Power Probe PLC (PWR) Earnings Call Transcript

Good afternoon, and welcome to the Power Probe PLC Half Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Chema Garcia. Good afternoon.

Good afternoon. Good morning from here in Charlotte, North Carolina. I'm Chema Garcia, the CEO of Power Probe.

Yes, I'm Fabio Medina, CFO of Power Probe, Chema and I here in the Charlotte, North Carolina facility in the United States.

And Tom Marsh, Group Corporate Development and EMEA Regional Director based in London.

Thank you. Let me introduce a little bit of Power Probe and our history. Power Probe, a brand, a technology, a company that started back in 1992 in Orange County, California, developing the first and unique single-hand tool to perform automotive electrical diagnosis, helping mechanics to locate problems and fix them in the most efficient way and keeping that philosophy along the time, becoming an essential tool for mechanic nowadays. We did this along the time since 1992 in different moments, but I would like to highlight a little bit some of them that could be relevant to understand where we are nowadays. In 1992, after the company was established, Jeff Whisenand, the founder, run the company as a family company -- family-owned company until 2016 when we developed a joint venture with another company that was specialized in manufacturing, finishing in final acquisition in 2020. I joined the company in 2018 during that process. And since 2020, Managing Director and after 2024, full-time CEO of Power Probe. In April '22, we relocated our company from California to North Carolina, looking for a place that is supporting the growth of the company on the way to implement manufacturing back in the U.S.A. as we had at the beginning of the times when we were in California in late '90s. In 2024, fully demerged from the group of companies, MGL, and operating independently. In December 2025, IPO in the AIM. And nowadays, we are in the investment phase here in the U.S., developing the R&D and the production plan. Just giving you a quick understanding about this process. We went through all this timing and milestone always looking for scaling a business that is already profitable and a brand that is well recognized in the market and a market that is growing due to the megatrends that we have. And the reason for being listed in AIM, in the London Stock Exchange, is due to the size of the company, the adequate, let me say, stock market that is giving us visibility globally for U.S. companies and for the technology and the market that we are operating. If we move into the next slide, I can explain a little bit more with numbers what Power Probe is. Power Probe is recognized as the Hoover of the automotive electrical diagnostics for professional mechanics. We have more than 30 years with 140 products in our catalog. In 2025, we closed with USD 39.4 million, developing around 23% of EBITDA margin with USD 9 million, operating in 3 different areas, that is the U.S., Europe and U.K. We are recognized by the mechanics like the go-to brand, but at the same time, in the industry with multiple awards, which is giving us a very strong position in the market to keep developing technologies. Those technologies are backed by a strong IP with more than 90 patents and design patent, not only in the U.S., covering different territories like the U.K., European one and some areas in the Far East where it's quite common finding copies of our product. We are introducing product yearly. At this moment, this year, we introduced 7 new products. In average, we launch around 10 new products every year. For this year, we are planning to launch 15. That patent and new product introduction is helping us to develop a strategy with a multichannel distribution network covering the most important distribution network, including the well-known and popular mobile distribution with companies like Snap-on, Stanley Black & Decker, Mac Tools, et cetera. We have a very strong commercial policy and MAP pricing that is giving us the chance to develop another strong barrier to enter and providing a very strong pricing power for high-margin company like Power Probe is. In terms of our growth drivers, we're going to be taking you guys through all of them. But basically, we have a very strong new product introduction based in innovation, new market, including the aftermarket that we are operating and the car manufacturers and dealership, such as new territories like the European one and the U.K. that is the second largest market of the Western world. At the same time, that we'll be able to develop a new production center that will give us the chance to dual source our existing one, adding the Made in U.S.A. to a loved brand, Power Probe, that is the top of mind for the U.S. mechanical and master technicians. If we have a look into our technologies, I would like to highlight that our philosophy since the origin is the one that is powering our new product introduction today. So we are simplifying automotive diagnostics. We are developing specialized tools for mechanics to perform in the most efficient way in automotive electrical diagnosis. They are saving time. They are fixing more cars per day, making more money at the end of the day. This is what is really changing the approach in terms of the tool for the mechanics and why the mechanics choose Power Probe for every single diagnose that they need to do in the electrical system. We have that philosophy into the electrical circuit probes that we have at the very beginning, including the open short circuit finder that wirelessly can locate a wire that is broken and open without disassemble any part in the car or even the new parasitic drain technology that you have in the center of the slide in the screen that is a complete disruptive and fully protected with a strong IP technology, giving us the chance to locate very quickly if the car is having any parasitic drain in the battery system and which circuit is having that problem. This is nowadays one of the most challenging problems that the mechanics are facing due to the technology that the car manufacturers start putting into the car 5 to 8 years ago. And nowadays, it is complexifying completely what the car has in terms of circuitry. In the new, let me say, technologies for the electrical vehicles, we have a complete new product range that is adding new feature to our products that is the safety. Now the mechanics can perform very quick, very efficient, very accurate automotive electrical diagnosis, including in the electrical vehicles, but more than that can do it in the safest way possible, following the standards that are mandated by the car manufacturers and making sure that they don't have any risk for the tool or any risk for themselves. Moving into the next slide, I would like to give you some update about our market. We are operating in the automotive electrical testing market that is a market that basically is growing with a CAGR of 6% to 7%, no matter if you are checking the U.S. market or the global market or the European market. That is due to 3 main megatrends. We have more cars on the street. The cars are being aged with an average around 12 years per car. And all those cars are having more and more technology. What is increasing as well the knowledge and the time that is required, increasing consequently the repair expenditure that we have. And Power Probe is operated in the center of this mechanic -- of this market, being recognized by mechanics like the go-to brand. So we are perfectly positioned with the new product introduction to take advantage of every single new need that the mechanic has in this growing market. If we move into the next slide, I will give you some color about why Power Probe is very successful, not only in the new product introduction with disruptive technology in the way that we are doing this and we are going to the market. Power Probe has developed since 2018, a very strong distribution network covering all the different professional channels with a commercial policy that is giving them the protection to avoid with the MAP pricing in place being affected by any other channels that could be draining their margin. That is giving to Power Probe with a unique technology protected by IP and a very strong brand recognized in the market with this distribution model, a good pricing power driving high margins for Power Probe and the rest of the distributors that we are partnering with. It's very important to understand that in 2025, 86% of the total revenue is Power Probe branded product since only 14% is private brand, which means that Power Probe is capturing most of this innovation into the brand going forward. And let me say, companies like Snap-on, Mac Tools, Cornwell, Matco Tools are taking on their trucks, on their mobiles, their Power Probe branded products and some of them, their own brands. Just a quick minute in the mobiles. Mobile is a very unique distribution model. It's very popular in the U.S. and growing fast in U.K. and Northern Europe area. This is not a delivery truck. It's a truck that is driven by a mechanic with weekly routes that is having inventory on the go, that is facing -- that is meeting face-to-face the mechanics, explaining the main benefits, giving them some payment terms and some service that is developing a very sticky relationship. Being into the mobiles distribution network, Power Probe is able to educate and spread with more than 8,000 boots on the ground along all -- across all the different territories, the new technologies. Let's have a look now into the growth drivers that we have going forward. As we explained before, before taking you guys one after one, the new product introduction in the existing markets and new markets will be one of the main drivers. But at the same time, new markets like the car manufacturers and dealership and the expansion in new territories with existing technologies and the new one, especially in the European area at the same time that we are capturing the Made in U.S.A. with one new production plant here in the U.S. that will accelerate the new product introduction. If we have a look into the next slide, I can give you some color about the recent expansion that we have from our established core and how Power Probe was developing all the opportunities with the new product introduction into the adjacent product categories. Power Probe that developed the name of the category Power Circuit Probe with the company name is now leading other categories like cable tracers and the recently new category-defining Parasitic Drain tester. This is due to the innovation and the way that Power Probe is developing tools to fulfill the mechanics need. Recently, in 2026, as expected, as planned, as we explained at the end of 2025, we launched the new PowerFlow technology that is providing to the Power Circuit Probe ability to check the integrity and the quality of the circuitry even if they are having corrosion or some springs that could be broken. Besides this, we introduced new products like the Multimeters category and moving into the Electrical Vehicle testing new testers before the end of this year. That will generate the 15 new products that we'll be introducing before the end of this year. In terms of the growth drivers into the next slide, we keep developing the programs and the tools that we have into the car manufacturers. 2025 was closed with Ford, Hyundai, Honda and Toyota with Power Probe products in their programs. This year, we add GM and all the Stellantis brands into that. And all related with the car manufacturer and dealership that represent in U.S. around 30% of the total market and in Europe, around 40% will be completed in 2026, starting ramping up during 2027. We are currently developing technologies that are being requested by some of them. So we have a very good info visibility about the opportunity and the way to diversify our existing product portfolio and revenue in the aftermarket into a new market segment in the U.S. and in the new territories starting in 2027. As planned as well, we are transitioning from our legacy private brands into a specialized high-end, high-priced new technologies, including some of them that are for Snap-on, Matco Tools and some other mobile distributors. That is giving us as well a strategic migration into a technology that is quite unique and is giving us the chance to move low-margin legacy accounts into new ones that will be in line with the general margin that the Power Probe has in our guidance in the analyst report. Additionally to that, we are expanding with some new markets like marine, public bids, military, fleets, educational with the Power Probe technology covering in markets where we have a strong penetration like the U.S. and exploring the new markets like the U.K. one. And now just talking about U.K., I would like to hand over to Tom to give you a little bit more color about how successful we have been in our initiatives expanding Power Probe technology into the European territory. Tom?

Thanks, Chema. So the most significant near-term opportunity for us is accelerating our growth in the U.K. and European market. We've been present in the region over recent years and are now really well positioned with the infrastructure we have in place to build on that foundation. There are some key similarities between the U.S. and U.K. and European markets, including the presence of mobile tool distributors such as Snap-on and Mac Tools that Chema mentioned a little bit earlier. We've got global agreements in place with those names as well as other important wholesale distributors, which means they're able to leverage those existing relationships into the broader U.K. and European market. Customer engagement this year has been really strong. The brand is extremely well known in these markets and trusted amongst the technician community. And this feedback has been consistent across the key trade shows we attended this year, for example, Automechanika in Frankfurt 2 weeks ago. We see big opportunities to leverage key parts of the U.S. model into the U.K. and Europe, including entry into the OEM market, for example, and we've recently opened conversations in that market segment specifically. On a group basis, we are completely aligned and launch all new products globally, meaning customers in the U.K. and in Europe and end users get their hands on all our new products at the same time as the counterparts in the U.S. market. And I think this will be seen in the success of the recent PowerFlow launch. And then looking forward, the aim is to develop our distribution network across Europe further, continue to build our team and capabilities as we're doing on a global basis as described by Chema in the States and then capitalize on the significant opportunity that we believe is available in the U.K. and European market. Fabio?

Thanks, Tom. So related to our capacity in our new Made in USA project, to remind you and existing shareholders, with the use of proceeds from the IPO, we had dedicated $7.6 million to a phased CapEx plan. That plan is well underway. This project is a dual source project, right, dedicated to the U.S. market, where we're expanding the facility here in Charlotte, North Carolina for the U.S. base. And we're going to continue to in-source products into the European market from the current manufacturer in Taiwan. Well additionally, for some of the SKUs, we're also going to continue to in-source it to the United States. This project has given us the capacity and capability of 40 additional SKUs, which are equivalent to 10 different product lines. And everything is up to plan, right? The facility has been fully fitted. Architectural designs have been completed as well. This will actually speed up our go-to-market on the product development as well. We've already hired as of stage 1 industrial engineer, hardware engineers and electronics engineers. Our HR department is fully dedicated to hiring direct and indirect labor within the next couple of months. And our plan is still in place. We're still making the pilot run and the first batch of Made in USA products by the end of 2026. Additionally, what this project will generate for us, it will shorten our supply chain, will give us more velocity to our overall working capital. Currently, from ordering to putting the product in the market, it's about 6 months. We're hoping that this project will give us a 60-day turnover to our customer for the selected products, which are mostly going to be related to innovation and new products in the market in order to shorten the supply to our U.S. customers. Tom, next slide, please. Thank you. So to cover our H1 results, you can see on the left side of the chart, there is a decline year-over-year for the first half, and it's all related to the new product introductions. As Chema had mentioned, last year, we had a lot of innovation in the first half of the year related to Parasitic Drain, right? Those products were very successful and continue to be successful in the pipeline. Now as also Chema had mentioned, we have the PowerFlow being launched. It was launched in the third week of June. So we're expecting that trend to recover as far as the product innovation. The good news there is that the net revenue has actually sustained very well for the legacy Power Circuit Probe called PP3. So any concerns of product cannibalization has not happened from the parasitic drain technology. So the PP3 has been very successful in the first half of the year, sustaining trends as we had expected. Gross margin has had a significant improvement versus last year. We have a bridge that we're going to cover in the next couple of slides. So there is a couple of shifts there, not only pricing that was introduced in the market as a correction from a cost increase that we had in 2024 of 10% to 15% on the legacy products, PP3, for example, the Power Circuit probes, but also the shift in the product mix from the private brands legacy products into a more specialized private brand products, which is recovering the margin significantly. Going forward, our guidance is between 45% and 46% gross margin percentage, increasing steadily as we build our factory here and as we bring more pricing opportunity to the U.S. market with the Made in USA product. Adjusted EBITDA, there's also a bridge in the next couple of slides that we're going to be covering. There's a decline year-over-year, which is mostly related to PLC costs that we didn't incur last year since we went to IPO in December 2025 and additional hires that occurred in the half of 2025 in order to support the growth of the business, the support of the overall top management of the company for this next phase of growth. And the same thing follows with adjusted EBITDA margin. So a slight decline from the full year '25, and that margin is going to continue to increase as we have more volumes in Power Probe. In 2025, the margin is slightly lower than 2024 due to the private brand mix that also translates into the gross margin. Tom, next slide, please. Right. So this is the bridge, weighted average bridge on the gross margin, jumping from 40.8% to 50.4%, as we had mentioned before, when we were doing the full year results, our pricing has greatly impacted positively our overall margin. And you have to assume the first bucket and the last bucket to understand the pricing because while the pricing is improving in the legacy PP3 products is also having a positive impact on the shift from the legacy private brands, Harbor Freight and Milwaukee, for example, into more specialized products, Snap-on and Mac Tools. So that results in a 7.6% improvement overall margin. And then we also have the 2% improvement from the unbranded products related to the product innovation. Tom, next slide, please. Here is the bridge on the overall adjusted EBITDA percentage drop that I had mentioned previously. So as you can see, the gross margins improving 9.6%. The volume absorption, which we expect to recover on the second half of the year, and we're already seeing positive trends should be offset on that 3.8% decline year-over-year on the first half. The new hires from 2025 impacted 7.2% on a year-over-year basis for the first half. And then the PLC costs, 3.1%. Next slide, please, Tom.

Well, thank you very much, Fabio. Well, let me close this initial presentation with just summarizing what we were doing. Basically, this first half of the year, we were putting in place what we said that we're going to do. So we are ticking all the different check boxes. In terms of new product introduction, we introduced 7 new products, including the PowerFlow technology covering globally all the different territories. We keep expanding the OEM Car Manufacturers segment of the market, including new groups like the Stellantis Group and new products into the existing ones planning to complete the process in the second half of the year, beginning 2027 and giving us the chance to start growing up this segment of the market going forward. At the same time, we unlocked the first contact for the European area for car manufacturers, meaning that the territory in U.K. that is growing fast, as Tom explained before, is giving us well the next phase of growth in place that is related with the segment and building the capability of the new factory, implementing the SAP in place as was planned in the agreement that we had before and all the investments that we had to start the manufacturing that dual source. This is a story of success in a profitable private company that is opening the next phase of growth, scaling a profitable business, a successful story with a good track record. The new factory will give us the chance to speed up the time to market, accelerating the new product introduction, giving us the chance to shorten the supply chain. In the meantime that we have the backup of the existing supply chain to the new territories, combining the best of both of them to keep powering up this opportunity. That's why from the management from Power Probe, we believe that this is a great opportunity to invest in a company that is well known, is a top of mind, is the Hoover of the automotive electrical diagnosis, but position it perfectly in a market that is growing, growing with a very strong megatrends with more cars, complex car and aged cars in the market. That's why we believe that Power Probe is ready to grow with you guys in this new opportunity. Thank you very much for your time.

[Operator Instructions] I would like to remind you recording of this present along with a copy of the slides and the published Q&A can be accessed via Investors dashboard. And Tom, if I may now hand back to you to chair the Q&A, and I'll pick up from you at the end.

Super. Thanks so much. We had a number of pre-submitted questions. So thanks so much for sending those in advance. I'll group them together as best as I can as they do cover specific themes. So I think we can start with the U.S. manufacturing. So I have a number of questions on the transition away from the MGL supply source towards U.S. manufacturing and the time line for the Charlotte production ramp-up. Fabio, maybe you can kick off with providing some color on that. So transition away from current supply and the ramp-up of the Charlotte facility.

Yes. So on the short term, we still expect the supply chain to be relatively similar, right? Because we're going to start here in the Charlotte facility with the assembly lines first. So we're still going to need the unassembled projects -- products to put into the assembly. We're going to progressively make other steps of the products along the way as we become more and more efficient with the assembly lines, right? The surface mount technology is the next in place. So we expect the supply from MGL to continue to be pretty similar. Our first batch, as I mentioned, the pilot and the first batch will be out by December of 2026, so by the end of this year, and then we're going to ramp up more production in 2027 throughout 2027. I think the target right now is about 3 different SKUs focused on innovation, so focused on the new products that we're trying to put in the market for the U.S. customers. And then we'll also transition that into the European market. Did I miss anything there, Tom? I think...

I think that's comprehensive, Fabio. I guess the next few questions are around gross margin. Again, probably one for you here, Fabio, to start with. But -- can you give some color as to what gross margin might look like in the short to medium term and how the Charlotte facility will impact group margins?