
Additional paid-in capital		1,257.2				1,279.6
Accumulated deficit		(499.0	)			(567.3	)
Accumulated other comprehensive loss		(45.6	)			(44.6	)
Total stockholders’ equity		714.2				669.3
Total liabilities and stockholders’ equity	$	1,493.3			$	1,498.1

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three months ended							Nine months ended
	June 30,							June 30,
		2023			2022				2023			2022
	(in millions, except per share amounts)
Net sales	$	326.6		$	333.2			$	974.3		$	916.0
Cost of sales (1)		226.5			234.9				683.2			637.3
Gross profit		100.1			98.3				291.1			278.7
Operating expenses:
Selling, general and administrative		60.6			60.8				187.7			175.1
Strategic reorganization and other charges (2)		3.9			0.6				0.9			3.6
Total operating expenses		64.5			61.4				188.6			178.7
Operating income		35.6			36.9				102.5			100.0
Pension expense (benefit) other than service		0.9			(0.9	)			2.8			(2.9	)
Interest expense, net		3.8			4.2				11.4			13.0
Income before income taxes		30.9			33.6				88.3			89.9
Income tax expense		6.4			7.1				20.0			20.4
Net income	$	24.5		$	26.5			$	68.3		$	69.5
Net income per basic share	$	0.16		$	0.17			$	0.44		$	0.44
Net income per diluted share	$	0.16		$	0.17			$	0.44		$	0.44
Weighted average shares outstanding:
Basic		156.4			157.0				156.2			157.6
Diluted		157.2			157.6				156.8			158.3
Dividends declared per share	$	0.061		$	0.058			$	0.183		$	0.174
(1) For the three-month period ended June 30, 2022, the Company recorded a charge of $4.5 million in connection with its warranty obligations.
(2) For the three-month period ended June 30, 2023, the Company recorded restructuring charges related to severance and certain transaction-related expenses. For the three-month period ended June 30, 2022, the Company recorded restructuring charges related to the closure of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada.

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	Nine months ended
	June 30,
		2023				2022
	(in millions)
Operating activities:
Net income	$	68.3			$	69.5
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:
Depreciation		25.1				23.8
Amortization		21.0				21.1
Gain on sale of assets		(3.7	)			—
Stock-based compensation		5.9				6.6
Pension net periodic cost (benefit)		3.4				(1.9	)
Deferred income taxes		(6.7	)			1.8
Inventory reserves provision		0.4				3.9
Other, net		0.7				0.7
Changes in assets and liabilities, net of acquisition:
Receivables, net		18.2				(10.6	)
Inventories		(34.1	)			(71.3	)
Other assets		(2.0	)			(5.5	)
Accounts payable		(21.8	)			6.7
Other current liabilities		(19.4	)			(23.1	)
Other noncurrent liabilities		(2.8	)			(1.2	)
Net cash provided by operating activities		52.5				20.5
Investing activities:
Capital expenditures		(32.4	)			(36.7	)
Acquisition purchase price adjustment		—				0.2
Proceeds from sale of assets		5.1				—
Net cash used in investing activities		(27.3	)			(36.5	)
Financing activities:
Dividends paid		(28.6	)			(27.4	)
Employee taxes related to stock-based compensation		(1.6	)			(1.9	)
Common stock issued		1.9				1.6
Common stock repurchased under buyback program		—				(25.0	)
Payments for finance lease obligations		(0.9	)			(0.4	)
Net cash used in financing activities		(29.2	)			(53.1	)
Effect of currency exchange rate changes on cash		(1.3	)			(3.5	)
Net change in cash and cash equivalents		(5.3	)			(72.6	)
Cash and cash equivalents at beginning of period		146.5				227.5
Cash and cash equivalents at end of period	$	141.2			$	154.9

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES SEGMENT RESULTS AND RECONCILIATION OF NON-GAAP TO GAAP PERFORMANCE MEASURES (UNAUDITED)
	Three months ended June 30, 2023
	Water Flow Solutions				Water Management Solutions				Corporate				Consolidated
	(dollars in millions, except per share amounts)
Net sales	$	150.1			$	176.5			$	—			$	326.6
Gross profit	$	33.6			$	66.5			$	—			$	100.1
Selling, general and administrative expenses		20.9				26.5				13.2				60.6
Strategic reorganization and other charges (1)		0.1				1.0				2.8				3.9
Operating income (loss)	$	12.6			$	39.0			$	(16.0	)		$	35.6
Operating margin		8.4	%			22.1	%							10.9	%
Capital expenditures	$	7.5			$	4.4			$	—			$	11.9
Reconciliation of non-GAAP to GAAP performance measures:
Net income													$	24.5
Strategic reorganization and other charges (1)														3.9
Income tax benefit of adjusting items														(0.8	)
Adjusted net income													$	27.6
Weighted average diluted shares outstanding														157.2
Adjusted net income per diluted share													$	0.18
Net income													$	24.5
Income tax expense (2)														6.4
Interest expense, net (2)														3.8
Pension expense other than service (2)														0.9
Operating income (loss)	$	12.6			$	39.0			$	(16.0	)			35.6
Strategic reorganization and other charges (1)		0.1				1.0				2.8				3.9
Adjusted operating income (loss)		12.7				40.0				(13.2	)			39.5
Pension expense other than service		—				—				(0.9	)			(0.9	)
Depreciation and amortization		8.2				7.6				—				15.8
Adjusted EBITDA	$	20.9			$	47.6			$	(14.1	)		$	54.4
Adjusted operating margin		8.5	%			22.7	%							12.1	%
Adjusted EBITDA margin		13.9	%			27.0	%							16.7	%
Adjusted EBITDA	$	20.9			$	47.6			$	(14.1	)		$	54.4
Three prior quarters’ adjusted EBITDA		82.9				88.1				(40.1	)			130.9
Trailing twelve months’ adjusted EBITDA	$	103.8			$	135.7			$	(54.2	)		$	185.3
Reconciliation of net debt to total debt (end of period):
Current portion of long term debt													$	0.8
Long-term debt														446.7
Total debt														447.5
Less cash and cash equivalents														141.2
Net debt													$	306.3
Net debt leverage (net debt divided by trailing twelve months’ adjusted EBITDA)														1.7	x
Reconciliation of free cash flow to net cash provided by operating activities:
Net cash provided by operating activities													$	74.7
Less capital expenditures														11.9
Free cash flow													$	62.8
(1) Strategic reorganization and other charges includes severance and certain transaction-related expenses.
(2) The Company does not allocate interest, income taxes or pension amounts other than service to its segments.

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES SEGMENT RESULTS AND RECONCILIATION OF NON-GAAP TO GAAP PERFORMANCE MEASURES (UNAUDITED)
	Three months ended June 30, 2022
	Water Flow Solutions				Water Management Solutions				Corporate				Consolidated
	(dollars in millions, except per share amounts)
Net sales	$	195.9			$	137.3			$	—			$	333.2
Gross profit	$	60.8			$	37.5			$	—			$	98.3
Selling, general and administrative expenses		22.7				25.5				12.6				60.8
Strategic reorganization and other charges (1)		—				—				0.6				0.6
Operating income (loss)	$	38.1			$	12.0			$	(13.2	)		$	36.9
Operating margin		19.4	%			8.7	%							11.1	%
Capital expenditures	$	8.1			$	2.6			$	—			$	10.7
Reconciliation of non-GAAP to GAAP performance measures:
Net income													$	26.5
Warranty charge (2)														4.5
Strategic reorganization and other charges (1)														0.6
Income tax benefit of adjusting items														(1.1	)
Adjusted net income													$	30.5
Weighted average diluted shares outstanding														157.6
Adjusted net income per diluted share													$	0.19
Net income													$	26.5
Income tax expense (3)														7.1
Interest expense, net (3)														4.2
Pension benefit other than service (3)														(0.9	)
Operating income (loss)	$	38.1			$	12.0			$	(13.2	)			36.9
Warranty charge (2)		—				4.5				—				4.5
Strategic reorganization and other charges (1)		—				—				0.6				0.6
Adjusted operating income (loss)		38.1				16.5				(12.6	)			42.0
Pension benefit other than service (3)		—				—				0.9				0.9
Depreciation and amortization		7.6				7.2				0.1				14.9
Adjusted EBITDA	$	45.7			$	23.7			$	(11.6	)		$	57.8
Adjusted operating margin		19.4	%			12.0	%							12.6	%
Adjusted EBITDA margin		23.3	%			17.3	%							17.3	%
Adjusted EBITDA	$	45.7			$	23.7			$	(11.6	)		$	57.8
Three prior quarters’ adjusted EBITDA		117.2				59.6				(33.1	)			143.7
Trailing twelve months’ adjusted EBITDA	$	162.9			$	83.3			$	(44.7	)		$	201.5
Reconciliation of net debt to total debt (end of period):
Current portion of long term debt													$	0.9
Long-term debt														446.1
Total debt														447.0
Less cash and cash equivalents														154.9
Net debt													$	292.1
Net debt leverage (net debt divided by trailing twelve months’ adjusted EBITDA)														1.4	x
Reconciliation of free cash flow to net cash provided by operating activities:
Net cash provided by operating activities													$	19.7
Less capital expenditures														10.7
Free cash flow													$	9.0
(1) Strategic reorganization and other charges includes charges related to the closure of our facilities in Aurora, Illinois and Surrey, British Columbia, Canada.
(2) The Company recorded a charge of $4.5 million in connection with its warranty obligations.
(3) The Company does not allocate interest, income taxes or pension amounts other than service to its segments.

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES SEGMENT RESULTS AND RECONCILIATION OF NON-GAAP TO GAAP PERFORMANCE MEASURES (UNAUDITED)
	Nine months ended June 30, 2023
	Water Flow Solutions				Water Management Solutions				Corporate				Consolidated
	(dollars in millions, except per share amounts)
Net sales	$	472.9			$	501.4			$	—			$	974.3
Gross profit	$	117.4			$	173.7			$	—			$	291.1
Selling, general and administrative expenses		65.3				82.2				40.2				187.7
Strategic reorganization and other charges (benefits) (1)		0.1				1.2				(0.4	)			0.9
Operating income (loss)	$	52.0			$	90.3			$	(39.8	)		$	102.5
Operating margin		11.0	%			18.0	%							10.5	%
Capital expenditures	$	23.1			$	9.3			$	—			$	32.4
Reconciliation of non-GAAP to GAAP performance measures:
Net income													$	68.3
Strategic reorganization and other charges (benefits) (1)														0.9
Income tax benefit of adjusting items														(0.2	)
Adjusted net income													$	69.0
Weighted average diluted shares outstanding														156.8
Adjusted net income per diluted share													$	0.44
Net income													$	68.3
Income tax expense (2)														20.0
Interest expense, net (2)														11.4
Pension expense other than service (2)														2.8
Operating income (loss)	$	52.0			$	90.3			$	(39.8	)			102.5
Strategic reorganization and other charges (benefits) (1)		0.1				1.2				(0.4	)			0.9
Adjusted operating income (loss)		52.1				91.5				(40.2	)			103.4
Pension benefit other than service		—				—				(2.8	)			(2.8	)
Depreciation and amortization		23.7				22.3				0.1				46.1
Adjusted EBITDA	$	75.8			$	113.8			$	(42.9	)		$	146.7
Adjusted operating margin		11.0	%			18.2	%							10.6	%
Adjusted EBITDA margin		16.0	%			22.7	%							15.1	%
Reconciliation of free cash flow to net cash provided by operating activities:
Net cash provided by operating activities													$	52.5
Less capital expenditures														32.4
Free cash flow													$	20.1
(1) Strategic reorganization and other charges (benefits) includes severance and certain transaction-related expenses partially offset by a gain on the sale of our facility in Aurora, Illinois.
(2) The Company does not allocate interest, income taxes or pension amounts other than service to its segments.

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES SEGMENT RESULTS AND RECONCILIATION OF NON-GAAP TO GAAP PERFORMANCE MEASURES (UNAUDITED)
	Nine months ended June 30, 2022
	Water Flow Solutions				Water Management Solutions				Corporate				Consolidated
	(dollars in millions, except per share amounts)
Net sales	$	534.7			$	381.3			$	—			$	916.0
Gross profit	$	169.9			$	108.8			$	—			$	278.7
Selling, general and administrative expenses		65.1				73.5				36.5				175.1
Strategic reorganization and other charges (1)		—				0.2				3.4				3.6
Operating income (loss)	$	104.8			$	35.1			$	(39.9	)		$	100.0
Operating margin		19.6	%			9.2	%							10.9	%
Capital expenditures	$	29.6			$	7.1			$	—			$	36.7
Reconciliation of non-GAAP to GAAP performance measures:
Net income													$	69.5
Warranty charge (2)														4.5
Strategic reorganization and other charges (1)														3.6
Income tax benefit of adjusting items														(1.8	)
Adjusted net income													$	75.8
Weighted average diluted shares outstanding														158.3
Adjusted net income per diluted share													$	0.48
Net income													$	69.5
Income tax expense (3)														20.4
Interest expense, net (3)														13.0
Pension benefit other than service (3)														(2.9	)
Operating income (loss)	$	104.8			$	35.1			$	(39.9	)			100.0
Warranty charge (2)		—				4.5				—				4.5
Strategic reorganization and other charges (1)		—				0.2				3.4				3.6
Adjusted operating income (loss)		104.8				39.8				(36.5	)			108.1
Pension benefit other than service		—				—				2.9				2.9
Depreciation and amortization		22.5				22.2				0.2				44.9
Adjusted EBITDA	$	127.3			$	62.0			$	(33.4	)		$	155.9
Adjusted operating margin		19.6	%			10.4	%							11.8	%
Adjusted EBITDA margin		23.8	%			16.3	%							17.0	%
Reconciliation of free cash flow to net cash provided by operating activities:
Net cash provided by operating activities													$	20.5
Less capital expenditures														36.7
Free cash flow													$	(16.2	)
(1) Strategic reorganization and other charges includes expenses associated with the Albertville tragedy and restructuring activities.
(2) The Company recorded a charge of $4.5 million in connection with its warranty obligations.
(3) The Company does not allocate interest, income taxes or pension amounts other than service to its segments.