David Storms

David Storms from Stonegate inquired about the path to achieving operating level positive results for airline operations beyond Adjusted EBITDA, including potential for volume growth, route optimization, and cost reductions. He also asked about Surf Air Mobility's geographic expansion plans for the BETA partnership beyond Hawaii and early adoption signs and trajectory of the 'Powered by Surf On Demand' program.

Answer

CEO Deanna White explained that continued SurfOS technology integration, sustained operational efficiency, and future adoption of electric aircraft (with 30% operating margin improvement) will drive profitability in airline operations. She also highlighted new revenue streams from cargo services with BETA aircraft and becoming an exclusive factory-authorized MRO for electric aircraft in Hawaii. White declined to share specific geographic expansion targets for competitive reasons but noted the ease of integrating electric aircraft into existing networks. Regarding Surf On Demand, she reported a significant early uptick and a strong pipeline for the 'Powered by Surf On Demand' program, which equips independent brokers with BrokerOS, contributing to the raised 2026 revenue guidance.

David Storms from Stonegate asked about the path to achieving operating-level profitability for airline operations beyond Adjusted EBITDA positive, specifically inquiring about potential volume growth, further route exits, or cost reductions. He also sought insights into the logical geographic expansion targets for the BETA partnership beyond Hawaii and early adoption signs and trajectory for the Surf On Demand program.

Answer

Deanna White, CEO, explained that continued integration of SurfOS technology will drive optimization and cost reduction in airline operations, sustaining high operational efficiency. She emphasized that the adoption of electric aircraft, with their 30% operating margin improvement, will be the biggest future driver. She also mentioned new revenue streams from cargo services using BETA aircraft and becoming a factory-authorized MRO for electric aircraft. Regarding geographic expansion, she stated that the company would not disclose specific targets but highlighted the advantage of integrating electric aircraft into existing network routes and new targeted markets. For Surf On Demand, she noted strong early uptake for the 'Powered by Surf On Demand' program, which equips independent brokers with BrokerOS, contributing significantly to the increased 2026 revenue guidance.

Dave Storms of Stonegate Capital Partners requested more details on the expanded Palantir agreement and its strategic opportunities, and also asked about the key drivers and internal targets for the improved controllable completion factor.

Answer

Co-Founder & Director Sudhin Shahani highlighted that the expanded Palantir agreement makes Surf Air Mobility an exclusive partner for selling software to Part 135 operators and allows for sublicensing and future joint bids on larger projects. CEO & COO Deanna White attributed the 95-96% controllable completion factor to a new leadership team, investments in maintenance, and new processes, adding that further optimization and profitability gains are expected as new software tools are fully deployed.

David Joseph Storms questioned if the Q1 service interruption was planned and inquired about the geographic focus for future interline partnerships following the agreement with Japan Airlines.

Answer

Executive Deanna White clarified that the service interruption in January was unplanned and resulted from maintenance issues that required an updated program with the FAA. Regarding partnerships, she expressed excitement about the Japan Airlines agreement as their first international deal and stated the company is looking to expand with other carriers both domestically and globally.

David Storms of Stonegate Capital Markets inquired about early feedback from the SurfOS beta launch and the expected cadence for working through the aircraft maintenance backlog.

Answer

Executive Sudhin Shahani reported positive early feedback on SurfOS, particularly on its direct-to-consumer capabilities, and highlighted internal efficiency gains like a 50% reduction in the on-demand sales team. Executive Deanna White added that new talent finds the tools advanced. Regarding maintenance, Executive Oliver Reeves explained that the Q1 2025 guidance already accounts for resolving a substantial portion of the backlog, with the impact expected to decrease thereafter.

David Storms asked about the general cadence for 2026, specifically if Park-Ohio expects a typical seasonal year or if any factors might disrupt that pattern. He also inquired about the record backlog in the Engineered Products (EP) segment, seeking details on the expected burn rate, the presence of any outsized contracts, and the segment's margin profile. Lastly, he requested an update on Park-Ohio's automation and information systems improvements, asking about their progress, remaining runway, and any further insights.

Answer

CFO Pat stated that the company expects a similar trend of sales in each business segment as in the past, indicating no anticipated changes to the look of individual quarters in 2026. Regarding the EP backlog, Chairman, President, and CEO Matthew V. Crawford noted no unusual aspects, highlighting the company's expertise in managing large power applications, which has expanded opportunities into areas like data centers and AI. He emphasized the segment's global leadership in technical power management, the strength of its aftermarket business, and observed global green shoots in industrial reinvestment. On automation and IT, Mr. Crawford explained that the company is vigorously attacking costs by lowering its cost to serve through data management tools, focusing on clean data for AI use cases, and investing in automation. He cited examples like a new distribution center and fastener manufacturing facility investments, also mentioning vertical integration in Assembly Components to control the value stream.

David Storms inquired about the expected general cadence for 2026 sales, the details of the record backlog in Engineered Products (including burn rate, outsized contracts, and margin profile), and an update on the progress and future runway of automation and information systems improvements.

Answer

CFO Pat Weschler indicated that a similar seasonal trend for sales is expected across business segments in 2026. Chairman, President, and CEO Matthew V. Crawford elaborated on the Engineered Products backlog, noting that expertise in managing large power has expanded opportunities beyond the steel market to include data centers and AI, reinforcing the global leadership in industrial power management. Regarding automation and IT, Matthew V. Crawford emphasized efforts in data management for clean, usable data, and automation investments in warehouse space and fastener manufacturing to lower costs and increase productivity. He also highlighted vertical integration in Assembly Components to control the value stream.

Dave Storms from Stonegate Capital Partners asked about the key drivers for the increasing backlog in the Engineered Products segment. He also questioned the progress of reshoring trends in Supply Technologies and whether recent new customer wins were from market share capture or new market entrants.

Answer

Chairman & CEO Matthew Crawford attributed the strong Engineered Products backlog to a global investment cycle in manufacturing, defense, and particularly electrical steel for battery technology. He characterized reshoring trends as being in the 'very early innings' and noted that new business is primarily coming from existing or former customers seeking help with supply chain challenges. VP & CFO Patrick Fogarty added that the global data center build-out is a significant growth driver for Supply Technologies, with four new customers added in that space over the last year.

David Joseph Storms of Stonegate Capital Markets questioned the potential to recover from the Q1 sales shortfall, the maturity of the favorable supply chain shifts, and the current state of the M&A market.

Answer

Executive Patrick Fogarty expressed confidence in making up for the slow January start, citing strong momentum in February and March. Executive Matthew V. Crawford described the supply chain shifts as happening quickly in automotive, with longer-term benefits in steel and defense expected in 2026 and beyond. Fogarty also noted a slowdown in M&A activity due to macro uncertainty and tighter credit, with both buyers and sellers taking a 'wait-and-see' approach.

David Joseph Storms inquired about the expected cadence for 2025, the impact of tariffs, potential standout end markets beyond aerospace, the sustainability of consolidated margins, and the current M&A environment.

Answer

Executive Matthew V. Crawford stated that while most of the business is insulated from tariffs, some segments like forging could benefit from reshoring. He also noted the main margin improvement opportunity lies within the underperforming Engineered Products group. Executive Patrick Fogarty added that they are actively mitigating tariff impacts in the Supply Technologies and Auto segments and highlighted heavy-duty truck and capital equipment as other growth areas. Regarding M&A, Fogarty described the deal volume as steady, with a focus on strategic bolt-on acquisitions for their most profitable businesses.

David Storms from Stonegate Capital Markets inquired about the operational improvement outlook for the Forged segment, the sustainability of growth in aerospace and defense, and the company's exposure to potential U.S. tariff increases.

Answer

Executive Matthew V. Crawford explained that improvements in the Forged segment are gradual due to challenges in replacing highly skilled labor, but he expects progress in 2025. On aerospace and defense, he noted broad exposure and good visibility with backlogs extending through 2025, though OEM build rates have some uncertainty. Regarding tariffs, Crawford stated their local production model minimizes risk, and he believes a strong North American manufacturing investment cycle, potentially spurred by trade policy, would be a net positive for the company. Executive Patrick Fogarty added that their Apollo Aerospace brand is focused on growth through Tier 1 supplier penetration.

David Storms from Stonegate Capital Markets inquired about the influence of recent geopolitical developments on Canadian oil prices and customer discussions, whether the new Ontario contract represents a strategic playbook for future growth or a one-time opportunity, and the anticipated seasonal EBITDA trend for 2026 compared to historical patterns.

Answer

Bradley Dodson, President and CEO, stated it's too early for geopolitical events to materially impact customer decisions in Canada, though long-term security of supply could be beneficial. He expressed satisfaction with the new Ontario integrated services contract, viewing it as a foundation for future expansion. Regarding 2026 EBITDA, Mr. Dodson predicted a more muted seasonal trend than the typical 60-65% concentration in Q2/Q3, expecting a smoother progression throughout the year.

David Storms inquired about the impact of recent geopolitical developments on oil prices and how this is influencing customer conversations in the Canadian market. He also asked whether the recently signed contract in Ontario represents a new playbook for future opportunities or if it was an opportunistic, one-time contract. Finally, he questioned if Civeo should expect a similar seasonal trend in 2026 or a more muted EBITDA progression throughout the year.

Answer

Bradley Dodson, President and Chief Executive Officer, stated it's too soon for customers to make material decisions based on oil price movements, not expecting short-term changes. He expressed pleasure with the Ontario win, noting it's the first work in that geography on the integrated services side, and indicated a desire to build off it and expand further. Mr. Dodson explained that while Canadian turnaround season typically leads to 60-65% of annual EBITDA in Q2 and Q3, he expects this to be slightly more muted in 2026, resulting in a smoother EBITDA progression.

Dave Storms of Stonegate Capital Partners inquired about the potential impact of recent U.S. trade deals on Civeo's guidance and sought clarity on the financial run-rate and synergy potential of the recently completed Australian acquisition.

Answer

CEO Bradley Dodson responded that the impact of trade uncertainty has been minimal to date, primarily affecting food costs slightly in Canada, and the company is monitoring the situation. Regarding the acquisition, he stated that the initial EBITDA forecast remains intact, but it is too early to predict further improvements due to recent volatility in metallurgical coal prices.

David Storms of Stonegate Capital Partners inquired about the impact of tariffs on the foodservice business and sought clarity on whether the updated 2025 guidance should be considered a worst-case, optimistic, or conservative scenario.

Answer

CEO Bradley Dodson explained that the company is actively managing Canadian tariff impacts by sourcing consumables locally and ensuring any unavoidable costs are passed through to customers. Regarding guidance, Dodson characterized it as a 'reasonably conservative outlook,' particularly for the Canadian market, noting that a worst-case scenario would involve a further significant deterioration in Canada and lower the EBITDA guidance by another $5 million.

David Storms of Stonegate Capital Partners asked if the attractive valuation of the Australian acquisition is indicative of the broader market, inquired about the opportunity to add integrated services at the new sites, and questioned what drove the resilience in Canada's asset-light business despite lower occupancy.

Answer

President and CEO Bradley Dodson explained that the favorable acquisition price was specific to the deal circumstances and not necessarily representative of all market assets. He confirmed Civeo will in-source the currently outsourced hospitality services at the acquired villages, adding to its integrated services revenue. Dodson clarified that the year-over-year resilience in Canada's asset-light segment was relative, as the larger decline was in the asset-intensive mobile camp business, which had significant activity in the prior year.

David Storms of Stonegate questioned the growth runway for existing integrated services customers, the current environment for Canadian contract renewals, and the potential for a Q4 activity catch-up after the wildfires.

Answer

President and CEO Bradley Dodson reiterated the goal to grow the Australian integrated services business to AUD 500 million by 2027, highlighting its rapid expansion from a base of AUD 240 million last year. He described the Canadian renewal environment as competitive but noted Civeo successfully maintained pricing and exclusivity due to strong operational performance. Both Dodson and CFO Collin Gerry clarified that a significant Q4 catch-up is unlikely to be visible, as typical holiday downtime will mask underlying activity levels.

Dave Storms asked about the timing impacts on defense orders, specifically if any Q3 issues were related to the government shutdown and potential Q4 impacts. He also inquired about the recoverability of the 20% impact on China business if uncertainties were resolved, and the volume of future opportunities in the energy sector similar to the Commonwealth Fusion Systems agreement.

Answer

CEO Jugal Vijayvargiya confirmed no government shutdown impacts in Q3 but potential for Q4 due to pending contracts, noting Materion is operationally ready. He stated it's difficult to predict recoverability for China business, as customers seek reliability outside the U.S., and Materion is exploring non-U.S. supply options. He highlighted existing agreements with Kairos Power and Commonwealth Fusion Systems, indicating active work with other partners in new energy applications.

Dave Storms asked about the volume of opportunities in the energy sector, specifically whether agreements like the one with Commonwealth Fusion Systems are opportunistic one-offs or indicative of more frequent opportunities.

Answer

Jugal Vijayvargiya, President and CEO, highlighted Materion's existing agreement with Kairos Power and the new one with Commonwealth Fusion Systems, emphasizing their engagement with numerous partners in various new energy areas. He indicated that if additional agreements are reached, they would be announced, underscoring excitement for both fission and fusion applications.

Dave Storms of Stonegate Capital Partners asked for the outlook on the automotive market for the remainder of the year and requested more details on the defense backlog, including its timeline, burn rate, and margin profile.

Answer

CEO Jugal Vijayvargiya characterized the automotive market as choppy and expects it to be flat to slightly up in the second half of the year, noting its smaller impact on the company's overall results. For the defense market, he described it as a 'very positive mix market' with higher margins. He highlighted record bookings of $75 million in the first half, up nearly 30% year-over-year, and expects the high level of activity and new inquiries to continue through the rest of the year.

David Storms of Stonegate Capital Markets questioned if strong Q1 volumes were driven by customers pulling orders forward due to tariff concerns and asked if the projected Q2 EPS headwind could be recovered later in 2025 if the macro environment improves.

Answer

President and CEO Jugal Vijayvargiya responded that he does not attribute the Q1 strength to a net pull-forward, suggesting that any customers who accelerated orders were likely offset by others who paused. Regarding a potential recovery, he stated the company's goal would be to recapture as much of the lost business as possible within the year, but acknowledged that the outcome is dependent on the timing of any resolution.

David Storms from Stonegate asked for an estimate on the remaining timeline for the beryllium nickel inventory correction and the outlook for the industrial market. He also questioned whether future divestiture-related costs for facilities in Asia would be of a similar magnitude to the recent New Mexico charge.

Answer

President and CEO Jugal Vijayvargiya stated that the beryllium nickel inventory correction is nearly complete, with orders returning to near-normal levels and normalcy expected by mid-year. He anticipates slow growth for the broader industrial market throughout the year, with more growth in the second half. VP and CFO Shelly Chadwick confirmed that any costs related to rightsizing facilities in Asia would not be of the same magnitude as the recent $7 million charge for the Albuquerque divestiture.

David Storms from Stonegate inquired about the remaining runway for significant cost reductions, asked if there were any positive signs in consumer electronics beyond the precision clad product, and questioned if any unusual seasonality is expected for 2025.

Answer

VP and CFO Shelly Chadwick described the cost actions as a thoughtful, step-by-step process rather than a single large program, emphasizing a continued balanced approach between cost management and growth investment. President and CEO Jugal Vijayvargiya stated that the broader consumer electronics market remains choppy with no other meaningful positive indicators at this time. He confirmed that for 2025, he expects the company's typical seasonality patterns to apply, with no abnormal factors anticipated.

Dave Storms questioned the logistics of increasing production at Tunnel Ridge and the Illinois Basin by an anticipated 2 million tons, specifically asking if it would require additional staffing. He also sought insight into the company's confidence in committing the 300,000 to 600,000 tons of uncommitted metallurgical coal for 2026 or its comfort with selling it on the spot market.

Answer

Chairman, President, and CEO Joe Craft clarified that no new units or additional personnel would be required for the increased production, as the company is fully capitalized from prior investments and can achieve more with existing headcount due to favorable mining conditions. Regarding metallurgical coal, he explained that it is typically committed and priced quarterly, and while the company anticipates being able to place these tons, pricing will be based on the index at the time of commitment, making a price prediction difficult.

Dave Storms asked about the logistics of increasing production at Tunnel Ridge and in the Illinois Basin for 2026, specifically whether it would require additional staffing. He also inquired about the company's confidence in committing the uncommitted 300,000-600,000 tons of met coal for 2026 and their comfort with potentially selling it on the spot market.

Answer

Chairman, President, and CEO Joe Craft clarified that the anticipated 2 million tons of increased sales for 2026 would not require additional headcount, as existing capital investments and more favorable mining conditions at Riverview, Hamilton, and Tunnel Ridge allow for greater output with current staffing. Regarding met coal, Craft explained that these tons are typically committed and priced quarterly based on indices, and while the company is confident in placing them, a price prediction for 2026 cannot be provided at this time.

Inquired about the impact of recent trade deals on the business, the nature of future demand growth given inventory equilibrium (gradual vs. restocking wave), and the adequacy of ARLP's own inventory levels.

Answer

The company sees recent trade policies as supportive of US manufacturing, which will drive electricity demand. Customer inventories are at an equilibrium, meaning future demand increases will directly translate to coal purchases rather than stockpile drawdowns. ARLP is comfortable with its current inventory levels to meet this anticipated demand.

Dave Storms from Stonegate Capital Partners asked about the directional impact of recent trade deals on the business, the expected pacing of demand growth given that utility inventories are at equilibrium, and whether ARLP is comfortable with its own inventory levels.

Answer

Joseph Craft, Chairman, CEO, and President, responded that while he couldn't detail the latest trade deal, the administration's overall strategy to boost U.S. manufacturing is expected to increase electricity demand in ARLP's service areas. Regarding demand pacing, he explained that with utility inventories now at equilibrium, coal purchases will correlate directly with consumption increases, suggesting a steady rise rather than a sudden restocking wave. He confirmed that ARLP is comfortable with its current inventory of 1.2 million tons, which is expected to remain stable through year-end based on consistent shipment schedules.

David Storms asked about Alliance Resource Partners' production capacity levels in light of strong volumes and commitments, and whether the decline in industry-wide coal inventories might lead to a catch-up buying spree from utilities.

Answer

Chairman, President and CEO Joseph Craft clarified that ARLP's 2025 production capacity is reflected in the current guidance, with potential for a slight increase. He projected that for 2026, capacity could grow by another 1 million tons from Tunnel Ridge and potentially 1-1.5 million tons from Riverview, market permitting. Regarding inventories, Craft stated that utilities are not looking to build stockpiles but are buying to meet current consumption, which remains strong. He sees this as a normalization of buying patterns to meet demand rather than a precursor to a buying spree.

David Storms from Stonegate inquired about Alliance Resource Partners' production capacity levels in light of strong volumes and commitments, and also asked for an outlook on industry-wide coal inventories and future utility buying patterns.

Answer

Joseph Craft, Chairman, President and CEO, clarified that ARLP's current production capacity is reflected in the 2025 guidance, though some upside may exist. He projected a potential capacity increase in 2026 of 1 million tons from Tunnel Ridge and 1-1.5 million tons from Riverview due to better mining conditions and new reserves. Regarding inventories, Craft stated that utilities are not looking to build stockpiles but are buying to meet strong current demand, driven by a favorable natural gas market, and are focused on filling contracts for 2026 and beyond.

David Joseph Storms of Stonegate Capital Markets, Inc. asked about domestic coal inventory levels, specifically how much further they need to decline to boost pricing and what non-weather factors could contribute. He also inquired if the regulatory environment was changing demand or competition for acquiring oil and gas properties.

Answer

Joseph Craft, Chairman, President, and CEO, explained that domestic customer inventories are nearing a balanced level, which should support increased deliveries in 2025. He noted that any price increase is primarily a supply-side issue dependent on competitor actions, but he sees potential for higher prices in the second half of the year. Regarding oil and gas assets, Mr. Craft stated that the acquisition market has always been competitive, and he anticipates significant opportunities in 2025 in which ARLP plans to actively participate.

David Joseph Storms from Stonegate Capital Markets questioned how much further domestic coal inventories need to fall to boost pricing and what non-weather factors could help. He also asked if the regulatory environment is changing competition for acquiring oil and gas properties.

Answer

CEO Joseph Craft responded that domestic inventories are nearing a proper balance, which should increase delivery demand in 2025. He believes any price increase later in the year will depend on competitor supply actions. On the oil and gas front, Craft acknowledged that the acquisitions market has always been competitive but stated that ARLP anticipates significant opportunities in 2025 and plans to participate actively in auctions.

Dave Storms asked about Third Coast Bancshares' comfortability with its geographical footprint, specifically targeting new MSAs for expansion after shoring up its presence in Austin, Texas. He also inquired about Keystone's high-quality credit profile and whether any of their underwriting practices could be mapped to Third Coast to further improve asset quality.

Answer

Bart Caraway, Founder, Chairman, President and Chief Executive Officer, stated the primary goal is to build around the Texas Triangle, highlighting Austin's scarcity value and Keystone's role in providing a foothold. He emphasized Third Coast's position as a 'talent magnet' and 'platform magnet' for other banks, seeking partnerships that add shareholder value. Bart Caraway and Audrey Spaulding, Chief Credit Officer, confirmed Keystone's strong asset quality, supported by a favorable Gateway loan review, and suggested Third Coast's additional tools could enhance wallet share and product offerings for Keystone's customers.

Dave Storms inquired about Third Coast Bancshares' comfort with its current geographical footprint and potential target MSAs for future expansion, particularly after solidifying its presence in Austin. He also asked if any of Keystone's high-quality credit underwriting practices could be adopted by Third Coast to further enhance its asset quality.

Answer

Bart Caraway, CEO, stated the primary goal is to build around the Texas Triangle, emphasizing Austin's scarcity value and the opportunity Keystone provides. He highlighted Third Coast's role as a 'talent magnet' and 'platform magnet' for other banks seeking partnerships. Regarding Keystone's credit profile, Mr. Caraway and Audrey Spaulding, CCO, confirmed a high-quality customer base and strong asset quality, validated by a favorable Gateway loan review. Mr. Caraway noted Third Coast could enhance Keystone's capabilities with additional tools and products.

Dave Storms of Stonegate Capital Partners requested more detail on the loan growth pipeline, specifically the role of the C&I segment, and asked if the bank would consider adjusting credit standards to drive growth.

Answer

CEO Bart Caraway confirmed the Commercial and Industrial (C&I) pipeline is very robust and will be a strong growth driver over the next year. Both Caraway and Chief Credit Officer Audrey Spaulding emphatically stated that the bank will not loosen its credit standards, which were tightened in 2019, and that they can achieve growth targets while maintaining high credit quality.

David Storms of Stonegate Capital Partners inquired if the current macroeconomic environment presents opportunities for hiring key bankers and asked for an update on the M&A environment.

Answer

CEO Bart Caraway stated that the bank has become a 'talent magnet' but is being selective with new hires to manage expenses. Executive John McWhorter commented on M&A, noting that while they continue discussions, completing deals is currently very difficult. He emphasized that the bank can achieve its growth targets organically and is not reliant on M&A, though they remain open to a 'unicorn' opportunity.

David Storms sought more information on the technology improvements planned for the second half of 2025 and asked if the 8% loan growth outlook for 2025 would follow seasonal patterns similar to 2024.

Answer

Executive John McWhorter disclosed that the company is changing its core system from Jack Henry to FIS, a move expected to reduce costs and enhance functionality, particularly for treasury products. Regarding loan growth, Executive Bart Caraway cautioned against expecting similar seasonal patterns to prior years, describing growth as 'lumpy.' He emphasized that while quarterly performance may vary, the bank is confident in achieving its full-year loan growth target of approximately 8%.

David Storms asked for clarification on the strong commercial and industrial (C&I) loan growth, questioning if it was from a single large customer or a broader strategic refinement. He also inquired about the remaining runway for paying down debt.

Answer

Executive Audrey Duncan clarified that the C&I loan growth was broad-based, stemming from the corporate lending group's activity in the middle market, not a single loan. On debt, Executive John McWhorter stated no further paydowns are expected in the current year but that they will reevaluate in Q1, potentially paying down $5 million per quarter next year depending on growth and earnings, as it is their highest-cost funding.

David Joseph Storms asked for an update on the Margaritaville license collection launch, including remaining logistics and early indicators of interest. He also inquired about the company's approach to SKU-by-SKU price increases, potential sticking points for these increases, and clarification on the timing and nature of the additional $2 million in charges expected in the second half of fiscal 2026.

Answer

CEO Jeremy Hoff described the Margaritaville launch as a massive 18-month product development undertaking with significant SKU count and showroom presence, noting positive early feedback and its potential as a major consumer brand. He explained that the company has a clear strategy for price increases, opting for a detailed SKU-by-SKU evaluation over a blanket approach, and is not seeing major sticking points due to their policy of honoring backlog. CFO Earl Armstrong confirmed that the additional $2 million in charges for the second half of fiscal 2026 are almost entirely related to the closing of the Savannah warehouse.

Dave Storms from Stonegate asked for an update on the Margaritaville launch, including remaining logistics and any early indicators of interest. He also inquired about the company's approach to price increases in response to tariffs, specifically the SKU-by-SKU evaluation, and whether any downstream sticking points were observed. Finally, Mr. Storms sought confirmation on the timing and nature of the additional $2 million in charges expected in the second half of fiscal 2026.

Answer

CEO Jeremy Hoff described the Margaritaville launch as a significant undertaking with many SKUs and a major showroom presence, expressing excitement about positive early feedback and the brand's unique consumer recognition. He explained that the SKU-by-SKU pricing evaluation for tariffs, though time-consuming, was a strategic decision to maintain merchandising integrity, and noted no major downstream sticking points due to the company's policy of honoring backlog and quicker domestic shipment turns. CFO Earl Armstrong confirmed that the additional $2 million in charges for the second half of fiscal 2026 are almost entirely related to the closing of the Savannah warehouse.

David Joseph Storms asked for more details regarding the logistics and early indicators of interest for the upcoming Margaritaville license collection launch, the company's approach to price increases in response to tariffs and when they expect to have a full grasp on pricing adjustments, whether any significant resistance to these price increases is being observed downstream, and a modeling clarification on the timing and nature of the expected $2 million in charges for the second half of fiscal 2026.

Answer

CEO Jeremy Hoff described the Margaritaville collection as a massive undertaking with a significant number of SKUs and showroom presence, representing an 18-month development progression. He noted positive early indicators from partners due to the brand's high recognition and potential. Regarding price increases, Mr. Hoff stated that the company has a clear understanding if tariffs remain at 20%, having taken a deliberate SKU-by-SKU approach to maintain merchandising strategy, prioritizing accuracy over speed. He confirmed no major sticking points are being observed downstream, partly due to the company's practice of honoring backlog and the quicker turn of domestic warehouse shipments. CFO Earl Armstrong confirmed that the expected $2 million in charges for the second half of fiscal 2026 are almost entirely related to the closing of the Savannah warehouse.

Dave Storms of Stonegate Capital Partners asked about the expected cadence of cost savings for the remainder of the fiscal year, the company's capital allocation priorities beyond dividends and debt, and whether the strong May order momentum would lead to a typical seasonal revenue split for the year.

Answer

CFO Earl Armstrong provided a quarterly forecast for the net impact of cost savings, expecting a significant positive effect in Q4. CEO Jeremy Hoff prioritized strengthening the balance sheet as the top focus, followed by dividends, and offered no new information on share buybacks. Hoff also affirmed his confidence in a historically stronger second half but was uncertain if the strong May order trend represented sustained momentum.

Dave Storms of Stonegate Capital Partners asked for details on the quarterly cadence of the cost savings initiatives, the company's capital allocation priorities beyond dividends and debt, and whether the strong May order momentum might alter the typical full-year seasonal revenue split.

Answer

CFO Earl Armstrong detailed the expected net impact of cost savings, projecting a positive $250,000 in Q2, a similar negative impact in Q3, and a significant positive impact of about $3.5 million in Q4. CEO Jeremy Hoff stated that strengthening the balance sheet is the top priority, followed by dividends, and offered no new comments on share buybacks. Hoff also affirmed his belief in a stronger second half based on historical trends but was cautious about declaring the May order strength as sustained momentum.

David Joseph Storms inquired about the impact of the 90-day tariff pause on inventory strategy, the drivers behind recent market share gains, and the expected pacing of the announced cost savings plan through fiscal 2027.

Answer

CEO Jeremy Hoff explained that the company had already strategically increased inventory, which was well-timed for the tariff situation, and the new Vietnam facility adds flexibility. He credited market share gains to the "collective living" merchandising strategy and expects performance to improve further. Regarding cost savings, Hoff outlined a plan to reduce total annual spending from a baseline of $109 million to a target of $89-$91 million by fiscal 2027, with a significant portion already identified through the Savannah warehouse exit.

David Joseph Storms of Stonegate Capital Markets asked about the potential for holiday season discounting, the risk of further customer bankruptcies, the logistics and expected early wins from the Margaritaville license, and the timing of future cost savings and severance charges.

Answer

CEO Jeremy Hoff and executive Paul Huckfeldt indicated that holiday discounting would be limited to normal, targeted promotions. Huckfeldt addressed the recent customer bankruptcy, stating there is limited recourse and no significant change in the pace of other distressed receivables. Regarding the Margaritaville license, Hoff emphasized a focus on 'getting it right' for an October launch by coordinating logistics across multiple divisions. Huckfeldt also noted that significant additional restructuring costs are not expected, and the anticipated $10 million in savings should be realized evenly over the next fiscal year.

David Joseph Storms of Stonegate Capital Markets asked about positive leading indicators for the business, the reason for the significant increase in 'other income,' and the impact of cost-saving measures on future capital expenditure plans.

Answer

CEO Jeremy Hoff highlighted the company's focus on product desirability and speed to market, noting they are pre-cutting new collections based on positive customer feedback to jump-start sales. CFO Paul Huckfeldt explained that the jump in 'other income' was primarily due to a non-recurring reversal of an accrual for a potential acquisition earnout. Huckfeldt also confirmed that the company is deferring a significant amount of CapEx to preserve cash, as current growth initiatives are not capital-intensive.

Dave Storms questioned if the company's expected 'hockey stick' revenue curve has changed, and asked whether the current ramp in operating expenses would continue into 2026 or level off.

Answer

CEO Michael McFadden reaffirmed that the 'hockey stick' revenue expectation remains the same, with significant ex-US revenues not anticipated until late 2026. He also clarified that operating expenses are expected to level out, with the current guided range of $34 million to $38 million remaining consistent for the next three to four quarters.

David Storms asked about the expected patient penetration in targeted Tier 1 long-term care facilities and whether the current sales force is sufficient to scale. He also sought to clarify how much of the Q1 revenue represented initial stocking versus underlying demand. Lastly, he inquired about potential impacts from recent U.S. policy developments on long-term pricing.

Answer

COO Lauren D'Angelo explained that a significant portion of Alzheimer's patients in nursing homes are candidates for ZUNVEYL, as about half are untreated after failing previous therapies. CEO Michael McFadden stated the current sales force provides 80% coverage and any increases would be minor. D'Angelo clarified that initial stocking was minimal and has already been depleted for the 5mg dose, indicating strong underlying demand. McFadden addressed policy concerns, stating the company does not anticipate significant impacts from tariffs or reference pricing proposals on its U.S. business in the near term.

David Storms asked about plans for ex-U.S. partnerships beyond the existing CMS deal and the key variables required to achieve the company's cash flow breakeven target in year 3.

Answer

CEO Michael McFadden confirmed the company is actively pursuing another ex-U.S. partnership and expects to sign a deal in 2025. He explained that reaching the year 3 cash flow breakeven target depends on two key levers: successful sales execution driving a 'hockey stick' revenue curve and disciplined expense management.

Dave Storms of Stonegate Capital Partners questioned whether the upcoming planned downtime would be for maintenance or technology upgrades, and asked for more detail on the composition of the order book given the extended lead times.

Answer

Mike Williams, CEO & Director, clarified that the planned shutdown is primarily for maintenance and reliability-focused investments, not major technology implementations. He reiterated that significant cost efficiencies are expected from the new operational optimization initiative and the capital projects coming online in late 2025 and 2026. Regarding the order book, Williams highlighted that it is double the size of the prior year, enabling better scheduling, with stable demand from automotive and defense and expectations for modest price appreciation.

Dave Storms from Stonegate Capital Partners asked if the upcoming RNG pathway approvals would be retroactive and sought more detail on the company's debt refinancing efforts, including its progress, potential options, and anticipated timeline.

Answer

Todd Waltz, Executive VP & CFO, clarified that the four pending RNG approvals would likely begin impacting financial results in Q1 2026, not retroactively. On refinancing, he stated Aemetis is deep in the process with a counterparty, but a final closing is dependent on successfully monetizing the 45Z production tax credits to prove out that new revenue stream for lenders.

David Joseph Storms asked for a breakout of the MMBtu contribution from the seven digesters awaiting CARB approval and inquired about the current market conditions for selling investment tax credits, including the typical discount.

Answer

CEO Eric McAfee estimated that the seven dairies nearing approval would contribute approximately 350,000 MMBtu per year, based on a modeling average of 25,000 MMBtu per dairy. He also stated that the market for investment tax credits has stabilized, with their recent transactions reflecting a total all-in discount of about 15%.

David Joseph Storms asked about the sustainability of the ethanol plant's production rate, which has been above nameplate capacity. He also requested an update on the timeline for Phase 2 of the carbon capture project.

Answer

Andy Foster, President of North America, confirmed the current ethanol production rate of 60-65 million gallons is sustainable and normal, noting that the prior year's comparison was skewed by extended maintenance. Eric McAfee, Founder, Chairman, and CEO, stated that Phase 2 of the carbon characterization well should be complete in the spring, with a Class VI permit filing to follow, targeting commercial operations by the end of 2026, contingent on EPA processing speed.

David Storms from Stonegate asked a modeling question about the quantity of investment tax credits (ITCs) left to sell in 2025. He also inquired if there is a look-back period for LCFS credits generated before final digester pathway approval.

Answer

Chairman and CEO Eric McAfee confirmed that another ITC sale is already in process and expects a couple more during 2025 as projects come online, but noted that the monetization of 45Z production tax credits will be even more important to cash flow. Executive Andrew Foster clarified that there is a one-quarter look-back period for LCFS credits upon final approval. McAfee added that while approval is expected in Q2, the cash and revenue from these credits will be recognized in Q3 2025.

The analyst inquired about the key drivers for the updated guidance, the reasons for success and future potential in Latin America, the remaining opportunities for cost optimization, and capital allocation priorities for the second half of the year.

Answer

The company responded that guidance is influenced by strong performance in Latin America offset by weakness in North America and uncertainty in China. The Latin America success is due to a simplified, digital-first model which will be replicated in India; Prism IO is expected to boost this region. Cost optimization efforts will continue across gross margin, selling expenses, and G&A. Capital allocation prioritizes investing in growth (Prism IO, India), servicing debt, and returning value to shareholders through dividends and buybacks.

Dave Storms of Stonegate Capital Partners asked about the key variables influencing the updated guidance, the drivers of success in Latin America and its future growth potential, the remaining levers for cost optimization, and the company's capital allocation priorities.

Answer

CEO Ryan Napierski highlighted Latin America's outperformance against North American and Chinese headwinds as key guidance factors. He attributed Latin American success to a simplified strategy focused on product, compensation, and digital infrastructure, which will be enhanced by the Prism.io launch. CFO James Thomas confirmed that further cost optimization opportunities exist in gross margin and G&A. Napierski prioritized capital for growth initiatives like Prism.io and India expansion, while Thomas reiterated the strategy of funding the business, servicing debt, and returning value to shareholders.

Dave Storms from Stonegate Capital Partners inquired about the key factors influencing the narrowed guidance, the drivers of success and future runway in Latin America, the remaining levers for cost optimization, and the company's capital allocation priorities following its achievement of a net cash positive balance sheet.

Answer

CEO Ryan Napierski highlighted Latin America's continued outperformance and challenges in North America as key variables for guidance, while noting Prism.io will further boost the successful, simplified strategy in Latin America. CFO James Thomas confirmed that after four sequential quarters of gross margin improvement, further opportunities exist in cost optimization across G&A and selling expenses. Regarding capital allocation, Napierski prioritized growth investments in Prism.io and the India market entry, while Thomas reiterated the strategy of funding the business, servicing debt, and returning value to shareholders via dividends and opportunistic share repurchases.

Dave Storms inquired about the sustainability of the strong quarterly cash generation and whether the acceleration in the sales pipeline indicates a reversal of previously elongated cycles.

Answer

EVP & CFO Michael Sherrick explained that the strong cash flow was partly due to timing from Q1 and a ten-day drop in DSO, noting that while strong cash flow should continue, it won't be at this record level. Chairman & CEO Michael Connors added that the pipeline has accelerated, driven by industry verticals like energy and healthcare, as clients seek cost optimization to fund AI initiatives, leading to faster decision-making on large projects.

David Storms inquired about the growth pace in the Americas for Q2 following a strong Q1, and asked which end markets in Europe are showing early signs of a rebound.

Answer

CEO Michael P. Connors stated that ISG expects continued double-digit growth in the Americas in Q2, driven by strong demand in both transformation and optimization. For Europe, he noted that ongoing uncertainty from tariffs, geopolitics, and election cycles is delaying a rebound. While the pipeline is increasing, he anticipates improvement in the second half of the year, specifically Q3 and Q4, rather than seeing growth in Q2.

David Storms of Stonegate Capital Partners questioned the outlook for recurring revenue in 2025, including the impact of contract renewals and the pipeline. He also asked which other end markets, besides banking and APAC government, investors should watch in the coming year.

Answer

Michael Sherrick, EVP and CFO, explained that while recurring revenue was flat quarter-over-quarter, this was due to contract timing and he expects continued year-over-year absolute growth in 2025. Michael P. Connors, Chairman and CEO, highlighted energy, utilities, health sciences, and technology as strong end markets, while cautioning that automotive and consumer sectors could face weakness.

David Storms questioned which pipeline segments might monetize the quickest, the future direction of headcount given high utilization, and whether any other parts of the portfolio are candidates for divestiture following the automation unit sale.

Answer

CEO Michael P. Connors identified the consumer and manufacturing segments as moving aggressively, with significant potential in energy/utilities and private equity channels in 2025. CFO Michael Sherrick explained that future headcount additions will be opportunistic, focusing on AI skills. Connors concluded that no other divestitures are planned, expressing satisfaction with the current asset portfolio and its growth prospects.

Dave Storms of Stonegate Capital Partners questioned the outlook for acquisition cap rates, asking if they could reach 9%, and whether the current macroeconomic environment is causing changes to the company's underwriting process.

Answer

President Buzz Cooper stated he does not foresee cap rates reaching 9% but expects them to average 8.5% or higher, noting significant competition for assets. He confirmed that Gladstone is not seeing any meaningful negative impact on its tenants and will not alter its stringent underwriting criteria, maintaining a focus on tenant quality despite macro uncertainties like tariffs.

David Storms of Stonegate Capital Partners questioned management's perspective on the portfolio's average lease term duration ahead of 2026-2027 negotiations and inquired about the competitive landscape on the leasing front.

Answer

President Buzz Cooper stated he feels good about the lease term, expecting it to increase back over seven years with upcoming acquisitions. He emphasized a strategy that balances long-term deals with shorter-term leases on mission-critical assets to capture rent growth. Regarding leasing competition, he noted it's primarily from end-users and that Gladstone is very competitive in its markets.

David Storms asked for the expected timing of the sales for the two assets currently held for sale. He also inquired about the spread in cap rates between the assets being sold and those in the acquisition pipeline.

Answer

President Arthur 'Buzz' Cooper stated that one held-for-sale asset is contracted to close on April 1, with the other expected to close in the second quarter. He noted that acquisition cap rates are in the 7.5% to 8% range, while disposition cap rates are 'somewhat a little bit higher' because they are office properties.

David Storms asked for more details on a new property under contract, including its anticipated cap rate and closing timeline, and also inquired about the broader cap rate environment and the reason for a decrease in tenant count.

Answer

President Arthur Cooper stated the new property acquisition is set to close in Q4 with a cap rate over 9%. He noted that while the market remains competitive, cap rates appear to be declining slightly as seller expectations adjust. He clarified that the quarter-over-quarter drop in tenant count was a direct result of property sales, not tenant departures.

Dave Storms from Stonegate Capital Partners inquired about the covenants of the new loan facility and the profile of an ideal M&A transaction.

Answer

CEO Vijay Kotte explained that the new loan agreement is more flexible, featuring only a single minimum liquidity covenant that adapts during the AEP period. Regarding M&A, he stated that GoHealth is targeting companies with product diversification, talent, and contract assets that can be integrated with its proprietary technology platform to drive value.

David Joseph Storms of Stonegate Capital Partners asked about the logistical hurdles GoHealth needs to clear to successfully scale its GoHealth Protect initiative through the second half of the year. He also posed a macro question about how market volatility impacts customer behavior, such as the use of PlanFit checkups or inbound call volume.

Answer

CEO Vijay Kotte responded that the primary logistical steps for GoHealth Protect are agent licensing and appointments, which he described as a straightforward process with minimal fixed investment required. Regarding customer behavior, Kotte explained that market disruption, such as plan exits and benefit changes, historically drives more consumers to shop for plans. He noted that these inbound shoppers generally have a higher probability of needing to switch plans, a trend they expect to continue.

David Storms asked if the expectation of fewer plan exits would alter LTV model assumptions and whether GoHealth sees opportunities to expand its business beyond the Medicare Advantage market.

Answer

CEO Vijay Kotte explained that LTV models are based on long-term historical averages and are not adjusted based on short-term expectations for a single enrollment period. Regarding expansion, Kotte noted that while the company is focused on the large Medicare opportunity where it has a proven advantage, it would consider expanding to other populations only if it had a clear 'right to be successful' and could offer a differentiated service, rather than diversifying for its own sake.

Dave Storms of Stonegate Capital Partners asked about the rollout and success metrics for the new LOLA loan origination system and whether any macroeconomic factors might disrupt the typical seasonal patterns in the second half of the year.

Answer

Founder, CEO & Executive Chairman Todd Schwartz explained that the primary goal for the LOLA system rollout is to maintain current strong performance while building a foundation for future innovation, particularly seamless integration with AI tools and improved data analysis. He clarified that success is measured by this future optionality rather than immediate changes to metrics. Regarding seasonality, he stated that the company expects a standard seasonal progression for the second half of the year, with no unusual macro disruptions anticipated in the current guidance.

David Joseph Storms asked about current customer borrowing patterns and whether there was any pull-forward of activity due to forecasted macro events. He also inquired about the remaining levers for cost discipline and requested examples.

Answer

CEO Todd Schwartz reported that the consumer base has remained stable, with no significant changes in behavior observed, noting that Model 6 was developed specifically to manage through macro volatility. Regarding cost discipline, Schwartz emphasized it is an ingrained part of the culture, highlighting the year-over-year increase in the auto-approval rate as a key efficiency driver. He added that OppFi is exploring AI to further enhance customer experience and operational efficiency, rather than simply for cost-cutting.

David Joseph Storms asked for more detail on the drivers behind the expected reduction in earnings seasonality for 2025 and questioned the potential upper limit for automation in the loan approval process.

Answer

CEO Todd Schwartz explained that the company's new model incorporates seasonal credit loss performance, which is expected to smooth out earnings throughout 2025. Regarding automation, he stated that while reaching 100% is likely impossible, they will continuously work to improve the metric due to its significant benefits for operational efficiency, funnel metrics, and customer satisfaction.

David Joseph Storms of Stonegate Capital Partners asked for details on the target profile for potential strategic M&A, the specific factors driving the confidence to raise profitability guidance, and any macro catalysts the company is monitoring.

Answer

Executive Chairman and CEO Todd Schwartz explained that M&A targets must be highly accretive and align with OppFi's vision to be a platform for digital alternative financial services, with the company prepared for both equity stakes and full acquisitions. He noted that confidence in the raised guidance stems from strong credit performance, particularly in the existing customer book, which provides optionality for growth in 2025. On macro factors, Schwartz acknowledged the benefit of lower interest costs but stated the company does not plan for Fed rate cuts, though they would enhance returns.

Dave Storms from Stonegate Capital Partners asked about the primary drivers of the flat roll margin improvement, any other leading indicators for the business, and the potential impacts of recent tax legislation beyond bonus depreciation.

Answer

CFO Richard Manson attributed the margin improvement to selling lower-cost inventory at higher index prices following tariff announcements. CEO Rick Marabito added that a strategic shift to a richer product mix, more fabrication, and accretive acquisitions also contributed. Marabito identified strong quoting activity for fabrication work and data center business as positive leading indicators. Regarding tax legislation, Manson and Marabito agreed the main benefit is for their customers, which should help drive demand, especially when combined with future interest rate cuts.

David Storms asked for the outlook for the pipe and tube segment beyond the second quarter and inquired about the company's strategy for working capital and inventory management, particularly for the 10% of its metal supply that is not domestically sourced.

Answer

President and COO Andrew Greiff stated that the pipe and tube segment will see continued opportunities from onshoring, especially in data centers, supported by significant investments in fabrication capabilities. CFO Richard Manson addressed working capital, noting a $37 million debt reduction in Q1 and expecting larger reductions in the second half of the year, targeting debt in the low $200 million range by year-end. Andrew Greiff added that inventory levels are appropriate and the domestic supply base is stable and sufficient for growth.

David Storms asked for details on expected synergies from the Metal Works acquisition, an assessment of the company's market share across its end markets for 2025, and any early market reactions observed from recent tariff discussions.

Answer

CEO Rick Marabito explained that Metal Works synergies are primarily from supply chain integration, including sourcing and first-stage processing, rather than back-office cost cuts. President and COO Andrew Greiff stated that market share has grown most significantly in coated products, particularly galvanized, and that they continue to gain share in stainless and aluminum. Greiff also detailed that tariff talks have caused an immediate jump in hot-rolled futures, extended mill lead times, and prompted domestic producers to raise spot prices.

David Storms inquired about the implementation timeline for new machinery, including employee training, and asked for an update on the M&A environment, specifically whether Olympic Steel is targeting more countercyclical companies.

Answer

President and COO Andrew Greiff explained that employee training for new equipment can occur before it arrives and that machinery will be operational very shortly after installation, with benefits expected in 2025. CEO Rick Marabito confirmed the company is actively pursuing acquisitions, aiming for about one per year, and is focused on countercyclical end-market companies, high-margin fabricators, and service centers.

Dave Storms of Stonegate Capital Partners inquired about the ResMetrics acquisition, focusing on future cross-selling opportunities, international expansion plans, and the macroeconomic factors needed to tighten the company's guidance range.

Answer

CEO Ryan Hummer explained that ResMetrics and NCS have distinct customer bases, creating significant cross-selling and revenue synergy opportunities by offering a broader, combined service portfolio. He noted plans to leverage North Sea success to expand into other offshore markets. Regarding guidance, Hummer stated that a narrowing of the gap between the current Canadian rig count and last year's levels would provide more confidence to tighten the forecast range.

David Joseph Storms of Stonegate Capital Markets asked about NCSM's operating leverage, potential capacity constraints, the current sales pipeline amid macroeconomic uncertainty, and the outlook for U.S. product sales for the remainder of 2025.

Answer

CEO Ryan Hummer explained that the company has no significant capacity constraints due to its outsourced manufacturing model and existing infrastructure, which can support further growth. He noted that while sales discussions are fluid due to commodity price volatility, NCSM's cost-saving technology portfolio is well-positioned. Hummer also clarified that some U.S. frac system sales were deferred from Q1 to Q2 and that successful field trials for Repeat Precision's composite and Stage Saver plugs are converting to regular activity, supporting a positive outlook for U.S. product sales.

David Joseph Storms of Stonegate Capital Partners inquired about the expected cadence for 2025, asking about the timing of the Canadian spring breakup, potential revenue pull-forward from a strong Q4, and other seasonal variances. He also asked for drivers of the year-over-year consolidated margin expansion beyond the international mix.

Answer

CEO Ryan Hummer stated that 2025 seasonality should largely mirror 2024. He noted that while Canadian activity is currently strong, the typical spring breakup slowdown is approaching, though its exact timing is unpredictable. Regarding margins, Hummer attributed the 2024 expansion to three factors: the higher-margin international business growth, overall operating leverage from a 14% revenue increase, and the full-year benefit of cost reductions made in 2023. For 2025, he expects gross margins to be relatively flat as operating leverage benefits are offset by negative foreign exchange impacts.

David Joseph Storms inquired about the nature of product sales growth in North America, the timing of tracer work in the Middle East, remaining opportunities for expense reduction, and the potential for unusual seasonal trends in 2025.

Answer

CEO Ryan Hummer clarified that North American sales represent normal, short-cycle business, not customer inventory building. He explained that Middle East tracer revenue recognition occurs in phases and the project is largely on schedule. Hummer noted that significant cost reductions were made in 2023, and current efforts are focused on diligent cost maintenance rather than capturing 'low-hanging fruit.' For 2025, he anticipates stable U.S. activity, growth in Canada driven by new pipeline capacity, and strong international growth in Argentina, Norway, and the Middle East.

Dave Storms of Stonegate Capital Partners asked about the strategic beneficiaries of the recently announced AOS expansion, potential future asset optimization opportunities following the Philippines sale, and for confirmation that the quarter's tax benefit was a one-time event.

Answer

President, CEO & Director Luis Rojo explained that the AOS expansion is a strategic move to aggressively pursue the growing sulfate-free market, particularly in beauty care, making Stepan a 'one-stop shop' for customers. Regarding asset optimization, he confirmed the company is continuously evaluating its global footprint to improve returns, hinting at future actions. Rojo also affirmed the Q2 tax benefit was a one-time event and the normal effective tax rate remains 24-26%.

David Storms of Stonegate questioned whether the Q1 volume growth was driven by customer inventory pre-buying due to macro uncertainties. He also sought clarification on the improved customer mix, asking about the nature and loyalty of new Tier 2 and Tier 3 customers.

Answer

President and CEO Luis Rojo stated the company does not believe there was any significant customer overstocking in Q1, noting that high interest rates discourage holding excess inventory. He added that April dynamics remained strong, particularly with an acceleration in Polymers growth, which they are monitoring for any pre-tariff build. Rojo explained the positive mix is driven by both new Tier 2/3 customers and growth in higher-margin end markets like agriculture and oilfield, which helped offset the margin drag from rising oleochemical raw material costs in Surfactants.

David Storms inquired about the remaining growth potential for Stepan's agricultural (Ag) business through 2025 and asked for an assessment of the Polymers segment, seeking to identify any specific areas of strength or 'green shoots' within the challenged division.

Answer

Luis Rojo, President and CEO, explained that after 30% growth in H2 2024, he expects double-digit growth in the Ag business to continue into H1 2025. For Polymers, Rojo acknowledged the overall sluggish demand but highlighted positive performance in the specialty polymers business and strong growth in China. He also pointed to the upcoming launch into the spray foam market as a key growth initiative for 2025.

David Storms asked about potential catalysts for a rebound in the polymers business, the remaining opportunity for improving the customer mix in surfactants, and whether to expect any significant planned plant shutdowns in the fourth quarter.

Answer

CEO Luis Rojo identified a moderation in interest rates in 2025 as a key catalyst for the construction-linked polymers business, citing strong long-term fundamentals like reroofing demand. In surfactants, he described a significant growth runway with Tier 2/3 customers, a market of over 40,000, through a strategy of new customer acquisition, cross-selling, and mix sweetening. Rojo also confirmed two planned turnarounds for the polymers business in Q4, which explains the inventory build-up seen in Q3.

Dave Storms from Stonegate Capital Partners asked about the Education division's materials revenue, inquiring if the bump seen in FY24 could return. He also asked for more detail on the environment for winning back churned clients.

Answer

CEO Paul Walker explained that materials revenue fluctuates based on the timing of large district or statewide contract wins, which require large initial orders. He expressed optimism that such 'bulges' in materials sales will occur in the future as they continue to land large-scale deals. Regarding client win-backs, Walker described their 'clients for life' philosophy, where churned clients are actively re-engaged. He noted that clients often leave for reasons unrelated to the product's value and are receptive to returning, as evidenced by a recent significant win-back from a client that churned in a prior year.

David Storms questioned if the company would shift focus more internally toward product development and AI amid external pressures, and how they plan to balance the hiring of 'lander' versus 'expander' sales roles as the new strategy matures.

Answer

CEO Paul Walker responded that the company continues to execute its product development roadmap, which includes AI integration, and will seek internal efficiencies in non-growth areas. Regarding sales roles, he explained that the primary growth engine will be adding more 'landers' to capture a vast market of new clients. The 'expander' side has existing capacity and will grow at a slower rate, creating operating leverage as more new accounts are passed to them.

David Storms of Stonegate Capital Markets questioned the company's client penetration metric, asking if the 100% total addressable market (TAM) potential per client is based only on current offerings or includes future solutions. He also asked how the new "landing" team's capabilities would shift the target profile for new client acquisitions.

Answer

CEO Paul Walker clarified that the path to greater than 10% penetration is driven by both existing and new solutions, citing the "Speed of Trust" offering's expansion to all employees and the Impact Platform's scalability. Chief Revenue Officer Holly Procter explained the new sales model is organized by client size segments (SMB, Major, Enterprise, Key Accounts), allowing for tailored sales approaches, from high-velocity sales for SMBs to complex global solutions for the largest enterprises.

David Storms sought clarity on the client penetration metric, asking if the potential to grow beyond the current 10% is based on existing solutions or requires new ones. He also asked about the target client profile for the new 'landing' team.

Answer

CEO Paul Walker explained that growth from 10% penetration is achievable with the current solution set, which has been redesigned for broader scalability, and will be further supported by new offerings. Chief Revenue Officer Holly Procter detailed that the new landing team is now organized by company size segments (SMB, Major, Enterprise, Key Accounts), allowing for a more tailored approach to win new logos of all sizes.

David Storms of Stonegate Capital Markets asked about the margin cadence for fiscal 2025, questioning if Q1 would represent the low point. He also inquired how the new sales structure would affect the ramp-up time for new client partners, which was previously about five years.

Answer

CFO Stephen D. Young clarified that while the investment is front-loaded, the costs are ongoing, and the margin impact will be felt throughout the year as revenue recognition lags invoicing. CEO Paul Walker added that he expects the client partner ramp-up time to decrease significantly. The new, specialized 'Land' and 'Expand' roles are narrower and more focused, which should enable new hires to become proficient more quickly than in the previous, broader role.

Dave Storms of Stonegate Capital Markets inquired about the potential for demand recovery if tariffs were to decrease, the level of competition for alternative supply sources, and the potential duration of the customer 'buyer strike' on valves.

Answer

CFO Lyle Williams stated that while maintenance-related demand would likely rebound, capital project demand might be permanently deferred, though they don't expect tariffs to wane. President and CEO Neal Lux added that FET faces little competition for alternative supply chains as they built resiliency years ago. Regarding the 'buyer strike,' Lux was uncertain on the duration but believes customers running lean inventories will eventually need to resume purchasing, at least for minimum requirements, once tariff levels stabilize.

David Storms asked for details on the assumptions driving the 2025 EBITDA guidance, which projects a slight decrease despite the 'Beat the Market' strategy, and inquired about any specific pockets of market strength.

Answer

President and CEO Neal Lux clarified that the EBITDA guidance range accounts for a potential overall market activity decline of 2% to 5%. The final result within that range will depend on how successfully the company's market share gains can offset this decline. Lux identified consumables and international markets—specifically Canada, Kuwait, Oman, and Abu Dhabi—as current bright spots.

David Storms asked about the primary drivers for the increased free cash flow guidance, the profile of potential M&A targets, and the possible impact of U.S. election tariffs on international business.

Answer

CFO Lyle Williams explained that the raised free cash flow forecast is based on fixed cash obligations (interest, taxes, CapEx) and assumes stable EBITDA and working capital, with upside potential from growth. CEO Neal Lux added that ideal M&A targets would resemble the successful Variperm acquisition—differentiated, high-margin, niche businesses. Regarding tariffs, Lux stated the company is more focused on managing raw material supply chains, a process they have refined by diversifying suppliers since the last administration.

David Storms asked about the burn rate of the increased backlog, questioning if a critical mass of Gen-3 satellites would trigger a rapid revenue conversion. He also inquired if Gen-3 contracts include more favorable terms, such as upfront payments, compared to Gen-2 contracts.

Answer

CFO Henry Dubois clarified that there won't be a single step-up; instead, the ~$390 million backlog will be recognized steadily, with about $100 million expected in 2025. CEO Brian O'Toole confirmed that Gen-3's high demand is leading to more favorable terms, citing the recent $100 million contract that included guaranteed annual minimums and a $32 million upfront payment from the customer to secure priority tasking rights.

David Storms asked about the remaining operational life of the Gen-2 satellite constellation, any associated decommissioning costs, and whether the new non-Earth imaging (NEI) services have different technological, contractual, or margin profiles.

Answer

CEO Brian O'Toole stated that the Gen-2 constellation is expected to perform well through 2025 and into 2026, with no material decommissioning costs anticipated. He explained that the new NEI offering is an exciting, high-margin incremental revenue stream that leverages existing on-orbit satellite capacity and agility, monetized through the company's core imagery and analytics services.

David Storms asked about the expected revenue cadence for 2025 and the current environment for new customer acquisition in the cross-industry business (CIB) as inventory digestion subsides.

Answer

CFO Guy Nathanzon stated that while specific quarterly guidance beyond Q1 is not provided, a revenue ramp is generally expected in the second half of 2025 as new VS6320-based designs are commercialized. CEO Gideon Ben-Zvi added that the inventory crisis is largely behind them, with the market recovering and customer inventory levels normalizing, which supports new customer activity.

David Joseph Storms asked if the company's strong cash position made any new growth initiatives feasible that weren't planned at the start of the year. He also inquired about the current state of capacity levels, including labor and facility square footage, relative to the backlog burn rate.

Answer

CFO Ian Hudson replied that the full-year CapEx range of $35-$40 million remains appropriate, with about half dedicated to growth, and that priorities haven't changed mid-year but will be re-evaluated for 2025. President and CEO Jennifer Sherman affirmed that significant capacity was added between 2019 and 2022 through major investments at their Streator, Elgin, and University Park facilities, among others. She stated that the company currently has sufficient capacity to support future growth and is well-positioned to leverage these past investments to increase production.