Core Insights - Friedman Industries, Incorporated (FRD) has been upgraded to "Outperform" from "Neutral" following a record-volume quarter and the acquisition of Century Metals, marking a transition to a larger operational scale [1] - The stock is currently trading close to tangible book value, suggesting the market views FRD more as a commodity distributor rather than a growing service-center network with enhanced geography and product offerings [1] Acquisition and Synergies - The acquisition of Century Metals expands FRD's product offerings beyond flat-roll and pipe to include cold-rolled, coated sheet, stainless, and non-ferrous products, enhancing its Southeast footprint and opening new demand channels in Latin America [2] - Management anticipates "promising synergies" from the acquisition, with initial benefits including volume smoothing to offset seasonal slowdowns [2] Valuation Metrics - FRD's tangible book value per share has been increasing, yet the stock trades at approximately 0.9x P/B, which is below several peers despite the expanded earnings capacity from the Century acquisition [3] - Near-term earnings are impacted by integration costs and a non-normalized steel margin environment, with the company incurring about $0.9 million in one-time acquisition expenses in Q2 fiscal 2026 [4] Capacity Expansion - Organic capacity growth is a significant driver for FRD, with the new Sinton, TX facility reaching full capacity and delivering the highest margins in the system [5] - Additional processing capacity is being added across the network, including $1.9 million for equipment upgrades at Granite City, IL, which supports continued tonnage growth and lower unit costs [6] Insider Activity - Recent modest insider buying is notable given the stock's pricing near book value, indicating that insiders perceive the current valuation as misaligned with the company's expanding earnings and capacity [7] Structural Positioning and Outlook - FRD is enhancing its operational scale with the Century acquisition, which adds new geographies and higher-value products, while upgrades at Granite City and Sinton facilities are expected to improve throughput and margins [11] - If integration and capacity expansion continue successfully, FRD is positioned to increase earnings in the next up-cycle, with the market not yet reflecting this operational leverage in its valuation [12]

Financial Data and Key Metrics Changes - The company achieved net sales of $47.6 million, representing a 4% year-over-year increase driven by a 31% increase in fire services products [4][21] - Adjusted EBITDA, excluding FX, was $200,000, a decrease of $4.5 million, or 95%, compared to $4.7 million for the comparable year-ago period [5][22] - Adjusted gross profit as a percentage of net sales in the third quarter was 31.3%, down from 41.7% in the comparable year-ago period [5][21] - Net loss was $16 million, or $1.64 per basic and diluted earnings per share, compared to a net income of $100,000 or $0.01 per basic and diluted earnings per share for the third quarter of fiscal 2025 [22] Business Line Data and Key Metrics Changes - Sales from the fire services product line increased by $6 million year-over-year, driven by $3.4 million in sales from the recent Veridian acquisition and organic fire services growth of $3 million [23][29] - Adjusted gross profit for the third quarter was $14.9 million, a decrease of $4.2 million, or 22%, compared to $19.1 million for the third quarter of fiscal 2025 [24][27] - The industrial demand softened across several channels, with distributors reducing inventory and certain customers deferring purchases [19] Market Data and Key Metrics Changes - Revenue softness was visible across the U.S., Canada, Latin America, and parts of EMEA, with North America facing challenges and Latin America coming in below plan due to macroeconomic conditions [10][29] - U.S. revenue decreased 3% to $15 million from $15.4 million, driven by declines in the industrial business due to tariff uncertainty [29] - European revenue, including Eagle, Jolly, and the recently acquired LHD business, increased 6% to $15.2 million [29] Company Strategy and Development Direction - The company is focused on recent acquisition synergies, increasing market share within the fragmented $2 billion fire protection sector, and growing the industrial products business [4] - The strategic acquisitions of California PPE and Arizona PPE expanded the company's global fire footprint into the U.S. personal protective equipment market [8] - The company plans to maintain a focus on operating and manufacturing efficiencies to deliver higher margins and improve free cash flow [36][37] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of tariff uncertainty, inflation effects, and associated mitigation strategies on performance [10] - The company remains optimistic about underlying demand signals, including a robust global fire tender pipeline and signs of pent-up demand across nearly every region [14] - Management has withdrawn formal guidance and is shifting to a more disciplined operating model focused on measurable execution, cash generation, and transparency [12] Other Important Information - The company completed a $6.1 million sale and partial leaseback of its Decatur, Alabama warehouse property, resulting in a gain of $4.3 million [9] - Inventory at the end of Q3 was $87.9 million, down from $90.2 million at the end of Q2 fiscal year 2026 [11][32] - The company has suspended its quarterly cash dividend to reinvest profits into growth opportunities [32] Q&A Session Summary Question: What makes the $38 million fire service tenders high probability? - Management indicated that high probability is based on being the incumbent, competitor struggles, multiple-brand strategy, and strong relationships with fire departments [42][44] Question: Can margins recover through higher absorption or production levels? - Management confirmed that recovery is linked to achieving full capacity and operating leverage, with a shift in product mix affecting margins [48][49] Question: What is the status of certification delays? - Management noted that certification delays are due to a backlog at certification agencies, affecting all manufacturers [57][70] Question: How are pricing opportunities being addressed? - Management is implementing annual pricing increases strategically across different business segments while managing inventory levels [62][64]

Financial Data and Key Metrics Changes - The company achieved record net sales of $52.5 million, representing a 36% year-over-year increase, driven by a 113% increase in fire service products [3][4] - Adjusted EBITDA, excluding FX, was $5.1 million, an increase of $2.4 million or 90% compared to the same period last year [14][18] - Net income was $800,000 or $0.08 per share, compared to a net loss of $1.4 million or $0.19 per share for the same quarter last year [14][24] - Adjusted gross margin percentage decreased to 37.4% from 41.1% year-over-year, primarily due to lower acquired company gross margins and increased material costs [4][20] Business Line Data and Key Metrics Changes - Sales from fire service products increased by $13.6 million year-over-year, with contributions from Meridian and LHD Group [16][22] - Organic sales increased by $5 million or 14% over the prior year [15][19] - Adjusted gross profit for the second quarter was $19.6 million, an increase of 24% compared to the same period last year [16][18] Market Data and Key Metrics Changes - Domestic sales were $22.1 million, representing 42% of total revenues, while international sales were $30.4 million, accounting for 58% of total revenues [15][19] - U.S. revenue increased 78% year-over-year, while European revenue grew 113% [22][23] - Latin American operations experienced a $3.6 million decrease in sales due to delayed purchase decisions from tariff uncertainty [23] Company Strategy and Development Direction - The company aims to continue robust growth in fire services and industrial segments, focusing on acquisition synergies and increasing market share [3][4] - Strategic initiatives include streamlining operations and improving profitability through facility closures and cost reduction measures [7][8] - The company is actively pursuing M&A opportunities within the fire suit rental, decontamination, and services business [11][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating tariff uncertainties and emphasized a focus on operational efficiency and customer relationships [9][10] - The company adjusted its fiscal year 2026 outlook for adjusted EBITDA to the range of $20 to $24 million, expecting revenue near the lower end of $210 to $220 million [29][30] - Management anticipates steady expansion in EBITDA margins over the next three to five years, driven by improved efficiencies and disciplined pricing [30] Other Important Information - The company reported an increase in institutional holdings by 447,000 shares, or 6.2%, to 7,622,035 shares [8] - The recent sale of the Decatur facility for $6.1 million is expected to strengthen the balance sheet and support the M&A pipeline [7][24] Q&A Session Summary Question: Full-year guidance and back half implied numbers - Management indicated that the current EBITDA run rate may not be sustainable due to challenges in Latin America but expects growth in the U.S. and Europe [34][36] Question: Expectations for full-year organic growth - Management anticipates mid-teens organic growth, depending on the timing of fire service RFPs and large orders [38][39] Question: Update on M&A targets - Management is in discussions for several imminent deals, focusing on service-related acquisitions [40][41] Question: Gross profit margin and tariff impacts - Management noted that tariffs impacted margins by about 1.2 points and expects improvements in gross margin in the coming quarters [46][48] Question: Inventory levels and comfort - Management acknowledged high inventory levels and plans to optimize them over the next six months [49][52] Question: Changes in buying in Latin America - Management is starting to see movement in Latin America, with expectations for a substantial catch-up in the second half of the year [54][56] Question: Normalization of client perspective on tariffs - Management feels more comfortable navigating the uncertain environment and is optimistic about future operations [60][62]

Financial Data and Key Metrics Changes - The company achieved over €500,000,000 in adjusted EBITDA over the last twelve months, with adjusted EBITDA growth of 4% to €133,000,000 and an adjusted EBITDA margin expansion of 70 basis points year over year to reach 21% [4][10][22] - Revenue for the quarter was up 1% year over year, reaching $631,000,000, which was above guidance midpoint [10][20] - Free cash flow generated in the quarter was $27,000,000, although it declined year over year due to one-time elements from the previous year [22] Business Line Data and Key Metrics Changes - Total transaction volume increased by 1% on a workday adjusted basis, with total transaction value (TTV) growing 3% to $7,900,000,000 [9][10] - The company reported a high customer retention rate of 95% over the last twelve months, with total new wins value reaching €3,200,000,000, including €2,200,000,000 from SME customers [5][10] Market Data and Key Metrics Changes - Transaction growth in The Americas reached 2% in May and June, while EMEA transactions improved dramatically to 3% during the same period [13] - Air transactions stabilized in May and June after a decline in April, with hotel transactions showing a 4% growth in May and June, outpacing air transactions [11][12] Company Strategy and Development Direction - The company is focused on efficiency gains and driving operating leverage, with a strong emphasis on increasing hotel revenues and digital transactions [12][21] - The pending acquisition of CWT is expected to create significant value, with anticipated net synergies of approximately $155,000,000 over three years [8][39] Management's Comments on Operating Environment and Future Outlook - Management noted that macroeconomic uncertainty impacted demand in April but improved in May and June, leading to confidence in the demand environment moving forward [10][11] - The company raised and narrowed its full-year 2025 guidance, expecting revenue growth of 2% to 4% year over year, with a midpoint of $2,488,000,000 [25][26] Other Important Information - The company has nearly $1,000,000,000 in available liquidity and plans to initiate a stock repurchase program under a previously announced $300,000,000 authorization [7][29] - The acquisition of CWT is valued at $540,000,000 on a cash-free, debt-free basis, with a portion of the consideration funded through cash on hand [9][28] Q&A Session Summary Question: Will ongoing share gains continue in the second half of the year? - Management confirmed that continued share gains are expected in the second half, driven by increased sales and marketing investments to accelerate net new wins [33] Question: Do you have visibility into CWT's 2025 performance? - Management stated that detailed information about CWT's financial performance will be available post-close, with an update expected during the Q3 results announcement [37] Question: What drove the deceleration in APAC? - The deceleration in APAC was primarily driven by Australia, influenced by the timing of tariffs and the mining vertical [42] Question: Are the declines in April recoverable? - Management indicated that the declines in April were due to macroeconomic uncertainty and not necessarily recoverable, as companies became more confident in planning in May and June [45]