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STRATTEC(STRT) - 2025 Q2 - Earnings Call Transcript
STRTSTRATTEC(STRT)2025-02-07 22:41
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Financial Data and Key Metrics Changes - The company generated 9.4millionincashfromoperationsinQ22025,totalingapproximately9.4 million in cash from operations in Q2 2025, totaling approximately 21 million for the first half of the fiscal year, a significant improvement compared to the cash used in the first half of fiscal 2024 [9] - Revenue increased by nearly 10% year-over-year, despite the previous year's second quarter benefiting from 4millioninretroactivepricing[10]−AdjustedEBITDAforthequarterwas4 million in retroactive pricing [10] - Adjusted EBITDA for the quarter was 8 million, up 60% compared to the same period last year, with an adjusted EBITDA margin expanding 180 basis points to 6.1% [26] - Net income for Q2 was up 29% to 1.3millionor1.3 million or 0.32 per diluted share, while adjusted non-GAAP net income was 2.6millionor2.6 million or 0.65 per diluted share, an 81% increase from the prior year [24][27] Business Line Data and Key Metrics Changes - Sales of power access products grew 27% year-over-year, driven by new programs and higher value content, while engineered latches increased by 20% [17][18] - The mature product line of keys and locksets continued to decline, indicating a shift in demand towards higher value products [18] Market Data and Key Metrics Changes - Approximately 70% of sales are shipped to the U.S., with the remaining 30% sold to OEMs globally, highlighting the company's reliance on the U.S. market [22] - The company is actively managing the impact of tariffs and is in discussions with customers and suppliers to mitigate potential risks [13][14] Company Strategy and Development Direction - The company is focused on stabilizing the business, optimizing costs, and evaluating its product portfolio as part of its transformation strategy [10] - Efforts to improve operational excellence in Milwaukee operations are expected to yield 1.2millioninannualizedsavings[11]−Thecompanyisalsoexploringorganicgrowthinitiativesandoperationalefficienciestoenhanceitsfinancialstructure[64]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedoptimismabouttheprogressmadeintransformingthecompanybutacknowledgedthatthereisstillsignificantworktobedone[33]−Theongoingtariffsituationisviewedasachallenge,butmanagementisconfidentintheactionsbeingtakentoadvancethecompanythroughoperationalexcellenceandcommercialinitiatives[30][63]OtherImportantInformation−TheMilwaukeefacilityhasbeenlistedforsale,andthecompanyisevaluatingitsmanufacturingoperationstoidentifyfurthercostreductionopportunities[12]−Freecashflowincreasedby1.2 million in annualized savings [11] - The company is also exploring organic growth initiatives and operational efficiencies to enhance its financial structure [64] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the progress made in transforming the company but acknowledged that there is still significant work to be done [33] - The ongoing tariff situation is viewed as a challenge, but management is confident in the actions being taken to advance the company through operational excellence and commercial initiatives [30][63] Other Important Information - The Milwaukee facility has been listed for sale, and the company is evaluating its manufacturing operations to identify further cost reduction opportunities [12] - Free cash flow increased by 12.5 million compared to the previous year's second quarter, attributed to improved operating performance and reduced net working capital [28] Q&A Session Summary Question: Assessment of progress in company evaluation - Management feels positive about the progress but acknowledges that it is still early in the process [33] Question: Examples of higher value products contributing to top line - Growth in power access products, particularly power sliding doors and power lift gates, has been significant [35] Question: Background on $8 million in new pricing - The pricing reflects negotiations with customers regarding contract extensions and support [37] Question: Stability of tooling benefits - Significant progress has been made, but the pace of reduction in tooling costs is expected to level out [40] Question: Impact of wage increases in Mexico - The last impact of the 20% wage increase was seen in Q2, with a lesser merit increase expected moving forward [50] Question: Status of real estate listing - The facility was listed in January, and initial interest has been positive [54] Question: Run rate EBITDA power - Management indicated that the current run rate may not be sustainable due to historical pricing impacts [59] Question: Sales trends with Stellantis - Sales to Stellantis were down about 10% year-over-year, but no significant changes in platforms were noted [79]