Q1 2024 The Eastern Co Earnings Call
Good morning, everyone and welcome to the Eastern company's first quarter fiscal year 2024 earnings call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions. After the presentation. If anyone should require operator assistance during the conference. Please press star.
Operator: Good morning everyone, and welcome to the Eastern Company's first quarter fiscal year 2024 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions after the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Marianne Barr, Treasurer of the Eastern Company. Marianne Barr, to you.
Marianne Barr: So you're right on your phone keypad. Please note. This conference is being recorded I will now turn the conference over to host Marianne Bob Treasurer of the Eastern company Marianne over tea.
Marianne Barr: Good morning, and thank you everyone for joining us this morning for a review of the Eastern company's results for the first quarter of 2024 with me on the call are Eastern's, President and CEO, Mark Hernandez, and eastern CFO nickel escalate house.
Marianne Barr: Good morning, and thank you everyone for joining us this morning for a review of the Eastern Company's results for the first quarter of 2024. With me on the call are Eastern's President and CEO, Mark Hernandez, and Eastern's CFO, Nicholas Vlahos.
Marianne Barr: The company issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the Investors section of the company's website, www.easterncompany.com, where you will find the release under Financial News. Please note that some of the information you will hear during today's call will consist of forward-looking statements about the company's future financial performance and business prospects, including, without limitation, statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes, and business outlay.
Marianne Barr: The company issued an earnings press release yesterday after the market closed if anyone has not yet seen the release. Please visit the investors section of the company's website Www Dot Eastern company Dot Com, where you will find the release under financial news.
Marianne Barr: Please note that some of the information you will hear during today's call will consist of forward looking statements about the company's future financial performance and business prospects, including without limitation statements regarding revenue gross margin operating expenses other income and expenses taxes.
Marianne Barr: <unk> and business outlook.
Marianne Barr: These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to the risk factors discussed in our SEC filings, including Form 10-K, filed with the SEC on March 12, 2024, for the fiscal year 2023, and Form 10-Q, filed with the SEC on May 6, 2024.
Marianne Barr: These forward looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward looking statements.
Marianne Barr: We undertake no obligation to review or update any forward looking statements to reflect events or circumstances that occur after the call.
Marianne Barr: For more information regarding these risks and uncertainties. Please refer to risk factors discussed in our SEC filings, including form Form 10-K filed with the SEC on March 12, 2024 for the fiscal year 2023, and Form 10-Q filed with the SEC on May six 2024.
Marianne Barr: In addition, during today's call we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of eastern's performance.
Marianne Barr: In addition, during today's call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern's performance. These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from, GAAP requirements. A reconciliation of each of the non-GAAP measures discussed during today's call to the most directly comparable GAAP measure can be found in the earnings press release. With that introduction, I'll turn the call over to Mark.
Mark: These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.
Mark: A reconciliation of each of the non-GAAP measures discussed during today's call to the most directly comparable GAAP measure can be found in the earnings press release.
Marianne Barr: With that introduction I'll turn the call over to Mark.
Mark Hernandez: Thank you, Marianne, and good morning to both those who joined us by phone and those participating via the web. As you know, 2023 was a year of transformation for Eastern, during which we revamped our core operations for long-term growth and shareholder value creation. Our operational improvement initiatives drove increasingly strong results as the year continued, and in Quarter 1 of 2024, we made additional progress, even though, seasonally, the first quarter is not a strong one for us.
Mark: Thank you Maria and good morning.
Mark Hernandez: Both those who joined us by phone and those participating via the web.
Mark Hernandez: As you know 2023 was a year of transformation for eastern during which we revamped our core operations for long term growth and shareholder holder value creation.
Mark Hernandez: Our operational improvement initiatives drove increasingly strong results as the year continued.
Mark Hernandez: Quarter, one of 2024, we made additional progress even though seasonally the first quarter is not a strong one for us.
Mark Hernandez: I'll provide just a few highlights of the quarter now so I can spend more time later in the call going over our plans and activities for 2024 and beyond. First, through our consistent focus on operational excellence, we greatly improve their gross margin and earnings year over year. Our drive to reduce Eastern's inventory down by $3.5 million from year-end 2023 continues to contribute to our results. We made further progress in strengthening our balance sheet, reducing long-term debt to $43.1 million, and positioning Eastern to pursue M&A opportunities that accelerate our objectives.
Mark Hernandez: Just a few highlights of the quarter ago. So I can spend more time later in the call going over our plans and activities for 2024 and beyond.
Mark Hernandez: First through our consistent focus on operational excellence, we greatly improved our gross margin and earnings year over year.
Mark Hernandez: Our drive to reduce eastern inventory down by $3 5 million from year end 2023 continue to contribute to our results.
Mark Hernandez: We made further progress in strengthening our balance sheet, reducing long term debt to $43 1 million in positioning eastern to pursue M&A opportunities to accelerate our objectives.
Mark Hernandez: In addition, we grew our backlog 22% to more than $97 million since the year end 2023, respectively, reflecting the positive impact.
Mark Hernandez: In addition, we grew our backlog 22% to more than $97 million since year-end 2023, reflecting the positive impact of our steps to enhance relationships with key customers and the more stable order flow we achieved, allowing us to enter phase two of our focused commercial business, Commercial Transformation for Organic Growth.
Mark Hernandez: Of our steps to enhance relationships with key customers and more stable order flow, we achieved allowing us to enter phase two a focused commercial business commercial transformation for organic growth.
Mark Hernandez: In all of our divisions, the book-to-bill ratio, a very positive sign as we move into Q2, has been positive for all companies. Additionally, we're launching some significant new products this quarter. It's a little too early to talk about them now, but I look forward to providing more details as we get further into the program. I will now turn the call over to Nick for a quick review of our first quarter financial results. Nick said,
Mark Hernandez: And all of our divisions book to Bill ratio, a very positive sign as we move into Q2 is has been positive for all companies.
Nick: Digitally we launching some significant new products in this quarter, it's a little too early to talk about them now, but I look forward to providing more details as we get further into the programs.
Mark Hernandez: I will now turn the call over to Nick for a quick review of our first quarter financial results. Nick. Thank you Mark and good morning, everyone as Mark said I'll run through our results for the first quarter of 2024.
Nicholas Vlahos: Thank you, Mark. And good morning, everyone. As Mark said, I'll run through our results for the first quarter of 2020. For the period, net sales decreased 6% to $67.9 million from $72.5 million in the 2023 period, primarily due to lower demand for truck accessories and returnable transport packaging products, partially offset by strong orders for truck mirror assemblies. During the quarter, distributors continued to work through inventories built up in response to supply chain challenges, but based on our recent conversations with our distributor customers, and based on current order activity, we believe this process is finally winding down.
Nicholas Vlahos: For the period net sales decreased 6% to $67 9 million from $72 5 million in the 'twenty to 'twenty three period.
Nicholas Vlahos: Primarily due to lower demand for truck accessories, and returnable transport packaging products powerful partially offset by strong orders for truck mirror assemblies.
Nicholas Vlahos: During the quarter distributors continued to work through inventories built up in response to supply chain challenges, but based on our recent conversations with our distributor customers and current order activity. We believe this process is finally winding down.
Nicholas Vlahos: As Mark mentioned, our backlog as of March 30th, 2024 increased 22% to 97.4 million compared to 80.1 million as of December 30th, 2023. The increase was driven by orders for truck mirror assemblies, including the launch of Bellevac's new mirror program for Class H. Gross margin as a percentage of sales in the first quarter was 24% compared to 21% in the 2023 period. The increase in margin primarily reflects improved price-cost alignment and various other cost-saving initiatives.
Nicholas Vlahos: As Mark mentioned, how our backlog as of March 30, <unk> 2024 increased 22% to 97 4 million compared to $80 1 million as of December 30, <unk> 2023 <unk>.
Nicholas Vlahos: The increase was driven by orders for truck mirror assemblies, including a launch of <unk>, New Mirror program for class eight trucks.
Nicholas Vlahos: Gross margin as a percentage of sales in the first quarter was 24% compared to 21% in the 2023 period.
Nicholas Vlahos: The increase in margin, primarily reflects improved price cost alignment and various other cost saving initiatives.
Nicholas Vlahos: As a percentage of net sales product development expenses were 2% compared to one 9% for the 2023 quarter.
Nicholas Vlahos: As a percentage of net sales, product development expenses were 2% compared to 1.9% for the 2020 and 3.0. Selling and administrative expenses decreased 4% for the first quarter of 2024 compared to the same period last year. The decrease was primarily due to lower legal, professional selling costs, and payroll; other income and expense for the first quarter of 2024 increased $0.6 million compared to the 2023 period. The increase in other income of $0.6 million was primarily driven by an unfavorable working capital adjustment of $0.4 million in the 2023 period related to the sale of the Greenwald business.
Nicholas Vlahos: Selling and administrative expenses decreased 4% for the first quarter of 2024 compared to last year's period. The decrease was primarily due to lower legal professional selling costs and payroll expenses.
Nicholas Vlahos: Other income and expense for the first quarter of 2024.
Nicholas Vlahos: Increased <unk> 6 million compared to the 2023 period. The increase in other income of <unk> 6 million was primarily driven by unfavorable working capital adjustment of <unk> 4 million in the 2023 period related to the sale of the greenwald's business.
Nicholas Vlahos: Net income for the first quarter of 2024 increased to $1 9 million or <unk> 31 per diluted share from <unk> 6 million or <unk> 10 per diluted share in the 2023 period.
Nicholas Vlahos: Net income for the first quarter of 2024 increased to $1.9 million, or $0.31 per diluted share, from $0.6 million, or $0.10 per diluted share, in the 2023 period. In the first quarter of 2023, net income was negatively impacted by $1.8 million in severance expenses related to the elimination of the Chief Operating Officer position, the departure of the Chief Executive Officer, and $0.4 million related to the sale of the Greenwald business, partially offset by $0.5 million for the non-GAAP tax impact of the adjustments.
Nicholas Vlahos: In the first quarter of 2023 net income was negatively impacted by $1 8 million in severance expenses related to the elimination of the chief operating officer position the departure of the Chief Executive Officer.
Nicholas Vlahos: And $8 4 million.
Nicholas Vlahos: Related to the sale of the Greenwald business, partially offset by <unk> 5 million for the non-GAAP tax impact of the adjustments.
Nicholas Vlahos: Adjusted EBITDA, a non-GAAP measure for the first quarter of 2024 was $5 2 million compared to $5 5 million for the first quarter of 2023.
Nicholas Vlahos: Adjusted EVA, a non-gap measure, for the first quarter of 2024 was $5.2 million, compared to $5.5 million for the first quarter of 2022. At the end of the first quarter, our senior net leverage ratio was 1.4 to 1, down from 2.05 at the end of the 2023 period. In addition, we invested $1.8 million in capital expenditures and paid dividends of $0.7 million. For the first quarter, cash flow from operating activities was $3.6 million, compared to $6.9 million for the last year's period.
Nicholas Vlahos: At the end of the first quarter, our senior net leverage ratio was one four to one down from 2.05 at the end of the 2023 period.
Nicholas Vlahos: In addition, we invested $1 8 million in capital expenditures and paid dividends of $7 million.
Nicholas Vlahos: For the first quarter cash flow from operating activities was $3 6 million compared to $6 9 million for last year's period. The difference was primarily due to increases in accounts receivable and lower reductions in inventory, partially offset by accounts payable.
Nicholas Vlahos: The difference was primarily due to increases in accounts receivable and lower reductions in inventory, partially offset by accounts payable. As of March 30, 2024, inventories totaled $55.8 million, a decrease of $3.5 million from year-end 2023. That concludes my financial review. I'll now turn the call back to Mark.
Mark Hernandez: As of March 32020 for inventories totaled $55 8 million a decrease of $3 5 million from year end 2023.
Nicholas Vlahos: That completes my financial review I'll now turn the call back to Mark.
Mark Hernandez: Thanks, Nick. At this point, I'll review our key strategies and activities for the rest of 2024 and beyond. As a first step, I'd like to be sure that everyone understands the mission we are pursuing for the Eastern Company because it provides an important perspective on the way we are now running the company. Our goal is to be more than just a product manufacturer. We want to be a trusted partner who provides engineered solutions that add intrinsic value to our customers, our shareholders, and our employees.
Mark Hernandez: Thanks, Nick.
Mark Hernandez: At this point I'll review, our key strategies and activities for the rest of 2024 and beyond.
Mark Hernandez: As a first step I'd like to.
Mark Hernandez: To be sure that everyone understand submission we are pursuing for the eastern company because it provides important perspective on the way we are now running the company.
Mark Hernandez: Our goal is to be more than just a product manufacturer, we want to be a trusted partner, who provides engineered solutions that ed interest intrinsic value to our customers our shareholders and our employees, we want eastern to be the company our company our customers want to do business with so they actually look for opportunities to work with us.
Mark Hernandez: We want Eastern to be the company our customers want to do business with, so they actually look for opportunities to work with us and are invested in our success. We are starting to see this already, as a result of our improved operations, high-quality products, and on-time delivery, in our many visits and conversations with Eastern's customers. Our higher backlog, for example, illustrates the improved perception and the higher level of trust in Eastern that our customers are building.
Mark Hernandez: And our invested in our success, we're starting to see already as <unk>.
Mark Hernandez: A result of our improved operations high quality products and on time delivery and our many visits and conversations with eastern.
Mark Hernandez: Customers.
Mark Hernandez: Our higher backlog for example, illustrates the improved perception and the higher level of trust in eastern that our customers are building.
Mark Hernandez: Lastly, a few earnings calls I've talked about.
Mark Hernandez: In our last few earnings calls, I've talked about the four pillars of our strategy for building a solid foundation of reliable earnings from operating activities, which have been key to helping us achieve our improved results. As you recall, the pillars are discipline operations, optimum capital utilization, focus on commercial business, and Faith, Faith, we're now just entering value-added acquisitions and vertical integration.
Mark Hernandez: The four pillars of our strategy.
Mark Hernandez: Building, a solid foundation of reliable earnings from operating activities.
Mark Hernandez: Which we've been key to helping us achieve our improved results.
Mark Hernandez: As you recall the pillars are disciplined operations optimum capital utilization focused commercial business.
Mark Hernandez: <unk>.
Mark Hernandez: Phase phase, we're now just entering value added acquisitions and vertical integration.
Mark Hernandez: Just a few days ago, we attended an M&A conference where we made many useful connections with professionals who can help us identify strong prospects of appropriate size for Eastern and execute transactions quickly and efficiently. We are especially interested in finding opportunities for vertical integration so that we, rather than paying a supplier to do something, we're capable of doing ourselves. We take on that task and capture the savings and our cost of goods sold, which then flow to the gross margin improvement.
Mark Hernandez: Just a few days ago, we attended an M&A conference, where we've made many useful connections with professionals, who can help us identify stroke products prospects.
Mark Hernandez: The appropriate size for eastern and execute transactions quickly and efficiently.
Mark Hernandez: We are especially interested in finding opportunities for vertical integration, so that rather than paying a supplier to do something we're capable of doing ourselves we take on that task and capture the savings in our cost of goods sold which then flow to the gross margin improvement.
Mark Hernandez: In our year end call I spoke about the importance of our overarching one eastern philosophy, which means that rather than functioning as three separate companies. Our goal is to act as one company leveraging our size and activities across our divisions to enable us to provide the best value to our customers and the best results for our shareholders one.
Mark Hernandez: In our year-end call, I spoke about the importance of our overarching One Eastern philosophy, which means that rather than function as three separate companies, our goal is to act as one company, leveraging our size and activities across our divisions to enable us to provide the best value to our customers and the best results for our shareholders. One Easter approach has had a very beneficial impact on our operations already, and we're now executing actions such as maximizing our return from the company's footprint in Mexico and Asia so that we can make the best possible manufacturing decisions based on the availability of labor, wage structures, and component costs; centralize actions in HR and IT rather than duplicate those functions across the divisions.
Mark Hernandez: <unk> approach has had a very beneficial impact on our operations are ready and we're now executing actions such as maximizing our return from the company's footprint in Mexico and Asia. So that we can make the best possible manufacturing decisions based on availability of labor wage structures and component costs.
Mark Hernandez: Centralized actions in HR and it rather than duplicate those functions across the divisions.
Mark Hernandez: Leveraging our procurement cube, which is our spend on direct material, indirect material, and expenses to achieve more efficient expenditures throughout our operating divisions. We are also planning a $3.5 million investment in plastics manufacturing capabilities that will help us build the businesses of all three of our operating divisions. We have a pilot program underway now, though efforts such as these, Eastern as a whole, can achieve more than any single division is capable of.
Mark Hernandez: Leveraging our procurement cube, which is our spend on direct material indirect material and expense to achieve a more efficient expenditures throughout our operating divisions.
Mark Hernandez: We are also planning a $3 $5 million investment in plastics manufacturing capabilities that will help us build the business the businesses of all three of our operating divisions. We have a pilot program underway now so the efforts such as these eastern as a whole can achieve more than any one single division is capable.
Mark Hernandez: Another fundamental concept I would like to touch on today is our shareholder value creation. It starts with our divisions being a trusted partners and with disciplined business operations. These elements produce stronger operating results, which translate into increased earnings, increased cash flow, and the ability to pay down debt. Improved results start the process of strengthening Eastern's market capitalization and total shareholder return. Then comes the growth phase, which encompasses organic growth, acquisitions, and vertical integration.
Mark Hernandez: Another fundamental conference concept I would like to touch on today is our shareholder value creation cycle.
Mark Hernandez: It starts with the with our divisions being a trusted partner and with discipline business operations. These elements produced stronger operating results, which translate into increased earnings increased cash flow and the ability to pay down debt.
Mark Hernandez: Improved results start the process of the strengthening of east eastern market capitalization and total shareholder return.
Mark Hernandez: Then comes the growth phase, which encompasses organic growth acquisitions and vertical integration.
Mark Hernandez: At the moment, our internal growth projects include electromechanical development at Eberhardt, lighter solutions that save customers money at Big Three, and advancing our integration of the SurePlex acquisition to provide aftermarket solutions at Belvac. We live this loop of value creation every single day, and we are pushing it forward as fast as we can. Our May 24 investor presentation includes a slide that illustrates our shareholder value creation cycle, and you may want to take a look at it after today's call. The deck is posted in the Investors Information section of our website under events and presentations.
Mark Hernandez: At the moment, our internal growth projects include electromechanical development at Eberhard lighter solutions that save the customer money at big three and advancing our integration of <unk> acquisition to provide aftermarket solutions that build back.
Mark Hernandez: We live this loop of value creation every single day, and we're pushing it forward as fast as we can.
Mark Hernandez: Our may 24.
Mark Hernandez: Investor presentation includes a slide that illustrates our shareholder value creation cycle that you may want to take a look at after today's call. The deck is posted on divestitures information.
Mark Hernandez: Section of our website under events and presentations.
Speaker Change: With that we will we will open up for questions I would like to kick off the question section with some shareholder questions that we've received over the last couple of weeks.
Mark Hernandez: With that, we'll open up for questions. I would like to kick off the question section with some shareholder questions that we've received over the last couple of weeks, just to prime the pump. So the first question is, you seem to have a strong relationship with your customers. Is that a strategy to grow the present set of products Eastern manufacturers, or do these customers ask Eastern to broaden its manufacturing capabilities to offer additional products?
Mark Hernandez: Just to prime the funding solutions.
Mark Hernandez: So the first question is you seem to have a strong relationship with your customers is that a strategy of.
Mark Hernandez: To grow the present set of products eastern manufacturers or these customers S eastern to broaden their its manufacturing capabilities to offer additional products.
Mark Hernandez: Well, as I said earlier, we want to be the trusted partner that our customers want to come to with opportunities that we can further provide value because they trust us, they trust in our ability to deliver. They know that we're, we're, reliable and that we can produce. As we go through another opportunity is if we go through cycles in the commercial vehicle industries, there's going to be companies that are going to be spun off from private equity and some other opportunities where they're not performing as well as they want.
Mark Hernandez: Well, what I said earlier, we want to be the trusted partner that our customers want to come to with opportunities that we can further provide values because they trust us they trust in our ability to deliver.
Mark Hernandez: Okay.
Mark Hernandez: They know that.
Mark Hernandez: We are reliable and that we can produce as.
Mark Hernandez: As we go through another opportunity as we go through cycles in the commercial vehicle industry, there's going to be companies that are.
Mark Hernandez: Are going to be spun off from private equity and some other opportunities where they're not performing as well as much as anyone.
Mark Hernandez: Our customers know this up front, probably more so than we do, and will come to us with opportunities to grow our business going forward because they can trust us and rely on us to provide. The second question is, how does Eastern compete in the marketplace today compared to the previous realm before I took over as CEO and Nick took over as CFO? What I can say is that our new foundation is the alignment of business philosophy.
Mark Hernandez: Our customers know this upfront probably more so than we do and we will come to us with opportunities to grow our business going forward because they can trust us and rely on us to provide.
Mark Hernandez: The second question, how does eastern compete in the marketplace today compared to the.
Mark Hernandez: But to the previous.
Mark Hernandez: Ron before I took over as CEO, Nick took over as CFO.
Mark Hernandez: What I can say is that our new foundation is the alignment of business philosophy and that starts with codifying our strategy of four pillars. So that everyone across the divisions understands what we're trying to do as the eastern company and Cascade that down into their organizations.
Mark Hernandez: And that starts with codifying our strategy of four pillars so that everyone across the divisions understands what we're trying to do as an Eastern company and cascades that down into their organizations to achieve results beyond what they would anticipate within themselves and their capabilities. Combining that with the One Eastern philosophy, where we synergize across our divisions, and we participate in making Eastern better at the same time as making each of our divisions stronger, and then targeting organic growth through commercial transformations through products that we exist today, with customers we exist today, but as well as adjacent markets that we're looking to enter. The third question I'll give to Nick. Nick, what conditions need to be met by the company to consider another significant transaction in M&A activity?
Nick: To achieve results beyond what they what they would anticipate within themselves and capabilities.
Nick: Couple that with the one eastern philosophy, where we synergize across our divisions and we participate in making eastern better at the same time of making use of our divisions stronger and then targeting organic growth to our commercial transformation.
Nick: Through products that we exist today with customers, we exist today, but as well as adjacent markets that we are looking to enter.
Mark Hernandez: The third question and I'll get to Nick.
Mark Hernandez: Nick what what conditions need to be met by the company to consider another significant transaction and M&A activity.
Nicholas Vlahos: So for us, we want to make sure that we have appropriate working capital efficiency. We have been down the path of lowering our debt, and we want to continue to be able to do so. And then consistent operating performance. And those are the three main conditions we're focusing on while we look toward other significant transactions.
Nick: So for US we want to make sure that we have our appropriate working capital efficiency, we have been down the path of lowering our debt and we want to continue to be able to do so and then a consistent operating performance and those are the three main conditions, we're focusing on.
Nicholas Vlahos: While we look towards other significant transactions okay.
Operator: Operator, we'll turn it over to call us in the queue. Thank you very much.
Nicholas Vlahos: Operator.
Speaker Change: Ill turn it over to.
Speaker Change: Calls in the queue.
Speaker Change: Hi, Michael.
Operator: We are now opening the floor up to the phone lines. If you would like to ask a question, you can press star one on your phone keypad. Now, a confirmation tone will indicate that your question is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you press. Please wait a moment as we poll for questions. Thank you. Your first question is coming from Ross Davisson of Barrington Capital. Ross, your line is live.
Speaker Change: We are now opening the floor up to the phone lines. If you would like to ask a question you can press star one on your phone keypad now a confirmation tone will indicate that your line is Nicky you May press star two if you would like to remove your question from the key to any participants using speaker equipment. It may be necessary to pick up your handset before you buy stickies. Please go.
Ross Davisson: At the moment I'll say poll for questions.
Ross Davisson: Thank you. Your first question is coming from Ross Davison of Barrington Capital Ross Your line is live.
Ross Davisson: Hi, Mark Hi, Nick Thanks for taking the question on revenue and backlog I just wanted to ask.
Mark Hernandez: Hi Mark, thanks for taking the question. On revenue and backlog, I just wanted to ask, you know, revenue is down about 60% year over year, but it was about flat sequentially, and then the backlog was up nicely. Does the backlog give you any sort of indication of, plus whatever else you're hearing, give you any indication of sort of when we might see growth restart?
Mark Hernandez: Revenue was down about 6% year over year, but it was about flat sequentially and then the backlog was up nicely.
Speaker Change: If I can give you any sort of indication of <unk>.
Mark Hernandez: Whatever else Youre hearing give you any indication of sort of when we might see growth restart.
Mark Hernandez: Yeah, Rob so the impact in the first quarter was primarily due to four things.
Mark Hernandez: Yeah, Ross, so the impact in the first quarter was primarily due to four things across two major projects, one defense project and the USPS launch being delayed that we expect to come online later in the year, and then the distributor model that we talked about as they burn through their backlogs. And we're addressing that through our commercial transformation by expanding on our penetration of available products to the distributors, as well as touch points with the distributors going forward and leveraging that going forward.
Mark Hernandez: Across two major projects one is defense project in the USPS launch.
Mark Hernandez: Being delayed.
Mark Hernandez: We expect to come online later in the year and then the distributor model that we've talked about it as they burn through their backlogs.
Mark Hernandez: And we're addressing that through our commercial transformation by expanding on our penetration of available products to the distributors.
Mark Hernandez: As well as touch points with the distributors.
Mark Hernandez: Going forward and leveraging that going forward and then the last the last thing that impacted us was the.
Mark Hernandez: And then the last thing that impacted us was the kind of slowdown in returnable packaging as the automotive companies and the commercial vehicle companies kind of decided on what 2024 was going to look like. And so they delayed some of their orders, but we're back in line now. So our book to bill ratio, I think, is a short-term indicator that shows that we have confidence in the rest of the year, as well as our backlog.
Mark Hernandez: Kind of slowdown in returnable packaging as the.
Mark Hernandez: The automotive companies in the commercial companies trying to decide on what 'twenty 'twenty four is going to look like.
Mark Hernandez: So they delayed some of their orders, but we're back we're back in line now so our book to Bill ratio I think is a short term indicator that shows that we have confidence in the rest of the year as well as our backlog. The backlog increase was primarily due to the relationships we have with our customers to get a solid foundation of orders going forward. So we.
Mark Hernandez: The backlog increase was primarily due to the relationships we have with the customers to get a solid foundation of orders going forward. So we feel confident throughout 2024 that it was just a lull in the first quarter and that we'll see the second, third, fourth quarter being stronger than we anticipate and getting back on track with 2024. Okay, great. Thanks.
Mark Hernandez: Feel confident.
Mark Hernandez: About 2024 that it was just a lull in the first quarter and that will we will see.
Mark Hernandez: The second third and fourth quarter being stronger than we.
Mark Hernandez: We anticipate and get it back on track for 2024.
Nicholas Vlahos: Okay, great, thanks, that's helpful, and then just last question on gross margins. I know it's noisy and different things can happen each quarter, but was there anything in particular to highlight about what drove the sequential decline in gross margin from from I think twenty-six point eight percent in Q4 to what we saw in Q1?
Speaker Change: Okay. Great. Thanks, that's helpful. And then just last question on gross margins I know I know, it's noisy and different things can happen each quarter was there anything in particular to highlight about what drove the sequential decline in gross margin from from I think 26, 8% in Q4 to what we saw in Q1.
Nicholas Vlahos: Um, no, so there wasn't a particular, anything particular to highlight. I guess the one thing I would mention is the end-of-year LIFO adjustment that we make, which was a benefit in the fourth quarter. However, your first quarter typically sees lower margins compared to the rest of the year for the Eastern Company historically. And couple that with the reduction in revenue, you know, our SC&A was set up to be at a higher level of revenue, so we saw some deterioration from the fourth quarter. But optimistically speaking, it should come right back as we right the ship on revenues going forward.
Speaker Change: No. So there wasn't a particular answering particular highlight I guess the one thing I would mention is the end of year LIFO adjustment that we make.
Nicholas Vlahos: That was a benefit in the fourth quarter. However, your first quarter, you typically see lower margins compared to the rest of the year for the Eastern company Historic and couple that with the reduction in revenue. Our SG&A was set up to be at a higher level of revenue. So we saw some deterioration.
Nicholas Vlahos: Aviation from the from the fourth quarter, but optimistically speaking it should come right back as we right the ship on revenues going forward.
Speaker Change: Okay, Yes that makes sense and I do recall, a LIFO adjustment so thanks for the complex.
Ross Davisson: Okay, yeah, that makes sense, and I do recall the lightbulb adjustment, so thanks for the context, and good luck for the rest of the year.
Speaker Change: And good luck for the rest of the year.
Speaker Change: Thank you very much just a reminder, that if you have any remaining questions. You can press star one on your phone keypad now.
Mark Hernandez: Thank you very much. Just a reminder, if you have any remaining questions, you can press star 1 on your phone keypad now. Okay, I'm not seeing any further questions come in. I will now hand back over to Mark Hernandez for any closing remarks.
Mark Hernandez: Okay, I'm not seeing any further questions come into Keith I will now hand back over to Marc Hernandez for any closing remarks.
Mark Hernandez: Alright.
Mark Hernandez: Thanks for joining us today. With the strong operational foundation we've created, the steps we're taking to establish Eastern as an agile solutions provider, and our new focus on mergers and acquisitions, and make versus buy, we believe we're on the right path to building a bigger, better, and more profitable company. The macroeconomic environment for our industry is good, and we're positioning Eastern to take full advantage of the opportunities that arise. We look forward to giving you another update in August. In the meantime, if you have any additional information or need any additional information, please reach out to us. Thank you again for joining us today.
Mark Hernandez: Thanks for joining us today, we with a strong operational foundation, we've created the steps we're taking.
Operator: Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Operator: <unk> taken to establish eastern as an agile solutions provider and our new focus on mergers and acquisitions and make versus buy we believe we are on the right path to building, a bigger better and more profitable company.
Operator: The macroeconomic environment for our industry is good and we are positioning eastern to take full advantage of the opportunities that arise.
Operator: We look forward to giving you another update in August in the meantime, if you have any additional information if you need any additional information please reach out to us. Thanks again for joining us today.
Operator: Thank you very much. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you.
Operator: Participation.