Somero Enterprises (LSE:SOM) — Final Results

0:00 Good afternoon, and welcome to the SOMERO ENTERPRISE'S results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, they can be submitted at any time by the q and a tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Tom Anderson. Good afternoon to you, sir.

0:30 Good afternoon, everybody. Thank you for joining us, and we look forward to giving you all the information you need to work with us. So, my name is Tom Anderson. I am the senior board member. I I was, on the board originally when it went on the AIM. It went public. And my background is, I've been in the concrete construction industry for fifty years. I was the third employee of Swing in America. Swing is a German manufactured concrete pump that kinda revolutionized concrete pumping in the early seventies. I started when sales were less than $1,000,000 and built the company to 400 and retired in 2006 and bought a division from Swing that I have built up still and still own today. So in the meantime, at at Swing, S and S Concrete, Dave and Paul SOMERO were customers of ours.

1:31 They bought Swing concrete pumps. Every every street that's used, probably 90% of them, the concrete is delivered to the street through a concrete pump. So pumps and streets kinda grew together in this industry, kinda revolutionizing the speed at which concrete floors could be made flat and accurate. And, so I got to know the SOMERO brothers. And, not long after Dave had the invention, the idea, they built the prototype. And, within months of the prototype, I was able to go see it, visiting, you know, those guys for a concrete pump, got to see it, got very excited. And, as they developed it, they started building prototypes, and they went to a series. And they quickly realized they were not manufacturers.

2:17 They were they wanted to be concrete contractors. They decided to sell the company pretty early on, and, they approached us, swing. And at the time, there was three of us on the board, myself and two swing brothers. And regretfully, one of the one of the swing brothers blocked the the kind of the acquisition. Otherwise, it would have been a good fit. But in the meantime, they found SOMERTPRISE to buy them. And at the time, that equity group took them away from the family and but they asked me to be on the board originally to Summit Partners. And one of my first jobs was to, search for a CEO, and I was on the renumeration committee. And my first interview was Jack Cooney and was my last interview. So we made a recommendation to hire Jack.

3:09 And since then, he's had a outstanding career building this company into the worldwide, you know, flatness expert of concrete around the world. And, in the meantime, you know, Jack has turned has gotten 78 years old, and he,

3:27 originally was planning on retiring at the end of this year. And it just got accelerated a little bit for family reasons, all good reasons. But he's moving to South Carolina, to retire there with his, family. And so we needed to do a CEO search. We've been doing that for about, sixty days, and I'm pleased to say I've looked at many interview, talked to quite a few people, have interviewed, two people personally, and we have it narrowed down. We are in the final throes of finalizing the CEO with plenty of experience in, equipment manufacturing, global company. So we are we're working on it. It's getting close to the end. Jack, of course, is going to stay on as a consultant to the company for twelve months. He'll be available any and all questions.

4:17 Sure you'd go anywhere for us if we had something to do. And, also, Larry Horst has been our chairman for a long time, came from his own kind of public company. He also he's 90 years old, and he looks great, acts great. He also wants to step down as chairman. And so, same time after the CEO's on board, we're going to be, picking a new chairman either organically from one of the board, or if we have to go outside, we will. But Larry will stay on the board as long as needed to make a smooth transaction also. So, we look forward in giving you the presentation today. Enzo Lacasso will do that, and we are prepared to answer any and all questions. We we we enjoy getting to know everybody better and giving you a full transparency of, our day to day activities. So thank you very much.

5:12 Thanks, Tom. So we'll start with the the formal presentation, here for the for 2024. As the the headline reported, we had a very good end to the year resulting in our trading coming in in line with expectations. If you recall at midyear, we had experienced, higher levels of rain, affecting projects and delaying the customer's purchasing decision. That was layered on top of prevailing challenges that we have previously communicated, being elevated interest rates, labor shortages, and concrete rationing. As a result, the results in the first half of the year were not as expected. That led to a restructuring that we undertook in July, reducing our workforce by approximately 15%.

6:04 As we entered, second half of twenty twenty four, some of the inclement weather improved. New products that we had previously introduced in 2024 as well as a third machine that we introduced at the very end of the year gained nice traction and contributed almost $8,000,000 to revenue. Consequently, h two trading lapsed the first half by approximately 11%. Despite the restructuring and everything that was going on, we keep we stayed on track with our strategic plans. We did launch three new products in the year, and we also tilt tilted up the Belgium facility to help better serve our customers in Europe. Moving on to our financial highlights, we'll dig a bit deeper into each of these particular areas.

6:55 But from a profitability standpoint, the declines that we see were all primarily driven from the lower volume, and sales as well as some nonrecurring expenses related to separations. If we annualize the impact of the restructuring and exclude the onetime separation related expenses, our EBITDA margin would have been comparable to prior year. Our cash generation remained very healthy, over $17,000,000 in cash. We ended the year with almost $30,000,000, which will allow us to fund our ordinary and supplemental dividend in 2025. In the next couple of slides, we'll go over the results of our sales by territory as well as product.

7:45 The majority of the decline in revenue occurred in North America and Australia. Both experienced, poor weather, but the issues that we've previously communicated in terms of interest rates, labor shortages, and concrete availability impacted the larger projects more acutely. As a result, our boom screen sales declined year over year. Our excuse me. Contributions from Europe remain comparable to prior year. The introduction of the s nine forty e was well received, in Europe where ESG is a greater theme compared to, The US, for example, which is further behind the curve, in that regard. So good results in Europe.

8:32 Australia is a bit of a different, scenario. We took over the Australia business from our dealer back in 2020, when the dealer decided to retire. And at that point, we hired our own direct sales force and had our own facility and represented a broader range of our product line, in in country. And there was a great initial uptake in the business. It was clear that there was a portion of the customer segment that were not being serviced well. We came in with our people, and had a number of years of excellent growth. However, since then, the economy in Australia has cooled off, and that initial uptake, has sort of caught up, if you will.

9:18 And on a go forward basis, what we're seeing here is a bit of a normalization to more sustainable levels. We do still think there's great opportunity in Australia, particularly in our small lines. There are a lot of projects that are still being done manually that can be improved from a productivity standpoint by utilizing one of our screens. Rest of the world consists of a number of countries, but the leaders there are Latin America, India, and The Middle East. Each of these bases of businesses are relatively small, and therefore, we'll see lumpiness, from time to time. But in general, nonresidential construction remains relatively healthy in each of the markets. In terms of products, by product, sales by product, as I mentioned, the boom screens really is where we declined the most.

10:14 Just as a reminder, the take rate across our product line is dictated by the nature of the project. We don't push any particular type of machine or size of machine. It's dictated by the size of the project and the application, and we try to put our customers in the best machine possible to make them successful. Therefore, there's gonna be fluctuations between product lines over a period of time. But we do know that from a boom screen standpoint, where they're best served in large projects, those there are fewer large projects, relatively speaking, than in the past. Now we have talked about some tailwinds that we would anticipate in this particular area from government sponsored legislation, particularly the CHIPS Act, the Inflation Act, and some of the onshoring that's going on with manufacturing, electric batteries, and electric vehicles.

11:09 What we hear from customers is that although those funds have been earmarked and a lot of projects are being announced in the media, that the funding is not getting to the projects in a timely manner. And a lot of these projects are huge, multiyear projects, very complex in remote areas where the local authorities and permitting offices are not well equipped from a permitting standpoint to facilitate the permitting in a timely manner. So permitting delays as well as the funding delays, has impacted those particular projects coming to fruition, but they do provide some tailwinds on a long term basis. Conversely, our ride on screens, were relatively consistent to last year. The smaller projects that are less affected by interest rates, labor shortages, and concrete rationing, continue to go on, and that's a great product line for us.

12:07 Remanufactured machines are machines that we take in on trade in. We re refurnish them and sell them into the market typically at, a steep discount. But this allows new entrants to get into a machine that operates quite well. We stand behind the warranty as if it was a new machine. And sometimes it's also used as a backup machine on some of these large projects where the the slab is the first major milestone. And if there are any delays in the slab, it delays the entire project. So backup machines are required, and the remanufactured machine makes an economical, solution for that. Our three d profiler is a technology that attaches to our screens and allows customers to screen on contours.

12:58 This is especially, useful on parking lots, anywhere where there's drainage and requires sloping, and we've always seen very good results, from the three d profiler. Happy to report that we sold two SkyScreens last year compared to none the year before. This is a a brand new segment for us. We launched the SkyScreen a number of years ago, and it's useful in in high rises. This is a segment that has no mechanical solution today for leveling and flattening concrete. It's all currently being done, by hand. But it's a huge market, and it's a huge opportunity. Unlike the slab on grade market, the high rise market is much more complicated. The projects are much more complicated. The there are a number of tradesmen that are working simultaneously.

13:52 And the SkyScreen, in order for it to work in these projects, requires coordination amongst the trades. It also requires supporting the machine from underneath. It needs to be hauled onto the floors by a crane and moved by a crane. So there are a number of factors that will impact the success of using a SkyScreen. And so, gaining traction in that particular market is going to be slow and measured as we get these trades to change their practices to allow the concrete contractor to utilize the SkyScreed. And then other is is comprised of some niche products that are nonscreed related, as well as parts and service.

14:38 Parts is the largest component of our other category, and that will also fluctuate as new machine volume goes up and down. When we sell new machines, customers typically buy replacement parts. And, therefore, as volumes fluctuate, our part sales will fluctuate accordingly.

14:58 Moving on to our operating results and picking up with our gross profit. Our gross margin declined approximately 200 basis points compared to 2023 due to a couple of factors. One is we continue to see input cost increases in the neighborhood of mid single digits. We do partly offset these cost increases with price increases. But in a challenging market, garnering all of that price increase is a bit cumbersome and not a 100% successful all the time. Each one of our sale is a negotiated deal, and therefore, there's some discounting that occurs. And in order in in order to get our our sales and maintain our our trading levels, it may at times require additional discounting.

15:45 And as a reminder, we carried additional overhead in the first half of the year that was then impacted with our restructuring in July 2024. Moving down to our operating expenses. As usual, we have puts and takes. On the upside, we, added the Belgium facility, which added to our expenses. We also have the annualization impact of new hires in 2023 outside The US, and they were not affected by the restructuring.

16:16 As I mentioned, we had nonrecurring separation related expenses. These increases in costs were partly offset by savings from the restructuring in the second half of the year as well as lower lower variable compensation as a result of not hitting our financial targets. Moving down to our income tax provision. This is one of the questions that came through. The effective tax rate typically ranges in the 22 to 23%, and therefore 2024 is within that normal range. 2023, we reversed a, accrual for an uncertain tax position that dated back about seven years previously and related to the treatment of foreign derived income and really was an administrative issue with the way our foreign entities were set up from a paperwork standpoint.

17:10 As a result, we accrued a potential tax payment as well as penalty and and interest. But due to the fact that we were able to retroactively correct the paperwork, the IRS voted in our favor that it was retroactively applied, and therefore, we would not have to true up the taxes and the interest and penalties. So they voted in our favor, and we were able to reverse that accrual, which was run through the tax provision. So that was a onetime event that wouldn't recur on a normal basis. Moving on to the balance sheet, which remains very healthy. No debt. As I mentioned, almost $30,000,000 in cash. Our accounts receivables ticked up a little bit, primarily due to the timing of sales at the very end of the year, but happy to report we collected on those in the first quarter of this year.

18:03 Inventory came down. As you may recall from previous calls, we've had issues with excess safety stock as a result of, long lead times and supply chain shortages during the COVID period. And in order for us to be able to fulfill all of our orders, customer orders, which we receive in a given month. It's important to remember that we enter any month with approximately 10% of that month's revenue in the book. So 90% of any given month's revenue, we we received the order from the customer. So we need to be prepared with the inventory to complete, the machines. But we have managed to bring down that excess inventory, and inventory related to our existing products by approximately $3,000,000.

18:52 That was partly offset by stock related to our new machines. Anytime we introduce a new product, you can expect, additional inventory of approximately 500,000 to a million dollars. So we introduced three new machines in 2024 and added $2,600,000 of stock offsetting the decrease. But still directionally, I'm glad to report that we are seeing a decline in the excess inventory. Other assets increased over the prior year by approximately $2,000,000. That's attributable to two key factors. One is the renovation of our Houghton facility as well as the renewal of leases, vehicle leases. In The US, operating leases are now treated as capital leases and therefore need to be capitalized both on the asset side and the liability side.

19:46 Overall, as I stated, our balance sheet remains very healthy and puts us in a very good position to invest in the business as well as return capital to shareholders in 2025. Moving on to cash flows. We had a a decrease in our investment in working capital, which was aided by the reduction in inventory. The investment activities really reflects the the work in in in Houghton. On a go forward basis, we don't have any other major projects in the pipeline. I would expect that our investments from a CapEx standpoint will range in the 1.5 to $2,000,000. We paid out almost 16,000,000 of dividends, and we continue our share buyback program, which is intended to offset our own employee equity programs.

20:37 We spent 1,200,000 more this year versus $20.23 in acquiring shares. Now one question that's come up a number of times is whether we would consider expanding our share buyback program, and the answer to that is yes. The the the question will be, how do we balance dividends and share buyback? Historically, our shareholders have had a strong preference for dividends. Most of our, shares are held in institutional income funds. But as of late, there has been certainly a shift towards share buyback, and the board is very open to considering other options. As we bring in the new CEO, certainly, he or she will have his own thoughts on that, and there'll be more on this topic later on.

21:27 Moving on to our dividend. The policy remains intact. We distribute 50% of our adjusted net income in the form of a regular dividend that amounted to 17¢ per share. We also distribute 50% of excess cash over 25,000,000. That amounted to 4¢ per share, both of which will be paid out to shareholders on May 9 to shareholders of record as of April 11.

21:55 On the international front, I mentioned Europe, delivered comparable results to 2024. We still garner a good portion of our revenue from new customers. Parts and service was a bit weaker than 2023, and we're seeing a little bit of softness in some of the Eastern European countries such as Latvia, Romania, that were that are closer to the conflict. We'll keep a close eye on that. I think it's it's just part of the ebbs and flows of the business and and nothing really structural. And then again, we tilted up the new Belgium facility. Our customers have reported that they're very pleased with our turnaround time for parts, service, and responses. We still have our UK facility, but based on input from our customers, they felt a bit isolated from, that that region.

22:47 And bringing their machines to UK and going through customs and the like was a bit too cumbersome for them. So we look to take advantage of a a a local presence to be able to service our customers' machines in house as opposed to them using their own personnel to do that. So that should be a revenue driver in the future.

23:10 In Australia, as I mentioned, there was a 33% decline, in that market. As we as I noted, there was sort of a catching up effect since we took over that business as well as the local economy has cooled off a bit. However, despite that, we continue to garner almost 50% of our revenue from new customers.

23:37 In terms of end markets and and comp competitive position, as we've communicated verbally in the past, we've always had competition. They've been there since day one. In particular, in Europe, there are three or four that we're aware of. In The US, there is one. We did see an uptick in Europe, particularly from a Chinese manufacturer that is targeting the low end of the market.

24:03 We advocate our value proposition on the basis of our expertise, our customer support capabilities, and our ability to come out with new products and technological innovations, which allows us to stay ahead of the market. And that takes us to our next slide, is twenty twenty four new products. We introduced three new products last year. The s nine forty e is is the first electric screen for SOMERO. This is our first step in in a long, plan to electrify machines. We also introduced the SRS six s. This filled the product line gap between our SRS four and our S 15.

24:49 And lastly, we introduced the STS 11 h c high capacity topping spreader. This is not a screed. This is a mechanical solution for applying curing agents and hardeners to concrete, particularly useful in Europe where their concrete mix is much more fluid than in The US. So we look forward to that machine having better take rates in 2025.

25:18 Not only did we introduce new machines in '24, but we've also set the stage for new product releases in 2025 where we launched the SRS four e, which is our first electric boom screen. This is the electric version of a SRS four, which has been very successful for us globally. We introduced a new training tool, which is our, virtual reality simulator. This allows customers to train their operators remotely utilizing, metagoggles, and they can actually visualize the controls on the machine as well as instructions that are written and audible. This serves two purposes. One, it allows the customer to train their operators without having to send them to our training facility here in Fort Myers, Florida, and, it saves us on cost.

26:09 Included in the price of a machine, we factor in training cost, which is not charged separately. So to the extent we don't have to, incur the expense for travel and lodging, it's a cost saving feature for us. We also introduced the industry first phone app. This was the first phase of this, iteration where customers will have their specific serialized machine loaded onto the phone, and they can flip through product product catalogs, instructional videos, frequently asked questions, and receive updates from the com from the company. We would anticipate building on this platform going forward and adding future functionality. And we also have two other machines queued up for launch in the second half of this year. One will be a next generation boom screen, and the other will be an entirely new machine that we are targeting a broader customer segment.

27:08 Moving on to our outlook. As I mentioned, we had, really good momentum in the second half of twenty twenty four. We get all of our reliable information from customers, And they reported to us that their bidding levels had increased at the second half of the year entering 2025. They had deeper backlogs. Some of the projects that were previously delayed because of interest rates were showing indication that they would be coming online where developers and builders were moving on from the interest rate issue, with the expectation that interest rates would not come down significantly, anytime soon. And therefore, the monetary policy was is here to stay for a bit, and they needed to get on with life.

27:54 Conversely, as you I'm sure many of you have read headlines about tariffs, trade relations, immigration policy, geopolitical issues, this has reignited concern and uncertainty in the marketplace. And the issue of a possible recession has also resurfaced. So there are some crosscurrents occurring here. On balance, we have a positive outlook for 2025. We feel that 2025 will be an improvement on 2024, albeit modest, and we will look forward to the results and reporting back to you for our midyear results call. That concludes our formal presentation, and we'll pause for a moment for questions.

28:41 Vincenzo, that's great. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions. You can do so just by using the q and a tab that's situated on the top right hand corner of your screen. We have received a number of questions both pre submitted and throughout today's live presentation. I want to start the q and a session off with this question here which reads as follows. Can you elaborate on any recent thinking to move the listing to The US market in order to achieve a better premium for shareholders?

29:06 We have certainly considered it and and given it quite a bit of thought at the board level. There are a number of factors to take into account. When the company was first taken public on the AIM exchange, it was first marketed in The US. And at that time, there wasn't much of an appetite for this particular type of business. The the audience just did not get it, very well. And therefore, when we moved over to Europe and went on the roadshow, it seemed as though the investor base understood the business much quicker. And you you'll see in our our register that many of the shareholders that were part of our original IPO are still there. Whereas in The US, they have a more short term view.

29:52 This is a cyclical business. I'd go beyond that and say to Momentum business, as well. And we experience ups and downs, on a constant basis as as you know. And so we would think that a US listing would create more volatility for us, whereas in The U Europe, it's much more stable. Secondly, we would have to obtain a 75% favorable vote from our existing shareholders who, may not be able to invest on a US listing. So we would potentially lose a large segment of our existing shareholder base and reestablish a new one in The US. And then there's, of course, the cost associated with it, not only the initial cost, but ongoing cost to remain on a US listing.

30:44 And a company of SOMERO's size may not get the visibility, that we currently get on the AIM exchange. And there and and on top of that, we have not really seen any clear evidence, that a company moving from a European exchange onto a UX exchange will necessarily get the valuation multiples, increase. And and we're gonna continue to be a cyclical business. That the nature of the business isn't going to change in the future. So for the moment, we see our home, very well entrenched in, on AIM and in Europe. That's great. Thank you very much, Vincenzo. Next question we've got here. I understand you may not have precise visibility on the construction products your products are being used on, but would be good to get at least some guidance around where you guys see the most activity by sector over the next few years. In other words, where will future growth come from, and how much confidence does management have around this?

31:43 Yes. So that's a great question. Generally, we're agnostic to the end use of our machines. Our machines can be used on, many different projects such as, manufacturing facilities, data centers, warehouses, as you all know. As of late, manufacturing as well as data centers have been, large contributors to nonresidential construction in The US, particularly with the onset of AI that will continue to drive the need for additional data centers. And with the ongoing, pursuit for onshoring and moving away from globalization or moving towards deglobalization, onshoring is only gonna continue to, ramp up. And so we're very well positioned to address any one of those applications.

32:37 Thank you very much. Another question we have here. I think the big question for me as a long term shareholder is that it's quite frustrating just to see the stock trading sideways. What is management doing to address this and really start maximizing shareholder value? Are there any catalysts on the horizon that can fire up interest in this stock? If you could provide some color, it'd be great. Sure. So, you know, the two main pillars of our long term strategy is new products slash innovation as well as international growth. We've executed on both those, pathways with the introduction of three new products to tilt up the Belgium facility and continuing to spread awareness internationally. In our European market, approximately 12 countries actually specify, flatness specifications.

33:28 The other countries where the cost of labor is cheap or they haven't embraced quality floors, that's an opportunity for us to continue to grow internationally. From a a stock price standpoint, you know, this the being a cyclical company, we're gonna have this overhang, and that seems to seems to be the impediment. We've gone through a couple of recessions now, that had a significant impact in the business. But fast forwarding to today, we're in a much better position to weather downturns like that. At the time, we had one machine, so we could only service large projects. Now we have 20 different products, and we have an offering for any particular type project, or application as well as the balance sheet. At the time, we had we were servicing approximately 20,000,000 in debt. Now we have no debt whatsoever.

34:24 We have not tapped into our credit facility, which is $25,000,000. So we're in a much better position today than we've been in the past. So that should curb some of the concerns around cyclicality, recession, but it's still an overhang for the price. Thank you very much. The next question asked if you can expand on a comment that was used in the results. The comment is the provision for income taxes was $5,200,000 in 2024 compared to $5,300,000 in 2023. Overall, SOMERO's effective tax rate changed to 21.8% in 2024 from 15.8% in 2023, primarily due to the removal of an uncertain tax position in 2023, previously reflected as liability upon IRS acceptance? If you could just expand on that, that'd be great.

35:15 Yeah. I I I answered that question during the formal presentation. Again, just due to the way our foreign entities were documented, a number of years previously, the foreign derived income wasn't reported conducive with the original paperwork, but was done correctly. We managed to change our paperwork retroactively so that the treatment matched the setup of the company. The IRS accepted our actions, and we were able to reverse the accrual we had previously set up, which ran through the tax provision in 2023. So on a go forward basis, we will range between 2223% as an effective tax rate.

36:02 Perfect. Just moving to the next question. Where do you think we are in the cycle of US industry supply and demand for your machines? That's a very difficult question to answer. We have been on a ten year run since 2011, and COVID has really thrown quite a monkey wrench in the traditional cycles. Yeah. The traditional seven year cycle, if you will, in the real estate market, is is sort of no longer clear. And and it's difficult to determine where we are in the cycle. You know, we've experienced ebbs and flows in this particular business. So I wish I could answer the question more clearly and accurately. The best we can do is really keep our ear to the ground, listening to what our customers are telling us. They're the first to realize when we're going to encounter a downturn.

36:57 And so that is the most reliable source of information we have, and we've always traditionally followed their their lead, and that's what we'll continue to do going forward. That's great. Turning to the next question. Can you estimate any potential impact from US and retaliatory tariffs? What could the impact be by geography? Sure. Great question. So in terms of our own cost of goods, we source the majority of our components domestically. We import a little bit from Canada and a little bit from Mexico, but, very little. Nothing from China. Therefore, there should not be a direct impact to SOMERO, cost of goods. The impact, would cause an adverse, effect if Europe, for example, imposed the tariff on, US construction equipment.

37:51 To date, they have not done that. There are specific commodity codes, so we'll keep an eye on it. Canada, as you know, has imposed tariffs on lumber and aluminum, to name a couple of items. That will affect the broader construction industry. So certainly could have an impact on our business indirectly. We continue to monitor the situation. There's there isn't clarity as as of yet, a lot of headlines. We're hopeful that some of the uncertainty will be settled, in the short term as the administration works with some of these other countries. Thank you, Vincenzo. So that's the pre submitted questions. We'll just turn to some of the live ones now. Is the availability of ready mix slash cement truck drivers in The US still the main bottleneck limiting order intake? And if this and if this is the case, are there any solutions currently being implemented?

38:44 So there are a number of issues. The the concrete shortage, really the underlying issue there is labor as well, truck drivers. You know, the the trades have experienced a reduction in influx of new labor added to the to the pool. A lot of the young folks, the young generation really went for the college route, the professional route. And so there was already a a challenging labor environment within the trades. COVID really exacerbated the issue where a number of retirement age individuals decided to retire all at one time, and, unfortunately, there wasn't sufficient or brought enough labor pool to replace the exodus, that occurred.

39:31 Eventually, that'll improve itself, whether through technology or, greater advocacy of trade schools. In The US, most of the federal funding is are for is is targeted colleges. But, we are hearing some headlines that some of that may be redirected to trade schools, which today are currently out of pocket for students. So eventually, that'll catch up, but it's not gonna be a fast track. It'll take time, and the industry itself will need to, make adjustments. You know, on the flip side of the coin, having labor shortages does fit into our value proposition whereby using our equipment, contractors don't need as many workers.

40:18 In fact, you can reduce your workforce on a project by about 50%. So there's two sides to that particular, equation. But, overall, we we this is gonna be a long road, but we we we do expect that at some point, there will be improvement. Turn to the next question here. With the potential changes in management slash the board, is it not the right time to consider a strategic review for the group, obviously, including a potential sale? You know, we're open to any consideration that would increase shareholder value. We we just haven't had the right opportunity come by. We are as I said, the board collectively, and and and Tom can comment, are are open to to options.

41:07 We just haven't had the right one to present to shareholders. Yeah. Sorry. Thanks for clarifying that. I'll just move on to the next one here. What is the typical lead time from placing the order to delivery? A couple of weeks. It's a relatively short lead time. So that's it it's incumbent on us to have the inventory and the work in process available, for that order. We build to a a monthly sales forecast on a monthly basis. Our sales team, our sales administration, our operating folks, our assembly folks, meet so that they're building the right type of machinery to be prepared for the orders.

41:55 Thank you very much. The next question, to what extent are your customers in The US dependent on immigrant labor, including indirectly, e g drivers? In general, there's a large portion of construction labors made up of of immigrants. And I presume that the question is stemming from some of the immigration policy talk, in The US. We can tell you that for the moment, they're targeting illegal criminals. So illegal immigrants, they're also criminals. Right? Most of the gangs, if you will. And they're not targeting, you know, undocumented workers or, individuals at this point. So the focus has been on the criminals, but there is a large portion of of the labor force that is is comprised of of immigrants.

42:51 Thank you, Vincenzo. The next question here. You've had several individuals and groups take circa 6% stakes each recently. What do you know about Regent Gas, VN Capital Fund, and Brian Kelly? And what interactions, support have you had with these groups? If you could just provide a bit more detail on that, that'd be great. I could really only comment on VN Capital who participated in a group meeting at midyear. We haven't had any other, really, communication. I really don't know very much, at this point. I think Cavendish perhaps, could be a better source, insight. But at this at this juncture, don't know what the background is. Thank you. Another question. To what extent do you aim to modularize the components of each device so as to allow interchangeability and reduce inventory?

43:44 Yeah. That is a a a program that we are pursuing at this point as we introduce new machines. There is some very limited, interchangeability, but for the most part, each one of the machines is unique and each component of the machine is unique and distinct. But that is a a mindset that we're maintaining as we introduce new products. That's great. We we've got another question here. Do you sell to other East Asian countries, e g Indonesia from Australia? There is a dealer, in New Zealand that we that represents us. So we don't have a direct, presence, but we do have a dealer relationship, that we supply out of Australia.

44:31 That's great. And sticking with sales, another question. How do you incentivize your sales team? Their compensation structure is a combination of salary and commission, weighted on the commission side. Thank you very much. Please, could you talk more about your customers' backlog? Do you think customers are overoptimistic? Have they been overoptimistic in the past? No. They're they're generally relatively conservative. Many of the folks that we spoke to have a backlog that would take them into 2026. But that doesn't necessarily I just wanna be cautious. That doesn't necessarily translate into purchases from SOMERO. Some of them may have enough machinery.

45:18 But with some of the uncertainty that I talked about earlier today, that will certainly have an impact on their buying decisions. But it it's a proxy for the state of the market, and the activity of the market, and that's what we base our forecast on. That's great. Question around the CEO. Is the board looking for the CEO to have a new strategy or continue using the existing strategy? This is Tom Anderson. Yeah. I would say what we are are are looking at is it's we we we think it's time for a kind of what what we a a generational change. In other words, we are the experts in flat four finishing, like I said.

46:08 And but that is a limited market. We certainly have a lot of chance for global expansion, and that's one of our big targets like Enzo mentioned. But in the CEO search, we want somebody that has global experience and reporting to boards, reporting to investors, and we are, you know, we're we're narrowing in on that very close, as I mentioned. The other thing is we see, building on our strengths, have the CEO look at our strengths. And our our for my closing remarks, I I was gonna mention that. This is a good time, though, is, you know, we have excellent brand awareness. We have great IP abilities.

46:54 Engineering staff of electronics and hydraulics are are world class. And and finally, you know, our our Houghton facility, we can manufacture as cheap as anybody in America and as quickly. So we we wanna start looking at the surrounding, the ancillary development of our industry. We we've taken the finishing floors to a whole new level in the last thirty years. What else is happening around us that we can use our talents with? You know, you have to finish the edges of a slab. You gotta manually go around a column. You gotta manually join the steps. Everything that happens on construction, particularly concrete, we we wanna we we wanna get involved, look for the entrepreneurs with the ideas.

47:42 Can can we do can we find a thing, or is there an entrepreneur that needs capital we can look at? And that we're hoping that the CEO is the catalyst for just, take taking what we did, continue doing what we did fantastically, but expanding expanding the horizons of this opportunity with a a a new vision. You know? It's things have changed, and, that's our goal. And we are and like I said, we are narrowing it down, and we'll find that. That's great. Thank you, Tom. Another question here. Can you tell please tell us which macroeconomic indicators you look at regularly and find most helpful to gauge slightly business conditions? Yeah. Generally, we look at nonresidential construction spending as as an indicator, but that's not entirely reliable. There isn't it used to, there used to be a parallel between residential construction and nonresidential construction.

48:41 And then during COVID, those two lines intersected, and therefore, was no longer that correlation. And even within the nonresidential construction spending, doesn't necessarily flow exactly the way our trading does. We have a highly fragmented customer base. We have thousands of customers operating all over the world. And they're in at different stages of their their company. They base their decisions on the projects that they have in front of them, the cash that they have in the bank, frankly, and will base their decision on buying or not buying on their gut feel. And so that's that's generally what we try to tap into, because they are, as I said, the feet on the street and the most reliable source of information.

49:35 Any other metric that the company has attempted to follow on a macro level just hasn't correlated directly to our trading. Remember, we're a small niche, in this business. You know, our annual revenues, as you know, have been in the, you know, 100 to $130,000,000. Non res construction is in the many billions. We're a niche market, and therefore, having our customers, communicate to us through our sales guys and and other means is really the most reliable information we can get. Thank you very much. Another question we have here. What's interest been like at recent conferences and trade shows? So we had our largest trade show, which is the World of Concrete in Vegas in January, had tremendous attendance. The show itself had great attendance.

50:29 So a lot of interest, a lot of customers and prospective customers walking through the show. And that's actually one of the times where we have a great opportunity to meet many of our existing customers and really gauge the health of the market and have these conversations. So we had a really good result as we we typically do, and that that then formed the basis for our outlook for 2025. That's great. Thank you very much, Vincenzo. We are getting close to the hour and we have run through lots of questions today. So maybe time for just a couple more. This one here is quite interesting. How does SOMERO's products compare with those of its competitors? Well, we'd like to think ours is, much superior to the competitors.

51:18 You know, the the only lever that the competitor has is price. They do not they cannot match our customer support capabilities, which is a critical element of the value proposition. A lot of these projects occur overnight, and it's a high stress business. There are loads of trucks filled of concrete waiting for the concrete contractor to level and and flatten it. If anything goes wrong on a job site, the machine perhaps doesn't perform as as it's supposed to, and there is a problem with the floor, that could be catastrophic for a concrete contractor. It could potentially put them out of business. So it's very important to them that they have a company to support them twenty four seven, to be able to get parts to them immediately, to be able to troubleshoot issues on the job, and our capabilities are unmatched.

52:16 From a machine standpoint, we've had customers ask us to take back one of their one of our competitors' machines because it just doesn't perform as well as as ours. So in our view, we're in the laser screening business. Our competitors are in the machine building business. They'll build a machine. They'll sell it to you. But then after that, you're on your own. Thank you very much. So another question here. When and how do you foresee shortages in skilled labor and cement coming to an end? That's a difficult answer, question to answer. I I wish I knew. If I did, I would probably be doing something else. So it it that's it that's an a real structural issue that the entire industry, the entire construction industry, and even beyond, you know, leisure and and the like, hotels, restaurants are all seem to still have not recovered completely from COVID.

53:16 Perfect. And maybe time just for one final question. It does have three parts. I'll read out all the parts. If you need me to repeat them, then then do let me know, Vincenzo. So it's questions on Skyscreeds. What benefits do they bring to their users? What's the biggest barriers to adoption? And finally, are the 15 you have sold since 2019 being used in concentrated regions of The US or spread nationally? Sure. So the benefits of the SkyScreen is it allows the concrete contractor, a it gives them a mechanical solution to flatten and level concrete in the high rise market, achieving flatness that can't otherwise be achieved, manually. That is when specifications are spec in the design, which isn't as prevalent in the high rise market as it is on the slab on grade, but they are becoming more stringent in the high rise market.

54:09 As an example, nursing homes, to prevent trip factors, they are now specifying flatness. And and some customers that are struggling in achieving that flatness by hand will come to us. That that's been a a couple examples of an actual say of actual sales. And it also allows them productivity. You can reduce your workforce on a project by approximately half, so fewer people. And as you get into, higher elevations, the risk of injury is exponentially higher, and the cost of compensation, workers' compensation insurance is astronomical. So if you can have fewer people, make for a safer work environment, those are the sort of the benefits that we can bring to the table. The challenges, as I mentioned, is it does require quite a bit of coordination.

55:05 In in in the high rise market, you have to, shore up the machine from underneath, and you can't reach the entire floor from one location. So the machine needs to be moved with a crane from location to location, and that shoring also needs to be moved, first. And then you also have all the the other trades. And what they do is they run conduit or sleeves through each floor before the pour, of concrete so that they can run their pipes and electrical lines and HVACs. Well, when you have so many of these obtrusions through the floor, it makes it very challenging with a 12 foot head, for example, to navigate around all of these, obstructions, and and therefore it makes it less productive.

55:51 So those are the biggest challenges. But of the ones that we've sold, they're being used, And we've found situations where, the general contractor, for example, which is the highest level, bought in, and he has the influence over the tradesmen. And our contractor, by reducing their workforce, can reduce the cost, or the bid or get the job done faster. So if you have the buy in from an upper level, party and and and can get the other trades to play along and get involved in the planning process early enough, they all work. The machine performs, as intended. And and for the guys that have embraced it, the machine does great.

56:40 Vincenzo, Tom, thank you very much. We've been very generous with your time. We've wrestled through quite a few questions there. Of course, the company can review all the questions that have been submitted today, we will publish out the responses on the investor meet company platform. Just before redirecting investors to provide you their feedback, because that's particularly important to you both, could I just ask you for a few closing comments? Absolutely. Thanks, Alessandro. So thank you to everyone for attending today. We look forward to reporting our midyear results, and we look very much forward to SOMERO's new vision, moving forward. Thank you. That's great. And thank you once again for updating investors today. Could I please ask investors not to close this session? As you know, we automatically redirected to provide your feedback in order the management team can better understand your views and expectations.

57:26 It's gonna take a few moments to complete, but time should be greatly valued by the company. On behalf of the management team of SOMERO ENTERPRISE, we'd like to thank you for attending today's presentation, and good evening to you all.