Greystone Logistics, Inc. (OTCQB:GLGI) Q2 2024 Earnings Conference Call January 17, 2023 2:00 PM ET
Company Participants
Brendan Hopkins – Investor Relations
Warren Kruger – Chief Executive Officer
Curtis Crosier – Chief Financial Officer
Conference Call Participants
Anthony Perala – Punch & Associates
Operator
Hello everyone and welcome to the Q2 Results Call. At this time all parties are in a listen-only mode. Later you will have an opportunity to ask questions. [Operator Instructions] Please note that this call is being recorded, and I will be standing by if you need anything.
I would now like to turn the conference over to Brendan Hopkins. Please begin.
Brendan Hopkins
Thank you. And 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.
Warren Kruger
Good afternoon, everyone, and thank you so much for joining the call. I want to just report I hope everyone’s read our press release. I won’t be repetitive. Our press release, I’m going to have Curtis Crosier, our new CFO will, kind of, review the numbers for us here in a minute.
But I just want to tell you about the general state of condition of our company. We are positioned very, very, very well right now. I — we have — there’s a couple of things that for me as a CEO are concerning and that’s sales, sales, sales. And I’m — two years ago we were all — we were concerned about, oh my gosh, we don’t have enough equipment, we’re worried and so forth. And now we’ve got some empty equipment, so we’re working on it. Some of those things are self-imposed and some of them aren’t. We’ve had some barrel issues with a couple of our machines. We’ve been working with Cincinnati, Milacron on those issues.
We have Walmart that has been a wonderful customer for us. We’ve probably done in excess of $15 million in revenue over the years total with them. And this year we met with them and they wanted to — for one of their import facilities, have a little different, some tweaking. So we’ve put off manufacturing any product for that particular import DC and we have a new pallet being manufactured at our mold maker in Taiwan and it’s exciting. It has some ergonomically it’s more favorable for the Walmart associates, it’s got a little lower weight and it’s got some interesting little changes we’ve made, we’ve also designed it for the future so we can drop cellular devices inside the palette and remove it we can — when the battery goes low we could remove it.
So very interesting design and I’m excited about it, but we won’t see that revenue hit for about 75 days to 90 days. We are excited Simplot is a big customer, big in the Patel Industry, and we have been producing for them. Our big customer iGPS they were also little bit, we don’t know if they will add additional volume for us like they did last year, so we’ve been — we have a great relationship with them and we’ve been discussing that and most certainly we’d like to add a little bit more volume there.
Along those lines we’ve got some new products that I’ve mentioned in the past, but I will say that our 44×56 can and bottle pallet has been tested at Virginia Tech, tested out very, very well. Ball container, we’ve talked to them and so we’ll be out with Ball and some of the other bottle and can users, so that product will be hitting it. We’ll be putting samples out across America. We have a mirror palette that will soon be done. It’s the same on the top as it is on the bottom. That’s for the peanut industry, the nut industry. It will allow super sacks to be stacked, it’s a great product.
We have an automobile palette 48×45 that we’ve had, we had some issues with it in terms of not being able to stack correctly with existing 48x45s in the General Motor and Forge system. So we’ve made tweak that product and we’re actually putting the mold back together and there is demand for that 48×45, so those are some of the things we are working on right now and before we go further and I take questions. I’d just like to have Curtis, kind of, review our quarter. Curtis?
Curtis Crosier
Thank you, Warren. Good morning, afternoon, depending on your location, and welcome. I’m going to start off by reiterating my predecessor’s comments that our balance sheet remains in strong position and can support not only current sales volume, but future growth. This diligence remains an important part of how we’re managing our finances.
Moving specifically to a few things I want to highlight, working capital continues to show strength, currently at $7 million at the end of the quarter, and it strengthened over the first quarter around $4 million. So cash is a very strong source at the moment. Interest and debt payments in the last quarter remain a little under a million dollars, which is comfortable and supports the capacity we have available to the sales team. Roughly 300 plus thousand is interest and the remaining is a reduction in debt. So we’re pushing our debt down at a comfortable rate as well.
Interest rates were still high, compared to some historical time periods have not had an adverse impact on our operation. And inventory remains at $5 million in comfortable support of the current sales volume. On the income side, sales volume split slightly from Q1 offset by decreases in the cost of recycled resin, resulting in a slight degradation in sales over Q1.
Margins, however, improved by about 3% over Q1, due primarily to cost of resin offset late in the quarter by reductions in sales price necessary to remain competitive with alternatives. SG&A continues to increase over Q1 related to transition costs of the new [Indiscernible] and continued support of the recently established dedicated sales resources.
These and other impacts resulted in a decrease in net income of a little less than 800,000. Over to you Warren.
Warren Kruger
Thank you very much. I did want to mention one other thing that might come up we — about three quarters ago, we purchased an extrusion line to make plastic hollow lumber this was equipment that was going up for auction. I am extremely excited about that. We’re in our lane. We’re not getting out of our lane. It is a plastic lumber. It’s for those sizes that we may not have. And it’s, Toyota has had an extreme interest in that as has Apple. So we’re excited about that also.
I might mention before we go into the question-and-answer session that because of the — our confidence in our company, our Board of Directors authorized me to periodically buy back stock up to $1 million over the next year. So we are very bullish on our company. We know that we need to grow. We’ve got to add sales. I mentioned our press release. We’ve got, in addition to people, myself, who’s always been really the sales arm, we really have added two strong, strong individuals who I’ve known. One I’ve known for 18-years, who was our General Manager, Plant Manager here, he’s unbelievable with customers, he’s out there. He works with Walmart extremely well. He works with Simplot extremely well.
And we have another gentleman, Gary Morris, who came from the extrusion side, knows the pallet business, been in this industry for 20-years, and he will also manage the extruded lumber pallet that we will produce after the first calendar quarter of 2024.
With that said, I’m ready for any questions we may have.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Russell Valentine.
Unidentified Analyst
Yes, good news about you being able to buy more stock. Last time I talked to you, you were involved also, and you were optimistic that it was going to move higher. We were having problems getting it over a dollar a share, but we’re there now and maybe we can get up to $2 here down the road. But my question is, what’s the chances of getting new contracts from other grocery stores besides just the Walmart?
Warren Kruger
Well, the grocery store it’s the funny industry. Actually the grocery industry doesn’t even use injected pallets. They actually use thermal form pallets. And thermal foam pallets, it’s a — if you know the difference in the process, injection, we melt the plastic and we inject it into a mold. The molds cost about $300,000 to $500,000, depending on what you buy. So you don’t change the design much. The thermal foam pallets are made of sheets of plastic and they’re put in an oven basically and pulled down over the top of a mold and either in a single sheet or twin sheet fashion. And those are used quite a bit in the grocery industry, because they stack inside one another.
So really for Walmart, our pallets in the Walmart system are going into their DCs to displace the wood in the DCs. And those are three-dimensional pallets. Those have full-picture frame bottoms, much like you would see if you go to a Costco or a Sam’s and you see the pallets that are in the shelving in there, they have a full picture frame bottom and that’s to allow them to be stacked and to go down roller systems and so forth. So I don’t think our grocery store growth can be substantial unless it’s for — in their warehouse facilities, but most certainly in the stores, they don’t use our type of pallet.
Unidentified Analyst
Okay, one more question. I don’t see too many press releases. I just see, you know, when the quarterly reports are coming out and things like that. When we get new contracts, do we put out any press releases or anything?
Warren Kruger
I would, you know, that’s a good point and I’m glad you brought it up, Russell. We are not one to put out information for information sake and we probably and most certainly you wouldn’t criticize me if I had more information news out there rather than less, so I’ll take that as a good information piece and if we have new news come out we will make it a priority to get to communicate with our shareholders a little bit better. How’s that?
Unidentified Analyst
Sounds great. Appreciate all the things you do for the company. Look forward to the future. Good luck.
Warren Kruger
Thank you.
Operator
[Operator Instructions] Our next question comes from Anthony Perala.
Anthony Perala
Hey, guys. Thanks for taking my questions here. And welcome, Curtis, on your inaugural call here. First off, I’d be curious, Warren, just kind of some more color on the added sales associates. Curious if maybe this takes you — takes a little bit off your plate or kind of what they’ll be targeting in their first six months on the job here, whether it’s existing relationships, new relationships. So more color on that would be helpful.
Warren Kruger
Good. Well, the first gentleman, Ron Schelhaas. Ron and I are great friends, I’ve been working together for 18-years. Ron worked in the slip sheet industry for probably another 15-years before he was in the injection industry. He knows this business backwards and forwards. He had some health issues during the last couple years and we talked about how his value was and he always excelled when he was out there with me on the road. People love him. You go into a warehouse and you sit around and you talk about warehouse things. I mean, and it’s warehouse chat. And he is the king of warehouse chat, because he’s seen it all.
And so he is very, very helpful. He’s — over the years, he would go up to Miller Brewing when we’d go up there and he helped when we were putting a cake palette together from miller brewing any so he loves it he’s out on the road and he’s bringing in he’s already bringing in things he is really our Walmart point person he’s working in with one in the Mid-West, he is also working with one on the West Coast. We also have some other opportunities within their organization for different types of products. So we love them as a customer and he’s going to work that side of it.
And additionally, I mean things that come in, he’s already had one thing leads to another and he’s getting people to say, hey call Ron on that. The other gentleman I mentioned, Gary, we bought this extrusion equipment. It was probably $3 million to $4 million worth of extrusion equipment and dyes and so forth, robotics and it’s really impressive. They just ran out of cash at the wrong time. They ran out in 2020, and when everything shut down, it was a very difficult period of time for them. Gary is been in this business, he developed this product, he knows the industry, he knows — he’s worked with Toyota, he’s worked with Berry Plastics, and what he brings to the table is just that, it’s relationships.
And so, for example, Berry Plastics is a very big industrial company and he has a tremendous relationship with them and because of that relationship we’ve been able to provide products for them since he’s come on board. And we’re also doing some things to help them be green. We are taking some of their excess scrap plastic. They have a mandate to not trash any waste or really sell any waste. They want to use it internally. So we’re helping them use it internally by making their own pallets for them across America. So that’s a very big opportunity for us and he’s working that.
Additionally, he’s working with the Toyota and one that I have on board that he’ll be a point person is Apple. And the beautiful thing about this extruded lumber is you can make it any size. It doesn’t have to be a $300,000 mold to make a new size. So if someone wanted something like a 24×36, we could make that just by cutting the boards differently and welding them to a different size. So I hope that helped you on describing what the two are going to be doing in the very near future.
Anthony Perala
Yes, that’s very helpful. Another, I’ll do two quick ones here, and then jump back in the queue. In the press release, you referenced here, let’s see here, a new tool order that’s under a three-year contract with a customer. Just any more detail you could provide there?
Warren Kruger
Yes, that’s the Walmart, I mentioned.
Anthony Perala
Oh, that’s the Walmart I mentioned. Oh, that’s the Walmart. Okay, and you say that’s probably 75, 90 days before that gets kind of into the system and realized?
Warren Kruger
Yes, sir. Yes, sir. It’s just, you know, it’s just if you order a mold, a tool in the United States, our equipment nowadays, it’s a year. It’s crazy.
Anthony Perala
Yes.
Warren Kruger
But we make ours overseas and have been over this mold maker many times in Taiwan and they’re great people are good friends of mine now. And they make a quality product and they do it in a relatively speedy fashion. So they had steel on order for another product and we displace that and we put that order in front. So they’re working on that as we speak.
Anthony Perala
Okay, so that’s probably a second-half of fiscal ‘24 pipeline. Any updates on the fire retardant palette progress? I know that some of you guys have been working on?
Warren Kruger
I’m glad you said that. I had a meeting this morning. I was with some people from a potential customers here and it’s big customers. I can’t mention their name because they’d mentioned me not mention their name, so but the potential for them is very large they talked about fire retardancy in that they’re almost to the point where they say, you know what, we will just go by all the local fire marshals, stack everything less than four feet high, and make sure that the sprinkler systems are correct. Because the fire retardancy, we’ve failed in multiple tests over the last 90 days. And it really is, we can get it done, but we just can’t afford to spend $50 making our $55 product fire retardant. It just doesn’t make any economic sense for anyone.
So we continue to pursue opportunities. We have an Israeli company that has some fire additive that they’re sending our way. And we’ll put that in, we’ll see what the cost is and we’ll run some potential. We run quarter pallet tests to start with, not full pallet tests. And that gives us an indication of whether we’ll pass. So unfortunately I don’t have any great news on that side.
Anthony Perala
It’s good color either way. I have a few more, but I’ll jump back in the queue and let someone else ask some questions here.
Operator
[Operator Instructions] Our next question comes from Joe Russo.
Unidentified Analyst
Hey Warren, hey guys, how are you?
Warren Kruger
Hi, Joe.
Unidentified Analyst
Appreciate the question and congrats on the quarter. I just want to hit on the Walmart, I know you talked about it here, but just wanted to check on the state of that. What — I feel like it slipped maybe a little bit, the timing of when they might be in. Just wanted to see what has to happen now. You get, in terms of you getting them — getting the mold, and then did they need to you know like test the product further once they get their hands on it just want to kind of get a sense of it?
Warren Kruger
We were just tweaking, truly we’re making it we listened to what they we met with them there were a few issues I can tell you what the issues were. Their associates, when they’re doing part picking, they still, there’s a lot of human intervention when they’re at their import facilities. And so they periodically people will lift pallets and put them in a stack, and not over their head, but they lean down. They just needed better ergonomics. They needed more hand hole. So people could put their hands in. They needed also one side of the palate, the crute on the bottom, the cross members on the bottom. They wanted to eliminate two of the cross members on the bottom, because that’s where they were being internal damage they actually had some hand jacks that they had difficulty with our getting in our particular 48×40 product that they had been buying, they wanted it to easy, more ease of access.
So we did all these things, made these changes for them. They’re very happy and we’ll hit the ground running. We — it won’t be, I can tell you that this product will be ready to go when it gets in our facility.
Unidentified Analyst
That’s great and I just was curious like is there potential for this to be a bigger piece of revenue for you guys than it was prior — the prior part you were making for them?
Warren Kruger
Yes, I believe so.
Unidentified Analyst
Okay, that’s great. And then, congrats on announcing the share buyback authorization. I guess I just wanted to kind of understand your like philosophy about how you might want to put that money to work? Is it probable that you guys will want to be patient and wait for you know kind of the you know the right price or just wanted to hear how you guys were thinking about it?
Warren Kruger
Well, one of my — I have all these little quirky little sayings that just because I’m of my 67 years, and one of them is fast cash makes fast friends. And so if someone comes to me and says, hey, I have 50,000 shares or 100,000 shares or whatever, and I’m — here’s what I want to do, I’d rather sell them with discounts, sell them all at once or something. Those are the kind of opportunities that we’re looking for. We’ve had that happen in the past and I just want that authorization to be out there so that it makes it easy for us to do.
Unidentified Analyst
Perfect. No, that’s great. That’s it for me. But I appreciate all the answers and…
Warren Kruger
Thanks, Joe.
Operator
[Operator Instructions] We have another question at this time from Anthony Perala.
Anthony Perala
Thanks guys, just a couple more here. I’m just halfway through fiscal Q3 here, I’d just be curious on how any commentary you can give on the fiscal third quarter, and then how the pipeline is shaping up for the rest of this year?
Warren Kruger
I — there is a little weakness this quarter. We are — I know that I will be — I am not as pleased exactly at this moment where we are going through this quarter. So I don’t want to put in throw any cold water on it. But most certainly, it’s — we’ve had a couple of things on the sales side that have not happened, like putting the Walmart office one of them, additional revenue from other customers. There have been a couple of oddball things that just this quarter have kind of confounded me. I do see the fourth quarter coming in strong just because of what we have in our pipeline.
And then we have a customer relationship management report that we put in potential revenue and sales. And our pipeline is — there’s a lot in our pipeline. And it’s just sometimes in this sale, the sale cycle just sometimes is long. You know, for me, the first time I called on Walmart was probably 18-years ago and it took 15-years to get a contract. So, I mean, I don’t, this is a business that takes, you know, you just have to be diligent and stay out in front of it. The customer we had in today, they — 60-days ago, they were going to order up some product. Well, here we are today. They wanted to get into the facility before they ordered it up. And we had them here, I can’t even believe that they came in, but they came in on this cold day and we had a nice dinner last night and we talked today and we talked about the volume potential. The volume potential is huge, but it’s just getting them, you know, getting that first step. And then after that, each step is another, and they’ve got a lot of opportunity to provide because they’re a very large U.S. customer.
Anthony Perala
That’s great color. And then I’d be curious just with this recent cold snap in Texas, if there’s any risk of HDPE prices spiking again here, just kind of your thoughts on that input to your process and business?
Warren Kruger
Well, I’m glad you mentioned that because never in my wildest dreams that I think the freeze in Texas in February of 2021 would have such a dramatic impact on the polyethylene and polypropylene market in the United States, because I’d been in this business for some time. So I was very surprised at what happened and it did affect generally the recycled prices just don’t go up and down that they’re steady. There’s movement, but they’re not sharp movements. And after that, when polyethylene became really shut down the industry, then the pipe industry went from more recycled plastic and divergent and it shot prices up.
So I’m glad you mentioned it. I am not as concerned right now. We have a pretty good volume of recycled material. We got our extra pelletizing line that I talked about in previous years, that pelletizing line’s up and running so we can pelletize a lot more product. Our grinding capacity’s really good. We actually have extra grinding capacity available. So we can take more parts and pieces in here and that’ll keep our pricing long-term in check, I believe. Much better than in 2021.
Anthony Perala
Okay. That’s good to hear. And then one final one here, sorry for dragging on. But I think on the last call, you had loosely said that you expected fiscal ‘24 revenues to be higher than fiscal ‘23. Is that still something that you see as possible as you look to the second-half of the year in the pipeline?
Warren Kruger
We’re putting the pedal to the metal. I anticipate that it’ll be, I see the long-term, you know, where we are long-term, I know that our numbers are going to go. I’m reluctant now to say I’m just going to surpass last year’s numbers, but I do think our margins are much more favorable. So I want to talk more about margins than top line, but I do — I recognize that we continue to have to fill sales, and I’ve got to get some of these new products out and in people’s hands and get POs coming in the door. So my goal is to surpass, I can’t, I won’t give you any guarantees.
Anthony Perala
That’s good. Thanks for all the answers and colors you provided and look forward to catching up again after next quarter.
Warren Kruger
Thank you, Anthony.
Operator
[Operator Instructions] We currently have no questions in the queue.
Warren Kruger
Well, we might want to wait a minute or two to see if anyone else has a question, but I just appreciate, I really appreciate our shareholders. We work hard every day. This is — Curtis’s now getting in the rhythm up here. He really, he had some help this Q, but there’s a lot of work involved and a lot of things that he learned that I think will help him in the next quarter. And we feel good about, we feel good about a lot of things and we just hope for a really nice finish to this year and I know ‘25 is going to be a fantastic year.
Operator
At this time we do have an additional question. We have a question from Anthony Perala.
Anthony Perala
I’m sorry to disturb that you there, Warren. I know that was a good closing statement. But just we didn’t mention at all or there were no questions on a potential uplifting. I’m just curious on the team’s thoughts on that? I know you’ve been — you’ve done a lot of work on what the right route might be in the next couple years, but just curious on where we sit today?
Warren Kruger
Well, we’ve talked about it. We actually we talked about it in our board meeting last time. I will say one thing where we are now, we are positioned well in our mark. We do things on a timely basis. We get our reports in. We’re very diligent about that. We don’t want — we want to cross our T’s and dot our eyes and we’ve talked about the cost involved in uplifting and one of the things we’re concerned with is the size of our company and the costs right now that would be associated with uplisting. And we don’t want to get in a situation where it would be smarter to send money back to our shareholders than spend money just so that we can be on a different exchange.
Operator
Our next question comes from Russell Valentine.
Unidentified Analyst
Yes, we were talking about up listing. I’ve been in the market for like 50-years and I have seen so very few companies do well on a reverse split. It just doesn’t hardly ever happen. So I am happy where we’re at and not requiring to have the price high enough to uplift, because the reverse splits never work out. So I’m happy with the answer you gave and I hope you consider that.
Warren Kruger
Thank you, Russ.
Operator
[Operator Instructions] It appears we have no further questions in the queue.
Warren Kruger
Well, great. Brendan, do you have anything to close with?
Brendan Hopkins
No, just thank everyone for the time they spent with us and please have confidence in us to continue to grow this company and grow this market cap and see the full potential for this year evaluation.
Warren Kruger
Thank you very much everyone. Appreciate it.
Operator
This concludes today’s program. You may now disconnect your lines.
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