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Yahoo
14-05-2025
- Business
- Yahoo
Q1 2025 Hyperfine Inc Earnings Call
Webb Campbell; Investor Relations; Hyperfine Inc Maria Sainz; President, Chief Executive Officer, Director; Hyperfine Inc Brett Hale; Chief Financial Officer, Chief Administrative Officer, Chief Compliance Officer, Treasurer, Company Secretary; Hyperfine Inc Frank Takkinen; Analyst; Lake Street Capital Markets Yuan Zhi; Analyst; B. Riley Securities Operator Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hyperfine Q1 '25 earnings call. (Operator Instructions) I would now like to turn the call over to Webb Campbell, Investor Relations. Please go ahead. Webb Campbell Thank you for joining today's call. Earlier today, Hyperfine, Inc. released financial results for the quarter ended March 31, 2025. A copy of the press release is available on the company's website as well as Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or projections of future events, results, or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, expense management, expectations for hiring, training, and adoption, growth in our organization, market opportunity, commercial and international expansion, regulatory approvals, and product development are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our latest periodic filings with the Securities and Exchange Commission. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 13, 2025. Hyperfine disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I will turn the call over to Maria Sainz, President and Chief Executive Officer. Maria Sainz Good afternoon, and thank you for joining us. On the call with me today is our Chief Administrative Officer and Chief Financial Officer, Brett Hale. In the first quarter, we delivered revenue of $2.1 million with the sale of 6 systems, with a strong average selling price. We also reinforced our financial profile, taking steps to meaningfully reduce cash burn by completing a reorganization, and we further strengthened our balance sheet by raising $6 million through a registered direct offering to extend our cash runway to the end of 2026. In the first quarter, we experienced some headwinds to revenue associated with the new political environment, which resulted in the loss of several deals at large academic institutions that were funded by grants. The first half of 2025 marks the end of a time in our company's commercial trajectory where our business relies primarily on U.S. hospital deals. As we have previously indicated, hospitals have proven to have protracted sales cycles and high variability in deal timing. We are committed and excited about Hyperfine's future with diversified revenue across the 3 verticals of the hospital, the office setting, and international markets, and introducing our significantly improved product performance with our next-generation image quality. We still expect this catalyst to change the growth trajectory of Hyperfine starting in the second half of this year. I will now provide an update on our diversified growth catalysts coming to fruition in 2025. As we progress into the second half of 2025, our business will be a diversified portfolio with hospital, office, and international verticals providing a platform for higher growth and less variability. We have continued to make solid progress toward launch readiness for the office business. Several of the office accounts in the pilot program are now IAC-accredited, have started to scan, and are going through the reimbursement process with CMS. Neuro PMR, our office clinical study, has begun enrollment, and the 2 participating office sites are demonstrating strong enthusiasm for the Soup system. Neuro PMR is a multicenter prospective observational study comparing AI-powered portable MRI and conventional high-field MRI with respect to pathology findings, clinical utility, and patient experience in the neurology office setting to assess different use cases for the soup system. The study is being run by 2 private neurology practices, the Dent Neurologic Institute and Pepsis Neurology. The study has a target enrollment of 100 patients. Enrollment is progressing very well, and I am pleased to report that the study is about halfway enrolled, and we now expect the study to conclude ahead of our previous estimate by the end of the third quarter of 2025. Additionally, in the last couple of weeks, we have conducted training for our field teams on the office market opportunity. On the technology front, we continue to improve the image quality of our unique AI-powered portable MRI to drive broad clinical utility and mainstream adoption. We expect to obtain clearance for our next-generation software in the first half of the year and expect the commercial rollout in the second half of the year. Meanwhile, we continue to work towards the clearance and launch of another generation of soup system technology later this year. These releases will bring a step-function improvement in image quality, approaching the quality obtained from conventional 1.5 Tesla MRI systems, as noted by several key opinion leaders involved in our development process. We believe this level of image quality will make the adoption of portable brain MRI quicker for new users, enabling a shorter learning curve and accelerating market adoption of our technology. Our strategy for growth is based on site of care expansion. Our focus is on building an office business, expanding to multiple sites inside the hospital, and driving adoption in international markets. The neurology office setting is an incredibly compelling opportunity for the soup system. Neurologists directly impact 100 million patient lives in the United States. They order an average of 500 to 600 MRIs annually, and only a very small fraction of the private neurology practices staff MR imaging equipment on site. We plan to launch in the office in mid-2025. And as highlighted previously, the team has made a lot of progress towards launch readiness by initiating pilot accounts, initiating the neuro PMR study, and most recently, training the field teams. Now moving to the hospital opportunity. We have continued our expansion into the emergency department as an additional call point in the hospital, given the importance of time to scan and patient progress, and supported by the clinical work we have done in stroke. MRI availability for the triage of stroke patients in the ER is very limited, and patients and clinicians often endure long waits. Data from Action PMR shows that AI-powered portable MRI in ischemic stroke triage can help address patients quickly and provide valuable clinical insights in this highly time-sensitive environment. Action PMR evaluating the use of the Soup system for ischemic stroke patients completed enrollment at 100 patients across 4 leading institutions globally. Data was presented most recently at the 2025 International Stroke Conference. To drive expansion into DER, we plan to support additional projects to generate clinical evidence that will demonstrate the clinical workflow and economic value of the use of the Swoop system in this new site of care. Besides selling on the clinical benefits of using the Swoop system in the hospital, we have focused our team on highlighting the potential favorable economic impact of using the Swoop system. We have compiled data from key Swoop system accounts documenting incremental conventional scans enabled by the use of the Swoop system in critical care and cost savings in care associated with the use of the Swoop system, enabling faster decision-making and discharge as appropriate. This real-world data is another valuable tool our commercial teams are now using in their accounts. I am pleased to report we have seen an increase in multiple-unit deals in the hospital setting in our pipeline, illustrating the interest across several hospital call points. Finally, turning to our international commercialization activities. We continue to see strong interest and healthy demand in our markets across Europe, the Middle East, and Asia. I'm also pleased to share that we continue to anticipate regulatory approval and market entrants in India in the second half of the year. As I said on our last call, 2025 will be a tale of 2 halves, with our first half performance based on our legacy business with a heavy mix of hospital deals. The second half of 2025 will be favorably impacted by the launch of 2 new AI-powered technology releases with significant improvements in image quality, the launch of our office business and the adoption from existing and new international markets, including India, driving healthy growth and diversification of our revenue in the second half of 2025 and beyond. I remain confident in the opportunity in front of us and the execution and capabilities of our team. I will now turn over the call to Brett to review our Q1 performance and provide an update to 2025 guidance. Brett Hale Thank you, Maria. I will recap our financial results for the first quarter of 2025 before providing an update on our financial guidance. Revenue for the first quarter of 2025 was $2.1 million. In the first quarter of 2025, we sold 6 units with a strong average selling price. During the first quarter, we continued to experience longer deal timing and processes for U.S. hospitals and the loss of several deals due to significant reductions and cancellations of grant funding to academic institutions. Our average selling price and pipeline remain strong, but U.S. hospital critical care deal sales cycles continue to experience variability and are longer than in past quarters. Also, during the first quarter, a majority of our United States sales personnel were newly hired. These new members of our sales teams are gaining traction with customers while training to be prepared to build awareness and visibility of our next-generation imaging technology once cleared and launched. Gross profit for the first quarter of 2025 was $0.9 million, and gross margin for the first quarter of 2025 was 41.3%, representing a 20 basis point improvement versus the prior year period. We continue to drive healthy margins at our stage, and we believe we are well-positioned for meaningful margin expansion at scale. R&D expenses for the first quarter of 2025 were $5.0 million compared to $5.6 million in the first quarter of 2024. Sales, general, and administrative expenses for the first quarter of 2025 were $6.7 million compared to $6.4 million in the first quarter of 2024. Net loss for the first quarter of 2025 was $9.4 million, equating to a net loss of $0.12 per share as compared to a net loss of $9.8 million or a net loss of $0.14 per share for the same period of the prior year. Our net cash burn, including financing in the first quarter of 2025, was $4.6 million. As of March 31, 2025, we have $33.1 million in cash and cash equivalents on our balance sheet, inclusive of $6 million registered direct financing in February. For the first quarter of 2025, our net cash burn, excluding financing, was $10.1 million, down 16% from $12.0 million in 2024. The first quarter is typically our highest cash burn quarter during the year due to several annual one-time costs. Reducing cash burn remains a significant focus for us, and we will continue to prioritize spending discipline and optimize our operating leverage in 2025. Now turning to financial guidance, beginning with our revenue outlook. For the first half of 2025, we now expect revenue to be in the range of $5 million to $6 million. Our updated expectations for the first half revenue are a result of several U.S. deals recently lost due to cancellations of grant funding to certain academic institutions by the federal government. We believe we'll be able to more precisely forecast our second-half revenue over the coming months as our growth catalysts play out. And for the full year, we now expect revenue growth to be in the range of 10% to 20% over 2024. For the full year 2025, we are also updating our gross margin outlook to 47% to 50% for the year, representing a 280 basis point increase in gross margin on a year-over-year basis at the midpoint. We expect the progression of gross margin percentage increase to closely follow our sales growth, and we expect second-half gross margin percentages to exceed the first half. We remain optimistic that we will surpass 50% gross margins comfortably and sustainably as we realize higher volume driven by our growth catalysts. Lastly, we now expect total cash burn to be in the range of $25 million to $28 million for the full year 2025, representing a 31% decline in cash burn on a year-over-year basis at the midpoint. We have taken several steps to enhance our financial profile. We completed a restructuring in the first quarter to reduce operating costs, extend cash runway, and transition our organization from a development stage to a commercial stage company. We also bolstered our balance sheet with a $6 million financing. We will execute upon our plan with strong spending discipline while maintaining appropriate investments in our growth catalyst. We continue to see a cash runway for the business to the end of 2026. Before turning the line back to Maria, I want to briefly touch upon the topics of tariffs. We have been closely monitoring recent government commentary and actions and the potential impact on our business. Our 2025 guidance assumes that our business will not be materially impacted by tariffs. Additionally, at this time, we have sufficient inventory on hand to meet current demand. We will continue to follow the situation closely and provide updates to the market as needed. I would like to now turn the call back to Maria for closing comments. Maria Sainz Thank you, Brett. As we get closer to mid-2025, my confidence in driving a new office business, expanding in the hospital, and into more international markets, and bringing forward the highest performing image quality in the Swoop system increases significantly. The team is laser-focused on our growth drivers and very excited about the future of our company. With that, I want to thank you for your time and open up the line for questions. Operator (Operator Instructions) Frank Takkinen, Lake Street. Frank Takkinen I was hoping we could start with one on some of the pilot activities ongoing in the office setting. Most curious, I know you touched on it a little bit in your prepared remarks, but just most curious about initial feedback and whether or not this has resulted in you changing strategy, changing any timelines to go into these markets? And then I have one follow-up after that. Brett Hale Maria, do you want to take that? Maria Sainz Sorry, I was talking to myself. I was on mute. Sorry, Frank. Thank you for the question. And I was saying that we have really taken a very methodical approach to working through the pilot phase and make sure that we follow very closely the accounts from how we have pitched to them their interest in the technology to then really understanding the deal cycle, making sure that we are ready to support them and chaperone any activities associated with accreditation and then even down to implementation. So we now have the pilot accounts gone through, and all of them are now accredited by IAC. They're all scanning. And they're all going through the CMS registration and the motion. And I would say in the training meeting that we had for our sales team, we had one of those pilot neurologists come to speak to them. It is really encouraging to hear how they are thinking about this opportunity in terms of transforming their practice, being able to offer more, being able to be actually a more full-service supplier, and how easy they report feeling the technology is to operate and to bring on board. So I would say, if anything, we are feeling more bullish. I'm also incredibly encouraged by the 2 very large neurology practices that are participating in Neuro PMR. The rate at which they are enrolling patients is exceeding our expectations, which is a great testament to their enthusiasm. And also, we are seeing a variety of cases that they are willing to use in triage in patients with the Swoop system. So I am feeling that it is really the right thing for us to diversify, and there's an opportunity there that is very substantial, and we're going to be moving into that launch phase here in the next several weeks as we hit the midpoint of the year with the field team now trained. Frank Takkinen And then just for my follow-up, maybe a 2-parter. First, on the grant-funded headwind in Q1, is this an instance where if some of those grants start to come back online that, that business could be recovered? Or are you guys thinking of that as lost business at this point? And then, as a second part, just any update on initial receptivity with the international distributors would be great. Maria Sainz Sure. So I think across academic institutions, the tone of clinicians around grant funding confidence is clearly very, very sobering. So we are not expecting that they come back, even though some of the institutions actually that we were affected by were on the front page of main news streams, and they have received some of it back. There is no appetite to do anything eagerly with any grant funding because there's no confidence whether that is going to stick, stay, or get retracted. It's just a very unsettling time in that respect. Definitely, we are moving away from betting on grant funding for deals that may have had that, and we are putting all of our efforts on other deals that don't have grant funding. It is not every deal in the hospital that has grant funding as the source of funding for the acquisition of the equipment. So I don't think we expect them to come back. The question is, are we able here in the second quarter to deliver the quarter and then make anything up? Or is it going to be more challenging to find deals? As we say, most of it is hospital deals, and they have a long sales cycle. And then as it relates to international, we continue to see a lot of interest, and we are now seeing that a lot of the business internationally is very hospital-based. So we are seeing our distributors work through the pipeline. We are seeing the implementations from last year start to generate clinical activity that is encouraging. So we're starting to go deeper in some countries with our distributors. So we're looking at establishing centers of excellence. We're looking at establishing networks of users that can actually communicate and maybe not collaborate, but communicate as the pioneers on the use of swooping in different markets. And in our prepared remarks, we stated that we still feel like we will get India clearance and approval from the CDSCO, and we will do market entrants in the second half. Operator Larry Biegelsen, Wells Fargo. This is Simran on for Larry. Maybe just for guidance. If I do the math, you took the full year '25 outlook down by about $1 million at the midpoint. It does imply slightly lower second-half sales than before at the midpoint. So I guess you laid out a number of growth catalysts that you expect to come online in the second half. So maybe what's changed in your second half guidance since you set your initial guidance in mid-March? And can you talk more broadly about your expectations for the selling cycle, the hospital selling cycle, and the capital environment for the remainder of the year? Maria Sainz Brett, do you want to start? Brett Hale Yes. So I'll take that. So I think 2 things on revenue guidance. In the first half, we adjusted it to $5 million to $6 million. As Maria highlighted, predominantly, that's coming from the grant funding-related activities that we do not anticipate necessarily coming back. So the first half, we adjusted, and then we also adjusted the full year guidance, which also incorporates some of that grant funding-related revenue that we do not anticipate that we'll be capturing here for fiscal year '25. So, no major changes in terms of our anticipation for second half guidance, how we think about the prospects of the business, and the growth drivers will all be in place. But given what we saw in Q1 in terms of grant funding, we made adjustments to both the first half as well as the full year guidance. Maria Sainz And I think you had a question regarding the capital cycle. I think that's what I don't know, that we are seeing anything different than what we have been messaging for the last several quarters, which is that they are definitely getting longer. I think about 1.5 years ago or so, I was estimating our hospital deals were going to take us about 9 months or so. I would say, often now, they are a year or 1.5 years in some instances. So we have a really robust pipeline of hospital deals, but they are going to take their time to happen. And I would say it's probably in that year to 1.5 years time frame now, as we think about where that stands. And maybe just a follow-up on the in-office expansion. Have you talked about how many office sites of care are in the launch readiness phase? And can you elaborate on the economics of selling in the office versus the hospital setting in light of today's macro environment? I know on the previous call, you talked about flexible payment models here. Maria Sainz Yes. So we haven't mentioned how many accounts are in the pilot phase. I would say it's fair to say it's like a handful. And those are the ones that have gone through the motions definitely in the last several weeks, the accreditation, the starting to scan, and then the beginning of the process around reimbursement and CMS registration. Again, we have now gone through the drill of implementation. I would say, as simple as implementation, shipping a device and training on the device is a very, very different experience in the hospital than in the office. In the hospital, the moment we get a PO, usually, we ship the device, and the hospital has no problem storing a device and implementing it when their teams are already there, and all the connectivity has happened, and lots of those things. With the office, they really pick a date. And at that date, everything needs to happen. You need to open the crate, you need to put the device into motion, you need to train the team, and it's sort of one and done. And sometimes we need to do it after hours or over the weekend because that is the plan that they have available. So again, it's been a handful of accounts with whom we've actually learned the whole drill from pitching a deal all the way to implementing and the different steps. In terms of pricing, I think we are continuing to talk about flexibility to accommodate. They definitely have an appetite to pay overtime rather than all at once. It depends on the size of the account. I think we are doing an economic model to understand whether they are really ready for our device. A lot of it depends on the number of cases that they refer to. We talked about the fact that they do 500 on average, a neurology office refers about 500 to 600 patients a year for an MRI. So that definitely it falls right in when this makes sense at our price point. But we are seeing variability in the way we're potentially going to transact with the offices based on their size and their appetite to pay more upfront or pay more over time. Brett, feel free to add any other commentary here. Brett Hale No, I think that's fair. I mean, there are over 2,000 neurology offices, and there obviously is a segmentation within that size. So there are some that are more sole proprietary that have a look and feel of what their business looks like, versus those that are more than 5 to 10 practitioners within a setting. So each one of those has a little bit different dynamics. I would say health economics has been something that's been front and center, both in the office setting as well as what we're bringing to the hospital setting. So each one of those has a very compelling use case. We do allow for some degree of making sure that we can meet the practice where it makes sense for their business model. Operator Yuan Zhi, B. Riley Securities. Yuan Zhi Maria, maybe on the tariff because to tariffs, can you clarify if some of your international orders are delayed to a later time, or were they just canceled? Brett Hale Yes. So, I mean to date, we haven't had any impact of any tariff-related delays of any of our transactions with our third-party distributors to date. So that hasn't come to fruition. We're in the early stages, as you know, of international market development. But to date, no direct tariff impact. Yuan Zhi Maybe a follow-up question there. So, for the 1Q 2025 product revenue, most of the products from the U.S. market, with a very minor contribution from international? And any reason why? Brett Hale So there's been a -- any individual quarter, there's been variability, as you know, in terms of our mix. So I guess, for the first quarter of 2025, I guess I would highlight that we sold 6 units. The effective ASP was $254,000, which was actually a very strong ASP. But any individual quarter, we can have variability in terms of what the demand is and what the sales are. So nothing specific to comment about the mix per se in Q1. Yuan Zhi And maybe one last question from us. So now we are in May, what is your current visibility for the first half of 2025, and then for the full year 2025? The other way to think about this is which bucket of orders you think is at risk, and which bucket of orders you think you have higher confidence in? Maria Sainz I think as we think about I mean, as we think about the second half of this year, that's when we get into this more balanced portfolio of opportunities. And we have the hospital, we have international, we add to international India, and we have the office. So we are managing the pipeline across all of those buckets to have higher confidence as to how things are going to play out based on different sales cycles and time frames. So as I said, the pipeline is very robust. We have also now had a little more run time with the new team, which, as we said, was close to 50% of an upgrade at the beginning of the year, and we are very impressed by the pipelines that they are driving as well as new individuals as well as the legacy team. So I would say the pipeline looks very robust, and we're starting to build the pipeline for the office for the second half. Most of what is going to be driving the business in this second quarter, to round up the first half, is going to be the hospital. That's why there is definitely a significant ramp in total business between the 2 halves, the first and the second. Operator (Operator Instructions) I will turn the call back over to Maria for closing remarks. Maria Sainz Well, thank you very much for attending today's call and for your questions, and we look forward to updating you at the end of the second quarter. Take good care. Operator Ladies and gentlemen, that concludes today's call. Thank you all for joining. 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
Yahoo
14-05-2025
- Business
- Yahoo
Q1 2025 ACCESS Newswire Inc Earnings Call
Sean Carlos; Director of Sales; ACCESS Newswire Inc Brian Balbirnie; Chief Executive Officer; ACCESS Newswire Inc Steven Knerr; Chief Financial Officer; ACCESS Newswire Inc Jacob Stephan; Analyst; Lake Street Capital Markets Michael Crandall; Analyst; Northland Securities Operator Greetings and welcome to the ACCESS Newswire first-quarter 2025 earnings conference call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Sean Carlos. Sir, you may begin. Sean Carlos Welcome to ACCESS Newswire's first-quarter 2025 earnings conference call. My name is Sean Carlos, and I serve as the company's Director of Sales. I've been in the press releases and communications industry for nearly 11 years, including the past seven year at ACCESS a pleasure to be your host today. In just a moment, you'll hear from our Founder and Chief Executive Officer, Brian Balbirnie, and our Chief Financial Officer, Steve Knerr, who will walk you through the company's performance for the we begin, I'd like to read a brief version of our Safe Harbor statement. I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, product releases, partnerships, and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which may involve known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially from those expressed and implied by such results will also be discussed on the call. The company believes that the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes that said, I'd like to introduce the company's Founder and Chief Executive Officer, Brian Balbirnie, and our Chief Financial Officer, Steve Knerr. Brian. Brian Balbirnie Thank you, Sean. Your hosting today is a treat for us. I've enjoyed watching you progress over the last almost seven years. You've been a great mentor and knowledge tree for your team and our organization.I have no doubt you will continue to succeed, and we all look forward to seeing what the next seven years brings. It's exciting to go to market with you each and every of you don't know this, but Sean purchased his very own Jedi fighter helmet a while back, and he puts it on each day and now serves as his internal organization's headshot. I love seeing this, Sean. But our customers can rest assured that Sean surely takes it off before each and every call. Keep up your Jedi ability, love having a little fun here each quarter with our team. Having them host our company call also gives you a little bit of our human approach to how we work that, good morning, everyone, welcome, and thank you for taking the time to speak with Steve and I today on our first-quarter 2025 performance. Our press release, which is accessible in our newsroom, was released pre-market this morning and provides key takeaways on our performance for the delivered from Q1 were $5,476,000 compared to $5,572,000 in the first quarter last year. The 1.7% decrease in revenues were a result of less public company activity in the period. Market-driven volatility drives this customer profile to perform in this manner, something we believe will improve later this that said, our core Press Release business grew 1% in revenues and 2% further in volume. Strategically, becoming ACCESS Newswire and not a compliance and communications company was and is the right decision, as we continued to believe in the addressable market for our Public Relations subscriptions and Press Release are invigorated to see gross margin improvement, something we messaged last year that we believe would prove itself out this year. Seeing results deliver 78% gross margins, 3% higher than Q1 last year at the 75% number is something to build on. I think we're slightly ahead of pace, and we will continue to be mindful of further efficiencies to deliver at these levels without sacrificing our customer along to KPIs on customer accounts and subscriptions. In the prior quarters, as we've been transitioning to subscription-focused sales, we methods of the average reoccurring revenue, ARR, would continue to increase with guidance that by the end of the year new ARR would be $14, Q1, new subscriptions signed were $14,059, moving our average from $9,300 in Q1 last year to just over $11,139 this year in Q1. That's a 20% we look at total subscriptions, they were up 9% for the quarter compared to last year, up to 955. Keep in mind these are communications subscriptions only as we have removed all compliance related metrics as a result of the sale of that compliance business. To reaffirm, we still believe that we can get to the 1,500 subscriptions by the end of this fiscal year, something I will talk a good bit about later in the I turn the call over to Steve, though, to discuss results in more detail, I want to be sure that we intimate to our stakeholders a few obvious points. We recall from our prior year-end call last Q4 at the end of Q1 this year, the financials would be a little bit messy with discontinued operations of our compliance reduced the debt on the balance sheet by 78% as a result of the sale of compliance business. We completely rebranded our business, the product offerings, pricing strategy, and internal systems to drive this long-term growth that we're talking about reduced headcount to realign with our go-forward business, and we delivered gross margin messaging, ARR increases, and customer growth, speaking of which, also increased over [12,000] or 1% from last year. We are pleased on where we are and we have a clear focused strategy on where we are know that revenue growth is the ultimate goal, and getting the business to scale is needing and paramount. As we deliver this, we will continue to see these levels of gross margins, expanded cash flows from operations, and EBITDA percentages back to where we've seen them several quarters a lot more to talk about today, so I'll turn the call over to Steve to cover the quarter and year-end highlights. Steve. Steven Knerr Thank you, Brian, and good morning, everyone. As Brian mentioned, a lot was accomplished during the first quarter of 2025 that we believe will put us on the right path for growth in the quarters ahead. But for now, I will highlight some of the results we achieved during the first quarter of revenue was $5.5 million, a decrease of $96,000 or 2% compared to $5.6 million for the same period of 2024. The decrease was due to slight decreases across our various product lines. However, revenue from our core Press Release business increased 1% due to an increase in volume during the the quarter, we experienced an increase in our gross margin percentage, which increased to 78% during the first quarter of 2025 from 75% during the first quarter of 2024. Gross margin also increased to $4.3 million from $4.2 million. The increase in gross marginal percentage was due to optimization of our operational teams and lower to operating loss, we posted an operating loss of $677,000 for the first quarter of 2025 compared to an operating loss of $862,000 during the first quarter of 2024. In addition to higher gross margin, operating expenses decreased $96,000 to $4.95 million. The decrease was primarily due to a reduction in sales and marketing expenses as a result of lower headcount and advertising costs, partially offset by an increase in general and administrative expenses due to a one-time stock compensation benefit recorded in the first quarter of 2024 of approximately $430, a GAAP basis, we reported a loss from continuing operations of $765,000 or $0.20 per diluted share during the first quarter of 2025 compared to a net loss of $783,000 or $0.21 per diluted share during the first quarter of 2024. Income from discontinued operations net of tax increased to $6.2 million during the first quarter of 2025 compared to $644,000 in the first quarter of 2024. This increase is primarily the result of the gain on the sale of the compliance business Brian discussed to some non-GAAP metrics, EBITDA was negative $4000 for the first quarter of 2025 compared to $245,000 or 4% of revenue for the first quarter of 2024. However, adjusted EBITDA for the first quarter of 2025 increased $503,000 to $564,000 or 10% of revenue from $61,000 or 1% of revenue during the first quarter of increase is primarily due to adding back more stock compensation expense because of the benefit recorded in the first quarter of 2024 as I noted earlier. As well as adding back the loss recorded on our interest rate swap in the first quarter of 2025 compared to subtracting the gain we recorded in the first quarter of net income for the first quarter of 2025 increased $571,000 to $206,000 or $0.05 per diluted share compared to a non-GAAP net loss of $365,000 or $0.10 per diluted share in the first quarter of over to the balance sheet and cash flow statement, our deferred revenue balance, which is revenue we expect to recognize primarily over the next 12 months, increased 6% to $5 million as of March 31, 2025, compared to $4.7 million as of December 31, 2024. We also increased our cash generation from continuing operations, which amounted to $809,000 during the first quarter of 2025 compared to $77,000 during the first quarter of 2024. Adjusted free cash flow was $1,029,000 for the first quarter of 2025 compared to negative $126,000 for the first quarter of 2024.I will now turn it back over to Brian, who will provide some updates on the business, customers, subscriptions, and volumes, along with everything else we have planned for the remainder of the year. Brian. Brian Balbirnie Thank you, Steve. For the remaining time today, I'd like to speak about there and articulate our go-forward products where we see growth coming from recent winds, our product innovations, as well as further efficiencies that we can see in the reason why I wanted to go back to this is last quarter I do not think I did an adequate job putting the products together for you in each of the respective subscriptions, as well as what we keep as a result of the compliance business sale. Of the 10 individual products I highlighted last quarter and the three different subscriptions, here is how they are IR includes our Investor Relations websites, our Corporate Newsrooms, and our Quarterly Earnings Calls. ACCESS PR includes our News Distribution, our Media Monitoring, Media Database Pitching, and Corporate we have stand-alone product subscriptions that are sometimes sold as add-ons to both the ACCESS IR and ACCESS PR subscriptions. Those are our PR Optimizer, our events platform for investor meetings and annual then the two compliance products that we kept as a result of the sale was our SEDAR filings, which is directly tied to our Canadian public companies for Press Release Distribution to file with SEDAR in Canada. As well as our Incident Management Whistleblower services, which is the New York Stock Exchange subsidy product that we wanted to continue on our All ACCESS subscription is essentially a combination of both our IR and PR subscriptions that I just mentioned above. The market is telling us that by pipeline insights that all signs for the remaining part of the year and into next year will be the majority of our growth will come from our ACACESS PR subscriptions, an offering that typically starts at around $9,000 ARR, and tiers all the way up to $17,000 it down a bit more, since approximately half of our revenues that come from subscriptions today, approximately $12 million annually, about 75% of it is ACCESS PR and growing. To get to our $1,500 target number, it's going to be heavily driven by the ACCESS PR platform and its new innovations slated for this year, some of which we have talked about in the will see platform add-ons through the remaining part of the year, some of which are internal efficiencies to help drive margin and prepare us for scale and volume. That innovation was released here just a few weeks ago is referenced as our Press Release Content Validator. We believe in industry-first enhancement to our editorial process whereby editors on our team can utilize our proprietary language model to detect keywords, phrases, and our acronyms we know, our content guidelines, partnered networks, and prohibited contents, policies will will not accept automatically this information and flag it for reference by the customer and our editorial teams. We expect to see up to a 10% efficiency gain by utilizing this tool. And as we learn and allow our agents to get smarter, we expect to make this feature available to our customers in the back half of the year, whereby they can pre-validate their voice in the press release, but also utilize our enhanced version of AImee, our AI writer, to help tonality project engagements across audiences with some very innovative customer suggestive and internally developed are two of the areas that we see product innovation coming from this year and are also going to be impactful to our customer, helping solidify growth channels and differentiating our product offering in the market. We see comprehensive social interactions and messaging tonality as being the two intersections of convergence, whereby our platform can become a centralized communications ecosystem for our company's message that is distributed beyond just a press release and into more of a focused medium selection of a storytelling is, IR, PR, and Corp Comm are all utilizing social mediums, content scheduling platforms, AI engines, hopefully secure closed platforms, and not open LLM, unsecured data systems, and press release services like ours to tell their story. We envision a storytelling platform whereby our customer can create a message, enrich it with our system, post, target, and monitor each medium performance and outcome using our All ACCESS are excited about these back half of the year developments and what they will mean for our customers and our ability to gain further market share. Customers that recognize this product roadmap are buying into our subscription recent wins during the first quarter continued and the momentum of customer growth, further securing large brands and cross-selling current brands. Our ACCESS IR offerings saw big brand wins like UPS for the quarter. Our All ACCESS platform saw upsell value-driven deals from companies like BlackBerry, and our ACCESS PR not only saw growth, it also saw big brand wins from Konica Minolta and even the Chicago White that we touched on earlier in the call, our PR volumes and revenues continue to grow for the quarter, a trend that will continue and further expand as we move through the market as the number three volume player. Something that we want to be sure that is known, although we are continuing to grow volumes and revenues in our PR industry is retracting both in revenues and volumes, whereas our growth, we are seeing pipeline pricing improvements in the number of inbound customers interested almost at an all-time high. Not to mention, we have fielded a good bit of interest in the market with very acquisitive tones that will likely bode well for us as we continue to execute on our growth and something else I am personally excited about, our product and dev teams are spending some time with the business initiative we have that is to narrate a story in an auditorial format that brings to life one's views, missions, and storytelling into a near real-time spokesperson-ish kind of way. This incorporated technology advancement will be industry-first advancement and for the reasons I will be a little brief here today if you don't mind, but I am super crazed about the possibilities and look forward to showing you a demo on our next we continue to move forward, we are emerging a very focused, lean communications business led by our subscription platform and our first growth market news distribution brand. Our new name, our new strategy, and compelling go to market plans is setting us up to emerge in 2025 as the leader in the space, illustrating growth in our customer accounts, revenues, gross margins, and earnings power, as well as continued cash flow from closing, last quarter, I said we anticipate over the next couple of years, we will derive the majority of our revenues from reoccurring subscriptions. Our goal was to reach 75% by the end of believe that we are far ahead of this and we will be very close by the end of this year. Far ahead of our initial projections like gross margin improvement and customer accounts and ARR, we are built to deliver on our guidance, and now we need to show the top line that can also continue this similar always, it's nice spending time with you today to talk and discuss our results with the quarter. Operator, can we please go ahead with the Q&A portion of the call? Operator (Operator Instructions) Jacob Stefan, Lake Street. Jacob Stephan On the gross margin, can you just give us a little bit better sense on maybe some of these efficiencies you're seeing? Obviously, nice outperformance in the quarter, but how do you expect the gross margins to trend throughout the year? Brian Balbirnie As Steve highlighted in some of his prepared remarks, a little bit of the gross margin improvement came from staff realignments on the top line of the business as we prepared to exit the compliance business. And really hone in on what scale could look like for our communications-focused go-forward the second component is what I touched on, is this PR analyzer product internally that we're using as a compliance check. It gives our editors more time to focus on articles, handle volumes greater than what they had in the so we're able to see some efficiency gains there, as we continue to approve it. I think they used the word agent. It really meant like AI agents and AI bots that are running in the background to continually find new things that can advance that we expect that even to don't see pricing pressures in the market. If anything, we see less in price both on a pay-as-you-go basis as well as bundle subscriptions moving up market. So we've got some insulation on top line. It's just now becomes a scale game, but we really do believe between 75% and 78% of where we'll see the remaining quarters. Jacob Stephan Okay, very helpful. And then next one maybe, dissect a little bit on the new subscribers and being onboarded at $14,000 plus ARR, is that more of a function of a change in pricing or is it more product uptake? Brian Balbirnie It's a combination of both, really. We've done well as I highlighted, we've got groups like BlackBerry coming back into the platform to trade up. I've been using this nomenclature inside the organization about trade up and trade doing a really good job of customers trading up, right, meaning they're buying an introductory or a small platform, and they're coming back within the year to upgrade. BlackBerry is a great example of that. There's many others that are causing less than then secondarily, we see the trade in. How do we get customers to come into our product platform from the competitive landscape that's out there, meaning they buy three or four or five vendors, consolidate to one. We're seeing those prices start to commit at a higher rate as it also does impact having large accounts with a much disproportionate ARR in the top line, but we're seeing it across all areas, which is a good indicator to us that the stickiness of the product platform is starting to happen within the customer base. We've invested heavily in our customer experience love our customer more, as we say, to get in and show them the demonstrated values of each of the components and how they use them across all their mediums. And we think that's starting to progress for us, which will ultimately help on retention and attrition and everything else. Jacob Stephan Okay, thanks. Maybe just one more, On UPS, BlackBerry White Sox, obviously, some big brand name wins here, but what's the sales cycle like here? How different is it from, maybe, onboarding a smaller public company? How are these customers finding out about ACCESS? Brian Balbirnie Yeah, the rebrand of our business has really driven home traffic and volume inbound interest. Just from, if we purchase in a couple of different ways, from a traffic perspective, we're driving about 2.5 times to 3 times more traffic to our platform, which means both customer login traffic as well as eyeballs; people like you and I reading news articles every day, which means increased engagement for our customers, which is good stickiness for customers for this market is really, over the past couple of years, changed significantly. I think like many other industries and verticals, is that the customer is educated. They're doing their research before they come inbound, before they make the call, or before we even contact them. They know what they want, they know how they want it, and they know what price point they need to be large accounts, actually, from an initial touch to close, are sometimes just as quick as the small. The only difference is once you get past the decision maker, you then have the back-office compliance of SOC 2 and security concerns and everything else that you've got to go through for vendor management, which takes a little the contact, the demo to proposal to close, in many cases is very similar. A lot of them are one call closes on the small side, and the larger cap, mega cap companies tend to be three to four call closes with a couple of meetings in we're seeing the sales cycle shorten, to part of your point, whereas, we could then start to see some velocity in this. And we continue our marketing and branding, and our sales teams continue to work those accounts, we should begin to see a lot more of those large numbers happen for us in the back half of this year. Jacob Stephan Got it. Very helpful. I appreciate it guys. Operator (Operator Instructions) Mike Crandall, Northland Securities. Michael Crandall A question about, you said in the quarter the subscriptions you signed averaged $14,000, and prior to the quarter they averaged $9000. Is there a typical -- what is a $14,000 customer look like versus a $9000 customer? Is there a common package they purchased? Is it a longer-term? And just help us understand the difference if you will. Brian Balbirnie Q1 last year was $9,000 and change, and that number, if you guys go back in history, and I can put an update to the slide deck on our investor presentation to show the progression of this every quarter, it's continued to increase. And we messaged two quarters ago, $14,000 VR averaging (technical difficulty) the deals and by the end of 2025, and a lot of folks were questioning whether or not we could deliver to your point, we've done it by targeted distribution. It drives value. So the ACCESS PR subscription product platform, which is our leading subscription product, is made up of Media Database, Pitching Analytics, and News on, when we started selling that product before we rebranded, we were selling it to much more of a smaller business that was buying a budget product. And budget was budget distribution. So it didn't really go everywhere that you'd expect, like a national or a premium or a North American press early, not the early adopters, but now the adopters are buying the subscription today are buying into more of a North American premium or a US premium product that rises the price and limits the number of releases they can do. So we're seeing that ARR so, I think at the end, and Steve, keep me honest here, at the end of Q3 last year, we were about $11,000 fans. We ended Q4, about $12,000 unchanged, meaning the deal signed in the quarter averaged that. And in Q1, they're already at $14, so to be fair to that number, we believe we can continue to drive ARR higher on product expansion adjacencies. Things like we talked about social integration, things that we talked about with tonality checking and optimization, and then the third item that I briefly touched on, which is a very auditorial product that will be added to this in the back half of this we do also think about having a lower entry point subscription product that could drive significant volume of subscribers. And so we want to balance this. We're not going to come off of our $14,000 number this year guidance and go beyond, but we may think about next year having a more entry level many other subscription-based businesses do, you've got an entry point that you can get tens of thousands of customers to come in for a very small amount. So we're keeping our eye focused, but for today, we believe we're going to continue this progression and continue to add on, which could further drive this $14,000 number. Michael Crandall Got it. So it's been, add-ons have driven it, but also some a repackaged a little bit as a premium product. Are those the two biggest drivers, if I heard you right? Brian Balbirnie That's correct, yes. Michael Crandall And then how should we think about, you know, you have 955 subscribers, 12,000 customers if I read it right, how are you targeting those 11,000 that aren't on a subscription? Brian Balbirnie Yeah there is targeted messaging that goes to that group and so we examined the group from the cohort of what do they offer in the opportunity for us to convert them? What do they have as a package price today?So here's an example, we have hundreds and hundreds of customers, likely thousands that are buying what we have called in the past a value pack or a bundle of press releases. This is the good and the bad about the press release industry, and that you can get a lot of companies to purchase at a discount, a committed number of press releases. And you take the money up front or -- but you get to recognize the revenue as they use the press releases, which then causes it to be a little seasonal and lumpy, and not consistent like in our focused in on those customers spending kind of $3,000 to $6000 and moving them to a subscription product. We talked about this a couple of quarters ago. That was where our initial ACCESS PR, what we call Media Suite at the beginning was really found success.70% of the subscriptions we sold in Q3 last year came from existing customers. And we used a $5,000 to $9000 rate dollar value to convert those customers. And so now we're going to come down market a little bit and saturate those customers. And so we believe that there's another 600 plus potential customers that we can get to convert based on their current spend and based on the add-ons they'll get to drive to our 1,500 number and beyond and I think answers and ties into your prior question is how do we drive volume there? So we think about a lower-end subscription because there are thousands of customers that come in and buy a press release, right? And so they may spend $500 or $600 once and they have nothing else to talk so we want to figure out ways to drive those customers because that is going to be the key here next year as we can continue to brand and market. We get 5 to 10 of these folks every single day coming in and buying a press release. What can we do to convert them into something that's more of a recurring model? Michael Crandall Sure. And then hey, just lastly, where is headcount today versus say, maybe, I don't know, year-end '23? Brian Balbirnie Yeah, it's probably an estimate number I'd give you. We're likely about 100 today. We're probably down from 120, 125 from the prior reference period. Some of the reduction obviously is members of the compliance division went with the business and then others were just areas of the organization because of the transaction we were able to lean up and become more efficient; IT, HR, back-office kinds of believe we're at a good headcount, G&A wise. We do want to spend and invest in sales and marketing. We read our (technical difficulty) here shortly and like we can pick it up from the 8-K filed with the earnings press release already this had a reduction in sales and marketing as we approached to rebrand. We really wanted to be careful of how much we're investing in sales as we were changing a bunch of brand names and product now that we've gotten that behind us, we've got likely two to three new sales people to be added this quarter. We're rounding out interviews now. We've got additional marketing headcount coming in as well. So we want to invest in those areas because it's going to help accelerate this business even more but call it around 100 today compared to the 125. Michael Crandall Okay, fair. Thanks a lot. Good luck this (multiple speakers) Operator (Operator Instructions) Okay, as we have no further questions on the lines at this time, I'd like to turn the call back over to Mr. Balbirnie for any closing comments. Brian Balbirnie Ali, thank you. Sean, thank you. Steve and I also appreciate everyone spending time with us this morning to talk about the Q1 results. A copy of this transcript and the presentation that we shared with you today will be available at our Investor Relations website here shortly. For reference, it's and I, as always, are available for follow-up calls. We look forward to talking to you again as always in the future. Thank you. Have a great day. Operator Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time. 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Yahoo
14-05-2025
- Business
- Yahoo
Q1 2025 Legacy Housing Corp Earnings Call
Robert Bates; President, Chief Executive Officer; Legacy Housing Corp Max Africk; General Counsel, Corporate Secretary; Legacy Housing Corp Jeffrey Fiedelman; Chief Financial Officer; Legacy Housing Corp Mark Smith; Analyst; Lake Street Capital Markets Stefano Latapy; Analyst; Cannell Capital LLC Operator Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation Q1 2025 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Max Africk, General Counsel. Please go ahead. Robert Bates Good morning. This is Duncan Bates, Legacy's President and CEO. Thank you for joining Legacy's first quarter 2025 conference call. Max Africk, our General Counsel, will read the Safe Harbor disclosure before getting started. Max? Max Africk Thanks, Duncan. Before we begin, I will remind our listeners that management's prepared remarks today will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations, and any projections as to the company's future performance represent management's best estimates as of today's call. Legacy, moreover, assumes no obligation to update these projections in the future unless otherwise required by applicable law. Robert Bates Thanks, Max. Jeff Fiedelman, Legacy's Chief Financial Officer, will discuss our first-quarter financial performance, then I'll provide additional corporate updates and open the call for Q&A. Jeff? Jeffrey Fiedelman Thanks, Duncan. Product sales primarily consist of direct sales, commercial sales, inventory finance sales, and retail store sales. Product sales decreased $6.5 million or 21.2% during the three months ended March 31, 2025, as compared to the same period in 2024. This decrease was driven by a decrease in unit volumes shipped primarily in mobile home park sales, retail sales, direct sales, and other product sales categories. For the three months ended March 31, 2025, our net revenue per product sold increased by 23.1% as compared to the same period in 2024. The increase is primarily due to a decrease in units sold to mobile home parks, which were sold at wholesale prices and an increase in units sold to consumers, which are sold at higher retail prices. Consumer MHP and dealer loans interest income did not change during the three months ended March 31, 2025, as compared to the same period in 2024. Between March 31, 2025, and March 31, 2024, our consumer loan portfolio increased by $20.3 million. Our MHP loan portfolio increased by $20.1 million, and our dealer finance notes decreased by $2.4 million. Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees and other miscellaneous income and decreased $1.0 million or 59.2% during the three months ended March 31, 2025, as compared to the same period in 2024. This decrease was primarily due to a $1.1 million decrease in forfeited deposits, partially offset by a $0.2 million increase in portfolio fees and service revenue and land sales and a net $0.1 million decrease in other miscellaneous revenue. Cost of product sales decreased $3.3 million or 16.0% during the three months ended March 31, 2025, as compared to the same period in 2024. The decrease in cost is primarily related to the decrease in units sold. Gross profit margin was 29.2% of product sales during the three months ended March 31, 2025, as compared to 33.6% during the three months ended March 31, 2024. The cost of other sales was $0.5 million during the three months ended March 31, 2025. Selling, general, and administrative expenses increased $0.4 million or 6.9% during the three months ended March 31, 2025, as compared to the same period in 2024. We had a $0.6 million increase in legal expense, a $0.5 million increase in loan loss provision and a $0.3 million increase in other miscellaneous expense, offset by a $0.4 million decrease in warranty expense, a $0.3 million decrease in payroll and related expense, and a $0.3 million decrease in professional fees. Other income decreased $0.6 million or 35.5% during the three months ended March 31, 2025, as compared to the same period in 2024. We had a decrease of $0.8 million in non-operating interest income, primarily as a result of the settlement agreement that we reached with a significant borrower in the third quarter of 2024, offset by a decrease of $0.2 million in interest expense. Net income decreased 32.1% to $10.3 million in the first quarter of 2025 compared to the first quarter of 2024. Basic earnings per share decreased to $0.43 per share or 30.6% in the first quarter of 2025 compared to the first quarter of 2024. As of March 31, 2025, we had approximately $3.4 million in cash compared to $1.1 million as of December 31, 2024. We did not draw on the revolver in the first quarter. The outstanding balance of the revolver was 0 as of both March 31, 2025, and December 31, 2024. At the end of the first quarter 2025, Legacy's book value per basic share outstanding was $20.87, an increase of 13.1% from the same period in 2024. Robert Bates Thanks, Jeff. Obviously, first-quarter shipments were lower than we would have liked. I want to discuss the steps we have taken to address product sales growth moving forward. After the last earnings call in March, I flew with our founders to the Biloxi Mobile Home Show. It was a good opportunity for the three of us to walk houses, speak with customers and discuss financing solutions. We led the show aligned on several important changes to our products, park financing program and team. First, our product line needs to be simplified. Over time, we added too many floor plans, color choices, options, et cetera. We analyzed the sales data, dramatically reduced the number of choices and simplified pricing. This change will allow our team to focus on the core products and gain efficiency in the plants. Next, our park financing product has historically catered to the rental model. Our customers purchase homes and rent them to tenants. Some community owners, especially in the Texas markets want the flexibility to sell homes. We introduced a modification to the MHP program that accommodates this, subject to certain conditions. I believe this change will broaden our customer base in our core markets moving forward. Finally, management needs to allocate more time to sales, marketing, and the land development projects. We hired industry veterans in key positions, including General Manager in Fort Worth, Director of Engineering for the company, a Purchasing Manager for the company, and a Texas-based regional manager for our company-owned retail locations. We operate this business closely, but understand the importance of senior management across manufacturing and retail to allocate our time effectively. This was a necessary reset, and I'm encouraged by the feedback to date. Currently, production in Texas is up, and we're working hard to ship houses and extend our backlog. Moving to the market. We are now in the spring selling season. Despite market uncertainty and tariff risks, our outlook for the remainder of 2025 is positive. Independent dealers across most of the footprint are healthy. We saw some slowdown in our South Texas dealers post election during the first quarter, but sales are now recovering. At our company-owned stores, unit sales in April of 2025 were the highest in three years. May 2025 is tracking equally as strong. We view retail finance as a leading indicator on the dealer side. A couple of recent data points: retail loan originations in April 2025 were the highest in one month since going public. Originations year-to-date through April of 2025 are up 51% over last year. Community shipments were lower than expected during the first quarter due to broader market uncertainty and timing delays with specific projects. Last week, I spoke with several community owners at the MHI Conference. Demand for rentals in most regions is solid and M&A activity is improving. I was encouraged by HUD Secretary Scott Turner's speech and the new administration's views on regulatory reform, less restrictive zoning, access to government financing solutions, and updates to the HUD-Code will have a long-term positive impact on our industry if executed. Delinquencies across the loan portfolios remain low, and recovery rates continue to be strong. There were no material land sales during the first quarter, but we will continue to monetize noncore landholdings throughout the year. Near Austin, we continue pushing forward in Bastrop County with our 1,100 pad development. I drove the property a few weeks ago. The roads and utilities are completed in Phase 1. We still anticipate selling lots in Phase 1 this summer. Phase 2, the rental community is not far behind. We are building the roads and water treatment plant now. Lot rent in the area is over $1,000 a month, and we believe this property is extremely valuable. We just need to finish it. Share repurchases during the first quarter were limited by a narrow window and trading restrictions. Despite the soft quarter, we're long-term focused and have plenty of balance sheet to repurchase shares at current trading levels. We continue to believe in the long-term fundamentals of manufactured housing and the value proposition that Legacy Housing provides its customers. Operator, this concludes our prepared remarks. Please begin the Q&A. Operator (Operator Instructions) Mark Smith, Lake Street. Mark Smith I wanted to ask a little bit about pricing at first. It sounds like the main reason for average price per home going up so much is just due to the mix. But can you talk about any pricing maybe that you took during the quarter? Robert Bates Yes. So the primary driver of the increase in average selling price was the mix. So obviously, soft quarter with shipments to mobile home parks, but we had a pretty strong quarter with retail sales and inventory finance sales, which shifted the mix way up, I think, too far up. In general, we're obviously looking closely into all the tariffs around raw materials, and we pushed through a price increase in February. We're planning to push through another price increase in mid-June. And I think the good news is with the announcement yesterday, the price increase is not nearly as severe as we were expecting. Mark Smith Okay. And then just back on MHP sales here. How much of this is just less demand from parks versus maybe timing of orders. If you could quantify or speak to maybe orders, your backlog, that would be great. Robert Bates Sure. I think it's a combination of both. We did have some shipments, both out of all three plants -- or all three regions. So over in Georgia, we had a pretty large order that got pushed into the second quarter. In Texas, we had the same thing and up north with our partnership. They were waiting on some raw material in order to get houses shipped. And so those are three meaningful orders that did slip. But we've been pushing hard on park sales. I mentioned in my comments, in the Texas region, our financing product works really well for community owners that are renting the homes. So they buy the homes, they take the depreciation, they rent the homes versus setting up homes and selling them in your park. And so I think as guys in our Texas territories have spent a lot of money buying parts, they're trying to unlock or get some of their -- return some of their capital by selling the houses. And so that's a modification that we've done, and we're just rolling out now. The feedback has been pretty good. But I think that allows us to pick up some of the guys that have shifted more toward tenant-owned homes versus the traditional rental model that we believe in. Mark Smith Okay. And then lastly, Duncan, can you just remind us any kind of capital spending or needs or use of cash kind of this year that are outside of the norm? Robert Bates Nothing outside the norm. We're really pushing hard to get Bastrop completed. So we've got some additional capital going into that. We're looking at opportunities all the time, whether it's to add to the dealer base or to add to the loan portfolio or to even add manufacturing capacity. So we're currently monetizing some noncore real estate. You'll see that flowing in. And then outside of that, it's developments, retail, manufacturing capacity and adding more notes to the portfolio. Operator Daniel Moore, CJS Securities. This is [Will] on for Dan. Can you talk about your expectations for production rates across your three plants for Q2 relative to Q1? And what can you tell us about your discussions with customers in both retail and community markets and the cadence of order rates in Q1 and thus far in Q2? Robert Bates Yes. Well, we came out of seasonably slower period. I think that we're pretty enthusiastic about the dealer side of the business and especially our company-owned retail stores, and you see that in the retail loan originations. Park side has been slower. It's lumpier. If you get large orders that are held for permitting or because the pads aren't finished or they can't get them set quick enough, it could have a meaningful impact on your quarter, and that's what we saw here. I mentioned in my comments that we really simplified the product portfolio, and we're rolling that out to the customer base now. But I think you can imagine all the downstream effects of having too many color options and too many floor plans and too many additions to the house. So we've really streamlined that, which will help us get production up even higher in the Texas plants where we have orders. In Georgia, Georgia continues to sell and they continue to build. And we're really focused on rebuilding the dealer base there and adding new independent dealers. So I think as the team continues to make progress there, we'll be able to put production in Georgia higher than where we are now. But certainly, production in Texas for Q2 will be higher than Q1. And then how should we think about gross margin and operating margins in Q2 and the back half of the year relative to Q1? Robert Bates I'd say this is probably the lower end of the range, right? We're under-absorbed on labor. We just pushed through a price increase in February. We've got another one coming in June. We're keeping an eye on material prices. But I think somewhere around 30% seems realistic. And then just one more. How much of a sticking point of tariffs and trade uncertainty been for your retail and community customers? And conversely, do you see the reduction in proposed tariffs as a meaningful potential catalyst for demand? Robert Bates I think it's -- the tariffs in our business compared to a lot of other industries are not -- I mean they're a real consideration, but they're not a huge consideration. We manufacture all of our products here. And the vast majority of the raw materials that go into one of our homes are domestically sourced. But I think the tougher thing for the business environment, regardless of what industry you're in, it's just the uncertainty because everyone is impacted. But I mean, I think you're hesitant to go out and make a large investment or add people to the team, just given all of the moving pieces over the past few months. Thank you. Operator (Operator Instructions) Stefano Latapy, Cannell Capital LLC. Stefano Latapy I have a question. This morning, Craig-Hallum came with a note on Capital and Skyline Champion, where they said that the shipments were strong for the quarter, and you're expecting (inaudible) on the companies. I'm just asking why they have good shipments versus you guys? Robert Bates Well, I think it comes down to a couple of things. I mean we just talked about we had some delayed shipments. And I think a combination of pricing and the complexity of our product has hurt us this quarter. We've also had a lot of new people in the sales team, but I feel good about finishing the year strong. I think that pricing across the market has been really competitive. And we've chosen to keep our pricing where it is even at lower volumes. And so as things pick up here, I think our pricing has fallen in line with where we've historically played, and the backlog will continue to build. Stefano Latapy Okay. So it's what more you will consider this to be more something specifically to you guys due to what you've explained on the call rather than the industry being weak? Robert Bates That's correct. Yes, I think the industry -- we're halfway through May right now. So a lot of things have happened since the end of the quarter. But I think overall, I'm very confident in the industry. And I think others are, too, Affordability is a real challenge. And if you look at the price points of our homes and the financing solutions that we offer, I think if the industry gets any type of regulatory relief from the new administration that could have a really positive impact, but we're expecting a positive year. Operator And I would now like to hand the conference back to Duncan Bates for any further remarks. Robert Bates Thank you for joining today's earnings call. We appreciate your interest in Legacy Housing. Operator, this concludes our call. Operator This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Yahoo
13-05-2025
- Business
- Yahoo
Q1 2025 GigaCloud Technology Inc Earnings Call
Lei Wu; Chairman of the Board, Chief Executive Officer, Founder; GigaCloud Technology Inc Iman Schrock; President; GigaCloud Technology Inc Erica Wei; Chief Financial Officer; GigaCloud Technology Inc Ryan Meyers; Analyst; Lake Street Capital Markets Tom Forte; Analyst; Maxim Group Matt Koranda; Analyst; Roth Capital Partners Operator Welcome to GigaCloud Technology's first-quarter 2025 earnings conference call. Joining us today from GigaCloud are the company's Founder, Chairman and CEO, Larry Wu; its President, Dr. Iman Schrock; and its Chief Financial Officer, Erica Wei. Larry will start with a brief introduction, Iman will provide an update on the company's operations, and Erica will discuss financial results for the quarter. After that, there will be a question-and-answer session. As a reminder, this conference call contains statements about future events and expectations that are forward-looking in nature, and actual results may differ materially. Additionally, today's call will include non-GAAP measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the press release issued today by GigaCloud as well as on the company's website. I would now like to turn the call over to Larry for his opening remarks. Please go ahead, sir. Lei Wu Thank you, operator, and welcome, everyone, to our first earnings call of 2025. We started the year on solid footing with the year-over-year top-line growth of 8%, supported by disciplined operations and execution across the business despite a challenging industry environment. Our B2B marketplace continued to expand with a 56% year-over-year GMV growth on a trailing 12-month basis as participants derived significant value from many efficiencies we bring to the supply chain for large parcel merchandise. While short-term headwinds persist, long-term fundamentals remain intact. Our marketplace and supplier fulfilled retailing model streamlines cross-border trade and positions us to capture the growing demand for efficient technology-enabled commerce, and we remain focused on growing GigaCloud in a disciplined and sustainable manner. A few things we have been focused on lately. We continue to execute our integration plan for Noble House. We have started the process of introducing new SKUs with simultaneously optimizing procurement costs through our large network of vendors. While we are still in the early stage of this effort, initial feedback we're seeing has been very encouraging. We are excited for the future as we gradually continue to introduce new, more profitable SKUs, while simultaneously retiring less profitable merchandise as we go. We remain focused on growing our marketplace outside of the US/Europe performance continues to be strong with a close to 80% year-over-year growth. We're also receiving increased interest from our 3P sellers for international markets, such as the EU, UK, and Japan. The launch of our Wonder app has been positively received with a promising traction, and we have welcomed a great new partner to our BaaS program as well. We are excited by the long-term potential of these initiatives and remain focused on disciplined execution. With that said, we recognize the recent tariff developments have introduced new complexities into global trade and the high level of uncertainty has caused disruptions to the supply chain. I want to take a moment to discuss this. Obviously, we cannot see into the future, and we do not know when and how things will play out exactly. With where tariffs currently are and the level of uncertainty, there's no doubt it poses a challenge for many, including us. But we are confident in our ability to manage the challenges to come. I am a firm believer that the best time to prepare for a challenge is before it occurs, and we have been preparing for a long time by always being laser-focused on efficiency and agility. We designed the GigaCloud marketplace to be an open-ended, channel-agnostic and dynamic ecosystem that supports adaptation as quickly as the market changes. For GigaCloud and our clients, this means the ability to pivot quickly in terms of both product sourcing and sales channels. The just-in-time approach towards inventory procurement brought by our SFR model also proved to be particularly valuable during times of uncertainty and rapid change. We expect the near-term disruptions for these macro and industry headwinds, but we are confident that the platform we have built positions us to capture outsized opportunities over the long run. As I have said before, periods of uncertainty reveal true strength. GigaCloud is resilient, adaptable, and experienced. The efficiency baked into our marketplace is precisely what help us and our partners navigate whatever comes next. Now, I will give the microphone to Iman to provide operational updates. Iman Schrock Thank you, Larry. I am pleased to share that our marketplace continues to grow even as we work through current headwinds. For the trailing 12 months ended March 31, 2025, GigaCloud marketplace GMV grew more than 56% to $1.4 billion as buyers and sellers of large parcel merchandise took advantage of the flexibility and efficiencies offered by our SFR business model. Our active 3P seller base grew more than 33% to 1,154, while GMV from this space increased 50% year over year to $734 million on a trailing 12-month basis. 3P sellers currently account for about 52% of our total marketplace GMV. Our buyer base is nearing 10,000 for the first time, growing more than 81% year over year. We again saw a small reduction in average buyer spend as we continue to onboard a large number of buyers who, as you are aware, generally start on our platform, trading with lower volumes and learning and testing. As Larry mentioned, we're driving ongoing momentum in Europe as a result of our focus on diversifying our business. GMV in this region grew over 80% for the first quarter. Looking ahead, we're doubling down on Europe. The fulfillment center we opened earlier this year in Bremen, Germany has strengthened our regional fulfillment footprint that supports our growth initiatives across continental markets. At the same time, the evolving tariff landscape is encouraging many buyers and sellers to diversify their sourcing and sales channels, and we're well-positioned to meet the demand. We're continuing to make progress on the Noble House integration. As a reminder, last quarter, we began Phase 3, which is all about refreshing the catalog to retire the underperforming SKUs and replace them with successful new ones. In the first quarter, we phased out over 400 legacy SKUs and launched more than 300 new ones, helping us keep the assortment fresh while improving inventory efficiency. Looking ahead, we have approximately 600 new SKUs currently in development with rollouts planned over the next two quarters. This constant cycle of product development is critical to the long-term business health. The new SKUs we introduced this quarter are encouraged by the initial feedback from our partners. That said, given how early we are in the process, sales volume from these SKUs are still relatively low and will take time to scale. In general, three to six months are needed for each SKU to ramp up to healthy sales levels. As the catalog continues to evolve and adoption builds, we aim to begin Phase 4 of the integration towards the end of this year, which will focus on driving margin expansion across the channels. Since rebranding and launching our Wonder app, we've been focused on refining the experience through a closed beta phase. While it's still early, we're encouraged by the initial traction. As we continue collecting user insights and advancing development, we look forward to broadening access and sharing further updates in the coming quarters ahead. Importantly, not only is this app ideal for retail stores that are seeking a more efficient method to manage their sales teams, but it also provides suppliers a direct line into retail sales activity, enabling better engagement and outcomes at the point of sale. The app is another example of our innovation as we continue to bring added transparency and efficiency into the supply chain. On the BaaS front, we're excited to welcome Scott Living, the well-recognized and beloved home brand from Jonathan and Drew Scott, better known as the Scott Brothers, and widely recognized from their hit television series, Property Brothers. Their trusted brand presence and strong consumer following brings significant value to our platform and aligns well with our growth strategy. As a reminder, under the BaaS program, marketplace sellers are able to sell and distribute select Christopher Knight Home and Scott Living branded products via a per SKU approval process. GigaCloud oversees product development, quality control, brand management, fulfillment, and promotional support, ensuring that all branded products meet and exceed industry standards. Thank you again for joining us today. I'll turn things over to Erica for the discussion of our financials in the first quarter. Erica Wei Thank you, Iman, and good afternoon, everyone. Before I jump into our results, please note that all figures I'll be discussing today have been rounded and comparisons are made against the prior-year period unless otherwise stated. Let's dive into this quarter's results. Total revenues grew 8% to $272 million, mainly due to increased market recognition and the growth of our GigaCloud marketplace. Let's take a deeper look, starting with service sales. Service revenue grew by approximately 23% year-over-year to $94 million in Q1 2025, driven by continued growing demand from our existing and new customers. Service gross margins was 15.9%, a 3.5% decrease sequentially, primarily due to lowered ocean freight rates and lower last-mile delivery pricing. As we discussed in the last earnings call, our fixed rate ocean contracts gives us an advantage during times of high ocean freight. As prices continue to come down and normalize during the first quarter of 2025, we stop seeing this kind of arbitrage margin. Compared to prior year, we have also begun pricing more competitively on the last-mile delivery front starting Q1 2025 as we position for long-term growth. Moving on to product sales. Global product revenue grew by approximately 2% year over year to $178 million for the quarter. We saw robust growth in key international markets led by Europe, which grew by over 70% year over year. Product revenue growth in our international markets was partially offset by the expected year-over-year decrease in our domestic US markets. We saw a 17% year-over-year domestic decrease, which was a result of the controlled contraction associated with refreshing the Noble House product catalog, persistent industry headwinds in the US, and softness seen in some of our downstream partner channels. We expect to see this trend carry forward into the next quarter as we continue to deepen our presence in the European markets and execute on Phase 3 of the Noble House integration plan in the domestic US market. Product margin improved by 4% sequentially to 27.4%. The improvement is attributable to improved costing of goods sold during the first quarter. As we discussed during our last call, high capitalized cost goods procured during the peak of high ocean freight in 2024 had compressed our Q4 product margins. As we had less of these goods left to move through during Q1 of 2025, product margins have correspondingly seen recovery. In addition, as we move away from the holiday season surcharges, ground delivery fees have also decreased, resulting in improved margins. Overall, our gross margin was 23.4% for Q1 2025, a sequential improvement of 1.4% from the fourth quarter of 2024. Total operating expenses was 13% of total revenue, largely in line with last quarter and last year quarter. Breaking that down, we saw slightly higher selling and marketing expenses at 6.8% of total revenue compared to 6.1% and 5.8% in prior quarter and prior year quarter, respectively, as we saw higher off-platform to see sales as a percentage of total revenue this quarter. G&A expenses fell to 5.3% of total revenue from 6% as we continue to focus on gaining efficiency as we grow. Net income for the first quarter was $27 million, at 10% compared to 10.8% in the prior year period. We ended the quarter with liquidity of approximately $288 million, which is inclusive of cash, cash equivalents, restricted cash, and short-term investments, which is down slightly from $303 million at the end of last year, mainly due to the repurchase of our stock. Back in September 2024, our Board authorized a program of $46 million, which was subsequently increased to $62 million this past March. We've been active under this program. And to date, we have repurchased approximately 3.7 million shares for approximately $61.8 million. We plan on retiring all shares repurchased. Turning to our outlook for the second quarter. We expect total revenue to be between $275 million and $305 million. Thank you again for your continued support and for joining us today. Operator, we're now ready to take questions from the line. Operator (Operator Instructions) Ryan Meyers, Lake Street. Ryan Meyers First one for me. I just kind of want to unpack the quarter results a little bit more. Results obviously came in a little bit ahead of what your expectations were back when you gave guidance on the fourth quarter call. So just wondering what you saw that ended up driving the results ahead of expectations? Erica Wei Thanks, Ryan. I think it was a combination of things. Mostly, I think we saw very strong growth on the -- on our service side and also Europe. Those are kind of our two big kind of shining points for the first quarter. Ryan Meyers Okay, got it. And then, if we think about the sequential gross margin improvement that you saw from the fourth quarter into the first quarter, maybe how should we think about that here in the second quarter? What you guys are seeing already as you've rolled out some of those underprofitable SKUs? Could we expect to see a gross margin expansion, or will the biggest hit on that kind of SKU rationalization come here in the second quarter? Erica Wei Great question. Unfortunately, I don't think we're able to say for sure what will happen for Q2. As you know, the environment has been very interesting with all the changes, and this has kind of caused a wide range of different reactions from different players in the entire supply chain. So I don't think at this point we have enough clarity. And specifically, on the point you made regarding Noble House, so I do want to throw in a reminder here. Yes, we are seeing very good feedback during this initial rollout of the new SKUs. But usually, it takes us a bit of time for new SKUs to develop kind of a higher level or a healthier level of sales. The typical time requires three to six months. What I'm trying to say is, for us to see meaningful margin impact, that would typically be the amount of time needed. Operator Tom Forte, Maxim Group. Tom Forte So first off, Larry, Iman, Erica, congrats on the quarter. I have four. I'll go one at a time. You touched on this in your prepared remarks, but I was hoping you can give a little bit of a longer answer. How should we think about the ability of your marketplace to empower buyers and sellers to sell in markets outside the US such as Europe? Erica Wei Hey, Tom, thanks for the question. So I think the marketplace can be helpful in a few ways. First off, we offer flexibility and reach, right? So let's say, a seller who didn't traditionally operate in Europe is looking to -- to grow into that market, they would need a lot of support in terms of, for example, logistics. And those are obviously, if you were to do it on your own, quite a bit of a capital investment, right? The GigaCloud model offers reach and a lot of flexibility, meaning it's a pay-as-you-go, use-as-you-go kind of model. So this changes with -- or the seller could use this with a lot of flexibility based on how the market is responding to their products, how they're doing, et cetera. Tom Forte And then, Erica, my next question. Can you explain how tariffs may translate into higher prices? I think there's a common misconception that 100% tariff, for example, results in 100% price increase. And in fact, there's a lot of costs that are not impacted by tariffs? Erica Wei Correct. So I don't think 100% tariff would translate dollar for dollar or into a direct 100% increase for the end consumer, right? Because tariffs are only applied on the value of the goods, not the -- all of the cost of the seller, which includes a wide variety of things such as warehousing, ground shipping, picking, and packing. Does that answer your question? Tom Forte And then for my next one -- yes. So can you talk about your interest in entering new categories? I think there was a point in time when you were considering expanding in auto parts as an example? Erica Wei So we do already have auto parts on our marketplace. So our marketplace, I know most folks when they think of us, they think furniture, but really, the marketplace is designed for products that are big and bulky and non-standardized. Those are kind of the two keywords the entire system and SFR model is built around. So, as of today, furniture is definitely our biggest category, but we do have a lot of sellers that are working with a wide range of different products. So auto parts, like you said just now, is one of them. There's also fitness equipment, larger toys, certain gardening tools, think your bigger ones like lawnmowers and such, and different pet supplies, cat trees, larger dog houses, et cetera, and various other materials such as bath tubs, there's a wide range of them. Tom Forte And then my last question. Can you give your current thoughts on strategic M&A and the types of assets you're considering? Erica Wei Yeah. So I think we've talked about this before, but this is definitely a category -- an area we're very interested in, and right now is a very interesting time that might prove to have some very attractive opportunities for us. And they mostly surround -- are around a few topics. So the first one is obviously Europe. We're growing very quickly here. And with everything that's been going on, we're getting even more interest from our customer base in -- expanding into Europe, if they're not already there. And we would like our infrastructure to be growing at a pace that's sufficient to support that effectively. So anything that fits that bill, we're interested. The other one is kind of our long-term -- aligns with our long-term strategy in terms of better servicing the brick-and-mortar space that could come in a different way. For example, technology that helps us better understand and serve that customer base, Wondersign is a good example here, or other sort of channels or connections would also be appealing. Operator (Operator Instructions) Matt Koranda, Roth. Matt Koranda Just wanted to make sure I understood. Did you guys reclassify some product revenues from last year into service revenue? I just wanted to make sure I understand what's happening with the segment comparisons on a year-over-year basis that you gave? Erica Wei Hey, Matt. Yeah, that's right. Yeah, we did. So if you go into our footnote, we have kind of a detailed discussion there, but we can go over that again as well. So we used to -- when we sell a product as part of our 1P operations, the customer has the option of selecting if they want to use their own delivery services, aka will call, or having GigaCloud deliver it to the designated location as required by customer. So historically, we have made the election to report the two parts as one under product revenue, under US GAAP. So as of late, or as of Q1 2025, we are now reporting the two separately. And we have accordingly retrospectively adjusted 2024 financials to make the comparables still relevant. So we think this is a better method because it provides more transparency and breaks down the different components with more detail. And also, this is related to a recent platform upgrade that gives the customer or the buyer a little more flexibility. They don't have to decide which type of -- whose delivery service to use on the spot. It's a decision they can make and change after the fact whenever they like. Matt Koranda Okay. Got it. All right, I'll take a look in more detail. And then, just want to make sure I understand sort of the trend that we're implying in the guidance. So the first quarter there was some growth on a year-over-year basis, but we're guiding at least at the midpoint for the second quarter to a sequential deceleration in revenue and it looks like maybe negative on a year-over-year basis, if I just use the midpoint of the range. What is the -- I guess, what's the missing piece here in terms of what causes that deceleration in year-over-year growth in the second quarter? Erica Wei You mean -- so Q2 this year compared to Q2 last year, the main difference is going to be Noble House, right? So we had a really good quarter last year because summer has traditionally always been Noble House's strongest quarter. It has a kind of very strong edge in outdoors products. So this year, because we're in Phase 3 of the integration plan and we're switching out a lot of the old SKUs, even though the new SKUs are showing good results so far, we do need more time to ramp up volume. That's kind of the biggest delta we have there. There are also certain channels that we're seeing a little more softness in the US that are historically strong Noble House partners. So there's a bit of an impact from that as well. Matt Koranda Okay, all right. Got it. Maybe just wanted to make sure I understand what is reflected in the second quarter guidance because it's just -- a lot of the sort of macro news is so fresh these days. But does the second-quarter outlook, I assume, takes into account the pause between the US and China in terms of reciprocal tariffs? Erica Wei Great question. Thank you for asking that. So I do want to clarify. I think the impact from the pause is going to be limited in Q2 financials. So if you consider the amount of time it takes to ship something over and the natural kind of turn cycle or days in warehouse for the furniture inventory, we actually expect to see most of that impact in Q3, not Q2. Operator Thank you. That does conclude our question-and-answer session and our conference for today. We thank you for participating, and you may now disconnect. Sign in to access your portfolio
Yahoo
07-03-2025
- Business
- Yahoo
Q4 2024 NN Inc Earnings Call
Stephen Poe; Investor Relations; NN Inc. Harold Bevis; President, Chief Executive Officer; NN Inc. Timothy French; Senior Vice President, Chief Operating Officer; NN Inc. Christopher Bohnert; Senior Vice President, Chief Financial Officer; NN Inc. Joe Gomes; Analyst; Noble Capital Markets Inc. Robert Brown; Analyst; Lake Street Capital Markets Mike Crawford; Analyst; B. Riley Securities John Franzreb; Analyst; Sidoti & Co. LLC Operator Hello and welcome to the NN Inc. fourth-quarter 2024 earnings conference call. All participants are on listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Stephen Poe, Investor Relations. Please go ahead. Stephen Poe Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NN Inc.'s Investor Relations team, and I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the fourth-quarter and full-year ended December 31, 2024, as well as a supplemental presentation which has been posted on the Investor Lelations section of our website. If anyone needs a copy of the press release and the supplemental presentation, you may contact Alpha IR Group at NNBR@ Our presenters on the call this morning will be Harold Bevis, President and Chief Executive Officer; Chris Bohnert, Senior Vice President and Chief Financial Officer; and Tim French, Senior Vice President and Chief Operating Officer. Please turn to slide 2 where you'll find our forward-looking statements and disclosure information. Before we begin, I'd ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and the one filed in the Risk Factor section in the company's annual report on Form 10-K for the fiscal year ended December 31, 2024. The same language applies to comments made on today's conference call, including the Q&A session as well as the live webcast. Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, foreign exchange rates, cash flow, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, the impacts of pandemics and other public health crises and military conflicts in the company's financial condition, and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company's control. The presentation also includes non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation. Please turn to slide 3, and I will now turn the call over to our CEO, Harold Bevis. Harold Bevis Thank you, Stephen. And good morning, everyone. As mentioned, myself, Tim French, and Chris will be giving an update and have a Q&A session at the end. Let's go ahead and get started. If you could turn to page 4 on business update, I'd like to give you a few highlights. NN's first year of transformation produced significant and immediate results including a new five-year business plan, new top leadership team which is 80% in place, a new business development program which has now produced as of last night approximately $150 million in new business awards. We enacted a fix-it or close-it program at seven plants that were underperforming. And we began a refresh of our capital structure with a new ABL in December of '24 and a term loan refinancing process which is underway now. And Chris will give a fullsome update on that later. As we look to the full year of 2025, we expect advancement on all fronts, including growth, cost-outs, and cash generation, barring any significant tariff impacts and we're going to talk about tariffs as they're a timely thing. We have 70 new business win programs launching this year. Our cash CapEx is expected to be at our normal levels. And we will continue to selectively add a few new people to further help drive our new business development areas, particularly in stamped products, medical products, and electrical products. And we will continue to optimize our operational footprint and headcount. Lastly, a word about tariffs. It's the goal of the Trump administration to encourage reshoring of volumes, profits, and jobs for companies like NN. But as it's playing out in the papers and all of us know just from common sense, the U.S. manufacturing supply chains are global, complicated, capital intensive, and slow moving for important reasons like consumer safety and project paybacks. For instance, it takes several years and several billion dollars to build a car factory; and then another year for vehicle testing. So these changes take some time. And the timelines are generally outside the duration of a presidential administration. And already, the big three are getting exemptions. Most parts suppliers like us believe that this will be short-lived with minimal long-term impacts. But I am going to give you an update that we've had positive impact so far. Turning to the next page on page 5, I'd like to just give you a little bit more details on our five-year plan and reiterate them. We haven't changed them. First, sales growth. Sales growth is very important. And in the industries we serve, sales don't fall naturally in your lap. You have to target properly, offer innovative solutions, hustle, and win. And the components of our top line program are based on winning $65 million a year of new business and ending $25 million a year. It's an assumption. We don't have a firm outlook. People do not give indications that far out of when they intend to end programs. But it backtests to be a number that's conservative for us. And we have a matrix of targets underneath that and individual accountability. A big goal is to minimize CapExand to leverage the installed base of equipment, buildings, and land that we have, and we've been doing that. And this program is working. We've been on track now for six quarters in a row and headed into our seventh quarter. We've already won $150 million of business, as I mentioned, which is definitely a big number for us. We've had to get some operational guidelines in place to launch that many programs at once. Anyone who's been a plant manager or have been in plants, that's a lot of work to do. And we're launching 50 programs right now in the first quarter. The second major component of our five-year plan is aggressive cost reduction. Overall, we want to reduce our cost 3% a year, condense our plant footprint, combine our operating teams into a shared team, implement continuous improvement programs at every plant, continue our Kaizen and Six Sigma programs which are working very well, and this component of our plan is working well also. Third component is to refresh and correct our balance sheet. We expect to generate free cash flow and invest $12 million to $15 million in CapEx per year ex-China. We've kind of sliced China off and have China funding itself and sending money back to us each quarter, and it's working fine and I'll give a China update in a bit. Again, we want to leverage our installed base of equipment, lands, and building that we have, and it's very sufficient to achieve our goals. Our end goal is to have all our plants be free cash flow generative, self-sustaining, and bear their fair share of our overhead burden. And where we are today in progress we've made, we're happy with it. We have a new ABL in place and a term loan process underway that Chris will give an update on. And a big deal is to correct our dilutive plants which are being fixed or closed, and Tim will give an update on that. All of it is geared to getting our EBITDA margins up and we're tracking to that. And we're going to give you an update on the fourth quarter of last year and on the full year and our outlook for this year. We've closed two plants. We're in the process of closing two plants and we have one underway at this point in time. So overall, we're happy with our first full year and our five-year plan, and we're recommitting to it. If you turn to page 6, this is a format we've been using to track our transformation plan. And this year will be another formatative year for us. Through the first six quarters of us being here, we think we're around 60% complete. This is judgment of where we think we are. And our new leadership team is about 80% complete, as I mentioned. We still need a couple people in a couple of the new areas that we're trying to grow more quickly in, primarily non-automotive. And the fixing of our own profitable parts of our business is around 60% complete. You can see it on the graphic here on page 6, what our EBITDA has been doing at those plants that were underperforming and all of them are planning on making money this year in '25 which is a remarkable turnaround in a short amount of time from mid-'23 until this year's outlook. So we're pleased with it. We had to shed a little bit of business which Chris will bridge for you. So the goal is to drive up our gross margins and we have been doing that. We have a long term goal of 20% so we have more work to do. On our balance sheet, we started working on that last year. We previously reported that we had to part ways with our banker. And Chris and I pretty much took this on our own and we did the ABL and now, we're underway with the term loan. And we're also underway with putting China on their own. And that's all tracking very well. And the last piece is growing sales year-over-year to win enough business so that we have a natural growing company. And we're starting to get tailwinds now. Some of the business that we've won is now launching and going into our run rate. So overall, we believe that our transformation is on track. On the next page, we got a request to go into a little bit more detail about the plants that we're underperforming and what have we done and what's in front of us. Tim French, our Chief Operating Officer, who's led that initiative, start to finish, I'd like Tim to give an update to the group, please, Tim? Timothy French Thank you, Harold. Good morning, everyone. As Harold said, I'll talk to slide 7. For those of you that have followed our progress, you'll be familiar with the term, Group of 7. These facilities are responsible for $113 million of revenue and negative $11.5 million of adjusted EBITDA in 2023. Their locations are listed on the slide being shown. In addition to the poor financial performance, they were negatively impacting our customer relationships because each of them had significant past-due backlogs, and it was giving us unfavorable customer ratings and scorecards which is impacting our ability to grow commercially. Over the last six quarters, we've intensely focused our efforts on improving the performance in these facilities. After an in-depth analysis, we decided to shed portions of the business that we decided were or determined were unprofitable; as well as close two facilities, Dowagiac, Michigan and Juarez, Mexico. Both of these facilities are in the mobile division. Portion of the business in these facilities and the related equipment has been transferred to other locations. This required us to gain approval from the customer. We had to build and manage inventory banks to service the businesses while we removed, reinstall, and PPAP the equipment in the alternative facility. Production has concluded in Juarez and we're on track to have Dowagiac closed in Q2. The remaining five facilities, we focused on organizational and operational improvements that included top grades to leadership and staff, improvements in engineering processes. We implemented functional KPI trackers as well as increased focus on customer pricing, service, and interaction. As a result, we now have green scorecards with all our customers, and that's a big help when it comes to securing new business wins. It's really benefiting our commercial team. These actions over the last six quarters have been extremely successful. In 2024, the facilities went from losing about $12 million of adjusted EBITDA to losing just $900,000. That's inclusive of the closures. Our operational transformation plan is working. It's worth noting that looking forward to 2025, as Harold previously stated, every remaining facility is expected to be adjusted EBITDA positive with the group having approximately $75 million in revenue and generating over $5 million of adjusted EBITDA. We're pretty happy with this result, but we still need to focus on improving free cash flow, specifically in two facilities. Our Marnaz, France facility has been awarded new business that once the SOP is completed, the facility will be operating at very close to capacity. This will stabilize the standalone profitability and free cash flow. While e're pleased with our early success in transforming the underperforming facilities, we're not stopping or slowing our efforts. We're not done. Each of these facilities is part of a larger continuous improvement program that Harold mentioned earlier that will deliver consistent enhancements to our economic competitiveness. Additionally, we have identified one more facility for closure which we plan to execute when the lease expires in 2026. All in all, we're very happy with the improvements we've seen with the Group of 7 and we're excited about what we can do going forward with them. With that, I'll turn it over to Chris to walk through our financial performance in more detail. Chris? Christopher Bohnert Thank you, Tim. Good morning, everyone. Today, I'll be presenting information on both a GAAP and a pro forma basis. As a reminder, we began presenting pro forma business performance in the third quarter of 2024 to give a better representation and depiction of our financial and operating results after the sale of our Lubbock facility this past July. We also have other adjustments that we arrived in what we consider to be our ongoing business. We detailed the adjustments made that translate our GAAP and non-GAAP reporting to our pro forma results in the Appendix for the presentation. Today, I'll start on slide 8 where I'll detail our consolidated results for the fourth quarter. Starting with our as-reported numbers, fourth quarter net sales came in at $106.5 million, reflecting about a 5% decline compared to Q4 of last year. While the top line was impacted by the sale of our Lubbock facility and strategically rationalized sales volumes, we continued to drive strong margin expansion and improve profitability, as noted on the slide. Adjusted operating income was $2.4 million, a $3.8 million improvement over the prior-year quarter where we reported a net operating loss of $1.4 million. Adjusted EBITDA grew to $12.1 million, a 21% increase from the $10 million delivered in Q4 of 2023. This performance underscores our commitment to operational efficiencies and disciplined cost management, allowing us to improve profitability in a dynamic macro environment despite the lower sales. Now shifting to our pro forma results on the right-hand side which adjusts for key items including the sale of the Lubbock facility, rationalized volume, and foreign exchange impacts which we outlined in the table at the center of the page. On a pro forma basis, net sales of $106.5 million reflected a 2% increase compared to Q4 of '23. On a pro forma basis, fourth-quarter adjusted operating income was $2.4 million, an improvement of $3.9 million compared to the fourth quarter last year. On a pro forma basis, adjusted EBITDA grew to $12.1 million, up 25% year-over-year. These results highlight the strengthening of our underlying operations and our ability to drive margin expansion through diligent cost and operating efficiency initiatives. Now turning to slide 9, we detail our consolidated results for the full year. For the full year, we reported net sales of $464.3 million, declining 5% compared to 2023. This year-over-year decline was driven by the sale of our Lubbock facility, the impact of our strategic volume rationalization, a one-time customer settlement in the prior year, and foreign exchange impacts. Despite this top line compression, our focus on operational improvements allowed us to expand profitability and deliver solid adjusted returns. Adjusted operating income for the full year was $5.1 million, up 65% versus $3.1 million in fiscal 2023. Adjusted EBITDA results grew to $48.3 million, marking a 12% increase year-over-year. And adjusted EBITDA margin expanded by 160 basis points to 10.4%, up from 8.8% last year. Moving on to our pro forma numbers, controlling largely for the same one-time items we detailed earlier, net sales of $464.3 million were largely flat to the full-year 2023, declining less than $1 million or 0.2%. Pro forma adjusted operating income was $5.1 million, a 28% increase compared to the prior year. Adjusted EBITDA on a pro forma basis was $48.3 million, up 13% versus 2023. And adjusted EBITDA margin expanded 120 basis points to 10.4% from 9.2% last year. The pro forma results provide a view of our ongoing business and operational momentum which has had a strong positive effect on our profitability, as evidenced by solid adjusted operating income and adjusted EBITDA results on what was essentially flat revenues. Looking ahead, we expect the elimination of profit-dilutive sales volumes. And the inclusion of new business wins will further enhance our operating income and adjusted EBITDA, grow margins, and provide incremental fixed cost leverage. I'll now turn to our segment results starting with our Power Solutions segment on slide 10. Fourth quarter as-reported net sales were $39.2 million compared to $43.4 million in the prior year. The decline was primarily driven by the sale of our Lubbock facility. On a pro forma basis, quarterly revenue increased slightly by $900,000 or 2%. Power Solutions adjusted EBITDA in the fourth quarter was $5.6 million, down slightly compared to $6.6 million in last year's fourth quarter, again primarily to the sale of the Lubbock facility. On a pro forma basis, prior-year adjusted EBITDA was $5.9 million compared to $5.6 million. On a full-year basis, Power Solutions net sales totaled $180.5 million, down slightly from $185.9 million in the prior year, again due to the sale of Lubbock. On a pro forma basis, full-year revenue increased by $8.7 million or 5%. For the full year, Power Solutions adjusted EBITDA increased to $29.2 million, up from $28.3 million in the prior year, with margins expanding to 16.2%. On a pro forma basis, Power Solutions adjusted EBITDA grew from $26 million to $29 million, an 11.5% increase year-over-year. Now turning to slide 11, I'll highlight some of our financial metrics in the Mobile Solutions segment. Revenue for the fourth quarter was $67.4 million compared to $69.2 million in Q4 of the prior year, a decline of just over 2%. The slight decline was primarily driven by foreign exchange headwinds of $1.6 million which nearly offset the volume increases of $1.7 million. Pricing impacts also contributed to the slight reduction in revenue. Further, the decline in fourth quarter net sales was impacted by $1.5 million of unprofitable business that we exited. Adjusted EBITDA for the fourth quarter was $10 million, marking a strong increase from the $7.1 million delivered in the prior-year period. Adjusted EBITDA margins expanded to 14.8%, up 350 basis points from the 10.3% in the fourth quarter of 2023. The increase in adjusted EBITDA and margin growth reflects the benefits of our sales volume rationalization and our actions to improve our cost structure and productivity. For the full-year 2024, Mobile Solutions revenue was $283.9 million, down from $303.3 million in fiscal 2023. The decrease was primarily due to the strategic exit of unprofitable business which impacted sales by $8.6 million as well as a one-time customer settlement in 2023 and unfavorable foreign exchange impacts of $3.3 million. However, this was partially offset by $9.6 million of growth from our China operations which continued to see increasing demand throughout the year. On a pro forma basis, full-year revenue decreased by $6.4 million or 2.2%. Adjusted EBITDA for the full year grew to $35.6 million, up more than 19% from $29.8 million in full-year 2023 with margins improving by 270 basis points to 12.5%. Similar to the fourth quarter, adjusted EBITDA results reflect the benefit of our cost-out actions and the impact of our strategic exit from unprofitable business. As a reminder, our goal was to achieve a minimum 10% adjusted EBITDA margin in the North American Mobile Solutionss business, and we're tracking towards that and beating that in several quarters with sights on expanding further beyond our initial goals as we execute our transformation. Please turn to slide 12 where I'll provide an update on our ongoing balance sheet improvements which Harold mentioned earlier. As previously mentioned, we made progress on improving our balance sheet, having executed our refinancing of our ABL at year end 2024. Our focus is now on refinancing our term loan which is well underway. First, as we navigate through the process with our lenders, our refinancing goals are centered on enhancing operational flexibility by securing improved loan terms and a more favorable structure achieving a cost of capital that helps us execute the transformation and deliver our full potential. By lowering our overall cost of capital, we aim to create additional financial capacity that will allow us to potentially pursue strategic M&A opportunities alongside our organic growth opportunities once the timing is appropriate. Second, we rebooted the term loan process in late 2024 after completing the ABL and after parting ways with our investment banking partners, relaunching the term loan refinancing effort to take advantage of a solid pool of interested lenders and potential financing options. Since then, we've made significant progress. We expect to conclude this process sometime in the first half of this year. Finally, we view these efforts as part of a broader holistic strategy to position our balance sheet for transformation and optimization. An improved capital structure will allow us to continue deleveraging while also creating value for our equity holders. We remain committed to paying down debt, and we will continue to evaluate potential modifications to our preferred equity structure as we move forward over time. Now please turn to slide 13 where I'll talk briefly about our outlook for 2025. As a reminder, for the full year of '25, we're projecting net sales in the range of $450 million to $480 million, adjusted EBITDA in the range of $53 million to $63 million, and new business wins of approximately $65 million at the midpoint. These ranges assume our key markets and currencies remain stable and aligned nearly with 2024 levels. We note that the global markets are experiencing significant volatility as a downstream impact of a fluid and shifting international trade policy. Current marketing conditions, if they hold similarly to where they are today, would likely drive our results to the lower half of our ranges, though we note that it is very early in the year and these factors remain very unpredictable and subject to change. We face the same variable conditions as the rest of the market, and the external environment will not cause us to deviate from the central elements of our transformation plan. Thank you. And with that, I'll turn the call back over to the operator for questions. Operator? Operator Thank you very much. We will now begin the question-and-answer session. (Operator Instructions) Joe Gomes, Noble Capital. Joe Gomes Good morning. Thanks for taking my questions. So I wanted to start out with the turnaround of the Group of 7 plants and you guys have done a tremendous job in my view there. Just looking at the '25 outlook, so you're talking about EBITDA of $5.1 million, sales of roughly $75 million which translates into roughly a 7% adjusted EBITDA margin, almost 16% of your revenue. The question is one, do you think you can get that EBITDA margin at those plants up to the 10% level where you currently are overall? And if you were able to do that, how high does that take the adjusted EBITDA margin in the entire company? Harold Bevis Yeah. It's two-part. Tim, I'll start, okay? For us, those plants, Joe, have a decent amount of open capacity. And so there's cost and revenue fixes here. We have good machinery. In the process of these plant closures, we've upgraded some of the equipment in the other plants by relocating equipment. And we've discarded some of the older equipment so we're able to compete better with better equipment out of those locations. And we've built up the business development profiles, the size of the opportunities that we're tracking for those plants. So a part of the go-forward optimization has to do with revenue, and getting our revenue up. Our looks are increasing slightly with the reshoring that's been happening with the tariffs and and all the activities. And one of the facts, Joe, is in the first quarter here where we are launching, is it 11 programs, Tim, that's reshoring from China to the U.S.? In Kentwood, yes. So we have 11 discrete programs that that we've secured that have moved from China to US soil and those are going to all help. So part of its revenue. And Tim, I'll hand it over to you to give your two cents Timothy French Yeah, I think one of the key things to keep in mind is the financial performance of the group of 7 was really what showed through, but if you look at one of the underlying causes of it was the significant past due backlog, and that put us in a very bad position with a lot of our existing customers, and it basically rendered those facilities almost unsellable with our existing customer base because we didn't have the favorable scorecard. So now that we've been able to eliminate the significant backlogs and have green scorecards with customers. Our commercial teams are now able to effectively sell for that group. So what Harold was saying is is exactly where I was going with that is, although there's still room for some more operational improvements, the next space shift for those facilities is additional volume, which now we've we've opened the door to by by getting us in a favorable position with the customers. Joe Gomes Okay great. Thanks for that. I wanted to touch base also, Harold, maybe give us a little kind of update on the medical components and the electrical components and how those businesses are unfolding here. Harold Bevis Yes, so we have. We have some goals for medical, to win 50 to grow that $50 million organically. We're at about 20 right now. We have about a $25 million dollar pipeline. It's high quality. We've been able to get become an approved supplier. The first step is to become an approved supplier for the products that you're selling. And we wanted to really get into machine products and stamp products, and we still have a couple big customers that we're going through approval processes with, but we're on track. And so the approval, then looking at the opportunities and then getting securing the wins, it's gradual. We have a goal this year in radical to get another $8 million of wins. And $8 million a year and then we'll get to 50 so The medical is on track. We need another person. We just have some small things to do, but, we're on track and we're now shipping medical products out of 10 of at 11 plants that we're making medical products in, yeah, so we're shipping medical products at 11 of our plants. We've got our first medical one in Europe now. And we're increasing our certifications on stamped products. And electrical products, it's a similar story except for we're largely already an approved supplier. And and so it's a matter of getting in on the action and we have pipelines for that as well. Stamps products are good for us also in automotive. Some people say gee, many Christmas, your auto your automotive business is so capital intensive. It's really not true. The part of the part of our company that's capital intensive is the machine part of auto. The stamped part of auto is just as good as the stamped part of electrical or medical. So the stamped business has a good business model in that the machines are ubiquitous and the customization is in the dyes and we make our own dies, and a lot of times the customers take part in financing those dies by letting us amortize the die back into the piece price. So. We're after all things stamped and we have a dedicated effort there. We've we've added some high tonnage equipment both in China and the United States and it's expanding our aperture. Couple of big products we're going after. One is bus bar. Bus bar is a big thing for the electrical grid. And we just needed some longer beds on our presses, so. It's a gradual build up, Joe, that we're going through and we're just trying to chop it down by the same amount of wins per year and so far we're tracking to our goals. Joe Gomes Great. And one more for me if I may, Harold, again I just want to get your view, your insight here. So you know recent report came out, class A truck orders, down, 30 some odd% month over month, almost 40% year over year supposedly people extremely concerned. About tariffs, you see the press reports, tariffs go through or they stay through, passenger vehicle prices could go up thousands if not tens of thousands of dollars. Just trying to get your view of your thinking around this whole thing. How any of this could potentially, impact the company here. I know it's very fluid, the terrors seem to go on one day off the next day, but just trying to get, kind of the way you guys are looking at things and your thoughts on that. Thank you. Harold Bevis Yeah. You're welcome. Yeah, that we're not tethered very much to Class 8 trucks, but I'll answer your question. Our commercial vehicle business is tethered to work trucks, so our biggest engine that we're on is a 7.3 L diesel engine at Cummins. We were tethered to the 7.2, the Ford Godzilla engine, GM's Gen V. So we're primarily a participant in engine parts for work truck. Engines, but on Class A trucks, the big truck, the big engines. Pack car, Volvo, Cummins also. As the industry learned during COVID, you have to be clear to build the vehicle, and there's something like 100,000 parts that go into a Class 8 truck, and you have to have all of them. You can't just say, okay, I'm all right, except for I don't have a steering wheel or something. So you have to be clear to build and the big trucks have a lot of parts. And so they're very sensitive to supply chain disruptions that like are happening right now. So, and the people that buy the trucks, the Class 8 trucks are primarily businesses, and they have to have a payback on the investment into the asset. And if the asset goes up in price, the fleets for the majority buyers of Class 8 trucks back off because it's a bad time to buy, so. I think you have some supply and demand irregularity in the Class 8 world. We're not really participating in it. We're into the work truck. We're in delivery trucks, delivery vans, garbage trucks, Class 6 and 7, not Class 8. So our business isn't going to be impacted, Joe, but the Class 8 truck crowd, they have a, they have a different set of of issues to deal with. Joe Gomes Okay, great. I'll get back to you. Thank you very much. Harold Bevis Welcome. Operator Rob Brown, Lake Street Capital Markets. Robert Brown Good morning. Congratulations on all the progress. Christopher Bohnert Thank you. Harold Bevis Good morning. Robert Brown On your 20%, long term gross margin goal, what sort of has to happen to get there, from from this point. Harold Bevis Good question. Part of it is Tim's group of 7s, group of 5, soon to be group of 4. So we have, Tim's getting rid of his problem by consolidation if you're putting the math together, but no, I'm kidding. The part of it is what's next. What Joe asked the question on kind of what's next to make that group of seven not dilutive. And it's getting our revenue up and and Tim's also sharing the overhead structures amongst the plants versus every plant has a dedicated staff to do procurement scheduling and all this. So he's implementing a shared overhead structure amongst common plants common either because they're close to each other or common because of the type of manufacturing they do. So it's either or or both. And in the case of France, which Tim alluded to on his page, the France plant isn't where we need it to be, but they've secured a very game changing win. And it is already in development and ramping up. It will effectively sell out the plant. And that plant will actually go above average when they're fully on boarding that. Now then you're down to one plant that's one large plant that's dilutive, and it's Wellington, Ohio. And that plant we're hoping to benefit from reshoring. We have a big pipeline going into that plant. We're pretty close to having nubbed out the cost structure to run the plant. It does make positive even at DA, but it is dilutive to your point. And so, fixing the diluters is part of it. The other part is to onboard a creative business, and that's the whole intent of our new business award program is to onboard a creative business and leverage the installed cost structure which Chris was referring to, which we did in Q4 and we did in the year of 24. So we have a five year plan. The first year of it is kind of in the books, if you will. We tracked to what we wanted to do and we're on track and it requires a little bit of patience because we have to win this business and on board it and then we have and that that's France and other plants and then in the case of Wellington, it's a special case. Where we're a little bit more impatient with that plant. So, how long, how many years will we, wait for that to play out? Not many. So that one's kind of the one that's on Tim's radar screen right now to fix. Tim, would you like to add anything to that question? Timothy French No, I think you covered it all, Harold. You had all the the key points. Harold Bevis Thank you. Robert Brown Okay, great, yeah, very comprehensive, thank you, and then on the kind of on some of the mitigation things you can do with tariffs and as reassuring comes, how much flexibility do you have to move business sort of between your, from your international locations to the U.S. and maybe vice versa on kind of adjusting these tariffs or this business around to deal with the tariffs or or is that a longer process? Harold Bevis Well, the biggest part of our company that's impacted by the tariffs is it's a concern to understand is our automotive parts. It doesn't impact our power. It doesn't impact our medical. We don't have any of the issues, any cross border issues. The automotive part is very slow because you have to go through a PA and product safety process. We're tied into steering. And breaking, and those require the OE to go through. Any substitutions require the OE to go through crash tests. It's pretty significant cost for the vehicle makers to do it. They avoid it like a plague. So once you're kind of locked into a system, there's there's a high resistance to change. So in the short term it's mainly people that are taking the initiative to move and reshore of the awards that we're, we are ramping up right now that I referred to earlier, we won those in the fall. By a proactive, tier one maker of fuel systems, for medium duty, sports cars, excuse me, medium volume sports cars. And they're going through the long term cost of doing it, and they just decided to simplify their supply chain because their customers were on US soil. So we really don't see a lot and you know you have direct and indirect impacts of the tariffs. So the direct impact, our direct impacts are minimal on our cost structure and minimal in terms of our pipeline. The indirect costs are what happens to the volumes, at the OE if they're clear to build on vehicles or not, that can impact kind of everybody's volume. We won't be a problem for anyone. But if anyone's a problem that causes the OE to be have a problem with being clear to build on their building materials, so. We haven't heard anything yet. No one's really doing anything quickly right now. It's not a quick thing and there's a lot of flip flopping in the papers, including last night with the big 3, where President Trump gave him another reprieve. And that's the majority of our exposure, so, nothing major happening right now. Our direct hits are are minimal and it can only be minimal because of our supply chains and then the indirect exposure we have is just industry based and that's also minimal right now as well. It'll probably change today so I should probably date and time stamp my comment, but you know it's a really fluid topic, Bob. Robert Brown Okay great thanks thanks for that answer. The last question I guess is on the Power Solutions business you know you've you've eliminated some capacity there how do you see the revenue trends and I guess the market demand in that in that segment? Harold Bevis Yeah, so we expect to have an up year in power, the electrical grid business, the reporters there, the people that speak clearly are eating and H1ywell and Iron Groupschne Air, the electrical grid demand is still strong with data centers. Infrastructure investment, the whole AI data center thing is putting a lot of strain on the grid. And the and the need to control the grid and also the EVs, even though EVs are kind of plateauing any EV if if if a person on the street buys an EV, the transformer for that street has to be upgraded. And so there's the grid wasn't installed with these type of demands, so our business is still very strong on we're primarily grid edge, so we're into distribution, we're into circuit breaker panels, we're into meters, we're on the grid edge. And that business is strong and we've increased our capacity to make those products and we have a decent amount of new winds in that business as well. So, the outlook for Power Solutions is in 25 is pretty strong. Operator Mike Crawford, B. Riley. Mike Crawford Thank you. Can you talk about your, deliveries, like any metrics regarding on time deliveries now versus in the past and maybe how much that's been attributable to some of the, additional ones you've been secured? Harold Bevis Yeah, good morning, Mike. Tim, will you take that one? Timothy French Sure, we don't track on time and in full in the in the standard process like quoting it as a percentage, but what I can tell you is we track past due backlogs and we have, dropped our past due backlogs significantly, not just in the group of 7 but across the board. So that's what has allowed us to get the green scorecards from the favorable ratings from all of our customers now is we've been able to move that forward and past due backlogs would would be an indication of an on time and in full or a delivery metric. We are in the process of implementing an on time and in full metric, but at this point we don't track it in that format. Mike Crawford And have you seen the correlation between where you've reduced those past due backlogs and seeing an increase in new order wins, or is that more? Timothy French Yes, oh definitely seen a correlation even in facilities that aren't part of the group of 7, we've seen new business wins because when you're not when you don't have a green scorecard or a favorable rating from a customer, you're basically on what's called new business hold. And one of the contributing factors to our new business wins that we've we've been able to generate over over the last little while has been the fact that we're off new business hold across the board, that we're able to generate new business wins with our existing customers as well as. Harold Bevis I can help a little on the stats there Mike the 77% of our new wins have been with existing customers. And when Tim and I came in the door, we were on new business hold with almost all of our TOP30 customers. And the majority of our wins have been with them, so I could go right down the list, Cummins and Iron and Sensata, Denzel, all the top tier one people we serve where we're on new business hold. And came off new business hold and now secured wins with so I think Tim at the at the highest level, the majority of our wins have come from customers where we were on the business hold. Timothy French Oh, exactly, and that's the point I was attempting to make is that by getting off new business hold it opened the door for us to start winning again. Mike Crawford Okay, great, thank you. And then just to shift direction, and you're trying to JV. I think the vast majority of of what is made there goes to customers where their end products stay in China, but I think we're also seeing some of those products now being shipped to other markets that But like the the the China customers are targeting, be it in Africa or Brazil, or Europe, but is there a breakdown between what stays in China and what might be exported out of China, but not to the US? Harold Bevis Yeah, so there's movement on that topic, Mike. The JV that we have with Weifu, which is about $130 million dollar revenue profitable JV, which makes components that go into hybrid and ICE vehicles. Largest, the largest in customer for the output of that JV is BYD for instance, and to your point. BYD shifts their systems and then does final assembly in many countries around the world. They're the big one doing that. Geely does a little bit of it in Europe and Great Wall, but if you look at the TOP10 China OEs. A few of them are the guys that are driving the export market and I would say your comment is true that our parts are ending up getting exported out of the country now. And as there's rebalancing between Europe and China, leaving the US out of it, the European tier ones are seeing that their China operations are much more competitive. Than the European plants, so we see them shifting load. To China to make braking systems, steering systems, these kind of things in China versus making them, for instance, in Germany. And so the loads on automotive part making in China are just going through the roof. We are at capacity in the JV. We are at capacity in our wholly owned foreign entity, and we're adding capacity in both areas. The costs are globally competitive. They're they're the lowest cost at what they do. So we see demand coming to both operations. They're very profitable for us as well. Mike Crawford Great, thank you very much. Operator John Franzreb, Sidoti & Company. John Franzreb Good morning everyone. Thanks for taking the questions. I'd like to start with the new business wins. Are they being written at that 20% target? Or are they approaching that 20% threshold? Christopher Bohnert You're talking the gross margins, John? Harold Bevis Yes sir, they're being written above that we have. Some floors and caps and we also look at ROI at CapExis required. We look at the actual cost, so if we have an open machine. And we're quoting open capacity. And the machine's already been expensed into other business and so has the overhead and all that. We just look at the variable costs that are associated with it. If we have to add a shift or add supervision, it it varies that cost, and if we have to add equipment, it has to carry that cost. So we have three tiered pricing, 3 tiered pricing, and in all cases the bottom is 25%. And then on ROIs it's also the bottom of 25% of spending is needed. Most of it is above that, and we price as much as we can get. We don't do cost based pricing. We look at what we think we can the market will bear and then we look at our cost structure and see what the return would be. The new wins that we got 73 million or new wins last year, but we also walked away from about $340 million of quotes that we made, and we primarily walked away from them because of their economics and probably the biggest opportunity we had. It might be the biggest opportunity we had in the fourth quarter. We walked away from it because the ROI wasn't there, so we are cherry picking. And a big part, that question was asked earlier too, a big part of getting our gross margins up is the contribution of the new business, and we'll report more clearly on it in the future, John. I can't give you exact ratios because we haven't calculated it. Part of it's cost him getting the cost down, and part of it is that is the new business that we're bringing in. Well, Chris, what would you get half and half? Christopher Bohnert Yeah, roughly about half and half, yeah. John Franzreb Okay, that's a good color, Harold. And just I might have missed this, regarding the timeline of the plant closings, have you kind of disclosed that and have those facilities owned the lease, would they be asset sales in the future? Harold Bevis Yeah, tell you want to take that? Timothy French Yes, we've got a leased facility in Juarez. We've stopped production. Production has ended in that facility, but we still have people prepping the building and packaging machinery for relocation. Duagia is an owned facility. That currently is listed for sale, it should be, it should cease operation in in early Q2. Is is the current estimate. Harold Bevis And the third plant, the other plant John that we mentioned we're going to close, we haven't said the name of the plant because the people in the plant don't know it. It's as we reported earlier, that one's leased. John Franzreb Okay, got it. I guess one last question regarding the balance sheet, any update on the timing of the refinancing of the term loan and any updated thoughts on the preferred. Christopher Bohnert Yeah, thanks, John. Yeah, we're in the middle of the refinance, as I mentioned, we're we're expecting to get it done in this first half of the year. We had quite a bit of interest once we once Harold and I rebooted everything and so we we we got a lot of different options on the refinance, John, so we took a look at those options and narrowed it down and we're very pleased with where we're heading right now. Not a lot to report on the prep yet, but it's on our radar screen and, we'll take a look at that as part of the kind of the third step in our total cap cap structure refinance. Harold Bevis I would say that we we pivoted John to China because the the China receivables and China assets are pretty much disallowed in the to get full value for them with the US domiciled work that we were doing on the debt and so we turned our attention to extracting cash out of the balance sheet in China and having them get set up to to do their own local banking and local financing. First, before we got after the preferred, so the two big things we're working on right now are the term loan. Overall for the company and then getting China on their own to do their own funding, and just send money back to Chris. We're trying to turn it into an ATM machine. John Franzreb Thanks for the color. Good luck. Christopher Bohnert Thank you. Operator This concludes our question-and-answer session. I would now like to turn the call back over to management for closing remarks. Harold Bevis Thank you, everyone, for the good questions. Appreciate it and you gave us some insight on how to report even better in the next time. And we look forward to reporting our progress after Q1. With that, thank you. Operator? Operator The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Sign in to access your portfolio
