Bob Labick

Bob Labick questioned the retail customers' acceptance of pricing adjustments related to tariffs, whether these prices have been passed along, and the company's view on consumer acceptance and elasticity.

Answer

CFO Brad Smith indicated that negotiations with customers are over halfway complete, primarily on the pet side. John Hanson, President of Pet Consumer Products, noted that market prices have not yet reflected these increases but historical modeling suggests an elasticity of around one. CEO Niko Lahanas emphasized that pricing is disciplined and solely to offset costs, not to build margin.

Bob Labick asked about the company's approach to tariff-related pricing, specifically whether retail customers have accepted the pricing, if it has been passed to consumers, and how the company assesses consumer acceptance and elasticity. He also inquired about the company's strategy for changing investment levels in promotional activity and brand building, given ongoing margin improvements from cost and simplicity initiatives.

Answer

Brad Smith, Chief Financial Officer, stated that negotiations with customers on tariff-related pricing are over halfway complete, primarily affecting the pet segment, and are expected to conclude by early Q2. John Hanson, President of Pet Consumer Products, noted that prices have not yet increased in the marketplace, but historical models suggest an elasticity of around one. Niko Lahanas, Chief Executive Officer, emphasized that pricing is disciplined and solely aims to offset costs, not build margin. Niko Lahanas also detailed increased investments in consumer engagement, digital initiatives, and innovation, highlighting an agile approach to digital promotion and content creation, such as the 'Feeding Frenzy' wild bird product.

Bob Labick of CJS Securities asked about the full-year impact of new private label business in Garden, the timeline for lapping product line exits, and the potential effect of de minimis tariff changes.

Answer

JD Walker, President of Garden Consumer Products, confirmed that new private label gains will have a carryover benefit into the next fiscal year and that the company will face a difficult sales comparison from lost vendor lines. John Hanson, President of Pet Consumer Products, stated that while the company is monitoring de minimis tariff rules, it has not yet seen a meaningful impact but sees potential for a future tailwind.

Bob Labick from CJS Securities asked about the outlook for recovery in the pet durables category, including innovation efforts, and inquired about the current M&A environment and the company's deal pipeline.

Answer

John Hanson, President of Pet Consumer Products, stated that while a recovery timeline is uncertain, the rate of decline in durables is improving sequentially. CEO Nicholas Lahanas added that the company is innovating with a "razor/razor blade" model in areas like aquatics. Regarding M&A, Lahanas noted that while deal flow has been slow, there is a high level of anticipation in the market.

Bob Labick asked for details on revenue headwinds beyond pricing and exiting business, as well as any potential tailwinds for fiscal 2025. He also requested an update on the progress of the Cost and Simplicity program and its expected impact.

Answer

CEO Nicholas Lahanas identified the loss of some vendor partner business in Garden as another headwind. Tailwinds include a consumer-centric approach, innovation, digital investments, and ongoing cost optimization efforts. Regarding the Cost and Simplicity program, he confirmed significant progress, including closing 11 facilities in fiscal 2024, but declined to quantify future savings, describing it as a continuous journey for an acquisitive company.

Bob Labick asked about the larger-than-expected decline in unit volumes, seeking clarification on whether it's due to an inflection point in market share shifts among carriers or a change in insurance coverage. He also inquired about the recent flattening of total loss frequency over the past four quarters, asking what might be causing this pause and what factors could drive its growth again.

Answer

CEO Jeff Liaw attributed the unit decline primarily to changes in consumer auto insurance purchasing behavior, specifically a decrease in earned car years and a shift away from comprehensive collision coverage. Regarding total loss frequency, Mr. Liaw emphasized its long-term upward trend, viewing recent fluctuations as noise rather than a fundamental change in commercial logic, and noted unprecedented volatility in input variables like parts prices and shop utilization.

Bob Labick asked about the larger-than-expected decline in unit volumes, seeking to understand the inflection point in the speed of unit change, and later inquired about the recent flattening of total loss frequency growth over the past four quarters and its underlying drivers.

Answer

CEO Jeff Liaw explained that the unit decline is primarily due to changes in insurance coverage, with earned car years down and consumers reducing or foregoing coverage. He also stated that the total loss frequency's recent modest flattening is likely noise rather than a fundamental change, reiterating long-term conviction in its upward trend due to evolving economic calculus for managing vehicles.

Bob Labick asked about the impact of advanced technologies and AI on the industry, including earlier total loss decisions and faster cycle times, and how these changes might affect the industry in the next 5-10 years. He also inquired about the total loss frequency of Electric Vehicles (EVs) and its potential progression.

Answer

CEO Jeff Liaw explained that AI is widely deployed within Copart for decision support, customer and agent assistance, and auction-level product recommendations, leading to increased efficiency and compressed cycle times, particularly with the Title Express offering. Regarding EVs, he noted they tend to total more easily due to advanced technology and sensors, resulting in favorable total loss frequency and selling prices.

Bob Labick inquired about the strategic value of Copart's extensive land assets, particularly for its non-insurance Blue Car and Whole Car segments, and asked for elaboration on the cyclical impact of uninsured motorists on volumes.

Answer

Executive Jeffrey Liaw explained that physical storage is an essential and increasingly scarce asset, crucial for both insurance and non-insurance sellers. He also noted that the rise in uninsured drivers is a cyclical trend, previously seen during the 2008-2009 financial crisis, which is currently creating a headwind on volumes but is expected to revert over time.

Bob Labick from Stephens Inc. asked about the strategic value of Copart's extensive land assets for its growing Blue Car and Whole Car businesses, and inquired about the cyclical nature of uninsured motorists and its impact on volumes.

Answer

Executive Jeffrey Liaw explained that physical storage is a critical and increasingly scarce asset, making it essential for both insurance and non-insurance sellers. Regarding uninsured motorists, he described the current increase as a cyclical headwind driven by economic pressures on consumers, which he expects to normalize over time based on historical data.

Bob Labick asked about the primary points of friction in the total loss process for insurance clients and how Copart is addressing them. He also inquired about the progress of the sales force buildout for the non-salvage, whole-car segment and the size of that market opportunity.

Answer

Executive Jeffrey Liaw identified two critical friction points: the initial tow after an accident, where costs can accumulate before the insurer is notified, and the title procurement process, which is complicated by liens and lender fragmentation. He explained that Copart's upstream integration and Title Express platform are key solutions. Regarding the non-salvage market, Liaw described it as a vast opportunity in its 'early innings,' noting the wholesale market is over 15 million cars annually, and Copart is actively investing in its sales force to capture more share as its auction liquidity becomes more appealing for these vehicles.

Bob Labick inquired about the drivers of total loss frequency, asking for the characteristics of insurance carriers with higher versus lower rates and the reasons for these differences. He also asked about the impact of reduced off-lease vehicle supply on Copart's Blue Car business.

Answer

Executive Jeffrey Liaw explained that total loss frequency varies widely even within a single carrier due to factors like their book of business, regional differences, and decision-making models ranging from rigid statutory thresholds to dynamic economic calculations. CFO Leah Stearns clarified that lower off-lease volume primarily affects the broader wholesale market and the company's dealer services (CDS) business, rather than the Blue Car segment which often handles damaged vehicles.

Bob Labick inquired about the financial impact of expanding the whole car business, the timeline for these investments, the national expansion of Purple Wave, and how lower interest rates might affect the Purple Wave business model.

Answer

Executive Jeffrey Liaw explained that while the whole car business requires upfront investment, its long-term unit economics should be on par with or better than traditional salvage cars. He characterized the Purple Wave expansion as being in a 'transitional stage' of geographic growth. Regarding interest rates, Liaw conjectured that lower rates would likely stimulate broader economic activity, which would be a positive catalyst for an intermediary business like Purple Wave.

Bob Labick (CJS Securities) asked about the ongoing progress in employee retention, its potential for further improvement, and its influence on customer retention, as well as the impact of the new tax bill on fleet investment and the timeline to normalized capital expenditure.

Answer

CEO Dale Asplund highlighted a 3,000 basis point improvement in frontline employee retention since late 2022, with potential for another 2,000-3,000 basis points, directly linking it to customer retention. CFO Brett Urban detailed over $300 million invested in fleet refresh, benefiting from the tax bill, with mowers at one year average age and trucks at five. He expects CapEx to normalize to 3.5% of revenue by fiscal 2027-2028 after further investments in trailers.

Bob Labick of CJS Securities inquired about the progress in expanding the sales force to drive new business and the expected timeline for these investments to yield top-line growth. He also requested clarification on free cash flow guidance in light of tax benefits from accelerated depreciation.

Answer

President and CEO Dale Asplund stated the sales force has grown by approximately 6% since the last update, noting it can take up to a year for new reps to become fully productive. EVP & CFO Brett Urban added that improved retention makes it the right time to invest in sales, funded by operational efficiencies. Regarding cash flow, Urban confirmed that the ~$20M in tax savings are being reinvested into accelerating the fleet refresh, which is already driving margin benefits and is expected to make the company a non-payer of federal taxes next year as well.

Bob Labick inquired about the real-time impact of the macroeconomic and political environment on labor availability and costs, and asked about the strategy to improve underperforming branches with lower customer retention.

Answer

CEO Dale Asplund detailed how investments in frontline employees, such as a new PTO program, have improved turnover, reducing the need for H2B workers by half. CFO Brett Urban added that wage inflation has normalized to the low end of their historical range. Dale Asplund clarified that branch leadership, not geography, is the key driver of customer retention, and the focus is on leadership training and communication to lift performance.

Bob Labick inquired about the primary drivers for future EBITDA margin expansion, the potential medium-term margin target, and whether the growth would stem from the Maintenance or Development segment.

Answer

CEO Dale Asplund stated that while more details will be shared at the upcoming Investor Day, the business has a path to mid-teens margins driven by procurement, labor management, fleet optimization, and centralization. He emphasized that these 'One BrightView' initiatives are designed to benefit both the Maintenance and Development segments. CFO Brett Urban noted the strong operating leverage in Development serves as a model for the Land business once it returns to growth.

Bob Labick of CJS Securities inquired about the ongoing 'One BrightView' transformation, asking for details on initiatives planned for fiscal 2025 to further improve employee and customer retention, and the progress on converting development projects into recurring maintenance contracts.

Answer

President and CEO Dale Asplund explained that the focus remains on frontline employees, with new initiatives like more affordable benefits, which has already led to sequential declines in employee turnover. CFO Brett Urban added that reinvesting SG&A savings into the front line drove a 200 basis point improvement in customer retention. Regarding development conversions, Dale Asplund noted the rate has increased from under 10% to the mid-teens, with a long-term goal of 70%, creating a significant new revenue opportunity.

Bob Labick asked about the drivers behind the accelerated growth in Balchem's food ingredients and solutions segment, particularly the impact of 'better-for-you' trends, and the long-term market penetration opportunities for Balchem's nutrient portfolio, including choline, K2, MSM, and chelated minerals.

Answer

Ted Harris, Chairman, President, and CEO, explained that the Human Nutrition and Health segment saw strong performance, with the nutrient portfolio up 30% and food ingredients up 7%. He attributed the food business growth to 'better-for-you' trends, such as high-protein snacks, high-fiber beverages addressing GLP-1 drug side effects, and high-protein bars. Harris noted that the market opportunities for nutrients like choline, K2, MSM, and chelated minerals are still 3x-4x the current market size, with significant runway for penetration and awareness, expecting strong double-digit growth to continue.

Bob Labick of CJS Securities inquired about the macro environment for European monogastric demand following the recent anti-dumping news, other growth drivers for the Animal Nutrition & Health (ANH) segment, and details on the new microencapsulation facility investment in New York.

Answer

EVP & CFO Martin Bengtsson explained that European monogastric demand is stable and that the anti-dumping duties could lead to significant market share gains from Chinese suppliers. He identified the ruminant and companion animal businesses as key future growth drivers. Chairman, President & CEO Ted Harris added that the new $36 million facility will more than double microencapsulation capacity to support continued double-digit growth, offer significant efficiencies over the legacy site, and is expected to be operational in late 2027 or early 2028.

Bob Labick of Stephens Inc. inquired about the performance drivers within the Human Nutrition & Health segment, distinguishing between nutrients and food ingredients. He also asked about the sustainability of the recovery in the Animal Nutrition & Health segment, its future growth prospects, and the status of the European monogastric market.

Answer

Theodore Harris, Chairman, President & CEO, explained that in the Human Nutrition & Health segment, the nutrients business saw healthy growth while the food ingredients business returned to strong growth in Q4, with encapsulated products being a standout. For Animal Nutrition & Health, Harris stated that Q4 is not a new baseline and he anticipates further growth in the ruminant business, driven by a healthy dairy market, market penetration, and the new AminoShure-XL product, while the monogastric business is expected to remain flat.

Bob Labick asked how Neogen's new product pipeline and future growth potential have been impacted by past execution challenges, and the company's outlook on innovation. He also inquired about the core operating margin level if short-term impacts were excluded and opportunities for margin recovery.

Answer

Mike Nassif (CEO, Neogen) acknowledged that execution challenges can impact future growth but emphasized tackling them by streamlining operations and enhancing accountability. He stressed the importance of reinvigorating innovation through a needs-based pipeline and transformational breakthroughs, with a focus on high-impact opportunities. Dave Naemura (CFO, Neogen) estimated 'a few hundred basis points of headwinds' from inventory and sample collection in Q1, expecting significant margin recovery from improvements in these areas, increased volumes, and the $20 million annualized OpEx savings.

Bob Labick from CJS Securities asked CEO Mike Nassif about the impact of Neogen's past execution challenges on its future growth potential and new product innovation pipeline. He also followed up with CFO Dave Naemura, inquiring about the company's core operating margin level, excluding short-term headwinds like inventory write-offs and sample handling issues, and the prospects for margin recovery in the coming years.

Answer

CEO Mike Nassif acknowledged that execution challenges can divert focus from innovation but stated Neogen is addressing these head-on by streamlining operations and enhancing accountability. He noted that while the R&D team integrated the 3M portfolio, capacity for transformational innovation was limited. Nassif emphasized a renewed focus on reinvigorating innovation through an externally informed strategy and investment, contingent on driving top-line growth. CFO Dave Naemura indicated that Q1 faced "a few hundred basis points of headwinds" from inventory and sample collection issues. He expects margin improvement throughout the year from increased volumes, the $20 million annualized OpEx savings (benefiting Q2, Q3, Q4), and fundamental process improvements.

An analyst on behalf of Bob Labick at CJS Securities inquired about the progress of ACV's pricing engine, the benefits of guaranteed pricing on auction liquidity, and the roadmap for new technology and data products.

Answer

CEO George Chamoun and CFO Bill Zarella reported significant progress, with guaranteed (no-reserve) sales exiting Q2 at 15% of unit volume. Chamoun highlighted the pricing engine's accuracy and its role as a competitive differentiator. He outlined next steps, including expanding 'pricing as a service' for dealer trade-ins, leveraging the Amazon partnership, and developing retail price prediction capabilities, all of which build toward the launch of Project Viper.

Bob Labick from CJS Securities asked if dealer needs have shifted due to recent tariffs and sought an update on the penetration and potential impact of newer tools like the price guarantee offering and Project Viper.

Answer

CEO George Chamoun explained that the primary dealer need is for more used inventory, which is driving interest in ACV's new products. He noted that the ACV Guarantees offering is growing well and approaching double-digit penetration of the marketplace. Regarding Project Viper, Chamoun described the demand as "tremendous," stating the product is in its beta phase with a few dozen dealers and is on track for a broader rollout after Q4.

Bob Labick questioned the key drivers behind the apparent acceleration in organic volume growth during Q3 and asked about the strategic learnings from recent commercial acquisitions.

Answer

CFO Bill Zerella attributed the strong organic growth to a combination of continued market share gains, better-than-expected conversion rates, and robust performance from marketplace services. CEO George Chamoun added that recent acquisitions are providing crucial insights for integrating inspection technology and back-office systems, which will help make the commercial segment a significant volume driver in future years.

Bob Labick from CJS Securities, Inc. asked about the core growth drivers for the newly scaled Crane Authentication business and for the company's expectations regarding the volume and mix of the upcoming 2026 U.S. currency order.

Answer

President & CEO Aaron Saak outlined three growth drivers for Crane Authentication: brand protection, government tax stamp solutions, and government ID. For the 2026 U.S. currency order, he stated that the base case assumes volumes similar to the current year but emphasized that the mix of denominations is the most critical factor for the business. SVP & CFO Christina Cristiano added that the U.S. currency redesign program is on track for a 2026 launch.

Bob Labick inquired about the new Crane Authentication segment, asking how it is positioned to perform in the current macroeconomic environment of inflation, potential recession, and tariffs, and what its growth expectations are. He also asked for an update on the M&A pipeline and the company's build-versus-buy strategy in the authentication space.

Answer

President and CEO Aaron Saak highlighted the resiliency of the Crane Authentication segment, noting that approximately 40% of its business comes from stable government contracts. He also pointed to recurring revenue from long-term contracts with major brands like the NFL. Regarding M&A, Saak stated the pipeline remains healthy and active, with a focus on disciplined acquisitions in the $100 million to $500 million range that expand technology leadership and generate returns above 10%. He expressed confidence in executing additional deals within the next year.

Bob Labick asked about the changing dynamics in the retail self-checkout market and the reasons for the consistent outperformance in the vending end market compared to prior expectations.

Answer

CEO Aaron Saak acknowledged that the retail self-checkout market has shifted, with retailers exploring new formats and slowing some CapEx due to shrinkage concerns, leading to softness in traditional OEM orders but growth in custom solutions. Regarding vending, he attributed its strength to the persistent need for automation in labor-scarce environments, the benefit of a controlled setting that limits shrinkage, and growth in new categories like automated high-quality coffee machines.

Bob Labick asked for a pro forma end-market breakdown of the authentication business following the De La Rue acquisition and inquired about other potential end markets, like pharmaceuticals, and the company's 'build versus buy' strategy for future growth in the segment.

Answer

President and CEO Aaron Saak provided the pro forma breakdown for De La Rue Authentication: government revenue solutions (45%), ID security solutions (30%), and brand protection (25%). He stated that with a strong anchor in place, the strategy is to 'build' by adding technologies like Tru Tag. He identified pharma/healthcare as an area to explore for future M&A and also highlighted geographic expansion in Asia as a priority.

Bob Labick of CJS Securities inquired about the primary drivers of the strong 21% dealer-to-dealer volume growth, asking about the impact of macro factors like tariffs, the geographic performance, and the progress of sales force investments.

Answer

CEO Peter Kelly attributed the strong dealer volume growth primarily to strategic execution, including brand consolidation, technology enhancements like 'absolute sale', and go-to-market investments. He noted that macro factors, such as a tariff-related pull-forward and the prior year's CDK outage, provided only a marginal 2-3% benefit. Kelly confirmed strong growth in all geographies, particularly North America, and mentioned that investments are now shifting to build the buyer network, leveraging the AFC customer base.

An associate for Bob Labick of CJS Securities asked for color on measures to gain share in independent dealer volumes, whether sales force hiring would continue, and the key learnings from the single-platform integration.

Answer

CEO Peter Kelly stated that the company is pleased with the returns on its go-to-market investments and will continue to invest appropriately to drive its digital strategy, undeterred by tariff uncertainty. He highlighted key learnings from the platform consolidation, including accelerated dealer-to-dealer growth, higher customer NPS scores, and increased brand awareness, which validate the company's strategy.

Bob Labick of CJS Securities inquired about the commercial opportunity for yttrium and lutetium irradiation and asked about the company's capital allocation priorities amidst numerous growth opportunities.

Answer

President, CEO & Director Rex Geveden described the medical isotope opportunity as a royalty stream from a partnership, with BWXT providing the target delivery system. On capital allocation, Geveden noted maintenance CapEx is around 4% of sales, with episodic surges to 5-6% for growth projects, but no major 'super cycles' are foreseen. SVP & CFO Mike Fitzgerald added that investments in areas like defense fuels are in the 'tens of millions,' not on the scale of past large expenditures.

Bob Labick from CJS Securities requested an update on the Moly-99 approval timeline and the nature of the technical delays. He also asked about the revenue rollout cadence for the large Pickering life extension contract in the commercial backlog.

Answer

CEO Rex Geveden stated that while a 2025 Moly-99 approval is still possible, it could extend into early 2026, noting the delays involve perfecting the product and addressing minor contamination issues. EVP and CFO Robb LeMasters explained the Pickering contract revenue will build steadily, not in a surge, as other refurbishment work phases out.

Bob Labick of CJS Securities requested an update on the FDA approval timeline for the Tc-99 medical isotope and asked for a ranking of the largest dollar growth drivers over the next five years.

Answer

President & CEO Rex Geveden stated he anticipates FDA approval for Tc-99 in 2025, positioning BWXT for 2026 production contracts. EVP & CFO Robb LeMasters outlined the growth drivers by timeframe: SMRs and medical in the near-term; AUKUS and microreactors in the medium-term; and enrichment and large-scale commercial reactors in the long-term.

Bob Labick from CJS Securities asked for details on the drivers of organic growth beyond 2025, including the specialty film and inductor lines, and inquired about the M&A environment and capital allocation strategy.

Answer

President and CEO Jeffrey Niew stated that growth will come from core design wins and TAM expansion from new products like specialty film (impacting H2 2025) and the new inductor line (impacting in ~24 months), pushing growth toward the high end of the 4-6% organic target. He noted the M&A market is reopening and the pipeline is good, but Knowles will remain disciplined. SVP and CFO John Anderson highlighted the company's optionality for capital allocation, including continued share buybacks, due to low leverage and strong cash flow.

Bob Labick inquired about the potential impact of tariffs on end-market customer demand and sought an update on the previously announced $75 million-plus energy capacitor order.

Answer

President and CEO Jeffrey Niew stated that the company has not seen any negative change in demand and that key markets like MedTech and Defense are well-insulated due to the essential nature of their products. He noted that industrial distributor inventories are normalizing, which is increasing order activity. Regarding the large energy order, Niew confirmed the customer is fully committed, evidenced by a significant prepayment in Q1, with deliveries still on track to begin in 2026.

Bob Labick of CJS Securities asked for a breakdown of the industrial end markets in the new company structure, details on the new specialty film products and their applications, and the general focus of current R&D investments.

Answer

President and CEO Jeffrey Niew described the industrial business as highly fragmented, serving over 30,000 customers with no single dominant market, and noted that the business is stabilizing. He explained the new specialty film products are for 'pulse power applications' requiring rapid energy release. SVP and CFO John Anderson added examples of industrial markets served, including automation, HVAC, and semiconductor equipment.

Bob Labick of CJS Securities inquired about the underlying demand trends in the Precision Devices (PD) segment, the company's go-forward capital expenditure levels post-divestiture, and its current M&A strategy and pipeline.

Answer

President and CEO Jeffrey Niew explained that the PD segment is seeing strength in defense and Medtech, with electrification being flattish, while the industrial market remains weak due to high inventory. SVP and CFO John Anderson and CEO Jeffrey Niew clarified that future CapEx should average around 3% of revenue over a cycle. Regarding M&A, Mr. Niew confirmed it is a core strategy, stating they are actively assessing opportunities and that the company's expanding EBITDA multiple provides more options for accretive deals.

Bob Labick inquired about Helen of Troy's supply chain diversification, asking about the mix of existing versus new manufacturing partners, the potential cost increase of moving production from China absent tariffs, and the specifics of contemplated price increases.

Answer

CEO Noel Geoffroy and CFO Brian Grass explained that the diversification primarily involves existing suppliers moving to new geographies. Grass noted that while product costs are expected to be neutral, fiscal 2026 will incur costs related to the transition, such as CapEx and higher inventory. Regarding pricing, both executives stressed that any increases would be highly targeted and surgical, decided on an item-by-item basis in partnership with retailers, rather than an across-the-board hike, due to the dynamic tariff environment and consumer sensitivity.

Bob Labick asked about the expected benefits from the 'Iron Giant' distribution center now that its initial headwinds are resolved, and how the Olive & June acquisition might impact its utilization. He also inquired about the company's strategic planning for potential future tariffs on goods from China.

Answer

CEO Noel Geoffroy stated that the Tennessee distribution center ('Iron Giant') is a key capability for Home & Outdoor shipments and that integrating Olive & June's distribution is a future upside opportunity, not a current assumption. CFO Brian Grass added that the long-term goal is to lower distribution costs from over 5% to the mid-3% range as a percentage of sales. Regarding tariffs, Geoffroy emphasized diversification as the core strategy, while Grass noted that the company prioritizes supplier transitions that are strategically sound even without tariffs.

Bob Labick from CJS Securities asked for specific learnings from the company's increased investment in data and analytics and how these insights have changed business processes. He also inquired about the current retail environment setup heading into the holiday season.

Answer

CEO Noel Geoffroy explained that the data and analytics investment led to a new brand-building framework based on detailed consumer segmentation. This allows for more precise targeting of marketing spend, which is now optimized using a new marketing mix model that measures ROI for every tactic. CFO Brian Grass commented on the holiday season, stating that expectations for a more value-oriented and slightly softer environment are already embedded in their forecast.

Bob Labick inquired about the next steps for driving margin expansion in the Consumer and Professional Products (CPP) segment and asked for commentary on the market dynamics and performance of the Home & Building Products (HBP) segment, specifically regarding residential versus commercial trends.

Answer

Executive Brian Harris explained that future CPP margin expansion will be driven by transitioning from manufactured to sourced inventory, further leveraging the global supply chain, and introducing new products, with an expectation for consumer demand to eventually recover. For HBP, Harris stated that Griffon is outperforming the market in high-end residential, while the commercial market has been soft but appears to be bottoming. CEO Ronald Kramer added that he believes pent-up housing demand will ultimately benefit HBP's volumes and margins.

Bob Labick from CJS Securities asked for more detail on the company's investment strategy, specifically the allocation between top-of-funnel and bottom-of-funnel marketing, the decision-making process, and how that spending will evolve.

Answer

Chairman and CEO David Maura stated that early-year investments were primarily bottom-funnel for quick returns, but the focus is now shifting to include more top-funnel spending to build long-term brand equity and support new product launches, particularly in the pet category. CFO Jeremy Smeltser provided specifics, noting that of the recent investment increase, about 10% was in R&D, over 50% was bottom-funnel focused on e-commerce, and the remainder was for top-of-funnel content creation for future impact. He indicated the spend is now more balanced between marketing and advertising.

Bob Labick requested expectations for working capital and free cash flow over the next few quarters and the target free cash flow conversion rate under the new contract structure. He also asked if long-term covenant relief is contingent on an asset sale and about the ability to grow NEMT margins with new contract types.

Answer

CEO L. Sampson explained that free cash flow will be constrained until mid-2025, after which the target conversion rate is around 30%. He emphasized that deleveraging is a top priority and that long-term covenant relief discussions are ongoing and not contingent on a sale. Sampson expressed confidence in improving NEMT margins due to significant progress in reducing cost-per-ride through technology and operational initiatives.

Bob Labick from CJS Securities asked for more detail on the second-half free cash flow forecast, specifically the visibility into collecting $60 million in receivables, and the drivers behind NEMT membership changes and cost reductions.

Answer

CEO Heath Sampson and CFO Barbara Gutierrez clarified that the $60 million receivable is a contractual amount with high visibility for collection in Q3, driven by successful repricing and early settlements. Sampson explained that the NEMT membership estimate was adjusted due to the timing of a state contract win, with no change to the expected economics. The significant decline in payroll and other costs per trip was attributed to ongoing automation and digital engagement initiatives, a trend expected to continue.