Mr. Adrian Thomas reports

HAMMOND POWER SOLUTIONS REPORTS FIRST QUARTER 2024 FINANCIAL RESULTS

Hammond Power Solutions Inc. has released its financial results for the first quarter 2024. (Dollar amounts are in thousands unless otherwise specified.)

Highlights:

• Record sales of $190-million in the quarter, an 11.4-per-cent increase versus 2023;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $30,972 in the quarter, or 16 per cent of sales; adjusted EBITDA is 6 per cent higher than the first quarter of 2023;
• Gross margin of 31.7 per cent for the quarter;
• Net earnings of $7.9-million in the quarter; earnings per share of 67 cents for the quarter, significantly impacted by share-based compensation.

"We begin 2024 at a strong pace as we continued to grow our quarterly sales volumes. Higher bookings versus 2023 maintained the backlog even with higher shipments, and we are now seeing bookings and shipments somewhat evenly matched. The distribution network stood out again as a source of strength as more projects continued to flow through this channel. Canada was also a standout as we shipped several key projects in commercial construction, electric vehicle charging, data centres, public infrastructure, oil and gas, mining, and utilities," said Adrian Thomas, chief executive officer of Hammond Power. "With the strong project demand, we have made further commitments to equipment spending as we forecast demand from emerging market segments to continue. We also implemented a price increase that will take effect in the second quarter of 2024, after having not done so since 2022. The increase was in consideration of persistent inflation and resilient demand. Regarding the Mesta and Power Quality business, a large customer project delay impacted our shipments for the quarter, but we still expect full-year shipments to remain close to expectations. We are gaining recognition within the technical community and among our customers, as demonstrated by receiving the Rockwell automation technology partner innovation award for our active harmonic filter."

The U.S. market experienced its strongest growth in the distributor channel as the company continued to increase sales with existing and new distributors. The original equipment manufacturer channel also grew in the quarter, with strong sales to motor control, mining and data centres. The Canadian market experienced increases in both distribution and direct sales in commercial construction, EV charging, data centre projects, public infrastructure, oil and gas, mining, and utilities.

The company's first quarter 2024 backlog increased by 11.1 per cent as compared with first quarter 2023. Strong demand in the back half of 2023 contributed to the high backlog increase from prior year. The company's backlog has decreased 1.1 per cent from the fourth quarter 2023 value as its quarterly shipments reached record levels.

"We began the year continuing with the strong momentum that we were experiencing at the end of 2023. We were able to maintain margins of 31.7 per cent in the quarter despite lower power quality, induction heating inverter and India sales, which all had very favourable margins in quarter 1, 2023. Additionally, we are incurring costs in getting our new factory set up in Mexico, which had a slight negative impact on margins. Offsetting this, margins are being positively affected by a higher proportion of custom projects in the quarter," said Richard Vollering, chief financial officer of Hammond Power. "Notably, share-based compensation was $16.8-million in the quarter, which was $12.2-million higher than in quarter 1, 2023, reflecting the higher share price in 2024, resulting in the decrease in net earnings and EBITDA. A normalized metric for the quarter is adjusted EBITDA, which was 16 per cent in quarter 1, 2024. Net cash generation was slightly negative as we invested almost $7.5-million in [capital expenditures] in the quarter, consistent with our capital expansion plans for 2024, and incurred higher working capital requirements as a result of higher sales and significant seasonal payments in the first quarter for bonuses and rebates."

The company saw a slight decrease in its gross margin rate for first quarter 2024, which was 31.7 per cent compared with the first quarter 2023 margin rate of 31.8 per cent, a decrease of 0.1 per cent of sales. The stability in gross margin is the result of better operating leverage due to high factory throughput, price maintenance in the market and stabilizing cost inputs. Higher gross margins were achieved in all channels and are supported by high demand for the company's products. Margin rates can be sensitive to selling price pressures, volatility in commodity costs, customer mix and geographic blend.

Total selling and distribution expenses were $21,067 in first quarter 2024 or 11.0 per cent of sales versus $17,489 in first quarter 2023 or 10.2 per cent of sales, an increase of $3,578 or 0.8 per cent of sales. The year-over-year increase in selling and distribution expenses is a result of higher variable freight and commission expenses attributed to the large increase in sales.

General and administrative expenses were $29,139 or 15.3 per cent of sales for first quarter 2024 compared with first quarter 2023 expenses of $14,335 or 8.4 per cent of sales, an increase of $14,804 or 6.9 per cent of sales. The increase is mainly due to higher share-based compensation costs, but also due to the company's continuing strategic investments in people and resources, to support its growth strategies, as well as supporting higher levels of general business activity.

Net earnings for first quarter 2024 finished at $7,952 compared with net earnings of $15,726 in first quarter 2023, a decrease of $7,774. The decrease in the quarterly earnings from operations is primarily a result of higher selling, distribution, general and administrative expenses, offset by an increase in sales and gross margin dollars, and lower income tax expense.

EBITDA for first quarter 2024 was $14,999 versus $24,145 in first quarter 2023, a decrease of $9,146 or 37.9 per cent. Adjusted for foreign exchange loss/gain and share-based compensation expenses, adjusted EBITDA for first quarter 2024 was $30,972 versus $29,121 in first quarter 2023, an increase of $1,851 or 6.4 per cent.

Basic earnings per share were 67 cents for first quarter 2024 versus $1.32 in first quarter 2023.

The board of directors of Hammond Power declared a quarterly cash dividend of 15 cents per Class A subordinate voting share of Hammond Power and a quarterly cash dividend of 15 cents per Class B common share of Hammond Power paid on March 28, 2024.

The board of directors of Hammond Power also declared a quarterly cash dividend of 27.5 cents per Class A subordinate voting shares of Hammond Power and a quarterly cash dividend of 27.5 cents per Class B common shares of Hammond Power payable on June 25, 2024.

About Hammond Power Solutions Inc.

Hammond Power enables electrification through its broad range of dry-type transformers, power quality products and related magnetics. Hammond Power's standard and custom-designed products are essential and ubiquitous in electrical distribution networks through an extensive range of end-user applications. The company has manufacturing plants in Canada, the United States, Mexico and India, and sells its products around the globe. Hammond Power shares are listed on the Toronto Stock Exchange and trade under the symbol HPS.A.

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