BigBear.ai Q1 2025 Earnings Call Transcript

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February 5, 2025

There are 7 speakers on the call.

Operator

Greetings and welcome to the Griffin Corporation Fiscal First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Harris, Chief Financial Officer.

Operator

Officer. Thank you. You may begin.

Speaker 1

Thank you. Good morning, and welcome to Griffin's first quarter fiscal twenty twenty five earnings call. Joining me for this morning's call is Ron Kramer, Griffin's Chairman and Chief Executive Officer. Our press release was issued earlier this morning and is available on our website at www.griffin.com. Today's call is being recorded and the replay instructions are included in our earnings release.

Speaker 1

Our comments will include forward looking statements about Gryphon's performance. These statements are subject to risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our SEC filing. Finally, during today's remarks, we'll adjust for items that affect comparability between periods. These items are explained in our non GAAP reconciliations included in our press release.

Speaker 1

With that, I'll turn the call over to Rob. Thanks, Brian. Good morning, everyone, and thanks for joining us. Fiscal twenty twenty five is off to a strong start. In Q1, we delivered robust free cash flow of $143,000,000 maintained solid operating performance at home and building products and saw continued profitability improvements at consumer and professional products.

Speaker 1

With this momentum, we are on track to achieve our financial targets for the year. For the quarter, HBP revenue was consistent with the prior year and EBITDA increased by 2%. Revenue benefited from increased residential volume, which was offset by reduced commercial volume. EBITDA benefited from reduced material costs, partially offset by increased labor and distribution costs. In CPP, first quarter revenue decreased 4%, primarily due to decreased volume as all the CPP home markets except for Australia continued to see reduced consumer demand.

Speaker 1

Australia benefited from increased product offerings sold through the retail channel and revenue contributed by the Pope acquisition. CPP EBITDA in the first quarter increased by $13,000,000 to $18,000,000 This increase in profitability reflects the positive effects of the global sourcing expansion initiative and increased volume in Australia. Turning to capital allocation. During the first quarter, we repurchased $42,000,000 of our stock, 610,000 shares at an average price of $69.4 per share. At December 31, '3 '90 million dollars remains under our repurchase authorization.

Speaker 1

Since April 2023 and through December, we have repurchased $468,000,000 of our stock, 9,500,000.0 shares at an average price of $49.09 These repurchases have reduced Griffin's outstanding shares by 16.7% relative to the total shares outstanding at the end of the second quarter of fiscal twenty twenty three. Also yesterday, the Griffin Board authorized a regular quarterly dividend of $0.18 per share payable on March 18 to shareholders of record on February 25, marking the fifty fourth consecutive quarterly dividend to our shareholders. Our dividend has grown at an annualized compounded rate of more than 18% since we initiated dividends in 2012. These actions reflect the strength and resiliency of our businesses as well as continued confidence in our strategic plan and outlook. I'll turn it back to Brian for a few more details on the quarter.

Speaker 1

Thanks, Jiran. First quarter revenue of $632,000,000 decreased 2% and adjusted EBITDA before unallocated amounts of $145,000,000 increased 11%, both in comparison to the prior year quarter. EBITDA margin before unallocated amounts 23%, an increase of two seventy basis points. Gross profit on a GAAP basis for the quarter was $264,000,000 compared to $237,000,000 in the prior year quarter. Excluding items that affect comparability from recurring and prior periods, gross profit was $264,000,000 in the current quarter compared to $248,000,000 in the prior year.

Speaker 1

Normalized gross margin increased year over year by three twenty basis points to 41.8%. First quarter GAAP selling, general and administrative expenses were $152,000,000 consistent with the prior year. Excluding adjusted guidance from both periods, SG and A hundred and $51,000,000 or 23.8% of revenue compared to the prior year of $147,000,000 or 22.9% of revenue. First quarter GAAP net income was $71,000,000 or $1.49 per share compared to $42,000,000 in the prior year quarter or $0.82 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $66,000,000 or $1.39 per share compared to the prior year of $55,000,000 or $1.07 per share.

Speaker 1

Corporate and unallocated expenses excluding depreciation in the quarter was $14,000,000 consistent with the prior year. During the quarter, we realized $17,200,000 in proceeds from the sale of real estate as a result of our CPP Global Sourcing Expansion initiative. This offset capital expenditures of $17,500,000 resulting in net capital expenditures of approximately $200,000 Prior year net capital expenditures were $14,000,000 Regarding our segment performance, as Ron mentioned earlier, revenue for homebuilding products was consistent with the prior year quarter reflecting increased residential volume offset by reduced commercial volume. Price mix was also in line with the prior year quarter. Adjusted EBITDA increased 2% compared to the prior year quarter as reduced material costs were offset by increased labor and distribution costs.

Speaker 1

Consumer and professional products revenue decreased 4% from the prior year quarter to $237,000,000 due to decreased volume driven by reduced consumer demand in North America and The United Kingdom, partially offset by organic growth in Australia and a 4% contribution from the Pope acquisition. CPP adjusted EBITDA increased by $13,000,000 from the prior year quarter to $18,000,000 primarily due to the positive effects from our now completed global sourcing expansion initiative and the increased volume in Australia. Regarding our balance sheet and liquidity, as of 12/31/2024, we had net debt of $1,300,000,000 and net debt to EBITDA leverage of 2.4 times was calculated based on our debt covenant compared to 2.5 times leverage at the end of last year's first quarter. Our net debt and leverage decreased on our year end September 2024 even after returning $51,000,000 to shareholders through dividends and 5x in the quarter. All aspects of our fiscal twenty twenty five guidance provided in November 2024 remain unchanged, including $2,600,000,000 of revenue and $575,000,000 to $600,000,000 of segment adjusted EBITDA, which excludes unallocated costs and certain other charges that affect comparability and free cash flow exceeding net income for the year.

Speaker 1

We continue to anticipate 2025 HPP and CPP revenue will both be in line with 2024. HPP sales are expected to benefit from increased residential volume, which will be offset by reduced demand for commercial projects. And we expect to return to normal seasonal patterns, which includes reduced volume during winter months. CPT sales are expected to reflect continued growth in Australia, but offset by weakness in North America, which is expected to persist through the first half of twenty twenty five. Now, I'll turn the call back over to Ron.

Speaker 1

Thanks, Brian. Our 2025 is off to an excellent start with strong free cash flow, continued solid operating performance at HPP HPP and continued improved profitability at CPP. These results reinforce our confidence and our outlook for the year. We'll continue to use the strong operating performance and free cash flow of our businesses to drive a capital allocation strategy that delivers long term value for our shareholders. This strategy includes investing in our businesses, opportunistically repurchasing shares and reducing debt.

Speaker 1

To conclude this, I want to express my sincere gratitude to all of our Griffin employees around the world whose dedication and effort have driven our financial success. I couldn't be prouder of what we've accomplished together and there's much more ahead. Operator, we'll take any questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Robert Schultz with Baird. Please proceed with your question.

Speaker 2

Hey, good morning guys. Thanks for taking the question. Good morning. So within CPP, you guys have switched to a sourcing strategy in the tools and storage businesses. Any way to help us understand the geographical mix of the imported products now, like any key regions or countries or any other color you could give there?

Speaker 1

Sure. So your question is obviously touching upon tariffs. So let me start with the tariff situation is extremely fluid. With that said, given the proposed tariffs on Mexico, Canada and China, we are comfortable with maintaining our 2025 financial guidance. Similar to tariffs in 2018, we expect to mitigate the effects of changing tariff policy through a combination of price, supplier negotiations and further diversifying our global supply chain.

Speaker 1

As we exit our fiscal twenty twenty five, we expect our tariff mitigation measures to be implemented and in effect, allowing Griffin to maintain its long term EBITDA margin target. And to your question, specifically, yes, we do have significant amounts coming from China related to our lawn and garden and hunter fan businesses. Those are the only significant areas where tariffs could have an impact.

Speaker 2

Got it. And then just an update on capital allocation. At today's levels, kind of how are you thinking about debt pay down versus buybacks?

Speaker 1

We continue to believe our stock is opportunistically attractive. And at these levels, we'd rather buy stock than pay down debt, but we can do both.

Operator

Thank you. Our next question comes from the line of Bob Labick with CJS Securities. Please proceed with your question.

Speaker 3

Good morning. Congratulations on continued strong performance.

Speaker 1

Thanks, Bob. Thanks. Good morning.

Speaker 3

Yes. So, speaking of, obviously, you've made great progress in CPP and you just talked a little bit about the tariff situation. But, you've talked about getting margins up over the next few years substantially from here as well. So, maybe talk a little bit about the next key steps and what the process is from here going forward on CPP margin expansion? And I'll stop right there, please.

Speaker 1

Sure. So through this year, we'll be transitioning from manufactured inventory to sourced inventory as we go through the year. We did build up inventory last year in anticipation of this transition. And as we go forward, we'll continue to leverage the global supply chain. Our initial move was to go with suppliers that we were already using for Australia and The UK and somewhat for The U.

Speaker 1

S. And Canada. And step two, as we've always planned, is to then look across the globe for the best sourcing opportunity. We will continue to design and bring new products to, in particular, into The U. S, of course, across the world as well.

Speaker 1

And we expect over time, the consumer will come back from the levels that it's at, the low levels of purchasing that are happening.

Speaker 3

Okay, great. Thanks. And then you also mentioned

Operator

on HBP,

Speaker 3

residential about commercial down kind of in volumes there. Talk about the headwinds and tailwinds in general to the commercial and resi door markets and your performance versus the overall market?

Speaker 1

Sure. On the residential side, we believe we're outperforming the market and gaining market share. We play mostly on the high end residential door and that part of the market continues to be strong. On the commercial side, over the last almost two years now, the ABIs and the Dodge Momentum Indexes have been soft. It feels like they're starting to bottom, but in the meantime, that affects our commercial volume as it would anybody else.

Speaker 1

And we continue to believe that there is a pent up demand for housing. And as interest rates ultimately get lower and consumer demand gets higher, we're going to see the benefit of growth in unit volumes and expect HPP to be able to continue its margin at 30% for this year. So, we have an excellent business that is still got some upside for an expansion in The U. S. Economy and particularly The U.

Speaker 1

S. Housing market.

Operator

Thank you. Our next question comes from the line of Trey Grooms with Stephens Inc. Please proceed with your question.

Speaker 4

Hi, good morning, Ron and Brian, and congrats on the good results.

Speaker 1

Thanks and good morning.

Speaker 4

So I just want to be clear on something from an earlier question and Brian, your response to that. So is it fair to say now that you're assuming that tariffs will be kind of coming into play through the year on CPP and that you will be able to kind of you'll be navigating that And as a result, you're reiterating the guide. So in effect, this navigation of the tariffs and the lack of impact is basically you're baking it into the guide. Did I hear that right?

Speaker 1

Yes, you heard that correct. We believe that the timing in the year and the mitigation strategies will keep us within our guidance.

Speaker 4

Perfect. Thank you for that. And I think that's an important point here. I mean, there's a lot of puts and takes around going around right now and a lot of noise around the tariffs. And it's definitely a question I know you guys have been getting in and we've been getting in as well.

Speaker 4

So thank you for clearing that up. And then on, let's see, HBP margins. So, the margins there continue to be very strong. Demand on the residential side remains good. As you mentioned, you primarily play in the higher end.

Speaker 4

Is it fair to say that high end continues to outperform entry level products? I know entry level is not really your bread and butter, but just wondering how that is comparing to entry level? And then, what you're kind of still expecting on the pricing front across the HBP portfolio here? Are you still expecting kind of a price cost to be similar in 'twenty four excuse me, this year versus 'twenty four?

Speaker 1

Let me start by just saying, we view Clopay and the market views Clopay as the leading brand in the garage door category, residential category. Repair and remodel continues to be strong and we continue to be the leader in the space, which is why we think we're gaining market share. Yes. I'll just add to that as far as the pricing. We do expect price to be in line and costs to be in line with 2024.

Speaker 1

And if there's any impacts on input costs for any reason, those will be mitigated likely via price. We continue to believe the commercial side of the business, the CornellCookson, is going to grow as The U. S. Economy recovers. And you correctly point out that there is a swirl over tariffs.

Speaker 1

But, the intent is ultimately a stronger and better U. S. Economy. And if that plays out, we will benefit on both the residential side and on the commercial side. But we continue to see the residential side of our business doing well and we continue to believe that the commercial business has growth.

Operator

Thank you. Our next question comes from the line of Sam Darkak with Raymond James. Please proceed with your question.

Speaker 5

Good morning, Ron. Good morning, Brian. How are you? Two quick questions, if I could. I didn't hear if you mentioned it, I missed it, I apologize.

Speaker 5

But I didn't hear what repo might have been in January. And then related to that, and I have a follow-up, but related to that, should we anticipate that kind of $40,000,000 50 million dollars 60 million dollars a quarter pace to be similar to what you're expecting throughout the year?

Speaker 1

We purchased $42,000,000 for the quarter ending December 31, and you'll have to wait to get the second quarter repurchase when we report in May. And you should expect that we're going to continue to generate substantial free cash flow. And depending on the price of the stock, we'll continue to be a buyer. At these levels, expect us to continue to be a buyer.

Speaker 5

And my second question, getting back to CPP, is the entirety of the spring product at this point already landed? Or are you still waiting for additional product, therefore, would be subjected to tariffs?

Speaker 1

A significant portion of the spring product has landed.

Operator

Thank you. Our next question comes from the line of Julio Romero with Sidoti and Company. Please proceed with your question.

Speaker 6

Thanks. Hey, good morning, Ron, Brian. First question here on CPP, really strong CPP margins on lower volume. Can you expand on what you're seeing in North America by channels or product lines, any notable changes to call out, especially as the global sourcing strategy is kind of fully up and running here? And then secondly, what can CPP margins look like when demand does recover in North America?

Speaker 1

Sure. So it's really across all our product lines. We're seeing the consumer be weak and not spending what we've seen in the past. And as far as going forward, it's really our 15% margins across CPP globally, which is a balance of 12% for the lawn and garden business across the globe and 20% for hunter fan business.

Speaker 6

Excellent. And then for my follow-up, you were able to sell some real estate related to CPP here in the quarter to the $217,000,000 Just how much more runway is there for additional proceeds from real estate and equipment sales in your view?

Speaker 1

Sure. So we have about $5,000,000 of held for sale assets on our balance sheet. So we expect at least $5,000,000 over time.

Operator

Thank you. We have reached the end of the question and answer session. And I'll now turn the call back over to CEO, Ron Kramer, for closing remarks.

Speaker 1

We continue to be excited about where our company is headed. We're going to execute our business plan and continue to deliver outstanding performance and we look forward to speaking to you in May.

Operator

Thank you. And ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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