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Business Wire
6 days ago
- Business
- Business Wire
The Generation Essentials Group and Black Spade Acquisition II Co Complete Business Combination
NEW YORK--(BUSINESS WIRE)--The Generation Essentials Group ('TGE'), an entity jointly established by AMTD Group, AMTD IDEA Group (NYSE: AMTD; SGX: HKB) and AMTD Digital Inc. (NYSE: HKD), and Black Spade Acquisition II Co (NASDAQ: BSII) ('Black Spade II') are pleased to confirm the completion of their previously announced business combination (the 'Business Combination'). The listed company following the Business Combination is TGE, and its Class A ordinary shares and warrants will commence trading on the New York Stock Exchange and NYSE American under the ticker symbols 'TGE' and 'TGE WS', respectively, on June 5, 2025. The announcement of the completion of the Business Combination comes after Black Spade II's shareholders voted to approve the transaction on May 30, 2025. As a result of the Business Combination, Black Spade II became a wholly owned subsidiary of TGE and is expected to be delisted from The Nasdaq Stock Market LLC. Dr. Feridun Hamdullahpur, Chairman of the Board of The Generation Essentials Group, said: 'This is about the successful listing of a comprehensive and diversified global media, entertainment, and hospitality play; the emergence of a worldwide operator in top-tier world 'media' including L'Officiel and The Art Newspaper, 'entertainment' including motion pictures, and 'space' including coffee shops and hotels. I want to thank the Black Spade II team for their partnership and efficient handling of the deal process. With our two existing listed companies already under the NYSE banner, this third listing will offer a unique platform that brings together fashion, art, media, movies, entertainment, and hospitality under one global roof: TGE. We are now long-term partners with Black Spade, and there are numerous opportunities for cross-collaboration and mutual support on our journey towards building a world-leading media and entertainment company. On behalf of the Board of Directors, I would like to express my gratitude to everyone involved in bringing this innovative concept to fruition in record time.' Mr. Dennis Tam, Chairman and Co-CEO, Black Spade Acquisition II Co, said: 'We are pleased to announce the successful completion of our merger, marking a significant milestone in bringing value for all our shareholders. In TGE's business footprint across fashion & art, media and hospitality, we saw an ideal match with our entertainment DNA. I would like to thank the TGE management team for their leadership, vision and efficiency in bringing this deal to fruition, and we look forward to the company's next chapter as a public company under their ticker symbol 'TGE', as they continue their exciting journey in the media and entertainment sector globally.' Additional information about the transaction, including a copy of the business combination agreement, is available in Black Spade II's Current Report on Form 8-K, filed on January 27, 2025 with the Securities and Exchange Commission ('SEC') at More information about the transaction is available in TGE's registration statement on Form F-4 which includes Black Spade II's proxy statement and TGE's prospectus in relation to the business combination, which was first filed with the SEC on April 11, 2025. *** About The Generation Essentials Group (formerly known as World Media and Entertainment Universal Inc.) The Generation Essentials Group, jointly established by AMTD Group, AMTD IDEA Group (NYSE: AMTD; SGX: HKB) and AMTD Digital Inc. (NYSE: HKD), is headquartered in France and focuses on global strategies and developments in multi-media, entertainment, and cultural affairs worldwide as well as hospitality and VIP services. TGE comprises L'Officiel, The Art Newspaper, movie and entertainment projects. Collectively, TGE is a diversified portfolio of media and entertainment businesses, and a global portfolio of premium properties. About Black Spade Acquisition II Co Black Spade Acquisition II Co ('Black Spade II') is a blank check company incorporated for the purpose of effecting a business combination (Special Purpose Acquisition Company or SPAC). Listed on The Nasdaq Stock Market LLC , Black Spade II was founded by Black Spade Capital, which runs a global portfolio consisting of a wide spectrum of cross-border investments, and consistently seeks to add new investment projects and opportunities to its portfolio. Black Spade II is Black Spade Capital's second SPAC. Black Spade Capital's first SPAC completed its business combination with VinFast Auto Ltd., a Vietnamese electric vehicle company, in August 2023. At the time, it was the third largest ever de-SPAC by deal value (based on Dealogic data available through April 2024). About AMTD Group AMTD Group is a conglomerate with a core business portfolio spanning across media and entertainment, education and training, and premium assets and hospitality sectors. About AMTD IDEA Group AMTD IDEA Group (NYSE: AMTD; SGX: HKB) represents a diversified institution and digital solutions group connecting companies and investors with global markets. Its comprehensive one-stop business services plus digital solutions platform addresses different clients' diverse and inter-connected business needs and digital requirements across all phases of their life cycles. AMTD IDEA Group is uniquely positioned as an active super connector between clients, business partners, investee companies, and investors, connecting the East and the West. For more information, please visit or follow us on X (formerly known as 'Twitter") at @AMTDGroup. About AMTD Digital Inc. AMTD Digital Inc. (NYSE: HKD) is a comprehensive digital solutions platform headquartered in France. Its one-stop digital solutions platform operates key business lines including digital media, content and marketing services, investments as well as hospitality and VIP services. For AMTD Digital's announcements, please visit Safe Harbor Statement This press release contains statements that may constitute 'forward-looking' statements pursuant to the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as 'will,' 'expects,' 'anticipates,' 'aims,' 'future,' 'intends,' 'plans,' 'believes,' 'estimates,' 'likely to,' and similar statements. Statements that are not historical facts, including statements about the beliefs, plans, and expectations of Black Spade II, TGE, AMTD IDEA Group and/or AMTD Digital, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in the filings of Black Spade II, TGE, AMTD IDEA Group and AMTD Digital with the SEC. All information provided in this press release is as of the date of this press release, and none of Black Spade II, TGE, AMTD IDEA Group and AMTD Digital undertakes any obligation to update any forward-looking statement, except as required under applicable law.
Yahoo
16-05-2025
- Business
- Yahoo
Q1 2025 BioLargo Inc Earnings Call
Dennis Calvert; Chairman of the Board, President, Chief Executive Officer; BioLargo Inc Charles Dargan; Chief Financial Officer; BioLargo Inc Operator Greetings and welcome to the BioLargo first quarter 2025 earnings conference call.(Operator Instructions)I would now like to turn the call over to your host, Mr. Brian Loper, Investor Relations. Sir, the floor is yours. Thank you, operator. Good afternoon, everybody. Welcome to the call. Glad to have you here. The 10-Q and 8-K reports are currently being filed at the SEC. This call is being webcast and available for replay. In our remarks today, we may include statements that are considered forward-looking within the meanings of security laws, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers, market potential growth addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties that may cause the actual results to differ materially from forward statement.A detailed discussion of such risks and uncertainties are contained in our most recent form 10-Q, 10-k, Form 8-K, and other reports filed at the SEC. The company undertakes no obligation to update any forward-looking statements, and with that, I now hand the call over to Bio Largo's Chief Executive Officer, Dennis Calvert. Dennis Calvert Okay, Brian, thank you very much, everyone. I appreciate you joining us for the call, and we're going to cover a lot of territory quick as usual. And so, as some of you may not know our story, we're going to have a very brief introduction, of we make life better, focus on sustainable innovation for human health, environment, very purpose-driven work, and of course, we're, we have developed an innovation engine. And that innovation engine has been now inventing and developing technologies for almost over 16 covered the forward look at statements, of course they are real. It's important to rely on the risk factors. You can refer to the Q, the K, the annual report, which was just recently published with a robust list of risk factors. They are very worthy of consideration because as we say, we overcome risk every day and the challenges can be are we? Innovators, science, entrepreneurs, engineers, passionate about making a difference, sustainability and human health, driven by this purpose, very much a purpose-driven focus on best in class solutions. If we don't believe they're number one or have a chance to be number one in the category, then we don't focus on them. So, we invest in innovating transformative technologies. We focus on problems without a good solution, and we create a capital conserving strategy that's aimed on partnerships and spinouts to capitalize R&D and create value for our the engine, there's a parent company that's capital, strategy, direction, sort of the glue that binds, of course. We've got a great engineering group based in Oak Ridge, Tennessee. We still have the R&D Group, of course, in Edmonton, Canada, and we're investing heavily in the operating units which take products to market. OM Environmental is focused on odor and VOC control. Clear is a medical device company focused on the cutting edge of use of antimicrobials and products used for advanced wound care, infection equipment group is primarily focused on Pfos, but there's a number of assets in that portfolio. Some are slow, some are significant. They're finding their way to market, and we've been investing heavily there for a couple of years, and we're really excited about going to talk deeply about that. On the energy side, Berger Energy is focused on a sodium battery as an alternative to lithium. We're just in a validation stage. We're going to talk about that validation work that we're doing right now, and we're very excited about the potential, growth and impact for that emerging technology as an alternative to lithium focused on non-lithium based long duration energy storage battery of the fastest growing markets in the world, expected to be a massive industry, and we're right in the middle of it. It's pretty exciting. One of the things we talk about a lot is the under, the unseen value of the biological portfolio. We're building value every day. We're inventing things that will last. We can find a market. Some are very difficult, of course, everyone's known that, but they're unmatched in their claim set, unmatched in their claims. It's very when you peel the onion, what you see is the transformative capability because the claims are unmatched. We focus heavily on intellectual property, that's trade secrets and patent work, and we focus on the capital conserving strategy. We have a team of about 50 people now. 20-something engineers, 12 to 13 PhDs, super smart people, I always say my job is to focus on something that really has impact and leverage in our capital strategy, and then, focus on things that we can get through the cycle, things that we're capable of doing with our talent set. In the underlying portfolio, the goals are very look at the future of clear O&M, of course we think is going to have an exit capability because of the work we've done. Clearra is knocking on the door of significance, and it's been a long 14 year development cycle, 14 years, and that's almost $20 million. We believe that that company will now spawn, grow big, and have a chance for an exit through either an IPO or a fail to a of which will further its mission to have a high impact for the advancements of human health. Big deal. The equipment group, it's slow and steady, it's much more organic, but we've got strategic partners now all around the world, and projects coming to us in a very rapid pace. Got a couple of nice couple of wins, more winds coming, big market, and we're right in the center of that storm with a solution for then of course battery tech is we think the most significant financial opportunity in the portfolio. It also is the earliest, which means there's work to do before we're really I'm going to have Charlie Dargin address some of the results for the quarter and give a brief summary of that highlight, and then we'll break some of that down as well. So, Charlie, you with us? Charles Dargan Yes, I am. Thanks, Dennis. I appreciate it and thank you everyone for being on our 2025 first quarter earnings call. And well, yes, it was a down quarter. Revenue dropped to about $3.3 million from $4.7 million, substantially all from a reduction in sales of the poof product.A bit of an offset there was that the engineering group had their sales increase by about $240,000. The net loss obviously from the reduction in revenue mostly came in around $1.9 million versus about $800,000 again last SG&A increased by about $300,000 although all of that is non-cash expense related from issuing stock options and replacing stock options for our employees and management. We did, we say did the same amount in R&D, so that didn't change so when you look at it, not a good quarter, but I want to reassure everyone that management is closely managing our costs and expenses. It's a bit of a silver lining, no question, but we maintained our gross and operating margins. And if you look at it analytically, our revenue was down by about $1.7 million but our loss only reflected because of our cost maintenance, a $1.2 million dollar when we look at our cash and cash from operations, it did, our cash used in operations increased to about $1.8 million. Last year we actually had a cash production of about $480,000. This year, besides what we've just gone through on the net loss side, our receivables increased by about a million dollars again related to the poof product and their did and have maintained equipment purchasing, but we've done most of that now and a lot of it's largely. With Clara and so we didn't need to do any PP&E acquisitions for the did, raise capital and we're very cognizant of the need to maintain our cash, which here we show about $2.5 million. So, we are raising capital through equity and Clara has raised money both from debt obligations and from equity issuances, and Clara lost approximately $1.3 million. A net loss again, much of which is stock option and stock option issuances, but the company is obviously preparing for product launches and so ramping up to meet those is, costing cash and going and looking at our balance kind of slide 8 summarizes all of it but let me give you a little bit more on what the balance sheet does look like, and we have about $10.5 million in total assets, $7.2 million in current assets, so we're positive with our working much of some of it has been from our receivables increase. And then when we look at the debt side of the balance sheet, the liabilities, our payables are up, but most of that increase in payables is again from clear again from them getting ready for product launches and preparing. The management when you summarize it, you come down to what we're looking at in our stockholders' equity. It did decline by approximately $900,000 to $1million , much of which obviously is from the net loss. And then we are and were able to offset some of that through equity and capital that's it for a summary of our financial statements, Dennis, and I'm going to turn it back to you. Dennis Calvert Thank you, Charlie. Perfect. Yes, you're welcome. Speak briefly about these operating units. So, poop poop has been a shining star for us. Of course, we love the product. It's got a great future and The reduction in top line revenues is certainly not what everyone hopes for. It is a circumstance that we as a company have very little influence or control over. It's controlled by the management team at do, believe that their success in marketing these products successfully as a real opportunity for continuance. But again, we just don't have a lot of information. And how they, how they're operating their business and so we're anxious to see it, continue remember that in our business deal, we have a basic financial arrangement in which we manufacture products, we receive a markup on the cost of the product, we receive a small royalty on sales at poof, and then we bargain for 20% of the exit. So again, great menu of products and incredible performance last year. And we're hopeful that things can continue to back to the growth category or the growth mode that they've been in if history is any indication, we think that they're the people that can get that done. Okay, and Clara. We've had a series of announcements, in fact, as recently as I believe yesterday, and then about a month ago, about four weeks or five weeks ago regarding the clearance of the review of the manufacturing let's just cover really quick. The clear, again, I want to remind everyone. It has a set of claims about the products here that are unmatched. It has a chance to be a transformative technology across multiple vertical segments in the healthcare field, Med device in particular. We do have 5-K 10-K partner in the manufacturing has invested well over $3 million to build out production facilities that can scale and scale, our target, which we mentioned before, was to be in the manufacturing capability of doing 1million units times 2 SKUs. So that's been accomplished. That's very important to note. That was accomplished approximately five weeks ago, and then the final details surrounding some of the products are in motion, and we're, they're in motion as fast as we can invested a little over $2 million in the CapEx associated with the production line itself, so major investments, big investments for our company, a lot of money, a lot of time. The team is also expanding it clear in a dramatic way. And then of course we made this press release describing a number.A series of formalized relationships with wholesale distributors and sales, and the key takeaway from that communication is really driven to say the infrastructure is now in place to support significant sales and sales of multiple products in the portfolio. Okay?Now, I know everyone wants a lot more detail, and we're at a moment in which this category requires a stealth mode. It's really demanded. So we're not going to be able to share a lot about the detail. But in the portfolio of products, we have some products that are available immediately as in months, and we have some other products that are going to take more like six months to nine months or so to get through the development cycle to get those products in the we believe that given the nature of the products and where we're at in the competitive field, it's very critical that we maintain a level of confidentiality. And I know that that's frustrating for everyone, but we are extremely excited about these advancements, the milestones that have been achieved, the significant commitment that we've made to support these products, the manufacturing capability infrastructure, and the company is really very well situated for significance in its so, 14 years, about $20 million has been invested. Don't forget it. It's a critical asset and it's the culmination of what we believe is has a chance to really be transformative in the field, so stand by for more We're pretty excited about salinity. We talk about it as one of the most significant assets in the portfolio. That's the cell that you see right there. Just to remind everybody, it has a claim set that's that's unmatched how, right? Well, number one, very high energy density. It's a safe battery. It doesn't have runaway fire the components can be recycled. It's durable, it lasts a long time, 20 year batteries, highly efficient. Efficiency is a function of the energy density and energy density out, and C, Crates charge rate. This is a battery that has a lot of punch for the weight, high energy density, high voltage as well. And so, in that claim set, re recall that we purchased this then we set forth to build out manufacturing capability at a pilot scale for sure and then re-validate all the claims associated with the technology. That's largely been accomplished. That doesn't mean testing ends. It just means the significant claims about the technology have been achieved. And so we believe this summary, as it compares to other technologies is true and accurate, and we're anxious for third party validation to confirm that for us, and that process is underway. Just to remind everybody, the target is long duration grid steel storage. So, we're talking about big battery sets, 20-foot trailers full of cells that can, that pull up to renewable energy, balance the grid as a place for loading and unloading off the for data centers, one of the fastest growing trends in the marketplace, estimated to be a multi-trillion-dollar market in the next six years. Big market, big place, and recall that we're pursuing a franchise model. Franchise model, we think has extraordinary value for both our franchises and our investors in the way that it can conserve capital and exploit high yield on our invested this timeline is very important. We're now at the complete third party validation testing stage, and notice we have a little starburst there that says it's going to admit a couple of things. When we first started, we said this is going to take about $1million to get the validation work done in about a year. Okay. It took about $2.3 million and it took about two years. And what you find, of course, is it's extraordinarily technical. The good news is it's been done. And so now we're in the spot where third parties can come in with technical expertise to help us from a third-party perspective we're expecting that very soon. Hopefully, a week or two, it's in process, with wonderful technical experts that we think, are adding value to us just on a daily basis. Now I want to point out the evaluation really quick. We're currently valued at around $43 million. We have about It's really five or six factory projects underway in on the drawing board, right? Not done. Just in discussions with real people and real money, who want to be in the business of producing anticipate that if some of that comes to bear, including the third party validation, that the evaluation will push up to about $400 million. Now, we currently own 96% of this project, this company, we have 96% of the equity. So, if you round out those numbers on that kind of valuation, what we're really suggesting is that the valuation of this company is somewhere between that $43million and about $150 million. We have 96%.Okay, so the point is it's not really reflected in our value. That's one of those unseen values in the modeling, which is the franchise model, really leverages third party resources and partnerships to bring financing to be to go out and build these large installation and manufacturing. When you run the net present value on the calculation of the model, it comes in somewhere about $1.5 this is a big deal, big asset, ambitious, of course. And there's a number of reasons we think that we can win here, but I think that there's a couple of principles. One is it starts with a better battery. It's a better battery. Number 2, a capital conserving strategy so that we're not in the bleeding red ink mode for years. In fact, it's the opposite. When we find a partner that wants to build a factory, we get paid to build make money the day we start. Very unusual, very good for our financial statements, good for our shareholders. The other is we have people, the people that are associated with this project internally are extraordinary. They've 30 years of field career; they've built $350 million projects. They know how to do this. And we also have special talent in the battery technology so really the technical challenge is all about scaling the capability of producing. A battery factory with replication so that you can stamp out cells and put them in packs. Packs go into modules go into containers like 20-foot trailers, and they plug into the grid and the computer runs pretty basic, and the thing that really makes this business point out is the cell technology, which we have acquired and now revalidated and are now seeking third party validation, we anticipate that very soon. A lot of partners and a lot of money on the on the that have expressed high level of interest and of course it took us a little longer than anticipated, but now we're in go mode so it's pretty then lastly, we're going to talk briefly about PFAS. This is a very exciting and incredibly demanding field. Okay. Now we've got, I don't know, 3.5 years almost four years of direct marketing. We've got a first installation. One of the common questions people are asking is when is that installation going to actually go in the field? Right now it's late August, September is what we're thinking, and that's per our that it's boxed, created, we're going to show you an image. Box created, ready to go, waiting for general contractors, waiting for weather to break, for the frozen dirt to thaw, lot permitting, lots of things have gone on that we've basically been waiting for. We've been on mark on the timelines and now waiting for other people to say, come on down and put this thing to important piece of that is we've got the New Jersey, and the US Federal EPA has agreed to collaborate with us in this project as a field demonstration work that is a commercial site. I understand that it's a commercial site, but they've agreed to participate in such a way that we can secure federal and state validation for the work that we're doing, which is very important because it comes down to we have a backlog of projects, pipelines a better word. We have a pipeline of projects that's astonishing. And the good news, I have a couple of stories for you just really quick. We have examples where some of our technologies take a long time to get to market know what happens is as you build the channel and you establish your credibility; you become a volume purchaser. Some of the things that we've done just require volume purchasing, so like manufacturing, right? What's happening for us is because of the pipeline and because of the technical claim, we're becoming viewed as a tool.A designer of tools for a tool kit that can be used by the marketplace as a component in an integrated system. It's really good news. That means that we can touch multiple markets. We have a tool that's useful for many different markets, and frankly, including actually have competition that wants to do business with us. It's awesome, and we have major engineering firms and regional engineering firms. We've got one engineering firm that has specified our solution in over 26 projects. So, the volume is astonishing and the what's the breakthrough? When did it happen? Well, somewhere along from where we're getting some market adoption and some installs and some third party validation, it all breaks open. It's hard to predict exactly when that's going to be, but we're convinced it will occur, and mostly because the technology is that now we have the infrastructure in place and the credibility in the market because we spent a lot of time building that credibility. Here's the unit real quick. This is, I was actually in Oak Ridge about a week ago. And I walked in, and I saw this and I thought, look at that beautiful unit. That's an engineered design on the left. Those are the Those are the like a plate and frame, and each one of those is a module that can be plugged and plug and play. Need to produce more more modules. It's really simple and it works, and it works really well. And the regulatory, I know there's been a lot of uncertainty. We'll talk about some of the Q&A regulatory uncertainty around what is and what isn't with the new administration, with the EPA, a lot of changes in the governance, the R&D, all of that's in flux, makes everyone pause a little, but here's what we know. P files ain't going to go away. It took 50 years to get there and it's going to take 50 years to get it is a business that will run for decades. And right now, we believe that we're still the technical innovative leader. That has a chance to work with our customers and our engineering firms and our supply chain all over the world and it's just a matter of time before it finds its way. The results that we published are astonishing, and again, the thesis we've talked about, they're unmatched We published this case study just recently. There's a lot of work to do that. That's one of the reasons it takes so long, but that case study has now been picked up for publication around the industry, and it's astonishing. And what we basically can say is on the recurring costs associated with installation, we have the chance to save a customer something like somewhere around 70% to 80% of their maintenance the case study breaks it down so that we analyze Transportation, the handling, the replacement of carbon as a comparative, because the early adopters in the, when the first movers started taking action to clean up PFAS, they used old technology. That old technology is going to cost them like 9 times what ours will so what that means is they're going to change it now. They had to solve the regulatory burden, it's not the last. We also can work with some of those providers to make their systems more efficient. So this is going to be a big win. It is incredibly demanding. It's demanding on our staff and demand on our people. The good news is we kind of now work through most of the bugs. We're in the go mode. We've got a good selling proposition. We've got people selling our technology now, mostly on the country, some international work coming, but we have a couple of global partners now, big giants coming to really partner with us and Kind of hard to describe this, but I'll take a second, and that is, what's different today than it was well, here's the we've done so much work and we have so much technical data to support our claims and we've refined our system so that when we enter into a discussion with a prospective client we're perceived as credible when we walk in the so let me expand on that. We're technically credible, we're scientifically credible, we're engineering credible. Okay, so in the marketplace where buyers or businesspeople and technical buyers buying on technology, we not every case, but we went. We went and we went as an acceptance and adoption, where the decisions are water districts where elected officials are trying to make decisions that aren't trained for some of these questions, they're going to rely on their consulting engineers. And so as an early as an early technology in the adoption cycle, a lot of those people just simply can't choose us. So we're having to battle through that. That's a credibility question that we overcome with the third party validation. It's a numbers game, you keep plugging away. What I can tell you now is what's so unusual is the consulting engineers who advise those people. A lot of them are recommending us and so that's new, okay?So, I'm going to now quit for a minute. I just want to show you, right? Make sure you get my email. Welcome to reach out, we TRY to respond dc@ I'd love to talk to you anytime. So, let's open up the Q&A and see how we're going to do there. Thank you, Dennis. I appreciate the presentation. And it's just a good reminder for everybody that Q1 has been rough for lots of companies. There's been a lot of volatility and uncertainty. BioLargo is not alone in this, so just keep that in mind as we move forward. Just a few questions today. Let's start with, kind of a general company-based question. Has there been any further consideration being given to doing a reverse stock split? Specifically, so that we can invest in BioLargo. Dennis Calvert Yeah, no, it's a great question. So, we did file a preliminary proxy statement in preparation of our June 19, shareholders' meeting. I hope you'll come. It's always valuable, get to see everyone and we TRY to really, spend the time so that people can understand where the business is proxies asked for our stockholders to give the right to make the decision to the board of directors on certain conditions, and the big condition is not greater than the '10 for this is really important to analyze that. What we're saying when you say that, why, first of all, why would we do a reverse split? Well, we need to have a minimum stock value to qualify for a national exchange. And of course, the often the preferred exchange is NASDAQ, and that number is now around $ so $4 at today's stock price, we wouldn't qualify for NASDAQ. This is really important. So, what are we saying? If we don't have the momentum at the core of the business, including performance, we're not going to do the reverse hear me clearly. It's giving the board the authority to make a decision if and when we can perform at the level that we believe our assets and our opportunities will perform so that's the request. We've talked, we've done this before. It's always been sort of the same thread, which is make sure that the company is well situated so that we have more forecastable revenues, less venture stage and inherently in its portfolio, more validation work, more adoption. And so that's what we've been working diligently to accomplish. So that's the plan. If anybody has any additional questions, reach out to me. You can certainly put them in the Q&A now, happy to consider All right, another general question, are there any new iodine copper products in play? Dennis Calvert It's a great question. The Yes, there are. And it has such an extensive opportunity, especially in the medical field and the related fields around medicine. And we've done quite a bit of work just to give you just a glimpse. One of the opportunities, of course, would be through an EPA route which would be general it has the ability to meet that threshold, but the regulatory burden is pretty high, about a million bucks, take about a year, and it's also a very highly commoditized category. So it doesn't mean you won't do it. It just means you do it when you have a you have a channel that will value the value proposition of this claim, which is probably safer and more gentle and easier to use, right? That's probably where it goes. But we've done a lot of work in that field. In addition, in the medical field, there's subsets of combinations with gels and codes and bandages, and there's also potential of therapeutic action, right?Potential, that's, that would be a drug route, okay? All of those are innovations that we can continue to nurse along, and it really reflects sort of the strength of the core intellectual property asset. And I, what I can tell you from our experiences, we don't know of any company that's committed the kind of longevity to advancing intellectual property in this we believe we stand alone in it, and our value proposition is unique. So, as we get adoption in the medical field, especially when we talk about some of the major opportunities that are now right here in front of us, as those occur, we think the opportunity for expansion is pretty dramatic, so, yes, so there you go. All right. And on that thread of expansion, we have a question here. Can you give some detail on the growth of the company and what the recent hires are? Dennis Calvert Yeah, so sure, the engineers are still breaking records, which is awesome, so that unit's growing, dramatically. We have, projects that are, our plate, and we have more coming. We also have, a hint of a significant future on PFAS, and it's so significant that it makes everyone nervous about infrastructure. And of course, Part and parcel to our strategy is to be, is to build the swell of demand so that we can become a volume purchaser as we reach back into the supply chain for contract manufacturing and that's happened at the same moment. So, the engineers have continued to grow clear also is growing. They're adding a professional sales organization, QHUC. Regulatory compliance, all the things that kind of come with the significance of taking product into a very competitive market, and so yeah, so in fact, when you look at the net loss and the SG&A, much of that expansion on the loss side is associated with clear because it's really pretty much pre-revenue, right?Now, the difference in that versus the engineers. We always have a mandate, we say build it and they will come. We say, no, they come and then we build it. That puts a lot of pressure on our staff. I mean, it's like everybody's operating with staff that needs more people, okay? And that's certainly true in the engineering so, we're thankful that they're resilient and capable of doing that. But they're going to have to grow, and some of the contracts, to give you an example, where you sign these contracts with the US Air Force, and that's a recurring revenue. And so we had to add some people, of same thing is actually happening on a number of fronts, and so we're going to need more people, no question. And but my mandate and everybody knows it is show me the contract, then hire the staff. Don't hire the staff and hope you get a can't afford it. And so that discipline is still permeating the company, and I think it served us well, and it will continue to do so. We, in theory, some of these assets are going to grow quickly and the volume is going to be pretty substantial. And so my attitude is worst case, we just slow down a then and then shore up the infrastructure, but we have to get to that early adopter phase. And so we're through it, we're not through it. And so that's the mission, get through it and then ramp up the infrastructure so you can go bigger. That's the Right. This question came in kind of response to one of your answers, but are we ready for a national exchange without market adoption? Investors want performance over claims and potential. Dennis Calvert Yeah, I think so too. Yeah. So yeah, I think that's exactly right. Yeah, we agree, by the way. I mean, the OTC is a hard place to get future value, right? Futures, right? Blue sky. It's hard to get blue sky on the OTC, no question. And when you combine that with the length of time it's taken, it wears everybody out. So, we know, we the good news is that management's never been a seller, right? We're long in this long in the stock, continued to hold a long time. Why? Well, because we believe it's going to be significant. And some of the assets that we've advanced through adoption, they're meaningful. It's really great. We're thankful for them, but I still think we've just scratched the surface. Now, it is different. We have a critical mass that we've never got talent that we've never had a depth of talent that's pretty remarkable. We've also been tried and tested on some of these technical assets for their, how real they are, right? The credibility associated with the claims. We've done so much work to validate them for adoption that it really pays off. So, yeah, right? So how do you sort of culminate in significance to support a national listing? Well, the answer is real simple. You got to get them that's what we're doing we're going to get them done. And they're significant. And so, as those come to bear, we think everyone will be rewarded. And we hope you hang in there for it because we think it's worth it. It's worth, rhetorically speaking, I say this all the time, but I really mean it. Each one of these assets that we're focused on is worth a career, every one of we got multiple, that diversity has saved the ship hundreds of times. And so now, as a result of our core competency, science, engineering, strategy, those are coming to bear. So we think we're in a really great position to see this prosper. That doesn't mean we don't take our knocks. We do. We take a lot of knocks. In fact, it's very difficult to do what we're good news is they're real, substantial in their formative capabilities. So, And if you look at the breadth of what we've achieved with so little, it's remarkable. And so of course what's hard from the outside is to know that they're real and that these claims are going to find a market. We know assured we know it, otherwise we wouldn't be doing it. And again, we've had some delays, the AOS is a good one if that question is not out there, let's talk about it real quick. The AOS is just way ahead of the ahead. We got all these rumblings now that Europe is are charging after micro pollutants. And that, just for the record, I look at that and I say, yeah, sort of like ballast water. Right?We took a lot of criticism for the Dallas water, and I get it, but thank God we didn't overinvest. That's a market that got pummeled by regulatory 25 year pushed down the road for regulatory. I watched 25 companies go bankrupt. We didn' this notion of trying to be a front runner in, early adopter markets is very difficult to do. So we have now such a good deep portfolio that we can play that game. And so, we need to get more wins, of course, and that's what we're I actually believe AOS will find it's time in the sun, and it's just not today. So again, I don't think we wasted the money. I do believe though, timing can be everything, especially in the regulatory that helps and. And on the PAT front, have we secured any new AEC contracts with early adopters? Dennis Calvert Yeah, so, yes, well, a couple of things there. One is we've gotten some business incremental business around the AC where we've helped solve some problems with clients. I think the total revenue that's generated through that operation is about $1.7 million over the course of about three years, so it's not nothing, okay? And some of those went through preliminary and then stopped and went on were makeshift solutions in preparation for big design. A lot of testing has gone on. We actually have some small accounts now where we're actually treating waste streams for a client. And so, there's a, there's actually a lot of in the contracting phase, some of these can be very long, you bid, scope, price, and wait. And then when the Trump administration came in with all the The rhetoric about cutting through doge through the regulatory agencies. A lot of these regulatory agencies really froze. They just couldn't do anything. They didn't know what to do. And so that's had an impact for put a delay into the adoption cycle on the market. But what people need to realize is that while all that's occurred, Zeldin has come in with the EPA and reaffirmed the commitment to the Clean Water Act and the removal of PFAS from the pushed down some of the regs for some of the very small chain molecules in another two-year adoption cycle, which is probably necessary because no one really has a good solution for those except the world may or may not know it. So, we need to get our word out, right? Or out with adoption and scale up took 50 years to get there, it's not going to go away. And litigation continues. This is another important factor, litigation continues. So what's, so the thesis that we've put forth in PFAS still holds very true, which is what? The most efficient collector wins. When you super concentrate, destruction is manageable and 140,000, the waste stream, we win, and that's what's happening. And so, I know it's hard because you don't see it all, but we do. And we're sitting in the apex of attention. I'll remind everybody too that that, that's the reason we were invited to be part of the Environmental Technology credit advisory committed to the secret of commerce. I'm in a meeting every month there. It's really good for really good for our technology and we're in the mix with some of the leaders all around the country now, and it will expand globally. So. We're in a very enviable spot. And because we've got such a nice pipeline established now we get the attention of major partners and participants who want to see us win so we believe we're going to win it is slow. I'll admit it's slow for sure. So. Next one, all right. And speaking of partners, what has been happening with Garrett Callahan? Is the MLD product no longer viable? Dennis Calvert Oh no, it's very viable it's just slow as can be. Yeah, so that product, remember its key feature is to recycle water for cooling towers, things like data centers. And so, let's give you some macro trends, really fascinating. There's about 4.5 years of water in California stored up in the reserve, in the reservoirs, 4.5 years. Also the snowpack is probably thicker than it's been in a so there's a moment at which people kind of pause, and then with the Trump administration coming in and saying, we're tired of regulations, stopping our economies. A lot of people put some of these projects on hold too. They kind of pause. Now, the commitment to economic and environmental sustainability is still so that's just a matter of time before people actually pull the trigger. And so this is an early adopter technology with a country's largest privately held water company in North America, that would be Gary Calliha. We are still working through piloting and demonstration projects with customers, and you're correct, no one's landed one actually quite large, and we're working with some of the significant players in the market that we're focused on. And so we're still optimistic. What I will remind everyone is very important is that our investment is we're demonstrating and the demonstrations in our facility with the equipment that's already been paid for. So what happens now is the sellings up to Garrett Callahan. We're there to support, we're technical experts in the field and we continue to work that process with customers and they are ongoing and they're continuing so don't count it out. Certainly frustrating how long it's taken, not easy, but actually quite robust. All right. Yeah, let's move on to our last set of questions here about the battery side, which I think something to be excited about. Just for clarify, what is the difference between the salinity battery and the other sodium ion battery management systems? Dennis Calvert It's a great question. So, sodium ion is used as a mechanism. You can Google it or you can do it on chat GBT ion exchange, right? So ion exchange membrane across the electrodes. We don't have a membrane across the what happens is the as the electrons flow through the membranes, they have a process that's called the formation of dendrites. Dendrites actually are like minuscule microscopic corrosion across the electrodes. So, one of the key features in our battery tech is de minimis, if any, corrosion internally, which means no internal like a lithium ion, ionic exchange, they all have degradation, which means they have, limited functional life. The sodium ion too is typically has some kind of rare earth in it. Probably got a cobalt or a nickel component. It doesn't have the same, critical features that we talked about. Typically, it's also going to have some kind of limitations in the way energy can transfer across the cell itself. Ours is a is a hot. It's a hot battery. It runs about 200 don't have to keep it cool, you like it hot, and hot batteries move very quickly. Electrons can flow rapidly in this molten they're quite different, right? They're quite different. So, when people talk about the, and there's been a lot of publication in the last month or two about how the tariff wars have spawned venture capital investments in sodium batteries. Yeah, for good reason.I mean, this reliance on the geopolitical hotbed of China's supply chain for lithium is a real problem. And then manufacturing and the components. It's a real issue. And especially when you travel internationally like we are, we're doing business deals, with potential partners all around the world now, and they don't like it. In fact, they'll do anything to get away from so, it's a hot driver. So, we actually think the tariff wars push people towards sodium, and they push people towards our technologies and alternatives. So, it's really, it really bodes well for us. Now, So anyway, it's a long answer, but the simple version is it's not going to match our stats. Look at the high energy density and look at the high voltage and the sodium ion batteries are really not doing that. So they're going to go through an evolution of R&D and it is a good viable alternative to a lithium, but most of those batteries are focused on traditional battery thinking like what?Electric vehicle EV. Easy and portable, okay, well that's not us. For long duration grid scale, 20-foot trailers, big batteries, big systems, big footprint, put them in place, don't move them, run them for 20 years. That's our model different market. All right, final question here. It's a three-part question, but is salinity superior and then when will we have that third party validation? Dennis Calvert Yeah, we're hoping to get that yeah that's a good question. I'm really excited. I've been excited about the battery tech for a long time, but my goodness, it took a lot of work to get through the validation stage. And fascinating really what we learned a couple of is, you say, yeah, we've got, lots of people in the world that can come out and validate our battery tech. Well, it turns out that's not really true. There's not very many people and the ones that are capable may not want to do it or you don't want them to for competitive there's a lot going into that decision tree, okay? So, we found a group that's technical experts 20 plus years in the field. And just bonafide experts and so they're doing the validation work and it's underway as we speak. I'm hoping that we can wrap that up in the next week or so. I mean, literally something like that, maybe it's two weeks, don't hold me to a week, but it's something like that, so we're in the final what they've really what they're helping us do is to confirm the basic important data is matching what we thought we purchased. That's it, that's the mission, right? And we already know this, but we don't have a third party to say it. So, we need the third-party validation to really advance some of the business deal making, and there's a lot going on in what's fascinating is because of our business model, we're able to approach it with a very sort of cut and dry approach, who wants to build a factory, and do you have money? I mean just think about it. Who wants to build a factory, and do you have money? Because we're not writing all the so the good news is there's a whole industry of finance that's focused on this long duration storage market, and their, the appetite is, as I always say, is insatiable. If you just think through it, you can't build enough factories to supply the world. Okay, so what happens when that, when it's like that? That means batteries that are just okay. You can sell all of that are exceptional can take a market, but you can only take the market to the extent you can manufacture. So, can you actually supply the world? Well, no. You can't. So, the franchise model is a good idea, right? We built a model on 10 factories on the NPV. Just think about it, 6% royalty on 10 factories. That's $30 million a pop. We'll do about a $0.5billion each. That's $300 million positive cash flow on 10 factories. That's how you come up with a $1.5 billion pretty basic really. Right? Because we've got free cash flow on the deal that's what we're bargaining for that's what we need, okay. But you can't build enough factories to meet the demand. Okay, so is the model to do a factory? No, is the model to do 10 factories? No. The models to do 50 factories or 100 factories. Okay, well, are we ready to do that? Not yet. Starts with one, one becomes three, three becomes 10, 10 becomes then you replicate and then you become a large volume purchaser of the supply chain, and you've got remote, you've got distributed manufacturing around the world with local commitments for economic development, for workforce development, for the incentives that are rich from not only the states, but the DOE itself plus international. And so that's a model that so, we just need to get through the process of third-party validation and then get the first big contract underway. Just to remind everyone, once we have a contract to build a factory, it's about 2.5 years. But here's the thing, we make money day make money day one. So, we're in the business of selling factories, not selling batteries. So, I think it's going to be a big deal and with given the technology and the talent we surrounded it with, we think it's just a matter of time, so we're going to keep plugging away and get through some of those barriers. Great. Those are all the questions. Thank you very much, Dennis. Dennis Calvert All right, I'll just wrap up real quick. Thanks everybody. Again, we're happy to talk to you. Thank you for the support and. We'll keep plugging away and look forward to talking to you soon thanks everybody. Operator Thank you. This concludes today's conference. You may disconnect at this time, and we thank you for your participation. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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16-05-2025
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Q2 2025 Applied Materials Inc Earnings Call
Liz Morali Morali; President of Investor Relations; Applied Materials Inc Gary Dickerson; President, Chief Executive Officer, Director; Applied Materials Inc Brice Hill; Senior Vice President, Chief Financial Officer and Global Information Services; Applied Materials Inc Stacy Rasgon; Analyst; Bernstein Research Vivek Arya; Analyst; BofA Securities Christopher Muse; Analyst; Cantor Fitzgerald Melissa Weathers; Analyst; Deutsche Bank Harlan Sur; Analyst; JP Morgan Krish Sankar; Analyst; TD Cowen Mehdi Hosseini; Analyst; Susquehanna Srinivas Pajjuri; Analyst; Raymond James Timm Schulze-Melander; Analyst; Redburn Atlantic Charles Shi; Analyst; Needham & Company Brian Chin; Analyst; Stifel, Nicolaus & Company, Incorporated Chris Caso; Analyst; Wolfe Research Operator Welcome to the Applied Materials second quarter fiscal 2025 earnings conference call. (Operator Instructions) I would now like to turn the call over to Liz Morali, Vice President of Investor Relations. Liz, you may begin. Liz Morali Morali Thank you. Good afternoon and thank you for joining us for today's call. With me today are Gary Dickerson, President and CEO; and Brice Hill, CFO. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections or other statements about future events. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties. Information concerning these risks and uncertainties is discussed in our most recent Form 10-K, 10-Q and 8-K filings with the SEC. We do not intend to update any forward-looking statements. During today's call, we will also reference non-GAAP financial measures. Reconciliations of GAAP to non-GAAP results can be found in today's earnings press release and in our quarterly earnings materials, which are available on our Investor Relations website at I will now turn the call over to Gary. Gary Dickerson Thanks, Liz. In our second fiscal quarter of 2025, Applied Materials delivered strong results across the board, including record earnings per share. These results reflect great execution by our teams around the world as well as the agility and flexibility we have in our global operations and supply chain. While we are paying close attention to a highly dynamic macro environment, we have not seen significant changes in market demand. Our customers remain focused on winning the race to be first to market with transformative new technologies. Applied is working closely with our customers and partners to accelerate the industry's road map. We are very well positioned at major technology inflections in fast-growing areas of the market, which supports our multiyear growth trajectory. In my prepared remarks today, I'll provide our latest market outlook. I'll explain how Applied's innovative products and services are enabling fundamental advances in semiconductor technology, and I'll describe how we are translating these innovations into sustainable, profitable growth across our business. Starting with our perspective on the market. The major technology trends reshaping the global economy, including IoT, automation and robotics, electric and autonomous vehicles and clean energy are all built on top of advanced semiconductors. Central to our future market outlook is AI, which is the most transformative technology of our lifetimes and has almost limitless potential use cases. While we are seeing remarkable progress in AI capabilities, we are still in the early phases of a multi-decade build-out of applications and infrastructure. Large-scale deployment of AI will require major advances in computing performance and energy efficiency that can only be achieved through disruptive innovation across the technology stack. These requirements are reshaping the semiconductor road map and changing the way chips are designed and manufactured. The impact of AI data center innovation and investments is apparent in the wafer fab equipment market, where there are significant shifts in the spending mix this year. We see investment in leading-edge foundry-logic growing substantially in 2025, and we also expect spending for leading-edge DRAM to be up significantly. We see lower spend in China with investments in both DRAM and mature logic down for the year. And finally, we are seeing an uptick in NAND investment, albeit from the very low levels seen over the past several years. Against this market backdrop, Applied is well positioned for 2025 and beyond. In 2024, we underperformed the market in China due to the market access restrictions imposed on US companies. At the same time, outside of China, we grew faster than our peer group thanks to our strength in leading-edge foundry and DRAM. Trade restrictions have also had an impact on our service business. Despite these headwinds, we grew our core parts and services revenues in the low double-digit range last year, and we're on track to deliver a similar growth rate in 2025. On top of our growing installed base, we are successfully increasing the portion of those systems in the field covered by higher-value advanced services and comprehensive service agreements. More than two-third of our service revenue comes from subscriptions, and we expect this percentage to further increase in the coming years. At a company level, through 2024, Applied Materials has grown revenues for five consecutive years. This momentum continues in 2025. If we take our first half results plus our third quarter guide, revenues are up 7% year-to-date. Looking further ahead, we also believe we're in a great position for the future given the direction of the industry road map, our strong leadership positions at key device architecture inflections and the unique portfolio of solutions and capabilities we provide to our customers. Customers are racing to be first to market to deliver major architecture innovations in logic, compute memory, packaging and power devices, including next-generation gate-all-around transistors, backside power delivery, 4F squared and 3D DRAM, advanced packaging, compound semiconductors for power electronics and silicon photonics. These technology inflections grow the market for wafer fab equipment, increase the relative mix of materials engineering technologies and provide opportunities for Applied to gain market share. Advanced foundry-logic is a great example of this. If we compare an advanced fab using integrated, gate-all-around and backside power delivery architecture to the last generation of FinFET technology, Applied's revenue opportunity is approximately 30% higher for the equivalent fab capacity. In advanced DRAM, we're focused on addressing the most critical steps for next-generation technologies, and this has enabled us to establish a strong leadership position in this market. In 2025, we expect our revenues from advanced DRAM customers to grow more than 40% as they ramp investments in DDR5 and high-bandwidth memory. Across advanced foundry-logic and DRAM, we are introducing innovative new solutions that are being rapidly adopted by the market. One example is our Sym3 Magnum etch system for advanced patterning, which has generated more than $1.2 billion of revenue since we launched the product in February 2024. Another example is our breakthrough cold field emission eBeam technology that has strong momentum in gate-all-around and high-bandwidth memory and supported record revenues for our Process Diagnostic and Control business this past quarter. As we look at how the industry's road map is evolving, we see our broad capabilities and connected product portfolio as a major leadership strength. This gives us earlier visibility and a more holistic view of the industry's most valuable technical opportunities. It allows us to develop solutions to address those high-value opportunities faster, and most importantly, it means we can deliver unique solutions by co-optimizing and combining our innovations. With the pace of technology accelerating, being first to market has incredible value for our customers and Applied Materials. For this reason, another key pillar of our strategy is high-velocity co-innovation. Our goal is to increase the speed of developing and commercializing next-generation technologies through earlier and deeper collaboration with customers and partners. Applied's global EPIC platform is designed to support this strategy by providing unique physical and digital infrastructure to accelerate learning rates and optimize the effectiveness and efficiency of R&D resources. Construction of our new flagship R&D facility, the EPIC Center in Silicon Valley is progressing on schedule, and we expect the center to start operations in spring 2026. Before I hand over to Brice, I'll quickly summarize. First, while we recognize that the macro environment is highly dynamic, Applied continues to deliver strong financial performance. We are not currently seeing significant changes in customer demand, and we have agility in our global operations to adapt to a range of scenarios. Second, the race to deliver high-performance, energy-efficient AI computing remains the dominant driver of the semiconductor industry's road map. Applied is best positioned as a major device architecture inflection that will enable that road map to be realized. And third, we are seeing strong traction with our high-velocity co-innovation strategy, where earlier and deeper elaboration with our customers and partners is enabling us to bring next-generation technology to market faster than ever before. Now I'll turn the call over to Brice. Brice Hill Thanks, Gary, and thank you to everyone joining us for today's call. We delivered another strong quarter in fiscal Q2 with robust year-over-year revenue growth, gross margin expansion and record earnings per share. These excellent results were driven by increased leading-edge foundry-logic investments given the strong end-market demand for AI-enabling semiconductors. This performance was achieved within the rapidly evolving economic and trade policy environment over the past several months. And we leveraged our global supply chain and diversified manufacturing footprint to successfully navigate the dynamic commercial landscape. With strong profitability and record earnings per share, we increased shareholder capital distributions during Q2 with approximately $2 billion in dividends and share repurchases and bought back approximately 1.4% of shares outstanding. Turning to the details for Q2. Our results were largely in line with our expectations with total net revenue of approximately $7.1 billion, up 7% year-over-year with growth across all our business segments. Non-GAAP gross margin was 49.2%, up 170 basis points year-over-year and our highest quarterly gross margin since fiscal year 2000. The strong margin performance in Q2 was primarily driven by a favorable mix of our products and business segments. Non-GAAP operating expenses were $1.3 billion, down slightly as a percentage of revenue on a year-over-year basis with growth in R&D partially offset by decreases in G&A as we focused on funding critical technology inflection-related research. Non-GAAP earnings per share was a record $2.39, up 14% year-over-year, given the revenue growth, better profitability and share repurchases. Moving to the segments. Semiconductor Systems revenue was $5.26 billion for Q2, up 7% year-over-year with growth in foundry-logic as customer investments at the leading-edge more than offset declines for the ICAPS nodes that serve the IoT, communications, automotive, power and sensor markets and growth in NAND upgrades more than offsetting year-over-year declines in DRAM. Non-GAAP operating margin of 36.4% was up 150 basis points year-over-year. Moving to Applied Global Services. AGS delivered revenue of $1.57 billion in Q2, up 2% year-over-year as healthy growth in services more than offset the expected decline in sales of 200-millimeter equipment. Non-GAAP operating margin of 28.5% was flat year-over-year. Lastly, our display business delivered revenue of $259 million with non-GAAP operating margin of 26.3%. Moving to the balance sheet and cash flows. We ended the quarter with cash and cash equivalents of $6.2 billion and debt of $6.3 billion, and cash from operations in the quarter was approximately $1.6 billion or 22% of revenue. Capital expenditures were $510 million, up from the year ago period and driven by the build-out of Applied Materials Equipment and Process Innovation and Commercialization center, EPIC, the largest and most advanced facility of its type globally. Free cash flow for Q2 was approximately $1.1 billion. As I mentioned earlier, we increased capital allocation in Q2 with total shareholder distributions of approximately $2 billion with dividends paid of $325 million and share repurchases of approximately $1.7 billion. As previously announced, during the quarter, our Board of Directors approved a 15% increase to our dividend per share. This marks another year of healthy growth for our dividend, one of our key capital allocation priorities. And as I like to point out, the dividend and its growth are closely correlated with the recurring revenue and profits in our services business. We also announced that our Board approved an additional $10 billion share repurchase authorization. And as of the end of the quarter, approximately $15.9 billion in total remains available to us for future share repurchases. Turning to our outlook. As we contemplate the year-over-year performance we expect in Q3, we are seeing acceleration from our leading-edge foundry-logic products, which are key enablers in the ongoing gate all-around build-out and which will more than offset a lower level of investment in the ICAPS nodes following two years of strong spending by these customers. We also expect a stable and healthy DRAM market and growth in NAND driven by upgrades. Factoring in these views for fiscal Q3, we expect total revenue of $7.2 billion, plus or minus $500 million, representing a 6% increase year-over-year at the midpoint; and non-GAAP EPS of $2.35, plus or minus $0.20, representing an 11% increase year-over-year at the midpoint. We expect Semiconductor System revenues of approximately $5.4 billion, up approximately 10% year-over-year; and AGS revenue of approximately $1.55, down 2% year-over-year with growth in core services impacted by the trade restrictions previously disclosed and declines in demand for 200-millimeter equipment. Rounding out the business segments, we expect display revenue of approximately $250 million. Lastly, given our business mix in Q3, we expect non-GAAP gross margin of approximately 48.3% and non-GAAP operating expenses of approximately $1.3 billion, and we are modeling a tax rate of approximately 13%. In closing, while the trade environment continues to evolve, our global supply chain and diversified manufacturing capabilities provide us with significant agility and flexibility to respond to changing conditions. In the near term, we see overall demand and customer investments continuing at the expected rate and pace even in the current environment and the long-term secular drivers for growth in our business remain intact. We are positioning ourselves to benefit from the opportunities that will emerge as the equipment industry invest to support a $1 trillion-plus semiconductor market by the end of the decade, and we are investing for the growth that we expect in our business over that time. We're now ready to begin the Q&A. Liz? Liz Morali Morali Thanks, Brice. To help us reach as many people as we can on today's call, please limit yourself to one question. If you have an additional question, please re-que, and we'll do our best to come back to you later in the session. Operator (Operator Instructions) Stacy Rasgon, Bernstein Research. Stacy Rasgon Hi, guys. Thanks for taking my question. I wanted to dig into services in China. So last quarter, you talked about like the incremental hit from the China restrictions across equipment and services. But you -- and we saw the hit, particularly on the AGS segment. But you'd said that you returned to sequential growth in Q3. But this is not sequential growth. This is kind of flattish to maybe even down a little bit sequentially. I guess, what's going on there? Is that just like a bigger hit than expected on 200-millimeter? Or is China worse? And what is our -- how should we be thinking about growth for this business, I guess, into the end of year? Do you think it resumes like sequential growth in Q4? Brice Hill Hi, Stacy. Thanks for the question. So on the AGS, you've got a lot of those elements correct. So what we would say is the core business in Q2 had a record. And we expect the core to grow at low double digits during the year, just like you would expect for that part of the business, even with the impacts we've seen from lower China business due to those trade restrictions. In the quarter, our Q2 and Q3, that's where you have the effects of some of those accounts becoming restricted. So the year-over-year growth -- we just made year-over-year growth for the quarter on AGS. And you're right, it's really the 200-millimeter equipment that slows down significantly during that quarter that makes that look weaker from a performance perspective. So I think the key things that we want our investors to think about is AGS will grow at low double digits going forward as we digest these trade rules. With our Q3 guidance, you can see that it's marginal quarter-over-quarter in total, where we'll have the full effect of all of those rules. But the core will be growing year-over-year, and we'll see that low double-digit growth for the core for the full year. Going forward, after Q3, you should expect to see the sequential type of growth that you would expect to deliver that low double digit going forward. And then I would just point out just for investors to remember that, yes, we do connect our dividend to the recurring profits for that business. And it is largely a recurring revenue business. So about 90% at this point is recurring revenue with high renewals of multiyear contracts, and about 66% of the business is under those subscription agreements. So pretty strong from a recurring revenue and profit perspective. Thanks for the question. Stacy Rasgon But it does seem like the 200-millimeter is weaker than you thought. Like is that correct? Brice Hill Yes. I think that's one factor. It might be a little bit less than we thought. And then the second is we expected a little bit more in utilization for the quarter, and utilization stayed about flat for the quarter. So the spares side of the business was also probably not right up to what we expected. Stacy Rasgon Got it. That's helpful. Thank you. Gary Dickerson Stacy, on 200-millimeter, a lot of that business is tied to power electronics. And long term, we think that's going to be mid- to high single-digit growth. But in the near term, that business is down from where it was at previously. So again, that's one of the things that's causing that business to be weaker in the near term. But in service, we're driving a lot of service innovation. We have 8,000 tools connected in the field, and I think high confidence that will grow at low double digit going forward. Stacy Rasgon Got it. Thank you. Operator Vivek Arya, Bank of America Securities. Vivek Arya Thanks for taking my question. So if I contrast the sales growth you have versus peers, right, many of them are expecting to grow double digit. You guys are more consistent at this 7%-or-so growth rate. And the perception is your higher ICAPS exposure. So could you help us size what ICAPS is now as a percentage of sales? Do you think it has bottomed? Can it continue to be a headwind? And if you could give us some trends on China versus non-China ICAPS demand for the rest of the year. Brice Hill Hi, Vivek, thanks for the question. So I guess I would start. Mature logic, ICAPS -- with the ICAPS end markets, IoT, communication, auto power sensors for us, first thing we would say is we expect mid- to high single-digit growth across the horizon heading to that $1 trillion to $1.3 trillion market by 2030 from a semi perspective. And when you look inside our business, we're expecting right now -- if you look at semis and AGS, we would say mid-20s percent will be about the share of the China business for us, if that gives you a perspective there. And when we think about China specifically, we're restricted from competing with some -- in some accounts. But for the accounts that we're able to sell to, we think we're performing very well from a share perspective. We expect those markets to grow. And we see that market investing more and more in 28-nanometer going forward. They kind of built out the 50-plus nanometer capacity, is now focusing on 28-nanometer. And we feel like we're very well positioned on 28-nanometer. We've got the world-leading foundry positions in that node. So we're confident that -- that 25% for the business is probably a good number to think of without display, and that should grow over time looking forward. Gary Dickerson Yes. Vivek, maybe just to clarify, the mid-20s as a percentage of our total company revenue is China semi, including equipment and service. So that's kind of that number. And I'm sure you know and other people on the call know, we have a display business that adds a few percent to overall Applied revenue. And what I would add, certainly, we're extremely well positioned in the big drivers for AI. If you look at high-performance logic, DRAM compute memory, high-bandwidth memory, packaging, power electronics, all of those areas are the fastest-growing areas of the market, very well positioned there. And as Brice said, in ICAPS, we expect, over time, that will grow kind of mid- to high single digits. The 28-nanometer investment, as Brice said, is increasing significantly as a percentage of the total in China. And our share there is higher. So that will help us in '25 and also going forward. The other thing I'd say about ICAPS, this has been a focus for us for more than five years. We have new products in ICAPS that will enable us to expand into large new segments. We have new products where we have significant cost innovations to better compete in cost-sensitive areas of the market. So I'm optimistic that with all of those different factors, we're going to continue to see strong growth. We've grown five years previous to this year. We're growing in the first three quarters of '25 and I think really well positioned for these key inflections. Vivek Arya Thank you. Operator CJ Muse, Cantor Fitzgerald. Christopher Muse Yeah, good afternoon. Thank you for taking the question. I guess, Brice, I wanted to focus on gross margins. I think a quarter ago, you talked about 48.2% as kind of floor reflecting China normalizing, but that would kind of trade tensions or whatnot. It might now be 48%. Was hoping you could kind of update on that. And then longer term, into '26 and beyond, can you kind of speak to how you see value-based pricing, cost reductions and balancing manufacturing across both Austin and Singapore and where the trajectory for margins could go? Brice Hill Thanks, CJ. Good to hear from you. Yes, 48.2%. So obviously, we had 49.2% in the quarter. We talked about a very -- in the Q2, we talked about a very favorable mix. And our guide is 48.3%. And you're right, we highlighted -- investors might remember last year, we were in the 47s -- mid-47s, and we were hoping that we could get it into the 48s. And we've done -- we've made good progress on pricing, cost management and logistics improvements. And so I do feel like the low 48s, probably right around 48.2% to 48.3% is the right level where the company is operating at this point. And that has modest impact from tariffs. So in Q2, very small impact from tariffs because we had inventory positions that were pre-tariff. And then in Q3, in our guidance, also modest effective tariff because you pointed out, we have a very flexible manufacturing operation with a global footprint. We have a global supply chain. We've worked for years since COVID on duplicating sources across the globe. And we'll be making price adjustments for the things that cannot be managed from a tariff perspective. So our guidance for Q3 really reflects being able to manage that environment very well and having the flexibility to manage it very well. Then the last thing to say on the pricing, we do feel like we're making very good progress with value-based pricing and cost management. And I would just say that our expectation is we'll continue to make improvements to that level of margin as we go forward. Gary Dickerson CJ, this is Gary. One thing I would say, aligned with what Brice talked about, we've been driving cost improvements. We've made a lot of progress there. We're also driving better value capture as we go forward. We're enabling many of these really critical inflections for the industry. And I think the thing that I would focus on here is sustainable an improvement. We made progress this year. We've been making progress over the last few years. But I really believe that the initiatives that we're driving in cost improvements, the initiatives we're driving in value capture, all of those things will assist going forward. And we'll continue to see progress this year and in future years. Operator Melissa Weathers, Deutsche Bank. Melissa Weathers Hi, there. Thank you for taking my question. On the DRAM side of things, it seems like HBM has really helped put a floor in DRAM WFE spending since cyclically, we're still kind of bouncing along the bottom. But HBM does still seem to be driving nice growth. So can you help us understand the puts and takes on how to balance those two dynamics going forward? Like how do we think about the cyclical piece of DRAM compared to the HBM upside that you're seeing? Brice Hill Okay, Melissa. Yes, thinking about the HBM component, so from a wafer starts perspective, I think in this year, HBM as a component of DRAM should reach 16%. And what we would highlight there is it's growing at a 40% rate, similar to the AI data center-type components on the data center side. So that has put DRAM in total, including HBM equipment, really continuing to operate at very high levels. So at least on our side, I wouldn't say cyclical low. I'd actually say maybe last year was a record year. This year will be close to a record year or it could be a record -- DRAM is very strong. And the way we think of it is it's being pulled by that AI leading-edge. And all the compute memory that's needed for that and the HBM is a great example of that. So hopefully, that gives you a perspective. From our side, that business is operating very strongly across all those end technologies. Gary Dickerson Yes. Melissa, this is Gary. I would add that -- if you look over -- a little over a decade, we've gained 10 points of market share in DRAM. And this -- the compute memory is going to be one of the fastest-growing areas of the market over time. So if you look at, especially in the AI data center, that business is growing very quickly. And we talked about with DDR5 and HBM, 40% growth with our top 3 leading customers. So that business is growing at a high rate, and we are very strongly positioned. If you look at what we've been able to achieve in terms of share gains in DRAM and where the DRAM architectures are going to the future, the next big inflection is 4F squared. That architecture is a great opportunity for Applied. We're deeply engaged with all of those different customers. And we will outperform with all of our innovations as that new architecture is adopted. So again, very strong growth in DRAM for Applied, outperformance in the past and well positioned going forward. Melissa Weathers Thank you. Operator Harlan Sur, JP Morgan. Harlan Sur Good afternoon. Thanks for taking my question. Last couple of earnings calls, you guys have been articulating a leading-edge, foundry-logic and leading-edge memory spending acceleration as we move through the year, which implies that calendar second half spending on leading-edge technologies will be higher versus the first half spend. Is that still the team's view? And then kind of tied to that, right, advanced technology drives more penetration of your integrated system solutions. I think you guys exited last year with integrated solutions representing about 30% of your overall systems business. Where do you anticipate that mix exiting this fiscal year? Brice Hill Great. Harlan, so on the leading edge, definitely accelerating. And what we were highlighting in previous quarters as we sort of were thoughtful about the slower investment rate in ICAPS in the mature technologies after two years of very rapid growth, we were all hoping that leading-edge would begin to accelerate after a lesser year in '24 and '23. And that's exactly what we're seeing. So you see a pickup through the course of the year. That should be matched hopefully by all the things that you see in the market. If you look at the cloud service providers' CapEx, those numbers have only been going up. We've seen recent announcements of new factories and spending from the leading logic companies. So yes, I think we expect to be enduring. When we think about all the technologies that are packed around AI data center, so DRAM, HBM, advanced packaging, and of course, leading logic where there's 100% utilization on the front end there, that is accelerating. And then on the integrated equipment, we're still averaging approximately 30% so you can look at that as growing at the 7% rate -- almost 7% rate that we see the business growing at this point in time. Harlan Sur Perfect. Thank you. Operator Timothy Arcuri, UBS Securities. Thanks. I had a clarification and a question. So Brice, I just wanted to clarify what this is for the entire year this year. So I think you were talking about low double-digit growth, but I would assume that the back half is up like 30% half-on-half. So is that really the message where you keep talking about the core part of service? That's what's going to grow low double digit? So can you just tell us what you think the total business will grow for this year? And then my question is, most of the other companies expect WFE to be pretty first half-weighted this year. I know you don't talk about the market as a whole, but can you give us a sense of whether you would also say that markets first half-weighted this year? Brice Hill Okay, Tim. Thanks. So on the services, yes, when we think about core, we're stripping out the 200-millimeter equipment sales for that. So if you had an estimate in prior years of what those components were, for our core, we're hitting a record in this quarter. We'll have a record next quarter, and we're saying for the whole year, even despite losing -- not being able to serve some of those accounts in China, we will have low double-digit growth in the core business, so without that 200-millimeter. The 200-millimeter will make the overall AGS business growth look much smaller for the year. And so we'll have to see where that lands. But it'll be much smaller for the year. And then for first half, second half, we're talking about three quarters for Applied that are growing almost 7%. And what we would say is the trends that are pulling the business seem fairly durable to us. And we've talked about leading-edge accelerating. So without filling in two more quarters, we'll have to see where that goes. But we haven't seen really a change in the trajectory of demand or the trajectory of those trends in the last 90 days. Okay. So you have to say that the back half will be pretty flat with the first half? Is that the message? Brice Hill It's not really the message. Like I said, we won't fill in those last two quarters. Probably when you're thinking calendar year, that would be our Q4 and part of our Q1. So we're not giving specific guidance for that. But what we would say is almost 7% year-over-year so far, year-to-date for the company. And the trends that are pulling on the market seem fairly durable. So hopefully, that helps. Okay, thanks. Operator Krish Sankar, TD Cowen. Krish Sankar Hi. Thanks for the question. I also had a question and a clarification. Gary, just had a longer-term question for you. You're clearly gaining traction in new technologies like gate-all-around, backside power delivery. But when I look at your leadership products more on a unit process specification level, it feels like TBD is moving to ALD. On CVD, etch and CMP you always had the US, Japanese competition, but you have some alleged Chinese competition, too, in the segment. So I'm just kind of wondering how to think about your leadership product momentum over the next one to threeyears, some of these shifts in competition. And also, can you give any color or rationale on the 9% Besi stake. Gary Dickerson Sure, Krish. Thanks. So the way I would think about it, if you look at our leadership products, they're really targeted at the biggest inflections that are being driven by AI. And so in high-performance logic, what we've said is that we will -- for gate-all-around and backside power distribution, those are the two big inflections that are going forward, we'll gain share. And we are extremely well positioned to capture more than 50% of the available opportunity in those inflections. So again, very strongly positioned there. In compute memory and DRAM, again, that's another one that's being driven by AI. And I mentioned that earlier, we gained in a little over a decade about 10 points of share in DRAM. And we're, again, very well positioned in DRAM on the last 6F Squared nodes. And also for 4F squared, we're even better positioned. I met in the last month, I think pretty much all of those DRAM CEOs and most of the foundry-logic CEOs, very strong positions, very deep engagements. And then if you look at high-bandwidth memory, we have high share there. Advanced packaging is another one, where there are tremendous architecture inflections. And we're just very, very well positioned. So Krish, again, I have high confidence that we will gain share as those inflections happen. And we have visibility because we have such deep relationships with all of these different customers. And one of the things that everybody is focused on is this theme of high-velocity co-innovation. Everybody is racing to be first to market with those new architecture inflections. Whoever gets there first wins big. Everybody else is left behind. So I think what that's driving is earlier and deeper collaborations with those customers. And so again, we have very high visibility on our positions going forward for all of those major architecture inflections. Brice Hill Yes. I got it. And Krish, on Besi, so five-year relationship with Besi. We recently extended our collaboration agreement, working very well with them. I think you know our perspective on energy-efficient compute is their solution, combined with our solutions for die-to-wafer bonding will be very important for that energy road map going forward. And so we felt -- as we extended the collaboration agreement, we felt that we wanted to make an investment in their company at the same time. And on the 9%, no specific information to share there. We had a lot of investments during the quarter in addition to that with our EPIC facility that we're building, the world-class fab in Sunnyvale and then also the share buybacks that we mentioned. So that was -- that's our -- the information that we have to share there. Gary Dickerson Yes. Krish, what I would say also, I've personally been involved working with Besi for many years. They are the leader in die-to-wafer and die-to-die bonding. And our teams have developed an integrated hybrid bonding product with six technologies integrated together. There was a question about integrated products earlier on the call. So in this case, this is a really important innovation for the most advanced in AI memory chips, where, again, we have an Applied platform with the Besi bonder along with five other technologies. And we think this is going to be a meaningful growth driver going forward and contribute to a very strong growth rate in our advanced packaging business going into the future. Krish Sankar Thanks, Gary. Operator Mehdi Hosseini, Susquehanna International Group. Mehdi Hosseini Yes. Thanks for taking my question. This is for the team. What are the key assumptions embedded in the low and the high end of your July quarter revenue guide of $6.7 billion to $7.7 billion? Brice Hill Thanks, Mehdi. That's an astute observation. We widened our range by $100 million at this point. So it's plus or minus $500 million for the quarter. We had been doing plus or minus $400 million. And it Was really two things. We hadn't changed that in the last few years. And so the business is obviously larger. So we typically ask ourselves whether we should increase the range. And then certainly, during this period, as we saw during the quarter, there was a lot of volatility in the macro, in the market, in geopolitical, in trade, et cetera. And so we felt there's a number of scenarios that are being thought about, and so we thought it was a good time to widen the range. So there's nothing algorithmic or mathematical in this selection. We just thought we would indicate that there's more volatility in the environment than typical. Mehdi Hosseini And I assume that's more impacting the ICAP business than the leading-edge, which is more strategic, right? Brice Hill Could you say again, please? Gary Dickerson Yes. Mehdi, I think it really is the revenue size is larger. And there are changes that are happening from a regulatory standpoint, tariffs, those things that create more uncertainty. And so it's really a combination of those two things. But it was a very small change in range. But again, it's just those factors. Mehdi Hosseini Thank you, guys. Operator Srini Pajjuri, Raymond James. Srinivas Pajjuri Thank you. My question is on the NAND business. I know it's a relatively small business for you, but it's up nicely. And I think you're guiding for growth again. On one hand, your customers are talking about taking utilization down. And on the other hand, you and your peers are talking about spending improving. So if you could talk to the sustainability of the NAND growth and what exactly is driving it, I think that would be helpful. Brice Hill Sure, Srini. This is Brice. Thanks for the question. So on the NAND business, it has ticked up both in our Q2 and in our Q3, obviously, coming from lower levels. But yes, I think for that business, agree that utilization is lower, but most of those investments are made to upgrade process technologies and upgrade factories to the latest nodes. We see low 20s percent bit demand from a growth rate perspective going forward. And the way that the customers have been supplying that is by improving their technologies and advancing those nodes. So most of the business is upgrades, and I would say they don't really change their plans on upgrades. With a change in utilization, they'll focus on having the density advancement they need from a tech perspective. So really, I think it's just that, that these are investments they make with the lead time and they're thinking about upgrading the technology. Operator Timm Schulze-Melander, Redburn Atlantic. Timm Schulze-Melander Yeah, hi. Thanks very much for taking my question. So I had a question on advanced packaging. And I guess it's a question for Gary here, which is around kind of Applied Materials' appetite for risk. So it's an emerging application. It's obviously growing very fast. But also maybe the technologies that are going to be needed on a two, three, four year view in advanced packaging may evolve, may change. And I just maybe wanted to ask kind of what is Applied's appetite for risk for maybe trying new things, new technologies to serve that market. Thank you. Gary Dickerson Tim, so in advanced packaging, this is going to be one of the most important inflections of the industry. How you connect together all of the different high-performance logic, the compute memory, DRAM, high-bandwidth memory, all of those different chiplets and different components, there's going to be tremendous innovation in advanced packaging. So Applied, we've been investing and we're the leader in that market. We've been investing for a number of years with new capabilities. We have an advanced packaging lab in Singapore, a full flow lab, where some of our leading customers are working with us there on these new architectures. So I think we have -- a good thing for us is that we have very high visibility in where the industry is going. And I talked about this concept of high-velocity co-innovation. We are working with our customers to shape the industry road map, I think more than anyone else. And so when we're placing those bets, you talked about appetite for risk, we have pretty high visibility where to place the bets because we're in such deep and connected relationships with the customers. And we have this broad, unique and connected portfolio. So we're in deep relationships with our customers and even our customers' customers as they're looking at inflections in packaging, AI connectivity, those areas. So again, I have very high confidence there, innovations that we're driving that will expand our total available market in packaging. And we're extremely well positioned. We've grown significantly over the last few years in packaging, 4 times revenue in the last five years. And I have high confidence that we'll continue a very high growth rate going forward. Timm Schulze-Melander Great, very helpful. Thank you. Operator Charles Shi, Needham & Company. Charles Shi Hey, good afternoon. Thanks for taking my question. I have a question more on China. I think maybe two months ago at Semicon China, there's a new company called Scaria. They launched 30 new tools, I believe, lots of overlap with AMAT's portfolio. But I think the common perception based on what I'm hearing is Applied probably has likely the greater downside and a lot of the peers with all these new companies emerging in China. Wanted to ask if any thoughts you can provide on that particular competitor. And what could be the implications for -- in Applied's market share, especially, I think the team just talked about actually gaining more share in China as the customers more transitioning from 55-, 40-nanometer to 28-nanometer? Gary Dickerson Hi, Charles. Thanks for the question. So again, just to remind you, China semi is in the mid-20s, including equipment and services, as a percentage of total company revenue. And as we talked about earlier, 28-nanometer, where the investment is increasing, we have higher share. And I think the most important thing for us is we have a great innovation pipeline in ICAPS. We formed this group more than six years ago. It was actually April 12, 2019, is when we formed the group. And we're driving significant innovations with new products that will expand our markets, new TAM for Applied Materials, new products that have significant cost innovations for cost-competitive areas of the market. So I feel really good about the pipeline that we have going forward, expanding our available market and our ability to compete. And so I think in any of these different industries, the key thing is you have to run faster than competitors. And we have a great team in ICAPS. They've delivered great results. And I would say that I'm pretty positive about the pipeline that we have going forward and our position to drive growth in the ICAPS market into the future. Operator Brian Chin, Stifel. Brian Chin Hi, good afternoon. Thanks for inviting us to ask a question. Gary and Brice, you clearly remain confident on your positioning for the upcoming key technology inflections in advanced logic. I think generally, there's some anticipation that 2-nanometer and 16-angstrom nodes can represent at least a few hundred thousand of wafer capacity expansion. I don't imagine your thoughts around significance has changed. However, given the current level of geoeconomic concerns, what's your view on pacing here and whether this could cause these investments perhaps to spread out over a longer horizon? Brice Hill I guess I'll start, Brian, and thanks for the question. The way we always think of the market is what's driving demand from a wafer perspective. And you look at PCs and smartphones, they've been growing at low single digits. So those are fairly stable markets. But when you look at data center, it's growing at 20%. And if you look at the -- if you carve out the wafers inside that, that are associated with accelerators, graphics, et cetera, so the AI component of data center, it's growing at 40%. When we look at the leading-edge factories across the industry, they're at 100% utilization. And we all have thought about the gate-all-around technology, especially with backside power delivery, and thought, well, that's a significant improvement in power performance and density for the chip. So it looks like a really good node. That technology looks like a strong node. So we think the trends from a demand perspective are very strong. And we're expecting a significant build-out of that technology. And I think if you look at recent announcements, either cloud service provider or even the largest foundry, you'll see -- I think you'll see a lot of energy around the road map. Operator Chris Caso, Wolfe Research. Chris Caso Thank you. Good evening, I guess the question we've gone through a lot with your -- how you're kind of shaping up this year and know that it's too early to start talking quantitatively on next year. But I wonder if you could kind of address a little bit about qualitatively next year, kind of where you're feeling better about growth for next year. What are the things that we should be looking for as we build out our WFE models into next year? And what's your level of conviction that next year is indeed a growth year? Brice Hill Chris, great question. So the way we think about it is we kind of set that anchor $1 trillion to $1.3 trillion in 2030 for the semi industry. And you can use a range of assumptions for what the equipment intensity might be associated with that. And that will give you a pretty significant growth in the equipment business over the next five years. And so probably just like you, when you model, we don't try to pick the uneven growth that one year might describe. We have -- we modeled pretty smooth growth from here to 2030, riding AI, riding the AI data center, all the key technologies that we're describing when we think about robotics and large language models and all those types of things. We think those are strong demand drivers. So what we would say is those are enduring trends, and you can see the industry making the investments right now. You look at the cloud service providers, you look at the foundries, you look at us with the investment we're making in our lab here in Sunnyvale and our platform for innovation across the world. So I think those are the signals that you should look for is are the companies making those investments? And do we expect that trend to continue. I know people always want to know if after five years of growth for Applied, and we're growing at 7% so far this year, year-to-date, everybody wants to know if the next quarter after this one will be down or if next year will be down. We really don't model it that way. We just have kind of a smooth growth to that 2030, and we understand it will be uneven. Liz Morali Morali I think we have time for one last question. Thanks. Operator Stacy Rasgon, Bernstein Research. Stacy Rasgon I apologize. Thank you for fitting me in again. I appreciate it. Brice, I wanted to go back to your commentary just very quickly to make sure I have it on the segment growth for next quarter. I think you said that -- I thought these were year-over-year statements. Foundry and logic, you have leading-edge more than offsetting the ICAPS clients. It sounds like you think foundry-logic grows year-over-year. You said DRAM stable. So DRAM kind of flattish year-over-year? And then you said NAND growing, I guess, year-over-year. But within the full guide, would that not imply that NAND is down sequentially? Just can you sort of confirm that I have that commentary on the segments correct? Brice Hill Yes. Stacy, I think you've got all those right. And it was a year-over-year commentary that we were providing. So NAND has ticked up. Leading logic is definitely accelerating. I think we've shared that mature logic is down, but we expected that after the two years of rapid growth. And so to the extent that that's a little lower, it's being filled in by leading and just sort of continued strength on the DRAM. And what's happened in the DRAM business, depending on which quarter you're looking at. The first couple of quarters last year, we had the shipments to China customers. This year, that business is still very strong. And it's all that leading-edge -- those leading-edge customers that are making those investments. So I think you have those puts and takes correct. Stacy Rasgon Got it. Okay. So based -- I'd have DRAM down -- I guess, DRAM down sequentially, NAND could be up sequentially and then foundry and logic will be up pretty decent sequentially if I tie up those year-over-year statements? Brice Hill Yes, that's fair. Stacy Rasgon Got it. Okay, thank you. I appreciate it. Operator This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Brice Hill for any further remarks. Brice Hill Thank you. In summary, we're pleased to be operating at record levels. We're well equipped to navigate the dynamic conditions in the economic environment, and we're investing in significant industry collaborations to accelerate innovation, all of which position us to grow our business over the coming years. Thank you. Liz, please close the call. Liz Morali Morali Great. Thank you, Bryce, and thanks to everyone for joining the call today. I'd like to call your attention to two upcoming investor events. First, Gary will attend the Bernstein Strategic Decisions Conference on May 29. And then on June 4, Brice will be at the BofA Global Technology Conference. Lastly, a replay of today's call will be available on the Investor Relations website by 5:00 PM Pacific Time today. Thank you for your continued interest in Applied Materials. Operator Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day Sign in to access your portfolio
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Q1 2025 iHeartMedia Inc Earnings Call
Michael Mcguinness; Executive Vice President - Finance, Deputy Chief Financial Officer and Head of Investor Relations; iHeartMedia Inc Robert Pittman; Chairman of the Board; iHeartMedia Inc Richard Bressler; President, Chief Financial Officer, Chief Operating Officer, Director; iHeartMedia Inc Stephen Laszczyk; Analyst; Goldman Sachs Sebastiano Petti; Analyst; JPMorgan Aaron Watts; Analyst; Deutsche Bank Patrick Sholl; Analyst; Barrington Research Associates Inc Operator Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the iHeartMedia first-quarter 2025 earnings call. Today's conference is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Mike McGuinness, Head of Investor Relations. Please go ahead. Michael Mcguinness Good afternoon, everyone, and thank you for taking the time to join us for our first-quarter 2025 earnings call. Joining me for today's discussion are Bob Pittman, our Chairman and CEO; and Rich Bressler, our President, COO and CFO. At the conclusion of our prepared remarks, management will take your questions. In addition to our press release, we have an earnings presentation available on our website that you can use to follow along with our remarks. Please note that this call may include forward-looking statements regarding our financial performance and operating results. These statements are based on management's current expectations, and actual results could differ from what is stated as a result of certain factors identified on today's call and in the company's SEC filings, including our recent 8-K filing. Additionally, during this call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures are included in our earnings release, earnings presentation and our SEC filings, which are available in the Investor Relations section of our website. And now I'll turn the call over to Bob. Robert Pittman Thanks, Mike, and good afternoon, everyone. I know all of you are trying to read the tea leaves on this advertising marketplace in this uncertain environment, and so are we. At this point in time, we're seeing generally stable ad spend, but we, of course, continue to monitor it closely due to the lack of visibility. Even with that lack of visibility, let me remind you that over the past few years, we've repeatedly shown our ability to take quick and decisive action on both cost and growth opportunities for the benefit of both the immediate and long term and to leverage new technologies that significantly reduce our operating expenses without reducing our capabilities. We remain committed to identifying opportunities across our organization to operate more efficiently and take advantage of new and evolving technologies like Programmatic and AI, which are critical to delivering short-term results and long-term growth even during periods of economic uncertainty. Now let me jump to the financial results. In the first quarter, we generated adjusted EBITDA of $105 million, flat to prior year and consistent with our previously provided guidance. Our consolidated revenue for the quarter was up 1% compared to the prior year quarter, above our guide of down low-single digits. Excluding the impact of political, our consolidated revenue was up 1.8%. Turning to our individual operating segments. The Digital Audio Group generated first quarter revenue of $277 million, up 16% versus prior year. The Digital Audio Group generated first quarter adjusted EBITDA of $87 million, up 27.8% versus prior year, and the Digital Audio Group's adjusted EBITDA margins were 31.4% compared to 28.5% in the prior year, making continued progress toward our stated goal of achieving adjusted EBITDA margins in the mid-30s. Within the Digital Audio Group, our podcast revenue grew 28% compared to prior year, well above our revenue guidance of up high teens. We're beginning to feel the flywheel effect of being the strong #1 in podcast publishing. Our podcasting financial discipline and our focus on the high-margin podcast publishing sector continue to fuel what we believe is the most profitable podcasting business in the United States and to accelerate our growth. Importantly, our podcasting EBITDA margins remain accretive to our total company EBITDA margins. Our non-podcast digital revenues grew 8.7% compared to prior year. Turning now to the Multiplatform Group, which includes our Broadcast Radio, Networks and Events businesses. In the first quarter, revenue was $473 million, down 4.2% versus prior year. And excluding the impact of political advertising, revenue was down 3.4%. The Multiplatform Group's adjusted EBITDA was $70 million, down 9.3% versus prior year. Let me share with you a data point from this quarter, which we believe illustrates the progress we're making in moving our Broadcast Radio business back into growth mode. Included in our Multiplatform Group is our premier Broadcast Radio Networks business, which sells Broadcast Radio advertising with national reach instead of market-by-market or local advertising. Our premier Broadcast Networks revenue returned to growth in Q1 and was up 2.1% compared to prior year. We believe this is an important indicator of the growing strength Broadcast Radio has among national advertisers and evidence of the progress we're making in returning Broadcast Radio to revenue growth. Additionally, we continue to increase our share of the radio industry advertising revenue pie. In the first quarter, iHeart grew to 40% of the advertising revenue in markets measured by Miller Kaplan. Given our audience reach plus the investments we've made in ad tech and data, coupled with the fact that we have the largest sales force in audio, we expect that share growth to continue. Turning to the Audio & Media Services Group. Revenue was $59 million, down 14.2% year-over-year, and adjusted EBITDA was $16 million, down 33.3%. And most of that decline was driven by Katz television. Excluding the impact of political, the Audio & Media Services Group revenue was down 11.8%. In summary, we believe we're demonstrating, one, our ability to generate positive financial results even in an uncertain environment; two, our continued podcast outperformance as we cement our #1 leadership position; three, our commitment to reignite growth in our Broadcast Radio business; and four, that our modernization program remains on track to generate $150 million net savings in 2025, driven primarily by technology and AI. And now I'll turn it over to Rich. Richard Bressler Thank you, Bob, and good afternoon. Our Q1 2025 consolidated revenue was up 1% year-over-year, above the guidance we provided of down low-single digits due to March coming in slightly better than we were expecting in both our Multiplatform and Digital segments. Let me provide you with some additional granularity on our advertising revenue performance this quarter. As a reminder, we have no advertising category greater than about 5% of our total advertising revenue and no individual advertiser that is more than 2% of our total advertising revenue. In the first quarter, our top five largest advertising categories in terms of total revenue were health care, financial services, homebuilding and improvement, entertainment and auto. In terms of gains and declines in absolute dollars, as you can see on slide 9, the four largest gains in the first quarter were professional services, tech and telco, beauty and fitness and education. And the four categories that declined the most were restaurants, auto, gambling and political. Our consolidated direct operating expenses increased 4.4% for the quarter. This increase was primarily driven by higher variable content costs associated with the growth in our digital business, including higher podcast profit sharing expenses and third-party digital costs, partially offset by a decrease in employee compensation costs in connection with our monetization initiatives taken in 2024. Our consolidated SG&A expenses decreased 1.1% for the quarter, driven primarily by our modernization initiatives, including decreased employee compensation costs, partially offset by an increase in employee health and benefit expenses, including the reestablishment of the 401(k) matching program during the first quarter of 2025 and additional bad debt expense. We generated first quarter GAAP operating loss of $25.4 million compared to an operating loss of $34.7 million in the prior year quarter. We generated first quarter adjusted EBITDA of $105 million, flat to prior year and at the midpoint of our previously provided guidance range. Before I turn to our segment performances, I wanted to spend a moment on the modernization initiative we announced on last quarter's call. As a reminder, these actions will generate net savings of $150 million in 2025 when compared to 2024, and our Q1 results included the benefit of $27 million of net savings. This quarter, we have included a slide in our investor presentation, slide 5, that provides a few different ways of identifying the cost savings, including by segment, function and type. Hopefully, this level of granularity is helpful as you update your models. Turning now to the performance of our operating segments. And as a reminder, there are slides in the earnings presentation on our segment performances. In the first quarter, the Digital Audio Group's revenue was $277 million, up 16% year-over-year and above our guidance of up low-double digits. The Digital Audio Group's adjusted EBITDA was $87 million, up 27.8% year-over-year, and our Q1 margins were 31.4%, up from 28.5% in the prior year. Within the Digital Audio Group, our podcasting revenues were $116 million, which grew 28% year-over-year and well above the guidance we provided of up high teens. Podcasting's strong Q1 performance with its high EBITDA flow-through helped expand the segment's Q1 adjusted EBITDA margin by nearly 300 basis points compared to prior year. Our first quarter non-podcasting digital revenue grew 8.7% year-over-year to $161 million. The Multiplatform Group's revenue was $473 million, down 4.2% compared to the prior year and in line with our guidance of down mid-single digits. Excluding the impact of political revenue, our Multiplatform Group revenue was down 3.4%, adjusted EBITDA was $70 million, down 9.3% from $77 million in the prior year quarter. Multiplatform Group's adjusted EBITDA margins were 14.8% compared to 15.6% in the prior year quarter. Turning to the Audio & Media Services Group. Revenue was $59 million, down 14.2% year-over-year, and adjusted EBITDA was $16 million, down 33.3% from $24 million in the prior year, and most of that decline was driven by Katz television. Excluding the impact of political, the Audio & Media Services Group revenue was down 11.8%. At quarter end, our net debt was approximately $4.6 billion. Our total liquidity was $569 million, and our cash balance was $168 million. Our quarter ending net debt to adjusted EBITDA ratio was 6.5 times. In the first quarter, our free cash flow was a negative $80.7 million, essentially flat to the negative $80.9 million in the prior year quarter. As a reminder, Q1 is our seasonal low point for free cash flow in the year, and we expect to generate positive free cash flow in each of the remaining quarters in 2025. With Bob's comments on the advertising marketplace as a backdrop, let me now turn to our second quarter guidance. We expect to generate second quarter adjusted EBITDA in the range of $140 million to $160 million compared to $150 million in the prior year. We expect our consolidated Q2 2025 revenue to be down low-single digits compared to prior year. Our April pacing was down 2% compared to prior year and down 1.4%, excluding the impact of political. Turning to the individual segments for Q2. We expect the Digital Audio Group's revenue to be up low-double digits with podcasting revenue expected to grow in the low 20s. We expect the Multiplatform Group's revenue to be down mid- to high-single digits. And we expect the Audio & Media Services Group revenue to be down approximately 5% due primarily to the impact of political advertising. The full year guidance we issued last quarter did not contemplate the current macro volatility we are all seeing. Therefore, for us to hit our full year guidance, we will need some positive movement in the macro and improvement to the uncertainty in the back half of the year to avoid the possible negative impact on the advertising marketplace for audio. Now we will turn it over to the operator to take your questions. Thank you. Operator (Operator Instructions) Stephen Laszczyk, Goldman Sachs. Stephen Laszczyk Maybe two, if I could. Rich, just on the ad market, I know you mentioned the lack of visibility that's out there in the moment. I'm curious if you could perhaps just add in a little bit of color to what you're seeing out there at the moment in conversations you're having with your ad partners. I'd be curious to what extent they pulled back after the tariff announcements over the last couple of weeks to what extent you might be starting to see them reengage over the last couple of days here, especially post this morning. And I'm curious to what extent -- or what do you think we need to get visibility to return to the ad market here over the next couple of weeks and months. Robert Pittman Well, I think the news like today is certainly helpful. And I think if you go back and look at the data point we had in for Premier Networks, which is really our national advertising, we were up over 2% for the quarter. I think that's sort of an indication that the bigger advertisers are hanging in there and taking this in stride. I think the risk has been in the small and medium-sized businesses, which were, I think, a little more subject to any sort of bad news. And again, I think improving news like today helps that, and we feel better about it. Richard Bressler Yes. No, I wouldn't have anything to add to that. And I think just in terms of what you're seeing, I mean, we gave you the pacing numbers where we are through April. And again, you might -- as I remind -- we always remind all of ourselves every day of pacing is just a point in time. And just to remember, when we gave guidance in Q1, we said that we were up 5% in January, down about 7% in February in terms of pacing at that point in time or finishing January. We said we'd be down low-single digits in revenue for Q1, and we were up 1% as you saw what we reported today. So that's why it's a data point. But again, it's just a point in time. Stephen Laszczyk And then, Bob, maybe a higher-level question for you. I think you called out market share today in and around 40% of the industry. I think investors think of you as a market share gainer, but I would just be curious if you could speak a little bit more about the state of the terrestrial radio industry today? And maybe what gives you confidence that you can take that market share from 40% today to something north of that over the next couple of years? Robert Pittman Yes. I think -- look, I think the fundamental issue with Broadcast Radio is we've got more listeners than we did 10 years ago that the audience side of Broadcast Radio is just fine. This is a monetization issue that Broadcast Radio is facing. It's making the transformation from being a business that was sold as spots. And today, it's moving to electronic and digital platforms. And I think we're making that transformation. Our ad tech stack is moving along as expected. Programmatic certainly beginning to emerge for Broadcast Radio as well. And I think probably the biggest argument for the share gain is that given our size, what you're finding, I think, especially with the larger advertising partners is they want fewer partners, not more partners. And I think we are -- certainly would have to be partner number one. And what other partners they have in radio, I don't know, but I think that's probably beneficial to us as the industry consolidates. Richard Bressler Yes. And Stephen, it's Rich. I might just add just two very quick points. One of -- as you look forward, if you kind of go back over the last, whatever, eight, nine, 10, 11 years, we've consistently taken share in broadcast from Miller Kaplan standpoint. So I think hopefully, if it gets everybody comfort as they look forward, they get from a credibility standpoint, we've taken share going back. And number two, we have heard a feedback, which was very good about, okay, you've talked about audience more, can you give us data points in terms of broadcast? And that's what we shared with you today that Bob just articulated with respect to Premier Networks. Operator Sebastiano Petti, JPMorgan. Sebastiano Petti Podcasting in the first quarter coming through better than expected. Second quarter guide, Rich talks about or you're guiding to a continued acceleration in the 20% range plus. Help us think about what's underlying that. Obviously, you guys have been a leader in podcasting for quite some time, but we hear the narrative about consumption moving to video and video podcasting, YouTube now a larger player in the market. So any color around what's driving that and how you guys continue to accelerate that top line? And then one other kind of more thematic broader kind of question. I think, Bob, you said healthy for the market to consolidate. Maybe thinking about consolidation from a different angle. There is a bit -- a fair bit of focus on broadcast deregulation in the local TV space. How might radio be impacted if there is a loosening up of ownership rules? Does that change how you guys view yourself as a buyer or seller of assets? Robert Pittman Well, let me start with live podcasting. I think it starts with the fact that we've got the podcast people want to listen to. We've got a large podcast audience and it's growing. If you look at Podtrac, which measures podcast listening, not only do we do extraordinarily well overall, pretty substantial lead over the second largest podcast publisher, but we've also got it diversified across all 19 categories of podcast listening, it's measured by Podtrac. So I think it starts with that. And second, when you get into how are people looking at podcasting, the vast majority want to listen to podcast. Are there some people that would prefer to watch a podcast? Well, I think at that point, it's not really so much a podcast as much as it is a video show. And certainly, there's -- that goes on look at the success of YouTube, but I don't think that's the podcasting business per se. I mean, I understand that YouTube would like to take some of that podcasting revenue, and I don't blame them. But I think, again, the consumer is spoken. And so although we look at it and watch it carefully, I think we're in exactly the right position and feel very good about it. Richard Bressler Yes. Sebastiano, just on your first question, just maybe pick up on what Bob articulated. And just as a reminder, from a strategic standpoint, a number of years ago, which obviously turned out to be an important decision for us, we didn't go behind the paywall. We want to make sure all our podcasts were available anywhere. We carry everybody else's podcast. We just want to get the biggest inventory, and we want to monetize most efficiently. And Bob talked about within our company, we've got approximately 1,000 sellers on the ground that are selling everything anywhere, anytime, and that includes podcasts. So you really have a 1,000-person ad sales force spread out across the United States in our 150-plus offices selling. We've talked about our ad tech that we've built up over the years, the ability to place ads and monitor them and to report on them across all of our platforms. So again, when you look at -- this is not just something we started three or four days ago or three or four months ago or three or four years ago. And I think you're seeing the cumulative effect. And quite frankly, I think most importantly, with all the capabilities we have is the demand that we have out there. And if you see it, the efficiency and the effectiveness podcast. And I know we've said this before, is bigger advertisers or our biggest advertisers have only recently over the last couple of years, really started to discover with podcasting. And the reason why that's so important is bigger advertisers spend bigger dollars there. Robert Pittman And look, I want to add one other point is -- and we've talked about it before, but it's worth repeating here that podcasting is probably radio on demand, just like Netflix is probably TV on demand. It's an adjacent business to radio. So we have a natural advantage here, not only have an advantage in terms of creation and knowing how to do it and having the resources to do it, but we also have this incredible promotional vehicle called Broadcast Radio, where we're able to advertise these podcasts, promote them, talk about them to an audience that is very audio-centric anyway and understands what we're doing here. So again, I think that is the sort of natural advantage for us. Richard Bressler Yes. And by the way, just on your second question, I think something with respect to regulation, whether it's any of the licensed industries. I guess you're asking about SEC license industry. Obviously, none of us have (inaudible) and we're all reading the same press. But from our standpoint, we already reached 90% plus of the country, nine of 10 Americans. Bob highlighted our greatest -- in terms of our strength is that our broadcast listening is high than it was 10 years ago out there. So we've got a great footprint within the US. I don't see anything of that, that will affect our operating strategy at all. Operator Aaron Watts, Deutsche Bank. Aaron Watts I appreciate the expanded slide deck. I've got two, if I may. First, on the costs. Was the $27 million of cost savings you mentioned for first quarter run rate or actual impact in the quarter? And how should we think about the cadence of the balance of the savings coming through the rest of the year? Any lumpiness on the way to $150 million at year-end? Richard Bressler Aaron, thanks for that, and thank you for the comment on the slides. So the $27 million you shouldn't think about as run rate. Again, if you think about our cost and costs kind of supporting revenue that you'd expect them to kind of the case speed along with the business. But I think at a high level, if you thought about them $27 million in Q2 and then $40 million per quarter in each of the next three quarters, that would be kind of -- to think about those costs, and that comes basically to the $150 million. Aaron Watts Okay. That's helpful. And Rich, should the revenue environment slow? I know that's not what we're hoping for, but if it happened, are there additional cost rationalization opportunities that could be identified? Richard Bressler Yes. I think digital, one is we did -- in the deck, as you point out, I think it's slide 5, that goes through some more details on cost. I think what's important about that slide is that people look at it and look at the number of levers that Bob and I and the rest of the management team can focus on. And I think also Bob mentioned in his opening remarks that we've repeatedly, I think, since we've been here, shown the ability to be -- look at opportunities. By the way, a big part of that is just constantly looking at taking advantage of AI technologies, making things more efficient for both the medium and the long term, leveraging new technologies. And at the same time, make sure we've been talking about podcasting, make sure we continue to feed our winners and continue to feed our growth opportunities. And I think that balance is why you're seeing just as a tangible example, what you're seeing in podcasting revenue growth. Aaron Watts If I could squeeze one last one in, and again, appreciate the time. Nielsen updated its ratings methodology recently. I'm curious your early observations on that and whether the new way of looking at listenership is resonating with advertisers. Robert Pittman Well, I think the most important thing is that -- and we're excited about it is that Nielsen is making a priority to try and capture all the listening that's really happening. Not only is that important in terms of which shows us more listeners. But as advertisers do these econometric models, the media mix models, what's important is that when they see a signal of a purchase, a buy, they look back and see what caused it. If Nielsen is under measuring our listening, they don't show that person, makes it worse. We don't get credit and someone else gets credit for what we did. So I think it's a step forward with Nielsen in terms of let's make Nielsen more representative and more accurate for us to use not only in terms of pricing and selling our products, but also in terms of the value for these media mix models. Operator Patrick Sholl, Barrington Research. Patrick Sholl I was just curious if you could talk a little bit on the adoption of transacting programmatically, if there's any sort of difference across categories and how that contributed to the Premier Networks' revenue trends. Robert Pittman I don't think at this point, it was material in terms of the performance of Premier. I think that was probably more of an indication of how the big national advertisers that are buying national footprint look versus the SMBs. But we continue to make great progress. As you know, we've already pretty much got our digital inventory up and running on most of the important platforms for Programmatic and seeing some revenue coming in there. The big push for us is to get our broadcast inventory up on these as well. And I think we're making good progress there. Richard Bressler Yes. And I think we announced last quarter in addition to be in Magnite about getting our broadcast, just to be clear, inventory to DV360 and Yahoo, and we can continue to work with the other DSPs and recognize in terms of where the advertising marketplace is going, and we're adapting to that. Patrick Sholl And then maybe just one last on podcasting. On the growth in the quarter, I guess, how much of that comes from just increased rates on the impressions you're delivering versus growing the amount of impressions? Richard Bressler It's both -- we don't -- it's both. I would say if you think about it, just apples-to-apples year-over-year that there's nothing unusual at any one-time item in the numbers. It's just both coming from both volume and from rates on both. But remember, we've got such a wide purview in terms of the number of podcasts we have, the number of downloads from our biggest downloads to smaller downloads out there. And we have -- as I'll repeat it, we have 1,000 people selling it every single day out there selling podcasts along with the rest of our products. So it's a combination of both. Just I'll pause for a second, make sure there are no other questions. And if there's not, thank you very much on behalf of Bob, myself, the rest of the management team. And we, along with Mike McGuinness and the team are available for any follow-up questions. Thank you all. Operator And this concludes today's conference call. Thank you for your participation. You may now disconnect. Sign in to access your portfolio
Yahoo
13-05-2025
- Business
- Yahoo
Q1 2025 Brinks Co Earnings Call
Jesse Jenkins; IR Contact Officer; Brinks Co Mark Eubanks; President, Chief Executive Officer; Brinks Co Kurt McMaken; Chief Financial Officer, Executive Vice President; Brinks Co George Tong; Analyst; Goldman Sachs Tim Mulrooney; Analyst; William Blair Toby Sommer; Analyst; Truist securities Operator Good afternoon and welcome to the Brink's first quarter 2025 earnings presentation. All participants will be in the listen-only mode. (Operator Instructions) Please note this event is being recorded. This call and the Q&A session will contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences are available in the footnotes of today's press release and in the company's most recent SEC filings. The information presented and discussed on this call is representative of today only. Brinks assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brinks. I will now turn it over to your host Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin. Jesse Jenkins Thanks and good afternoon. Here with me today are CEO, Mark Eubanks; and CFO, Kurt McMaken. This afternoon, Brinks reported first quarter of 2025 results on a GAAP, non-GAAP, and constant currency basis. Most of our comments today will be focused on our non-GAAP results. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. Our management believes these metrics are useful to investors as they allow investors to evaluate performance using the same metrics as management. Reconciliation of non-gap results to their most comparable GAAP results are provided in the press release, the appendix of the presentation, and in this afternoon's 8-K filing, all of which can be found on our website. I will now turn the call over to Brink CEO, Mark Eubanks. Mark Eubanks Thanks Jesse. Good afternoon and thank you all for joining us. Starting with slide 3, Brink delivered total organic growth of 6% in the first quarter at the top end of our previous guidance. ATM managed services and digital retail solutions, or AMS DRS, grew over 20% for the fourth consecutive quarter as we continue to build upon solid momentum in these higher margin recurring revenue businesses. We delivered solid year to year growth in our global services business, which particularly benefited our rest of world segment. Record Q1 operating profits were up 40 basis points in the quarter with good productivity and favorable revenue mix from AMS, DRS, and Global Services. Adjusted EDITDA was $215 million with a margin of 17.2%. Earnings per share of $1.62 reflects the benefits of share repurchases, as well as the planned increase in a year over year tax rate as we lap one-time benefits from a prior year. Adjusted EBITDA and EPS exceeded the high end of our Q1 guidance due to strong execution and the timing impact of some expenses that we shifted into Q2. On a $1 trillion 12 month basis, free cash flow and conversion of 40% came in as expected, highlighted by continued progress on AR collections and customer payment terms. Strategically, we continue to focus on maximizing growth potential in AMFDRS, expanding our margins, and executing our focused capital allocation framework. AMS and DRS continue to gain momentum throughout the organization with solid growth across all segments. Now representing a 25% of our business, these recurring revenue offerings support performance consistency, margin expansion, and improved free cash flow, which is derived from improved working capital dynamics and lower cap intensity. I'll have much more on AMS DRS in a few slides. In our CBM business, growth was highlighted by strong performance in our global services business. As I'm sure you see in the news, precious metal movement was elevated during the quarter, which led to improved year to year growth. Our long term customer relationships, our global network, and our industry leading capabilities position us well to continue to capture elevated demand that may arise going forward. We also continue to diligently execute against our capital allocation framework. Year-to-date, we repurchased 1.3 million shares at an average price of $87.62 per share, representing about 3% of the outstanding shares at year-end 2024. Additionally, just last week, we announced the third consecutive annual increase to our quarterly dividend as we continue to focus our capital allocation on shareholder returns. With the remaining repurchase capacity of over $180 million under our existing authorization, we are on track to meet or exceed our prior year share repurchase levels. Overall, it was a solid first quarter. We delivered solid organic growth in our key business lines, expanded operating profit margins, and we opportunistically increased the return of capital to shareholders. Supported by our strong Q1, we are affirming our full year framework of mid single digit organic growth, 30 to 50 basis points of EBITDA margin expansion and free cash flow conversion between 40% and 45%. As we look to the second quarter, we see similar mid single digit organic growth rates. EBITDA is expected to be between $205 million and $225 million with earnings per share between $1.25 and $1.65 per share. Q2 top line guidance reflects our expectations for continued momentum in AMSDRS current FX rates, and its stable economic conditions. The second quarter guidance aligns to our first half expectations, including the timing impact of some restructured expenses shifting out of Q1 into the second quarter. Turn to slide 4, you can see their performance against prior years. Constant currency and organic revenue growth were 6%, with total revenue growth of 1%. Adjusted EBITDA was down $3 million with a $6 million dollar increase in operating profit in spite of higher restructuring costs versus the prior year and less interest income from Argentina as inflation continues to moderate in the country. Earnings per share was up 13% on a constant currency basis and down $0.03 per share year over year. Our outstanding average share count was down 4% with an expected increase in tax rate, which reduced EPS by $0.11. Free cash flow performance was as expected in the quarter. In total, free cash flow was down $14 million on a trailing 12 month basis and reflects the payment of a previously disclosed Department of Justice and fins in resolution. Excluding this item, free cash flow would have been up $4 million year by year with conversion from EBITDA of 42%. On slide 5, you can see the performance by segment. Starting with North America on the left, constant currency growth of 4% and organic growth of 2% was consistent with the prior year. With several new customer onboardings this quarter, DRS growth continues to be a highlight in North America. CBM revenue was up organically year on year, primarily due to a slightly elevated global services volume. Record EBITDA margins included revenue mixed benefits, good pricing discipline, and continued productivity as we streamline routing, labor management, and SG&A. With stable staffing and service levels and second half routing improvements that remain on track, we are well positioned to continue to deliver growth and margin improvement over the balance of the year. In Latin America, 7% organic growth was more than offset by year over year currency devaluation, primarily in Mexico and Argentina. Normalizing for the impact of Argentina inflation moderation, Latin America organic growth rates were stable sequentially. AMS and DRS mix increased to 18% of total revenue behind another strong quarter of growth in all countries. On the margin side, as you'll remember from last quarter, we expected to take some restructuring actions in the segment to streamline operations behind a growing AMSDRS mix. While we executed a portion of that restructure in Q1, we had some actions that will push into the second quarter. Our restructuring actions position us well to protect margins and realize the benefits of AMS DRS revenue model as we move forward in any economic scenario. Europe grew revenue by 5% organically in the first quarter while AMSDRS Mix increased by 2% sequentially to 42% of total revenue. We are making good progress converting and adding customers to DRS in Europe, including the rollout of cash accepting self-checkout devices in grocery and convenience stores. Europe remains a strong AMS market due to the consolidated nature of the banking footprint, and we continue to add new partners to our managed services network. We're making strong progress integrating the previously announced Sainsbury's ATM estate into our UK business, and we remain on track for full deployment by the middle of the year. IIAW was flat on a year on year basis as we continue to take restructuring actions to optimize our operations and realize the benefits of accelerating AMS and DRS growth. Normalized for these actions margins would have been up 40 basis points year over year. In the rest of world segment, organic growth accelerated to 9% this quarter, primarily driven by the increased movement of precious metals that I mentioned earlier. Record first quarter IE down margins were up 130 basis points due to growth and mixed benefits of the higher global services revenue. Turn to slide 6. We have more detail by customer offering. Cash and valuables management grew 1% organically and accelerated sequentially when netting the impact of Argentina currency. As I mentioned earlier, global services was up sequentially and year over year with additional volume from gold and silver shipments, seen primarily in the rest of world segment. Shipments continued to grow throughout the quarter before peaking it in March. Early in the second quarter, movement moderated but remains ahead of prior year. As we mentioned last quarter, dynamics in our global services business shift quickly, and our ability to leverage existing infrastructure and customer relationships remain the keys to our success in this line of business. Given the slowing growth in early Q2, we remain cautious in our outlook on this business line for both the second quarter and the rest of the year, but remain, as always, well positioned to capitalize on any opportunities as they occur. In our more traditional cash in transit and money processing business, we are pleased to announce a new partnership with a leading financial institution in North America. After a competitive process, we were awarded full cash in transit. Money processing, and cash vaulting services across both the US and Canada. We plan to onboard this new business over the coming months while ensuring a smooth transition and maintaining our high customer service levels. Importantly, as with any new CBM business, we will look to expand relationships with new retail customers and additional ATM estates as we use these as entry points into AMS and DRS moving forward. In DRS, we delivered another strong quarter of growth in all markets. Momentum continues as we win new accounts and convert existing customers. In North America, we delivered our best quarter of DRS growth since 2022 with new installations in the quarter from a leading auto parts store and additional momentum in the restaurant and QSR space. In Latin America, Mexico had a good month of installations as well, with ads in the wholesale and C store markets. Conversions from traditional CIT to DRS accelerated in both North America and especially Europe, driving improved revenue mix and record first quarter down margins in North America. Looking ahead, we expect to see an impact on growth rates in the second quarter as we lat the previously mentioned equipment sales from last year. We feel good about the rest of the year in DRS as we work from. An increased base of business, install a larger backlog, and work to close a strong pipeline of opportunities. On the AMS side we continue our efforts on onboarding large customers that we discussed in previous quarters in both Europe and North America. As I mentioned earlier, Sainsbury's onboarding remains well on track. In the US, we're making good progress deploying services into gas stations and convenience store customers that we want in previous quarters. As discussed previously, due to the size of AMS deals, growth in this line of business is not expected to be as linear as DRS has been. With deployments on track, we expect AMS growth to begin to accelerate into the second half of 2025. We continue to make progress building both the quality and size of our pipeline, leading to improving win rates in this offering. Now let's turn to slide 7. Before I headed off to Kurt to talk to the specifics of the quarter and our guidance. I thought it would be helpful to frame how the current market dynamics may impact as it brings. While we've yet to experience any significant disruption in our business, uncertainty has increased in many of the economies where we serve, including the US. On the left side of the slide, you can see our organic growth rates over the last 18 years. As you can see, we have a history of performing well across many market conditions and business cycles. Our growth rates have been consistently in the mid single digit range outside of the pandemic when retail establishments were completely shut down and the great financial crisis in 2009. With a much larger base of business now in AMSDRS and a more diversified global footprint, we expect to be even more resilient going forward. Our customer diversity in retail and financial institutions help mitigate challenges in any one sector, and we're closely monitoring any potential increase in bankruptcies or store closures in the markets we serve. With a geographic footprint that serves customers in over 100 countries and a global services business that has historically performed well in downturns, we are well positioned and adequately diversified if economic conditions deteriorate. As a service-based business, we expect to be mostly insulated from direct tariff exposure. More than half of our costs are labor, including fleet and shipping expenses. Most of our cost is variable, allowing us to protect our margins if volumes slow in the future. With the base of locally managed operations in 51 countries, materials and labor are primarily sourced by our local teams in local currency, and we have a long history of managing inflationary pressures with price discipline and productivity. We have a pipeline of productivity initiatives working through the brink's business system that will continue to support margins. And as we continue to shift our business to AMS and DRS, we are increasing network density and improving routing flexibility, providing more certainty on our profit margin expansion plans over the balance of the year and for years to come. Overall, I'm pleased with the first quarter and the outlook for the rest of the year. Our business remains stable and well positioned to execute our strategy. A growing base of AMS and DRS, line of sight to productivity initiatives in the second half, and a one quarter above expectations provide a strong foundation to continue our organic growth and margin expansion journey for the rest of the year. And now I'd like to turn over to Kurt to discuss the details of the quarter and more specifics on our outlook. Kurt McMaken Thanks, Mark, and good afternoon, everyone. Starting on slide 8, organic revenue grew $69 million with 80% of that growth coming from higher margin AMS and DRS services. $13 million of CVM growth included the impact of AMS and DRS customer conversions. Currency headwinds amounted to $66 million or 5% in the period, primarily from the Mexican peso, Argentine peso, and the Brazilian real. The organic revenue make benefits flow through generating 30% incremental operating profit while organic adjusted EBITDA grew $14 million or 6%. Total adjusted EBITDA margins were down 50 basis points from the prior year, negatively impacted by the regional revenue mix of FX, as well as less Argentina interest income. On slide 9, starting on the left, operating profit was up 4% to $151 million with a margin of 12.1% on strong productivity and line of business revenue mix. Interest expense was up $2 million year over year to $58 million. We are still expecting interest expense to be roughly flat to the prior year. Tax expenses were $28 million in the quarter, representing an effective tax rate of 27.8%, an increase from the 23.2% we saw in the prior year. As a reminder, this tax rate increase is primarily related to the lapping impact of inflation adjustments in Argentina on the prior year that is not expected to repeat in 2025. Interest income was $11 million in the quarter, down $5 million year over year. With inflation rates moderating in Argentina, we expect 2025 interest income to continue to decelerate as we move through the rest of the year. Income from continuing operations was $70 million. Walking back up to adjusted EBITA, depreciation and amortization was $54 million. We still expect total DNA to rise modestly in 2025, primarily reflecting increased depreciation from AMS and DRS equipment. In the stock comp and other category, stock-based compensation was down $4 million year over year in Q1, and for the full year we expect stock comp to decrease slightly to between $30 million and $35 million. Moving to slide 10. We continue to diligently execute our unchanged capital allocation framework. As always, we strive to allocate capital prioritizing long term shareholder value. Our framework is designed to compound free cash flow in future years by investing first in organic growth and margin enhancing opportunities in the business. We are targeting CapEx as a percentage of revenue around 3.5%, and plan to continue to drive capital efficiency as we shift our mix to AMS and DRS. In the first quarter, our leverage increased to 3.06 times, just over our target range as we accelerated share repurchases into the early part of the year to opportunistically take advantage of attractive pricing. We remain on target to be within our leverage range by year end. Our primary use of capital over the last few years has been share repurchases, and we continued the trend in the first quarter. Through May 9th, we have repurchased over 1.3 million shares, a full 3% of the outstanding share count at year end. In total we have spent over 110 million year-to-date and have approximately 180 million in available capacity remaining in our current authorization. With respect to dividends, just last week, our board authorized the third consecutive annual increase to our quarterly dividend. We plan to follow a similar consistent dividend policy going forward. And finally on M&A, our posture on deals is consistent. We have a full pipeline and continue to explore a creative opportunities that have a strong strategic fit, attractive returns, and align with our current leverage targets and broader capital allocation framework. Moving to the guidance on slide 11. With a strong first quarter behind us, our full year framework for 2025 remains unchanged. We expect mid single digit organic growth to include mid to high 10s organic growth and AMSDRF. Over the last quarter, FX rates have moved in our favor. Using today's rates, we would expect about a 2.5%, or $125 million dollar FX improvement to our initial full year estimate. This $125 million FX improvement was primarily due to the EUR and pound, shifting our geographic mix of revenue more towards our Europe segment. So despite the good EBITDA performance we saw in the 1st quarter, we are maintaining our margin expansion targets of 30 to 50 basis points for the full year. There has been no change to our expectations for free cash flow conversion, and as I mentioned on the last slide, we opportunistically pulled forward share repurchases into the early part of the year and for the full year remain on track with shareholder returns that meet or exceed 2024 levels. In the second quarter, we expect revenue between $1.25 billion and $1.3 billion reflecting organic growth in the mid single digits. Using today's rates, FX is expected to be a headwind of around 3% to 3.5% as we lap last year's Q2 steep devaluation of the Mexican peso before moderating in Q3. The organic revenue guidance assumes strong continued growth in AMSDRS and current trends in the global services business. Adjusted EBITDA is expected to be between $205 million and $225 million. This suggested E dot guidance reflects the flow through of revenue growth, the timing impact of restructuring actions that shifted from Q1 to Q2, the impact of currency mix on margins, and lower interest income. EPS is expected to be between $1.25 and $1.65. And now I'll hand it back to Mark for closing comments before we start Qing it. Mark Eubanks Thanks Kurt. 2025 is off to a solid start. In Q1, we delivered the fourth consecutive quarter of over 20% organic growth in our key verticals of AMS and DRS, supported by a strong pipeline and the onboarding of several new customer accounts in the second half. I am encouraged by our momentum. In CVM, we remain well positioned to generate growth with a major new North America banking partnership coming in the second half, and our global services business remains poised to capture the available growth opportunities. I margins are expected to expand in the back half of the year behind the strong growth and our ongoing productivity efforts. Supported by our historical performance, our differentiated business model is built for success in the uncertain macroeconomic environment ahead of us. I am confident we are sustainably improving the business, building a business that will deliver a more consistent growth, marginal improvement, and free cash flow generation profile for years to come. And with that, we're happy to take your questions, operator, please open the line. Operator (Operator Instructions) George Tong, Goldman Sachs. George Tong Hi, thanks, good afternoon. Can you talk a little bit more about your tariff exposure, specifically how much of your hardware is imported, measured as either percentage of revenue or percentage of cost, what your country exposures are, and what average effective tariff rate across your country exposures is assumed in your guidance? Mark Eubanks Sure, thanks, George for the question. We, first and foremost, we talked a little bit about it in the prepared remarks, but we don't really expect frankly, any direct exposure from tariffs. As most of our costs and our revenues are all in the same currency, and we don't import export. Much of our services. Obviously our global services business a little bit different and I think that's why you saw some of the activities in Q1. There were some concerns about precious metals which caused a lot of shipments from around the world, frankly, that showed up in our rest of the world segment as really a step up in revenue bringing precious metals, particularly to the US that Eventually was sorted out as you're probably aware, and those commodities were exempted from any tariffs. So today we really don't, see any of that even as we think about like trucks, parts, and so forth, most of those are locally sourced in region or in inside of trade unions, and so we don't really have any impact. I think that the issue where we where we would see impact to our business like any business would be, any sort of moderation to growth, global growth that occurred, or any local, let's say cost of living increases or inflation and of course in those cases we do all we can to manage those costs with productivity, but also, we'll remain disciplined obviously in the in our pricing posture as we go to market. George Tong Got it. That's helpful context. And then switching gears, looking at your Latin America business, organic growth was 7% in the quarter, but the FX drag was negative 16%. In past quarters, your organic growth was able to match. Your FX trends. So can you talk about pricing trends you're seeing in the region and if you're able to use pricing to fully offset currency devaluations or FX headwinds going forward? Yeah. Mark Eubanks Yeah, good question, George. So two things, two types of two types, two parts of that question, let's say. The first is pricing for the highly inflationary market like Argentina where the currency was devaluing, rapidly and yes, we continue to maintain that same posture of, as inflation, the hyperinflation comes through, we're pricing for that in the local market. In the Latin America basket in total, the largest part of the FX impact is the Mexican peso, which is really just a year on year impact of the devaluation that occurred last year in the end of June. And so we'll see, we'll continue to see FX. Headwinds from Mexico and Brazil, frankly, for the really for the first half when when the big devaluation happened late June, we'll see that moderate in the back half of the year. Q2 should be similar in total growth. As one, so, we feel, Good where we are and in fact, the quarter came in about as we expected. Operator Tim Mulrooney, William Blair. Tim Mulrooney Mark Kirk, good afternoon. Mark Eubanks Hey Tim, how are you? Tim Mulrooney Tim. Doing well thank you so I have a few here first on your 2nd quarter. Margin guide, you're looking at about 16.9% I think which is down. On a year over year basis for the 2nd quarter of last year, down a little more than 100 basis points, I think. Can you just walk me through the puts and takes here and also with margins being down year over year in the first half, but full year guidance anticipating 30 to 50 basis points of margin expansion, can you help us bridge that GAAP between first half margins and second half margins? Kurt McMaken Yeah, hey Tim, it's Kurt. Let me kind of walk you through first on the first half, I think some of the biggest drivers are really going to be around two main things. One is FX and the mix of the FX, particularly from the Mexican peso and how that impacts our margins. And the second is around Argentina interest income. Because that rolls off, has rolled off year over year and has a significant impact. So those two are are big drivers of ultimately the margins. There's also a bit of restructuring in there. We have more restructuring this year than last year in the in the first half. So those are your three, big items when you think about the first half, and even the second quarter. If you look at the second half and how things are ramping again you have some FX impacts on that. Number one, you don't, the the the Mexican pesos starts to roll off, so the so the FX impact in the second half is quite a bit more muted. And then you have normal seasonality for us, so we ramp in the second half our organic, actually if you look at the organic growth in the second half, it's pretty consistent with the first half, but because the FX is moderating your growth, your total growth is actually, quite a bit higher. So and then if you look at the flow through on that, it's pretty much as we would expect. Mark Eubanks In fact, Tim, FX, if you just run the math out, become almost a tailwind in Q4, just given the year on year of where the Mexican peso is today and where it was in Q4. Kurt McMaken The only other reminder too in the 3rd quarter, we had a pretty significant security loss event last year and so we're lapping that in the 3rd quarter, so there's a pretty big expansion in the 3rd quarter in terms of margins because of that. Tim Mulrooney Okay, that was very comprehensive. Thank you. So FX. The restructuring, the interest income and the lapping of that security loss. Thank you. On the interest income, I know that less interest income from Argentina negatively impacted margins in the first quarter. How much of a headwind do you expect this to be to keep it for the full year? Kurt McMaken So, We, it, it's meaningful. I mean, I, it runs. Maybe a way to think about it is Yeah, I, I'm trying to bucketize it in a way that's. I think you can think about it as $45 million a quarter. I The way to think about it. Tim Mulrooney Okay, that's. That's helpful. Now, the reason. Kurt McMaken A little bit, yeah, Tim, I was just going to say is because it does obviously depend a lot on what happens in country, but that's kind of our current thinking on it. Tim Mulrooney Got it. Yeah, I know this is a very dynamic situation, especially. Mark Eubanks Lately, so that's what's in our outlook in our guide for the quarter, Tim, yeah. Tim Mulrooney Okay, maybe we can shift to growth here really quick. I know you're expecting 3% to 6% organic growth in the second quarter. What would that be, excluding the equipment sales from last year? Mark Eubanks Oh, for DRS AMS, is that what you're asking, excluding equipment sales? Yeah. Yeah, so, yeah, we are, we're expecting, so last year just as a reminder we had $8 million worth of DRS. Sales that were equipment sales one time that we talked about. We're, we left the quarter a little over 20% in 1. Q2 will have a little bit, maybe a couple points of headwind on an organic growth basis, but on a dollar basis we expect to continue the same kind of trajectory, Tim, and don't expect it to be outside of our guide or or even kind of the recent continued efforts. Tim Mulrooney Okay, got it. That's good news. Kurt McMaken And one more, just sorry, just one clarification on that, I mentioned in the prepared comments about, AMS and DRS, a little bit of the differences in maybe. Their growth characteristics where DRS is usually lots of, maybe smaller, more gradual growth, it's more, maybe more consistent where AMF can be lumpy, contracts might be bigger and in fact, in the quarter we had a pretty good quarter not just on, revenue but on awards, we we actually. We got two new awards down in Southeast Asia from banks, ATM outsourcing agreements, pretty significant one in the Philippines, one in Indonesia. Those will come on, likely in the second half into early Q1 next year. We're still on boarding Sainsbury's right now as we, as I mentioned, which is, a significant undertaking that will provide, a lot of Support for the back half, organic growth, as well as several other large convenience store chains here in North America that were also on boarding. So really good progress there. The pipeline continues to grow and not only is the pipeline growing, but the quality of the pipelines growing and what I mean by that is more, higher close rate, more fidelity, less, let's say time dragging out in in in some of these deals. And then on the DRS side, very similar, as I look at the end of the first quarter, our DRS worldwide device count was up 5% over the December 31 kind of year-end rate, so making, meaningful deployment improvements. In fact, in North America, we installed a record number of devices. In our history in March and had really good momentum in April as well with installs of our backlog. So it's really, good momentum and then I just say the rest of the DRS portfolio, you can see our numbers, good high penetration in Europe accelerating penetration in North America, but if you look at, Latin America and the rest of the world, we're also now starting to see. Pick up in growth there, both. Mexico, Brazil, Chile, these are the big markets for us. We do continue to see that. And then also, as I mentioned, Indonesia on the AMS side, they're also doing well on the DRS side. We've even, signed a nice agreement with a smaller business of ours in the UAE. So we're really starting to see some some good trends for not just the conversions but really more of the unbinded customers when you get into these emerging economies. Tim Mulrooney That's really good color, Mark. I mean, my last question was going to be if you could remind us why you'd expect your AMSDRS business to be more resilient to macro softness, maybe relative to the traditional CIT business, but I think maybe you just answered it. Is the answer just that the penetration opportunity is so significant? I is it just that the growth opportunity in the white space is so significant that you see growth there regardless, or is there something inherent? About the DRSA business model that lends itself to less cyclicality. Mark Eubanks Yeah, I'd say there's two things there, Tim. The first is absolutely the white space is much larger, which means if the white space is 5x the existing, addressable market, it could be down 50%. We'd still have a huge market to go to go catch. So that that is certainly part of it and, okay, it's not. It's not all easy business or known customers, so we've got to develop new channels to market which we're doing so that that is occurring and it's providing, obviously tailwinds to growth even in the headwind of an economy. The other side of that though is also in our traditional CIT business. The revenues were more activity-based, more volume based, and in fact ended up being, much less or are much less predictable in a, from a month to month, quarter to quarter where the DRSAMS agreements are largely subscription-based service agreements that have longer term, more. More consistent revenues that don't have much variability, baked into transactions, volumes or values. Operator Toby Sommer, Truist. Toby Sommer Good afternoon. This is Tyler Barraon for Toby. Markets were quite volatile post Q1Qs maybe describe some of the trends in the BGS segment quarter to date. Mark Eubanks Yeah, sure, certainly what we saw in 21 was very unusual, the tariff, scare or tariff concerns around. Being able to get precious metals into North America certainly drove a lot of shipment volatility in the markets, but a lot of shipment volumes for us, and you saw that in our rest of world segment as they, really had a great quarter fulfilling customer needs to, keep. What we thought might be, to keep functions, markets functioning, around precious metals, particularly, in North America. We don't see that that same level of activity in April and in fact we would say it's really been slowing throughout April into you know into the rest of the quarter and probably would look more like. You know what we would have seen with in the other regions around mid single digit organic growth. I think our guide right now reflects that current trend baked into that and we think, we feel pretty good about where that is. Toby Sommer Makes sense. The AMSDRS mix is quite wide across different segments. Can you just talk about some of the initiatives you could take to maybe raise that mix in Latin America and the rest of the world? Mark Eubanks Yeah, sure. We, in fact, we are, we're working through that now. I think part of what's happening in Latin America and the rest of the world is. They already, it's a we have pretty significant businesses there already that have been, in rich cash you know or cash heavy economies, let's say, and in many cases some of our early DRS solutions may not have been able to accommodate that. We've expanded our product portfolio, made some investments, with our product management organization, working with suppliers to develop. Solutions that are capable of dealing with much higher cash volumes and we see those those solutions resonating with some of our existing customers on the new customers it's actually been the other way it's required us to really become maybe more nimble and lower our cost to serve with, maybe smaller solutions, smaller devices that are able to really. Attack that segment of the market that is much smaller retailers, not large, store footprints that you might see in our traditional business. So as we do that, obviously we've had to develop not only our own sales team's capabilities but also developing other channel partners whether that's partnering with banks, other financial services companies, or even, other let's say, retail. POS payments types of companies to to help us get access to those markets. Kurt McMaken You can see in the growth rates you Tyler, I mean, the both the rest of the world and latM, grew about 25% of EMS DRS in the quarter, so. Operator Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mark Eubanks for any closing remarks. Mark Eubanks Yeah, thank you all for joining us this afternoon. We appreciate your continued interest in Brinks and look forward to speaking to you soon and maybe seeing you in person when we're here on the road. Have a great night. Operator The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
