• Cash from Operations: $9.4 million in the second quarter; $21 million in the first half of fiscal year 2025.
• Revenue Growth: Increased by almost 10% despite a $4 million retroactive pricing benefit in the previous year.
• Adjusted EBITDA Margin: Expanded by 180 basis points.
• Gross Profit: Increased by $3.7 million to $17.2 million, a 27% increase year-over-year.
• Gross Margin: Expanded to 13.2%, with a 270 basis points benefit from favorable foreign exchange.
• Engineering, Selling, and Administrative Expenses (ES&A): Totaled $15 million, a $1.6 million increase from the previous year.
• Net Income: Increased by 29% to $1.3 million or $0.32 per diluted share.
• Adjusted EBITDA: $8 million, up 60% year-over-year.
• Adjusted EBITDA Margin: Expanded by 180 basis points to 6.1%.
• Adjusted Net Income: $2.6 million or $0.65 per diluted share, up 81% from the prior year.
• Free Cash Flow: Increased by $12.5 million compared to the previous year's second quarter.
• Cash Balance: Ended the quarter with $42.6 million in cash.
• Capital Expenditures: Just under $1 million in the second quarter; $3 million in the first half of the year.

• Warning! GuruFocus has detected 2 Warning Sign with GPRE.

Release Date: February 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Strattec Security Corp (NASDAQ:STRT) generated $9.4 million in cash from operations in the second quarter, totaling approximately $21 million for the first half of the fiscal year.
• Revenue grew by nearly 10% despite the previous year's second quarter benefiting from $4 million in retroactive pricing.
• Adjusted EBITDA margin expanded by 180 basis points, indicating improved profitability.
• The company captured about $8 million in new annualized pricing, expected to be realized starting in the third quarter.
• Strattec Security Corp (NASDAQ:STRT) reduced pre-production tooling cost balances by $10.5 million, nearly 50% since the start of the fiscal year.

Negative Points

• Labor costs increased by $1.4 million due to a 20% government-mandated wage increase in Mexico.
• The company recognized $300,000 in restructuring costs related to operational changes.
• Sales of mature product lines, such as keys and lock sets, continue to decline.
• Engineering, selling, and administrative expenses increased by $1.6 million compared to the previous year's second quarter.
• The company faces potential challenges from tariffs, impacting its reliance on assembly operations in Mexico and global supply chain.

Q & A Highlights

Q: Jen, can you provide an assessment of the progress made in evaluating the company and when you expect the process to be completed? A: Jennifer L. Slater, President and CEO: We are making positive progress, but we are still early in the process. I am seven months in, and while we are proud of our achievements, there is still a lot of work to do.

Q: Can you give examples of higher value products that are benefiting the top line and margin profile, and why they are performing better now? A: Jennifer L. Slater, President and CEO: Our power access products, such as power sliding doors and power liftgates, have seen growth due to increased customer demand and new program launches.

Q: Regarding the $8 million in new pricing starting in the third quarter, how was this achieved, and is it a midpoint of a range? A: Jennifer L. Slater, President and CEO: The pricing reflects work done by Chey Varto and the team with customers, recognizing near-term economics as programs extend beyond contract life. It is based on projected annualized sales, with potential upside or downside depending on customer demand.

Q: How do you view the tooling benefits going forward? Is there more to achieve? A: Matthew Pauli, CFO: We have made significant progress on the tooling balance in the first half of the year. There is a little more to achieve, but the pace of reduction will level out in the back half of the year.

Q: With the cash on the balance sheet and potential sale of the Milwaukee headquarters, how are you thinking about the financial structure going forward? A: Jennifer L. Slater, President and CEO: The cash is crucial as we navigate potential tariff impacts. Strategically, we focus on operational efficiencies, investing in processes and technologies, and organic growth initiatives for our product portfolio.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.