Q1 2025 Core Molding Technologies Inc Earnings Call
Good morning, everyone welcome to the core molding technologies first quarter 2025 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation, if anyone should we acquire.
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Speaker Change: As a reminder, this conference is being recorded I will turn the call over to Sandy Martin three part advisors. Please go ahead.
Sandy Martin: Thank you and good morning, everyone. We appreciate you joining us for the core molding technologies conference call to review, our first quarter 2025 results. Joining me on the call today are the company's president and CEO, David Your ball, Alex Panda, incoming CFO, and Vice President corporate controller and EVP.
Sandy Martin: <unk> and CFO, John Zimmer, who will join us for Q&A.
Sandy Martin: This call is being webcast and can be accessed through core M. T Dot com.
Sandy Martin: Audio link on the Investor relations events, and presentations page todays call, including the Q&A session will be recorded please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.
Sandy Martin: I would also like to remind you that statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are forward looking statements and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act 1995 by their nature.
Sandy Martin: We're looking statements are uncertain and outside the company's control actual results may differ materially from those expressed or implied please refer to today's earnings press release for our disclosures on forward looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the securities and exchange can.
Sandy Martin: Mission Hormel.
Sandy Martin: For molding technologies assumes no obligation to publicly update or revise any forward looking statements.
Sandy Martin: Management will refer to non-GAAP measures, including adjusted EPS and adjusted EBITDA debt to trailing 12 months EBITDA ratio of free cash flow and return on capital employed reconciliations to the nearest GAAP measures can be found at the end of our earnings release earnings release has been submitted today to the SEC on form 8-K.
Sandy Martin: Now I would like to turn the call over to the company's President and CEO David Wong.
David Wong: Thank you Sandy and thank you all for joining us today.
David Wong: First we had the honor of rainy the New York Stock Exchange opening Bell, so significant milestone for core molded and it was a moment of reflection on how far we called one bank default just five years ago. You were taught me with over $45 million of cash strong execution culture, and a clear focus on growth.
David Wong: I want to thank the entire core team for making this transformation possible and although we are never done we're proud when reflecting on our accomplishments.
David Wong: Over the past five years, we've delivered meaningful improvements in operations profitability and product launch. The result of our must win battles. These efforts are evident in our ability to maintain and even expand gross margins.
David Wong: A difficult first quarter.
David Wong: Despite macroeconomic uncertainties affecting global manufacturing, we remain closely aligned with our customers and supply chain partners, our ability to execute through challenging conditions positions us well to capitalize on opportunities in the current environment.
David Wong: We executed our strategy effectively Q1 delivered solid gross margin expansion profitability and positive free cash flow, despite lower sales, which we previously anticipated.
David Wong: Notably, we achieved 99, 3% on time delivery and maintain a quality level under 100 parts per million Boe.
David Wong: Both industry leading metrics.
David Wong: This year's must win Battle is focused on investing for growth in Q1, we secured over $15 million in annual new business, including $10 million in the building product sector and $5 million in the electric vehicle battery sector.
David Wong: The building product sector when stems from our focus on proprietary sheet molding compounds or SMC as you call. It.
David Wong: Which allows for shorter quote to cash cycles compared to traditional engineered solutions we.
David Wong: Expect this opportunity to generate approximately $5 million in revenue in 2025 with demand beginning in Q2.
David Wong: Continued investment in operational improvements at our SMC compounding capabilities has enabled to grow.
David Wong: The electric vehicle battery win is our second program with this customer and demonstrate our voice of the customer efforts and drive expansion within current customers.
David Wong: In addition, we've invested in our top coat paint capabilities at our Matamoros facility to support customers in the mobile machinery sector.
David Wong: This investment and enhances our value proposition by enabling us to offer a fully integrated solution for our proprietary SMC formulation to molding Assembly and painting all in one facility.
David Wong: This positions us as a complete solution provider for growing markets, such as construction industrial applications and heavy equipment.
Turning to Q1 financials revenue was $61 million.
David Wong: Gross margin expanded to 19, 2% up.
David Wong: 220 basis points year over year and up.
David Wong: 340 basis points sequentially.
David Wong: Adjusted EBITDA margin was 11, 7% and cash flow from operations exceeded $6 million.
David Wong: We expect tolling revenue to ramp up through 2025, and Alex will provide more detail on the evolving revenue mix there.
David Wong: Or is unique business model and execution discipline and create a durable competitive advantage supporting margin stability and healthy cash generation, even in a challenging economic environment.
David Wong: Although John is on the call today to assist with certain investor questions. During our CFO transition I'm excited to be joined by Alex who will cover the details of our first quarter financials.
Alex Panda: Thank you, Dave and good morning, everyone for the first quarter net sales were $61 4 million down 21, 4% as previously reported this was anticipated and primarily driven by lower demand in the medium and heavy duty truck vertical and power sports offset somewhat by growth in our <unk>.
Alex Panda: Building products end markets, our first quarter gross margin continued to improve and was $11 8 million or 19, 2% of sales compared to 17% in the year ago quarter.
Alex Panda: As Dave mentioned, our gross profit margin increased 220 basis points from a year ago and improved 340 points from the fourth quarter of 2024.
Alex Panda: Our gross margin improvements are primarily due to a favorable product mix operational efficiencies and better raw material costs.
Alex Panda: Since most of course cost of sales is variable our ability to maintain gross margins within the targeted range is based on how effectively we manage variable expenses when demand changes.
Alex Panda: We typically have good visibility on demand to reduce variable costs when necessary.
Alex Panda: <unk> gross margin volatility when revenues decline.
Alex Panda: SG&A expenses for the first quarter were $8 9 million, which included 500000 and severance expenses for earlier restructuring.
Alex Panda: Excluding severance SG&A costs for the first quarter were $8 4 million compared to $8 6 million in the prior year.
Alex Panda: The increased SG&A costs were primarily due to lower labor and benefits, including bonus accruals, which were partially offset by unfavorable foreign currency translation of 343000.
Alex Panda: As part of our Q4 reduction efforts certain employees were kept on through Q2 of 2025 to ensure an orderly transition we expect the restructuring to generate both gross margin and SG&A savings in 2020 filed.
Alex Panda: Some of which is already reflected in the first quarter gross margins as we have previously communicated our must win battle. This year is to invest in growth.
Alex Panda: We were using some other restructuring savings to invest in additional sales resources as well as market analysis to enable us to focus our sales efforts in certain markets.
Alex Panda: Operating income for the quarter was $2 8 million or four 6% of sales compared to six 1% of sales in the year ago period.
Alex Panda: Net interest expense was 16000 in the first quarter compared to 82000 in the quarter a year ago.
Alex Panda: Lower net interest expense was primarily due to higher interest income from cash accumulation that earns interest income.
Alex Panda: The first quarter's effective tax rate was 25, 6% compared to 21, 5% in the prior year quarter due to an income shift among our jurisdictions.
Alex Panda: Net income for the first quarter was $2 2 million or diluted income per share of 25 cents compared to net income of $3 8 million or diluted EPS of 43 in the comparable year period.
Alex Panda: Excluding the impact of severance our first quarter diluted EPS would have been 29 cents compared to the 43 cents in the same period a year ago.
Alex Panda: First quarter, adjusted EBITDA was $7 2 million or 11, 7% an improvement from the 11, 2% EBITDA margin in the year ago first quarter.
Alex Panda: <unk> generated $6 1 million and GAAP cash from operations up from $5 1 million a year ago.
Alex Panda: After capital expenditures of $1 8 million in the first quarter, our positive free cash flow was $4 3 million for the years first three months we.
Alex Panda: We expect 2025 capital expenditures to be approximately $10 million to $12 million with a number of large press upgrade projects completing during the second quarter of 2025.
Alex Panda: As of March 31, 2025, we were in a strong total liquidity position of $94 5 million, which included $44 5 million of cash plus $50 million available under the revolver and capital credit lines.
Alex Panda: These term debt was $21 1 million at the end of the quarter and our debt to trailing 12 months EBITDA ratio continues to be less than one times.
Alex Panda: Our return on capital employed a pretax return metric was eight 7% and excluding our cash balances was 11, 7%. Both metrics are computed from our trailing 12 months of operating income to total capital employed.
Alex Panda: With lower sales volume asset utilization was under pressure, we have the production capacity available to generate annual revenues of at least $450 million and as we fill out our production schedule, we will see a return on capital employed rebound.
Alex Panda: Please see our earnings release for our GAAP to non-GAAP reconciliation tables.
Alex Panda: Our capital allocation strategy continues to focus on growth organic and inorganic through acquisitions and managing our debt for flexibility and share repurchases. We will continue to be disciplined and selective concerning Coors M&A activities. We also understand that strategic growth for core molding will provide enterprise value.
Alex Panda: Expansion strong cash flow generation and better return metrics during the first quarter, we repurchased approximately 63000 shares at an average price of $14 50.
Alex Panda: Dave will discuss our expectations for the full year more in a moment for the first half of 2025, we now expect our revenues to be down between 10, and 15% compared to previous guidance of down 5% to 10%.
Dave: Change in guidance is mainly due to the tooling sales shifting to the second half of the year and lower than expected product sales in heavy and medium duty truck market due to macroeconomic and regulatory uncertainties onetime tooling sales are recognize that customer acceptance of the tools and therefore, a sporadic in nature from a tie.
Dave: During standpoint, and often will move between quarters.
Dave: As John mentioned last quarter on terrorists most of our raw materials are U S sourced.
Speaker Change: We continue to mitigate tariff impacts for non U S based raw materials, but expect to pass through incremental cost to customers.
Speaker Change: We will monitor and adjust our cost structure for any customer demand impacts as many Oems we serve operate in Canada and Mexico.
Speaker Change: Although our products in both Canada, and Mexico are U S. MCA compliant and currently are not subject to tariffs the terrorists may impact our customer sales, which could impact the demand for our products. We are working closely with our customers to understand its impact and adjust our production levels accordingly.
Speaker Change: And with that I would like to turn it back to Dave Dave. Thanks out in Q1, we repurchased over 63000 shares nearly a million dollars of stock.
Speaker Change: And followed up after that with another $1 million post quarter end stock purchases.
Speaker Change: We view these repurchases as a high return investment in our own transformation and future.
Speaker Change: We remain active in M&A discussions, while we came very close to an acquisition last quarter. The seller ultimately chose a private equity bar.
Speaker Change: Again, our pipeline remains robust and align with our strategic priorities.
Speaker Change: Like many companies we are not providing formal 2025 revenue guidance is due to macro uncertainty.
Speaker Change: We are monitoring global trade dynamics and potential regulatory changes, including the Epa's 2027 rule, which may shift demand timing of key markets.
Speaker Change: And talking with executives at our large truck customers. They specifically stated they are expecting no changes to model year 2027 emissions are.
Speaker Change: Our team is in constant contact with customers and we are prepared to adapt quickly.
Speaker Change: Although full year revenue expectations are unclear. We believe we will be able to maintain gross margins in the 17% to 19% range for the full year as we adjust our variable cost with fluctuations in demand.
Speaker Change: Internally, we're focused on scaling operations and leveraging our fixed cost base, our sales and marketing team is driving wallet share growth by engaging our OEM customer design cycles of promoting our full range of capabilities, including proprietary SMC formulations large part molding and now top coat painting.
Speaker Change: We continue to prioritize high value parts in sectors, where our technical differentiation gives us an advantage. These include construction energy industrial and medical markets. Our technical solution sales approach is driving better customer engagement and trade show participation is increasing our sales fall.
Speaker Change: M&A remains an active part of our long term growth plan.
Speaker Change: But we're also confident in our organic growth opportunities, particularly through deeper integration with existing customers and entry into adjacent markets.
Speaker Change: I want to thank our team for their continued execution, our customers and shareholders for their trust and our board for its ongoing support.
Speaker Change: Lastly, I'd like to share that Alex Panda, Eric Palo Mackie, our C O O and I will attend the East Coast ideas Conference in New York City on June 11th we look forward to connecting with many of you there with that let's open the line for questions operator.
Speaker Change: Certainly at this time, we will be conducting a question and answer session.
Speaker Change: You would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Your first question for today is from Chip Moore with Roth capital.
Chip Moore: Good morning, everybody.
Speaker Change: Taking my question.
Chip Moore: And Alex welcome welcome to the call.
Speaker Change: I wanted to ask I guess, just first on growth, maybe a little bit more Dave you called out a I think it was $15 million of annual new business just.
Maybe on that FMC.
Speaker Change: Shorter quote to cash what's the capacity and potential there and then maybe some more insight.
Speaker Change: Some of the.
Speaker Change: Funnel for new opportunities.
Speaker Change: Alright.
Speaker Change: We're excited about the S. M C. We've been pushing that for a while are really getting the capacity in our processes in place for that some seem to be able to sell that we really didn't focus on that in the past.
Speaker Change: We do see it as a ongoing revenue opportunity for us and really selling our proprietary as I'm, saying this is going into the construction industry.
Speaker Change: So you look at a lot of the doors and windows and things like that or SMC composite only outside usually a corrugated.
Speaker Change: Material on the inside.
Speaker Change: So we see a lot of opportunities with that and really also supplying the SMC into other markets as well. So I think a big thing for US is that that is much shorter on the.
Speaker Change: Quote to cash cycle time, you really only improving a material that is either already approved or used in other applications. So it's much faster. It's upward we do see a lot of capacity in that area, we have to machine.
Speaker Change: Machines for producing S. M. C. So we see a lot of capacity and capability for that that market itself and capacity already installed in Columbus for that.
Speaker Change: So as far as the pipeline.
Speaker Change: Pipeline, yes, the challenge, we have and we've seen it for the last several launches at the.
Speaker Change: The pipeline is almost inverted to where you have all these quotes coming through and with what you see in the market everybody wants to wait.
Before they find out what to do with a Prime example is we're working with two large.
Speaker Change: Truck customers, where they're making a decision whether they want the manufacturing in the U S or whether they want it in Mexico right. So for US we would would then capacity wise, we'd looked at working and setting up a new plant in the Monterey area for one of the customers and now they're looking at whether they want to delay that or whether they want to do it in the U S. So.
Speaker Change: It really is on the end customer side on one delaying their third decision, making on major decisions.
Speaker Change: For us where we're right in that major decision because once they decide to go with core and they say we want to go in the U S. Now, we're putting capacity in or setting up a plant and they have to spend a lot of money on tooling once once they kick us off so that's that's really the challenge we have several large opportunities on the truck side power sports I think.
Speaker Change: We're seeing some some new opportunities, even any automotive won't drop beds and things like that.
Speaker Change: Waiting for those to come.
Speaker Change: Due to quote system and finalize a decision yep yep.
Speaker Change: That uncertainty are you seeing or do you think your footprint and having a fair amount of capacity right in the U S.
Speaker Change: In Mexico is that you think could it be.
Speaker Change: An advantage, maybe with some things coming back domestically now absolutely we're already gone back through quotes that we had done in the past usually things that are.
Speaker Change: Hi weight low pack density.
Speaker Change: Maybe like a vault.
Speaker Change: Relayed itself or some of the more flat larger pieces that were done in China.
Speaker Change: Being able to bring those back to the U S. So we're actively going after that I would say we are well positioned.
Speaker Change: Relative to capacity in the U S on being able to bring business back into the U S. So.
Speaker Change: A big part of our our strategy is what opportunities does this.
Speaker Change: Present for core and how do we take advantage of those and get those into the U S.
Speaker Change: Got it that's helpful.
Speaker Change: More on some of those other.
Speaker Change: Markets, you talked about more recently I'm thinking like medical the hospital beds turf protection some of those type of newer areas.
Speaker Change: There is are those going.
Speaker Change: Yeah. Good I think the tariff protection, we have our products that are already shipped there already in production.
Speaker Change: We're working on the next Gen would be the customer that we deal with on the next generation I think we're probably one of the few competitors that can actually mold that in one piece on the size of our prices that we have.
Speaker Change: I think is a big advantage for us.
Speaker Change: Also on when you start looking at the medical where we continue to once we I think we do a great job once we we all.
Speaker Change: I have a customer that is a technical product and we're in there and they see what we can provide and do so we see other opportunities in our medical relative to the beds as well as our large equipment.
Speaker Change: We see that as a big opportunity for US we continue to drive into the energy, we do well with like generator basis things like that we're seeing more demand there I think the big.
Speaker Change: Thing is that we're winning you're seeing wins on the smaller programs $2 5 billion dollar, but the bigger programs to big $30 million to $40 million programs that we're going after those are the ones that you're seeing in getting held up.
Speaker Change: Yes from big displays okay, yes.
Speaker Change: Yeah. It makes a lot of sense, Okay, and maybe just one last one the I think you called out some large press upgrades.
Speaker Change: Quarter, what's what's going on there what is that.
Speaker Change: Yeah. Some of our prices are I would say older. They're in good shape, but you can speed them up with technology now between the valves and in hydraulics and our controls the closed loop controls.
Speaker Change: So we are working on we're really evaluating does it make sense, we're evaluating curry upgrade on.
Speaker Change: At least one of our presses to evaluate if that gets it to the level that we want.
Speaker Change: So really it's about taking a crash that it works works well, but given the closed loop controls in the valves on it you could operate at a significantly faster. If you had updated all the controls basically the movements fees and the control positions.
Got it appreciate it.
Speaker Change: Maybe one last one do you called out Dave I think you can come close on a deal last quarter, but they went to Pete maybe just right.
Speaker Change: Great well that would be disappointing.
Speaker Change: Yeah, one of the call I was actually going to say I actually got a phone call and it was a.
Speaker Change: Sorry, It's me not you call. It we were close.
Speaker Change: And just in general like multiples, there and Pete Pete It's P E more active I mean I could imagine.
Speaker Change: Book value sits.
Speaker Change: Maybe even core has been.
Speaker Change: Being looked at but just your thoughts on valuations.
Speaker Change: Yeah.
Speaker Change: Before core hours with Carlyle group and our idea of private equity and what we went after and the value proposition, we were able to present that someone there. It was really about investing the money in growth in <unk>.
Speaker Change: To try to drive this and grow it and sell it at core I think we offer something a lot different and I really thought that it was our competitive advantage in this case, where.
Speaker Change: If you have a company that's $20 million to $80 million.
Speaker Change: They are probably a family company, maybe one or two plants and there's a lot of legacy and they really want a company that's going to come in and keep that going and take care of the family and I think Thats what core offers to another company Thats looking to sell its continued legacy and we see that a lot and there's certain specific circumstance.
Speaker Change: Yes, it was.
Speaker Change: Something else something else.
Speaker Change: Mattered and it was quite a while it was quite a decision process I know he was going back through it many times and we had many discussions.
Chip Moore: Yeah chip, yeah, well were seeing it marketplace for acquisitions is multiples and between six and seven for some of the companies we've looked at.
David Wong: And like Dave said, we were competitive in our pricing for this one it just stayed the owner decided to go Pee for other reasons.
Speaker Change: Got you no I appreciate it.
Speaker Change: Okay I'll hop back in thanks very much.
Speaker Change: Once again, if you would like to ask a question. Please press star one.
Speaker Change: Okay.
Speaker Change: We have reached the end of our question and answer session and I will now turn the call over to Dave <unk> for closing remarks.
Dave Dave: Alright, well. Thank you for your continued interest in our company and we look forward to providing an update on our progress when we report our second quarter results. Thank you and have a great day.
Dave Dave: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.