Greystone Logistics, Inc. (PNK:GLGI) Q4 2023 Earnings Call Transcript

Greystone Logistics, Inc. (PNK:GLGI) Q4 2023 Earnings Call Transcript August 29, 2023

Operator: Good day, everyone, and welcome to today’s Annual 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 all for joining us today. We have a brief safe harbor and then 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.

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Warren Kruger: Thank you, Brendan, so much. I just want to welcome everyone to the call. We do want to talk about last year. It already seems so far in the past that May 31st was our year-end. But, we will go over — Bill Rahhal will be going over the financial results very shortly. I just want to kind of give you a global view of where I see the Company going. And I’m very proud of — we put out a press release yesterday — very proud of the margin. We really strive to work on the margins. We had a horrible period — 2021 to 2022, I’m sure everybody on the call has their own stories about that time period. But 2020 was so surreal. And then in ‘21 we — the freeze down in Texas, the polyethylene market was turned on its ear and from about January of 2021 till about August of 2022, we’d never experienced a price increase in the recycled polyethylene market, like we did during that period.

It was a very, very strange thing, and it forced Greystone to adjust its prices up dramatically. And when you have a 50-pound part or a 40-pound part and all of a sudden you’re saying to your customer, well, it’s $0.30 more a pound. They say, okay, we’ll put off ordering. So, we had a lot of that during our last year. And then in about August of ‘22, things turned around and it’s been great since then. Prices have come down and we’ve actually lowered some of our pricing to get people to order. [Technical Difficulty] been in Walmart. Walmart continues to be a very viable customer, a great deal of product to them. And we are working on a grocery store pallet for a large U.S. grocery customer. We have a mirror [Technical Difficulty] we’re bringing on that is — it’s the same on the top as it’s on the bottom basically.

And that product is for the quick crew [ph] type industry, something that the nut industry where you can’t — you have to have exactly the same on the top and bottom. We’re excited about that. We have a brand new can pallet that would work in for aluminum can manufacturers that need large platform size. So, we’ve been working on that. We also — during last year, we bought an extrusion company that had a robotic extrusion, made hollow plastic boards. And we are very excited about their — they had a few issues. The company has been really about 20 years worth of research and development. And they had Toyota and Honda that were testing for about a year and a half, and they were approved and pick off in 2020. And of course, everyone knows that COVID affected everything and pricing went crazy and they just ran out of gas.

And so, we were fortunate enough to pick up that business. And we have a very, very capable gentleman that we also put on board that has over 20 years worth of knowledge in the pallet industry. And we’re very excited about having him on board. We’re making some adjustments to the dyes on that particular product to — we want to flatten it out. They had some quality things that I wanted to straighten out before we really went to market. We’re also working on a different base for it. So, I won’t get complicated, get in the weeds here, but we’re very excited about it. And why? Our molds on the injection side weigh about 40,000 pounds and they cost somewhere between $250,000 and $400,000 a piece. So if someone says, I need a special size pallet, it’s not for the faint of heart.

You need to [Technical Difficulty] write about it, because it’s expensive. Yet on the extrusion side, if someone says, hey, I need 3,000, 43-inch by 32-inch, that’s something that we just cut the boards to that size. So, we’re very excited about that. We believe that there’s — in the neighborhood on that equipment, $5 million to $10 million worth of revenue just on the existing line. I’m not promising it [Technical Difficulty] but I do think in the — by year-end, our corporate year-end, we will have a lot of orders in hand and be producing. And it’s a very, very cool process and it’s robotically driven. And of course, for the future with employee issues, we believe that robotics are really going to help all industries. As a matter of fact, in — many, many of our customers, because they’re going to robotic warehousing, they’re turning to plastic [Technical Difficulty] something that is exactly the same every single time.

It doesn’t have nails poking up. It doesn’t have board — lead boards falling off. And that’s why plastic just continues to be a very, very, very exciting product. And of course, everyone on the call has to remember, most of our product is recycled. And so, we are a very, [Technical Difficulty] we just don’t talk the talk, we walk the walk. We grind and granulate probably a 100,000 to 150,000 pounds a day of plastic, of polyethylene. So, this is real industry. It’s fun to watch. So, that all being said, again, I’m very, very excited about where we are in the future. Let me talk about our biggest customer, iGPS. If you go into a Costco in America and you see a plastic pallet in the rack there, instead of a blue or a red pallet that we probably — chances are we made that product.

And iGPS is a wonderful customer. They buy products from us and then they rent. They’d go out to people like Procter & Gamble or Niagara Water, and they would rent their pallet on a per trip basis. They probably — we’ve probably provided them well in excess of 5 million pallets over time. And they continue to grow and they continue to be a great customer for us. We also take all their broken pallets and we grind them, we granulate them and we make new BBs to inject into a new product for them. So, it’s a win-win for both of our companies. And I invite anyone whoever wants to be — to view the facilities in Bettendorf, Iowa. It’s about 2.5 hours west of Chicago. I welcome you at [Technical Difficulty]. I also want to point out that in Palmyra, Missouri, we’ve got a couple new machines that we’re filling.

And I’m very excited about that because we’re out of space in Bettendorf, Iowa. So, we are [Technical Difficulty] our reach. The extrusion line, that particular product is manufactured in Jasper, Indiana. So, with that being said, I want to go over the numbers and I’m going to turn the call over to Bill Rahhal.

Bill Rahhal: Thank you, Warren, and greetings to all of our investors who have an interest in Greystone. As Warren mentioned, the sales in fiscal year ‘23, which ended May 31, ‘23, they were down from fiscal year ‘22 for all the reasons that Warren discussed. But the bright news is that our gross margins rose about 5% from fiscal year ‘22 to fiscal year ‘23, and that’s a significant factor. And if you look at our fourth quarter, our sales fourth quarter of 2023 were about 27% of our annual sales or $16 million. But the gross margin in that fourth quarter was 20%. So you see the trend is that we’re coming back to where we’re getting our margins where they need to being able to provide quality — pricing for our quality value for our investors.

Our EBITDA in fiscal year ‘23 was about $15 million. And the fourth quarter of ‘23, our EBITDA was $5.1 million, but it also had the benefit of some tax credits. And if you back out those tax credits, our fourth quarter EBITDA was about $4 million. Looking forward to the first quarter of 2024, we believe that our sales are going to be up about 10% over the fourth quarter of ‘23. We believe that our gross margins are going to be comparable to the fourth quarter of 2023, somewhere around that 20% range. And we anticipate that our EBITDA for that first quarter of 2024 will be about $4 million. So, you can see that the trend’s moving back in a positive direction, and this is before all of the proposed — our proposed new business that Warren’s out aggressively seeking.

So, it paints kind of a pretty good picture as far as Greystone going forward. So, I’m going to go ahead and turn it back to Warren.

Warren Kruger: Super. Thank you so much, Bill. Well, with that being said, we might as well dive right into questions and answers because we’re delighted to ask anything — answer anything that any of our valued investors want to know.

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Q&A Session

Operator: [Operator Instructions] We will now take our first question from Anthony Perala.

Anthony Perala: Nice to see new equipment delivered and CapEx flowing through on that. I’m curious if you have any guidance for fiscal 2024, just what you expect capital expenditures to be, now that we’ve gotten that growth spending behind us?

Warren Kruger: Thank you Anthony for that question. Yes, we are going to — it’s going to be more maintenance CapEx for this year. We did a lot of — as you know, as you’ve read, we spent over $7 million on equipment last year. And that’s all for the future. I mean, we anticipate that we can generate over a $100 million in revenue with the equipment on hand now. Now, there are — I might mention, we have been buying different molds for different types of products. I mentioned the mirror pallet earlier. We had a 44×56 earlier that was a partnership that we did in structural foam. We’ve just gotten a new injection 44×56. We’re very excited about that. It’s a great product. It’s much better than our last can pallet that we did have.

We’re excited about. We have automobile pallet that we brought out some time ago. It had limited success. And we had General Motors, frankly, who made some comments about what we needed to do to make that product better. So, we are actually making some adjustments to that tool now. So those are the types of things. We just had a new 48×48 injection pallet too. That was another one that we did with a partner in the structural foam business. And we made a decision to make an injection tool. And the 48×48 business for us has been quite robust. So, we will not spend a lot of money, to answer your question, on CapEx this year, except for maintenance CapEx and for molds. And again, our mold [Technical Difficulty] about 250 to 400, most of them the 250 to 300 [Technical Difficulty].

Anthony Perala: That’s great to hear. All sounds pretty exciting. Then on just kind of following on that thread, if you back out the ERC credit, you had close to $2 million of cash from operations, some maintenance CapEx next year, probably some debt repayment. How should we think about priorities for cash after some of those other priorities? Just what you expect to use it on? I’m looking at this time next year, probably have a decent amount of cash on the balance sheet?

Warren Kruger: I’ll leave that up to Bill Rahhal to answer.

Bill Rahhal: We’ve got several — we are actually generating some cash and that’s — it’s a real positive thing for Greystone right now to be able to — be in that position. We’ve never seen that in the past. But we are — the Board is looking at different alternatives about how to best utilize that cash for the benefit of our investors as well as for the benefit of growing the Company. I don’t know that there’s any — there’s nothing really — that we’re really ready to talk about at this point in time. But as these programs start developing, we will obviously make that aware to the investor public.

Anthony Perala: Excellent. I appreciate it. I’ll jump back in the queue. Thanks.

Operator: We’ll now take our next question from Aaron Weinstein. [Eric], your line is now open.

Unidentified Analyst: Thanks. I was surprised that you didn’t mention your large beverage customer in your prepared comments, given some of the large shifts in the light beer market over the last quarter or so. Can you talk about whether or not you expect to benefit from that and how something like that — how does that — how long does that take to generally make its way through the supply chain to get to you?

Warren Kruger: Thank you for the question. And it’s — because of our focus on beer and whiskey and wine and so forth in the past, it may seem — I probably should have made it clear. These are water and just regular, the soft drink customers. And so it’s a little bit of a change. We have not done much with Coca-Colas or Pepsis or any of that. And two of the — I mean, huge prospects that we’re working on now are in the non-alcoholic beverage sector. And so, we — and why? One of them would utilize a size that we have, but another one we’re working on would — actually requires an odd size. And so that of course requires a tool. And to answer your question about timing, we are doing the design work on that particular tool now.

We will — here’s how it works. We do the design work, it comes back, we approve it, then we [Technical Difficulty] and we send it to the customers and say, okay, here’s the size. Is this good? Yes. And then we do a three dimensional prototype of that product. It’s not exactly — we can’t put the grommets and so forth. We do a 3D so that the customer actually has the exact what it’s going to look like, in theory. And so that takes about, it’ll take us probably about four to five months to — we have to get it approved and then we start cutting steel and it’s about four months once we start [Technical Difficulty]. And so again, one of the other customers is someone will be using 48x40s. And since we have those products available, we’re actually pretty excited about having something going in the next quarter with.

Unidentified Analyst: [Technical Difficulty]. On new business, you mentioned 10 million in the new business by around year-end. I don’t know if that was extrusion or all of it. But what’s the strategy there in terms of sales or — and distribution? Is that something you’ve got direct salespeople doing and you hired more, or is that iGPS or some other strategy on the distribution side?

Warren Kruger: Thank you for asking that. As I mentioned, when we picked up this extrusion line, the gentleman who — I understand when you have an idea and you take it through, and this gentleman has worked for about 20 years in the industry. He was doing other things, but one of his passions [Technical Difficulty] getting product to market. And he was a victim of bad timing. But when you run out of cash, you’re out of the game. Okay? That’s just — you have to have access to cash. And he just ran out of cash. And we were fortunate enough that I said, hey, would you stay on with us and work with us on it. So he’s [Technical Difficulty] with Honda and Toyota and some very, very large customers. And so, he’s the one that will be driving that.

And I’ll tell you kind of exactly what we’re doing. The product, when you do this robotically, it’s on a robotic welder and it gets very, very — when the parts come together, the steel is so hot, it’s warping the product at the point of weld. And so, we’re working on — we’ve got some solutions to that, requires taking the dye and doing some reformatting of the dyes. So those, when they come out, you’re heating not the entire piece. You’re just heating the bottom portion of it. That doesn’t make any sense. I’m not articulating it very well, but that’s the basic. And I’m not going to have a product out in the marketplace that someone says, well, that doesn’t look right. Even though it may be functional, it doesn’t look [Technical Difficulty] let’s make it functional and make it look right as well.

And so that’s kind of where we are. And it’s taking of course, more time and more money to get it done than we originally scheduled. But we do have — as a matter of fact, we’re redoing the dye in Austria. And so it’s just — it’s one of those things. It’s now in Austria and out of our hands. So, but I am excited about that product because it takes minimal amount of people to run the equipment, and you can set the size that you want and you can just run. And so, it’s pretty exciting, but it’s going to be a small [Technical Difficulty] of our business. It’s not something that’s going to overwhelm our injection side.