Jim Ricchiuti

Jim Ricchiuti from Needham & Company asked for quantification of the equipment sales pull-forward, elaboration on sell-through statistics, and the specific impact of tariffs on equipment gross margins during the quarter.

Answer

President and COO Kevin Buchel stated that sell-through stats were strong across the board in June and that distributor ordering activity remains healthy. CFO Andrew Bono addressed the margin question, clarifying that there was limited benefit from price increases in Q4. He quantified the negative tariff impact on COGS at approximately $1 million for the quarter, noting that the company expects to see a lift in margins in Q1 as new pricing is fully effective. Chairman and CEO Dick Soloway added that the company is focused on releasing additional recurring revenue products.

Chris Grenga, on for Jim Ricchiuti, asked for details on the first fleet customer for the Castrol circular oil offering, the sales funnel for similar deals, and whether the company is evaluating other geographic expansions for the semiconductor vertical.

Answer

Co-CEO Michael Battles explained the Castrol partnership involves collecting used oil and selling back a premium, low-carbon product, noting the sales pipeline is strong despite long lead times for large fleets. Co-CEO Eric Gerstenberg confirmed they are actively evaluating other geographies for semiconductor-related expansion beyond Phoenix, driven by strong customer relationships and market growth.

Jim Ricchiuti asked if pausing M&A creates a risk of lost opportunities, whether the election outcome reinforces this decision, and for details on the significance of the U.S. Army Corps of Engineers contract.

Answer

President and CEO Vijay Manthripragada responded that there is 'absolutely no risk' of losing key acquisition targets. He noted that while the M&A pause was decided independently of the election, it is a prudent move in the current environment. Regarding the Army contract, he explained that it validates the company's integrated strategy and that milestones will be shared as the contract progresses.

Focused on the drivers behind the better-than-expected gross margins, the potential for further margin improvement, and the specific end markets and geographies (particularly China) experiencing demand weakness.

Answer

Executives attributed the gross margin beat to accelerated variable cost productivity, supply chain localization savings, logistics efficiencies, and a favorable product mix towards software. They indicated they are in the "middle innings" of realizing supply chain savings, suggesting more benefits are to come. They identified China as the primary region experiencing weakness across both manufacturing and construction and do not see a material improvement in demand, though year-over-year comparisons will ease in the second half.