Quarter 1 2024 Financial Results for HPS
May 13, 2024
HPS announces its financial results for the first quarter 2024
Hammond Power Solutions Inc. (“HPS”) (TSX: HPS.A) a leading manufacturer of dry-type transformers, power quality products and related magnetics, has announced its financial results for the first quarter 2024.
“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 (“EV”) charging, data centres, public infrastructure, oil & gas, mining, and utilities,” said Adrian Thomas, CEO of Hammond Power Solutions.
“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.”
Highlights
- Record sales of $190 million in the quarter, a 11.4% increase versus 2023.
- Adjusted EBITDA of $30,972 in the quarter, or 16% of sales. Adjusted EBITDA is 6% higher than the first quarter of 2023.
- Gross margin of 31.7% for the quarter.
- Net Earnings of $7.9 million in the quarter. Earnings per share of $0.67 for the quarter, significantly impacted by share-based compensation.
Highlights:
- Record sales of $179 million in the quarter, a 20.5% increase versus 2022. Year-to-date sales of $523 million, a
26.3% increase versus 2022. - Net Income of $14.4 million in the quarter, a 25.2% increase versus 2022. Year-to-date net income of $43.5
million, a 63.5% increase versus 2022. - Earnings per share of $1.21 for the quarter and $3.65 year-to-date.
- Order backlog increased 11% versus Quarter 2, 2023
The United States (“U.S.”) market experienced its strongest growth in the distributor channel as the Company continued to grow sales with existing and new distributors. The Original Equipment Manufacturer (“OEM”) 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 & gas, mining, and utilities.
The Company’s Quarter 1, 2024 backlog increased by 11.1% as compared to Quarter 1, 2023. Strong demand in the back half of 2023 contributed to the high backlog increase from prior year. HPS’s backlog has decreased 1.1% from the Quarter 4, 2023 value as our 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% in the quarter despite lower power quality, Induction Heating Inverter (“IHI”), 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, CFO of HPS.
“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 was 16% in Quarter 1, 2024. Net cash generation was slightly negative as we invested almost $7.5 million in capex 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.”
HPS saw a slight decrease in its gross margin rate for Quarter 1, 2024 which was 31.7% compared to Quarter 1, 2023 margin rate of 31.8%, a decrease of 0.1% 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 Quarter 1, 2024 or 11.0% of sales versus $17,489 in Quarter 1, 2023 or 10.2% of sales, an increase of $3,578 or 0.8% 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% of sales for Quarter 1, 2024 compared to Quarter 1, 2023 expenses of $14,335 or 8.4% of sales, an increase of $14,804 or 6.9% of sales. The increase is mainly due to higher share- based compensation costs, but also due to our ongoing strategic investments in people and resources to support our growth strategies as well as supporting higher levels of general business activity.
Net earnings for Quarter 1, 2024 finished at $7,952 compared to net earnings of $15,726 in Quarter 1, 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 Quarter 1, 2024 was $14,999 versus $24,145 in Quarter 1, 2023, a decrease of $9,146 or 37.9%. Adjusted for foreign exchange loss/gain and share based compensation expenses adjusted EBITDA for Quarter 1, 2024 was $30,972 versus $29,121 in Quarter 1, 2023, an increase of $1,851 or 6.4%.
Basic earnings per share were $0.67 for Quarter 1, 2024 versus $1.32 in Quarter 1, 2023.
The Board of Directors of HPS declared a quarterly cash dividend of fifteen cents ($0.15) per Class A Subordinate Voting Share of HPS and a quarterly cash dividend of fifteen cents ($0.15) per Class B Common Share of HPS paid on March 28, 2024.
The Board of Directors of HPS also declared a quarterly cash dividend of twenty-seven and half cents ($0.275) per Class A subordinate voting shares of HPS and a quarterly cash dividend of twenty-seven and half cents ($0.275) per Class B common shares of HPS payable on June 25, 2024.
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