Q1 2025 Hammond Power Solutions Inc Earnings Call

Yeah.

Operator: Good morning, ladies and gentlemen.

Speaker Change: Good morning, ladies and gentlemen, welcome to him and power solutions first quarter 2025 financial results Conference call.

Operator: Welcome to Hammond Power Solutions first quarter 2025 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.

Speaker Change: Certain statements that will be discussed in this conference call will constitute forward looking statements the.

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

Speaker Change: Forward looking statements will be based on current expectations estimates and projections and 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.

Speaker Change: 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, fluctuation 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.

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

Speaker Change: The 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.

Speaker Change: The risks just outlined should not be construed as exhaustive.

Speaker Change: 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.

Speaker Change: 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. We were pleased with first quarter sales growth of 5.6% over same quarter last year. while slightly lower than Q4 2024, we saw strong growth and backlog of more than 17%, confirming demand for our custom product. Standard product shipments exceeded expectations in a quarter that was clouded with trade uncertainty. With the shift in product mix in Q1, and with higher material and labor costs, our gross margins declined slightly to 31.5% in the quarter.

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

Speaker Change: Thank you operator, and good morning, everyone.

Speaker Change: We were pleased with first quarter sales growth of five 6% over same quarter last year, while slightly lower than Q4 2024, we saw strong growth in backlog of more than 17% confirming demand for our custom products.

Speaker Change: Standard product shipments exceeded expectations in a quarter that was clouded with trade uncertainty.

Speaker Change: With the shift in product mix in Q1, and with higher material and labor costs, our gross margins declined slightly to 31, 5% in the quarter.

Adrian Thomas: We announced a price increase for our catalog products to offset these costs. Announced in February, the pricing increase went into effect in April. With strong increase in backlog, we also anticipate that product mix will shift back towards custom products as we progress through the year, providing additional margin support. In Q1, we shipped more standard products than custom products. When we look back at our business in 2024, we saw a shift in mix towards custom products as many sectors grew, while the uncertainty of U.S. election cycle and slowing commercial construction impacted standard product shipments. January started this year off unusually low.

Speaker Change: We announced a price increase for our catalog products to offset these costs.

Announced in February the pricing increase went into effect in April with strong increase in backlog. We also anticipate that product mix will shift back towards custom products as we progress through the year, providing additional margin support.

Speaker Change: In Q1, we shipped more standard products and custom products. When we look back at our business in 2024, we saw a shift in mix towards custom products as many sectors group, while the uncertainty of U S election cycle and slowing commercial construction impacted standard product shipments.

Speaker Change: January started this year off unusually low construction demand could have been impacted by regional cold weather events, the California, wildfires and increase trade uncertainty.

Adrian Thomas: Construction demand could have been impacted by regional cold weather events, the California wildfires, and increased trade on certain. However, we saw a quick recovery in February and March. Custom product strength in the quarter came from strong data center shipments offset by weak sales and induction heating and markets related to electric vehicle production and infrastructure. With Micron now part of the HPS family, we have already seen contributions to our growth. With a full quarter of results, the initial synergies appear promising, and the combined expertise of our teams is a step forward in our growth strategy. Together, we offer a broader array of solutions to our customers and enhance our reputation for quality products and services, particularly within our OEM market.

Speaker Change: However, we saw a quick recovery in February and March.

Speaker Change: Custom products strength in the quarter came from strong datacenter shipments offset by weak sales in induction heating end markets related to electric vehicle production and infrastructure.

Speaker Change: With Micron now part of the HTS family, we have already seen contributions to our growth with a full quarter of results. The initial synergies appear promising and the combined expertise of our teams is a step forward in our growth strategy.

Speaker Change: Together, we offer a broader array of solutions to our customers and enhance our reputation for quality products and services, particularly within our OEM markets.

Adrian Thomas: Due to rising demand for U.S.-made products, Micron's U.S.-based manufacturing location enhances our service to customers across the U.S. Another area we have been working to improve our customer service is in our ability to optimize our warehouse operations to ensure quick delivery across North America while optimizing the finished goods inventories as we grow. Last year, we saw an increase in inventory due to the ramping up of our new warehouse in the Dallas-Fort Worth area. We expect to see inventory reductions over the next few quarters as this program is implemented. In the first quarter of 2025, we had an increase in inventory that was attributable to the buildup of safety stock to ensure that we meet our delivery commitments for upcoming projects.

Speaker Change: Due to rising demand for U S made products Micron's U S based manufacturing location enhances our service to customers across the U S.

Speaker Change: Another area, we have been working to improve our customer service and our ability to optimize our warehouse operations to ensure quick deliveries across North America, while optimizing the finished goods inventories as we grow.

Speaker Change: Last year, we saw an increase in inventory due to the ramping up of our new warehouse in the Dallas Fort worth area.

Speaker Change: We expect to see inventory reductions over the next few quarters as this program is implemented.

Speaker Change: In the first quarter of 2025, we had an increase in inventory that was attributable to the buildup of safety stock to ensure that we meet our delivery commitments for upcoming projects. We expect that this too will normalize as the year progresses.

Adrian Thomas: We expect that this, too, will normalize as the year progresses.

Adrian Thomas: Our capacity additions are progressing well, and our new factory in Monterrey, Mexico, has reached a significant milestone of completion. We announced this investment less than one year ago as we continue to forecast demand for a larger custom product. We are now in the installation and setup phase. This timeline is ahead of schedule and we expect to start shipping products by the end of the year and then ramp up volumes over time.

Speaker Change: Our capacity additions are progressing well and our new factory in Monterrey, Mexico has reached a significant milestone of completion.

Speaker Change: We announced this investment less than one year ago, as we continued to forecast demand for larger custom products.

Speaker Change: We are now in the installation and setup phase. This timeline is ahead of schedule and we expect to start shipping products by the end of the year and then ramp up volumes over time.

Adrian Thomas: As I wrap up, I would like to share the continued improvements we are making towards our sustainability goals. Our teams continue to be dedicated to making a positive impact on the planet and our communities. In the last reporting cycle, we improved our energy efficiency by 3.2% and diverted over 70% of our waste from landfills through recycling, repurposing, and reuse.

Speaker Change: As I wrap up I would like to share. The continued improvements we are making towards our sustainability goals. Our teams continue to be dedicated to making a positive impact on the planet and our communities and the last reporting cycle, we improved our energy efficiency by three 2% and diverted over 70% of our waste from.

Speaker Change: Windfalls through recycling Repurposing and reuse.

Adrian Thomas: Our upcoming 2025 ESG report will provide more details of the progress we have made.

Speaker Change: Our upcoming 2025 ESG report will provide more details of the progress we have made.

Richard Vollering: With that, I would like to hand the call over to our Chief Financial Officer, Richard Vollering, to provide some context to our financial results. Richard? Thank you, Adrian. As Adrian mentioned, sales increased by 6% in the first quarter of 2025 versus the first quarter of 2024 to $201 million. Your earlier sales in Canada showed strong growth at 7% while sales in the U.S. were down slightly in U.S. dollars. Micron contributed 3% to overall sales year-over-year. Standard product sales improved sequentially from Q4, which we view as a positive sign, while custom sales declined in absolute dollars and as a percentage of overall sales.

Speaker Change: With that I would like to hand, the call over to our Chief Financial Officer, Richard Bothering to provide some context to our financial results Richard.

Richard Bothering: Thank you Adrian.

Speaker Change: Adrian mentioned sales increased by 6% in the first quarter of 2025 versus the first quarter of 2000 $24 million to $201 million year.

Speaker Change: Year over year sales in Canada showed strong growth at 7% while sales in the U S were down slightly in U S dollars.

Speaker Change: Micron contributed to 3% overall sales year over year.

Speaker Change: Standard product sales improved sequentially from Q4, which we view as a positive sign while custom sales declined in absolute dollars and as a percentage of overall sales.

Richard Vollering: We attributed this to timing of certain OEM project business, which we expect will now fall into the second quarter of 2025. gross margins declined in the quarter to 31.5% from 31.7% in 2024, driven by higher input costs and product. However, we implemented a price increase at the beginning of April, and all of things being equal, we expect to see an improvement in the second quarter because of this increase. SG&A costs, excluding share-based compensation, were in line with our expectations. The decline in the share price over the course of the first quarter resulted in a reversal of share-based compensation of almost $11 million.

Speaker Change: We attributed this to timing of certain OEM project business, which we expect will now fall into the second quarter of 2025.

Speaker Change: Gross margins declined in the quarter to 31, 5% from 31, 7% in 2024.

Speaker Change: Driven by higher input costs and product mix.

Speaker Change: However, we implemented a price increase at the beginning of April and all other things being equal we expect to see an improvement in the second quarter because of this increase.

Speaker Change: SG&A costs, excluding share based compensation were in line with our expectations. The decline in the share price over the course of the first quarter resulted in a reversal of share based compensation of almost $11 million.

Richard Vollering: Adjusted EBITDA was $30,916,000 in the first quarter, or 15.4% of sales. This is a decline from both the first quarter of 2024, which was at 16.2%, and the fourth quarter of 2024, which was at 15.6%. The decrease is a result of a lower gross margin in the first quarter of 2025. We included a metric for adjusted EPS in this quarter and will continue to do so going forward. The adjusted EPS, which excludes share-based compensation and foreign exchange gains and losses, was $1.60 per share, as compared to $1.66 per share in the first quarter of 2024.

Speaker Change: Adjusted EBITDA was $30 million 916000 in the first quarter or 15, 4% of sales.

Speaker Change: This is a decline from both the first quarter of 2024, which was a 16, 2% in the fourth quarter of 2024, which was at 15, 6% the.

Speaker Change: The decrease is a result of the lower gross margin in the first quarter of 2025.

Speaker Change: We included a metric for adjusted EPS in this quarter and will continue to do so going forward.

Speaker Change: Adjusted EPS, which excludes share based compensation and foreign exchange gains and losses was $1 60 per share as compared to $1 66 per share in the first quarter of 2024.

Richard Vollering: Net cash decreased by $16 million in the first quarter of 2025. The first quarter is typically worse than other quarters with respect to cash flow due to annual incentive payments. However, in the first quarter of 2025, we also had a negative cash flow impact due to increasing working capital requirements, mainly driven by increased inventory. While finished goods have stabilized, we increased raw material inventory during the quarter, mainly due to an increase of safety stock in anticipation of upcoming projects. Capital expenditures in the first quarter of 2025 were at $8 million, which is on target. As indicated on our last call, we expect that our capital expenditures for the year will be approximately $40 million.

Speaker Change: Net cash decreased by $16 million in the first quarter of 2025.

Speaker Change: First quarter is typically worse than other quarters with respect to cash flow due to annual incentive payments.

Speaker Change: However in the first quarter of 2025, we also had a negative cash flow impact due to increasing working capital requirements, mainly driven by increased inventory.

Speaker Change: While finished goods to stabilize we increased raw material inventory during the quarter, mainly due to an increase of safety stock in anticipation of upcoming projects.

Speaker Change: Capital expenditures in the first quarter of 2025, we're at $8 million, which is on target.

Speaker Change: As indicated on our last call, we expect that our capital expenditures for the year will be approximately $40 million.

Richard Vollering: While sales volumes and margins were lower than our expectations in the first quarter of 2025, it was mainly due to a slower-than-expected January and certain project timings. We believe that the growing backlog indicates that certain sectors, mainly data centers, are still active, and that this will continue to propel demand for custom power products. With the current market uncertainty, we continue to monitor quotation activity and stock product shipments to gauge business activity in the coming quarters. At this time, we are not changing our investment plans with respect to our more strategically focused projects, including our capital expansion projects, but we will be increasingly vigilant with respect to managing costs as we move forward through this uncertain business environment.

Speaker Change: While sales volumes and margins were lower than our expectations in the first quarter of 2025. It was mainly due to a slower than expected January and certain project timing we.

Speaker Change: We believe that the growing backlog indicates that certain sectors, mainly data centers are still active.

Speaker Change: And that this will continue to propel demand for custom power products.

Speaker Change: With the current market uncertainty, we continue to monitor quotation activity and stock product shipments to gauge business activity in the coming quarters.

Speaker Change: At this time, we are not changing our investment plans with respect to our more strategically focused projects, including our capital expansion projects.

Speaker Change: We will be increasingly vigilant with respect to managing costs as we move forward through this uncertain business environment. Thank you.

Richard Vollering: Thank you.

Operator: I will now turn it back to the operator to take questions. 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 118.

Speaker Change: I will now turn it back to the operator to take questions.

Speaker Change: 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 to withdraw your question. Please press star one again.

Matthew Lee: Our first question comes from Matthew Lee with Canaccord Genuity. Hi, guys. It's Matt Lee from Canaccord. Thanks for taking my question.

Speaker Change: Our first question comes from Matthew Li with Canaccord Genuity.

Speaker Change: Hi, guys, it's Matt <unk> from Canaccord, that's all my questions.

Matthew Lee: I wanted to maybe start on the sales front. It does sound like a bit of a delivery delay there. Can you maybe give us some color as to how we should think about... revenue in the context of Q2? Is it just sort of, you know, items ready to be shipped that didn't get out the door? Or is there more to it than that?

Speaker Change: Wanted to maybe start on the sales front it does sound like a bit of a delivery delay. There can you just maybe give us some color as to how we should think about.

Speaker Change: Revenue in the context of Q2 or is it just sort of.

Speaker Change: Item is ready to be separating out the door or is there more to it than that.

Richard Vollering: Yeah, I mean, hey, Matt, it's Richard. Yeah, I think that's that's right. And there was a It was really two things. What you mentioned, there was some product that didn't get out the door that will fall into Q2. There was also really just the timing of certain larger projects that just didn't happen to fall into the quarter. What we would point to is the increase in the backlog, which, which, you know, to us indicates that there's still business activity out there, particularly with respect to data centers. And, you know, and that'll, that'll be spread out over the, you know, the remaining quarters for this year and some going into next year as well.

Speaker Change: Yes.

Richard Bothering: Hey, Matt it's Richard.

Speaker Change: Yes, I think thats right and there is.

Speaker Change: It was to really two things.

Speaker Change: What you mentioned there was some product that didn't get out the door that will fall into Q2. There is also.

Speaker Change: Just the timing of certain larger projects.

Speaker Change: That just didn't happen to fall.

Speaker Change: Into the quarter so.

Speaker Change: We would point to is the increase in the backlog which switch.

Speaker Change: This indicates that there is still business activity out there, particularly.

Speaker Change: With respect to data centers.

Speaker Change: And that will that will be spread out over the room.

Speaker Change: Many quarters for this year and some going into next year as well.

Richard Vollering: Okay, that's helpful. Then maybe the context, you know, can you contextualize backlog a bit there? I mean, 18% quarter over quarter, you know, I think our math on our end suggests that maybe a third of that is related to the shipment delays. Just maybe talk about what other factors are at play that have generated a backlog so much given that it's so much stronger than previous. I mean, it wouldn't be a third. that wouldn't be a third of it that's attributable to shipment delays. It'd be much smaller than that, so. But yeah, I mean, as to the dynamics of that background, as you know, we've spoken before.

Speaker Change: Okay. That's helpful. And then maybe in that context can you contextualize backlog a bit there I mean, 18% quarter over quarter.

Speaker Change: Our math on our own suggests that maybe a third of that is related to the shipment delays.

Speaker Change: Maybe talk about other factors are at play that are general backlog, so much given that.

Speaker Change: So much drama in periods of course.

Speaker Change: Well I mean, it wouldn't be a third that's that wouldn't be a third of it thats attributable to shipment delays would be much smaller than that so.

Speaker Change: But yes.

Speaker Change: As to the dynamics of that background as you as you know we've spoken before.

Richard Vollering: There's a certain element of it that's, you know, day-to-day. product that will ship in the next, you know, couple of months or and then there's an element of it that that will ship. you know, for the most part, you know, the custom portion anyway, for the most part over the next couple of quarters. But as I said, there is some that will extend out into Q4 and into 2026 as well.

Speaker Change: There is a certain element of it that day to day.

Speaker Change: Our products that will ship in the next couple of months and then there is an element of it.

Speaker Change: That will ship.

Speaker Change: For the most part the custom portion anyway for the most part over the next couple of quarters, but as I said, there is something that will extend out into Q4 and into 2026 as well.

Matthew Lee: Okay, that's very helpful.

Okay. That's very helpful and then.

Matthew Lee: And then, you know, maybe one for Adrian here, you know, in terms of the standard products, there's a lot of talk from distributors right now about stocking up before tariffs potentially kick in. And the conversation that you're having, you know, are you hearing that trend come into play? Is there any way to quantify the impact and, you know, kind of how you position yourself in case, you know, there's a big stock up in Q1 and then maybe lower demand in Q2?

Speaker Change: Maybe one for Adrian here in terms of the standard products did a lot of talk from distributors right now about stocking up before tariffs potentially kick in.

And the conversation that you're having are you hearing that China come into play is there any way to quantify the impact.

Speaker Change: Kind of how you position yourself in case.

Speaker Change: <unk> in Q1 that may be lower demand in Q2 to Q4.

Adrian Thomas: Hey, thanks, Matt. Adrian. Yeah, so I think distributors I would say there was kind of mixed decisions by distributors in terms of how they managed and they have multiple product lines. So, I think, depending on the distributor, they may have looked at where the. Priority risks were, um, as as we mentioned before, the products we make in Canada, US or USMCA compliant. Um, and and so, you know, at the moment, the tariffs aren't impacting those products. Um. We did announce a price increase in February, and that went into effect into April. Um, there is naturally a bit of a lift of some pre buying before price increase.

Matt: Hey, Thanks, Matt to Adrian.

Speaker Change: So I think <unk>.

Speaker Change: Distributors.

Speaker Change: I would say there was kind of mixed.

Speaker Change: Decisions by distributors in terms of how they managed and they have multiple product lines. So I think depending on the distributor they may have looked at where the.

Speaker Change: Priority risks were.

Speaker Change: As we've mentioned before the products, making Canada U S or U S MCA compliant.

Speaker Change: And so at the moment the tariffs aren't impacting those products.

Speaker Change: We did announce a price increase.

Speaker Change: In February and that went into effect into April there.

Speaker Change: There is naturally a bit of a lift of some pre buying before price increase that happens this year to be kind of coincidental with when a lot of the tariff talks with.

Adrian Thomas: That happens this year to be kind of coincidental with when a lot of the tariff talk was happening. And so, you know, I, I think there could have been a bit of a lift from price increase and a bit of a lift from. Um, you know, some distributors trying to balance or mitigate risk of a potential tariff. So I think those 2 things probably had some impact. It's hard to say. Which 1 was driving which and I would say. Um, you know, I, I think some distributors were seeing a pickup in some day to day.

Speaker Change: What's happening and so.

Speaker Change: There could have been a bit of a lift from price increase and a bit of a lift from.

Speaker Change: Some distributors trying to balance or mitigate risk of potential tariff. So I think those two things.

Speaker Change: <unk> had some impact it's hard to say.

Speaker Change: Which one was driving which and I would say.

Speaker Change: I think some distributors were seeing a pickup in some day to day volumes as well, so theres, probably a little bit of.

Adrian Thomas: Volumes as well, so there's probably a little bit of. maybe catch up when December and January things were slowing, maybe some projects kind of also had to catch up. So I think there's multiple factors that probably all layer into that standard product pickup in Q1.

Speaker Change: Maybe catch up when December and January things were slowing maybe some projects kind of also had to catch up so I think there is.

Speaker Change: For factors that probably all layer into that standard product pick up in Q1.

Matthew Lee: Right, that's a good color. I mean, you know, last year, you did a price increase, too. So naturally, you'd have seen a similar trend. Did you see more, you know, distributed activity this quarter than, you know, maybe last year relative to, you know, the quarters around it? Well, our sales are higher this quarter. So we have that as well. So I think it's It's not easy to kind of discern precisely. We do believe it has an effect, but it's difficult to know how much.

Speaker Change: Alright, Thats good color I mean last year, you did a price increase to so national you'd have seen that.

Speaker Change: Similar trend do you see more distributor activity this quarter than may.

Speaker Change: Maybe last year relative to that.

Speaker Change: Quarterly around debt.

Speaker Change: While our sales are higher this quarter so.

Speaker Change: We have that as well so.

Speaker Change: I think it's.

Speaker Change: Okay.

Speaker Change: It's not easy to kind of discern precisely we do believe it has an effect, but it is difficult to know how much.

Matthew Lee: OK, well, thanks for all of that.

Ali: Okay. Thanks Ali.

Nicholas Boychuk: Our next question comes from Nicholas Boychuk with Cormark Security.

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

Nicholas Boychuk: Hey, good morning, guys. Coming back to the custom business. It sounds like the data center segment is going well. I'm wondering if you can expand a little bit more on some of the other verticals within that, specifically OEM. Sounds like there's a little bit of weakness there. So any colour on mining, infrastructure, oil and gas, the other verticals you sell into would be appreciated. Yeah, so when we look at OEM business, a lot of the OEM business goes into heavy industry, so oil and gas and mining. they're There is some timing with some of those projects, so I think that does play, timing does play in terms of, you know, the flow from the project down to the OEM to us.

Nicholas Wojciech: Hey, good morning, guys.

Nicholas Wojciech: Coming back to the custom business.

Speaker Change: It sounds like the data center segment is going well I'm wondering if you can expand a little bit more on some of the other verticals within that specifically Oems it sounds like there's a little bit of weakness there. So any color on mining infrastructure oil and gas the other verticals you sell into we appreciate it.

Speaker Change: Yes, so when we look at OEM business, a lot of the OEM business.

Speaker Change: Goes into.

Speaker Change: Heavy industry, so oil and gas and mining.

Speaker Change: There.

Speaker Change: There is some timing with some of those projects. So I think that does play timing does play in terms of.

Speaker Change: The flow from the project down to the OEM to us.

Adrian Thomas: I would say in Canada, the was a diverse set of different industries and different projects. And so data centers certainly was a big piece of the backlog, but. we still saw it in a variety of industries. hospital jobs, water treatment plants. regular industrial facilities. So it was a pretty diverse set of segments, but data centers was the fastest and the largest piece of that update.

Speaker Change: I'd say in Canada.

Speaker Change: Was a diverse set of different industries and different projects and.

Speaker Change: So data centers, certainly was a big piece.

Speaker Change: Of the backlog, but.

Speaker Change: We still saw in a variety of industries.

Speaker Change: Hospital jobs water treatment plants.

Speaker Change: Regular industrial facilities. So it was pretty diverse set of.

Speaker Change: Segments, but data centers was the fastest and the largest piece of that uptick.

Nicholas Boychuk: Okay, got it.

Speaker Change: Okay got it and then on standard I know you mentioned that obviously, some distributors handled things a little bit differently.

Nicholas Boychuk: And on standard, I know you mentioned that, obviously, some distributors handled things a little bit differently. What's the response been from competitors in terms of price increases? I'm curious, like, through some other coverage we have in the electrical distribution space, it seems as if some are being opportunistic and passing on price increases more than inflation.

Speaker Change: What's the response been from competitors in terms of price increases I'm curious it through some other coverage we have in the electrical distribution space. It seems as if some are being opportunistic and passing on price increases more than inflation.

Adrian Thomas: Are you guys seeing any of your competitors do things completely different from you such that you might have an opportunity now to either entrench more with a distributor or take share? For more information, visit www.fema.gov I can't speak for our competitors, but the feedback from our distributors were that, you know, the one day when we when we did adjust prices for the day that the tariffs were on, they felt that we did it in a transparent and reasonable way, and they appreciated our approach. I just want to make sure I understand correctly that the price increase, the even active effect of April, that will cover all of the inflation that we've had up until that point.

Speaker Change: Are you guys seeing any of your competitors do things completely different from new such that you might have an opportunity now to entrench more with the distributor or take care.

Speaker Change: I can't speak for our competitors, but the.

Speaker Change: Back from our distributors where that.

Speaker Change: On the one day when we when we did adjust prices for the day that the tariffs were on they felt that.

Speaker Change: We did it in a transparent and reasonable way and they appreciate our approach.

Speaker Change: Okay understood and then last on gross margins I, just want make sure I understand correctly that the price increase that you've been active effective April that will cover all of the inflation that we've had up until that point has any additional come in and then too.

Nicholas Boychuk: Has any additional come in?

Richard Vollering: And then two, the new facility that you have coming online in Mexico, the custom facility, is that going to come in as a lower gross margin profile initially? Is there a ramp period? Or can we think of that as having a consolidated gross margin profile similar to your other existing custom facilities?

Speaker Change: The new facility that you have coming on line in Mexico. The customer facility is that going to come in at a lower gross margin profile. Initially is there a ramp period or can we think of that as having a consolidated gross margin profile similar to your other existing customer facilities.

Adrian Thomas: So I'll take the first one. I'll ask Richard to talk to how the factory costs play into our P&L, but on the price increase, I think what we've seen in terms of material and labor inflation are consistent with what we modeled. So we believe the current price increase addresses that. We'll continue to watch, and particularly as we watch some of the trade negotiations, if we start to anticipate that there will be further inflation, we'll look to do additional price increases. But as it stands right now, it's relatively in line with what our cost forecasting was, and so it should cover it for all things being equal.

Speaker Change: So I'll take the first one and I'll ask Richard to talk to the how the factory cost play into our P&L, but on the on the price increase.

Speaker Change: Think what we've seen in terms of material and labor inflation are consistent with what we model. So we believe the current price increase addresses that we'll continue to watch.

Speaker Change: And particularly.

Speaker Change: As we as we watch some of the trade negotiations if we start to anticipate that there will be further inflation, we'll we'll look to do additional price increases, but as it stands right now.

Speaker Change: It's relatively in line with what our cost forecasting wasn't so it should cover it for.

Speaker Change: All things being equal.

Richard Vollering: Hi Nick, it's Richard. In response to your second question, yes, there's going to be an overhang. for the two New Mexico plants, less so for the Small Prowess plant as we continue to ramp up production, but then as we get closer to Standing up the new custom power plant, which we hope to start shipping from in the fourth quarter of this year. We will see a little bit of an overhang there. That'll last until that plant gets loaded up. now into 2026. And the other part of your question is the margin profile. It'll be similar to the margin profile of other custom products.

Speaker Change: And I think that gets Richard in response to your second question, Yes, there is theres going to be an overhang.

Speaker Change: For the two new Mexico plants.

Speaker Change: Less so for.

Speaker Change: The small profit as planned as we continue to ramp up production.

Speaker Change: But then as we get closer to two.

Speaker Change: Standing up the new custom power plant.

We hope to start shipping from.

Speaker Change: In the fourth quarter of this year, we will see a little bit of an overhang, there and that'll that'll warmest until that plant gets loaded up.

Speaker Change: In 2026.

Speaker Change: And the other part of your questions the margin profile it'll be it'll be similar to the margin profile of other custom product.

Speaker Change: Yes.

Nicholas Boychuk: Okay, that's great guys, I appreciate the color.

Speaker Change: Okay. That's great guys I appreciate the color.

Rupert Merer: Our next question comes from Rupert Merer with National Bank. Hi. Good morning, everyone.

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

Rupert: Hi, good morning, everyone.

Rupert Merer: Wondering if you can talk to us a little about the relationship between the backlog growth and your planned capacity. increases. Is the backlog growth in part related to the plant expansion in Mexico, meaning are you selling out capacity? So, Rupert, no, we're not selling out capacity today, although we are looking forward at projects and what our capacity is to take on additional projects. So, with the new factory coming online faster, we have the ability to chase more projects, but I would not say that that facility is sold out. Well, I mean, are you are you selling projects or are there projects in the backlog that will be delivered?

Rupert: Wondering if you can talk to us a little about the relationship between the backlog growth and your planned.

Rupert: Capacity increases.

Rupert: Increases as the backlog growth in part related to the plant expansion in Mexico, meaning are you selling out capacity there today.

Rupert: So rupert.

Rupert: We're not selling up capacity today, although we are looking forward at at projects and what our capacity is to take on additional projects so with the.

Rupert: New factory coming online faster, we have the ability to chase more projects, but.

Rupert: I would not I wouldn't.

Rupert: Say that that that facility is.

Rupert: <unk> is sold out.

Speaker Change: I mean are you selling projects or are there projects in the backlog that will be delivered out of Mexico.

Rupert: It's been a way to put it.

Richard Vollering: It's likely some of the longer cycle projects that we received in Q1 could be shipped out of that factory.

Rupert: It's likely some of the longer cycle projects that we received in Q1 could be shipped out of that factory.

Richard Vollering: And on the production capacity, so with your custom products, where would you say you were on? And how does that capacity increase through the year? So we were. At the high end of our capacity limits, Rupert, we weren't at 100%, but we were up there for The ramp up there are some Certifications and things that we need to do as we ramp up the factory. So there are some. It's not without any time risk, but the fact that we have the building built and we're installing equipment as we speak, it's positive that we can start producing product in the 4th quarter.

Speaker Change: And on the production capacity, so with your custom products, where would you say you were on that.

Rupert: Capacity utilization in Q1.

Rupert: And how does that capacity increase through the year as you add Mexico.

Rupert: So we were.

Rupert: At the high end of our capacity limit to Rupert, we werent, 100%, but we were.

Rupert: We were up there.

Rupert: Four.

Rupert: The ramp up there are some.

Rupert: Certifications and things that we need to do as we ramp up the factory. So there is some.

Rupert: It's not without anytime risk, but the fact that we have the building built similar installing equipment as we speak it's positive that we can.

Rupert: Start producing product in the fourth quarter.

Richard Vollering: As as we did see backlog increase, if the orders rate continues further in the year, and this is dependent on sort of project business continuing. That would allow us to to start shipping more out of that factory. I think when we originally announced this, we were sort of talking about starting shipments in 2026. so this will allow us to pull forward some of those sales, which is a positive.

Rupert: As as we did see backlog increase if the orders rate continues further in the year and this is dependent on sort of project business continuing.

Rupert: That would allow us to.

Rupert: To start shipping more out of that factory.

Rupert: I think when we originally announced this we were sort of talking about starting shipments in 2026. So this will allow us to pull forward some of those sales which is.

Rupert: A positive.

Adrian Thomas: Great, and on micron you talked about. Synergy there. Walk us through some of the considerations. So where do you see the synergy and is there much to do on. Product Standardization. Converge on one product solution, maybe switch them over. with your methods, or how do you? So there are synergies on both ways, Rupert. So there were some things in terms of their production process, which we think is beneficial that we can apply. You know, I believe we can bring synergies in terms of the scale, in terms of sourcing. So that'll bring some synergies. On that aspect, on the customer side, they had access and serve a number of customers that we were not servicing.

Rupert: Alright, great and non micron, you've talked about increasing synergy there can you walk us through some of the considerations for that business and where do you see the synergy and is there much to do on.

Rupert: Product standardization.

Rupert: <unk>.

Rupert: Sort of converge on one product solution, maybe switch them over to some of your methods or how do you see that evolving over time.

Rupert: Okay.

Speaker Change: So there are synergies on both ways Rupert So there were some things in terms of.

Rupert: Their production process, which we think is beneficial that we can apply.

Rupert: I believe we can bring synergies in terms of the scale in terms of sourcing so that'll bring some some synergies.

Rupert: On that aspect on the on the customer side, they had access and serve a number of customers that we were not servicing on the human side with similar products.

Adrian Thomas: On the Hammond side with similar products, that access to those customers, we're trying to work with them to expand the number of products that we can sell because the Hammond portfolio was much larger than the Micron portfolio. So it's allowing some of that pull through. And one of the areas that we're focused on getting some pull through is also in the power quality components.

That access to those customers, we're trying to work with them to expand the number of products.

Rupert: That we can sell because the human portfolio was much larger than the micron portfolio.

Rupert: Its allowing some of that pull through and one of the areas that we're focused on getting some pull through is also in the power quality components.

Adrian Thomas: Thank you all. Thank you. And we have quite a broad reach. So we have coverage all across North America, whereas some of the coverage at the time of acquisition with Micron was limited to to certain areas. So we've increased coverage there in terms of product consolidation. These these products, while similar, go into pieces of equipment and get mounted in certain ways. And so there can be some. cost to a customer to change products because different mounting or different parameters. So at the moment, we plan to maintain both product lines so that the customers that have standardized on our products can continue to use them.

Rupert:

Rupert: And we have quite a broad reach so we have coverage all across North America.

Rupert: Whereas some of the coverage.

Rupert: At the time of acquisition with Micron was limited to certain areas. So we've.

Rupert: Increased coverage, there and in terms of product consolidation.

Rupert: These products while similar.

Rupert: Go into pieces of equipment and get mounted in certain ways and so there.

Rupert: Can be some.

Rupert: Cost for a customer to change product because different mounting or different parameters. So at the moment, we plan to maintain both both product lines. So that the customers that have standardized on our products can continue to use them.

Rupert Merer: All right, great. I'll leave there.

Alright, great ill leave there and get back in the queue. Thank you.

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

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

Rupert Merer: We have another question from Rupert Merer with National Bank. Your line is now open.

Speaker Change: We have another question from Rupert <unk> with National Bank. Your line is now open.

Rupert Merer: Hi, gentlemen, can you talk to us about M&A plans? Do you have any updates on your? M&A pipeline, how that's shaping up, and Any potential deals you could see this year? I know you're. focus more on power quality, but any thoughts on.

Speaker Change: Hi, gentlemen, can you talk to us about M&A plans have any sort of updates on your M&A pipeline, how that shaping up any.

Speaker Change: And any potential deals you could see this year I know your.

Speaker Change: Focus more on power quality, but.

Speaker Change: Any thoughts on.

Speaker Change: On other verticals that you might look to invest in.

Adrian Thomas: Yeah, hey, Rupert, it's Adrian again. So, we did, I'm not sure if we've shared broadly, but part of the acquisition of Micron, we brought over someone that joined our team. So, Norton Bates, who is the president of Micron, is now our EVP for corporate business development. So, he's an additional resource that we're leveraging for us to do business development and M&A. We have an active portfolio, so we're speaking with a number of potential, both acquisition targets and also partnerships. But beyond that, I can't share any details.

Adrian Thomas: Yes, Hey, Rupert Adrian again.

Speaker Change: So we did.

Adrian Thomas: Im not sure if we've shared.

Adrian Thomas: Broadly but.

Adrian Thomas: Part of part of the acquisition of Micron.

Adrian Thomas: We.

Speaker Change: Brought over someone that joined our team. So Norton base, who is the president of Micron is now our EVP for corporate business development. So he is.

Speaker Change: And additional resource that we're leveraging for us to do business development.

Speaker Change: M&A.

Speaker Change: We have an active portfolio. So we're speaking.

Speaker Change: With a number of potential.

Speaker Change: Both acquisitions.

Speaker Change: Physician targets and also partnerships.

Speaker Change: But.

Speaker Change: Beyond that I can't share any details.

Speaker Change: Okay 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 Adrian Thomas for closing. Thank you, operator.

Speaker Change: Thank you operator, I would just like to thank everyone for joining the call today.

Adrian Thomas: I would just like to thank everyone for joining the call today, and just remind everyone that our business continues to have a robust business model, diverse market exposure, and we have an ongoing commitment to innovation with our customers. While there's economic uncertainty, we believe that the mega trends on electrification will continue over time, and that we're well suited to benefit from this transition. Thank you.

Speaker Change: And just to remind everyone that our business continues to have a robust business model diverse market exposure and we have an ongoing commitment to innovation with our customers. While there is economic uncertainty, we believe that the mega trends on electrification will continue over time and that we're well suited to benefit from this transition. Thank you.

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

Speaker Change: This concludes today's conference call. Thank you for participating.

Speaker Change: May now disconnect.

Speaker Change: Okay.

Speaker Change: [music].