Jewett-Cameron Trading Company

Good day, and welcome to the Jewett Cameron Report's fourth quarter and fiscal year 2024 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Bloom with Listen Partners. Please go ahead.

Thank you very much, Nick. Appreciate it. And thank you all for joining us. As the operator indicated, to discuss Jewett Cameron's fourth quarter and fiscal year 2024 financial results for the period ended August 31st, 2024. With us on the call representing the company today are Chad Summers, Jewett Cameron's Chief Executive Officer, and Mitch Van Damelen, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. If you dial into the traditional teleconference line, as the operator indicated, please press star then one to ask a question. If you are listening through the webcast portal and would like to ask a question, you can submit your question through the ask a question feature in the webcast player. Before we begin with prepared remarks, please note that statements made by the management team of Jewett Cameron during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft eventually, or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risk that X results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company's 10-K for the fiscal year ended August 31st, 2024. and other filings subsequently made by the company with the Securities and Exchange Commission. An audio recording and webcast replay for today's conference call will also be available online on the company's investor relations page. With that said, let me turn the call over to Chad Summers, Chief Executive Officer for Jewett Cameron. Chad, please proceed.

Thank you, Robert, and good afternoon to all of you. I'm excited to be speaking with you all today with this being our very first earnings call after 28 years as a public traded company. I joined you at Cameron in 2019 and was appointed as CEO in 2023 at the tail end of the pandemic impact with unusually high inventories, extreme supply chain challenges, impacting gross margins, and increased SG&A costs from an ongoing legal matter and increased staffing. We implemented a number of transformative strategic initiatives to address these challenges over the last two years and positioned you at Cameron for long-term profitable growth. Given the progress we've made, not yet reflected in the bottom line numbers, the time is right to expand shareholder awareness of the company. Beyond the work we've done the past few months to broaden our visibility and interact with investors, today is another important step forward in these efforts. To set the agenda for the call this afternoon, with this being our first earnings call, I will begin with a brief overview for anyone who may not be familiar with you at Cameron regarding where we were, where we are today, and then share what we're doing strategically to improve shareholder value. Mitch Van Domelen, you at Cameron's CFO, will dive into the key drivers of our recent financial results, and then I will come back to provide a bit of an outlook for where we are, where we intend to go in the future. We will then be happy to address any questions you might have. So diving right in, Jewett Cameron was founded over 70 years ago and was owner operated and managed for nearly 40 years. The company was lean and opportunistic, acquiring an eclectic combination of businesses, but with aging technology and operational processes, unable to scale. It enjoyed a history of great products, great customers and consistent profits. Today, our mission, is to improve the lives of professionals and do-it-yourselfers with innovative products that enrich outdoor spaces. We offer quality products that solve problems and meet unmet needs in the fence and pet containment categories. These two categories, including our wood fence board sales, make up approximately 88% of our fiscal 2024 revenue. Within fencing, our metal products generate gross margin in the high 30% range, while our wood picket products are in the mid-teens in line with traditional wood brokerage margins. Our best-selling product has been our patented Adjust-A-Gate, which is a full steel frame adjustable gate kit for wood fences. First introduced in the mid-90s, it adjusts to perfectly fit your gate opening and includes a truss cable that can be easily adjusted to prevent your gate from sagging, so it always opens and closes without issue. We are excited to introduce our newest product to the Adjust-A-Gate family, with our low-profile, four-corner, complete gate kit solution like nothing else on the market today that also includes our no-sag truss cable technology and virtually unlimited design options, appropriately called Adjust-A-Gate Unlimited. We also offer a patented adjustable chain link gate under our FitRite brand. It comes in galvanized and black and also includes a truss cable to prevent sagging. The patented Lifetime Steel Post was designed and introduced a little over five years ago to address a common fail point of rotting wood fence posts. It can also be driven directly into the ground as part of the growing no-dig movement, which eliminates digging post holes or adding concrete, saving time and money when building a fence. This product is growing in popularity and is expected to increasingly contribute to future sales through the expansion of our Lifetime Steel Post displayers now being placed in the wood aisle of big box retailers. Our fence category also includes our Eurofence, which is a high-end wood-plastic composite fence with aluminum posts. These are custom-ordered, offering various board colors and design options built to last and require minimum maintenance. Bermuda Patrol is our temporary and highly portable security fence used by major retail for their parking lot sales and by major construction to protect their job sites. One of our customers reported a 30% reduction in shrinkage and theft. Jewett Cameron was originally founded as a lumber brokerage business and continues to trade to this day. For many years, we've served as a secondary supplier of cedar fence boards to major home centers. We continue to supply cedar fence boards and other cedar products to a variety of customers today. Our second largest product category is our Lucky Dog branded pet products. First introduced in the mid-90s, we have carved out a healthy market share of quality, affordable pet containment products to provide a safe space for pets. Our line of Stay Series Welded Wire Kennels maintains one of the highest customer reviews in its category. These products generate an average of 38% margin and are sold through member retail, like Costco, as well as home centers and distribution. I'm excited to announce we are launching a new and improved Lucky Dog Chain Link Kennel in a few months to address common complaints of chain link kennels around quality and assembly difficulties, so keep an eye out for this. Finally, a relatively small contributor to our overall sales is our newest sustainable category. Our proprietary MyEcoWorld compostable and post-consumer recycled PCR bag products are designed to perform while providing a desirable alternative to traditional single-use plastics. Not all bags are created equal, and we are proud to offer bags that exceed performance expectations and offers consumers confidence with our extensive certifications. Interest continues to grow among consumers and channel partners, in part due to increasing plastic bans and a desire to be a good steward of the environment. These products are sold through retail, grocery, home centers, and distribution and generates around a 30% plus gross margin. As I touched on, from a distribution standpoint, most of our products are sold through retail, with the biggest names in the industry being our key customers, including Home Depot, Lowe's, Menards, Costco, Chewy, and many others. These customer relationships are incredibly valuable and a key asset for the company. We also sell through professional channels. With our focus being on the design, sourcing, commercialization, and distribution of a number of functional products primarily for backyards, we have divested a number of our businesses that do not align with this core focus, such as our seed cleaning operation, which I will touch on more in a moment, as the facility itself represents a significant asset for shareholders, which we are in the process of monetizing. So that's a bit of a background and product detail for those of you a bit newer to the company. The last five years for Jewett Cameron is a story of resilience and transformation. We've overcome extraordinary challenges and are positioning the company to regain profitability and growth going forward. As I previously stated, Jewett Cameron challenges arose from antiquated systems and processes that made it difficult to keep up with the changing demands of our sophisticated customer base. This was made more difficult by our China sourcing concentration and elevated cost of materials and high tariffs that decreased our margins. The boom and bust of the pandemic created a surge in demand for our fence products as the influx of home remodels drove sales, and on the pet side, the influx of pet ownership did the same. While the surge was tremendous for sales, the normalization in those industries over time left us with increased operational costs and higher level of inventory due to supply chain costs and delays which impacted cash flows. Additionally, Jewett Cameron was engaged in a multi-year legal dispute with a former distributor that greatly increased our professional fees and demanded extensive management time that fortunately resulted in a successful settlement in fiscal 2024. My team and I worked aggressively to improve our systems and processes. I'll highlight a few cost-related initiatives we've made notable progress on and detail several of our growth initiatives we've implemented to grow sales. It's worth noting that our business is seasonal with our last two quarters of our fiscal year generating the bulk of our sales. So while we make inroads in the first half of this year, the impact in quarter one and quarter two are expected to be less visible in our financials. We successfully reduced inventory 44% from a peak of 20.6 million in August of 2022 to 11.5 million today. In fact, the majority of the inventory reduction occurred in the most recent fiscal year, down 33%. from August 2023 to August 2024. A tremendous achievement with still more work to be done with some of the slower-moving pet inventory most impacted by the inflated supply chain costs and delays. In September 2024, we announced a significant step forward in our strategic initiative to expand and diversify the company's supply sourcing from several new supply partners. We now have highly diversified supply sources from manufacturers located in Canada, Bangladesh, Vietnam, Malaysia, Taiwan, in addition to China. The net result will be the mitigation of tariffs placed on various steel products coming into the United States. We expect to see these impacts flow through the cost of goods sold late in fiscal 2025 and beyond. In addition to the cost management initiatives of inventory and sourcing, we recognize the need to drive value and grow the top line as well. To that end, we have implemented a number of key strategies to build awareness of our differentiated products to grow margin healthy sales. One of our biggest and most impactful growth strategy is continuing to scale in our in-aisle displayers in major home centers. There are over 4,000 stores across the country between Home Depot and Lowe's. Our Adjust-A-Gate displayers are in thousands of these stores today. With our new sales representative partner, Continental Sales and Marketing, we anticipate improved presentation and replenishment of our gates to meet customer demands that we expect will increase gate sales. Since our initial launch of our new steel post displayer in one region just a few short months ago, we were able to get into 100 stores by the end of August in multiple regions. We now have a number of other regions clamoring to get this into their stores, and we are driving to add hundreds of more over the next 12 months. While each fence project may only require one or two gates, every fence requires dozens of posts. Each displayer holds 24 or 48 posts of each finish and size. For reference, a typical residential fence project may require approximately 24 posts. Our posts can actually be machine-driven into the ground in less than 30 seconds with no need to dig a fence post hole or add concrete, which can both save time and back injuries. The initial performance of our steel post displayers in store this summer indicates this program will be a significant contributor to our fence category sales in 2025. Our second notable growth strategy is optimizing our online efforts through our website, social media, and third-party retailer online sites. This is an area where we were under-resourced previously, but have begun to improve in recent years and are well-positioned to accelerate its impact in the year ahead. The significant transition in the way that pros and DIYers research, purchase, and acquire building material demand that suppliers continually update digital assets, such as product images, video content, technical information, and invest in distribution capabilities, such as local warehouses, that result in a seamless shopping experience for the end user. The big box home centers, building material dealers, and co-ops that we sell to require their supply partners to participate in these areas and improve their proficiencies in delivering products efficiently to the end user. Additionally, social media is overwhelmingly the preferred format for pros to showcase their handiwork, whether it's a fence installer posting photos of their latest project on Instagram or a remodeler investing in search engine optimization to drive potential homeowners to their website. We are actively participating in all these areas, with the objective of being a preferred and available solution when it comes to fencing and gate installations. Our third growth strategy is to enhance our engagement directly with pros to increase demand for our products. We are targeting regional fence installers in key markets throughout the country to equip them to become ambassadors and influencers of our products. This will provide us with direct access to the voice of the customer and what challenges they face to influence our ongoing product innovations and solutions. We have already hosted a pro connection day at our offices and gathered extensive input from several pro fence installers from across the country. We want to ensure our products are solving their problems, equipping them for success, and are available where they prefer to purchase, be it their local retailers or distributors. Scaling my eco world is our fourth growth strategy with incredible potential. Now that we have compostable bin liners, yard debris bags, pet waste bags, as well as our lower-cost post-consumer recycled bags, we have a great family of products to offer a variety of channels that support our mission to enrich outdoor spaces with alternatives to traditional single-use plastic. In recent weeks, MyEcoWorld has been selected by multiple regional grocery chains and a farm and ranch retailer with load-ins planned for early calendar year 2025. Our product outperforms the competition, maintains the highest certification standards, and is priced competitively. Our customer reviews are top notch, and we look to capitalize on the growing demand for sustainable products, as well as offer quality alternatives to single-use plastic, especially in jurisdictions implementing plastic bans around the country. We believe this category will become a notable contributor to our business as the demand for high-performing sustainable products grows along with the increasing plastic bans being legislated throughout the country. Greenwood Products specializes in engineering advanced noise and vibration reduction panels for transit buses, motor coaches, light rail cars, and boats. Our DB-Ply proprietary acoustical panel is a cost-effective product designed to reduce vibration and sound transmission to meet mandated interior noise requirements. Greenwood's other products include durable, high-performance structural panels tailored for a wide range of industrial applications, and jumbo concrete forms designed to reduce installation time and lower job site labor costs. The demand for Greenwood transit-oriented products has picked up post-pandemic as riders have returned to the office. Beyond transit, Greenwood specialty engineered lumber has multiple uses in multiple markets, including other types of transportation, construction, and industrial sectors. We believe we can grow our sales by expanding our sales effort to both existing customers as well as to new potential customers in multiple industries outside of transit with the addition of new traders with sales experience across multiple industries. We added a new lumber trader to the team in first quarter of fiscal 25 and continue to actively recruit and grow our trading talent. Finally, on the innovation front, we have a focused product roadmap laid out for the next 12 months. It's a mixture of new products and enhancements on existing products, including a new and improved Lucky Dog Chain Link Kennel, a new low-profile No-Sag Adjust-A-Gate Unlimited Gate Kit, and enhancements to the company's Lifetime Steel Post, Euro Fence Composite Fence product, as well as improvements to the Adjust-A-Gate Original that are expected to contribute to the bottom line. I'm incredibly excited about what is to come with these truly innovative, new, and improved product offerings. Keep your eye out for these launches throughout the year. With all these initiatives at various stages of development, let me provide a bit of a view for how we think this will translate over the coming year. First, the biggest driver to growth this year should come from our metal fencing products and the in-aisle displayers. We have already sold more lifetime steel posts in the first quarter of 2025 than we did annually in any of the first four years. We are ramping this up region by region with an expectation that we should be in hundreds of more stores by the end of the second quarter. With the help of our CSM sales reps, ensuring that we have adjusted gate displayers in the right stores, in the correct location, and properly planogrammed, stocked, and displayed, we expect our gate sales to contribute to our fence category growth. This should translate into strong seasonal growth commencing in the third quarter of this year. Beyond top-line growth, we are expecting to see a pickup in gross margins late in fiscal 2025 and reduction in operating expenses. The margin pickup will be due in part to the improved supply chain sourcing, but also enhanced efficiencies in displayer costs and increasing online sales. On the OpEx side, we expect a reduction due to better aligning our staffing needs with our post-pandemic business and growth initiatives. The end result is an expected return to net income in fiscal 2025. Before I turn it over to Mitch to run through the financials in a bit more detail, let me come back to the asset sale of our seed cleaning facility. For those not familiar, as part of the conglomeration of the various businesses the company had over the years, we ran a seed cleaning facility based here in Oregon. It is in a great location with high quality warehousing space readily available. But from an operation standpoint, we shut down the cleaning operation in August of 2023 and wrapped up seed storage near the end of fiscal 2024. And thus, when you look at our year-over-year comparables, part of the revenue decrease is the absence of those operations. The 11.6-acre property is currently on the market, and it is our belief that the value we will receive for this will be well north of what it is currently on the books for, and thus it will be additive to our overall shareholder value. The Board of Directors is strategizing how we want to put the capital to best use once sold for the benefit of shareholders and the business and will communicate the plan when the property is sold. With that said, let me turn it over to Mitch for a detailed review of the financials. I will then provide some brief closing comments and turn it over for any questions. Mitch?

Thank you, Chad, and good afternoon to everyone on the call today. I will spend my comments today trying to add some color to key areas and events that were drivers during the year. But I am, of course, available to answer any additional questions you might have. Let's start on the revenue line. Revenue for fourth quarter 2024 was $13.2 million compared to $14.6 million in Q4 of 2023. The decrease is primarily due to the wind down of the seed processing operations in August of 23. Further, we saw decreasing revenues in our lower margin wood fencing products as a result of supply limitations and a shift in product mix. These decreases were offset by growth in the company's higher margin metal fence and pet containment products, growth in the company's sustainable solutions focused on its MyEcoWorld product lines, and growth in the company's industrial wood segment. For the year, total revenue was $47.1 million versus $54.3 million last year. Again, key annual takeaways were a $2.4 million decrease due to the wind down of the seed processing operation, a decrease in our pet solutions category, which is largely a reflection of both higher channel inventory levels in the first half of fiscal 23 and a return to more normalized demand following the influx in new pet ownership during the pandemic. And three, a decrease in the company's lower margin wood fencing products. These decreases were offset by an increase in the company's industrial wood segment, which is focused on supplying engineered advanced noise and vibration reducing panels for transit buses. This segment was negatively impacted in the prior year as a result of limitations on new buses being built due to the pandemic and supply-side shortages. As Chad mentioned, as we look at fiscal 25, the growth initiatives we have implemented, particularly the lifetime steel post ramp-up, which has accelerated at a rapid rate and should allow for customer reorders to accelerate in the back half of the fiscal year. Turning to growth margins. Growth profit margins for the fourth quarter of 2024 were 14.5% compared to 20.9% in Q4 2023. For our fiscal year 2024, growth profit margins were 18.8 compared to 22.6 in fiscal 23. The decrease in growth profit margins largely reflect higher inventory costs being carried into the year from prior year periods, increased shipping expenses, as well as one-time write-downs of pet pet inventory totaling $110,000 from Europe and an increase in our obsolete inventory reserve of $460,000. As we look to fiscal 25, while there is still higher inventory to be sold through in future periods, we have advanced several initiatives to decrease cost of goods sold, which should begin to be reflective of improved gross profit margins in the second half of fiscal 25. Operating expenses in fiscal 24 were $10.7 million compared to $11.8 million in the prior year, fiscal 23. The decrease in operating expenses is due to a reduction in professional fees from the prior year relating to the settlement of a legal matter, as well as initiatives taken by the company to implement operational efficiencies and realign headcount to new business processes. As a reminder, during the first quarter of fiscal 24, we successfully settled arbitration we filed against one of our former distributors, which began in 2021, for breach of a distribution agreement. We received a one-time cash payment of $2,450,000 in October 23 under the settlement agreement, which is booked as other income. This payment covered our substantial legal fees and some of the company's losses due to the breach. Working down the income statement, Net loss for Q4 of 2024 was $200,000 or a loss of $0.05 per basic and diluted share, which compares to net income of $300,000 or $0.08 per basic and diluted share in Q4 of 23. For fiscal year 2024, net income was $700,000 or $0.21 per basic and diluted share compared to net loss of $20,000 or a loss of $0.01 per basic and diluted share in fiscal 23. Finally, a few comments on the balance sheet. Chad touched on this, but we continue to make great progress on initiatives to improve our working capital. Inventory balances decreased to $13.2 million at year end 2024 from $18.3 million at August 31st of 23. The cash balance at year end 2024 was $4.8 million compared to $100,000 at August 31st, 2023 and a million at May 31st, 2024. We continue to have no long-term debt and have not drawn on our working line of credit. Finally, stockholders' equity at August 31st, 2024 was $24.9 million, or $7.09 per share, indicating that we are currently trading at a significant discount to book value based on today's closing price. We went through a lot there, and I'm happy to answer any additional questions you might have. So now let me turn this, turn it back over to Chad.

Thanks, Mitch, for the detailed overview. Let me just wrap things up with a few key comments and takeaways. First, during the past two years, the team at Jewett Cameron has successfully navigated through the aftermath of the pandemic, which initially provided a strong boost to our fence and pet divisions due to the surge in home remodels and influx in pet ownership, but thereafter resulted in higher channel inventory levels and a return to more normalized demand. I believe we are well positioned to drive profitable growth due to the implementation of a number of key strategic initiatives aimed at increasing revenue of our highest margin fence and pet products, improving our supply chain security and overall operational efficiency, and through the launch of a series of innovative new products. However, given the seasonality of our business, we don't expect to see the impact of many of these initiatives until the second half of our fiscal year. We have also made the strategic decision to exit certain non-core operations, which has led to the listing for sale of our 11.6-acre seed cleaning facility and property for $9 million. With strategic initiatives ongoing and a clear vision for the future direction of Jewett Cameron in place, the timing is appropriate to move beyond our historical owner-operated roots and outdated processes to broaden the exposure of the company within the professional investment community with a goal to increase shareholder value. We believe continued execution of our strategic plan coupled with enhanced visibility to our progress can lead to a re-rating of our shares. The pillars of Jewett Cameron remain strong. We have exceptional quality products, an elite customer base that includes the world's largest home improvement retailers, and a team that is dedicated to continuously delivering value for our customers. I look forward to delivering on our growth and profit objectives in fiscal 2025 and beyond. With that, let me turn the call over to the operator for any questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause for just a moment to assemble our roster.

All right, Nick, this is Robert here.

While we wait to see if anyone comes in on the live teleconference, I want to just remind everyone again on the webcast side of the equation, if you'd like to ask a question, you can type your question into the ask a question box there on the webcast player. Chad and Mitch, I do have a couple questions here. First one here, so generally can you talk about the timing on the sale of the seed cleaning facility? Any additional color you can add there?

Sure, I can speak to that. This is Chad, CEO. We put it on the market in July and we are gaining some interest on it, but I can't speak to when it will transact. It will take the appropriate buyer to be interested in that, just like many commercial property sales.

Okay, great. Again, anyone who has a question on the webcast portal, go ahead and type it in.

We'll try to get to it here quickly. One other question I have here, Chad, can you talk about what stores the in-store displayers will be in? I think maybe we're referring to what the outlets are for the home improvement retailers there.

Sure. I can speak a little bit to that. What we've shared previously is that we began that in Southern California back in May is where we initiated it, and it has been heavily up and down the West Coast concentrated as those continue to get rolled out, although other regions throughout the country are lining up as well. But right now, that's where you'd be able to find it.

And is there a specific, I don't know if that's Home Depot, are you able to expand upon that?

It is both major big box retailers, Home Depot and Lowe's, yes. Okay, all right, great.

I am not showing any additional questions here at the moment, so with that, Chad, I will turn it back over to you for closing remarks.

Thank you, Robert, and thank you for those questions as well. Let me just reiterate how excited I am for the future of Jurek Cameron as we begin to turn the corner from the past couple of years. The trends that we have seen in our business in some ways mirror the commentary from many others in the industry, which is that there was a major boost to consumer spending on home improvement during the pandemic, but we have now reset the baseline for growth going forward. For reference, Cowen Research recently commented that they believe the $1 trillion home improvement industry is well positioned for a strong cycle, driven by multiple long-term secular tailwinds that are expected to build over the coming years. Again, I look forward to delivering on our growth and profit objectives in fiscal 2025 and beyond, and similarly look forward to speaking with you all again at the conclusion of the current quarter where we will conduct our Q1 call in the mid-January timeframe. So thanks again for your participation, and have a good afternoon.

The conference is now concluded.

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