Q4 2024 Hammond Power Solutions Inc Earnings Call

Operator: Good morning, ladies and gentlemen. Welcome to Hammond Power Solutions fourth quarter and 2024 year-end financial results conference call. Certain statements that will be discussed in this conference call will constitute forward-looking statements. The forward-looking information and statements included in this discussion are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements will be based on current expectations, estimates, and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statement. Such information and statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information and statements.

Good morning, ladies and gentlemen, welcome to Hammond power solutions fourth quarter, and 2024 year end financial results Conference call.

Certain statements there'll be discussed in this conference call will constitute forward looking statements.

The forward looking information and statements included in this discussion are not guarantees of future performance and should not be unduly relied upon.

Forward looking statements will be based on current expectations estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward looking statements.

Such information and statements involve known and unknown risks uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking information and statements.

Operator: These factors include, but are not limited to, such things as the impact of general industry conditions, fluctuations of commodity prices, industry competition, availability of qualified personnel and management, stock market volatility, and timely and cost-effective access to sufficient capital from internal and external sources.

These factors include but are not limited to such things as the impact of general industry conditions fluctuations of commodity prices industry competition.

Ability of qualified personnel in management stock market volatility and timely and cost effective access to sufficient capital from internal and external sources.

Operator: The risks just outlined should not be construed as exhaustive. Although management of the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Accordingly, listeners should not place undue reliance upon any of the forward-looking information discussed in this call.

The risks just outlined it should not be construed as exhaustive.

Although management of the company believes that the expectations reflected in such forward looking statements are reasonable it can give no assurance that such expectations will prove to have been correct.

Accordingly listeners should not place undue reliance upon any of the forward looking information discussed in this call.

Adrian Thomas: I'd like to hand the call over to Mr. Adrian Thomas, Chief Executive Officer of Hammond Power Solutions. Mr. Thomas? Thank you, operator, and good morning, everyone. As we entered 2024, it was clear that adding new capacity was crucial to our future success. We needed to meet the increasing demand of our customers, and we needed to resolve the bottlenecks created by our rapid growth. And today, I'm pleased to report we succeeded and delivered another quarter of double-digit growth for Hammond Power Solutions. Our quarter over quarter revenues grew by 11.5% and we grew 11% in total year over year.

Adrian Thomas: I'd like to hand, the call over to Mr. Adrian Thomas Chief Executive Officer of him and power solutions Mr. Thomas.

Adrian Thomas: Thank you operator, and good morning, everyone.

Adrian Thomas: As we entered 2024 it was clear that adding new capacity was crucial to our future success, we needed to meet the increasing demand of our customers and we needed to resolve the bottlenecks created by our rapid growth.

Adrian Thomas: Today I'm pleased to report, we succeeded and delivered another quarter of double digit growth for him and power solutions are.

Adrian Thomas: Our quarter over quarter revenues grew by 11, 5% and we grew 11% in total year over year.

Adrian Thomas: As our revenues scaled, so did our operating leverage. Strong price discipline and a favorable product mix, we expanded our gross margins 30 basis points for the full year, increasing from 32.5% to 32.8%. In Q4, our custom business continued to grow faster than our standard product. When we looked at our business in 2024, we saw this shift in mix starting mid-year and continued through the second half. We generally look at our customer markets in three buckets, traditional sectors, emerging sectors, and general traditional markets that include heavy industry and sectors like mining, oil and gas and infrastructure projects.

Adrian Thomas: As our revenue scales. So did our operating leverage with strong price discipline and a favorable product mix, we expanded our gross margins 30 basis points for the full year, increasing from 32, 5% to 32, 8%.

Adrian Thomas: In Q4, our custom business continued to grow faster than our standard products.

Adrian Thomas: When we looked at our business in 2024, we saw this shift in mix starting mid year and continued through the second half.

Adrian Thomas: We generally look at our customer markets in three buckets traditional sectors emerging sectors in general.

Adrian Thomas: Traditional markets that include heavy industry and sectors like mining oil and gas and infrastructure projects.

Adrian Thomas: Emerging markets are sectors that are more recent and growing, like renewables, EV, data And the third bucket is really all else. It is uncategorized commercial construction. Construction projects for large office buildings, warehousing, hotels, etc. fall into this category. In Q4, we saw commercial construction continue to be held back by concerns over inflation, geopolitical uncertainty, and tariff policies. We also saw an impact to our induction heating business. Some of the projects that we were anticipating have continued to be put on hold as the market uncertainty has caused certain customers to pause development. While MESTA shipments in Q4 were strong, we still saw some shipments delayed from Q4 and will now ship in Q1 2025.

Adrian Thomas: Merging markets or sectors that are more recent and growing like renewables EV datacenters.

Adrian Thomas: And the third bucket is really all else is uncategorized commercial construction.

Adrian Thomas: Instruction projects for large office buildings, warehousing hotels et cetera fall into this category.

Adrian Thomas: In Q4, we saw commercial construction continue to be held back by concerns over inflation geopolitical uncertainty and tariff policies.

Adrian Thomas: We also saw an impact to our induction heating business. Some of the projects that we were anticipating have continued to be put on hold as the market uncertainty has caused.

Adrian Thomas: Certain customers to pause development, while Mr. Shipments in Q4 were strong we still saw some shipments delayed from Q4 will now ship in Q1 2025.

Adrian Thomas: This slowing is expected to continue in 2025. We are continuing to develop our power quality sales, which will allow us to offset some of this, and it is an area that is not so dependent on limited projects and customers. We successfully launched a number of additional products during the last few years in order to more fully serve our customers and access more of the market. We saw acceleration in other sectors, especially emerging industries such as renewables and data centers, and several of our traditional markets experienced high levels of activity throughout the year. The broad coverage of our markets, largely due to our distribution partner network and greater capacity, allowed us to benefit from the growing sectors and achieve our strong growth.

Adrian Thomas: This slowing is expected to continue in 2025.

Adrian Thomas: We are continuing to develop our power quality sales, which will allow us to offset some of this and it is an area that is not so dependent on limited projects and customers.

Adrian Thomas: We successfully launched a number of additional products during the last few years in order to more fully serve our customers and access more of the market.

Adrian Thomas: We saw acceleration in other sectors, especially emerging industry, such as renewables and data centers and several of our traditional markets experienced high levels of activity throughout the year.

Adrian Thomas: The broad coverage of our markets largely due to our distribution partner network, a greater capacity allowed us to benefit from the growing sectors and achieve our strong growth.

Adrian Thomas: Throughout 2024, we executed on our strategy of organically expanding our manufacturing capacity, acquiring businesses to enhance our power quality portfolio, and strengthening our distribution chain. 2024 delivered significant achievements in our capital expansion. We brought new production online with the launch of our new factory in Mexico during the second quarter. In addition to opening this new factory, we announced an additional $20 million investment in further capacity expansion in Mexico. This investment will expand production of our custom transformer portfolio, particularly large, high power transformers that are widely used in commercial and industrial markets. This new factory will add more than $100 million in annual production capacity to our custom portfolio once fully ramped up.

Adrian Thomas: Throughout 2024, we executed on our strategy of organically expanding our manufacturing capacity.

Adrian Thomas: Acquiring businesses to enhance our power quality portfolio and strengthening our distribution channel.

2024 delivered significant achievements and our capital expansion plans, we brought new production online with the launch of our new factory in Mexico during the second quarter in.

Adrian Thomas: In addition to opening this new factory, we announced an additional $20 million investment and further capacity expansion in Mexico.

Adrian Thomas: This investment will expand production of our custom transformer portfolio, particularly large high power Transformers that are widely used in commercial and industrial markets.

Adrian Thomas: This new factory will add more than $100 billion in annual production capacity to our customer portfolio once fully ramped up.

Adrian Thomas: This expansion will not only enhance our North American delivery platform, but also shorten wait times for our customers.

Adrian Thomas: This expansion will not only enhance our north American delivery platform, but also shorten wait times for our customers.

Adrian Thomas: On the M&A front, we completed the Micron acquisition in October. Micron is a leading manufacturer of industrial control transformers. They have a strong reputation in the OEM and industrial automation space, and this deal will strengthen our position in the OEM market with a broader portfolio of high quality products. Industrial control transformers play a critical role in protecting sensitive equipment and integrates well with our power quality portfolio. Micron's U.S.-based manufacturing capabilities will enable us to better meet the growing demand for domestically made energy efficiency and automation solutions. We continue to build our distribution channel in the U.S.

Adrian Thomas: On the M&A front, we completed the micron acquisition in October.

Micron is a leading manufacturer of industrial control Transformers. They.

Adrian Thomas: They have a strong reputation in the OEM and industrial automation space and this deal will strengthen our position in the OEM market with a broader portfolio of high quality products.

Adrian Thomas: Industrial control Transformers play a critical role in protecting sensitive equipment and integrates well with our power quality portfolio.

Adrian Thomas: Micron's U S based manufacturing capabilities will enable us to better meet the growing demand for domestically made energy efficiency and automation solutions.

Adrian Thomas: We continue to build our distribution channel in the U S and Mexico, we added more distribution locations and strengthened existing distributor relationships by integrating our power quality products into their expanding portfolios.

Adrian Thomas: and Mexico. We added more distribution locations and strengthened existing distributor relationships by integrating our power quality products into their expanding portfolios. With 64% of our sales now coming from a well-diversified distribution channel, we are well-positioned to maximize our future capacity and drive additional growth.

Adrian Thomas: With 64% of our sales now coming from our well diversified distribution channel, we are well positioned to maximize our future capacity and drive additional growth.

Adrian Thomas: Our people and culture efforts are recognitions highlighted by our Great Place to Work certifications in Canada, the U.S., and in India. We promoted John Bailey to become our new chief operations officer, bringing deep industry expertise and an intimate understanding of our operation. Additionally, our Chair of the Board, Bill Hammond, received a Lifetime Achievement Award from the Electro-Federation of Canada, an honour that reflects his lasting contributions to the industry.

Adrian Thomas: Our people and culture efforts, all recognitions highlighted by a great place to work certification in Canada, The U S and in India.

Adrian Thomas: We promoted John Bailey to become our new Chief operations Officer, bringing.

Adrian Thomas: Bringing deep industry expertise and an intimate understanding of our operations.

Adrian Thomas: Additionally, our chair of the Board Bill Hammond received a lifetime Achievement award from the Electro Federation of Canada, an honor that reflects as lasting contributions to the industry.

Adrian Thomas: Our teams continue to actively engage in sustainability initiatives supporting our dedication to making a meaningful impact on the planet and the communities we serve, and you can learn more about our initiatives by reviewing our 2024 ESG report.

Adrian Thomas: Our teams continue to actively engage in sustainability initiatives supporting our dedication to making a meaningful impact on the planet and the communities. We serve and you can learn more about our initiatives by reviewing our 2024 ESG report.

Adrian Thomas: As we look to 2025, we see near-term challenges presented by geopolitical uncertainties, tariff concerns, and the shifting economic landscape. While there are some short-term adjustments that would come from tariffs, we are comfortable that we can adapt quickly with a goal to protect margins. for the standard products that are produced in Mexico. So are most. of the same products of our competitors. For products produced in the U.S., they will see increased material input costs since there is insufficient domestic supply for major material components such as grain-oriented electrical steel. We believe in combination, these dynamics would ultimately lead to increased pricing over time as the impacts flow through the supply chain.

Adrian Thomas: As we look to 2025, we see near term challenges presented by geopolitical uncertainties tariff concerns and the shifting economic landscape.

Adrian Thomas: There are some short term adjustments that would come from tariffs. We are comfortable that we can adapt quickly with a goal to protect margins.

Adrian Thomas: For the standard products that are produced in Mexico. So were most.

Adrian Thomas: The same products of our competitors.

Adrian Thomas: For products produced in the U S. They will see increased material input costs. Since there is insufficient domestic supply for major material components, such as grain oriented electrical steel.

Adrian Thomas: We believe in combination these dynamics would ultimately lead to increased pricing over time as the impacts flow through the supply chain.

Adrian Thomas: On the flip side, project activity in various traditional and emerging markets remains strong. This activity provides us with momentum for our custom business, which we expect to continue in 2025. Beyond 2025, we continue to believe in a positive market outlook. Just recently, a recent S&P Global Commodity Insights report predicts a 35 to 50 percent increase in electricity demand in the U.S. from now until 2040. This will create many opportunities for us to grow in the electrical space.

Adrian Thomas: On the flip side project activity in various traditional and emerging markets remained strong.

Adrian Thomas: This activity provides us with momentum for our custom business, which we expect to continue in 2025.

Adrian Thomas: Beyond 2025, we continue to believe in a positive market outlook just recently at.

Adrian Thomas: The recent S&P global commodity insights report predicts a 35% to 50% increase in electricity demand in the U S from now until 2040.

Adrian Thomas: This will create many opportunities for us to grow in the electrical space.

Richard Valbarain: With that, I would like to hand the call over to our Chief Financial Officer, Richard Valbarain, to provide some context to our financial results. Thank you, Adrian, and good morning. We reached another record in terms of sales in the fourth quarter. Sales in both Canada and the U.S. were strong, as were sales in India and at Mexico. In addition to these higher organic sales, almost a full quarter of micron sales were included as well. The stronger U.S. dollar also had a slightly positive impact on sales. Gross margins in the fourth quarter came down slightly from the third quarter.

Adrian Thomas: With that I would like to hand, the call over to our Chief Financial Officer, Richard already to provide some context to our financial results.

Adrian Thomas: Richard.

Richard: Thank you Adrian and good morning, everyone.

Richard: We reached another record in terms of sales in the fourth quarter sales in both Canada and the U S were strong as were sales in India and administer.

In addition to these higher organic sales almost a full quarter of micron sales were included as well.

Richard: Longer U S. Dollar also had a slightly positive impact on sales.

Richard: Gross margins in the fourth quarter came down slightly from the third quarter.

Richard Valbarain: but we're slightly higher than 2023. A higher margin in the year was a result of a more favorable product mix made up of a larger proportion of custom and configured products and relatively less higher volume standard products. Offsetting this were unabsorbed factory costs due to the new facility in Mexico. slightly higher commodity costs during the year and a stronger U.S. dollar. Excluding Sharebase SGMA costs were higher in the quarter than the previous three quarters, primarily due to the higher volume-related expenditures, the timing of certain projects, and one-time expenses that were booked late in the year.

Richard: But were slightly higher than 2023.

Richard: The higher margin in the year was a result of a more favorable product mix made up of a larger proportion of custom and configured products and relatively less higher volume standard products.

Setting this unabsorbed factory costs due to the new facility in Mexico.

Richard: Slightly higher commodity costs during the year and a stronger U S dollar.

Richard: Excluding share based expenses SG&A costs were higher in the quarter than the previous three quarters, primarily due to the higher volume related expenditures the timing of certain projects and one time expenses that were booked late in the year.

Richard Valbarain: We expect that SG&A expenses will return to the level seen in the previous quarters in early 2025. Net income was $71 million for the year, up from $63 million in 2023. Adjusted EBITDA was $130,484,000 for the year or 16.6% of sales. This compares to adjusted EBITDA of $117,228,020 in 2023, or 16.5% of sales. EPS was $1.99 for the quarter and $6.01 for the year. Working capital increased in Q4 due to the addition of inventory to support our new warehouse. and higher accounts receivable do the hiring. As a result, networking capital increased to 20% of sales.

Richard: We expect that SG&A expenses will return to levels seen in the previous quarters in early 2025.

Richard: Net income was $71 million for the year up from $63 million in 2023.

Richard: Adjusted EBITDA was $130 million and 484000 for the year or 16, 6% of sales.

Richard: This compares to adjusted EBITDA of $117 million and 228000 in 2023 or 16, 5% of sales.

Richard: EPS was $1 99 for the quarter and $6 one for the year.

Richard: Working capital increased in Q4 due to the addition of inventory to support our new warehouse strategy and higher accounts receivable due to higher sales.

Richard: As a result, net working capital increased to 20% of sales, we expect that inventory levels will decline as the transition to the new warehouse strategy is completed in 2025.

Richard Valbarain: We expect that inventory levels will decline as a transition to the new warehouse strategy is completed in 2025. Capital expenditures were $41 million in the year, up from $20 million in 2023. Total spending against our $80 million announced capital program is approximately $45 million. We expect capital expenditures in 2025 to be approximately $40 million, including maintenance capital. Cash flow from operations was $65 million in the year, which was used for the purchase of Micron, the Capacity Expansion CapEx program, and our investment in smart For more information visit www.casagrandeaz.gov All of these activities represent significant investments in our future growth.

Richard: Capital expenditures were $41 million, a year up from $20 million in 2023.

Richard: Total spending against our $80 million announced capital program is approximately $45 million.

Richard: Expect capital expenditures in 2025 to be approximately $40 million, including maintenance capital.

Richard: Cash flow from operations was $65 million in the year, which was used for the purchase of micron the capacity expansion Capex program and our investment in Smart D.

Richard: All of these activities represent significant investments in our future growth.

Richard Valbarain: Our balance sheet remains strong moving into 2025 with net cash of $21 million, allowing us ample financial capacity.

Richard: Our balance sheet remains strong going into 2025 with net cash of $21 million, allowing us ample financial capacity.

Richard Valbarain: future acquisition or capacity expansion project. We are pleased with her results in 2024, which we feel reflect a good balance of investing in growth, managing margins and profitability, maintaining financial strength, and allowing ourselves opportunities to continue to grow going forward.

Richard: Our future acquisition, where capacity expansion projects.

Richard: We are pleased with our results in 2024, which we feel reflects a good balance of investing in growth managing margins and profitability, maintaining financial strength and not allowing ourselves opportunities to continue to grow going forward.

Richard Valbarain: Thank you all for calling in.

Richard: Thank you all for calling in this morning, I will now hand, the call back to the operator for questions.

Operator: I will now hand the call back to the operator for questions. As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your telephone. and wait for your name to be announced. To withdraw your question, please press star 1 one again.

Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced.

Richard: To withdraw your question. Please press star one again.

Matthew Lee: Our first question comes from Aline. I'm Matthew Lee with Canuck Orchard News. Hi, morning guys. Thanks for my question. Maybe start with a quick housekeeping one. Can you just quantify the impact of the one time items and even in the quarter and just talk about what some of those items might have Hey, good morning, Matt.

Richard: Our first question comes from the line.

Richard: Matthew Li with Canaccord Genuity.

Matthew Li: Hi, Good morning, guys. Thanks for taking my question, let me start with a quick housekeeping. One can you just quantify the impact of the one time items on EBIT in the quarter.

Richard: Just talk about what some of those items might have been.

Matt Richard: Hey, good morning, Matt Richard here.

Richard Valbarain: Richard here. Yeah, Matt, just as I mean, as a round number, I'd say about $2 million. And, you know, we indicated part of that was, you know, due to the acquisition.

Richard: Yes, Matt just I mean as.

Matt Richard: As a round number I would say about $2 million.

Matt Richard: And we indicated part of that was due to the acquisition part of it is.

Richard Valbarain: Part of it is due to some internal projects, as we've talked about before, where we've been investing significant amounts in building our internal capabilities in terms of adding tools and improving processes. So, but yeah, I would sort of think about that in the range of, you know, $2 million in the quarter.

Matt Richard: Due to some internal projects as we've talked about before where we've been investing.

Matt Richard: Significant amounts in building, our internal capabilities in terms of adding tools and improving processes. So.

Matt Richard: But yes, I would I would sort of think about that in the range of <unk>.

$2 million in the quarter.

Richard Valbarain: Right, that's coming off in 2025. And should we think about margins being kind of mid 16% range for you, but, uh, you know, if you had made that adjustment for the for the fourth quarter, you'd end up with roughly, you know, mid 16. percent adjusted EBITDA margins, and we think, you know, 16 to 17 percent is the right range right now, given our current cost structure. Got it.

Matt Richard: Right and Thats coming off in 2025, and should we think about margins being kind of mid 16% range for EBITDA.

Matt Richard: Great.

Matt Richard: If you had made that adjustment for the for the fourth quarter you'd end up.

Matt Richard: With roughly mid 16.

Matt Richard: Percent adjusted EBITDA margins, and we think <unk>.

Matt Richard: 16% to 17% is the right range right now given our current cost structure.

Matthew Lee: Okay, then maybe onto the meatier topics.

Matt Richard: Got it Okay, and then maybe on some immediate topics. The big question right now is probably around tariffs I appreciate there's a lot of uncertainty, but maybe.

Matthew Lee: You know, the big question right now is probably around tariffs. I appreciate there's a lot of uncertainty, but you know, maybe talk about how you see pricing demand and margin shape up if we do enter into a tariff environment.

Matt Richard: Maybe talking about how you see pricing demand and margins shape up if we do enter into a tariff environment.

Adrian Thomas: Hey, Matt. It's Adrian. You know, I made the comment in my opening remarks, just to sort of recap there. Terrapin in the in the kind of initial implementation of tariffs that would increase costs and depending on where the products are made. And one of the things we do know is the bulk of the materials you need to build transformers is not produced in the U.S. That's grain-oriented electrical steel. So whether you're manufacturing outside of the U.S. or inside the U.S., tariffs are likely to have a cost impact. And to the extent that demand remains high and we continue to see that electrification trends continue, we would expect that cost to be passed along in price.

Matt Richard: Hey, Matt it's Adrian.

Matt Richard: Yes.

Matt Richard: The comment in my opening remarks.

Matt Richard: To sort of recap there.

Matt Richard: David.

Matt Richard: Tariff in the in the kind of initial.

Matt Richard: Implementation of tariffs that would increase costs.

Matt Richard: Depending on where the products are made in one of the things. We do know is the the bulk of the materials you need to build Transformers is not produced in the U S. That's grain oriented electrical steel so whether your manufacturing outside of the U S or inside the U S tariffs are likely to have a cost impact.

Matt Richard: And to the extent that demand remains high and we continue to see that electrification trends continue.

Matt Richard: We would expect that cost to be passed along in price.

Matthew Lee: Okay, got it.

Adrian Thomas: And then have you seen any slowdown in terms of projects or demand related to, you know, these new tariffs potentially coming on or just overall uncertainty in macroeconomic? What we saw in the second half of last year seems to continue, which is just sort of uncertainty, slowing sort of what we see as the general kind of commercial construction business. So that impacts our standard products. On the flip side, Other projects, emerging sectors, things like data centers, the quote activity, shipments, activity in general remains high and that's benefiting our custom business. We haven't seen anything to indicate otherwise at the moment.

Speaker Change: Okay got it and then have you seen any slowdown in terms of projects or demand related to these new tariffs potentially coming on or just overall uncertainty and economics.

Matt Richard: But what we saw in the second half of last year.

Matt Richard: It seems to continue which is just sort of uncertainty.

Matt Richard: Slowing sort of what we see is the general kind of commercial construction business.

Matt Richard: That impacts our standard products.

Matt Richard: Flip side.

Matt Richard:

Matt Richard: Other projects emerging sector things like data centers, the quote activity shipments activity in general remains high and that's benefiting our our custom business, we haven't seen anything to indicate otherwise at the moment.

Matthew Lee: Okay, that's helpful.

Matthew Lee: I'll queue up again.

Speaker Change: Okay. That's helpful I'll queue up again.

Rupert Merer: Our next question comes from Rupert Merer with National Bank.

Speaker Change: Our next question comes from Rupert <unk> with National Bank.

Rupert Merer: Hi, good morning, everyone. I'd like to start by drilling down a little more into the tariff. So the U.S. has already levied tariffs on steel imports, which of course should impact GOES. I was wondering, how does that impact your U.S. operations? What are you seeing so far? And are you able to recover that incremental cost through pricing out of your U.S. operations today? Are we already seeing that price impact? So, we have manufacturing facilities, Rupert, in Mexico, US, and Canada. We can produce the same product we produce in the U.S., in Mexico, and to some degree in Canada, so we look at a strategy considering our total footprint.

Speaker Change: Hi, good morning, everyone I'd like to start by drilling down a little more into the tariffs.

Speaker Change: So the U S has already.

Speaker Change: The levy tariffs on steel imports, which of course should impact goes I was wondering how does that impact your U S. Operations. What are you seeing so far and are you able to recover that incremental cost through pricing out of your U S. Operations today are we already seeing that that price impact.

Speaker Change: So we have manufacturing facilities in Mexico U S and Canada.

Speaker Change: The we can produce.

Speaker Change: The same product we produced in the U S and Mexico and to some degree in Canada.

Speaker Change: No.

Speaker Change: We look at our strategy considering our total footprint.

Adrian Thomas: I see. And can you confirm then that your products are not currently facing tariffs? You're all KUSMA compliant across the board in Canada and Mexico? So, the products we make in Canada and Mexico are compliant with USMCA. And is that consistent across your competitors? Would you say that it's true for all of your major competitors, or are there any that may not? I can't speak directly to our competitors, what I could say on the standard products, we see the majority of our competitors also producing in Mexico.

I see and you can you confirm that your products are not currently facing tariffs here all cosma compliant across the board in Canada and Mexico.

Speaker Change: So the products, we make in Canada, Mexico.

Speaker Change: Our compliant with U S MCA.

Speaker Change: And is that consistent across your competitors would you say that that's true for all of your major competitors are are there any that are that may not be compliant.

Speaker Change: I can't speak directly to our competitors.

Speaker Change: What I can say on the standard products, we see the majority of our competitors also producing in Mexico.

Adrian Thomas: But I can't, I can't make a comment on whether the supplier. Now, Canada has put some retaliatory tariffs on the U.S. on imports of some metal products, some wires, some seal enclosures, for example. Does that impact any of your supply chain for building in Canada, and if so, have any opportunities to switch suppliers? One of the benefits of our scale, Rupert, is our ability to have a supply chain with multiple suppliers, so we're constantly leveraging all our supply routes to minimize any impacts of the tariffs on our business.

Speaker Change: But I can't.

Speaker Change: Can't make a comment on weather environment.

Speaker Change: Now Canada has put some retaliatory tariffs on U S on imports some metal products. Some wires some seal enclosures for example.

Speaker Change: Impact any of your supply chain for building in Canada, and if so how many opportunities to switch suppliers.

Speaker Change: One of the benefits of our scale refer to is our ability to have.

Speaker Change: Our supply chain with suppliers. So we're constantly.

Speaker Change: Leveraging all our supply routes.

Speaker Change: To minimize any impacts of the tariffs on our business.

Adrian Thomas: Great. Then just maybe one final follow-up on the tariffs. What can you do to buffer the impact of future tariffs? Are you looking to build inventory in the near term? You said inventory should go down. 2025, but could it go up in Q1 and so inventory, but also on the contract side, are you able to build contingencies into contracts on long lead orders? I think you have two questions there. How do we manage long-term orders? And the second... sort of the retaliatory tariff aspect. So one thing which we're not anticipating, it seems like trade between Canada and Mexico is stable.

Speaker Change: Okay, Great and then just maybe one final follow up on the on the tariffs.

Speaker Change: Can you do to.

Speaker Change: The impact of future tariffs are you looking to build inventory in the near term two weeks I.

Speaker Change: I think Richard you said inventory should go down in 2025, it could it go up in Q1, and so inventory, but also on the contract side are you able to build contingencies into contracts on long lead orders.

Speaker Change: I think you have two questions there how do we manage long term orders in the second.

Speaker Change: Sort of the retaliatory tariff aspect so.

Speaker Change: One thing, which we're not anticipating.

Speaker Change: It seems like trade between Canada, Mexico is stable.

Adrian Thomas: You know, about two thirds, roughly, of our business in the US. So there's about one third that is gonna be less impacted with the North American geopolitical dynamics. So. That that does provide some some buffering. The in terms of long term contracts, we do have protections in our long term contracts. To allow us to adjust for certain events and this this would be one of those events.

Speaker Change: About two thirds roughly of our business in the U S. So there is about one third that is.

Speaker Change: Going to be less impacted with the north American geopolitical dynamics.

Speaker Change: So.

Speaker Change: That does provide some some buffering.

Speaker Change: In terms of long term contracts.

Speaker Change: We do have protections to enter long term contracts.

Speaker Change: Sure.

Speaker Change: To allow us to adjust for certain events.

Speaker Change: Would be one of those events.

Rupert Merer: Great. And on inventory, do you expect inventory to tick up further in Q1?

Speaker Change: Okay, great and on inventory do you expect inventory to tick up further in Q1.

Adrian Thomas: Thanks. Our inventory buildup was not directly related to preemptive tariff management. It was, as you know, we opened a new distribution center in Texas to allow us to better serve our customers, to get products in more quickly. And so when you're building up a warehouse before you start flowing from it, you have an influx of product to prepare for the opening. So that I would expect to go back in 2025 to more of a run rate sort of period.

Speaker Change: Yes.

Speaker Change: So.

Speaker Change: Our inventory buildup was not directly related to.

Speaker Change: Preemptive tariff management it was.

Speaker Change: As you know we opened a new distribution center.

Speaker Change: In Texas to allow us to better serve our customers to get products that more quickly.

Speaker Change: And so when you are building up a warehouse before you start flowing from it do you have an influx of product to prepare for the opening.

Speaker Change: So that I would expect to go back in in 2025 to more of a run rate.

Speaker Change: Period.

Rupert Merer: All right, great.

Jim Byrne: I'll leave it there.

Jim Byrne: Thank you.

Speaker Change: Alright, great ill leave it there thank you.

Jim Byrne: Our next question comes from Jim Byrne with Acumen Capital. Yeah, good morning, guys. Obviously, some big changes to the AI landscape and the potential impacts on data centers. Are you seeing any of that? Or how do you think, you know, some of those power requirements could impact you? And if you So, our take on that, Jim... You know, as we've shared before, we look at data centers as part of our emerging sectors business, which we look at renewables, EV charging, other sort of technology-related emerging sectors. That, at the moment, makes up less than 20% of our business, so we're well diversified.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Jim Byrne with acumen capital.

Jim Byrne: Yes, good morning, guys.

Jim Byrne: Obviously, some big changes to the AI landscape.

Speaker Change: And the potential impacts on data centers are you seeing any of that or how do you think some of those.

Jim Byrne: Power requirements could impact you in the future.

Jim Byrne: So our take on that Jim.

Jim Byrne: Yes.

Jim Byrne: Yes.

Jim Byrne: Shared before are we look at data center part of our emerging sector business, which we look at.

Jim Byrne: Renewables EV charging other sort of technology related emerging sectors.

Jim Byrne: That at the moment makes up.

Jim Byrne: Less less than 20% of our business. So we are well diversified.

Adrian Thomas: However, we do see activity in the data center business growing and growing quickly. We haven't seen any change to that. Our view is, if data center energy requirements and costs come down, it is likely to allow more data centers to put up more quickly. So, I think from a demand side, it probably wouldn't wouldn't change the dynamics much because you may have some smaller power data centers, but then you're going to have more of them. AI, implementing AI in business right now is still relatively expensive. And so if the cost of implementing AI goes down, I think it will increase industries consumption of AI products.

Jim Byrne: However, we do see activity in the data center business growing and growing quickly.

Jim Byrne: Haven't seen any change to that.

Jim Byrne: Our view is if data center.

Jim Byrne: Energy requirements and costs come down it is likely to allow more data centers put up more quickly. So I think from a demand side.

Jim Byrne: Probably.

Jim Byrne:

Jim Byrne: Wouldn't change the dynamics much because you may have some smaller power data centers, but then youre going to have more of them AI implementing AI business right now is still relatively expensive and so.

Jim Byrne: If the cost of implementing AI goes down I think it will increase industries.

Adrian Thomas: So I think it will have sort of an offsetting effect on on the industry as a whole. So the data center business for us in the near term looks very robust.

Jim Byrne: Consumption of AIG product. So I think it will have sort of an offsetting.

Jim Byrne: Yeah.

Jim Byrne: Effect on the industry as a whole so the data center business for us in the near term looks very robust.

Jim Byrne: Okay, that's great. And then, just thinking about price increases you've. kind of typically passed along, you know, kind of seasonal or annual price increases. Are you planning anything for 2025 as of yet or how is the customer feedback so far? So last year we announced price increase in the spring. We've announced to our customers a price increase and that will go into effect in April.

Jim Byrne: Okay, that's great and then.

Jim Byrne: Just thinking about price increases.

Jim Byrne: Kind of typically passed along.

Jim Byrne: Kind of seasonal or annual price increases are you planning anything for 2025 as of yet or how has the customer feedback so far.

Jim Byrne: So last year, we announced price increase.

Jim Byrne: In the spring, we've announced to our customers a price increase and that will go into effect in April.

Jim Byrne: Okay, that's great. And then.

Jim Byrne: Okay, that's great and then.

Adrian Thomas: You mentioned commercial construction and the slowing growth that was consistent in the back half, still seeing that today, and then any signs that the MESTA slowdown will pick up in 2025, or are you seeing consistent numbers on the MESTA side? For the master business, and we speak of the master business, I want to be very specific to the induction heating portion. That product is very specific to certain industries and specifically It's very sticky with certain customers, and those customers have projects, and some of those projects go into developments for sectors like chip manufacturing, which then leads into things like EV vehicles and things like that.

Jim Byrne: The.

Jim Byrne: You mentioned that.

Jim Byrne: Construction and kind of the slowing growth.

Jim Byrne: That consist with consistent in the back half.

Jim Byrne: We're still seeing that today.

Jim Byrne: And then any signs that the message kind of slowdown will pick up in 2025.

Jim Byrne: Seeing consistent numbers on the master side.

Jim Byrne: With the Mercer business.

Jim Byrne: Speaking of the meta business I want to be very specific to the induction heating portion.

Jim Byrne: That.

Jim Byrne: That product is very specific to certain industries and specifically.

Jim Byrne: It's very sticky with certain customers.

Jim Byrne: And those customers have projects and some of those projects go into.

Jim Byrne: Into developments for sectors like chip manufacturing.

Jim Byrne: Which then leads into things like EV vehicles, and things like that so we've seen those projects.

Adrian Thomas: So we've seen those projects slow down significantly, and we saw that last year, it kind of got paused and then put back on, and that's where we saw the pickup in Q4. But that's project-based, so I would expect 2025 and less 2025 to be. As I mentioned, sort of still driven by those project dynamics. And so we really double down on. focusing on growing out the power quality portion of that business. And we've done a lot of work in marketing and training of our distributors, making sure the products are available through our distributor channel. And that that will help us offset some of those declines on the induction heating side of our business.

Jim Byrne: Slowdown significantly and we saw that last year. It kind of got paused and then put back on and Thats why we saw the pickup in Q4.

Jim Byrne: But.

Jim Byrne: That's project based so I would expect 2025.

Jim Byrne: And less.

20, 25% to be.

Jim Byrne: As I mentioned sort of still driven by those project dynamics.

Jim Byrne: And so we've really doubled down on.

Jim Byrne: Yes.

Jim Byrne: Focusing on growing out the power quality portion of that business and we've done a lot of work in marketing and training of our distributors, making sure the products are available through our distributor channel.

Jim Byrne: That will help us offset some of those declines on the induction heating side of our business.

Jim Byrne: Okay, and then maybe just lastly, you know, just thinking kind of longer term trend here, obviously.

Jim Byrne: Okay, and then maybe just lastly, just thinking kind of longer term trend here obviously.

Adrian Thomas: at www.poweredbyfabrication.com administration wants more and more manufacturing in the U.S., you know, beyond, you know, moving some of your manufacturing capacity down there, what, you know, I assume this trend, you know, over the next number of years would be positive for your businesses, more plants and factories were built there? I think the more the U.S. industrializes, the more opportunity there is for us, for sure. And what we are seeing is a lot of the industrial processes and other things are moving more to electricity as the primary energy source, which is also positive for our business.

Jim Byrne: U S.

Jim Byrne: Administration, once more and more manufacturing in.

Jim Byrne: The U S.

Jim Byrne: Beyond moving some of Europe.

Jim Byrne: Manufacturing capacity down there.

I assume this trend.

Jim Byrne: Next number of years would be positive for your business as more plants and factories were built there.

Jim Byrne: I think the more.

Jim Byrne: U S industrial items, the more opportunity there is for us for sure.

Jim Byrne: Sure.

Jim Byrne: And what we are seeing is a lot of the industrial processes and other things are moving more to electricity as the primary energy sources, which is also a positive for our business.

Jim Byrne: I referenced in my opening remarks a study by S&P, Global Commodities Insights, specifically talking on electricity demand in the US, and that was a very recent study reconfirming. There was another study from the Department of Energy on data center buildouts that was also showing the dramatic growth in energy consumption from that sector. So we certainly think that the tailwinds for electrification in North America are very strong. Okay, that's great.

Jim Byrne: I referenced in my opening remarks, a study by S&P global commodities insights.

Jim Byrne: Specifically talking on the on electricity demand in the U S and.

Jim Byrne: That was a very recent study reconfirming.

Jim Byrne: There was another study from the department of energy on data center build outs that was also.

Jim Byrne: Showing the dramatic growth in energy consumption from that sector. So.

Jim Byrne: We certainly think that the tailwind for electrification and North America are very strong.

Jim Byrne: I'll pass the line.

Jim Byrne: Okay, that's great I'll pass the line thanks, guys.

Nicholas Boychuk: Our next question comes from a line of Nicholas Boychuk with Cormark Security. Hey, good morning, guys.

Speaker Change: Our next question comes from the line of Nicholas Wojciech with Cormack Securities.

Adrian Thomas: First question on the competitive environment. We've talked in the past about how there's been a lack of supply side response specifically for the dry type market. And I appreciate that grain oriented steel that comes into the US is going to negatively impact everybody. But are you guys seeing any changing response from competitors, specifically in the dry type market? Is there any shifting of the tide there?

Nicholas Wojciech: Hey, Good morning, guys first question on the competitive environment, we've talked in the past about how there's been a lack of supply side response, specifically for the dry tech market and I appreciate that.

Nicholas Wojciech: Oriented deal that comes into the U S is going to negatively impact everybody, but are you guys seen any change in response from competitors specifically in the dry bulk market is there any shifting of the tide there.

Adrian Thomas: I guess nothing remarkable, ma'am. Sorry, Nick.

Nicholas Wojciech: I guess nothing remarkable amount.

Nicholas Wojciech: Sorry, Nick.

Nicholas Boychuk: Okay.

Adrian Thomas: On the distribution side of your business with your channel partners, any extra color you can share on how they're holding up conversations they're having with you? You've mentioned before that, you know, obviously, if you're increasing inventory levels to help them, the speed with which you can fill orders, that's a big differentiator. Are they seeing something different that is changing how they're interacting with you such that you need to change something on your end? Look, I think we we value a lot our distribution network. We try to be the easiest partner for them to deal with.

Nicholas Wojciech: Okay.

Nicholas Wojciech: On the distribution side of your business with you.

Nicholas Wojciech: <unk> partners.

Nicholas Wojciech: Any extra color you can share on how theyre holding up conversations they are having with you.

Nicholas Wojciech: You mentioned before that.

Nicholas Wojciech: Obviously with your increasing inventory levels to help them.

Nicholas Wojciech: The speed with which you could fill orders that's a big differentiator are they seeing something different that is changing how they are interacting with us such that you need to change something on your end.

Nicholas Wojciech: Look I think.

Nicholas Wojciech: We value a lot our distribution network.

Nicholas Wojciech: We tried to be the easiest partner for them to deal with.

Adrian Thomas: We built a lot of trust and loyalty in terms of how we worked with them post-COVID, and I think we're entering another time of a lot of uncertainty and question marks. And so, you know, we have communicated to them quickly, clearly on how we would manage different scenarios when the tariffs were announced. And we've gotten positive feedback that they appreciate the clarity of communication and our willingness to work with them. So I think in times of uncertainty, our focus on customers, the flexibility that we have both on the front end commercially, but also in leveraging relationships on the supply side, have given us a great advantage.

Nicholas Wojciech: We built a lot of trust and loyalty in terms of how we work with them.

Nicholas Wojciech: Covid.

Nicholas Wojciech: And.

Nicholas Wojciech: We're entering another.

Nicholas Wojciech: Time of a lot of uncertainty and question marks.

Nicholas Wojciech: And so we have communicated to them.

Nicholas Wojciech: Quickly clearly on how we would manage different scenarios.

Nicholas Wojciech: When the tariffs were announced and we've gotten positive feedback that they appreciate the clarity of communication and our willingness to work with them. So I think in times of uncertainty.

Nicholas Wojciech: Our focus on customers the flexibility that we have both on the front end commercially but also.

Nicholas Wojciech: And leveraging relationships on the supply side.

Adrian Thomas: And we have this ability to be big enough where we have options, but small enough where we're nimble. And I think our distribution partners really value that. So I think in times of uncertainty, those traits make us a great partner for them to work with.

Nicholas Wojciech: Given us a great advantage and.

Nicholas Wojciech: We have this ability to be big enough, where we have options, but smaller but we're we're nimble and I think our distribution partners really value that so I think in times of uncertainty.

Nicholas Wojciech: Those traits make us.

Nicholas Wojciech: A great partner for them to work with them.

Nicholas Boychuk: Okay, makes sense.

Nicholas Boychuk: And then the last for me, you've got some new capacity coming online in Mexico, and I appreciate that some of it is going to be stock and some of it's going to be custom. But in the event that the general bucket that you were previously mentioning, the construction stuff is slowing down. How are you thinking about the initial capacity utilization for that new facility for the next call it 12 to 24 months? Is there any concern that you're going to have a bunch of unused utilization? factory that we announced. last year around the shortly thereafter is fully dedicated to custom product at the moment.

Speaker Change: Okay makes sense and then last for me you have got some new capacity coming online in Mexico and I appreciate that some of it is going to be stocking some of it's going to be cut them, but in the event that the general bucket that you were previously you're entering into construction stuff is slowing down how are you thinking about the initial capacity utilization for that new facility for the next call it 12%.

Nicholas Wojciech: Four months is there any concern that you're going to have.

Speaker Change: A bunch of unused utilization.

Nicholas Wojciech: So we have two facilities, we opened one.

Speaker Change: Last June that was twofold.

Speaker Change: Re shoring some products that were made in Asia.

Speaker Change: Into Mexico, and it was expanding capacity, allowing us to optimize footprints.

Speaker Change: Across North America. So there are some smaller power quality related products that we're producing there.

Speaker Change: <unk> had sort of a five year time horizon in terms of.

Speaker Change: Full ramp up.

Speaker Change: The.

Speaker Change: A factory that we announced.

Speaker Change: Last year.

Speaker Change: Shortly thereafter is fully dedicated to custom product at the moment so.

Adrian Thomas: So we still have some bottlenecks in the custom power side of our business and that factory will allow us to remove those.

Speaker Change: We still have some bottlenecks in the custom power side of our business and that factory will allow us to remove those.

Matthew Lee: Okay, appreciate the extra collar, Agent.

Speaker Change: Okay I appreciate the exploration.

Speaker Change: Thanks, Nick.

Matthew Lee: Our next question comes from Matthew Lee with Canaccord Genuity. Hi, thanks for having me on again. I think you mentioned earlier when answering kind of one of the questions that you could add capacity in the U. S. if need be, you can do that organically, or is there maybe an opportunity here to acquire some smaller U. S.

Speaker Change: Our next question comes from Matthew Lee with Canaccord Genuity.

Speaker Change: Hi, Thanks for having me on again I think you mentioned earlier when answering in kind of one of the questions that you had you could add capacity in the U S. If need be.

Speaker Change: What you can do that organically or is there maybe an opportunity here to acquire some smaller U S competitors and you build that capacity up more quickly.

Adrian Thomas: competitors and build that capacity up more quickly? Thank you. You know, the supply chains in our industry are quite complex, so you have to evaluate sort of costs, material costs, labor costs, complexities between, you know, each of the three countries within USMCA. We believe for The products we build today, it's more effective for us to build out new capacity than to acquire. As I mentioned before, if we're going to acquire a company, which does what we do, we'd be looking for some benefit from that, which would be access to customer sets or suppliers or market sectors that We don't have access to today or we have limited access to.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Supply chain in our industry are quite complex.

Speaker Change: So you have to evaluate sort of.

Speaker Change: Course material costs labor costs.

Speaker Change: Complexities between each of the three countries within U S MCA.

Speaker Change: We believe four.

Speaker Change: The products, we build today, it's more effective for us to build out new capacity then to acquire.

Speaker Change: As I mentioned before if we're going to acquire a company, which does what we do we'd be looking for.

Speaker Change: Some benefit from that which would be access to customer sets or suppliers.

Speaker Change: Or market.

Speaker Change: Market sectors that.

Speaker Change: We don't have access to today or we have limited access to.

Adrian Thomas: I think Micron is a great example of that. They had strong relationships with OEM customers. We know that business is very sticky, and we also know many of their customers had opportunities for power quality products. So it it kind of opened some channels, gave us a lot more flexibility to give us a US footprint. So I think to the extent we could find a company, another company like that acquisitions opportunity. But what we've seen traditionally, we can build out capacity faster and less expensively than acquiring.

Speaker Change: Micron is a great example of that.

Speaker Change: They had a strong.

Speaker Change: Strong relationships with OEM customers, we know that business is very sticky and we also know many of their customers.

Speaker Change: Had opportunities for our power quality products. So it kind of opened some channels gave us a lot more flexibility to give us a U S footprint. So I think to the extent, we could find the company another company like that.

Speaker Change: Acquisition opportunity, but what we've seen traditionally we can build out capacity faster and less expensively than acquirer.

Adrian Thomas: And just from a logistical perspective, it would be the Pennsylvania facility that could be expanded if need be. We have capacity. So, Pennsylvania produces our power electronics products. So, this is our active harmonic filters and our induction heating products. From the transformer side, we have a facility in California. And through Micron, we have a facility in Illinois. Those 2 facilities produce various transformer products. Okay, that's helpful.

Speaker Change: And just from a logistical perspective, it would be the Pennsylvania facility that can be expanded if need be.

Speaker Change: We have capacity so Pennsylvania.

Speaker Change: Produces our power electronics products. So this is our active harmonic filters and our induction heating products.

Speaker Change: From the transformer side, we have a facility in California.

Speaker Change: Through Micron, we have a facility in Illinois.

Speaker Change: Two facilities produce.

Speaker Change: Various transformer products.

Matthew Lee: And then maybe last one for me, just in terms of a larger picture philosophical question, you know, given your balance sheet and cash flow, as well as some of the noise around your stock, you know, any appetite here for a share buyback to create some value? Yeah, Matt, I... It's not really, I mean, we haven't changed our strategy here, right? We've had a growth strategy for a long time. You know, ideally, we'd like to reserve our financial capacity. For, as we said, additional capacity where we need it and acquisitions and then then that's still our that's still our first priority.

Speaker Change: Okay. That's helpful. And then maybe last one from me just in terms of a larger picture philosophical question, given your balance sheet and cash flow.

Speaker Change: As well as some of the noise around your stock.

Speaker Change: Any appetite here for our share buyback to create some value.

Matt Richard: Yes, Matt.

Matt Richard: It's not really I mean, we haven't changed our strategy here right. We've had we've had a growth strategy for a long time.

Matt Richard: And.

Matt Richard: Ideally, we'd like to reserve our financial capacity.

Matt Richard: For as we said additional capacity, where we need it and acquisitions and Thats still our that's still our first priority.

Adrian Thomas: So. I don't think we want to sort of make dramatic changes in that respect quite yet.

Matt Richard: So.

Matt Richard: I don't think we want to sort of make dramatic changes in that respect quite yet.

Matthew Lee: Okay, fair enough.

Matthew Lee: Thanks for your question.

Speaker Change: Okay fair enough. Thanks, taking my questions guys.

Operator: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touch tone.

Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone phone.

Rupert Merer: Our next question comes from the line of Rupert Mayer with National Bank. Hi Adrian, wondering if you can talk to us a little more about the the relationship between your backlog and bottlenecks and growth. So the backlog was flat and I know that means you're seeing an increased order rate because revenues are higher. But you have talked about the ability to win new business with shorter lead times as you de-bottleneck the business.

Speaker Change: Our next question comes from the line of Rupert <unk> with National Bank.

Speaker Change: Hi, Adrian I'm wondering if you can talk to us a little more about the.

Speaker Change: Hi.

Speaker Change: And the relationship between your backlog and bottlenecks and growth so.

Speaker Change: The backlog was flat and I know that means youre seeing an increased order rate because revenues are higher.

Speaker Change: But you have talked about the ability to win new business with shorter lead times as you Debottleneck the business. So I'm wondering.

Rupert Merer: So wondering, Where does this go in 2025? Do you expect the backlog to remain pretty flat here or potentially does that go down?

Speaker Change: Where does this go in 2025 do you expect the backlog to remain pretty flat here or potentially does that go down and can you talk to us about.

Rupert Merer: And can you talk to us about. How much new business you could win if you can reduce lead times?

Speaker Change: How how much new business you could win if you can reduce lead times how important is that.

Adrian Thomas: How important is... Yeah, so capacity brings us a few things, Rupert. Shorter lead times and the ability to take on more larger projects. So when you look at our markets, there are some parts of the market where we're not the limiting factor. And in those cases, lead times are not as critical to winning business. A lot of the business that we do with OEMs, they have made investments to increase their capacity. They have brought their lead times down, and so for winning that business, we need to support our OEM customers with shorter lead times that allow them to deliver their products to their customers faster.

Speaker Change: Yes.

Rupert: So capacity brings us a few things Rupert.

Speaker Change: Shorter shorter lead times and the ability to take on more.

Rupert: More larger projects so.

Rupert: When you look at our markets there are some parts of the market.

Rupert:

Rupert: We're we're not the limiting factor in those cases.

Rupert: Lead times are not as critical to winning business.

Rupert: A lot of the business that we do with Oems.

Rupert: They have made investments to increase their capacity.

Rupert: Have brought their lead times down and so for winning that business, we need to support our OEM customers with shorter lead times that allows them to deliver their products to their customers faster. So we believe there is opportunity for us to lever shortly.

Adrian Thomas: So we believe there's opportunity for us to leverage shorter lead time cycles in that section of our business. We still see that a lot of electrical equipment still has fairly long lead times, but being prepared for us not to be the bottleneck, I think, is really important. And then the last, as we see some of these large CAPEX projects go, when we see things like data centers, our customers need a supplier who can produce significant volumes of And so building out that capacity gives them the confidence that, working with us, we can deliver the equipment that they need in the timeframe.

Rupert: Lead time cycles.

Rupert: That.

Rupert: Section of our business.

Rupert: We still see that a lot of electrical equipment.

Rupert: Fairly long lead times, but.

Rupert: Being prepared for us not to be the bottleneck I think is really important and then the last as we see some of these large capex projects go when we think see things like data centers, our customers need a supplier who can produce.

Rupert: It can volumes of product and so building out that capacity.

Rupert: Gives them the confidence that working with US we can deliver the.

Rupert: The equipment that they need and the timeframe. So there are sort of three different scenarios. There, but you can you can definitely see the need.

Adrian Thomas: So there's sort of three different scenarios there, but you can definitely see the need to supply large projects with quantities. And then you can see with the OEM market, the need for shorter cycles to support that winning business.

Rupert: Supply large projects with quantities and then you can see with the OEM market the need for shorter cycles to support them winning business.

Rupert Merer: And the new facility you're building in Mexico that's focused on custom products, what's the cadence of your capacity increase? When do you start to see the benefit of that? And when will it be done? So, the additional power capacity should be online by The back half of the year, Rupert.

Rupert: And the the new facility are building in Mexico focused on custom products, what's the the cadence of your capacity increase when do you start to see the benefit of that and when will it be done.

Rupert: So.

Rupert: The additional power.

Rupert: Capacity should be online by.

Rupert: The back half of the year.

Adrian Thomas: And it'll be a step change or is this something that you think? In terms of capacity, of course, not sales or is that something that. And I mean, you can once the equipment gets put in place and once we've we've we've hired people. you know, which, which. You know, can happen over the timeframe of a quarter or two. Then it becomes a question of how do you how do you layer the orders in and start to fill the production in?

Rupert: Okay and it will be.

Rupert: That change or is this something that you think.

Speaker Change: In terms of capacity of course lot sales numbers I don't think of it.

Rupert: And you can once the equipment gets put in place and once we've hired people.

Speaker Change: Which.

Speaker Change: It can happen over the timeframe of a quarter or two and then it becomes a question of how do you how do you layer the orders in.

Speaker Change: You can start to fill the film production and so.

Adrian Thomas: So. So, we'll start to see that happening in the back half of the year, we believe, and some of that will stretch into 2026 as well.

Speaker Change: And.

Speaker Change: So it will start to see that happening.

Speaker Change: In the back half of the year, we believe.

Speaker Change: And some of that will stretch into 2026 as well.

Rupert Merer: I'll leave it there.

Speaker Change: Alright, very good I'll leave it there thank you.

Operator: That concludes today's question-and-answer session.

Speaker Change: That concludes today's question and answer session I would like to turn the call back to Adrian Thomas for closing remarks.

Adrian Thomas: I'd like to turn the call back to Adrienne Thomas for closing remarks. Thank you, operator, and thank you everyone for joining us today. Last year, we demonstrated focusing on our customers, our ability to bring capacity online to meet demand, and our broad market reach gives us options to grow during unpredictable scenarios. We acknowledge the near term challenge presented by geopolitical uncertainties and a shifting economic landscape have risen. However, the long-term tailwinds for our business remain strong. With a resilient business model, diversified market exposure, and continued focus on innovation with our customers, I'm confident that we're well positioned for another successful year in 2025.

Adrian Thomas: Thank you operator, and thank you everyone for joining us today.

Adrian Thomas: Last year, we demonstrated focusing on our customers our ability to bring capacity online to meet demand in our broad market reach gives us options to grow during unpredictable scenarios. We acknowledge the near term challenge presented by geopolitical uncertainties in a shifting economic landscape have risen.

Adrian Thomas: The long term tailwind for our business remains strong with a resilient business model diversified market exposure and continued focus on innovation with our customers and I'm confident that we're well positioned for another successful year in 2025. Thank you.

Adrian Thomas: Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. www.mytrendyphone.co.uk

Adrian Thomas: This concludes today's conference call. Thank you for participating you may now disconnect.

Adrian Thomas: [music].

Adrian Thomas: Okay.

Adrian Thomas: Okay.