Hammond Power Solutions Inc.

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 statements. Such information and statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information and statements. These factors include but are not limited to such things as the impact of general industry conditions, fluctuations of commodity prices, industry competition, availability of qualified personnel and management, stock market volatility, and timely and cost-effective access to sufficient capital from internal and external sources. 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. I'd like to hand the call over to Mr. Adrian Thomas, Chief Executive Officer of Hammond Power Solutions. Mr. Thomas?

Thank you, Operator, and good morning, everyone. As we entered 2024, it was clear that adding new capacity was crucial to our future success. We needed to meet the increasing demand of our customers, and we needed to resolve the bottlenecks created by our rapid growth. And today, I'm pleased to report we succeeded and delivered another quarter of double-digit growth for Hammond Power Solutions. Our quarter-over-quarter revenues grew by 11.5%, and we grew 11% in total year-over-year. As our revenues scaled, so did our operating leverage. With strong price discipline and a favorable product mix, we expanded our gross margins 30 basis points for the full year, increasing from 32.5% to 32.8%. In Q4, our custom business continued to grow faster than our standard products. When we looked at our business in 2024, we saw this shift in mix starting mid-year and continued through the second half. We generally look at our customer markets in three buckets, traditional sectors, emerging sectors, and general Traditional markets that include heavy industry and sectors like mining, oil and gas, and infrastructure projects. Emerging markets are sectors that are more recent and growing like renewables, EV, data centers. And the third bucket is really all else. It is uncategorized commercial construction. Construction projects for large office buildings, warehousing, hotels, et cetera, fall into this category. In Q4, we saw commercial construction continue to be held back by concerns over inflation, geopolitical uncertainty, and tariff policies. We also saw an impact to our induction heating business. Some of the projects that we were anticipating have continued to be put on hold as the market uncertainty has caused certain customers to pause developments. While MESTA shipments in Q4 were strong, we still saw some shipments delayed from Q4 and will now ship in Q1 2025. This slowing is expected to continue in 2025. We are continuing to develop our power quality sales, which will allow us to offset some of this, and it is an area that is not so dependent on limited projects and customers. We successfully launched a number of additional products during the last few years in order to more fully serve our customers and access more of the market. We saw acceleration in other sectors, especially emerging industries such as renewables and data centers, and several of our traditional markets experienced high levels of activity throughout the year. The broad coverage of our markets, largely due to our distribution partner network, and greater capacity allowed us to benefit from the growing sectors and achieve our strong growth. Throughout 2024, we executed on our strategy of organically expanding our manufacturing capacity, acquiring businesses to enhance our power quality portfolio, and strengthening our distribution channel. 2024 delivered significant achievements in our capital expansion plans. We brought new production online with the launch of our new factory in Mexico during the second quarter. In addition to opening this new factory, we announced an additional $20 million investment in further capacity expansion in Mexico. This investment will expand production of our custom transformer portfolio, particularly large, high-power transformers that are widely used in commercial and industrial markets. This new factory will add more than $100 million in annual production capacity to our custom portfolio once fully ramped up. This expansion will not only enhance our North American delivery platform, but also shorten wait times for our customers. On the M&A front, we completed the Micron acquisition in October. Micron is a leading manufacturer of industrial control transformers. They have a strong reputation in the OEM and industrial automation space, and this deal will strengthen our position in the OEM market with a broader portfolio of high quality products. Industrial control transformers play a critical role in protecting sensitive equipment and integrates well with our power quality portfolio. Micron's US-based manufacturing capabilities will enable us to better meet the growing demand for domestically made energy efficiency and automation solutions. We continue to build our distribution channel in the US and Mexico. We added more distribution locations and strengthened existing distributor relationships by integrating our power quality products into their expanding portfolios. With 64% of our sales now coming from a well-diversified distribution channel, we are well-positioned to maximize our future capacity and drive additional growth. Our people and culture efforts saw recognitions highlighted by our Great Place to Work certifications in Canada, the US, and in India. We promoted John Bailey to become our new Chief Operations Officer, bringing deep industry expertise and an intimate understanding of our operations. Additionally, our Chair of the Board, Bill Hammond, received a Lifetime Achievement Award from the Electro Federation of Canada, an honour that reflects his lasting contributions to the industry. Our teams continue to actively engage in sustainability initiatives, supporting our dedication to making a meaningful impact on the planet and the communities we serve. And you can learn more about our initiatives by reviewing our 2024 ESG report. As we look to 2025, we see near-term challenges presented by geopolitical uncertainties, tariff concerns, and the shifting economic landscape. While there are some short-term adjustments that would come from tariffs, we are comfortable that we can adapt quickly with a goal to protect margins. For the standard products that are produced in Mexico, so are most of the same products of our competitors. For products produced in the U.S., they will see increased material input costs since there is insufficient domestic supply for major material components such as grain-oriented electrical steel. We believe, in combination, these dynamics would ultimately lead to increased pricing over time as the impacts flow through the supply chain. On the flip side, project activity in various traditional and emerging markets remains strong This activity provides us with momentum for our custom business, which we expect to continue in 2025. Beyond 2025, we continue to believe in a positive market outlook. Just recently, a recent S&P Global Commodity Insights report predicts a 35% to 50% increase in electricity demand in the U.S. from now until 2040. This will create many opportunities for us to grow in the electrical space. With that, I would like to hand the call over to our Chief Financial Officer, Richard Valerian, to provide some context to our financial results. Richard?

Thank you, Adrian, and good morning, everyone. We reached another record in terms of sales in the fourth quarter. Sales in both Canada and the U.S. were strong, as were sales in India and at MESTA. In addition to these higher organic sales, almost a full quarter of micron sales were included as well. The stronger U.S. dollar also had a slightly positive impact on sales. Gross margins in the fourth quarter came down slightly from the third quarter, but were slightly higher than in 2023. The higher margin in the year was a result of a more favorable product mix made up of a larger proportion of custom and configured products and relatively less higher volume standard products. Offsetting this were unabsorbed factory costs due to the new facility in Mexico. slightly higher commodity costs during the year and a stronger U.S. dollar. Excluding share-based expenses, SG&A costs were higher in the quarter than the previous three quarters, primarily due to the higher volume-related expenditures, the timing of certain projects, and one-time expenses that were booked late in the year. We expect that SG&A expenses will return to levels seen in the previous quarters in early 2025. Net income was $71 million for the year, up from $63 million in 2023. Adjusted EBITDA was $130,484,000 for the year, or 16.6% of sales. This compares to adjusted EBITDA of $117,228,000 in 2023, or 16.5% of sales. EPS was $1.99 for the quarter and $6.01 for the year. Working capital increased in Q4 due to the addition of inventory to support our new warehouse strategy. and higher accounts receivable due to higher sales. As a result, networking capital increased to 20% of sales. We expect that inventory levels will decline as a transition to the new warehouse strategy is completed in 2025. Capital expenditures were $41 million in the year, up from $20 million in 2023. Total spending against our $80 million announced capital program is approximately $45 million. We expect capital expenditures in 2025 to be approximately $40 million, including maintenance capital. Cashflow from operations was 65 million in the year, which was used for the purchase of Micron, the capacity expansion CapEx program, and our investment in SmartD. All of these activities represent significant investments in our future growth. Our balance sheet remains strong moving into 2025 with net cash of 21 million, allowing us ample financial capacity for future acquisition or capacity expansion projects. We are pleased with our results in 2024 which we feel reflect a good balance of investing in growth, managing margins and profitability, maintaining financial strength, and allowing ourselves opportunities to continue to grow going forward. Thank you all for calling in this morning. I will now hand the call back to the operator for questions.