Earnings call transcript: Decisive Dividends Q4 2024 sees sales rise

Decisive Dividends Corporation (DCIS), with a market capitalization of $130.2 billion, reported a robust fourth quarter for 2024, with a 5% increase in consolidated sales year-over-year and a 17% rise from the previous quarter. According to InvestingPro analysis, the company maintains a "GOOD" overall financial health score of 2.54 out of 5, particularly excelling in profitability metrics. The company’s adjusted EBITDA also saw a modest 2% growth compared to the same period last year. Despite these gains, the full-year dividend payout ratio remained high at approximately 96%, but it is expected to decrease in upcoming quarters. The company is optimistic about its future, with plans to launch new products and make additional acquisitions in 2025.

Key Takeaways

• Q4 2024 sales increased by 5% year-over-year.
• The dividend payout ratio is expected to decrease in future quarters.
• Seven new products are set to launch in 2025, targeting North America and Europe.
• The company expects to complete more acquisitions in 2025.
• The agricultural sector shows signs of recovery, benefiting the company.

Company Performance

Decisive Dividends demonstrated strong performance in Q4 2024, with a 5% increase in sales compared to the previous year and a 17% increase from Q3 2024. The company’s operational improvements, such as strengthened sales teams and enhanced product quality, contributed to these results. The agricultural sector’s recovery and improved pork industry pricing also played a role in the company’s positive outlook.

Financial Highlights

• Revenue: Increased by 5% year-over-year in Q4 2024.
• Adjusted EBITDA: Grew by 2% compared to Q4 2023.
• Free cash flow: Rose by 8% from Q4 2023.
• Dividend payout ratio: Maintained at approximately 96% for the full year.

Outlook & Guidance

Looking ahead, Decisive Dividends plans to launch seven new products in 2025, including two in North America and five in the UK and Europe. The company is also focusing on completing additional acquisitions and improving earnings and financial flexibility. The agricultural sector’s recovery is expected to continue supporting the company’s growth.

Executive Commentary

CEO Jeff Schellenberg expressed optimism about the company’s future, stating, "We fully expect to complete additional acquisitions in 2025." He also praised the efforts of the company’s leaders, noting, "Our business leaders have worked extremely hard to drive the improvement in earnings."

Risks and Challenges

• High dividend payout ratio: Although expected to decrease, it remains a concern for financial flexibility.
• Potential tariff impacts: The company is implementing strategies to mitigate these effects.
• Market competition: Continued innovation and proprietary offerings are crucial to maintaining a competitive edge.
• Macroeconomic pressures: Global economic conditions could impact demand and pricing.

Q&A

During the earnings call, analysts focused on the company’s M&A strategy and the potential impact of tariffs. They also inquired about the dividend payout ratio and its implications for financial flexibility. Executives addressed these concerns, emphasizing the company’s strategic initiatives and balance sheet strength.

Full transcript - Deere and Company (DE) Q4 2024:

Chloe, Conference Operator: Good morning. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Desai Citroen Corporation Fourth Quarter twenty twenty four Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

We remind you that today’s remarks may include forward looking statements and non IFRS financial measures that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the applicable section of Decisive Dividends news release and MD and A, which are on their website and has been filed on SEDAR. I would now like to turn the conference over to Jeff Scholper, Chief Executive Officer and Rick Torreiro, Chief Financial Officer. Please go ahead.

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: Thank you, operator. Hello and good morning everyone. It’s Jeff Schellenberg. I want to welcome everyone here to our Q4 twenty twenty four earnings conference call. In advance of our Q4 twenty twenty four results release, we provided a corporate update on 03/06/2025, that outlined four key points.

Firstly, that Q4 twenty twenty four operating performance was not just sequentially stronger than Q3 twenty twenty four, it was in fact slightly stronger than the comparative quarter of Q4 twenty twenty three, which was previously decisive strongest Q4 performance to date. Second, we highlighted that this operational momentum is expected to continue into Q1 twenty twenty five based on overall enhanced order activity and higher backlogs relative to the first two months of twenty twenty four and commencement of work under Northside’s new contract with the new commercial vehicle customer in mid February twenty twenty five. Third, we highlighted that the work done to position DECISIVE and its subsidiaries for improved performance in 2025 has been overshadowed by the significant uncertainty surrounding U. S. Tariffs on Canadian goods.

While Decisive and its subsidiaries will be impacted if significant long term blanket tariffs are imposed on Canadian goods with respect to its U. S. Destin sales, which accounted for 48% of 2024 sales, there are factors that should mitigate or insulate certain subsidiaries from the impact of tariffs, and subsidiary management teams have been assessing strategies and exploring numerous alternatives to minimize the impact of tariffs. And finally, we highlighted that the corporation’s strong acquisition pipeline continues to grow and CISA will continue to selectively pursue acquisition. On today’s call, I’d like to discuss each of these points in some more detail before opening up the call to questions.

Firstly, with respect to year over year sequential improvement in results in Q4 twenty twenty four. Consolidated sales in Q4 twenty twenty four were 5% higher than Q4 twenty twenty three and seventeen percent higher than in Q3 twenty twenty four. Overall adjusted EBITDA in Q4 twenty twenty four was 2% higher than in Q4 twenty twenty three and thirty percent higher than in Q3 twenty twenty four. The Q4 twenty twenty four improvement relative to Q4 twenty twenty three was primarily driven by the industrial products businesses, namely Northside, Slimline’s Evaporators and I and the addition of Techbelt, our fourth wear parts business. Though the hearth businesses, specifically with Blazeging and ACR, contributed less in Q4 twenty twenty four than in Q4 twenty twenty three, we were encouraged by the level of order activity in Q4 twenty twenty four, which surpassed Q4 twenty twenty three hearth order levels.

This combined with the effects of improved pricing and foreign exchange rates limited hearth sales declines to 27% despite entering Q4 twenty twenty four with 89% lower backlogs than in Q4 twenty twenty three, though the higher order backlogs in Q4 twenty twenty three introduced order cancellation risk due to extended delivery times. The sequential quarterly improvements from Q3 twenty twenty four to Q4 twenty twenty four were driven primarily by a couple of the industrial products businesses, namely Slimline’s evaporator product and capital I the agricultural businesses, which is Slimline’s orchard and vineyard products, sprayer product and IHD and one of the wear parts businesses, specifically Unicast. The change in product mix in the quarter resulted in gross margin and EBITDA margin expansion of over 2% relative to Q3 twenty twenty four. The improvement in these operational metrics resulted in an improvement in free cash flow less maintenance capital expenditures, which is the key metric we measure dividend payout ratios with which increased by 8% compared to Q4 twenty twenty three and fifty percent relative to Q3 twenty twenty four. These improvements demonstrate the strength in the free cash flow generation capabilities of our business and our ability to support the current dividend level with our three month dividend payout ratio being 55% in Q4 twenty twenty four.

On a full year basis, our payout ratio remained approximately the same as our Q3 TTM payout ratio at 96%. And based on the expected continued improvement in our results in Q1 twenty twenty five, which was the next point in our operational update press release, which I’ll update I’ll discuss next, should drive the payout ratio lower in the coming quarters. So, in terms of Q1 twenty twenty five outlook, the improvement in demand for our products that we saw in Q4 twenty twenty four has also continued in the first part of Q1 twenty twenty five as order levels outpaced 2023 and 2024 levels of orders seen at a similar time in both years. There were sales outpacing 2024 and approaching 2023 levels with strong contributions from across to these performance levels. While the parts industry businesses are performing more in line with levels seen in 2024, the strength in the performance of the other businesses is driving a positive comparison relative to 2023.

The subsidiary performance improvement in the second half of twenty twenty four and early twenty twenty five is based on deliberate steps and actions taken to strengthen sales teams, improve internal processes to allow sales teams to focus on business development rather than project management, product quality and performance improvements, improved communication around product differentiators and the onboarding of new clients we are manufacturing components for. These steps along with improved outlook for our customers, especially in agricultural, are resulting in the improved order levels and sales that we are seeing. Further, there are several new products that we’ll be introducing across our portfolio in 2025 that we believe will support improved performance in our businesses. Specifically, in our hearth businesses, we are launching seven new products, two in North America and five in The UK and Europe that include a smaller Blazeging unit for North America in the E16 and the overnight burn stove in The UK that incorporates Blazeging’s combustion technology, named the Tempest, that we believe will have a positive impact on the results in the second half of twenty twenty five. I’ll now turn to a discussion on tariff uncertainty.

While Decisive and its subsidiaries will be impacted if significant long term Blanket tariffs are imposed on Canadian goods with respect to its U. S. Test and sales, which accounted for 48% of 2024 sales, the following factors should mitigate or insulate certain subsidiaries from the impact of tariffs. First, certain subsidiaries have contracts with customers that have pricing mechanisms to mitigate the impact of tariffs and a large percentage of Decisive’s overall U. S.

Destin sales fall into this category. Second, Decisive has a history of managing U. S. Tariffs that have been in place for several years now through its Unicast subsidiary and has employed strategies that have considerably lowered the impact of tariffs on Unicast margins. Third, Blazking has manufacturing capabilities in The U.

S. Already. And as part of the expansion plans of various subsidiaries, management has been exploring alternatives for expanding manufacturing and distribution capacity in The U. S. For other portfolio businesses as well.

Fourth, overall, it takes time for U. S. Customers to reposition their supply chains and chains in response to tariffs, if they can even do so. Decisive’s subsidiaries produce in many cases proprietary, specialized and are industry leading products using advanced and proven production methods, which are not easily replicated with some considerable time, effort and investment. And finally, if significant long term blanket tariffs are imposed, the general consensus is that the value of the Canadian dollar could further depreciate relative to the U.

S. Dollar, which would isolate the impact of tariffs on margins on Decisis U. S. Dollar sales. I’ll wrap up my comments with an acquisition pipeline update as well.

As discussed in my letter to shareholders in our 2024 annual report, operational result enhancement has been our recent focus, which is justified as has been critical for us to rebuild the strength of our earnings base to increase the available capacity we have under our existing financing facilities and improve our cost of capital to support future M and A. While operations have been our focus, we have not stopped looking at acquisition opportunities and continue to see a strong flow of opportunities that fit well within the parameters of the types of businesses we are looking for. As a result, we fully expect to complete additional acquisitions in 2025 and look forward to providing further updates on that to our shareholders as our M and A program unfolds. With that, I now open up the call for questions.

Chloe, Conference Operator: Thank Your first question comes from the line of Yuri Lynk from Canaccord.

Yuri Lynk, Analyst, Canaccord: Jeff, just picking up on your comments on M and A. How do you stick handle that wanting to do more deals with the payout ratio still really elevated. I know it’s going to come down in 2025, but does it need to get back into that 60% to 75% range before you move on something? Or are you willing to do something with a higher payout ratio in place?

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: Yes. I mean, I think, I would frame that more in the context of our operational performance being the real driver of improvement in our payout ratio. I think that’s we’re spending a lot of efforts to drive decisions that improve cash flows, including with respect to various efficiency initiatives that we’ve taken on, but really more so on the customer side kind of driving demand, which our subsidiaries have done really effectively. I think that as we lap some really challenging quarters that were Q1 and Q2 twenty twenty four, We can see some really nice improvement in our payout ratio on that basis. I think, the M and A challenge more so for us is around having that earnings support our capacity to complete acquisitions, whether it be our complete acquisitions, whether it be our availability in our credit facilities or our cost of capital with respect to our share price effectively, which is obviously important factor in looking at acquisition opportunities.

So, I think those are kind of bigger factors in looking at how we manage our M and A program, more so than the dividend payout ratio, which we view is really a function of operational improvement in our operating performance of our existing subsidiaries.

Yuri Lynk, Analyst, Canaccord: There’s some comments in the press release about quarter to date order levels and sales. I think Q1 of ’twenty four and ’twenty three, if you’re around kind of the same sales level. So what exactly is the messaging there? And if you could extend that to EBITDA as well to see if you’re trending more towards the ’23 level or what the case is?

Rick Torreiro, Chief Financial Officer, Decisive Dividends Corporation: Yes, so those metrics that we quoted in our press release were actually related to pro form a. So looking at all of the companies that we own today and they’re relative to performance to 2024 and 2023. So it wasn’t just looking at the reported results. So really seeing improved performance across all of the subsidiaries, not just the ones that we owned at the time and not just the growth in the company versus what we were in Q1 of twenty twenty three, which was about five acquisitions less than we are today. So definitely seeing very good strength there.

And as a result, expect to see improved EBITDA performance relative to Q1 twenty twenty five. Whether we get to Q1 twenty twenty three levels, I think that’s probably an area where we’re expecting to be higher than that, but we’re still a little ways to go here

Yuri Lynk, Analyst, Canaccord: in

Chloe, Conference Operator: the quarter. Your next question comes from the line of Russell Stanley from Beacon Securities. Your line is open.

Russell Stanley, Analyst, Beacon Securities: Good morning and congrats on the quarter. Thanks for your comments around the tariff exposure and options for mitigation there. And understanding your comments around strong orders in Q1, I’m just wondering if you can elaborate with what customers are saying with respect to tariffs. Any color there would be really helpful.

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: For sure, yes, we can touch on that. I mean, I think we have four I’ll call four major buckets of U. S. Dollar revenue. We have component parts, manufacturing capability that really relates to a couple of our segments that are based on contracts.

So, that’s the first bucket and the largest bucket. Even within that bucket, what we have is, as an example, our largest customer that we disclosed in our financial statements, their percentage of our revenue is a U. S. Based customer that prices under a contract their goods in Canadian dollars. That’s what our pricing is based off to them.

And so, that’s a significant mitigant to the risk around tariffs. And that customer for us is not is in a favorable position to have even if there are tariffs offset by the weakness of the cat. In addition to that, they’re an auto part manufacturer, heavy commercial vehicle operator. And as you saw in kind of one of the earlier rounds of negotiations, auto parts companies were exempt from tariffs at one point in time. Obviously, it’s such a shifting ecosystem around that, that the rules change on a daily basis.

But that illustrates what their perspective is around seeking exemption even if tariffs are to be imposed as part of that. So that’s part of the largest bucket and largest exposure. On the hearth industry, Blaziken specifically would be the second tier, the next largest bucket of U. S. Dollar revenue.

And we do have some biscuits in place, as we said, U. S. Based manufacturing capabilities. But also, we’ve been shipping inventory across the border given that market’s the largest market we have for that business to get product across the border. And I think consumers there, I think that’s almost a little bit of consumer sentiment story, maybe more than it is necessarily a tariff story.

I think what would consumer continue to spend in The U. S. In the face of some certainty around the economic situation, I think that’s the question we’re facing around that. But I can tell you at this point in time, their performance is basically flat on a year over year basis. And typically, these businesses perform better coming out of election years as well, the hart industry businesses.

So that will play out over time, but it seems to be more of a consumer sentiment story. I think from an agricultural customer perspective, which would be the next biggest bucket, we’re seeing some a really nice rebound, especially in the pork industry as pork pricing has improved and some of the feed costs and the other input cost elements are less expensive and providing less compression to kind of farmer profitability in that sector. And so, we’re really pleased with the performance of IHT, whose order flow remains really strong and who helps increase farmer profitability due to the energy efficiency of that product. So, there’s been a bit of a lack of investment in that sector for a period of time. And we’re working closely with those customers who are in the ag sector.

And so, we’ll have to see what ends up happening with tariffs around that if it is blanket tariffs or this is the ag industry might be exempt from them or how that all plays out over time. But I think that and there’s views from the customers there that they believe they may be exempt from some of these things and so forth. All of that is obviously speculative, so hard to hang your hat on. But these are the types of views of the customer that we’re seeing as we’re having conversations with our subsidiaries and the customers as well.

Russell Stanley, Analyst, Beacon Securities: And maybe my last question just around CapEx, wondering how you’re thinking about it this year in terms of dollar spend and which operating companies are priorities, particularly given you’re still working to take the payout ratio down there? Path?

Rick Torreiro, Chief Financial Officer, Decisive Dividends Corporation: Yes. I think obviously 2024 was kind of a record CapEx year for us and much of that really growth CapEx and I think it was important. What we felt it was important to continue on with those investments to position us for the fourth quarter that we had and the start to Q1 twenty twenty five that we’re having. Those investments are in some of our most active businesses and are paying off as of now. In terms of maintenance CapEx, we did pull back on that last year with the decrease in activity and kind of expect this year to be in line with our historical maintenance CapEx spend of kind of 1% to 2% of revenue.

Chloe, Conference Operator: Our next question comes from the line of Brad McDonald. Your line is open.

Rick Torreiro, Chief Financial Officer, Decisive Dividends Corporation: Good morning, Jeff and Rick. A little bit towards the upcoming warrant expiry within the next thirty days. How important or unimportant is it that those warrants be exercised or how disappointing would it be for the company if those warrants weren’t exercised? And how would that play into future acquisitions? Because if the warrants the price hasn’t increased to get the warrants into the money, then your cost of capital hasn’t improved because the share price hasn’t increased.

How would that all play into the acquisitions?

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: Yes. I think the upcoming April warrant expiry is obviously something that we’ve been focused on. And I think, what’s a bit of a disappointment for us is obviously, we’re seeing significantly improved operating results and both in Q4 and what we articulated with respect to our expectation for Q1 and into the rest of the year as well. And so, I think that’s a bit of a function of some of the macro uncertainty that’s putting some downward pressure on our stock. The stock price, obviously, I think as we look at our acquisition strategy with respect to what our next steps are around that, obviously, the warrants are an existing fee paid option that could provide some capital for us to definitely support that program.

I think, as we look at into the medium and longer term, those are just one tool in the tool chest, so to speak, to how we can think about financing deals. But we would absolutely love to take advantage of those and think our operating results, especially with respect to our level of yield that we’re trading at right now, which is quite high and obviously illustrates in some investors’ minds some level of risk around the sustainability of our dividend. I think that we would view that as a bit disappointing actually in terms of what we trade out relative to where we think the business is performing at. So we’re hopeful people read through the information that we provided and kind of get are able to wrap their heads around where they think the business is at that maybe can support some share price improvement to move those warrants into the money. But like I said, they’re one of the tools we’re looking at to help support our future acquisition capability and we’ll continue to look at all of our options around that as we move forward.

Rick Torreiro, Chief Financial Officer, Decisive Dividends Corporation: Okay. So obviously, as I mentioned and as has been indicated in what you guys released to the market is that a higher share price reduces your cost of capital, which lends to the acquisition. So not just to get, say, the two warrants into the money where they would be a tool that could be used, but just in general, moving the share price higher, what other than the good performance that you’re seeing from the business and communicating that, what other strategies may be employed to get the story out that would drive the share price higher because people will see it as an attractive investment at increasingly higher prices?

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: Yes. I think, we have an active ongoing engagement with a group that helps support investor outreach that we are regularly talking to investors, participating, some marketing activities coming up here to tell our story on the street. And so, those types of activities and communications are important for us to be in front of investors telling our story to communicate some of the positive things that we’re doing. I think a key factor in that should help support release of value in our share prices is some more macro certainty around the tariff equation. I think that is a question lots of people are asking.

And in spite of what we’re communicating around that, I think that’s definitely an overhang on anything manufacturing related in Canada, selling into The U. S, which obviously is a big portion of our business. But we’ll be out there telling our story and communicating with investors and answering their questions. And hopefully, that will provide some more support for the share price.

Rick Torreiro, Chief Financial Officer, Decisive Dividends Corporation: Okay. Thanks for those thoughts. Again, congratulations on the record Q4.

Chloe, Conference Operator: There are no questions at this time. Please continue.

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: It looks like a question popped up quickly.

Chloe, Conference Operator: Yes. I can see that the line of Tom Burke asked a question from Canaccord Genuity. Your line is open.

Tom Burke, Analyst, Canaccord Genuity: Hey, guys. Congrats on the quarter. And just following up, thinking out loud, following up on Grant’s question, maybe you may have some time in early April in a few weeks, if you do have more color on how the quarter is going. Corporate updates, nobody dislikes corporate updates, that’s for sure. And you seem to get some lift and a bit more stockpiling activity that comes in, in the wake of your corporate updates.

So maybe an idea to throw out there. I know it’s we’re getting time is of the essence, but something around that and obviously some good one on one follow ups. I mean, you do have a lot of analysts that cover the company. So they have a system that where you can market the company through Zoom calls and stuff like that. So, I guess, it’s time to pound the pavement in that regard, right?

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: Yes, you bet. Yes, that’s definitely we’re going to be engaging in those types of conversations and working with those groups and folks like Oak Hill that are part of our program as well to really be pushing to get the story out for sure. Tom, I appreciate those

Chloe, Conference Operator: thoughts. Our next question comes from the line of Christian Nelson. Your line is open.

Rick Torreiro, Chief Financial Officer, Decisive Dividends Corporation: Hello.

Christian Nelson, Analyst: Congratulations again on the continued turnaround. My question relates to the balance sheet and cash position of DE. Moving forward with the increased operating revenue, is there a plan to build more cash held on the balance sheet just to help weather any uncertainty or storms moving forward with regards to tariffs just to keep health of the dividend and general health of the company?

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: I think if you read the letter I wrote to shareholders, I think what we talk about in there is obviously the volatility in earnings that we saw across our portfolio, especially in the first half of twenty twenty four, illustrates how key financial covenants and payout ratios can be impacted by periods of earning volatility, even if that volatility is temporary. We entered 2024 with a very strong balance sheet, both with respect to our leverage ratios and our payout ratios. And but saw the earnings compression impact that throughout the first half of the year. As we moved into the second half of the year, as our performance improves, I think the value of that flexibility of having a strong balance sheet is really critical. And I think the comment that we make in I make in the letter is that operating with the payout ratio that is more mild.

Where we enter 2024 and where the Company ended up in the fourth quarter will also provide that type of flexibility. And so, what we’re committed to with our shareholders is to provide sustainable and growing dividends. And our business leaders have worked extremely hard to drive the improvement in earnings that demonstrate like we did in Q4 twenty twenty four that our dividend is sustainable and at a level that we can support some of that building, some of that financial balance sheet flexibility. And so that I think maintaining this flexibility is going to be critical as we make our future dividend decisions.

Chloe, Conference Operator: But that

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: so as I mentioned in that letter, operating at the level that we’re at currently is kind of where our focus is at right now to build the flexibility in the face of what remains a volatile environment.

Chloe, Conference Operator: There are no further questions at this time. Please continue.

Jeff Schellenberg, Chief Executive Officer, Decisive Dividends Corporation: All right, everyone. I want to thank everybody for attending our Q4 twenty twenty four conference call. And we look forward to updating you in our progress continuing into the next quarter and beyond. Thanks very much.

Chloe, Conference Operator: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

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