Hammond Power Solutions Inc.

Good morning, ladies and gentlemen. Welcome to Hammond Power Solutions' first quarter 2026 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 any undue reliance upon 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 first quarter 2026 financial results. Joining me is our CFO, Richard Vollering, who will walk through the financial results in more detail following my remarks. After that, we'll open the call up for questions. We started 2026 with strong momentum, reflecting healthy demand across our end markets, continued progress in our manufacturing footprint and disciplined execution across our organization. Q1 was a record quarter for us, with sales of 264.8 million, driven primarily by strength in the U.S., and continued momentum in custom products, particularly for data center applications. Gross margins improved sequentially from fourth quarter, reflecting pricing actions, favorable mix, and better factory overhead absorptions as volumes increased. Demand across our core and markets remained healthy, during the first quarter, supported by long-term trends in electrification, power liability, and energy efficiency. Data center activity continues to be a meaningful contributor, driving both volume and higher custom product mix. Order activity during the quarter was strong, and our backlog increased sequentially and significantly year over year, giving us good visibility into the remainder of 2026 and supporting our continued capacity ramp, particularly in Mexico. As volumes scale, our focus remains on efficient backlog conversion while managing cost pressures. Tariff-related input costs remain a headwind compared to last year, but we are actively addressing this through pricing discipline, mix management, and continued improvement in factory absorption. The sequential margin improvement we delivered in the quarter reflects progress in these areas. While margin recovery requires ongoing execution, we believe that we have the right operational levers in place as the year progresses, And Richard will provide more insights later in the call. During the quarter, we also announced our agreement to acquire AEG Power Solutions, subject to regulatory approvals and customary closing conditions. This acquisition expands our technology portfolio, broadens our geographic footprint, and adds meaningful aftermarket and services capabilities. We see this as a strong strategic fit as our customers' power needs continue to grow in complexity and scale. We expect this acquisition to close in the second quarter of 2026. Looking ahead, we remain confident in the fundamentals of our business. Our strong backlog provides good visibility and the demand drivers supporting our markets remain intact. While we continue to monitor variability in input costs and project timing, we believe Hammond Power Solutions is well positioned to execute through the remainder of the year. With that, I'll turn the call over to Richard to review the financial results.

Thank you, Adrian, and good morning, everyone. I'll walk through our first quarter financial performance and provide some additional context on margins and our statement of financial position. Sales were $264.8 million in the first quarter, up 31.5% compared to the $201.4 million in the first quarter of 2025. Growth was driven primarily by U.S. and Mexico, where sales increased 41.8% year over year. Canada was up 3.2%. and India increased 33.5%, largely due to the timing of project shipments that shifted from the fourth quarter of 2025. Gross margin was 30.1% compared to 31.5% a year ago, reflecting the impact of tariffs both direct and indirect on input costs, along with ongoing variability in commodities and project timing. Importantly, gross margin improved sequentially from 29.2% in Q4 2025 As pricing actions flowed through, product mix improved, and factory overhead absorption benefited from higher volumes. General and administrative expenses were higher year-over-year, driven primarily by share-based compensation. In Q1 2026, share-based compensation expense was $5.8 million compared to a recovery in the prior period, reflecting the impact of a higher share price. Excluding share-based compensation, general and administrative expenses increased in line with sales volumes and due to strategic investments in people and technology. Net earnings were $19.6 million compared to $26.2 million in the prior year. Basic earnings per share were $1.64. Adjusted earnings per share, adjusted for foreign exchange and share-based compensation were $2.08 compared to $1.60 in the first quarter of 2025. Adjusted EBITDA was $41 million in the first quarter, as compared to $30.9 million in the first quarter of 2025. Cash generated by operating activities was $11.4 million in the quarter. Working capital increased, primarily due to higher accounts receivable tied to strong sales in March, while inventory levels stabilized after the increases we saw throughout 2025. We continued to invest in the business. Capital expenditures were $8.7 million in the quarter, primarily directed to capacity expansion initiatives. Net debt at the end of the first quarter was $18.1 million as compared to $15 million in the fourth quarter of 2025. Networking capital as a percentage of sales improved in the quarter versus the first quarter of 2025 and also versus the fourth quarter of 2025. This is the result of greater organizational focus on inventory management. We are pleased with these first quarter results, which set new records in terms of sales and profitability. We continue to take advantage of market segment tailwinds while managing the economic headwinds. As always, we are focused on superior operational and financial execution while continuing to plan for strategic growth beyond transformers. Thank you for listening in today. And with that, I'll hand the call back to the operator to begin the question and answer period.