Hammond Power Solutions Inc.

Good morning, ladies and gentlemen. Welcome to Hammond Power Solutions' fourth quarter and year-end 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 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?

Good morning, everyone, and thank you for joining us today. I'm pleased to share Hammond Power Solutions' fourth quarter and full year 2025 results. Joining me is our CFO, Richard Vollering. When we look back on 2025, it was truly a defining year for HPS. As I noted in my letter to shareholders, this was a year where accelerating demand met the capacity and operational foundation we've been building for several years. Our theme, expanding our horizons, reflects both our progress and our growing role in global electrification and digital infrastructure. Three factors define the year. strong demand across key markets, continued expansion of our manufacturing capacity, and disciplined execution across our operations to support growing customer requirements. Let me start with the numbers. For the full year, revenue reached $898.3 million, up 13.9% from 2024. Growth was broad-based, but most pronounced in the U.S. and Mexico, where sales increased 18.1%. driven by strong results in distribution, private label programs, and especially custom-engineered solutions in data center and technology applications. Canada grew 8.6%, supported by infrastructure, utilities, and industrial activity. India shipments were down. However, it continues to contribute positively to our business as we remain disciplined, prioritizing margin over volume. In the fourth quarter alone, we generated $254.1 million in revenue, reinforcing the demand we're seeing for higher value custom solutions, a theme that has been consistent all year. But perhaps the strongest indicator of our trajectory is backlog. By year end, backlog was up 122% year over year and 74% versus Q3, reaching the highest level ever in our company's history. This includes several large multi-year custom projects in the data center ecosystem, which give us strong revenue visibility as we move into 2026. Now turning to margins, gross margins for the year was 30.3%, down from 32.8% last year. This change reflects higher input costs, tariff impacts, and unabsorbed overhead associated with ramping up new manufacturing capacity. These are primarily timing-related impacts, and we expect factory absorption to improve as utilization ramps in 2026. Even with these pressures, earnings remained stable. Net earnings came in at $72.2 million and adjusted EBITDA reached $133.3 million up from last year. This resilience speaks to careful management, linking pricing discipline and cost management to operating leverage and commercial focus on driving demand. As I already commented on new manufacturing, 2025 was also a major investment year for us. We successfully brought over 100 million of new capacity online at Monterey 4 ahead of schedule and on budget, providing us a facility that is already contributing to backlog conversion. We also approved additional projects that will lead to a combined 100 million in custom transformer capacity across our footprint through 2026 and early 2027 to ensure we stay ahead of demand. We expanded our North American logistics network with our new Dallas distribution hub. and we fully integrated Micron Industries, including the final ERP cutover, improving service levels, responsiveness, and efficiency across the region. These steps strengthen our platform for scale and support long-term margin expansion. Now I'd like to talk about our portfolio because this is an area where we are taking a major strategic step forward. As announced earlier this year, we signed a definitive agreement to acquire AEG Power Solutions for 365 million Canadian. This is a transformative addition to HPS. AEG is a global leader in industrial UPS, uninterruptible power supplies, rectifiers, inverters and power conversion technologies. With approximately 326 million Canadian in revenue, more than 780 employees and five manufacturing facilities across Europe and Asia, AEG significantly expands our scale and global reach. Just as important, AEG brings a substantial installed base and with it, a meaningful recurring services and aftermarket revenue stream. This further diversifies and stabilizes earnings while deepening long-term customer relationships. The acquisition also broadens our exposure to high growth and markets like transportation electrification, industrial infrastructure, and data centers, and energy transition projects, markets that are experiencing long cycle structural demand. When you add AEG to our existing transformer and power quality portfolio, along with the expanded capacity we brought online this year, HPS becomes a more diversified, more resilient, and more globally relevant integrated electrification solutions provider. Our portfolio becomes broader, our end market reach becomes deeper, and we establish a significant recurring revenue base. Looking ahead, 2026 will mark 25 years since HPS became an independent public company. And we're entering that milestone year with record revenue, historic backlog, expanded capacity, and a significantly strengthened product and technology offering, including soon AEG Power Solutions. Before I turn the call over to Richard for the financial review, I want to thank our employees for their dedication, our customers for their trust, and our shareholders for their continued confidence in our long-term strategy.

Richard, over to you. Thank you, Adrian, and good morning, everyone.