Bob Labick • CJS Securities

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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