Latest news with #Sidoti&Company
Yahoo
23-05-2025
- Business
- Yahoo
Q4 2025 ePlus inc Earnings Call
Kley Parkhurst; Senior Vice President and Assistant Secretary; ePlus inc Mark Marron; President, Chief Executive Officer, Director; ePlus inc Elaine Marion; Chief Financial Officer; ePlus inc Gregory Burns; Analyst; Sidoti & Company Operator Good day, ladies and gentlemen. Welcome to the ePlus fourth quarter and full year 2025 earnings results conference call. As a reminder, this conference call is being recorded. (Operator Instructions) And I would now like to introduce your host for today's conference, Mr. Kley Parkhurst, Senior Vice President. Sir, you may begin. Kley Parkhurst Thank you for joining us today. On the call is Mark Marron, CEO and President; Elaine Marion, CFO; and Erica Stoecker, General Counsel. I want to take a moment to remind you that the statements we make this afternoon that are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued this afternoon and our periodic filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and in other documents we may file with the SEC. Any forward-looking statement speaks only as of the date of which the statement is made, and the company undertakes no responsibility to update any of these forward-looking statements in light of new information, future events or otherwise. In addition, we will be using certain non-GAAP measures during the call, and we have included a GAAP financial reconciliation in our earnings release, which is posted on the Investor Information section of our website at I'd now like to turn the call over to Mark. Mark? Mark Marron Thank you, Kley. Good afternoon, everyone, and thank you for joining our fourth quarter and fiscal year 2025 earnings call. Our financial results continue to reflect the ongoing industry-wide shift towards ratable and subscription-based revenue models, which impacts how we recognize product revenue. In fiscal year 2025, we delivered higher gross profitability and margin expansion on lower net sales and gross billings. In our fourth quarter, operating metrics were strong with double-digit increases in gross profit, operating income, adjusted EBITDA and diluted earnings per share. We also saw continued improvement in our gross margin, which increased 270 basis points since fiscal year 2024. During the quarter, we believe sales were slightly impacted by business uncertainty surrounding the tariffs and government spending. With our strong focus on services-led solutions, continuing to build out our security and AI capabilities that are in high demand by our customers and holding the line on expenses, we believe we are well positioned for future growth. Q4 net sales declined 10.2% year-over-year, driven primarily by a reduction in product sales due in part to economic uncertainty as well as a tough compared to the prior year when Q4 last year benefited from supply chain easing of networking product orders. Despite an increased gross to net adjustment caused by the industry-wide shift towards ratable and subscription-based revenue models, we saw strength in several areas. Gross profit rose by nearly 12% and gross margin expanded 580 basis points year-over-year to 29.3% in the fourth quarter due to a more profitable business mix between product and services and a higher proportion of netted down revenue. Gross profit increased and margin expanded in the full year for the same reasons. Our services revenue continued its rapid growth, increasing 33% in the quarter and 37% for the year. This is a key component of our trusted adviser status to our customers, which deepens the relationship and results in long-term customer loyalty. Our managed services continue to grow nicely, up 16.6% for the quarter and 24.6% in the year, which provides predictable long-term revenue and profitability. Let me take a moment to discuss our long-term strategy, which is centered on delivering solutions across 4 key growth focus areas: AI, cloud, security and networking, of which we expect to drive related consultative, professional and managed services growth. We are making strategic investments in the most promising opportunities, both organic and inorganic to expand our capabilities and meet evolving customer needs. AI adoption continues to be a significant potential business driver, and we are particularly well positioned to capitalize on its transformative growth across our expanding suite of products. Throughout the past year, we have discussed the positive reception from our customers of our AI Ignite workshops and Envisioning sessions. These are designed to share the latest AI trends and insights and demonstrate how this revolutionary technology can empower our customers' businesses. We combine these AI Ignite offerings with our AI Experience Center and our Generative AI Accelerator solution that helps customers navigate and rapidly test use cases in a secure private instance. We also believe ePlus is the only NVIDIA partner in North America that has achieved both the NVIDIA DGX ready SuperPOD specialization and DGX ready Managed Service Provider specializations. This achievement demonstrates our engineering expertise for enterprise-grade AI infrastructure deployments and capabilities to provide end-to-end life cycle services from initial design through implementation and management of AI workloads. And finally, as the capabilities and benefits of AI become more clear, we have stepped up our AI investments to meet our internal business needs as well. We have seen how AI can support our customers better, automate some internal processes and provide real-time information for our sales teams to leverage and provide value to their customers. Security remains a standout for ePlus. On a trailing 12-month basis, it now represents 22% of gross billings, underscoring our success in aligning with enterprise priorities around digital risk mitigation and will only be more relevant as AI becomes more prevalent in the market. In conclusion, we have a very strong balance sheet, which gives us the opportunity to make strategic investments, both organically and through acquisitions. We exited the year with a record cash position of approximately $389 million. This financial flexibility provides a solid foundation as we navigate macroeconomic uncertainty and supports our growth initiatives. As always, we remain committed to disciplined capital allocation and driving long-term shareholder value. I will now turn the call over to Elaine to discuss our financial results in more detail. Elaine Marion Thank you, Mark, and thank you, everyone, for joining us today. I will provide additional details about our financial performance in the fourth quarter of fiscal 2025 and review our full fiscal year results, which ended March 31, 2025. Consolidated net sales in the fiscal 2025 fourth quarter were $498.1 million, down from $554.5 million in the fourth quarter of fiscal 2024. And our consolidated adjusted EBITDA was $43.8 million, up from $36.8 million in the prior year, which exceeded our expectations as we captured increased gross profit from the sales of product. Technology business net sales declined 10.4% year-over-year to $487.2 million, reflecting lower product sales, which continue to be impacted by the industry-wide shift towards ratable and subscription-based services, resulting in more netted down revenues. Product sales also faced a tough year-over-year comparison as the fourth quarter of fiscal 2024 benefited from elevated deliveries of networking products. Partially offsetting the decline in product sales with strong demand for our services offerings, which we have strategically emphasized and grown. ePlus' services-led approach is evident in our results as our service revenues increased 33% year-over-year. Professional services revenues were up 48% as the segment continues to benefit from the Bailiwick acquisition, while revenues for our managed services rose 17%, led by sustained growth in enhanced maintenance support, or EMS, and cloud-managed services. Managed services bookings remain strong, underscoring our confidence in the segment. Technology business gross billings declined 5.4% in the quarter due to softer demand from enterprise customers as well as a challenging comparable in the prior period. Telecom, Media & Entertainment and SLED were our 2 largest customer end markets, accounting for 23% and 17% of technology business net sales on a trailing 12-month basis. Technology, health care and financial services accounted for 15%, 14% and 9%, respectively, with the remaining 22% from other end markets. In our financing segment, net sales rose 4.9% to $10.9 million, primarily due to higher transaction gains and portfolio earnings. Fourth quarter 2025 consolidated gross profit increased 11.8% to $145.8 million, representing a gross margin of 29.3%, comparing favorably to gross profit of $130.3 million and gross margin of 23.5% in the prior year fourth quarter. The increase in gross margin was led by our technology business, which saw product margin expand from 19.3% to 26.6%, reflecting more profitable mix and a larger proportion of sales of product that were recognized on a net basis as well as additional gross profit from our services business. In our services business, professional services gross margin was 35.9% versus 50% in the comparable prior year period. Bailiwick, which we acquired in August of 2024, has lower professional services gross margin due to a higher concentration of third-party costs in the business model, contributing to the year-over-year decline. Managed services gross margin of 29.1% declined modestly from the 30.5% reported in the prior year due to an expanded mix of services provided. Fourth quarter 2025 operating expenses of $111 million increased 9.6% from the prior year quarter as we recognized costs related to increased headcount from the Bailiwick acquisition. Our headcount at the end of the quarter increased to 2,199 from 1,900 a year ago, reflecting an increase of 299 employees, of which 272 were customer-facing. Sequentially, our headcount decreased from 2,291 at December 31, 2024. Benefiting from our strong margin performance, consolidated operating income and earnings before taxes rose 19.6% and 14.9%, respectively. Other income totaled $1.1 million, driven by interest income of $2 million, partially offset by foreign exchange losses. Our effective tax rate in the fourth quarter was 29.7%, slightly higher than the 29.5% reported in the prior year quarter. Consolidated net earnings were up 14.6% to $25.2 million or $0.95 per diluted share versus net income of $22 million or $0.82 per diluted share a year ago. Non-GAAP diluted earnings per share was $1.11, representing an increase of 19.4% year-over-year and weighted average diluted share count decreased slightly from the prior year's fourth quarter. Consolidated adjusted EBITDA increased 19.1% to $43.8 million, with 97% of the increase from our technology business. Moving on to our results for the full year of fiscal 2025. Consolidated net sales for the fiscal year were $2.07 billion, down from $2.23 billion in fiscal 2024. The decline was driven by a 13.7% decline in product sales, partially offset by 37.1% growth in services and strong performance in the financing segment. Technology business gross billings of $3.3 billion were down slightly year-over-year. Fiscal 2025 consolidated gross profit rose 3.3% to $569.1 million, led by growth in both the technology business and financing segment. Gross margin expanded 270 basis points to 27.5%, reflecting favorable product mix, a larger proportion of netted down revenues and additional services revenue in the technology business. Operating income was $141.4 million versus $158.3 million a year ago. The decline was primarily a function of lower product sales and increased operating expenses, which rose 9% year-over-year due to the Bailiwick and PEAK acquisitions as well as continued investments in technology and customer-facing headcount. Our effective tax rate for the full year was 27.5% below the 28.1% reported in the prior year due to lower state taxes. Consolidated net earnings were $108 million or $4.05 per diluted share in fiscal 2025, this compares to $115.8 million or $4.33 per diluted share in the year ago period. Non-GAAP diluted EPS amounted to $4.67 per share, down from $4.92. Fiscal 2025 adjusted EBITDA decreased 6.4% to $178.2 million. Our balance sheet remains solid with assets over $1.8 billion, highlighted by our cash position of $389.4 million at the end of fiscal 2025, well above $253 million at the end of fiscal 2024, reflecting strong operating cash flows of $302.1 million compared to $248.4 million in fiscal 2024. As of March 31, 2025, our inventories were $120.4 million. While inventories were higher sequentially, they were below $139.7 million reported at the end of fiscal 2024. Stockholders' equity was $977.6 million compared to $901.8 million at the end of fiscal 2024. During fiscal 2025, we repurchased more than 557,000 shares under our repurchase program, leaving 26.5 million shares outstanding at March 31, 2025. Our cash conversion cycle was 29 days compared to 46 days a year ago as inventory days outstanding declined from 23 days in fiscal 2024 to 14 days at the end of March 2025, highlighting a more normalized supply chain. Our strategy of focusing on high-growth areas and anticipating our customers' needs continues to position us well for the future. We remain focused on strategic capital allocation with an eye toward organic and inorganic investments in an effort to add geographies and increase our service offerings. With that, I will turn the call back over to Mark. Mark? Mark Marron Thank you, Elaine. Our core business is solid, and our team is executing well. This is reflected in our financial results with solid gross profit growth and margin expansion. We continue to review our portfolio of products and services, identifying new sources of growth in our core markets. Our strong balance sheet provides us the opportunity to invest organically and make acquisitions when the right opportunity comes along. As always, we will continue to take a balanced and disciplined approach to building our company and evolving our business model for the future. Moving next to a comment about guidance. We are cautiously optimistic as we head into fiscal year 2026 but want to be prudent when considering the entire year and the trends we are experiencing with regard to ratable and netted down revenue. Today, we are initiating fiscal year 2026 guidance for net sales growth of low single digits, while we expect gross profit and adjusted EBITDA to grow at mid-single digits over the prior fiscal year. This guidance assumes some level of impact from economic uncertainty but does not factor in recessionary conditions or other unexpected developments. To sum up, our strategic pivot towards services, subscriptions and high-growth technology areas is gaining traction. We believe these foundations, combined with our financial strength and customer-first approach position us well to support our customers' evolving and growing business needs. We believe we are well positioned for the opportunities ahead and remain committed to delivering value for all of our shareholders. Operator, please open the call for questions. Thank you. Operator (Operator Instructions) Greg Burns, Sidoti & Company. Gregory Burns Where do you -- where is the demand environment currently? Like did you see any improvement throughout the quarter? Are you still seeing soft demand on the product side of the business. Can you just maybe give us an update on what you saw during the quarter, how it evolved and kind of where we are currently? Mark Marron Greg, a couple of different things we're seeing in the market. We are seeing pickup in the data center, cloud and security space. That's not surprising. When you think about some of the AI initiatives that are going on, some of the things that folks have to think through is security in terms of governance and risk, data readiness and things along those lines. They also make a lot of times the simple choices to move to the cloud. So we saw some nice pick up there. We did not see a pickup in networking year-over-year. So networking was down pretty big still for us. And then if I look at net sales just overall generically, what we kind of saw was, as we looked over the last couple of years, a few things. For this quarter, it was a big gross to net that affected our net sales. We had a tough compare, no excuses. We were up 12% last year. So that was another -- and we had a few customers that are digesting some of the supply chain, specifically in the networking space. We think they'll start to come back into play in the coming quarters. So overall, data center cloud, security, nice pickup. Networking still needs to improve. Gregory Burns Okay. And then when you look at the AI opportunity, most of the investment has been going into like the hyperscaler data center environment. Where does like enterprise AI adoption, enterprise investment stand? And do you think that -- I guess, maybe in your guidance for next year, does that contemplate any kind of acceleration in maybe AI demand? Mark Marron Yes. Not yet, Greg. Maybe towards the end of the year, beginning of next year. So you're right, most of the spend with NVIDIA and the bigger players is going towards the hyperscalers. What we're seeing is customers are taking advantage of some of our workshops and envisioning sessions. We've got a hosted proof of concept, basically a private GenAI chatbot that we -- that gives customers the ability to kind of test and play around with their data to come up with use cases. So we think a lot of that will be on the services side that will drive for us, which is a good thing. It's our most profitable business. And then we think the infrastructure stuff will start to pick up. We've made investments with the training of our sales teams. We also just got the NVIDIA SuperPOD specialization, which is their high-end computing. So over time, we think that infrastructure spend will pick up, but it will take a little bit of time. Operator And there are no further questions. So I will now turn the conference back over to Mr. Mark Marron for closing remarks. Mark Marron Okay. Thanks, Abby. Thank you, everyone, for attending our Q4 and full year earnings call. I hope everybody gets to enjoy the long Memorial Day holiday, and we look forward to speaking with you again on our next earnings call. Take care and be safe. Operator And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Yahoo
15-05-2025
- Business
- Yahoo
Q1 2025 M-Tron Industries Inc Earnings Call
Linda Biles; EVP of Finance; M-Tron Industries Inc Cameron Pforr; Interim CEO; M-Tron Industries Inc Anja Soderstrom; Analyst; Sidoti & Company Operator Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the M-tron earnings call for Q1 2025. (Operator Instructions)I would now like to turn the call over to Linda Biles, M-tron's EVP of Finance. Please go ahead. Linda Biles Good morning, everyone. Thank you for joining our 2025 M-tron Q1 earnings call. Please note that this call will be recorded, and we will make the recording available on our website, shortly after the call. Yesterday afternoon, we released our earnings for the first fiscal quarter of getting underway, we are required to advise you that the following discussion should be taken in conjunction with our most recent financial statements and notes is contained within our 2024 10-K, which was filed on March 27, 2025, with the discussion may contain forward-looking statements with the meaning of 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements contain known and unknown risks and uncertainties, which are detailed in our SEC the company believes that the forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there are no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking company undertakes no obligation to publicly update or revise any forward-looking statement, whether as the result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future that, I will now turn the call over to our Interim CEO, Cameron Pforr. Cameron Pforr Yeah. Good morning, everyone, and thank you, Linda. First of all, I want to thank all of our shareholders and interested parties for attending our first quarter FY25 earnings call and your interest in the company. We're pleased to discuss our strong start to the fiscal 2025 fiscal year and our outlook going forward. As a reminder, M-tron designs and manufactures highly engineered RF solutions, including electronic components and subassemblies used to control the frequency and timing of signals and electronic a global company, the three manufacturing sites in the United States and India. The company's primary markets include defense and aerospace, commercial avionics, industrials, and space. We are pleased to report that the company continued to perform well with continued strength in M-tron sales and good financial performance for Q1 fiscal year 2025. Our revenues continue to be driven by defense-related orders and we also saw some growth in the commercial avionics market, something we believe bodes well for the future recovery of that are pleased to see Boeing resolve its labor dispute early in the year and expect orders from the major airframe manufacturers to pick up throughout the year. With consistent operating performance, we have been able to continue to make strategic investments in research and development and continue to increase the market profile of the of that effort was the recent rebranding of the company as M-tron updates to our logo, our website and sales materials as well as the initiation of advertising in some of the leading publications for our sector and also enhanced lead generation activity. We also continue to make investments in our production facilities, and we've seen good initial results in a program that I mentioned, I think, on the last call to deploy greater automation on the factory floor to improve looks like we have gotten through some of the choppiness in the defense market caused by some of the conflicting messaging from the administration on the defense budget. We have, at M-tron have seen no disruption to our business. and expect to continue the company's revenue growth throughout the continuing resolution passed and signed in mid-March 2025, extended government funding through the end of the federal fiscal year and largely preserved the defense spending as it was actually increasing the defense budget by, I guess, a relatively small amount, $6 administration is now proposing increasing the defense budget for this fiscal year by $150 billion through a reconciliation process and also substantially increasing procurement spending in the federal FY 2026 budget. Many of the areas targeted for investment such as next-gen aircraft, shipbuilding, loitering and precision guided munitions, border security and the Golden Dome anti-aircraft, anti-missile defense, all require a significant amount of RF subsystems and components, highlighting the continued growing need for M-tron importance of filters and oscillators has only increased as the electromagnets spectrum has become a more contested part of the battle space. And communications explaining systems and commanders and combatant remain subject to electronic countermeasures, such as jamming and interference. We believe that we are well positioned to continue to perform well with the anticipated changes in military procurement Linda, would you mind giving our audience the highlights of our fiscal year Q1 performance? Linda Biles Yeah. Total revenues for first quarter were $12.7 million, a 13.8% increase over the $11.2 million of revenue in the same period last year. The revenue increase in the period primarily due to strong defense program product and solution shipments. Gross margins for the first quarter of 2025 were 42.5%, a 20 basis point decrease over the 42.7% gross margins in Q1 at ' decrease is primarily due to additional manufacturing costs with the initial production runs of several new products. In addition, we saw the initial impact this quarter of duly initiated federal tariffs on imports of foreign sourced materials and partially finished income was $1.6 million or $0.56 per diluted share in the first quarter of 2025 compared with $1.5 million or $0.53 per diluted share in the first quarter of increase in revenues discussed above was partially offset by higher manufacturing cost of sales consistent with the growth in revenues and the introduction of new products as well as higher engineering, selling and administrative expenses related to continued research and development investments higher sales commissions from an increase in revenues and an increase in administrative expenses consistent with the overall growth of the EBITDA was $2.5 million in the first quarter of 2025 compared with $2.3 million in the first quarter of 2024. The increase was primarily due to higher revenues resulting in higher income. Backlog was $55.5 million as of March 31, 2025, compared to $47.2 million as of December 31, 2024, and $46.1 million as of March 31, increase in backlog reflects several large defense and avionics orders received during the quarter and the continued broad demand for our products. In early February '25, for example, we publicly announced one large order supporting shipboard systems for over $10 million that was expected to have been received in fiscal year 2024. I'd now like to turn the call back over to Cameron. Cameron Pforr Yeah. Thank you, Linda. So in March 2025, M-tron saw the initial impact of the recently announced federal tariffs on the import of goods and materials from outside the United States. And while M-tron is a United States-based manufacturer with a great degree of vertical integration, something we pride ourselves on. We do import some materials from Japan, China, South Korea and a very small amount from we also performed some finishing work at our facility in Noida, India. It's difficult to predict the long-term impact of this trade policy on our financial performance as it changes regularly. We are working with many of our defense customers on acting parts of the federal acquisition regulations which potentially exempt materials received for defense production from entry addition, we continue, as always, to analyze our supply chain in order to make sure that we have redundancy of suppliers where possible and can source from reliable suppliers at the best price as possible. To date, we have seen no impact from tariffs on demand for our products. Also, I wanted to highlight the recent distribution of warrants. On April 25, 2025, the company distributed a dividend of warrants, the stockholders of record as of March 10, warrants are listed on the New York Stock -- NYSE American Exchange under the ticker, MPTIWS. The warrants may be listed on certain financial websites under the ticker MPTIWT or a similar nomenclature. Pursuant to the warrant agreement, the warrants contain the following terms, which I'll summarize, and we're happy to answer questions about this five warrants are exercisable to purchase one share of common stock, the exercise price is $47.50 per share. The warrants are exercisable at the earlier of 30 days prior to the maturity date of April 25, 2028. Or on the date when the average volume weighted average price of the VWAP or M-tron's common stock is greater than or equal to $52 per share for the prior 30 consecutive trading days. we call this the accelerated trigger or early warrants expire at the earlier of April 25, 2028, that they run to full maturity or 30 calendar days following M-tron public announcement of the date of the accelerated trigger being triggered. And warrant holders exercising their full allotment of warrants comply to subscribe for any and all shares of common stock issuable pursuant to any outstanding but unexercised is called the oversubscription feature, and it's included on your warrant agreement. Further information on the warrants is available in a fact, found on our Intron investor website, which is Just to highlight some of the strategic activity, we do continue to execute on our strategy of moving into more program business, which now makes up the vast majority of our aerospace and defense are involved, for example, in over 40 programs of record, it's a very significant amount. Defense and aerospace has been an amazing market in the past several years, and it does remain one with plenty of room for us to grow. We seek to maintain close relationships with our customers and be their first line resource for them as they plan upgrades to current systems or compete for the design of new systems to meet government program the same can be said in our other sectors like avionics and industrials. We have also ramped up our pursuit of complementary acquisitions and strategic partnership opportunities in both the RF component and subsystem space, as well as some tangential subsystem and solution companies that focus on the same are focused on finding deals that will be accretive for shareholders and help both companies strengthen their financial performance and customer base. Strengthening the US defense industrial base is one of the goals of the administration's trade policy and current budget focus. They've actually dedicated budget dollars to the strengthening of the defense industrial base in the anticipated increase in this year's defense a US-based advanced manufacturing capabilities support our joint forces is more important than ever before and we thank our employees for their dedication to their jobs and the mission. We also thank our dedicated customers to their continued business and the trust they place an M-tron and our people.M-tron plays its critical role in defense of our nation, providing US sourced, highly engineered components for many US and allied military programs. Before I open the floor to questions, I wanted to mention that we will be holding our annual meeting on June 10, 2025, at 10:00 AM in the morning at the Harvard Club in New York City. The meeting will be open to all shareholders of the company's common addition, we will hold an investor presentation and question-and-answer session before the annual meeting and information for both of these events will be posted on our investor website. For those interested in attending in person, you'll need to get a QR code from our IR site to pass through the Harvard Club can you please open the lines and allow the first question? Operator (Operator Instructions)Anja Soderstrom, Sidoti. Anja Soderstrom So in terms of your gross margins, that was a bit muted due to the ramping of new programs. How do -- how is that going to sort of develop? And with those new large contract wins, are we going to see that being a ramp for a longer period of time? Or will it pick up pretty quickly? Cameron Pforr Yeah. Good question, Anja. And thank you for joining. So the gross margins were impacted by really three factors. One was just product mix. We had less products being shipped for two of our long-term missile programs, which have very -- relatively high margins. And that is expected to return very shortly. That part of the mix was going to increase in Q2 throughout the rest of the year due to some of the orders we received in thing I mentioned earlier was that we did ship some new products. And whenever you're working on new products, the first couple of runs are a little bit less efficient than when all the have been worked out in the process. And you're running at a higher yield. So we ship some new space products, which require rigorous testing and they've been successful, but the first couple of runs of those take more labor than you would hope to use also, we shipped a new type of oscillator in the quarter that's used in EW and RADAR, which I think is great for the long-term prospects of the company. And I think that those yields will improve over time. So I do expect the yields to improve and the margins to improve throughout the year. We also did see some impact to the had a little bit less than $100,000 of tariff charges in March, and it's kind of difficult to predict how much we should anticipate receiving there for the rest of the year. And we hope that a lot of the progress that's been made over the past couple of weeks, reducing the tariffs will have a positive impact there. So I do anticipate this to go up in the rest half of the For those new programs that you shipped in the space and the oscillators, are they higher than the average?Yes, they will be a very strong margin product that they're just early developed. Anja Soderstrom Okay. And then in terms of the tariffs, you're not able to pass that on at all or? Cameron Pforr Yeah. We do have the capability on our contracts to pass that on. The reality is that in the market, there are a lot of mistakes being made in terms of how the tariffs are applied and then also the whole thought of passing on tariffs to vendors is relatively new, and I do anticipate a fair amount of pushback, although I think ultimately, many customers will pay for their we're really hoping that we can work through the tariff situation in the short term. But we do have in our contracts, the ability to pass on taxes and tariffs and so I think over time, this will work out, but there will be some disruption in the industry in terms of cost for the short term. Anja Soderstrom And then also, these large contracts you've been winning and congrats on those. Are they also higher-margin programs then? Cameron Pforr They are. And they were actually some of the programs that I mentioned. We didn't ship a lot over Q1, which did impact our margins. Return to that... Anja Soderstrom And then what does the pipeline look like for other large deals like that? Cameron Pforr We actually have a pretty strong pipeline for the year. So we don't really talk about bookings per se and give numbers on that, but we've had two very strong quarters of bookings and we do have a lot of large programs that we think we'll be announcing over the next quarter or both missile programs as well as some in the avionics space. And then in the back half of the year, we're working on some really significant drone bookings and programs, which I think will be exciting for the company. Operator At this time, there are no further questions. I would now like to turn the call back over to Cameron Pforr for closing remarks. Please go ahead. Cameron Pforr Okay. Well, thank you, operator. I appreciate you helping us manage the call. and I'm going to like to thank everybody for participating today. And if there are no further questions, please have a great you want to follow up after the call after you kind of read the transcripts or you've had a chance to kind of go through the earnings release in more detail, feel free to contact us at ir@ and we will respond in kind. So thank you again. Operator Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Yahoo
06-02-2025
- Business
- Yahoo
Q4 2024 PC Connection Inc Earnings Call
Samantha Smith; Investor Relations; PC Connection Inc Timothy McGrath; President, Chief Executive Officer; PC Connection Inc Thomas Baker; Senior Vice President, Treasurer, Chief Financial Officer; PC Connection Inc Anthony Lebiedzinski; Analyst; Sidoti & Company Operator Good afternoon and welcome to the fourth quarter, 2024 connection earnings conference call. My name is Josh and I will be the coordinator for today at this time. (Operator Instructions) There will be a question-and-answer session as a reminder, this conference call is the property of connection and may not be recorded for rebroadcast without specific permission from the company on the call. Today are Tim mcgrath, President and Chief Executive Officer and Tom Baker, senior Vice President and Chief Financial Officer. I will now turn the call over to the company. Samantha Smith Thanks operator and good afternoon everyone. I will now read our cautionary note regarding forward-looking statements, any statements or references made during the conference call that are not statements of historical fact may be deemed to be forward-looking statements, various remarks that management may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1,995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the risk factor section of the company's annual report on form 10-K for the year ended December 31, 2023 which is on file with the Securities and Exchange commission as well as in other documents that the company files with the commission from time to time. In addition, any forward-looking statements represent management's view as of today and should not be relied upon as representing views as of any subsequent date. While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so other than as required by law, even if estimates change. And therefore, you should not rely on these forward-looking statements as representing management's views as of any date subsequent to today. During this call, nongaap financial measures will be discussed, a reconciliation between any non-GAAP Financial measure discussed and its most directly comparable GAAP measure is available in today's earnings release and on the company's website at dotcom. Please note that unless otherwise stated, all references to full year and fourth quarter, 2024 comparisons are being made against the year ended December 31, 2023, and the fourth quarter thereof. Today's call is being webcast and will be available on connection's website. The earnings release will be available on the SEC website at and in the investor relations section of our website, I would now like to turn the call over to our host, Tim mcgrath, President and CEO Tim. Timothy McGrath Thank you, Samantha. Good afternoon, everyone. And thank you for joining us today for Connection's Q4 2024 conference call. I'll begin this afternoon with an overview of our 2024 performance followed by our fourth quarter results. Tom will then walk us through a more detailed look at our financials for the full year revenue was $2.8 billion. A decrease of 1.7% compared to the prior year. While gross profit was $519.8 million. An increase of 1.6% gross margin was a record 18.6% growing 60 basis points. Our SG&A was $422.3 million. An increase of 4% compared to the prior year. This increase was due to our investment in critical areas of our business which we will discuss in detail later in the call net income was 87.1 million. An increase of 4.6% compared to the prior year earnings per diluted share was $3.29 for 2024 compared to $3.15 in the prior year. Now, let's discuss our Q4 performance consolidated net sales were $708.9 million an increase of 1.8% compared to the last year. Gross profit was flat $129.8 million gross margins were down 30 basis points to 18.3% in Q4 compared to the prior year quarter. Primarily due to a shift in product mix. Operating income in Q4 was $22.6 million. A decrease of 19% compared to Q4, 2023 operating income. As a percent of sales was 3.2% compared to 4% in net sales in the prior year quarter. That income in Q4 was 20.7 million. A decrease of 12.9% compared to $23.8 million in the prior year quarter. In Q4, 2024 our diluted earnings per share was $0.78. A decrease of 12.8% from $0.90 in Q4 2023 last quarter. During our conference call, we noted that the recovery in it spending was taking longer than we anticipated. This trend continued in Q4 which is reflected in our results. In Q4, we saw some evidence of a recovery year over year in select areas of our business. We experienced notebook mobility and desktop revenue growth of 14% driven primarily by PC refresh initiatives by our customers revenue for advanced technologies continues to be challenged as customers wrestle with the timing of their AI deployment and data center refresh. Although our results for advanced technologies did not meet our expectations. In Q4, we are cautiously optimistic about the future. As we've seen a marked increase in our pipeline of opportunities. We'll now look a little deeper into our segment performance in our business Solutions segment. Our Q4 net sales were 262 point 4,000,003 0.7% lower than a year ago as we experienced a 12% decrease in the sale of advanced technology products partially offset by an increase of 2% and endpoint devices. Gross profit for the Business Solutions segment was $62.6 million. A decrease of 0.8% gross margin increased 70 basis points compared to the prior year quarter to 23.9%. Our net sales and gross margins were favorably affected by customer mix and an increase in the mix of software recognized on a net basis in our public sector solutions. Business Q4 net sales were $143.7 million. 42.9% higher than a year ago. Sales to the federal government increased by $41.1 million. While sales to state and local government and educational institutions increased by $2 million. Gross profit for the public sector segment was $22.2 million. An increase of 30.2% compared to Q4, 23 gross margin decreased by 150 basis points to 15.4% for the quarter compared to the prior year. The revenue increase and margin decline resulted from a few large project rollouts in Q4, 2024 that were at lower than average margins in our enterprise solutions segment, Q4 net sales were 302 point 7,000,006 0.4% lower than a year ago as we experienced an increase of 3% in device sales offset by a 28% decrease in the sale of advanced technology. Gross profit for the enterprise segment was 45,000,009 0.3% lower than the prior year quarter. Gross margin decreased by 50 basis points to 14.9% for the quarter. The margin decrease was a result of lower software license fees and product mix. I'll now turn the call over to Tom to discuss additional financial highlights from our income statement, balance sheet and cash flow statement. Tom. Thomas Baker Thanks Tim in the fourth quarter. G&A increased by 5.2% over the prior year. The increase in G&A was primarily due to investments and resources to strengthen our sales, technical sales and services capabilities on a percentage of sales basis D&A increased 49 basis points to 15.1% of net sales in the quarter. Compared to 14.6% in the prior year. Interest income for Q4 amounted to $4.8 million compared to $4.1 million last year. An increase of 660,000 and our effective tax rate was 24.1% down from 25.8%. That income for the quarter was $20.7 million. A decrease of 12.9% from $23.8 million and diluted earnings per share was $0.78. A decrease of 12.8%. Our trailing 12 month adjusted earnings for interest, income taxes, depreciation and amortization or adjusted EBITDA was $118.9 million compared to $125.5 million a year ago. A decrease of 5% in the fourth quarter, we paid a $0.10 per share quarterly dividend and we repurchase shares having a total cost of $4.9 million at an average of $70.39 per share. At the end of the year, we had $59.7 million remaining for stock repurchases under our existing stock repurchase program. Today, we announced that our board of directors has prepared a 50% increase in our quarterly dividend to $0.15 per share. The dividend is payable to shareholders of record on February 25th and payable on March 14th, 2025. Cash flow generated from operations from year end in 2024 was $173.9 million. Our accounts receivable balance increased $6.5 million for the year ended 2024 and our DSO decreased to 72 days from 73 days for the same period. A year ago, cash from operations benefited from a reduction in inventory of $29.1 million for the year. Our accounts payable balance increased $36.5 million for the year ended 2024. Largely due to timing of payments. Cash used in investing activities of $115.3 million was the result of $358.3 million of investment purchases offset by $250.6 million of investment maturities. We use $25.2 million of cash for financing activities during the year, primarily for the payment of $10.5 million of dividends to shareholders and repurchases of $12.4 million of stock. We ended Q4 with $442.6 million of cash equivalents and short term investments. When we're thinking about capital allocation, we remain committed to growing the business and have an on growing program focused on investing in organic opportunities in organic growth programs that Tim will expand upon later. Furthermore, as announced above, we have increased our dividend by 50%. We anticipate evaluating our dividend program regularly and target a payout in the range of 15 to 20% of net income. During 2024 we significantly increased our repurchases of stock and we anticipate continuing to do so in a disciplined manner. I will now turn the call back over to Tim to discuss current market trends. Timothy McGrath Thanks Tom. During 2024 market conditions remain challenging as customers continue to struggle with the timing and priority of their it investments. As a result, overall, it spend was lower than expected in Q4 and for all of 2024. While we continue to see year over year growth in the device ecosystem including endpoint and related categories. Many customers have delayed investments in large advanced technology projects. We do believe that budgets will free up to support those initiatives throughout 2025. In 2024 we made significant investments and improvements in our business and we are confident that will position us to be successful in 2025 and beyond, we've invested in a world class CRM system A I enabled workflow tools enhancement to our technical integration and distribution operations. Perhaps more importantly, we've elevated our investment in key technical resources. These include solution, sales executives, pre and post sales, technical sales experts, engineering, personnel services, personnel, additional resources focused on Helix A I initiatives. In 2025 we expect customers to invest in data center and infrastructure projects driven in part by A I and server consolidation as well as anticipated growth coming from the device refresh these trends in technology advancements are driving growth in a number of opportunities in our pipeline. We believe that the strategic investments we have made will allow us to efficiently and effectively take advantage of this expected increase in demand and enable participation in many more larger scale opportunities. Our investments have resulted in higher levels of SG&A and are a key component of our ongoing transformation. There are other catalysts for growth in 2025 and we expect customers to focus on refreshing their networks, data management and security A I automation and hyper personalized marketing solutions will drive deployment at scale in 2025 A I remain the focus of investment. As many of our customers assess their A I strategies. We continue to strengthen our A I capabilities through connections, Helix initiatives. We're excited to report advancements in our connection, Helix capabilities which continue to mature and excel with the A I sector in Q4. We continue to bolster our technical capabilities, developing a mature pipeline of A I opportunities and strengthening our alliances with key partner organizations within the A I ecosystem. We are particularly proud to announce that we've been recognized with a first place award in the Naval Information Warfare Center. Their challenge for the Atlantic palmetto tech bridges, secure, commercially based artificial intelligent environment was for real world naval applications. This accolade serves not only as a recognition of connections, innovativeness but also affirms our deep understanding of A I technologies and the specific challenges our clients face. As you can tell by the tone of our call, we're optimistic about our prospects in 2025. However, there are a number of macroeconomic events that could impact the timing of customer investment. These include recent developments with the A I landscape and the potential impact of tariffs for 2025. We're confident we can outperform the U SI T market rate of growth by 200 basis points. We remain committed to stay at the forefront of the technology curve ensuring that our integrated solutions effectively meet the evolving needs of our customers. We believe that our focus and business strategy remains well aligned with the shifting dynamics of how customers deploy, utilize and consume technology. We continue to connect our customers with technology that enhances growth, elevate productivity and empower innovation. We help our customers expertly navigate through a complex set of choices within the technology landscape. We help calm the confusion of it for our customers. We know that in this complex world of technology change happens and expertise wins. On that note, I'd like to take a moment to thank our extremely dedicated and valued employees for their continued and extraordinary efforts during this rapidly changing environment. We'll now entertain your questions, operator. Operator (Operator Instructions) Anthony Lebiedzinski from Sidoti & Company. Anthony Lebiedzinski Good afternoon everyone and thank you for taking the questions. So first, just just curious, can you comment on the sales progression that you saw during the quarter? Ju just you again, I just wanted to get a better sense as to how the quarter trended, October through December. And so any early indication about, how Q1 has started? That would be great. Thomas Baker Yeah, so I think Anthony, October was probably a little bit better than we've seen in the last three years. November was markedly worse in terms of a percentage of sales that we've seen in the last three years in December was about the same. We didn't really see any budget flush, but, but November was pretty low. And then in terms of, what we're seeing going forward, I think for Q1 flat, maybe up very low, single digits on the top line is kind of what we're expecting and, that's kind of how things are looking right now. Timothy McGrath Yeah, thanks Anthony. I add that that, that tells kind of part of the story looking back. But if we continue to look forward, we are seeing a very large number of projects come into the funnel, our customers engaging us in a number of areas. And you know, we're confident that a number of those projects will be significant for us in 2025. Anthony Lebiedzinski That's very helpful color. And just to follow up in terms of tho those projects, I mean, are you seeing that as far as like w which vertical markets, can you speak of, I guess, you know, maybe just, just as far as talk about the opportunity that you see going forward as for which, which of your vertical markets do you, do you think it will have the most opportunity? And maybe conversely, which ones are you less bullish on? Timothy McGrath Well, thanks. So let me start with our subsidiaries and then we'll talk about vertical. So currently our large enterprise group has a large number of new projects, new customers in a lot of momentum going into 2025. So we're very optimistic about that. Our, our SMB group, our, our business solutions team, also their funnels are building but probably at a lower rate. And our public sector team, it is very much a large contract, large customer dependent, a few in the federal space and a few in the sled space when we think about the vertical markets that underpin a lot of that growth. Clearly, we're seeing a number of projects in the retail space. So we are looking at good growth there. A number of projects in health care really around the GPO S and the group purchasing organizations and a number of manufacturing projects are coming into play. So those would be kind of the leaders of our vertical market segment. Anthony Lebiedzinski Thank you for that Tim and then I guess, just to switch gears here as far as the SG&A so, it was up 4% in 2024 versus gross profit growth of 1.6%. So, as we look forward to 2025 you know, how should we think about expected expense growth versus what you think you can do as far as gross profit growth? Thomas Baker Well, as you know, said throughout the call to Anthony, I think Tim, in his remarks, we've invested a lot of money in people and, and you know, solution sellers and technical people and we're laying the infrastructure, we've invested in a lot of tools because we see this pipeline coming and we think we have to be ready to answer your, your question directly. I think we'll probably see three ish four ish percent SG&A growth over the next couple of quarters, year on year. Obviously, we're doing everything, we can to pull it back. But what you're seeing is just a real reallocation of resources here. Timothy McGrath And also I would, I would classiFY24 as a building year for Anthony, we invested in somewhat of a down market. So we have now a additional capability, additional capacity and many of the investments have already been made. So when we think about growth in 25 that SG&A growth, a lot of it will come from variable compensation. Thomas Baker Yeah. And the other thing I would add on Q4, specifically Anthony because, there, there was a bit of a Miss, there, we had a couple of, I would say 231 time items that probably cost us, $2.5 million to $3 million that will not repeat. And those were just kind of out of the blue. Anthony Lebiedzinski Okay. Well, thanks for clarifying that. That's, that's definitely very helpful call I get, I guess, last question for me before I pass on to others as far as can, can you speak to the expected impacts from tariffs that you may have to deal with? Just curious to get your thoughts on that. Timothy McGrath It's a great question. And as you know, our major suppliers have very complex supply chains and so it's really difficult to have any, any accuracy in our predictions. The sort of the upside is it's a great opportunity to reach out and touch all of our customers. It's a great opportunity to engage them and have meaningful conversations about planning for their contingencies. You know, generally speaking, the majority of our suppliers manufacture their desktops in Mexico. Generally speaking, the majority of our suppliers have the majority of their notebook manufacturing in China and Vietnam and, and standing up a few other locations. And then of course, display is a little more spread out, but also a lot of display coming out of China. So when you start to put all that together, it really depends on the specific product from the specific supplier at this specific time. So many of our suppliers are moving quickly to stand up alternatives to some of the tariff countries that said, still not really clear and it's not clear to our customers either, but we will work through this together. Thomas Baker Yeah. And the only other thing I'd add, the only other thing I'd add to that Anthony, we're going to work with customers to tailor programs to help optimize all of us through this. So I think, I think a lot's going to evolve over the next three to three weeks or so. Anthony Lebiedzinski All right. Well, thank you very much and best of luck. Okay. Thank you. Operator Thank you. I would not like to turn the call back over to Tim mcgrath for any closing remarks. Thomas Baker Well, thanks. Timothy McGrath Josh. I'd like to thank all of our customers, vendor partners and shareholders for their continued support. And once again, our coworkers for their efforts and extraordinary dedication. I'd also like to thank all of you listening to the call this afternoon. Your time and interest in connection are appreciated. Have a great evening. Operator Thank you. This concludes the conference. Thank you for your participation. You may now disconnect. Sign in to access your portfolio
Yahoo
31-01-2025
- Business
- Yahoo
Q2 2025 1-800-Flowers.Com Inc Earnings Call
Andy Milevoj; Senior Vice President - Investor Relations; Inc James Mccann; Executive Chairman of the Board, Founder, Chief Executive Officer; Inc James Landrock; Chief Financial Officer; Inc Thomas Hartnett; President; Inc Anthony Lebiedzinski; Analyst; Sidoti & Company Alex Fuhrman; Analyst; Craig-Hallum Capital Group LLC Michael Kupinski; Analyst; Noble Financial Capital Market Linda Bolton; Analyst; D. A. Davidson & Co Doug Lane; Analyst; Water Tower Research Operator Good day and welcome to the Inc Fiscal Year 2025 Second Quarter conference call. (Operator instructions) I would now like to turn the conference over to Andy Milevoj, Senior Vice President of Investor Relations. Andy Milevoj Good morning and welcome to our fiscal 2025 second quarter earnings call. Joining us today are Jim McCann, Chairman and CEO, Tom Hartnett, President and James Landrock, CFO. Before we begin, I'd like to remind you that some of the statements we make on today's call are covered by the safe harbor disclaimer contained in our press release and public documents. During this call, we will make forward-looking statements with predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties including those contained in our press release and public filings with the securities and exchange commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release and now I'll turn the call over to Jim. James Mccann Thanks Andy and good morning everyone this morning. I'll begin with a brief overview of our second quarter performance and then I'll turn it over to James and Tom who will provide a context for the results and look ahead, our second quarter revenue declined 5.7% showing year over year improvement, but not at all at the pace that we have been anticipating. There were several factors that contributed to our performance. First, we experienced softer than anticipated consumer demand and we saw business businesses reduce their corporate gifting orders this holiday season. Second, we encountered challenges with the implementation of a new Harry and David Order management system or what we call OMS that escalated during the peak of the holiday season, impacting revenue and earnings for Harry and David and for all the brands. This morning, James and Tom will share more details behind some of these factors and how we are responding to them Additionally, we'll discuss our view of the ever changing post COVID world of consumer behavior and how we engage with our customers. And now I'll turn the call over to James. James Landrock Thanks Jim and good morning, everyone. This morning, I will walk you through our second quarter performance and discuss the items that contributed to our performance. In further detail, our consolidated second quarter revenue declined 5.7% with several factors contributing to this performance. First, we experienced lower consumer demand in a highly competitive and promotional environment combined with changes in the online marketing environment that a negative impact on our marketing efficiency. As a result, our increased marketing spend did not generate the results we anticipated in particular free and lower cost marketing channels declined or cost more than anticipated. Second, our corporate business partners became more cautious with their spending leading to decreases in a OVS items per order and total number of orders placed in total. Our AOV declined 1.2% for the quarter and third, we experienced challenges with the new Harry and David S implementation which escalated during the surge of holiday orders. Our ecommerce business declined 8.3% for the quarter. We estimate the RMS related issues reduced Q2 e-commerce revenue by approximately $20 million. These trends were slightly offset by an increase in our wholesale gift baskets business adjusting for the $20 million impact of lost revenue. Q2 e-commerce revenue would have declined 5.6% and total revenue would have declined 3.2% before I move on to gross margin. I did want to take a moment to discuss the RMS implementation that affected our performance as the business began to scale significantly in December, the new Harry and David Order management system that were recently implemented present the challenges with certain customer orders that were more complex during the peak of the holiday season. These orders created bottlenecks in the system that hindered our ability to process orders in a timely manner and other cases caused order cancellations. We were able to resolve many of these problems manually but it caused certain order cancellations and additional expenses to correct orders and to make it right for our customers. Although the implementation issues we face were challenging, it's important to recognize that we successfully delivered over $7 million orders this holiday season an enterprise level. While the RMS implementation primarily impacted our Harry and David business, we estimate it also had some spillover effect to our other brands given our centralized customer care function as Tom will discuss further in just a moment. We are in the process of resolving the new system issues now turn to gross margins. Our second quarter gross margin was 43.3% flat. With the prior year, the second quarter was highly promotional as consumers continued to look for and respond to promotional offers, our gross margin was also affected by the incremental costs associated with the R MS implementation challenges including expediting shipping fees that we estimate impacted gross profit by approximately 20 basis points, excluding the RMS related costs, gross margin would have been 43.5% adjusted operating expenses declined by $2.9 million to $239 million. As compared with the prior year period continuing to benefit from our work smarter initiatives. We believe that we're only beginning to tap into the potential to enhance our planned operational efficiencies and there is much more, we can achieve the meticulous cost management and strategic investments in technology. We aim to streamline processes and reduce expenses without compromising the quality of our offerings while improving the customer experience. In addition to the impact on revenue, we estimate that the incremental costs associated with the RMS challenges included expedited shipping fees and higher customer care costs impact the Q2 EBITDA by approximately $4.8 million. We also incurred expenses of approximately $1.5 million consisting primarily of redundancy costs as we migrated to our new customer care platform altogether. This impacted Q2 results by approximately $6.3 million. Taking this into account. Q2 adjusted EBITA was $116.3 million as compared with $130.1 million in the prior year period. Just to be clear, our adjusted EBITDA does not reflect the approximately $20 million of estimated lost revenue during the quarter, which equates to lost EBITDA of approximately $8 million. Over the past few years, we have discussed our gross margin returning to its historical average and we are pleased that postpandemic, it has recovered much of the way to our long term average in the low 40% range going forward. As you will hear from Tom, we are elevating our focus on all aspects of our sales and marketing spend. We believe there is opportunity for further efficiency gains as we adapt to changing technology and changing consumer preferences for engagement with e-commerce platforms. And now let's turn to our balance sheet. Net cash was $87 million compared with $117 million at the end of last year's second quarter, our cash balance was $247 million at the end of the second quarter, inventory declined to $157 million compared with inventory of $161 million at the end of last year's second quarter. In terms of our debt, we had $160 million in term debt and no borrowings under our revolving credit facility as compared with $195 million a year ago. At the end of the quarter, we made a $25 million prepayment to our term loan and amended our credit agreement guiding guidance for fiscal 2025 as a result of our Q2 performance we are updating our fiscal 2025 outlook. We now expect full fiscal year revenue to decline in the mid single digits adjusted EBITA is expected to be in the range of $65 million to $75 million. And free cash flow is expected to be in the range of $25 million to $35 million. We are disappointed that our Q2 performance did not meet our expectations. Some of the challenges were self inflicted and as we resolve these challenges, we remain optimistic about our future performance and the initiatives that we are executing on. We are confident that the strategies and the foundational steps we have implemented will significantly improve our trends and create substantial shareholder value. And now I will turn it over to Tom. Thomas Hartnett Thanks James and good morning, everyone. As James outlined the second quarter presented us with several unexpected challenges. Changes in online marketing trends impacted our performance and businesses reduced their corporate gifting orders this holiday season, both in terms of AOV and total orders placed. Furthermore, our results were pressured by challenges that escalated with our new Harry and David S implementation. As with any new system implementation, it's difficult to anticipate every issue that might arise. We felt the system was prepared for the holiday rush. The OMES implementation presented mounting challenges during the peak of the holiday season. The order issues were directly related to Harry and David orders and in particular more complex orders that needed to be manually corrected, such as certain product bundles, wine gifts and club orders. It is important to highlight that many of the system challenges were exacerbated due to the significant surge in demand that we experienced during the holiday season. We have resolved many of the issues and prioritized the remaining ones which we expect to correct in short order. These challenges further reinforce our conviction that in addition to our work smarter and relationship innovation initiatives which have improved our company, we need to fundamentally review all aspects of our marketing and sales strategy. We must accelerate our evolution to ensure our platform is both highly effective and efficient in supporting our customers' gift giving needs. We will accelerate our work smarter initiatives to cut cost and in turn increase investment in our growth oriented relationship innovation initiatives and marketing strategies. As we focus on expanding our customer base, we see significant opportunities to leverage new technology to enhance engagement and build deeper relationships with our customers. These initiatives are designed to inspire our customers to help them connect with the important people in their lives. They are also designed to give them more and better ways to interact with us. Our relationship innovation initiatives are in the process of transforming our organization into a comprehensive celebratory ecosystem. We are continuing our evolution from a transactional company and one that is experiential and personalized, focusing on enhancing customer engagement and satisfaction. This shift reflects a growing expectation for seamless enjoyable shopping experiences that integrate advanced technologies to deliver tailored content and recommendations based on individual consumer behavior. We are confident that our efforts will enhance our customer experience and yield better results. Now I'll turn the call back to Jim for his closing comments before we open it up for Q&A. James Mccann Thanks Tom. As we reflect on the past 18 months, our company has made progress in our relationship, innovation initiatives that are focused on strengthening our relationships, enhancing our platform and offering a wider range of gift giving options. But we also recognize the need to move faster and be more aggressive in certain areas including our marketing and sales strategy. We must respond quicker and provide better value for our customers that have curtailed their spending the most in the current macro environment, we must become more effective with our advertising spend and invest more in marketing until we can rely less on external channels and more on our existing customer base. AI can significantly help us here. It will provide us with opportunity to accelerate our personalization efforts and present customers with content that is specific and appropriate for the sentiments that they are expressing our robust customer data set will enable us to deliver highly personalized marketing experiences, ensuring that we are not only attracting new customers but also nurturing the existing relationships. Leveraging these innovative tools presents an unparalleled opportunity to better serve our customers and forge even deeper, more meaningful relationships with them. The future holds incredible promise for us and I'm thrilled about the possibilities that lie immediately ahead. Now we look forward to keeping you appraised on our progress. And now I'll ask the operator to restate the Q&A instructions operator. Operator We will now begin the question and answer session to ask a question. (Operator instructions) The first question today comes from Anthony Lebiedzinski, Sidoti & Company. Anthony Lebiedzinski Good morning everyone. Thank you for taking the question. So first, I guess, sort of a kind of a bigger picture type of question here. So obviously after the pandemic, we've seen changing patterns in consumer engagement. Do you feel like these shifts in the consumer engagement actually accelerated during the quarter? Or is it just kind of more of the same that you saw here in the December quarter? Andy Milevoj Thanks for your question. I think what we saw, we have to read through the smoke here, the smoke being the difficulties we had with the implementation of the OMS. But yes, I think we're seeing an end of the what we call here, the COVID bullwhip, where we had a great acceleration of demand when people were homebound and that's eased up considerably. So we think that this fiscal year is the end of that for us, we're seeing signs of the consumer responding better. We've introduced some lower price points and some highs. So a broadening of our price range and we've seen good take on the lower end, but we need to be to do even more of that. So we have some of those products in the pipeline. So Tom, I would say that we're seeing good response from the customer. You pointed out in your remarks, Tom, that we saw a degradation in our business demand, but the consumer demand was actually actually making up for some of that until we hit the wall with the system. Thomas Hartnett I think we're seeing similar bifurcation the customer. We are seeing that that lower demographic, that lower household income customer, which is continuing obviously watch their budget and their pocketbooks and we have seen some good results with some of the product introductions and the prices that we've brought forth. But as Jim mentioned, we need to do more. Anthony Lebiedzinski Got you. And then as far as the issues with the order of management system, when was this initially put in place. And as far as getting this system to work as it should be, what's the time frame as to when you would expect to be, 100% fully functional as the system was designed to be. James Mccann Hi Anthony, this is James. So we implemented the system at the end of August into September. We did all of the, necessary user acceptance testing. We did regression analysis simulation testing to simulate the peak of the busy season. So like with any system implementation, there's going to be some issues along the way. But what happened as we, got into the peak of the busy season after Thanksgiving, the surge of that and with some of the complex orders in the system, they were getting put on hold and it was creating a real backlog. So a lot of orders were being put on hold and you know, or cancelled because of that, we had manual workarounds on that. So it kind of showed itself in the peak in December the issue. We're working through that now it really. Anthony Lebiedzinski Did the last two weeks of a real impact because, we're doing huge order volumes every day and anything that had to be was done in a manual workaround was just backlogging for us. And because we have a platform customer service system, as Tom mentioned in his remarks, there was contagion from that problem that is we were sucking up all of our resources across the enterprise to try and deal with the issues and that was causing staff shortages or lack of availability across the brands. So it was that last couple of weeks that the small problems that they could work around through those test periods just became overwhelming. So, Tom, where are we on the path to a full recoveries? Thomas Hartnett Anthony asked so many of those challenges were addressed within the quarter, we still have some open items. We expect that the majority of those will be resolved in this quarter or our Q3 quarter. And all 100% to get to the 100% level within these next two quarters. However, I would point out Anthony that these volume levels on the food group, in particular, it doesn't cause us any system systemic issues now because they're all manageable because of the volumes on the flower side. We didn't change the order management system and flowers becomes a more dominant part of our business during these next this quarter. And next with Valentine's Day, Easter Mother's Day, Father's day. So that order management system wasn't touched that we implemented that a couple of years ago. So that's in and debugged. Anthony Lebiedzinski So while we're doing the fixes on the OMS system for Harry and David and the food group, the, it doesn't cause the customer any difficulty because we have the bandwidth to deal with as we fix the last of the issues. So for the customers that cancel their orders because of these issues, do you plan to do a specific marketing outreach to them to make sure you don't lose those customers permanently? I was just wondering how you're thinking about that from a marketing perspective. James Mccann Yeah, absolutely. We've reached out already to those customers. We plan and we have a win back program going on. We're extremely focused that will go on throughout the year. There'll be multiple touch points with those customers throughout the year. It is extremely important to us. In some cases, we did lose the trust of some of those customers that we fail. We take that very seriously and we're working to regain their trust. Anthony Lebiedzinski Got it. Thank you very much. I'll pass it on to others and the best of luck going forward. Operator The next question comes from Alex Fuhrman with Craig-Hallum. Alex Fuhrman Hey, guys, thanks very much for taking my question. Looking out over the next couple of weeks, it looks like a little bit of a better placement for Valentine's Day relative to the Super Bowl this year. Can you talk about how you're going to go after Valentine's Day this year? I know it's been challenging. The last couple of years since the Super Bowl moved a week later, are there maybe opportunities to engage with customers before the Super Bowl or maybe be hyper engaged during that couple of days between the Super Bowl and Valentine's Day? Just curious what you've learned and how that's going to impact your strategy this year? James Mccann Thanks for your question. And in answer to your the day placement question, we're pleased that the day moves to a Friday this year. It's the best day placement from a sales point of view for us. And yes, thank you for using your influence to move the Super Bowl date. That's very helpful too because last year it was two days before Valentine's day. So that that was a crusher for us in terms of attention distraction. So yes, having five big selling days post Super Bowl is critical for us for the holiday. So we have a marketing scheme in place to reach out to customers. Well, before EMPS giving them a lot of incentives to place their orders early in the cycle. So we have a two week selling period and right in the middle of that is Super Bowl. So again, that's so much better than last year where it was just before Super Super Bowl was just before Valentine's day. So good day placement. I also point out that Easter is a better place than last year. Easter was at the very beginning of the fourth quarter last year. So a couple of selling days in the third quarter and when it's early, it retards the appeal and the sales of Easter because it comes up so early on people. So having it later in April in the in the April 20, I think it is a great selling time for us. So not the biggest of holidays, but an important holiday and one with good margins and a good distribution of customer demand. So it's easier for our florist to really delight our customers then. And so those two day placements help us a lot more. You did Tom on a marketing plan. Thomas Hartnett Just obviously, we've been at this Valentine's thing for a long time. And there are different personalities that can be engaged and attracted early in the season and those who are more planful, sometimes those who are more price conscious, etcetera earlier around that and can engage those customers pre Super Bowl in this case. And then there's an awful lot of those procrastinators out there that, we will enjoy the extra days of selling this year compared to last year. James Mccann This year in the fourth quarter that five less selling days between Thanksgiving and Christmas seem to have an impact on us too. So day placement for those particularly for those three big holidays, really makes a difference for us and we're happy to see in the second half of the year, we have two good placements around Valentine's day and Easter. Alex Fuhrman Okay, that's really helpful. Thanks. And then, if I could just ask quickly on corporate gifting, it sounds like the decline, there was a little bit self inflicted, a little bit demand. Can you just help to kind of, give us a little bit more historical context. How big is your corporate gifting business today compared to what it was before the pandemic? And what's your kind of outlook there for the next couple of years? Thomas Hartnett So just this year was around $70 million compared to last year of $84 million. So it was down almost $15 million or 17.5% on a year-over-year basis. And it was higher, obviously coming out of the pandemic. So it was obviously much bigger than the decline in e-commerce was the corporate sales. We did see the our corporate customers, reduce their, reduced their spend, so the AOV was down and they reduced the item per order that let you know, and also less orders. So we were obviously looking at that very closely, some of it was impacted by the RMS. We're trying get to the bottom but we definitely did see weakness in our corporate consumer more more than our, consumer on the corporate side was obviously, much more, significant as a percentage decline. Just to add Alex. We are bullish about the corporate business. James Mccann We have some hotspots in the corporate business on lower price point items across the enterprise. Thomas Hartnett We have to retool some of our offerings but. James Mccann And how we and how we go to market, how we, how we staff our teams on the marketing and stay engaged more year round because we have the breadth of product offerings now that certain year round. Alex Fuhrman Okay, guys, that's really helpful. Operator The next question comes from Michael Kupinski, Noble Capital. Michael Kupinski Thanks for taking my questions and good morning. In terms of the marketing strategy you talked about, I was just wondering in some of the issues that you have with marketing. I was wondering it was more the content and message or related to maybe some of the channels you were using and just getting a lower return. I was just wondering as you kind of look forward in terms of the marketing strategy, what types of changes are you anticipating at this point? Thomas Hartnett I think there were some specific changes in some of our bottom of the funnel channels where our the search engine results page changes some of the ranking that really hit us in kind of natural search in branded search where those were a very low cost channels for us and and those those declined more than expected. As we go forward, we continue to to push more in the mid and upper funnel channels, etcetera. And we think we continue to obviously refine our content and we find our content to be more relevant to individual segments of our customers. So we think we continue to make strong strides there. And we're hopeful that, you hear the AI term used a lot, but we're hopeful that, we'll see in the increased efficiency with our ability to create content that that larger scale. James Mccann Michael, what we're seeing with the technology deployments that we're and by the way, we don't fail to notice the irony of we had a technology fail in terms of an implementation, not the technology itself but the anticipation of how the demand would impact it yet. We're full speed ahead on other technology investments and that manifests itself in two different ways. One is on the cost side, we're able to operate more efficiently by digitizing so many more of the things that we do and it impacts us and we certainly anticipate that it will impact us on the marketing side too as we employ more tools and capabilities there. So we expect it to do two things, especially beginning this these next two quarters in front of us. And then throughout the rest of this calendar year, we see this calendar year is a big year for us in terms of changing things we do on the cost side and changing how we do things that will generate more revenue on the top line side. And these new digital tools are really, really intended to impact us in both ways on the growth side and on the cost side. Michael Kupinski And just to follow up on that, the margin outlook is actually a little bit better than what I was looking for, especially with the lowered revenue expectations for the year. Can you talk about where you anticipate to see improved adjusted margins? Will it be a combination or, maybe if you can give me the weighting of reduced commodity costs, transportation costs or just from your work smarter initiatives? I was just wondering if you can kind of give us some additional color on that. James Mccann I'll ask James to give you some color and we're not anticipating on the any savings on the commodity costs. You always they've moderated, they've come back closer to the mean now, but you get little bubble up, things that impact us. So we're comfortable with cocoa prices, for example, on the commodity side through the rest of this calendar year, which it gets us through the Christmas season. But then you have a bird flu and egg costs go through the roof and availability is always a question. So those are things where we expect to be able to manage day to day. So no real savings there. The savings will be in terms of how to work smarter initiatives, how we do things, the amount of people we deploy to do them, the automation that we've been constantly installing now in our distribution centers, those are in place and have shown good, good results. What would you do? Thomas Hartnett Michael, what I would add is that, we're obviously we're continually to look at all the aspects of the business. We're aiming to streamline processes and reduce costs. But I also want to caution that we will some of that savings from, even the margin standpoint, we plan on investing back in the business and our sales and marketing strategy. So we are taking cost out, but we do have to reinvest some of that savings into marketing and sales. James Mccann But having reverted to closer to the mean now on gross margin and seeing that actually, we would have a better gross margin except for the OMS issue, that gave us the confidence there. Michael Kupinski Got you and typically you guys in periods like this, which has been challenged for some ecommerce type companies and things like that, you kind of stepped on the M&A activity and was just wondering if you can just kind of gauge what the M&A level might be at this point. James Mccann I think those of so many of us who are in the consumer facing ecommerce, almost exclusive, but not 100% exclusive e-commerce have all felt similar drains. So that creates a strain for us. Yes, but because of the good balance sheet we have and the leverageable assets we have. I would tell you that the tenor of people interested in linking up is increased, whether or not we actually do anything there is to be determined. But I think the opportunities will be quite a bit better than they've been in the last couple of years. So if we find the right opportunity and we think it's accretive to what we do helps our customer in a better way, I think you'll see us have the potential to be more active in the quarters ahead. Michael Kupinski Got you. That's all I have. Operator The next question comes from Linda Bolton Weiser, D. A. Davidson. Linda Bolton So just a clarification if you would on the Valentine's Day placement, maybe I'm confused but I always thought that when Valentine's Day is in the middle of the week, it's better because then the guys will be placing orders they have delivered to, women's offices, etcetera. And I thought if it was Friday or Saturday, it's bad because they won't send the flowers, I'll just buy them and take the woman out to dinner or something. So I thought Wednesday was much better than Friday and Wednesday was last year and Friday this year. So can you just clarify? Maybe I'm just confused on that. James Mccann No problem on the confusion. The having been doing this now with this is my 48th Valentine's day. Actually, it would be my 49th Valentine's Day. The trends are inescapable for us. We Wednesday is better than Tuesday. Thursday is the best day all around. From my point of view, not from the sales point of view, but from an overall point of view because it gives you the last minute. Charlie's will be very accepting of a delay. They come online midday on Thursday and see that it's not available, they'll accept the Friday delivery. So it extends your extends your selling ability with the delivery window on Friday. So, but from a pure sales point of view, not from a delivery point of view. Pure sales point of view. Friday is the best day because we like our customer to be at work and busy. And when it's on weekend, they have other options. They're out shopping, they'll take them out to dinner, they'll pop into a store and pick something up. But when they're working, either at home or in the office, it narrows the field of options and it's a better sales placement for us. So Friday is much better than Wednesday. I would prefer not to have leap year, take the Thursday out because next year it does move to a weekend, but this year it's on the best day. Linda Bolton Thanks for that explanation. And then just to be clear because I'm not kind of talked about still some fixit actions coming in the next few quarters for Valentine's day on the food side, will the issues be all fixed or not? I know the flower side is much bigger but will the issues be completely fixed on the food side for Valentine's Day or not really. James Mccann On the food side, we are expecting the majority of those to be fixed. But as Jim had mentioned, if there are still remaining challenges, there won't be customer facing issues. We have the resources internally to make sure anything that does get, bogged down in the system. If you will, we can address it to manual intervention and you know that the and it will not have any impact on demand. Thomas Hartnett And Linda, obviously we're extremely disappointed with the challenges from the OMS system. But I just want to remind everyone that we shipped over, he delivered over $7 million orders in Q4. So while we did have some issues, we still got the lion's share of all the orders were delivered to our customers and KHO, right. James Mccann We won't have that same kind of demand in the food group. So if there are any things that are unresolved but manageable with our existing processes, so to get to 100% with the new system is working the way we want, that's by the end of the fourth fiscal quarter of the spring quarter, but it won't be anything that's not resolved, will not be noticeable to the customers. And that's because what demand is good. It's not nearly as high as those couple of last couple of weeks of December in the food group. Linda Bolton Okay, understood. And then finally, I was just curious about, you talked about your efficiency of your marketing costs then, but I was wondering in general about, about rates for digital spending, digital marketing cost rates. They were expected to go lower postelection. Is that what you found general in the more macro marketing environment? There was a pullback in rates after the election. James Mccann I'd say certainly compared to before the election, compared to after there rates were more reasonable. Overall, if we compare it to kind of the prior year, we did see increased costs in the lower portion of the funnel that we advertised. So a lower portion. Linda Bolton That was efficiency. Right. James Mccann It was more about efficiency and then on the mid and top, it was kind of a mixed bag, I'd say. We saw definitely some part, some great opportunities with some partners and some tactics we had and others were a little higher. So let's say it was mixed across the board, but certainly as we came out of the election, the costs were down. Linda Bolton And then just one last one, just if you could review your tariff exposure, you've probably got some on the PMA side and also some of your baskets and stuff. Could you review what the plan is there? James Mccann It's an ever changing landscape, Linda, this is Jim. We had a little jolt to our cardiac systems earlier in the week. When Colombia was threatened with tariffs. Colombia is an important market for us. On the floral side of things, they grow a lot of product that we use here in the US. So we were very happy. A couple of days later to see that resolved, but we'll never get that sleeve back, but perhaps something much James, how do you give us some context again to Linda about how, how our sourcing materials where they come from and how they be exposed to. Thomas Hartnett So Linda, just a little way of context. If you look at our cost of goods sold approximately a billion dollars, on an annual basis, our cost of goods sold within that roughly 40% of that is comprised of the cost of merchant of merchandise. And within that, it's about 10% of that would be China. So we're talking about there's, 40 $45 million of purchases from China. So clearly, the tariff will have an impact but it's off of a base, of a billion dollars of cost of goods sold. So, we're looking at it, we're up cost of goods sold a billion dollars, $40 million & $45 million of exposure to Asia. And so that's what we'd be watching. So we don't want to see any increase in cost, but any increase in cost would be of that $40 million $45 million for China specifically. Linda Bolton Thank you. Very helpful. Operator (Operator instructions) The next question comes from Doug Lane, Water Tower Research. Doug Lane Hi, good morning, everybody. Just to follow up on Linda's question, what would you have done if terrorists had been enacted in Colombia? James Mccann We would have postponed this call to see what the impact would be. That would have been, that would have been painful because we rely on Columbia and other joining markets for a good supply of our product here. So the good news is we don't have to dust off that plan and it seems has been completely resolved, but it would have been damaging. So I don't, I don't have a hard answer for you. Doug, we're just glad we don't have to answer that. Doug Lane In the short term. It would be challenging, in weeks, especially leading into Valentine's. Obviously our florist buys that have been, largely In place for a period Of time. So I assume the tariff to would have been on top of our contracted prices, right? James Mccann I would assume, all to be negotiated, but midterm we would be able to not completely but move product around to different markets throughout the world, et cetera to mitigate it somewhat. And we've been conscious of that for a while. So we had a whole program to encourage domestic growing of product in partnership with our grower community and some of it independent with our domestic growers that program is not produced the results we wanted. Because frankly, some of our providers who we spent a long time cultivating decided that cannabis was a more profitable crop. Well, that didn't turn out to be the case and a few of them have returned to flower production but not all of them yet. So it's something we're always conscious of doug. And we've had 10 year plans in place to, to increase the breadth of sources for our flower product. A lot of it in partnership with our grower community because they have the same issues and concerns. So it's something we work on all the time. Doug Lane Is Colombia that important or could you shift of supplies to other countries in case it's just an isolated incident? James Mccann No, it's that important to us. It's a when I say us, it's the whole country, the whole industry is is dependent on Colombia probably for 50% to 60% of all the fresh flour product grown and grown and sold in this country. Doug Lane Wow. So everybody would be in the same boat. That's helpful and just to be in the boat because we don't want to be in that boat. James Mccann No, but that is not good for anybody. I get that just to shift gears on the wholesale business because you hit on the first quarter. Call that wholesale is going to be good. This year and frankly, it was a lot better than I thought it was going to be. So, it's a bit of a reversal from recent trends where ecommerce has been outperforming wholesale and now you have ecommerce down in the mid to high single digits depending upon your adjustments and the wholesale was up strongly in the 10s. So that's a big shift. I just wondered if you could talk a little bit more about that shift and whether you think that's something that's going to continue or will ecommerce revert back out before in wholesale. Thomas Hartnett Doug. What we think on that is it's counter counter indicative. In other words, wholesale is up because retail in store traffic was better. So that's where that product is sold. So that shows you that the customer felt comfortable going out and about and shopping in the retail store which took away from the shopping on e-commerce. So that's going to be a counterbalance to the e-commerce hit when however, going forward, we expect wholesale to stay stronger because we've cultivated new relationships in the wholesale channels this year. So we'll have a broader base of customers in the years ahead. So we expect that it won't be counter in indicative of the e-commerce pressure. We saw, we expect both to go up next year. We're anticipating and, and I hope we haven't built the plan yet. But on the wholesale side, we have a broader wholesale customer base. So we'd expect that will continue to look good because of the breadth of customers and a product products, frankly that we've introduced there, that was so successful in the retail stores this year. Doug Lane And which particular channels are you talking about? James Mccann But that's where we manufacture a gift products and sell into our retail partners as a wholesale product. So into the big big box stores that we sell to all the time. Doug Lane So like the mass merchants or the club stores in particular or I take it it's the large chains and not the mom and pops. James Mccann That's right. Doug Lane Okay, thank you. James Mccann Thank you all for your time and attention today for your interest. It was a tough quarter for us. I will tell you that as I look at the big influences that we've experienced during this during this period, we think three things have happened here. One is that the COVID bullwhip that so many of us in ecommerce have experienced is playing its hand out. So it's coming to a close. So we won't have that. We're hopeful that we won't have that to deal with. We are concerned that the bigger macro environment is still impacting the paycheck to customers who for a couple of years there as a result of a recovery programs had a great deal of discretionary spending capability. We're still concerned about them. That's why Tom spoke about the work we're doing to broaden our product lines and prices both, more attractive and higher end for our higher end customers who seem to be weathering the storm quite well. And frankly, we're disappointed in our own execution this quarter and the first two quarters of the fiscal year for us, the OMS issue should never have happened. We're embarrassed by it. We're very disappointed by it. And as Tom and James both mentioned, we're doing everything we can to make sure it never happens again, that these issues are fixed and that we do everything we can to do the right thing for the customers that were impacted by this. Yes, we have $7 million very happy customers, but even a few 1,000 customers that were hurt, negatively impacted by this bothers the heck out of us and we'll do everything we can to make it right. So, thanks for your interest, your attention. We look forward to further discussions with you when you, when you reach out. Thanks so much. Operator The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Sign in to access your portfolio
