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28-05-2025
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Q4 2025 Champion Homes Inc Earnings Call
Jason Blair; Investor Relations; Champion Homes Inc Tim Larson; President and Chief Executive Officer; Champion Homes Inc Laurie Hough; Executive Vice President, Chief Financial Officer, Treasurer; Champion Homes Inc Daniel Moore; Analyst; CJS Securities Greg Palm; Analyst; Craig-Hallum Capital Group Matthew Bouley; Analyst; Barclays Mike Dahl; Analyst; RBC Capital Markets Phil Ng; Analyst; Jefferies Jesse Lederman; Analyst; Zelman & Associates Jay McCanless; Analyst; Wedbush Securities Operator Good morning. Welcome to the Champion Homes fourth-quarter fiscal 2025 earnings call. My name is Sherry. I will be coordinating your call today. (Operator Instructions) As a reminder, this conference is being recorded. I will now turn the call over to your host Jason Blair to begin. Jason, please go ahead. Jason Blair Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the fourth quarter and full year ending March 29, 2025. Here to review our results are Tim Larson, Champion Homes' President and Chief Executive Officer; and Laurie Hough, Executive Vice President, Chief Financial Officer, and Treasurer. Earlier this morning, we issued our earnings release. As a reminder, the earnings release and statements made during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release. I will now turn the call over to Champion Homes' CEO, Tim Larson. Tim Larson Thank you, Jason, and good morning everyone. On behalf of the Champion team, I'm proud to report that in fiscal 2025, we provided over 26,000 homes to customers and families across the US and Canada. This represents a 19% increase in homes sold year-over-year, and revenue growth of 23%, resulting in fiscal year 2025 sales of $2.5 billion. Unit volume increase was driven by higher demand across all channels, including from the regional homes acquisition for the entirety of the fiscal year. Performance was driven by an unwavering focus on our customers and executing our strategic priorities. We are investing in new products and services for our channel partners and expanding our retail capabilities, including today announcing an acquisition of Iseman Homes, which I will discuss further in a moment. We were very active in the marketplace during the quarter, and had a tremendous reception to our new products at the International Builders' Show, where we showcase models laser focused on providing builders with relevant and affordable turnkey homes. In March, we had a great response for our Biloxi shelf product lineup, reflecting the strength of the Champion Holmes family of brands. More recently, we were able to engage with leadership from the Department of Housing and Urban Development. We are encouraged by the dialogue and the positive feedback we received during their recent visits. We are impressed by US HUD Secretary, Scott Turner's commitment to making home ownership more attainable. I appreciate the time we've spent train our homes, and his willingness to learn how we can further expand manufactured housing to address the affordability needs across the country. The recent spotlight in Congress to reaffirm HUD's role as the sole regulator and removing the requirement that manufactured homes on a permanent chassis are all steps in the right direction. And when combined with zoning reform, will reduce barriers to further grow the market for off-site build homes. A market that we are investing in for growth, as reflected in our strategic priorities and capital allocation, they are all aligned to deliver sustained value across all stakeholders. Given the current overall market uncertainty, we are focused on remaining nimble while thoughtfully advancing our strategy, and that was very evident in the fourth quarter of fiscal '25. Team continued to execute on the fundamentals and deliver profitable growth by navigating an unpredictable environment with tariffs and inflation looming throughout the quarter. Fourth quarter year-over-year net sales increased 11% to $594 million, and homes sold during the period increased 6% to a total of 6,171 units. We experienced normal seasonality in the fourth quarter, with a sequential decrease in revenue compared to the third quarter, and orders increased as we progressed through the quarter, and our backlog at the end of the year was $343 million. Backlogs were up 9% from the end of last year, and up 10% sequentially. Average backlog lead time ended the quarter at 8 weeks, which is within our target range of 4 to 12 weeks. I'll provide some additional commentary from the quarter on each of our sales channels. Sales to our independent retail channel and through our captive retail stores both increased versus the prior year period. For independent retailers, we continue to advance our digital technology and league management platform, including the phase launch of a dealer portal, which was receiving great reviews from the early adopters. Consistent with our strategy to expand our captive retail presence, we announced today an agreement to acquire Iseman Homes located in the plains region of the US. We will use the strength of our in-house retail and our new Iseman Homes team to drive growth in this region. I'll touch more on Iseman in a bit. Moving to the community channel, we remain focused on supporting our community partners by providing timely and relevant products at the right value. Through these efforts, sales in community channel increased versus the prior year. Our build a developer pipeline remains strong as we continue to grow the network. The projects are in various stages and are being paid somewhat by the market uncertainty. However, we are continuing to invest in this channel and believe over the long term, off-site build homes will become a more widely adopted approach for builders and land developers. Champion Financing, our joint venture with Triad Financial Services, continues to perform well. Our retail loan programs, when combined with the right home, provide today's consumers with their optimal monthly payment. Our floor plan programs allow us to support growth with our retailers by ensuring they have the right products for each market. We appreciate the collaboration with the ECM Capital and Triad teams and partners. Looking to our first fiscal quarter of '26, as we thoughtfully navigate the market and consumer uncertainty, we anticipate Q1 revenue be up low single digits compared to the same period last year. As we begin fiscal 2026, the demand has been less predictable compared to a normal spring selling season. In addition, we are seeing a shift in consumer trends to smaller floor plans with fewer features and options. The near term outlook for the community channel varies as we hear mixed views depending on the operator's geography and expansion pace. Despite the uncertain environment, we remain confident and focused on executing our strategy and leading and managing the variables within our control while remaining nimble in the market. We are actively managing within the dynamic environment and are executing our playbook as developments unfold. But so far the direct cost impact has been limited, but we do believe it is affecting consumer sentiment. Our strategy includes a balanced approach of selective price adjustments and material sourcing changes to optically mitigate the impact. We're also being proactive and agile as we navigate the environment, including taking actions to thoughtfully control our fixed costs, while not losing sight of our need to invest in our strategies for the long term. We recently idled one of our production locations in the Florida market by leveraging our remaining nearby facilities for customers in that region. Fermenting in demand in Florida has been slow to recover from the 2024 hurricanes. In addition, in the British Columbia region, we are consolidating two of our Canadian factories into one, to improve operating efficiencies and reduce overhead costs. From a growth perspective, as I mentioned earlier, we announced the signing of a definitive agreement to acquire Iseman Homes, including its 10 retail sales centers in the plains region of the US. This acquisition underscores our long term strategy to expand our retail footprint and deliver market relevant products, all while elevating the home buying experience for our customers. With annualized revenues of approximately $40 million, we see a pipeline of local market demand and synergistic opportunities. Champion Homes team is very excited to welcome Iseman Homes, and we look forward to their integration with our Champion family of brands. We expect the transaction to close by the end of our first fiscal quarter. In summary, we believe Champion Homes is well positioned to weather the uncertain market environment while driving an unwavering focus on our long term strategic growth priorities and day to day execution that are directly centered on our customers and team. I'll now turn the call over to Laurie, who will discuss our quarterly financial performance in more detail. Laurie Hough Thanks, Tim, and good morning everyone. I'll begin by reviewing our financial results for the fourth quarter, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near term expectations. During the fourth quarter, net sales increased 11% to $594 million compared to the same quarter last year, with US factory-built housing revenue increasing 10%. The number of homes sold increased 5% to 5,941 homes in the US compared to 5,652 homes in the prior year period. US home volume during the quarter was supported by healthy demand across our retail and community channels. The average selling price per US home sold increased by 5% to $94,300 due to product mix, including a higher number of units sold through our company owned retail sales centers. On a sequential basis, US factory-built housing revenue decreased 8% in the fourth quarter compared to the third quarter fiscal 2025. We saw a sequential decrease, mainly due to expected seasonality, as well as an impact from weather across the south. In addition, manufacturing capacity utilization was 60% compared to 63% in the third quarter. On a sequential basis, the average selling price per home was relatively flat. Canadian revenue during the quarter was $25 million, representing a 22% increase in the number of homes sold versus the prior year period. The average home selling price in Canada decreased 9% to $110,600 primarily due to a shift in product mix. Consolidated gross profit increased 55% to $152 million in the fourth quarter, and our gross margin expanded 740 basis points from 18.3% in the prior year period. The higher gross margin was primarily due to a product liability reserve of $34.5 million recorded in the fourth quarter of last year that did not reoccur in fiscal 2025, as well as higher average selling prices and a higher share of sales through our captive retail sales centers. Gross margin declined sequentially from our fiscal third quarter and was lower than expectations, primarily due to higher material input costs relative to flat wholesale ASPs, as well as lower capacity utilization, causing decreased leverage of fixed overhead costs. SG&A in the fourth quarter increased $20 million over the prior year period to $110 million. The increase is primarily attributable to increased sales volumes through our company owned retail sales centers and higher variable costs related to higher revenue. In addition, we increased marketing spend to drive awareness in our brands and homes and continued to make investments in technology to support future growth. The company's effective tax rate for the quarter was 17.1% versus an effective tax rate of 19.2% for the year ago period. The decrease in the effective tax rate is primarily due to an increase in tax credits and a decrease in state income taxes. Net income attributable to Champion Homes for the fourth quarter increased by $33 million to $36 million or earnings of $0.63 per diluted share compared to net income of $3 million or earnings of $0.05 per diluted share during the same period last year. The increase in EPS was driven mainly by the absence of an adjustment to the water intrusion product liability reserve in the current year period. Adjusted EBITDA for the quarter was $53 million which is consistent with the same period a year ago. Adjusted EBITDA margin was 8.9% compared to 9.9% in the prior year period. This decrease in EBITDA margin is mainly driven by higher SG&A. We expect near term growth margin in the 25% to 26% range as we balance softening consumer confidence, decreased demand in certain markets, and inflation. In addition, we're seeing consumers shifting to homes with fewer or lower priced features and options which impacts gross margin. To help offset some of this impact, and as Tim mentioned earlier, we're taking steps to balance SG&A spending while continuing to drive our strategic growth priorities, including investments in people and technology. As of March 29, 2025, we had $610 million of cash and cash equivalents and long-term borrowings of $25 million, with no maturities until July of 2026. We generated $46 million of operating cash flows for the quarter compared to $4 million in the prior year period. In the quarter, we leveraged our strong cash position and returned capital to our shareholders through $20 million in share repurchases. Additionally, our Board recently refreshed our $100 million share repurchase authority, reflecting confidence in our continued strong cash generation. I'll now turn the call back to Tim for some closing remarks. Tim Larson Thank you, Laurie. While we anticipate near term rates to vary by channel geography, the need for affordable housing remains ever present across the US and Canada. The long term outlook for Champion is strong, and we have the strategies in place to deliver for all our stakeholders, strategies that we are thoughtfully executing as we evolve the team with the combination of internal advancement, new talent, and selective engagement of outside resources. Our guiding priorities are not only for the long term, they provide a clear roadmap for today's environment and deploying our capital, including winning as a customer centric, high performance, agile team, innovating and differentiating with products and services that bring in new buyers, expanding and elevating our go to market channels, including delivering experiences before, during and after the sale that earn new customers and their referrals, increasing awareness, demand and adequacy for our brands and homes, and leveraging our costs, capacity and investments in people and technology. Finally, I would like to recognize the entire Champion Homes team for their exceptional efforts to grow revenue and earnings in fiscal 2025, and as we work together to continue to execute our strategic initiatives for all our stakeholders. And now let's open the line for questions. Operator, please proceed. Operator (Operator Instructions) Daniel Moore, CJS Securities. Daniel Moore Thank you. Good morning, Tim. Good morning, Laurie. Maybe you start with just elaborating on the discussions with customers in both retail and community markets and then cadence of order rates into April and thus far in May, and maybe a little bit more bifurcation by geography, obviously Florida by all accounts has been soft, but where you're seeing pockets of strength, pockets of weakness, et cetera. Tim Larson Yeah, good morning, Dan. Encouraging wise, we're seeing digital leads are up across a lot of our regions, but then when we talk to the retail teams, the in-store traffic has been mixed and certainly by region of the country. And as I talked to our independents, they're seeing similar impacts in terms of certain areas where there's strong traffic, others that are a little weaker. But what I would say in general, what's encouraging is that there's more buyers, active buyers, and those buyers are ones that are more motivated to obviously purchase a home, and our financing programs are helping that. So I would say there's more serious buyers in the market, and that's why we reflected our low single digit growth for Q1 versus some what you're seeing in the broader market. But I would say, that it's been mixed traffic this spring, but we've been driving more leads, certainly driving more of that engagement with our consumer at our retail stores, but it is more mixed, and that's why we signaled a more low single digit rate for the quarter. Daniel Moore Sorry, that's helpful, Tim. And on the community side, a little bit of continued interest, but maybe kind of a slow burner holding off for now. I'm trying to remember your exact commentary prepared remarks, but any elaborate there would be great. Thank you. Tim Larson Yeah, we were up in the quarter year-over-year in the community segments, and we've certainly seen some returns with key customers there, but I would say it's mixed. There's some projects and some community developers that are pacing a bit, but we've been pleased with the growth of the community segment over the last year. They're now at 28% of our overall units, which is strong, and so we're pleased with how that's going. But I -- we're just balanced about the community segment, given that they face some of the dynamics with the consumer as well. Daniel Moore Got it. And then on the SG&A side, increased sequentially despite the decline and sequential decline in revenue. Can you maybe just break out a little bit about how much was incentive comp versus investments in marketing and technology? Just trying to get a sense for how much SG&A in Q4 could be temporary versus kind of permanently higher cost structure. Laurie Hough Good morning, Dan. I would say, we should remember in the fourth quarter that we have quite a few of our industry shows. That's kind of a cyclical timing issue for us in the fourth quarter, so that won't reoccur quite as strongly going into the first half of next year -- of this fiscal year. So -- but we aren't going to break out the components individually. Daniel Moore Understood. Okay, and then just last one for me, continue to utilize buybacks as an arrow in a quiver in terms of capital allocation, with shares indicating where they are this morning, just your thoughts about being more aggressive, cash continues to grow, but despite buying back shares more aggressively. So any thoughts on that front, and thanks again for the color. Tim Larson Yeah, obviously -- go ahead, Laurie. Laurie Hough No, that's okay. Yeah, we have a really balanced capital allocation profile, so we'll keep an eye on that and obviously be opportunistic if the shares low and just make judgment calls based on our overall strategy, Dan. Tim Larson Thanks again. And I was going to add Dan that we're pleased we refreshed our commitment to share repurchase, and we've added $100 million of cash versus last year, which certainly gives us options across our capital allocation. Operator Greg Palm, Craig-Hallum Capital Group. Greg Palm Yeah, good morning, thanks. Going back to the quarter, I think you had maybe talked or mentioned about some unfavorable weather conditions. Just based on order rates and any backlog, was there any inability to ship homes from retail to end customers? I know you had a dynamic in the year ago period that came into play, but just curious if that was impacted at all this quarter as well. Tim Larson Yeah, the Texas market and part of the south was a bit slower than typically it would be, so there is some impact there. And we factored that into the first quarter of fiscal '26. But I think that plus some of the consumer dynamics I mentioned are factoring in, but we feel like we're in a good position now with where we are with our inventory and the opportunity to move in a nimble way, given consumers demand that if that continues to grow, so I think we're pretty balanced there. Greg Palm Yes, okay. And I guess it's not a secret that housing overall is pretty soft, but I know activity here is held up maybe better than stick built if you want to call it that. But I'm just curious if you just take a step back and talk a little bit about manufacturer housing, specifically in the customer base and the demographics, and What gives you hope that maybe this is a time for more meaningful shared gains, maybe you can talk a little bit about sort of deregulation in there as well because there's obviously some important things going on behind the scenes. Tim Larson Yeah, for sure. There's a few different levers there. One of our commitments to have captive retail is that's where you really can drive the customer experience and the speed with the customer, and you combine that with the consumer financing program. So that's why we're expanding with Iseman. Second, another area you mentioned is the regulation elements. We're encouraged by the focus on reducing the chassis, the requirements, looking at different approach in terms of the reform around zoning potentially, so that more local municipalities are supportive. Obviously removing the chassis is going to help that in certain markets. The other driver is just an overall awareness. When we had the HUD Secretary walk through our homes, his feedback was positive. While these are beautiful homes, so well built, just getting that advocacy out there so more consumers are aware of it. You see that with our investment and marketing spending and obviously what we're doing digitally. Then in terms of the consumer, really making sure they're aware of the price points that you can get in a brand new home, and that's obviously the key with our financing programs, you can get a customer matched to the right product with that right price point, just getting more aware and that's in the market and pulling a new consumers, and we're putting our digital spend to work there. We're using social media to attract people who typically would maybe be aware of our products and pull them into our retail. So those are all drivers. Now that's against the backdrop that there's more challenges with the consumer in terms of some of the uncertainty we're seeing. So that's why we're investing to make sure that we're getting into their mindset in terms of a consideration purpose. The combination of those things I think are really are what's going to be in the near term key, but then from a longer term, our product innovation spend is to make sure that we have a range of products for those range of customers that are looking for the different types of homes and needs. And you see -- you saw that at the show maybe you bring out our shows where you see the type of new products that we're coming out with. And I think those are all key in terms of growth and the strategic priorities that I laid out in my remarks. Greg Palm Yeah, okay, makes sense. Thanks for the color. Operator Matthew Bouley, Barclays. Matthew Bouley Morning everyone. Thank you for taking the questions. I'll ask on the gross margin, the change to the near term guide, I think you said 25% to 26%. I think previously it was in that 26% to 27% range. So my question is some of the I guess pressures that you're seeing today, if your view is there sort of more temporary and that the 26% to 27% is still realistic over time, or is it that you're kind of still I guess looking for what the structural gross margins of the business should be going forward as obviously the business mix has shifted over the years. Thank you. Laurie Hough Good morning, Matt. Thanks for the question. We do think that the lowering to the 25% to 26% range is just for the short term, based on softening consumer confidence and decrease in demand in certain markets, as well as some inflation that we're seeing in material cost. Long term, we still expect structural margins to be in the 26% to 27% range, based on the improvements that we've made across the platform. Matthew Bouley Got it. Okay, thanks for that, Laurie. And then -- yeah, secondly, interesting discussion at the top there around some of your discussions with the new HUD Secretary, maybe just around that potential removal of the permanent chassis requirement, any color on sort of what that would do for your own cost, how realistic is that actually happening and I guess how would you then react around either passing that through to consumers or maybe just impacting other designs, just kind of giving you more flexibility in the product design, just how would that all play out? Thank you. Tim Larson Yeah, first off, from a consumer perspective, it allows you to do maybe two stories more effectively, gives some elevations because you can do more slab on grade, so it gives that benefit from a curb appeal, and then there's some municipalities that are still hung up on having a chassis in their home, so it helps with the zoning support. From a cost perspective, certainly not having the chassis underneath, you need it for transport, different types of transport that may be lower cost. So there is some opportunity there. As far as how we would approach it, our goal is to create the right product price value. And if we haven't a chance to do that for a consumer that this allows it, great, but obviously we want to continue to drive margins, we'd have to look at the balance there. But it's encouraging that it's actually now in discussion, and there's progress in terms of regulators. And I think it because of the strength of the quality of our homes and the way that we can deliver them, it really gives us the confidence that this should happen and likely will happen, but also that has to go through the bills process which is well underway at this point. So we're encouraged by it. And we're also looking at product innovations that would leverage from it. So we'll keep you posted as it evolves, but it's an encouraging sign. Matthew Bouley Alright, thanks Tim. Good luck guys. Operator Mike Dahl, RBC Capital Markets. Mike Dahl Morning. Thanks for taking my questions. A couple follow-ups here. First on the gross margin dynamics, I guess can you be more specific about what role the input costs are playing in the near term, because if I look at kind of wood products, even though lumbers up a little, OSP is down a lot, so I would think your blended wood basket is actually kind of flattish. But maybe just give us a sense of what's impacting -- what's the cost impact versus that mix or mix down impact in your near term margin expectations. Laurie Hough Hey Mike, good morning. I would say that we're obviously we're not going to break out components, but we do have portions of our wood products that we buy at the spot rate and also portions that we buy on contract. So the mix of those don't necessarily align 100% with the spot rate activity. So we need to keep that in mind. We're also seeing some increases in some other component costs across the board. So -- and then we are seeing some pricing pressure in certain regions of the country based on consumer confidence. Mike Dahl Okay, got it. Appreciate that. And then just to follow-up on that response to Matt's question on the permanent chassis -- the chassis requirement. In your -- with builder developer specifically as you've kind of rolled out and tried to promote the Genesis brand and build those relationships, has that been a hang up in your discussions with builders because that is a limiting factor? Or how would you describe that when you think about the potential to unlock that part of your business or further that part of your business specifically. And then if I could just ask more broadly when you talk about kind of some more measured pace on that side of the business recently understandable but maybe just put some put some numbers around that. Tim Larson Yeah, great question. In terms of the chassis, yeah, that is a key opportunity with those developer because oftentimes those developers are going into new municipality, new land zoning, and that certainly would help if they're looking for that more single family slab on grade look. The other factor is those builders at times are looking for two story projects, which this would be an advantage for that approach. In terms of the overall builder developer, the pipeline is continuing to build and we've had really good response to the new products that we've come out with. One of the realities of that business and giving it a smaller size in our total portfolio is the time it takes for those projects. They can be here for from 12 months to 24 months, so that pace does impact when those more orders really materialize, but we're encouraged by the pipeline and we're working directly with those builders. And I think the painting also is with the macro environment, some of them are looking at the phases and how quickly they deployed. But we're working with them directly to make sure that we can help and support that and move those projects along. And we're leveraging what we've learned from the projects that we've done so far. So again, that's a longer term development channel for us, but it's one that both the regulatory opportunities and the way we're pacing it is really helping. So I appreciate the question on builder developer. Mike Dahl Thanks Tim. Operator Phil Ng, Jefferies. Phil Ng Hey guys. I guess a question for Laurie. Your near term margin guidance is pretty steady from Q4, which is great, but certainly we're still seeing impacts from tariffs. It doesn't sound like it's massive, but help us kind of think through how that could impact margins, and do you have to take incremental price because you had alluded to perhaps some pricing pressures in certain markets. Laurie Hough Hey Phil, good morning. Yeah, so we're not seeing a significant increase from tariffs currently. We are watching and monitoring as it changes on a daily basis, so keeping track of that and understanding where our products come from and what the impact will be, and then just being proactive about sourcing from other locations and so forth. So we're -- we have an active playbook of things that we can do when that comes up, but we're not quantifying what that will be. Phil Ng Okay. But let's say if you do see a little more inflation just given the current demand backdrop, do you feel comfortable that you have the ability to take some price, or you're going to have to manage through that, I guess, in the near term? Laurie Hough I think it depends on the region of the country. So keeping in mind that our plants ship within a 500 mile radius, generally without being too cost prohibitive on transportation. So ultimately the decision still lies on price with and at the plant level. We give them a guidance, but they have to measure competitively what's happening in their markets relative to consumer demand and pricing, more broadly. Phil Ng Okay, super. I guess a question for you, Tim on the Iseman transactions. Certainly you guys had great success with regional homes. Can you give us a little color on the opportunity here in terms of driving gross margins higher and some of the synergies. And then the $40 million number, is that all incremental? I just wasn't sure if you guys were selling to them already. Tim Larson Yeah, in terms of the $40 million, we are -- they are a key customer of ours today, but there's still meaningful opportunities to bring existing volume that they're doing with other providers to us, and we'll do that over time. In terms of the opportunities beyond that, one of the things we've learned this last year regional is in addition to the synergies, we can also drive accretive growth, which we did with regional and we certainly are prepared to do with Iseman. Ken and his team, they're a great team. There's an opportunity to collaborate with both of our organizations from what we've learned. And now we can bring some of the tools directly to them -- that team and directly to the consumer. So we're excited about that and opportunities with product. And so we've got a lot to build on with the success of regional, but also in a broader market in the midwest. And strategically, obviously, you see we've had a presence in the south and southeast, we're excited to expand that in the midwest. So those are opportunities for us. Phil Ng Would it be accretive gross margins out of gates, Tim? Tim Larson I think we'll get through that. We're just obviously announced today we're going to work through integration. We're seeing some things that are encouraging in that front, but we'll be back to you as we work through the acquisition. But we're excited to move to that integration phase next, and we anticipating closing this at the end of June. Phil Ng Okay, appreciate the color. Operator Jesse Lederman, Zelman & Associates. Jesse Lederman Hey, thanks for taking the questions. Laurie, I just want to clarify, so it sounds like the 25% to 26% gross margin guide, you're not seeing any impact from tariffs yet. Does that number include any baked in conservatism from potential inflation from tariffs or no? Laurie Hough It does not, no. Jesse Lederman Okay, thanks for clarifying that. I'm curious, when you talk about there -- you're seeing mixed shifts lower to either smaller size homes or less options and upgrades. Are you also seeing or you are able to quantify mixed shift from maybe buyers that would otherwise be buying an existing home that are now considering a manufactured home, maybe even a single section? Or do you -- is that something you can track? Is that something you expect? Maybe can you talk a little bit about what you're seeing at the larger size homes? Tim Larson Yeah, I think in terms of the market trends, we are seeing that smaller size, and that's driven more by price point and monthly payment, which speaks to the consumer environment. As far as new consumers coming in the category, I mentioned our efforts to pull in those consumers. And certainly those first time home buyers or buyers that are looking for entry level but a new home, that gives us the opportunity, so we're starting to see that. But I would say as an industry, one of the things we have to be focused on is how we attract even more new consumers, and that's why the actions with the administration, what we're doing with new products, and certainly the messaging around awareness are key, but now is a good environment to be doing that. Jesse Lederman Absolutely, and it sounds like there's some opportunity even just as industry to do some consumer education from a buying process perspective or financing perspective and kind of how the manufactured housing, home buying process works. So hopefully that's something that can be a tail end as well. One more for you, Tim, and the that you talked about the dealer portal that you've started to roll out. Can you talk a little bit about how that may work in practice and maybe some signs you're seeing into the effectiveness of that program. Thank you. Tim Larson Yeah, so it ties in tandem with our consumer platform at that we launched, that allows then their dealer to visibly see the leads that are coming through and to quickly respond to those and engage with those, and then also manage it downstream in the process with order status and being able to connect that to our plans. We also are able through that portal to give them the latest digital marketing tools and our capabilities that we can do nationally to support them. And so it starts to organize around the hub of how they work with Champion as a retailer and leverage the effectiveness. And so we're rolling it out in phases. The early responses were really good, but we see it as key to integrating the digital experience from the consumer to the retailer and to us as the OEM in an integrated way. Jesse Lederman Awesome, sounds very exciting. Thanks a lot. Operator Jay McCanless, Wedbush Securities. Jay McCanless Hey, good morning, everyone. Laurie, was hoping you could drill down more on the price competition. What markets specifically are seeing the price competition, and is it more focused on single section or double section homes? Laurie Hough Yeah, it varies, Jay. We are seeing a pickup actually in activity out west. We are seeing a little bit of slowness in Florida, as we mentioned, and then also in the northeast. We are seeing a shift to more single wides and smaller homes -- a smaller footprint home with less features and options. And as we mentioned, that'll have an impact on margins because our option content generally comes in at higher margins than the base price of the house. Jay McCanless Great, thanks. And then the second question, still haven't heard FEMA, I think ordering any homes, have you all heard anything recently from them, whether it be out west or some of the stuff in the Carolinas. Tim Larson Yeah, no orders of yet. Obviously we're working with them and to prepare for whenever they're ready for that, but we certainly are supportive whenever that occurs, but no orders at this point. Jay McCanless Okay, and then the last question for me, just kind of talk about where chattel rates went this this quarter versus last year and anything positive or negative you guys are seeing on credit availability for chattel? Laurie Hough Yeah, credit availability is pretty stable, Jay. And as far as rates, there's still about 150 to 200 basis points higher than the 30 year fixed for a well-qualified buyer. Jay McCanless Got it. Okay. Thanks, appreciate it. Operator (Operator Instructions) Daniel Moore, CJS Securities. Daniel Moore Thank you again. My follow-up was on Iseman was answered, but maybe just talk a little about the level of discussions with other regional dealer groups and maybe the M&A pipeline more generally. Tim Larson Yeah, I mean, we're not going to talk about specifics, but bigger picture, you look at our strategy and we've laid out those five priorities at the end of my remarks. Those are aligning how we're thinking about M&A, capital allocation. And certainly we're excited about Iseman, and we're going to focus on that execution integration, but certainly our strategy reflects where we want to put our capital going forward. Daniel Moore Okay, thanks again. Operator There are no further questions at this time. I would like to turn the floor back over to Tim for closing remarks. Tim Larson Well, obviously you can see in our first month here of operating the agility and action orientation that we have. I mean, if you think about we've had 26,000 homes wrapped up last year, which is the highest ever outside of one year of the pandemic, the acquisition of Iseman Homes we executed, and idling a couple of our plants, which is always a tough decision, but the right decision for fixed cost, launched our integrated digital platform that we talked about today. And we talked a bit about purchasing but we strengthened that team pretty notably, and that allows us to navigate this environment. We're advocating and advancing MH policy, and we had another $100 million for balance sheet, and obviously have that in addition to the stock that we repurchased. So as we go forward here, we're in a really strong position with our strategy and our team. We're going to continue to build on that and navigate this environment, and we really look forward to updating your progress, and thank you for your continued interest and thank you for joining us this morning. Thank you. Operator Thank you. This will conclude today's conference. You may disconnect your lines at this time, and 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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02-05-2025
- Business
- Yahoo
Q1 2025 Enviri Corp Earnings Call
David Martin; Vice President of Investor Relations; Enviri Corp F. Nicholas Grasberger; Chairman of the Board, President, Chief Executive Officer; Enviri Corp Tom Vadaketh; Chief Financial Officer, Senior Vice President; Enviri Corp Larry Solow; Analyst; CJS Securities Rob Brown; Analyst; Lake Street Capital Markets Davis Baynton; Analyst; BMO Capital Markets Operator Good morning. My name is Cindy, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Enviri Corporation first-quarter 2025 release conference call. (Operator Instructions) Also, this telephone conference presentation and accompanying webcast made on behalf of Enviri Corporation are subject to copyright by Enviri Corporation and all rights are reserved. No recordings or redistributions of this telephone conference by any other party are permitted without the express written consent of Enviri Corporation. Your participation indicates your agreement. I would now like to introduce Dave Martin of Enviri Corporation. Mr. Martin, you may begin your call. David Martin Thank you, Cindy, and welcome to everyone joining us this morning. With me today is Nick Grasberger, our Chairman and Chief Executive Officer; and Tom Vadaketh, our Senior Vice President and Chief Financial Officer. This morning, we will discuss the results for the first quarter and our outlook for the year. We'll then take your questions. Before our presentation, let me mention a few items. First, our quarterly earnings release and slide presentation for this call are available on our website. Second, we will make statements today that are considered forward-looking within the meaning of the Federal Securities Laws. These statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ from these forward-looking statements. For a discussion of such risk and uncertainties, see the Risk Factors section in our most recent 10-K. The company undertakes no obligation to revise or update any forward-looking statement. Lastly, on this call, we will refer to adjusted financial results that are considered non-GAAP for SEC reporting purposes. A reconciliation to the GAAP results is included in the earnings release and the slide presentation. With that being said, I'll turn the call to Nick. F. Nicholas Grasberger Thank you, Dave, and good morning, everyone. We delivered another solid quarter and saw mostly consistent execution in each of our segments. Clean Earth once again was a standout performer and delivered double-digit earnings growth. Despite challenging conditions in the global steel market, Harsco Environmental also performed well, exceeding our internal expectations in the quarter. For Rail, Q1 financial results were soft as anticipated. However, we were able to successfully renegotiate one of our major ETO contracts, and the segment continued to advance its operating agenda while building its backlog. Key highlights for the quarter include our two environmental segments performed well with revenues and adjusted earnings essentially unchanged on an organic basis, despite the impact of site closures and exits in Harsco Environmental. Second, Clean Earth delivered a record first quarter results. Third, cash flow was ahead of expectations, adding further support to full year cash flow guidance of $30 million to $50 million. And finally, we, during the quarter completed the rebuild of the Rail leadership team with the new President and the new CFO. Before turning to our segments, let me comment briefly on tariffs and recent global trade developments. As you know, we have a diverse group of businesses operating across many end markets and geographies. So many benefits and challenges can be expected. For example, our operations in Mexico and Canada may be impacted by US tariffs, while recent actions by the EU to support its steel industry are much needed and potentially helpful to our business in that region. We recognize the significant level of macroeconomic uncertainty driven by the ongoing global trade issues and are mindful that this may potentially lead to slower economic activity and demand. But overall, we currently do not believe that the direct tariff impact on Enviri will be material. And we have not yet seen a meaningful shift in the underlying business or customer behavior. Nonetheless, we will continue to closely monitor the situation. Now turning to each of our businesses starting with Clean Earth. CE's margins grew by over 100 basis points and exceeded 16% in the quarter. Our Clean Earth team continues to do a remarkable job executing against its strategic priorities with a focus on expanding service capabilities and business growth, as well as its industry leading customer service. The investments we've made in commercial resources are beginning to bear fruit. CE's business pipeline is very robust and its revenue growth in the first quarter included a good balance of price and volume, a shift we were expecting to see. Operational excellence also remains a focus, and we anticipate productivity improvements in the future for our ongoing investments in a common IT platform. Overall, the outlook for Clean Earth's earnings, margins, and free cash flow in the coming years is positive, outpacing that of our other segments and tracking ahead of the financial targets we established for the business at our analyst day last June. Turning to Harsco Environmental, the business is managing well through a difficult period in the global steel industry, which is marked by excess capacity and diminished demand in major-steel consuming regions around the world. Steel prices have recovered, and customer profitability has improved in recent months. We have not yet seen an improvement in volumes or any efforts to restart idle capacity. Trade protections that attempt to deal with excess steelmaking capacity in China and its steel exports are welcome. These protections are needed most in Europe, which is our largest market, and we're hopeful that recent actions by the EU are the beginning of positive change for our customers in that region. In recent years, US dollar strength has been a headwind for HE, so recent dollar weakness is a potential tailwind for this business. Roughly 80% of HE's revenues are generated outside the US. As a result, dollar strength has negatively impacted HE's revenues in EBITDA by roughly $100 million and $25 million over the past three years. Given these pressures, HE has been aggressively managing its capital spending, implementing cost reductions, and executing other improvement programs at our sites. These efforts have positioned HE well and will enable the segment to maintain underlying profitability this year and support cash flow while we await a recovery in the global steel market. Moving to Harsco Rail, demand for our standard equipment, parts, and adjacent services remains strong, as does the outlook for rails-based business. Healthy orders in the first quarter illustrate the strength of this business. Highlighting recent progress with our ETO contracts, we're pleased to have successfully amended our contract with Deutsche Bahn. We've been working on the amendment for a few quarters. Under this contract and collaboration with our customer, prototype development and testing are going well. Our technology continues to satisfy our customer requirements, and we expect to begin product homologation with this customer later this year. In short, the future risk on this contract has been diminished. As we said before, chief among the challenges in rail are a few ETO contracts which weigh in our consolidated earnings and cash flow. This amendment is a positive step forward and will continue to work with DB and our other ETO customers to reduce the risk related to these contracts. We're also pleased to have strengthened our Rail leadership team with the appointment of Gary Lada as our new President of Rail. Gary brings considerable rail industry experience and importantly a proven track record of operational excellence at various industrial companies as well as leading large ETO projects. We've also hired new leaders in finance and operations in recent months. The team is focused on executing a number of key priorities, including removing the bottlenecks in our operations, managing our supply chain, and advancing our ETO contracts. Turning to our 2025 outlook, we've maintained our guidance for the full year. Our organic growth in the year will be driven by Clean Earth, while HE's performance is expected to be stable on a like-for-like basis. This is an important transition year for the company's cash flow, and we expect lower net outflows on our rail contracts as well as lower pension contributions to help us generate positive cash flow. In future years, we anticipate earnings growth, and the completion of the ETO contracts and Rail will position us to generate annual free cash flow of $150 million on a consistent basis. As we communicated during our analyst day last June. I'll now turn the call over to Tom. Tom Vadaketh Thanks, Nick, and good morning, everyone. We're pleased with the positive start of the year, with our Q1 performance exceeding our expectations for both adjusted EBITDA and free cash flow. Both Harsco Environmental and Clean Earth executed well in a less-than-ideal environment, which contributed to the better financial results. Also in Harsco Rail, as Nick has just said, we amended our large engineered to order or ETO contract with Deutsche Bahn that we've been working towards for a number of quarters. This amendment led to a favorable accounting adjustment in the quarter, and I'll come back to this impact in a bit. We're keeping our outlook for the year intact. While there is a tremendous amount of economic uncertainty currently, the direct net impact of US tariffs and other trade actions globally are expected to be minimal for Enviri. The recent US dollar weakness meanwhile is helpful to Harsco Environmental and the company. This positive, along with our favorable start in Q1, provides us some cushion against economic volatility in the coming quarters. Now let me turn to our first quarter performance details starting on slide 4. In the first quarter, revenues totaled $548 million which was down approximately 4% on an organic basis after adjusting for the impact of FX translation and business divestitures, as well as contract adjustments in Rail. Adjusted EBITDA was $67 million with our year-over-year comparisons skewed by negative effects and divestiture impacts of $7 million. Relative to guidance, Harsco Environmental benefited from better service and product volumes in certain regions, including North America, India, and the Middle East. HE's strong operational execution also contributed to the strong quarter. Clean Earth faced some weather headwinds, particularly in the Northeast during the quarter, which were offset by strong performance in the final two months of the quarter. Our adjusted diluted loss per share was $0.18 for the quarter, excluding the impact of special items. These special items included a favorable amount in rail, totaling $11 million as a result of the contract amendment with Deutsche Bahn. This amendment provides us additional revenue under the contract and a new delivery schedule which lowers anticipated penalties among other impacts. Our remaining special item charges in the quarter relating to project and restructuring costs totaled approximately $5 million. Lastly, on this slide, our adjusted free cash flow for the quarter was negative $13 million. Q1 is traditionally a weak cash flow period for the company. With that said, we are focused on delivering our cash flow targets and perform better than planned in the quarter, mainly in HE. Compared with the prior year quarter, our free cash flow was little changed, as the benefits of lower pension contributions, reduced capital spending, and the utilization of an additional $10 million under our accounts receivable facility were offset by divestitures and lower cash earnings. Now please turn to slide 5 and our Harsco Environmental segments. Segment revenues totaled $243 million and adjusted EBITDA totaled $39 million. The year-over-year change in earnings is the result of lower volumes due to site exits and closures, as well as FX impacts and divestitures. These items were partially offset by operating initiatives, including our efforts to improve performance at a limited number of underperforming locations. On a same store or continuing site basis, steel production at our customer locations declined less than 1% compared with the prior year, while our service volumes and earnings at these sites were up slightly year over year. Relative to the first quarter of 2024, steel production was weakest in Asia, the Middle East, and Latin America, with this impact offset by higher volumes in India and Europe. Operating rates or production rates at our customer sites in Q1 remained low and were little changed from Q4. And while customer production levels did improve somewhat late in the quarter, we don't anticipate volumes on average improving in the second quarter. Higher steel prices globally have yet to translate into higher steel output, but HE's operating leverage remains significant and it is poised to benefit when volumes recover. On US steel tariffs and related trade actions elsewhere, the direct impacts are mixed and likely not material as we currently view the situation which Nick mentioned earlier. Next, please turn to slide 6 to discuss Clean Earth. For the quarter, revenues totaled $235 million and adjusted EBITDA reached $38 million. EBITDA increased by 12%, supported by revenue growth of 4%, and this result is a first quarter record for CE. Price and volume contributed equally to the revenue increase, and Clean Earth's earnings growth is attributable to these factors as well as cost efficiencies. The volume gains were driven by retail and healthcare within hazardous materials, as well as higher soil dredge throughput. Hazardous materials revenues increased 3% to $198 million while soil-dredge sales rose 9% to $37 million. Now, please turn to slide 7 and our Rail business. Rail revenues total $70 million and it's adjusted EBITDA loss was $2 million in the fourth quarter. This was in line with our expectations for the quarter, with a year-over-year EBITDA change due to lower product and service volumes, as well as the less favorable mix. As Nick mentioned, we continue to strengthen our Rail team and address the operational and supply chain challenges faced by this business. We're looking forward to having Gary Lada join us. In Rail finance, I brought in a new leader, someone that is hard charging and who I've worked with successfully in the past. I'm confident his contributions will be significant. On our engineered to order contracts, the Deutsche Bahn amendment mentioned earlier is a key milestone that we are pleased to have completed. We continue to assess levers to limit our financial risk and exposures on these contracts. Moving to the base business, demand for Rail's standard equipment and services remains healthy with strong bookings in the first quarter. As we've said before, the base business in Rail is a valuable part of our portfolio. It's a profitable cash generative business with a strong reputation in the marketplace. Now let me turn to our full year outlook on slide 8. Our revenue and EBITDA guidance for the year is unchanged for the company and each of our segments. Company EBITDA is expected to be within a range of $305 million to $325 million. And free cash flow is projected to be $30 million to $50 million. As mentioned earlier, we likely have some upside from our strong Q1 performance and a weaker US dollar if sustained. However, given the current economic uncertainty, like most other companies, our visibility into the second half of the year is limited. So while we believe it's appropriate for us to continue to give guidance, we also believe it's prudent to keep it unchanged. Let me conclude on slide 9 with our second quarter guidance. Q2 adjusted EBITDA is expected to range from $65 million to $75 million. This range reflects what we know today and a stable global economy. HE results are expected to be below the prior quarter, reflecting primarily the impact of divestitures, site closures, and exits. And HE's performance should be similar to the just completed quarter. Clean Earth performance is projected to improve year over year due to price and volumes. And for Rail, adjusted earnings are anticipated to be similar to Q1. Our full year outlook for Rail reflects an operational improvement and higher throughputs in the second half of the year. Lastly, on Q2, we expect free cash flow to be negative as some of our favorability in Q1 becomes a use of cash in the current quarter. Thanks, and I'll now hand the call back to the operator for Q&A. Operator (Operator Instructions) Larry Solow, CJS Securities. Larry Solow Great, good morning and thanks for taking the questions. I guess first question just on the largest segment, obviously, environmental. It sounds like you're leaving -- you are leaving guidance basically unchanged. I guess you just run us through some of the puts and takes, I guess not a big impact -- direct impact from tariffs. What are your thoughts kind of on steel production and the economy going forward. I guess that's sort of a bad guy for you, but the offset there would be the currency benefit. Can you kind of just give us your sort of high-level view on environmental and what your volume -- what you're incorporating for volume projections this year. F. Nicholas Grasberger Yeah, hi, Larry. I guess my first comment would be that when you say HE is our largest segment, Clean Earth is kind of right on top of it now in terms of profitability and certainly generates more cash flow and revenue is about the same. So it's -- that has been shifting the last several quarters and we're basically there at the moment. So anyway. Yeah, so in HE, I -- we expect a little bit of volume growth the rest of the year. The comps to last year are relatively favorable for us. You mentioned the benefits of currency. We also have a number of efficiency and cost reduction programs that when added to a bit of volume growth will mitigate the impact of site shutdowns and exits last year. But I think that the wave of site shutdowns in the second half of last year, we think is over. And so, and we saw that in the first quarter where the business very much performed as we expected it to when there were no significant customer surprises. Larry Solow Got it. And on Clean Earth, sounds like things are still going very well there. What are your sort of assumptions as you go forward this year? Sounds like you're still getting some price. How do you view volume, hazardous waste in the -- with the economic drop -- the backdrop the way it is today. Are you concerned of a slowdown? What are your customers telling you? Clearly you're mostly domestic, right? You're all domestic, but do any of your customers have international exposure which may impact them and then be a kind of indirect impact to you? F. Nicholas Grasberger Well, first of all, I'd say that more so than the past couple of years, we're looking for volume to be a larger contributor to earnings growth this year. We saw a bit of that in the first quarter. We have reasonable visibility to that in the second quarter. And so that's -- you know, as we move forward relative to how we've generated significant EBITDA growth the past two or three years, you know, volume and you know, we'll play a bigger role as well as what we expect to be significant benefits from what we call the One Clean Earth IT initiative, which focuses on order to invoice. We've not yet seen a slowdown yet. Oftentimes our soils business is sometimes an early indicator of a downturn in the economy because many of the projects that are in our backlog don't start and get deferred. We haven't seen that yet. So that's to say across Clean Earth and each of the components, there's really no signs yet that the economy is slowing, that our customers are being more cautious and are cutting back production, or consumers are limiting their spending. We haven't seen that yet. But of course, we're concerned about it. We've not built it into our into our guidance those concerns we feel that we have levers at our disposal to enable us to mitigate the impact of a slowdown and still achieve our numbers for the year, but at this point that's not an assumption that we're making. Operator Rob Brown, Lake Street Capital Markets. Rob Brown Hi, good morning. I just wanted to follow up on the the rail ETO contract renegotiation that know you risk has come way down. What's sort of the remaining risk there and I guess what's the status of the other contract that you're working on improving? Tom Vadaketh Yeah, just, hi Robert, it's Tom Vadaketh. I can speak a little bit to that. So the -- I touched on it briefly in my prepared remarks, but the essence of the amendment, it recognizes some of the cost inflation that we've experienced, and the customer has agreed to offset that on for us with higher revenue, higher pricing effectively on the vehicles we have to deliver. And then we also mutually agreed on a new delivery schedule, which is a lot more realistic and therefore reduces the risk of future penalties for being late. In terms of remaining risk, it's sort of what we've talked before. For all of these long-term, very highly complicated engineering projects, until the first one or two vehicles is produced, it's tested under regulations in the country where we're delivering it to and the customer has accepted it until that happens there's always a risk that we need to go back and tweak the design and that sort of thing. In this particular case the customer and us have been sitting side by side as we've built the vehicle. The very first one is built and it's being commissioned right now. We'll go start going through the testing later on in the year. And so at this point, we feel fairly comfortable that the risks are minimal, but the larger part of them remain until that testing process or what is called homologation is completed, which will be towards the middle to Q3 or so of next year. Rob Brown Okay, great. And then on the Clean Earth's business, you had good margin expansion. I guess how sustainable is that and I guess how much further can you get with these CIT improvements that you're working on? F. Nicholas Grasberger Well, as you've seen, we've been steadily improving margins in Clean Earth for three years or so. The X factor in a given quarter oftentimes is the mix within our soil and dredge projects. And so you can get a little bit of noise quarter to quarter driven by that. But we, I think last year at the analyst Day, we kind of projected margins, EBITDA margins for Clean Earth at 17% or so by 2027 and we're certainly tracking ahead of that. And even though we've not kind of officially updated our view on margin potential, I think it's safe to say that we now expect margins in Clean Earth over time to be above that 17%. I think it's also important to keep in mind, we said this before, that if you compare the Clean Earth EBITDA margins to others in the industry, we're a few points lower, but we do not have those capital-intensive disposal assets that our peers have. So if you look at EBITDA minus CapEx margins, we compare favorably. Tom Vadaketh Rob, are you there still? David Martin Cindy, you can move on. Operator (Operator Instructions) Davis Baynton, BMO Capital Markets. Davis Baynton Hi, good morning. This is Davis on for Devin Dodge. So you've noted some of the pressure in the steel industry coming from that excess capacity. I know you touched on this a bit, but just wondering if you could expand on that a little bit and maybe what you're seeing in some of the underlying markets early on following the closure of Q1. Any changes there? F. Nicholas Grasberger Well as you know, the excess capacity in the steel industry, driven by that of China has been a factor in this industry for many years at this point. And we are seeing encouraging signs that would mitigate the impact of that, primarily in the EU, which as we've said is our largest market. So that should have an impact on our customer profitability. It doesn't really, of course, impact demand for steel. And so we've not yet seen a lift. We are expecting capacity utilization at our sites to be a bit higher this year and volume growth to be a little bit up against a fairly easy comparative second half of 2024. But I think it's fair to say that what we've seen in the first quarter and what we expect in the second quarter is largely what we expected, which is fairly flat volume growth driven by lackluster demand for steel. Tom Vadaketh I'll just build on that, and Nick touched on it on an earlier answer to another question. But when we look at the makeup of the profile for the year. On HE we are expecting a stronger second half than the first half. What's underpinning that is, as Nick said, we don't assume a change in the macro environments. We assume that's going to stay about the same in terms of volumes, et cetera. But we have several new sites that we're bringing on that will ramp up. We have a more favorable compare year on year because we exited those other sites in the second half of last year. And then -- and so we expect that to drive additional revenue and EBITDA. And then we have operational improvements. So procurement initiatives, operational excellence initiatives that will also increase margins in the second half. And so that's how we see that business progressing this year. Davis Baynton Okay, got it, thank you. I appreciate the color there. And then -- so solid results in Clean Earth business continues to progress nicely. So you noted a lot of that is from better pricing and volumes, but also some efficiency initiatives as well. Are most of those efficiency initiatives due to the IT improvement or is there anything else that you can call out there? F. Nicholas Grasberger No, we continue to gain efficiency from how we're routing the material that we that we handle inbound and outbound. We're also gaining efficiency from how we're disposing of some of the waste, finding lower cost outlets and executing some further processing that enables us to avoid the more costly disposal options. So yeah, it's broad based. I think going forward, let's say in 2026, when this One Clean Earth initiative is mostly behind us, we expect that to drive pretty significant efficiencies in our SG&A structure. But I think we continue to be pleasantly surprised by margin enhancement opportunities. And we're not yet reaching that point of kind of diminishing returns on margin growth potential. And that's very encouraging. I won't say we're just getting started because we've had three years of this, but we're certainly not in the later innings, I'll put it that way, of realizing margin growth in Clean Earth. Davis Baynton Awesome thank you appreciate that. That's it from me. I'll turn it over. Operator This concludes our question-and-answer session. I would like to turn the conference back over to David Martin for any closing remarks. David Martin Thank you, Cindy, and thanks for everyone joining us this morning. Feel free to contact me with any follow-up questions. We appreciate your interest in Enviri and look forward to speaking with many of you in the coming weeks. Thank you. Operator The conference has now ended. You may please disconnect. Thank you.
