Hammond Power Solutions Q2 Earnings Call Highlights

Key Points

• Record sales and stronger adjusted profitability: Second-quarter sales rose 44.7% year over year to C$324.8 million, while adjusted EBITDA increased to C$53.2 million, or 16.4% of sales. Growth reflected higher shipments, improved pricing, custom-product mix and operating leverage.
• U.S. data-center demand drove growth: Combined U.S. and Mexico sales increased 73%, with data centers now representing more than 30% of revenue. Backlog remained elevated—nearly double the prior-year level—even after declining sequentially as expanded facilities converted more orders into shipments.
• AEG acquisition broadens the portfolio: Hammond completed its acquisition of AEG Power Solutions on June 29, adding power-quality, power-conversion and critical-power products such as UPS systems, battery chargers and rectifiers. AEG is expected to contribute a full quarter of results in the third quarter as Hammond focuses on integration and further capacity expansion.

Hammond Power Solutions TSE: HPS.A reported record second-quarter sales as expanded manufacturing capacity supported higher shipments, particularly into U.S. data center and critical-infrastructure markets, while the company also completed its acquisition of AEG Power Solutions shortly after the quarter ended.

Chief Executive Officer Adrian Thomas said the company generated sales of C$324.8 million during the second quarter of 2026 and improved profitability as it converted more backlog into revenue. He said investments in manufacturing capacity enabled the company to ship more product, improve customer responsiveness and meet delivery schedules.

“We shipped more product than ever before, improved our responsiveness to customers, and converted more backlog into revenue,” Thomas said. “These are exactly the outcomes we were expecting when we decided to make our capacity investments.”

Sales Growth Led by U.S. and Mexico

Chief Financial Officer Richard Vollering said second-quarter sales rose 44.7% from C$224.4 million a year earlier. Growth was led by the U.S. market, supported by higher data-center shipments, improved price realization and modest improvement in industrial markets.

Combined sales in the U.S. and Mexico increased 73% year over year. Demand was particularly strong for custom products used in data centers and other critical-infrastructure projects, while output from the company’s expanded Mexico facility continued to increase.

Canada was a weaker market, with sales declining 23.7% from the prior-year period. Vollering attributed the decline to the timing of larger projects, softer market conditions and more competitive pricing. India sales were slightly below the prior-year level due to normal project timing.

Data centers now account for more than 30% of Hammond Power Solutions’ revenue, Vollering said, exceeding the level discussed on prior calls. Thomas added that data-center projects tend to involve larger order values because they require significant numbers of transformers.

Despite the rising importance of data centers, management emphasized that the company remains diversified across commercial and industrial construction, mining, oil and gas, utilities, infrastructure, renewables and OEM markets.

Backlog Remains Elevated as Production Ramps

Backlog declined 6.9% from the first quarter as increased production allowed the company to convert orders into sales. However, backlog remained 96.9% higher than a year earlier, driven largely by larger project orders, including data-center projects.

Thomas said quotation activity remained strong and broadly consistent with activity at the end of 2025. While data centers remain an important source of demand, he said the company continues to see activity across a broad range of sectors in North America, especially in the U.S.

The company said its Mont 4 manufacturing facility is fully ramped, while Mont 3 is improving and ramping quickly but is not yet operating at full capacity. Thomas said the company has made incremental investments in both facilities beyond original projections, helping it move beyond what had previously been described as roughly C$1.2 billion of capacity.

Management is continuing to assess additional manufacturing capacity options, including footprint expansion, equipment additions, shop-floor process improvements and efforts to relieve production bottlenecks. Thomas said such smaller expansions are generally measured in the tens of millions of dollars rather than C$50 million to C$100 million projects.

Margins and Adjusted Earnings Increase

Gross margin was 31.5% in the second quarter, up from 30.1% in the first quarter but below 32.7% in the second quarter of 2025. Vollering said the sequential improvement reflected price realization, a greater proportion of custom sales, improved factory overhead absorption and stronger operating leverage as volumes rose.

Adjusted EBITDA increased to C$53.2 million, or 16.4% of sales, from C$33.4 million, or 14.9% of sales, a year earlier. The gain reflected higher volumes, stronger gross margin and improved operating leverage.

Reported net earnings, however, fell to C$9.4 million from C$13.4 million in the prior-year quarter. Vollering said reported results included acquisition-related costs tied to AEG Power Solutions, foreign-exchange losses and higher share-based compensation expense. Adjusted earnings per share rose to C$2.76 from C$1.72 a year earlier.

Management said pricing actions and operational improvements have helped offset tariff and input-cost pressures. Vollering said pricing and costs have now stabilized and that he does not anticipate additional pricing changes in that area.

The company’s net debt totaled C$36 million at quarter-end, increasing from the first quarter due primarily to higher working-capital needs associated with the higher sales level, particularly in June. Working capital as a percentage of sales declined from the first quarter, according to management.

AEG Acquisition Expands Power Technology Portfolio

Hammond Power Solutions closed its acquisition of AEG Power Solutions on June 29. The second-quarter results included transaction costs but no revenue or operating costs from AEG, Vollering said. The third quarter is expected to include a full quarter of AEG results, remaining closing costs and associated debt.

Thomas said the acquisition expands the company beyond transformers by adding power-quality, power-conversion and critical-power technologies, including UPS systems, battery chargers and rectifiers. AEG also brings a service business and a global installed base.

Vollering said AEG generated close to C$326 million of revenue in 2025 and is tracking near that level in 2026, although its first-half results were affected by its Middle East business. He said the business is typically more weighted toward the second half of the year.

Management said AEG’s power-conversion capabilities, including systems up to 800 volts and 1,500 volts DC, could strengthen Hammond Power Solutions’ ability to address evolving data-center power architectures over time. Thomas said the company continues to see substantial quotation activity for more traditional transformer architectures, including deliveries extending into 2027.

Looking ahead, management said its priorities include converting backlog into shipments, maintaining operational discipline, improving working-capital performance, integrating AEG and continuing to evaluate manufacturing capacity opportunities.

About Hammond Power Solutions (TSE:HPS.A)

Hammond Power Solutions Inc is engaged in designing and manufacturing of custom electrical magnetics, cast resin, custom liquid filled distribution and power transformers and standard electrical transformers, serving the electrical and electronic industries. The company has manufacturing plants in Canada, the United States, Mexico and India. The company operates in various geographical markets including Canada, the United States, Mexico, and India in which it derives majority revenue in the United States and Mexico.

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