Julio Romero

Julio Romero asked about the contingency of the share repurchase plan on land sales timing, the gross margin spread between build-to-order and spec homes, and the underlying reasons for improved traffic in late December and January.

Answer

Allan Merrill, Chairman and CEO, clarified that the repurchase plan is not strictly contingent on the timing of land sales but will be executed over the year. He estimated the gross margin spread between build-to-order and spec homes to be in the 4-5% range, potentially wider recently. Merrill attributed improved traffic to better affordability (lower rates, stabilized prices, rising incomes) and the strong traction of new, highly efficient, Zero Energy Ready, and Solar-Included communities.

Julio Romero of Sidoti & Company, LLC inquired about the key drivers behind Beazer's resilient gross margin in Q3 despite a challenging demand environment. He also asked about the specific marketing and educational strategies used to communicate the value of their differentiated, energy-efficient homes to consumers.

Answer

SVP and CFO David Goldberg attributed the gross margin resilience to the profitability of newer homes and successful cost reduction efforts on their Zero Energy Ready homes, which offset higher incentives and a high spec mix. Chairman and CEO Allan Merrill detailed the marketing strategy, highlighting the importance of in-person experiences, such as a movable wall panel display that viscerally shows the construction quality difference, to create a connection with buyers.

Julio Romero asked how affordability challenges are factored into the updated multiyear goals, what drives the new book value per share target, and about the expected cadence of the new $100 million share repurchase authorization.

Answer

CEO Allan Merrill explained that the company plans for affordability to remain constrained and that the book value goal is driven by earnings growth and buybacks, not primarily the deferred tax asset. Executive David Goldberg added that the repurchase cadence will be a dynamic balance between land opportunities, growth, deleveraging, and the stock's price, rather than a predetermined quarterly amount.

Julio Romero of Sidoti & Company sought more context on the operational issues in Texas and California that delayed closings and asked how the cadence of community closeouts impacts the full-year guidance. He also asked about Beazer's positioning for margin improvement when the broader market recovers.

Answer

CEO Allan Merrill clarified that the 47 delayed homes were a closings issue, not a sales issue, caused by isolated incidents: a utility company prioritizing storm repairs in Houston and a meter supply issue in California. On community count, he explained that opening 60+ communities to reach a net of 20 implies about 40 closeouts. For future profitability, Merrill highlighted their 'alpha opportunity' in Zero Energy Ready homes, which provides a unique competitive advantage beyond market-wide rate improvements.

Julio Romero from Sidoti Company inquired about the nature and longevity of Insteel's data center project commitments, specifically asking if they represent new pipeline additions, if they are accelerating, and their expected duration beyond calendar 2026. He also asked how Insteel's 4% volume growth in the quarter was impacted by wire rod supply constraints, both domestically and for future periods. Finally, he questioned whether Insteel was already realizing SG&A leverage from the EWP and OWP acquisitions or if that leverage was still anticipated.

Answer

H. Woltz, CEO of Insteel Industries, explained that the data center business is relatively new for the company, with significant activity starting in 2025. He noted that Insteel is now experiencing repeat opportunities and robust demand, consistent with the broader industry trends. Regarding wire rod, H. Woltz clarified that Insteel's increased inventories were a direct result of insufficient domestic wire rod supply, necessitating offshore purchases, and that importing would continue until domestic availability improves. He confirmed that Insteel has already realized the expected synergies from the EWP and OWP acquisitions, noting that this, combined with increased shipments and sales volume, was a key objective.

Julio Romero questioned whether Insteel was beginning to realize SG&A leverage from the acquisitions of EWP and OWP, given that sales grew 23% while SG&A grew 11%.

Answer

H. O. Woltz, CEO, confirmed that the expected synergies from the acquisitions have been realized, and the company is pleased with their performance and integration.

Julio Romero inquired about the current demand landscape, specifically if data center construction and infrastructure projects continue to offset weaknesses in commercial and residential markets, and asked for any new supporting data points. He also questioned the current state of raw material supply and inventory levels, seeking clarity on whether supply has normalized. Additionally, Romero asked for insights into the year-one financial contribution and future synergies from the Engineered Wire Products acquisition, and sought an updated percentage of sales derived from the residential sector.

Answer

H.O. Woltz III, Chairman, President, and CEO, confirmed that data center construction continues to fill demand gaps, noting that their market view is short-term. Regarding raw materials, he stated that imported quantities were secured for specific needs and deficient plants, and they are satisfied with current supply levels despite changes in the import market. Woltz explained that the exact financial impact of the Upper Sandusky site is hard to isolate due to output redistribution but confirmed its solid performance and attractive product mix. He also clarified the difficulty in precisely pinpointing the direct versus indirect impact of housing on revenues, estimating direct impact around 15%.

Julio Romero asked about current demand trends, specifically if data center construction and infrastructure projects continue to offset weakness in commercial and residential markets, and sought any new anecdotal evidence supporting this view. He also inquired about the current state of raw material supply, inventory levels, and whether supply has normalized. Additionally, Romero questioned the year-one financial contribution and future synergies from the Engineered Wire Products (EWP) acquisition, and sought an updated percentage of sales derived from residential construction. Finally, he asked about geographic demand trends and the potential benefit from water infrastructure initiatives, particularly Texas Prop 4, and the timing of Infrastructure Investment and Jobs Act (IIJA) funding impact.

Answer

H. Woltz (Chairman, President, and CEO, Insteel Industries) confirmed that data center construction continues to fill demand gaps, noting a short-term positive outlook for activity. He stated that raw material supply has improved, with inventory at 3.5 months of shipments, and the company is not displeased with its current sourcing strategy, which included imports to address domestic deficiencies. Regarding the EWP acquisition, Woltz indicated that while exact site-specific impact is hard to quantify due to output redistribution, its financial performance has been solid with an attractive product mix. He clarified that direct residential construction accounts for about 15% of revenues, but indirect infrastructure related to housing is harder to pinpoint. Woltz noted no distinct geographic demand trends and expressed belief that water infrastructure initiatives and IIJA funding are positively impacting demand, with IIJA funds now translating into job site activity and offering a multi-year runway of benefits. Scot Jafroodi (VP, CFO, and Treasurer, Insteel Industries) provided financial details on inventory and capital expenditures.

Julio Romero of Sidoti & Company, LLC inquired about whether strong business activity and quoting levels continued through Q3, the potential timeline for resolving the Section 232 tariff ambiguity on imported steel value, and the integration progress and synergies from the Engineered Wire Products acquisition.

Answer

H.O. Woltz III, Chairman, President & CEO, confirmed that strong demand, particularly from data centers, has continued, leading to extended backlogs. Regarding tariffs, he stated the company believes the administration's intent is to tax the full value of imported products and is actively communicating with the Department of Commerce to resolve the ambiguity. He also noted that the integration of the acquired Engineered Wire Products facility is proceeding well, praising the team's expertise and highlighting that Insteel is learning a great deal from the new operation.

Julio Romero of Sidoti & Company, LLC inquired about Insteel's strategy for managing the current operating environment amid tariff uncertainty, the notable disconnect between the company's strong performance and weaker macroeconomic indicators, and its pricing approach for PC strand products following the recent extension of Section 232 tariffs.

Answer

H.O. Waltz (Executive) explained that the business momentum from Q1 has continued, with robust demand and solid April shipments, making raw material availability the primary constraint. He acknowledged the disconnect with macro data but highlighted strong customer backlogs and quotation activity as evidence of real demand. Regarding tariffs, Waltz stated that while the Section 232 extension on PC strand is positive news, Insteel still faces a disadvantage due to the significant price gap between U.S. and world market steel.

Julio Romero of Sidoti & Company inquired about the specific drivers of the material demand uptick in Q1, the company's confidence in implementing recent price increases, and the integration progress of the Engineered Wire Products and O’Brien Wire Products acquisitions.

Answer

H.O. Waltz, an executive, explained that the demand increase was broad-based but difficult to precisely quantify due to variables like inventory levels and weather. He noted that the company anticipated the tightening domestic wire rod supply, which supported proactive price increases. Waltz also described the acquisition integrations as "fantastic," highlighting a rapid and successful transition to Insteel's information systems and positive customer reception due to the stability Insteel provides.

Julio Romero of Sidoti & Company inquired about Insteel's Q4 shipment trends, the primary drivers behind volume fluctuations, the outlook for volume growth in fiscal 2025, and the progress of its engineered structural mesh product adoption.

Answer

H.O. Waltz (executive) explained that while early Q4 shipments were low, September was even year-over-year. He noted that weather significantly impacted production and shipping hours but that customer optimism remains high. Waltz expressed cautious optimism for gradual volume growth in 2025, supported by solid fundamentals. He also confirmed that Insteel is fully committed to driving the conversion of rebar users to its engineered structural mesh, despite the challenges.

Julio Romero inquired about Apogee's growth trajectory, opportunity set, and how future growth might impact ROIC hurdles. He also sought details on near-term priorities beyond Project Fortify Phase 2, including quick wins, and asked if there were any differences in M&A IRR hurdles compared to the previous management team. Finally, he requested high-level thoughts on fiscal 2027 revenue or profit growth, considering the non-recurrence of tariff impacts.

Answer

Don Nolan, Apogee's Chief Executive Officer, reiterated the unchanged strategy focused on economic leadership, portfolio management, and strengthening the core, emphasizing that UW Solutions opened new markets for faster, higher-margin growth. He highlighted delivering current year results, leveraging the Apogee Management System (AMS) for operational excellence, and pursuing creative M&A as near-term priorities. He stated no difference in M&A financial analysis but a desire to 'move faster' with discipline. Mark Augdahl, Interim Chief Financial Officer, mentioned that fiscal 2027 planning is underway, with tailwinds from Fortify Phase 2 and non-recurring tariffs, offset by headwinds like incentive compensation normalization and aluminum prices.

Julio Romero inquired about the company's growth trajectory and opportunity set, how future growth might impact ROIC hurdles, and near-term priorities beyond Project Fortify. He also asked if there's a different viewpoint on M&A IRR hurdles compared to previous management and for high-level thoughts on fiscal 2027 revenue or profit growth.

Answer

CEO Don Nolan reiterated the unchanged strategy, emphasizing that UW Solutions opened new markets for faster growth and that creative M&A remains a key focus. He highlighted the extraordinary operational excellence and productivity improvements from the Apogee Management System (AMS), especially in the Glass business. Don Nolan also stated no difference in M&A financial analysis but a desire to move faster with discipline. Interim CFO Mark Augdahl noted that fiscal 2027 planning is underway, with Project Fortify Phase Two and tariffs not repeating as tailwinds, offset by incentive compensation normalization and aluminum prices as headwinds.

Julio Romero asked about the glass segment's lowered expectations for the second half of the fiscal year, specifically if margins would remain within the targeted range despite a tougher competitive environment, and the expected duration of the softness. He also questioned the metals segment's lowered guidance, seeking clarification on the split between cost pressure and strategic decisions to maximize EBITDA and market share. Finally, he inquired about the evolving mix of flooring within the UW Solutions portfolio.

Answer

CFO Matt Osberg stated that the glass segment is expected to maintain mid-teens EBITDA margins for the second half and the full year, a testament to their premium strategy and selective volume pursuit. President and CEO Ty Silberhorn added that while bid activity is up, aggressive competition is pressuring prices, leading the glass team to prioritize preserving a pricing floor on premium products to maintain margin levels over securing higher sales volume. For metals, Mr. Osberg explained that higher aluminum costs (up 20% in Q2) are the primary driver, influencing pricing and volume decisions to maximize EBITDA dollars. Mr. Silberhorn noted that the second round of tariff-driven price increases impacted order volumes, and longer lead-time products will incur higher costs in Q3, leading to expected margin erosion. Regarding Performance Services, Mr. Silberhorn indicated that flooring, which was less than half of the UW portfolio at acquisition, is now trending comfortably over half due to healthy double-digit growth.

Julio Romero inquired about the glass segment's lowered expectations for the second half of the year, focusing on the competitive environment, anticipated EBITDA margins for the upcoming quarters, and the expected duration of market softness. He also asked about the primary drivers behind the lowered guidance for the metals segment, distinguishing between cost pressures and strategic decisions to maximize EBITDA dollars and market share. Finally, Romero sought an update on the mix of flooring as a percentage of UW Solutions within Performance Services and how this mix has evolved since the acquisition.

Answer

Matt Osberg, CFO, stated that despite headwinds, the glass segment is expected to maintain mid-teens EBITDA margins for the next two quarters and the full year, a testament to their premium strategy. Ty Silberhorn, President and CEO, added that while bid activity is up, aggressive competition is creating price pressures, leading the team to prioritize preserving premium product margins over securing all available volume. For metals, Osberg explained that higher aluminum costs (up 20% in Q2) are the main pressure, influencing pricing and volume decisions. Silberhorn noted that the second round of tariffs and rising aluminum costs will lead to margin erosion in Q3 for longer lead time products. Regarding Performance Services, Silberhorn confirmed that flooring, which was less than half of UW Solutions at acquisition, is now trending comfortably over half due to healthy double-digit growth.

Julio Romero of Sidoti & Company, LLC asked about the drivers of the month-to-month sequential improvement in the Metals segment during Q1 and whether that momentum continued. He also inquired about the timing of savings from Project Fortify Phase two and sought clarification on the specific EPS impact from tariffs in Q1.

Answer

CEO Ty Silberhorn attributed the Metals segment's momentum to operational improvements, specifically better lead times and on-time delivery, which are rebuilding customer confidence after challenges in Q4. CFO Matt Osberg added that while higher aluminum costs weighed on Q1, he expects continued sequential improvement in Q2 sales and margins as new pricing takes effect. Osberg clarified that savings from Project Fortify Phase two were minimal in Q1 and will ramp up in Q2. Regarding tariffs, he stated the full-year negative EPS impact estimate was lowered to $0.35-$0.45, with the impact heavily weighted to the first half, but did not provide a specific Q1 figure.

Julio Romero asked for a more detailed breakdown of the fiscal 2026 tariff impact, questioning the split between direct and indirect costs and customer acceptance of mitigation efforts. He also inquired about the integration progress and demand outlook for the recently acquired UW Solutions business.

Answer

CFO Matt Osberg detailed the tariff impacts, noting the direct effect is on the Services segment importing from Canada, which will be mitigated by closing the Toronto facility. The indirect impact is primarily from higher aluminum costs, which will be offset by pricing and other actions in the first half of the year. CEO Ty Silberhorn added that the UW Solutions integration is substantially complete and performing as expected, with its flooring business showing strong double-digit growth potential. While the overall combined business is guided to high single-digit growth due to macro uncertainty, the acquisition is on track to meet its financial targets.

Julio Romero inquired about the Architectural Glass segment, asking about end-market weakness, price/mix dynamics, and the sales outlook for Q4. He also asked for an update on the UW Solutions acquisition, specifically regarding momentum in industrial flooring, and questioned the company's capital deployment plans for fiscal 2026, including M&A and debt reduction.

Answer

CFO Matt Osberg explained that the Glass segment is currently seeing more pressure on volume than price, but expects pricing pressure to increase. He projected Q4 Glass sales to be comparable to Q3. CEO Ty Silberhorn highlighted that the industrial flooring business within UW Solutions is showing better-than-expected pipeline growth and will be a key driver for the new unit. Regarding capital, Ty Silberhorn confirmed that while debt paydown is planned, M&A remains the top priority, and the company has the capacity for another significant acquisition.

Julio Romero asked about the historical growth rate of UW Solutions, the product differentiation and go-to-market strategy for its industrial flooring business, and the remaining restructuring costs for Project Fortify.

Answer

CEO Ty Silberhorn detailed that the Industrial Flooring segment has been a key growth driver for UW Solutions, approaching double-digit growth, and is differentiated by its proprietary coatings that create a durable and smooth surface ideal for robotics. CFO Matt Osberg added that it is a 'better together' acquisition that will enhance LSO's capabilities. Regarding Project Fortify, Matt Osberg confirmed that most charges have been incurred and raised the annual run-rate savings target to a range of 13% to 14%.

Julio Romero asked about the $8 million negative EBITDA impact from Monterrey challenges in the fourth quarter, the resulting EBITDA margins for the Hardware Solutions segment, the expected $3 million drag in the first quarter, and the informal outlook's assumptions for market volume and procurement synergies. He also inquired about the company's debt paydown, stock repurchases in Q4, limitations by the open repurchase window, and post-quarter end buyback activity.

Answer

Scott Zuehlke (CFO, Quanex) confirmed the $8 million Q4 impact, noting it was higher than estimated due to 24/7 operations and increased costs, and confirmed the $3 million Q1 drag is expected to go to zero beyond Q1. George Wilson (Chairman and CEO, Quanex) added that the 24/7 operation was implemented to accelerate backorder reduction. For the informal outlook, Scott Zuehlke projected flattish revenue for the next year (fiscal 2026) with flat to down volumes and flat to up pricing, with EBITDA positives from reduced Mexico costs and additional synergies, offset by higher SG&A due to inflation and bonus accruals. Regarding capital allocation, Scott Zuehlke explained the focus on debt paydown in the second half of the previous year due to investor concerns about net leverage, despite shares being undervalued, and mentioned balancing cash flow, repurchases, and debt paydown given Q1/Q2 are typically low-water marks.

Julio Romero asked about the $8 million negative EBITDA impact from Monterrey challenges in the fourth quarter, its effect on Hardware Solutions' EBITDA margins, and the expectation for the $3 million drag in the first quarter to resolve beyond that period.

Answer

Scott Zuehlke (CFO, Quanex Building Products Corporation) confirmed the $8 million impact, noting it was higher than the initial $5 million estimate due to 24/7 operations and increased labor/freight costs. He also confirmed the $3 million Q1 drag is expected to go to zero afterward. George Wilson (Chairman and CEO, Quanex Building Products Corporation) added that the 24/7 operation was implemented to accelerate recovery and reduce backorder levels.

Julio Romero asked about the Custom Solutions business, specifically the impact of recent industry consolidation among larger OEMs and how Quanex has historically navigated such events.

Answer

George Wilson, Chairman, President & CEO, stated it's too early to assess the impact of the announced wood product side consolidation but doesn't anticipate a major effect, given Quanex's relationships with all OEMs. He expects continued consolidation in the window and door segment and believes Quanex is well-positioned due to its broad customer base.

Julio Romero asked for commentary on the macro environment, particularly consumer confidence in North America versus Europe, the strategic rationale behind the new business segments, and clarification on the interest expense run rate for fiscal 2025.

Answer

CEO George Wilson acknowledged affordability constraints but believes falling interest rates will release pent-up demand. He suggested Europe may be further along in its recovery cycle, but North America could rebound faster. Wilson explained the new segments are structured around core manufacturing competencies, not end-markets, to foster broader growth opportunities and leverage operational strengths. CFO Scott Zuehlke confirmed the Q1 interest expense of $15 million will be the 'high watermark' for the year, as debt paydown is a priority.

Julio Romero inquired about the post-acquisition reception of the Tyman deal from employees and customers, the operational impact of the physical inventory counts at Tyman facilities, future plans for ERP system integration, and how Tyman's SKU count compares to legacy Quanex.

Answer

CEO George Wilson described the post-acquisition reception as extremely positive, highlighting similar corporate cultures and strong collaboration within the integration management office. Executive Scott Zuehlke confirmed the cost and operational downtime for the inventory count were factored into guidance and that the process will be streamlined in the future. Wilson added that Tyman has a higher SKU count due to its make-to-stock business model, compared to Quanex's typical make-to-order approach, and that ERP systems will be evaluated post-restructuring.

Julio Romero asked for an update on the performance of different product lines within the Consumer and Professional Products (CPP) segment, specifically comparing fans and tools, and what customer load-in season to expect for these products. He also inquired about the potential margin headroom for CPP beyond the 15% long-term target once the consumer market normalizes, considering the recent profitability improvements.

Answer

Brian Harris, EVP and CFO, detailed that Australia continues strong performance with volume increases and Pope acquisition benefits. The U.K. and Canada are stable. In the U.S., tools benefit from supply chain initiatives, while the Hunter fan business is impacted by decreased demand and tariff-related ordering patterns. He noted that the weak consumer is the primary driver, and while a normalized weather spring is hoped for, no different ordering patterns are expected initially. Ron Kramer, Chairman and CEO, reiterated comfort with the 15% margin target for CPP, emphasizing that increased economic activity and clearer tariff situations would help achieve this goal, without speculating beyond the 15% target.

Julio Romero asked for an update on the performance of different product lines within the Consumer and Professional Products (CPP) segment, specifically comparing fans and tools, and what Griffon is hearing from customers regarding load-in season expectations for these products. He also inquired about the potential headroom for CPP margins above the 15% long-term target once the consumer ultimately normalizes, given the current 10% margins achieved under weak demand and recent sourcing strategy changes.

Answer

Brian Harris, EVP and CFO, detailed that Australia continues to perform well with good volume increases and benefits from the Pope acquisition, while the U.K. and Canada are performing in line with the prior year. In the U.S., the tools business is benefiting from the supply chain initiative, but the Hunter fan business has been impacted by decreased demand and tariff-related customer ordering patterns. He noted that inventory levels vary by product and customer, with the weak consumer being the primary driver. For 2026, they expect a normalized weather spring, with no significantly different ordering patterns initially, hoping for better point-of-sale (POS) in the latter half. Ron Kramer, Chairman and Chief Executive Officer, stated comfort with the 15% long-term margin target, emphasizing that increased economic activity and GDP growth will benefit CPP, and that tariff uncertainties are expected to clear up in calendar year 2026. He reiterated that the goal is to achieve the 15% target in a better consumer environment.

An analyst on behalf of Julio Romero from Sidoti & Company asked about the expected cadence of free cash flow for the remainder of the fiscal year and for details on CPP segment demand trends by geography.

Answer

Executive Brian Harris stated that the company expects free cash flow to be greater than net income for the full year and anticipates a strong second half. Harris then detailed CPP demand, noting continued weakness in North America and the U.K., but good demand in Australia, supported by both organic growth and the Pope acquisition.

Julio Romero asked for more detail on the Consumer and Professional Products (CPP) segment's performance in North America, given the strong margins on lower volume, and also inquired about the potential for additional proceeds from real estate sales.

Answer

Executive Brian Harris explained that the consumer weakness in North America was broad-based across all CPP product lines. He reiterated the company's long-term margin targets of 15% for CPP overall, which is a blend of 12% for Lawn & Garden and 20% for the Hunter Fan business. Regarding real estate, Harris noted that Griffon has about $5 million of held-for-sale assets remaining on its balance sheet, suggesting at least that much in future proceeds.

Julio Romero asked about the expected pace of margin improvement in the Consumer and Professional Products (CPP) segment once the shift to sourced inventory accelerates, and sought details on the assumptions behind the goal to generate over $1 billion in free cash flow over three years.

Answer

Executive Brian Harris stated that CPP margin improvement will be gradual as inventory transitions, with an expected pace of increase in 2025 and 2026 similar to that seen in 2024. CEO Ronald Kramer explained the $1 billion free cash flow target is based on organic growth, sustained HBP margins, and benefits from the CPP sourcing initiative, with cash intended for share buybacks and deleveraging.

Julio Romero asked for insights into the end-market and customer mix driving the $4 billion+ combined backlog and forward pipeline, and an estimation of when this pipeline is expected to convert into orders. He also questioned the drivers behind the notable margin strength in transportation solutions during the third quarter, the impact of the low-bid phase, and the margin profile of the transportation backlog.

Answer

CEO Joe Cutillo explained that backlog is converting shortly, unsigned projects are likely to start in 2026, and future phase work will flow into backlog over 2026-2028. VP of Investor Relations and Corporate Strategy Noelle Dilts specified that $3 billion of the $4 billion is in e-infrastructure, with 75-80% being data centers. Joe Cutillo attributed transportation's margin improvement to project selection, focus on design-build/alternative delivery, aviation, and rail, noting the Texas low-bid wind-down impact will be more significant in 2026.

Julio Romero from Sidoti & Company asked for clarification on the end-market and customer mix driving the $4 billion+ combined backlog and future phase work pipeline, and an estimation of when this forward pipeline is expected to convert into orders. He also inquired about the specific drivers behind the notable margin strength in transportation solutions during the third quarter, questioning if the impact of the Texas low-bid phase-out had begun, and sought details on the margin profile of the current transportation backlog and unsigned awards.

Answer

Joe Cutillo, CEO, explained that backlog is converting shortly, unsigned awards (with letters of intent or won jobs) are likely to start in 2026 (varying by project), and future phase work will flow into backlog over 2026-2028. He noted that $3 billion of the $4 billion is in e-infrastructure, with data centers comprising 75-80% of that. For transportation solutions, Cutillo attributed margin strength to project selection, focus on design-build/alternative delivery, and diversification into aviation and rail. He clarified that the significant impact from the Texas low-bid wind-down would be more evident in 2026, with most of that backlog burned off by H1 2026.

Julio Romero from Sidoti & Company, LLC questioned Sterling's ability to secure better pricing as projects grow in complexity, the competitive environment for E-Infrastructure, the expected closing date for the CEC acquisition, and the future M&A pipeline.

Answer

CEO & Director Joseph Cutillo explained that Sterling's strategy is to be fair on pricing and drive margin through productivity, which limits new competition. He emphasized that integrating services, like the pending CEC acquisition, creates a significant competitive advantage by reducing project timelines. Mr. Cutillo stated the CEC deal is progressing and is now primarily awaiting state licensing approvals. Future M&A will focus on geographic expansion and adding service capabilities.

Julio Romero asked about the primary drivers behind the strong margin performance in Transportation Solutions and questioned the company's confidence level in bidding for new projects.

Answer

CEO Joseph Cutillo attributed the Transportation margin improvement primarily to a strategic mix shift towards higher-margin services like alternative delivery, aviation, and rail projects. He noted that the impact from exiting low-bid work is still minimal but will increase later in the year. Cutillo expressed high confidence in the bidding environment, citing extremely strong activity in E-Infrastructure and Transportation, while acknowledging near-term softness but long-term optimism for the residential market.

Julio Romero of Sidoti & Company, LLC sought to confirm that the tone from data center customers remains positive and contractual terms are stable. He also asked about the long-term margin potential for E-Infrastructure and requested quantification of the revenue headwind from exiting low-bid work in Texas.

Answer

CEO Joseph Cutillo emphatically confirmed the tone from data center customers is not just positive but 'more aggressive and more hungry to grow faster,' with no change in contractual terms. He suggested E-Infrastructure margins could continue to rise with increasing project scale. He quantified the Texas low-bid business that is being reduced as roughly $75 million annually, which is factored into the company's guidance.

Julio Romero questioned how Sterling is balancing current bidding against reserving capacity for future mega-projects, why smaller projects are not diluting E-Infrastructure margins, and what is driving the company's strong operating cash flow.

Answer

CEO Joe Cutillo explained that the company is not holding back on current projects as it can rapidly scale capacity when future mega-projects materialize. He clarified that the 'pipeline' consists of subsequent phases of existing awarded jobs, not speculative bids. Cutillo attributed the strong margins to significant efficiency gains and technology adoption on large-scale projects, which more than offset the impact of smaller jobs. He stated that strong cash flow is a result of favorable contract structures that allow the company to work with customer capital, a dynamic he expects to continue.

Julio Romero inquired about the recent acceleration in order growth and backlog, asking if it reflects booking projects further out or securing better pricing and bid margins to compensate for increased orders. He also asked if the pool of customer partners has expanded, or if the company is primarily doing more business with existing customers.

Answer

President and CEO Brian Lane reiterated the company's philosophy of taking on manageable work with a skilled workforce, ensuring good timing and customer outcomes. COO Trent McKenna highlighted that collaboration between Comfort Systems USA companies and workforce sharing enables additional bookings. CFO Bill George noted a definite preference for working with customers with whom they have a history of successful projects, indicating a focus on deepening existing relationships rather than significantly expanding the customer base.

Julio Romero followed up on the order acceleration, asking if the step-up in orders reflects booking further out or securing better pricing and margins. He also inquired if the pool of customer partners has increased, or if Comfort Systems USA is doing more business with existing customers.

Answer

President and CEO Brian Lane reiterated their philosophy of taking on work they can handle with their skilled workforce, ensuring good timing and customer outcomes. COO Trent McKenna added that collaboration among Comfort Systems USA companies and workforce sharing enables additional bookings. CFO Bill George emphasized a preference for working with customers with whom they have a history of successful projects.

Julio Romero of Sidoti & Company, LLC asked management to rank the significance of various uncertainties, including trade, tariffs, and data center capital expenditures. He also inquired about feedback from customers and suppliers regarding their primary concerns and the potential impact on Comfort Systems.

Answer

CFO William George stated that there is currently 'no sign of a let up in demand' for data centers and that the COVID period presented tougher challenges, which the company navigated successfully. He noted that while some suppliers have implemented minor price increases, the impact is not significant. CEO Brian Lane emphasized that Comfort Systems' large scale, strong balance sheet, and skilled workforce position it as a preferred contractor for complex projects, especially with potential onshoring trends. He concluded that the company's scale and experience are key differentiators in the current environment.

Julio Romero of Sidoti & Company, LLC inquired about the end markets for the modular offering beyond data centers, demand trends for traditional stick-built data center projects, and potential synergies from the recent Century Contractors acquisition.

Answer

CFO William George explained that while historically focused on pharmaceuticals, the modular business is now 80-90% dedicated to data center clients, though capacity is reserved for other verticals. CEO Brian Lane added that applications for hospitals and other areas have a long runway. Both confirmed that stick-built data center demand is also extremely robust. Regarding Century Contractors, George highlighted their complex piping capabilities as a strong strategic fit with existing operations in the region.

Julio Romero asked what factors would be necessary for margins to continue expanding in 2025 and what criteria the company uses for project selection, given its ability to be selective in the current market.

Answer

CEO Brian Lane stated that current record margins result from a combination of pricing, high-level execution, technology application, and disciplined risk management, and he expects margins to remain in a similar range if market conditions hold. For project selection, Lane emphasized focusing on familiar work with long-term customers. CFO William George added that a key consideration is the project's impact on their employees, including the general contractor's quality and job site conditions, framing the strategy as "people first, partner second, profit third."

Julio Romero from Sidoti & Company, LLC sought clarification on the company's remaining UK business exposure following the exit of the automation and material handling (AMH) product line. He also asked about the expected cadence of sales growth across the two main segments for the second half of 2025 and inquired about the progress and expected contribution from the new EnviroCast business.

Answer

President & CEO John Kasel explained that while the significant AMH portion of the UK business is being exited, some telecommunications work remains and is being right-sized to improve its profile. Regarding guidance, he expressed confidence in a strong second half, with Q3 typically being the best quarter seasonally, supported by a robust backlog and improved gross profit margins. For the EnviroCast business, Kasel stated the current focus is on establishing the operation correctly and building a foundation for future years, with no significant revenue contribution expected in 2025.

Julio Romero inquired about the outlook for Rail Products volumes in Q2 and Q3 against tough comparisons, the composition of the rail backlog growth, and the key drivers behind the success in the Friction Management business.

Answer

President and CEO John Kasel expressed strong confidence in a significant Q2 and Q3 for Rail Products, stating the company is positioned for a big quarter despite prior year comparisons. CFO Bill Thalman detailed the backlog mix, highlighting 22% growth in Rail Products and 71% in the higher-margin Friction Management business, alongside a 53% decline in the challenged U.K. market. Kasel attributed Friction Management's strength to acquiring new customers and geographies, excellent service team performance, and effective management of tariff-related supply chain issues.

Julio Romero of Sidoti & Company inquired about the key drivers for the 2025 sales and EBITDA guidance, factors for increased adoption of Rail Technology offerings, the primary swing factor for free cash flow post-Union Pacific settlement, and specifics on restructuring savings and the business mix between growth and return platforms.

Answer

President and CEO John Kasel attributed the strong 2025 outlook to technology innovation in Rail, improved margins, and SG&A leverage, noting that Rail tech adoption is driven by customers' need to operate more safely and reliably. He identified working capital funding for organic growth as the main use of cash flow now that the Union Pacific settlement is complete. CFO Bill Thalman quantified the restructuring, stating a $1.5M charge in 2024 will yield an incremental $2.5M in savings in 2025. Thalman also detailed that growth platforms (~$230M of 2024 revenue) are expected to grow in the high single to low double-digits, while return platforms (~$300M) will see low single-digit growth.

Julio Romero from Sidoti & Company, LLC asked for clarification on the trade and tariff impacts in the Water Transmission Systems (WTS) segment, how customer behavior has adapted to new tariff announcements, and the mix of trends in the Precast segment's end markets.

Answer

President & CEO Scott Montross stated that the tariff impacts from Q1, which delayed some revenue, have largely subsided and are now being passed on, becoming a "non-event." He noted that new tariff announcements caused brief internal confusion but did not have a major impact due to the company's operational flexibility. He also clarified that strong volume is coming from the residential (Geneva) side of Precast, while the non-residential side is now showing signs of recovery.

Julio Romero of Sidoti & Company, LLC inquired about the reversal of customer-driven shipment delays in the Precast segment, sought quantification of both retroactive and new tariff impacts, and asked about the company's precast growth plans, including new capabilities at the Orem facility.

Answer

CEO Scott Montross confirmed that Precast shipment delays from March reversed course in April, with the non-residential order book showing significant growth. CFO Aaron Wilkins quantified the tariff impacts, stating retroactive tariffs had a ~$400k effect in Q1, while new tariffs had a nearly $600k impact. Montross detailed growth plans for the Geneva (residential) and Park (non-residential) businesses to each reach a $100 million revenue rate by the end of 2026, noting the new Orem facility products would primarily contribute starting next year.

Julio Romero inquired about Northwest Pipe's 2025 free cash flow outlook, the strategy for managing working capital, the current state of industry capacity for Steel Pressure Pipe (SPP), and the implications of the recent surge in the Precast order book.

Answer

CEO Scott Montross and CFO Aaron Wilkins explained that a strong focus on mining cash from current assets, tied to management compensation, is driving cash flow performance. They anticipate 2025 free cash flow between $23 million and $30 million, with a more stable quarterly distribution than in 2024. Scott Montross detailed that the SPP market has ample capacity to handle future demand from the IIJA, with Northwest Pipe controlling about half of the market's practical capacity. He also noted the surge in the Precast order book, particularly on the nonresidential side, signals a strong recovery for that segment in 2025, complementing the continued strength in the residential business.

Julio Romero from Sidoti & Company asked about the factors contributing to the resilience of the residential Precast business, the expected timing for the nonresidential Precast market to strengthen, and the drivers behind the strong free cash flow performance.

Answer

President and CEO Scott Montross attributed the residential Precast strength to strong net migration into Utah. He projected the nonresidential market would begin to strengthen around mid-2025, driven by falling interest rates compressing project timelines. Both Montross and CFO Aaron Wilkins highlighted that strong profitability and a strategic focus on working capital management, such as securing upfront payments for steel, were key drivers of the robust cash flow.

Julio Romero of Sidoti & Company, LLC asked about the impact of recent tax legislation on the wind tower business, potential project delays from funding issues, and the specific geographies showing improvement in multifamily construction demand.

Answer

President and CEO Antonio Carrillo explained that the primary benefit of the legislation was providing clarity, which is critical for the industry to move forward. He confirmed that recent weakness was due to weather, not project funding delays, and that the project pipeline is robust. For multifamily demand, he highlighted Texas and New Jersey as areas showing improvement. CFO Gail Peck added that this aligns with third-party research indicating a recovery in the multifamily market.

Julio Romero asked for details on the performance of the Engineered Structures segment, specifically seeking to quantify the sales and profit contribution from the wind tower business and to understand the current economics of that business compared to previous cycles.

Answer

CEO Antonio Carrillo emphasized the strong double-digit volume growth in utility structures and excellent operational execution. CFO Gail Peck added that both the wind and Amaron businesses were accretive to segment margins, with the ramp-up of the Belen, New Mexico facility being a significant positive contributor. Carrillo further explained that the fundamental demand for wind energy is stronger now than in past cycles due to growing U.S. power needs, making the business highly viable even with potential changes to tax credits.

Julio Romero of Sidoti & Company inquired about the timing of the $5-7 million revenue pull-forward in relation to tariff announcements and asked what lessons from the Continental Glass acquisition are being applied to the planned U.S. manufacturing facility.

Answer

CFO Santiago Giraldo clarified that the pull-forward occurred before the price increase announcements in May, with the impact expected mainly in Q3. COO Christian Daes added that while it's early for a formal announcement, the engineering and financial modeling for the new U.S. plant look very positive, with high automation expected to yield EBITDA margins close to current levels.

Julio Romero inquired about the timing of the $5-7 million revenue pull-forward relative to the Section 232 tariff increase and its effect on customer behavior. He also asked about key learnings from the Continental Glass acquisition being applied to the feasibility study for a new U.S. manufacturing facility.

Answer

CFO Santiago Giraldo clarified that the pull-forward occurred before the price increase announcement in May, with the majority of the impact expected in Q3. COO Christian Daes added that the analysis for the new U.S. plant is progressing well, and the planned high level of automation is expected to produce EBITDA margins comparable to their Colombian operations, though an official announcement is not yet imminent.

Julio Romero from Sidoti & Company, LLC asked about the timing of the $5-7 million revenue pull-forward in Q2 and its relation to tariff announcements. He also inquired about any learnings from the Continental Glass acquisition that are being applied to the feasibility study for a new U.S. manufacturing facility.

Answer

CFO Santiago Giraldo clarified that the revenue pull-forward was driven by customer orders placed ahead of price increases announced in May, with the impact expected mainly in Q3. COO Christian Daes added that while it's early, the plans for a highly automated U.S. plant are progressing well, with the goal of achieving EBITDA levels comparable to their Colombian operations.

Julio Romero inquired about the timing of the $5-7 million revenue pull-forward in relation to tariff announcements and any resulting changes in customer behavior. He also asked about key learnings from the Continental Glass acquisition being applied to the planned U.S. manufacturing facility.

Answer

CFO Santiago Giraldo clarified that the pull-forward occurred before the price increase announcements in May, with the impact primarily expected in Q3. COO Christian Daes added that the U.S. plant feasibility study is progressing well, with a high degree of automation expected to maintain EBITDA margins comparable to their Colombian operations, and an official announcement is forthcoming.

Julio Romero asked for a comparison between the recent Continental acquisition and the 2017 GM&P deal, focusing on the strategic rationale and the trade-off between acquired growth and potential dilution to return metrics. He also requested more details on the proposed multiyear project to build a new, fully integrated manufacturing plant in the U.S.

Answer

Executive Jose Daes explained that the Continental acquisition is primarily for the condominium replacement and remodel market and provides a needed U.S. manufacturing footprint. CFO Santiago Giraldo asserted the deal would not be dilutive to margins due to expected synergies and operating leverage. Regarding the new U.S. plant, executive Christian Daes outlined a 5-to-7-year phased plan to build a state-of-the-art, vertically integrated facility, which Santiago Giraldo added should yield higher returns on invested capital than typical M&A.

Julio Romero of D.A. Davidson & Co. inquired about the expected cadence for the projected $15 million to $40 million in vinyl revenues for 2025, the potential for capacity expansion, and whether this expansion is factored into the current CapEx guidance.

Answer

Executive Jose Daes responded that the company expects vinyl revenue to continue growing, potentially doubling the previous year's results, driven by expansion into new states like Louisiana, Alabama, and Georgia. Executive Christian Daes added that the company is currently operating at 65-70% capacity and is investing in automation to enhance efficiency, confirming they will have sufficient capacity to maintain their 4-5 week delivery timeframe.

An associate on behalf of Julio Romero from Sidoti & Company asked about the company's growth strategy following its strategic review, particularly regarding M&A, and questioned if the recent pace of SG&A expense growth would persist.

Answer

Executive Santiago Giraldo confirmed that while organic growth is the priority, the company is now also contemplating opportunistic tuck-in acquisitions. He clarified that the year-over-year SG&A increase was driven by non-recurring items like strategic review costs and since-reversed aluminum tariffs, plus annual salary adjustments, and he does not expect that high rate of growth to continue.

Julio Romero of Sidoti & Company, LLC asked about the strategy behind the direct-to-contractor model, brand positioning in metal roofing, order turnaround times, and potential synergies between the AgTech and Infrastructure businesses.

Answer

Chairman & CEO Bill Bosway detailed a three-channel strategy (wholesale, retail, direct-to-contractor) and explained that the direct model for custom metal roofing significantly increases the revenue per job. He noted the company uses local brands to maintain contractor loyalty and can turn around custom orders in one to three days. He clarified that there are no significant operational synergies between the AgTech and Infrastructure segments.

Justin, on behalf of Julio Romero from Sidoti & Company, asked about the visibility provided by current project schedules in the Agtech segment for the second quarter and the back half of the year. He also inquired about the company's forward-looking capital allocation priorities and whether the new share repurchase authorization signals a more opportunistic stance.

Answer

Executive William Bosway detailed that Agtech project visibility is mixed; large produce projects can have timing shifts, but the Lane Supply acquisition adds a more predictable cadence of smaller projects, improving overall segment predictability. He confirmed a strong second half is expected, starting in Q2. Regarding capital allocation, Bosway stated the company will continue to pursue both M&A, particularly in Residential and Agtech, and opportunistic share buybacks, as strong cash flow and a healthy balance sheet provide the capacity for both. The new authorization supports this flexible approach.

On behalf of Julio Romero, an analyst asked about the strategic rationale behind the acquisition of Lane Supply and inquired about the key factors that would drive performance to the upper or lower ends of the 2025 revenue and EPS guidance.

Answer

Executive William Bosway detailed that Lane Supply is a strong strategic fit due to its leadership in the growing canopy market and its alignment with Gibraltar's existing structures business, offering customer and supply-side synergies. Regarding guidance, Bosway explained the range accounts for uncertainties in the Renewables market related to potential energy policy changes. Upside could come from faster-than-expected participation gains in Residential or stronger project flow in Agtech, while the plan remains conservatively balanced overall.

Julio Romero from Sidoti & Company followed up on the Residential segment, asking for geographic details on delayed participation gains and the associated dollar impact. He also requested a definition of 'participation gains' and questioned why the Renewables segment's margins were hindered beyond simple volume deleverage.

Answer

Executive William Bosway specified a $4 million revenue impact in Q3 from delayed participation gains, which are now starting to materialize in Q4. He defined participation gains as winning business from competitors, entering new product lines with existing customers, or expanding into new geographies. For Renewables, he attributed the significant margin pressure to the learning curve and operational inefficiencies of launching the new 1P tracker product amid a volatile market with shifting customer deadlines, which was more challenging than anticipated.

Julio Romero of Sidoti & Company, LLC asked about the confidence in the Acadia's 2026 delivery timeline, its potential revenue contribution, and the status of offshore energy awards. He also questioned if there were any delays in the base dredging or LNG businesses.

Answer

CEO Lasse Petterson expressed high confidence in a Q1 2026 delivery for the Acadia, noting international award lead times are about a year or less. SVP & CFO Scott Kornblau indicated the vessel could generate well over $100 million in revenue in a full year. Petterson also confirmed the base business is executing well under the continuing resolution, with a strong beach renourishment market.

Julio Romero requested quantification of the Q1 dry dock impact, details on the four vessels scheduled for dry dock in Q2, and the expected effect on gross margin. He also inquired about the company's exposure to tariffs and the use of index pricing in contracts.

Answer

CFO Scott Kornblau explained that one hopper dredge was in dry dock for part of Q1. For Q2, one hopper and three other vessels will be in dry dock, which will make it the lowest quarter for revenue and margins. He noted a typical dry dock costs $3-6 million plus lost revenue. He also stated that tariff exposure is immaterial due to the company's domestic sourcing under the Jones Act and that most newbuild components are already procured.

Julio Romero from Sidoti & Company asked for a rank ordering of the international rock installation opportunities for the Acadia, potential opportunities in South America, the impact of the new administration on LNG projects, and details on the remaining newbuild program spending and 2025 cash flow expectations.

Answer

CEO Lasse Petterson ranked the Acadia's opportunities as 1) European/Asian offshore wind, 2) power cable protection, and 3) telecom cable protection, with a primary focus on Europe. He also expressed a positive short-term outlook for U.S. LNG projects. CFO Scott Kornblau detailed the remaining newbuild CapEx at $110-$120 million and projected the company would be roughly cash flow neutral in 2025, even with the significant capital outlay.

Julio Romero from Sidoti & Company asked for details on the third quarter's strong dredging gross margin, the financial impact of an expedited dry docking, the outlook for fourth-quarter margins, and the margin potential for 2025 given the record backlog.

Answer

CFO Scott Kornblau explained that an expedited dry docking cost approximately $2 to $2.5 million in the third quarter. He confirmed that fourth-quarter margins are expected to increase sequentially from Q3, a historical trend driven by the opening of certain environmental windows. For 2025, Kornblau noted that while the strong backlog of capital and coastal projects is positive for margins, 2025 will be a higher dry-docking year compared to 2024, which will be a factor.

Julio Romero asked for an update on the four large project pursuits mentioned last quarter, whether recent tax reform helps customer decision-making, and how Orion is positioning its Concrete business to compete against new entrants in the data center market.

Answer

CEO Travis Boone explained that the four large private-sector pursuits had their decision timelines slide out of Q2, with awards now expected in the latter half of the year. Both Boone and CFO Alison Vasquez agreed that recent legislation provides clients with more certainty and financial incentives, which should help expedite capital investment decisions. Boone emphasized that Orion's competitive edge in data centers comes from its deep, long-standing relationships with general contractors and a proven track record of execution.

Julio Romero asked about the drivers behind the strong Q1 Marine segment margins and their sustainability, and questioned how the company's contract structures and supplier relationships create a competitive advantage amidst tariff uncertainty.

Answer

CEO Travis Boone explained that while the strong Marine margins were driven by excellent performance on large projects, the Q1 level represents a high point for the year. He also noted that tariff risks are mitigated through 'Buy America' provisions in government contracts and proactive contingency planning. CFO Scott Thanisch highlighted that strong supplier relationships provide a significant competitive advantage in sourcing materials.

Julio Romero inquired about the key drivers of the strong 14% Q4 gross margin, its sustainability, and the potential for leverage as volumes increase. He also asked about the specific growth projects included in the 2025 CapEx guidance and the expected cadence of backlog growth throughout the year.

Answer

CEO Travis Boone attributed the high gross margin to improved bidding discipline and execution, which has been a focus for the past two years. CFO Scott Thanisch elaborated that better initial pricing and risk contingency were key factors. Thanisch confirmed that margins can improve further with scale through better equipment and labor absorption. He also noted the increased CapEx is primarily for marine construction equipment to capture future growth. Regarding backlog, Boone expects a strong year of growth, while Thanisch noted concrete jobs burn quicker and marine wins are expected later in the year, building the backlog for 2026.

Julio Romero from Sidoti & Co. sought clarification on the timeline and recent activity for the 29 data center projects, the outlook for Q4 operating cash flow, and the company's broader capital allocation priorities.

Answer

Executive Travis Boone explained that the 29 data center projects have been accumulated over the last five years, with a significant increase in the past two years, noting 5 were added in the last few months. CFO Scott Thanisch projected continued positive operating cash flow in Q4, though not at the same high level as Q3, and emphasized that the primary focus for capital is investing in equipment to drive top-line growth and earnings.

Julio Romero asked for details on recent wins and future booking trends in the Civil segment, the current status of the $750 million in pending alternative delivery projects, and an update on the company's bonding capacity.

Answer

President and CEO Frankie S. Renda explained that Southland is selectively adding new Civil work, focusing on projects with strong teams and track records, and may see a natural shift toward civil projects as the paving business winds down. He confirmed that the two alternative delivery projects are progressing well toward becoming construction contracts within a year. Regarding bonding, Renda emphasized the company maintains strong, regular communication with its surety partners to support strategic project pursuits.

Julio Romero from Sidoti & Company asked about the drivers of the Civil segment's gross profit, the performance of non-M&P legacy work, the timeline for completing this work, and the expected cash flow trend for 2025.

Answer

Frank Renda, President & CEO, explained that the Civil segment's core work continues to produce strong double-digit margins, though quarterly results were impacted by an unfavorable ruling on a legacy project dispute. He also highlighted a key milestone on a Midwest bridge project, which de-risks the portfolio. Renda confirmed the company expects to complete the majority of non-M&P legacy work by the end of 2025. Cody Gallarda, EVP & CFO, projected strong cash flow from operations in 2025, likely weighted towards the second half of the year, driven by new core projects.

Julio Romero asked about the expected backlog conversion and revenue rebound in Q4, the burn-off cadence for the remaining M&P backlog, cash flow expectations from Q4 dispute settlements, and what risk mitigation processes are being used for new shorter-duration projects.

Answer

EVP and CFO Cody Gallarda confirmed they expect a sequential revenue rebound in Q4. He advised against a straight-line model for the M&P burn-off, noting it will taper, and stated there are no specific cash settlement expectations for Q4 but significant inflows are anticipated in 2025. President and CEO Frank Renda added that the strategic shift involves focusing on core markets and bolt-on, higher-margin civil projects, supported by an overhauled procurement and risk assessment process.

Julio Romero questioned the likelihood of contract disputes extending into 2025, the reason for the low M&P revenue, the potential impact of debt refinancing on interest expense, and whether weather affected Q2 results.

Answer

CFO Cody Gallarda explained that the low M&P revenue was an accounting adjustment from a settlement that lowered the project's percentage of completion, not an operational slowdown. He also mentioned the debt refinancing aims to preserve cash flow, potentially at a higher interest rate. CEO Frankie S. Renda acknowledged some higher-than-normal rain events but did not quantify a significant impact.

Julio Romero inquired about insights from K-12 public bid data regarding industry pricing, AAON's price premium, and the company's current and potential market share in national accounts, particularly with its heat pump technology.

Answer

President and COO Matthew Tobolski responded that feedback from the sales channel and bid activity indicates AAON's price premium has contracted by 1-2%, enhancing competitiveness. He noted that while current national account market share is low, it is accelerating significantly due to intentional efforts and the value proposition of the Alpha Class heat pump. Tobolski anticipates a meaningful impact in late 2025, with 2026 expected to be a major year for revenue conversion from these new national account programs.

Julio Romero asked about the margin profile of the $175 million liquid cooling order, its reporting segment, the annualized revenue contribution of the new Memphis facility, and for clarification on the implied Q4 tax rate.

Answer

President and COO Matthew Tobolski indicated the order's margin profile would be in line with historical BASX margins from 2023, with potential upside as production scales. He confirmed the revenue will be reported within the Coil Products segment and will ramp up sequentially through Q1 and Q2 2025. He described the Memphis facility as roughly doubling the company's available square footage for data center products. CFO and Treasurer Rebecca Thompson clarified that the 24.9% annual effective tax rate is a baseline and does not imply a high Q4 rate; discrete items will likely result in a lower actual rate for the quarter.

Representing Sidoti & Company, an analyst asked about Primoris's comfort level with bidding on new projects amid tariff uncertainty and inquired about the potential impact of a reconciliation bill on IRA benefits.

Answer

Chairman and Interim CEO David King affirmed their comfort in the bidding environment, stating that opportunities remain strong and Primoris remains diligent on risk management. CFO Ken Dodgen commented that while they cannot predict the timing of legislation, they are mapping all scenarios with customers and feel prepared for any outcome.

On behalf of Julio Romero, John asked for an elaboration on working capital drivers and the cash conversion outlook for 2025. He also asked for a ranking of end-market strength.

Answer

CFO Ken Dodgen reiterated that strong upfront payments, improved collections, and a $100 million cash pull-forward drove 2024 results, leading to a normalized 2025 cash flow forecast of $200-$225 million. He ranked end-market strength as: 1) Renewables, 2) Power Delivery, followed by 3) Communications and Natural Gas Generation. CEO Tom McCormick added that gas generation has a long-term, 5+ year tailwind.

Asked for quantification of a customer load-in for Contractor Solutions, the sustainability of the 20% EBITDA margin in Engineered Building Solutions (EBS), and the drivers behind the overall strong margin performance in the quarter.

Answer

The customer load-in represented a few percent of revenue and was a pull-forward from Q2. The strong EBS margin was due to a favorable project mix and cost-out initiatives, but it is expected to fluctuate quarterly and is not yet a permanent new level. The overall strong Q1 margin performance was driven by exceptional volume leverage, favorable mix, and some cost deferrals, and is not fully sustainable, especially considering the seasonal weakness of Q3.