Greystone Logistics, Inc. (PNK:GLGI) Q1 2024 Earnings Call Transcript

Greystone Logistics, Inc. (PNK:GLGI) Q1 2024 Earnings Call Transcript October 17, 2023

Operator: Good day, everyone, and welcome to today’s Q1 Results Call. At this time, all participants are in a listen-only mode. Later, you’ll have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] It is now my pleasure to turn today’s program over to Brendan Hopkins.

Brendan Hopkins: Thank you, Anthony, and thank you everyone for joining us today. We just have a brief safe harbor and we’ll get started. Except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Warren Kruger, CEO of Greystone Logistics.

Warren Kruger: Thank you, Brendan. Hi, this is Warren Kruger for those — I really appreciate everyone joining today. We just wanted to discuss our last quarter and we can open up to other questions, but we are really pleased with our June, July, August numbers. I don’t have to review those. Those came out in our press release, and you can go to the online and find those numbers. But I do want to just go over a few of the opportunities that we have and what we did last year that is positioning ourselves for the future. We did put in two brand new large tonnage machines. We need to fill those. And so we are working diligently to do so. And the opportunities with the new equipment, we’ve also expanded our reach with some new products.

We had a 44×56, which is for the bottle and canning industry. We had an old tool that we had, we outsourced to a structural foam company. That tool, I will say it was a good tool, but the product itself was not designed very well. We had issues with our — the provide — the manufacturer getting product out. We never knew what it was going to cost. It was very hard for us to price. So we bought a new injection tool for that particular market. And that would be like anything you have in your hand today, a bottle of water or a can, a Coke can, a beer can, anything like that. There’s so much of that in America. It just always amazes me the insatiable nature of our economy. And so the bottling, canning industry, we’ve met with Ball and very large can manufacturer.

They wanted us to get involved in a more active way. So we are actually testing that product at Virginia Tech now. Virginia Tech and Michigan State, there are various universities across the country that do a wide variety of testing for the transportation industry. They’re testing that, and they’ll put on their racking’s ability and all these kinds of tests that will help us long-term. Once we have that data, we’ll be able to market that, not only to Ball, but to others such as our existing customer, Molson Coors, they buy as well. So it’s a very good opportunity for us. We have a mirror palette that’s coming, which is really — it’s the same on the top as it is on the bottom. And I know what these are — may put you to sleep a little bit, but it’s exciting because for the nut industry, for pecans, walnut, anything like that.

In the nut industry, they have a really tough time with existing pallets because their bags go up underneath existing pallets and they get stabbed with fork tines. And so I don’t want to bore you with it, but we’re excited about that product. That product also good for QUIKRETE, for concrete. Very, very rough and tumble industry. But QUIKRETE, we have had multiple discussions with a QUIKRETE manufacturer in South Texas. And they have tested some prototypes that we did. And with our new tool, we’re hoping to do some rollouts. I want to talk about the beverage industry really seems to be really reaching out to us at this time. So I’m hoping over the next six months, we will have some additional beverage companies on board with us. We are excited about that.

Walmart continues to be a big opportunity for us. We have been producing for them. We stopped. There is a few things that Walmart wants us to look at doing to our product. They want us to put some handholds in there. And their associates — they are very cognizant of their associates in making sure that ergonomically they are — they have to lift a pallet that is done right. So we are looking at that and that opportunity with them. We have done a lot of business with them in the past, and I believe we are going to do a lot of business with them in the future as well. We have also our fire retardancy that we have talked about in the press and online before. We are doing some testing in the next week on three different fire retardant chemicals that we believe we have an opportunity to pass.

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This is a big deal. Why? Because Costco really wants fire retardancy in their — any product that’s in there, any plastic pallet that is in their facilities. And with Costco, those are suppliers that we would be feeding into Costco. And so the opportunity is huge. We previously had a fire retardant additive. It had decabromine in it, which is banned now. So we don’t utilize that anymore at all for our own account. So we needed to find other opportunities. And it is a fine line. You can get it done, but it is also hard to sell a $125 plastic pallet. So we have to be very careful with the cost of the chemical additives that go in, and so forth. So I just want to bring you up to speed on where we are. We also bought an extrusion line to do extruded boards.

So these extruded boards can be any size. So if someone says to us, ”We need a 30×40 pallet and we are only putting 600-pounds on Board, rather than spending $300,000 for a new tool.” We are able to make those with the extruded board. We have had — when we bought the assets of this extrusion company, I was not pleased with the product that they were getting off the line. So we have been doing some things with the dies to make them a better product, a flatter product, because I want us to be proud of the product we put out, and I want our moves to be very, very accepting. So I anticipate that over the next quarter, we will have something to report to you in about 90 days, at least an update. And I’m hoping that we will be pleased and you will be pleased.

So with that, I want, really, Bill Rahhal to go over the numbers once again. And then we will open it up to questions, and we will be happy to answer anything you might have. Bill?

Bill Rahhal: Thank you, Warren. And good morning to everyone who is in attendance. I would like to focus just for a second on the balance sheet, on our financial position before I step into the earnings part, because I think that’s an important part of where Greystone is going and our ability to be able to move forward. Despite all the — we made substantial capital expenditures, as Warren mentioned, two new injection molding machines, the extruding machine. So we spent quite a bit of money preparing ourselves for this additional growth. And we believe that Greystone is well-positioned right now to take on this additional growth. When I look at our balance sheet, our working capital right now as of 8/31 was a healthy $5.8 million.

And for the size of the company that Greystone is, that’s pretty significant. But the other issue is that, despite all the capital expenditures that we have made this past year, if you exclude our operating lease debt, which is about $5 million, which is basically the buildings that we lease to operate from, and you exclude the deferred taxes, our total debt, our current liabilities and long term debt is about a 1:1 ratio with our equity. So we are pretty well-positioned to be able to move forward. Moving on to our sales. Our volumes have returned which are pretty significant because the past three years have been difficult for everyone in the industry, because of rising prices. But our profits — but our volumes have now gotten back to where they are.

Our margins, as you have seen were 23%, and that’s phenomenal. It is been several years before we have been able to attain those kind of margins and we see those margins continuing for the rest of this year and trying to maintain those going forward. Our SG&A is up a little bit, but a lot of that increase is the additional travel and expenses that we’re incurring with marketing our products, which as we mentioned, is aggressively being done. And so that is part of an effort that will continue to be ongoing the rest of this year to be able to build up that volume. Devising interest rates have not been — while they have been expensive to a degree, up about $120,000 over the prior year, because we’ve been unable to manage our debt and keep our debt down, it’s not been a killer for us.

So, we continue to see the debt not being an albatross across our net to be able to move forward. So having said all that, I’ll turn it over to Warren.

Warren Kruger: Okay. Do you mind — do we want to go ahead and open it up to questions, Brendan?

Brendan Hopkins: Yes. Operator, if we could start with the Q&A, please.

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Q&A Session

Operator: [Operator Instructions] We’ll now take our first question from [Brad Boey].

Unidentified Analyst: I kind of have a three part question, Warren. Do you maintain a backlog or is it primarily short-term and ship? And if you do maintain a backlog, how would that compare to a year ago or even a quarter ago? And also I would assume not much of that would be a small percentage of your total backlog until your new machines come on?

Warren Kruger: Well, I’m glad you asked the question about backlog. I’ll talk about two different things. I’ll talk about pipeline and backlog. We are a very good about putting product in our warehouse. And what we do is we work on our really history and we look at what we sold historically. And I’ll take for example, we have an intermediate bulk container pallet, which that’s a pallet that they put 250 gallon bottles on top of in a cage. And that would be like for oil, for petroleum products, for peanut oil, for any of the chemicals that type of thing. And our pallet has a valve slot on it. Well, we know what we sell generally over the last five years. So, we will make — we will manage our backlog by building inventory for those products.

So we may know, we’re going to sell $0.25 million worth of that product statistically for the second quarter of the year. So we’d put that in inventory. And so if you consider that a backlog, it’s almost historical knowledge, we do get guidance from some of our customers. Take for example, iGPS, iGPS is a very big customer. It’s a leasing company. So if you go out into a Costco and you see a plastic pallet in the rack at a Costco, that’s probably something we’ve produced. And I was in a water bottling facility last week and our product was everywhere. And that’s where everyone is moving across the entire country. And why? It’s because number one, they’re all the reasons you would think a plastic pallet would work, including our recycled nature of it, but for damage of products, for consistency and so forth.

So, back to the backlog, the guidance we get from iGPS on a go forward basis, quarter-to-quarter, we know we have — actually, it’s in — it is a backlog, but it’s with scheduled production. Same thing holds true for Molson Coors. We know what we’re going to put out the doors historically for them during a period. And so we’ll build inventory. And sometimes we will actually overbuild inventory, because we know that when they hit their high season, they’ll want additional orders. But in our pipeline — which is different than really our backlog, our pipeline, I will say it just continues to fill. And part of the frustration is some of our customers need new tooling. Well, tooling is, it’s 120 days to 180 days out. I’ve got a 43×43 that I’m working on.

I’ve got a 43×37 I’m working on, I’ve got a — I mean it’s — these customers, once you get them on board, they’ll stay on board. But a backlog is really — we handle backlog really by guidance from our customers, and then we handle our historical knowledge through our inventory. Did that help you at all, Brad?

Unidentified Analyst : Yes, it does. So it’s more of the pipeline as opposed to backlog. In that pipeline, I assume there isn’t much as far as using the new machinery.

Warren Kruger: Right now, we don’t have anything scheduled for our new machinery. And of course for me, that’s — it lights a fire under all of us. We remember just a few years ago when we had zero machine time, and it worried us. It concerned us dramatically. And of course, everything happens for a reason. And some of the things that happened during 2021, ’22, we lost some customers when we had to go up in pricing because of resin, and losing some, we lost some top line revenue. Yet we worked on our margins. And since that time now resin has fallen out of the — just their bottoms fallen out of the resin market. I shouldn’t say fallen out, but it’s gone back to historical levels versus the craziness that went on in ’21 and ’22. So we have to replace with new customers and some of those old customers, we have to put back on. And some of our existing customers we’re trying to gen up additional throughput just because they know now that we do have capacity.