Hammond Power Solutions (TSE:HPS.A) reported higher revenue in 2025 while navigating input cost inflation, tariffs, and the early-stage ramp-up of new manufacturing capacity, according to management’s discussion on the company’s fourth-quarter and year-end earnings call.
Revenue rose nearly 14% in 2025, led by the U.S. and Mexico
Chief Executive Officer Adrian Thomas said 2025 was “a defining year” as demand accelerated into capacity and operational investments the company has been building for several years. Full-year revenue increased 13.9% to CAD 898.3 million, while fourth-quarter revenue reached CAD 254.1 million.
Record backlog and longer project timelines
Management pointed to backlog as a key indicator heading into 2026. Thomas said year-end backlog increased 122% year-over-year and 74% versus the third quarter, reaching the highest level in company history. He said the backlog includes “several large multi-year custom projects in the data center ecosystem,” which management expects to provide revenue visibility into 2026.
In the Q&A, Thomas said quotation activity remains strong, particularly for custom work, and noted that the opening of the company’s Monterrey 4 facility helped HPS win large projects due to “immediate capacity.” He also flagged that some areas remain softer, with “commercial construction, more office tower work” described as slower, while certain infrastructure categories such as water treatment, healthcare, and hospitals showed activity depending on region.
Chief Financial Officer Richard Vollering said the “tenor” of backlog has lengthened due to larger projects. He described a mix of shorter-turn backlog (six to eight weeks), standard lead-time backlog (roughly two quarters), and a newer component that can stretch “into four quarters and beyond,” with a significant portion extending into 2027.
On end-market exposure, Thomas said data centers are rising as a portion of sales volume, moving closer to 30%, compared with roughly 10% to 15% in the past. He added that backlog growth is likely more heavily weighted to data centers than that sales percentage.
Margins pressured by tariffs, rising copper, and factory ramp-up
HPS posted a 30.3% gross margin for 2025, down from 32.8% in 2024. Thomas cited higher input costs, tariff impacts, and unabsorbed overhead associated with ramping new manufacturing capacity. He characterized these pressures as “primarily timing-related” and said the company expects factory absorption to improve as utilization rises in 2026.
Vollering provided more detail on the margin headwinds, saying copper prices rose and tariffs increased input costs. He noted that Section 232 tariffs had a direct impact on finished goods during the fourth quarter and contributed to margin decline as the year progressed. Fourth-quarter gross margin was 29.2%, pressured by the Section 232 tariffs implemented in August and unabsorbed overhead from ramping up facilities in Mexico. He said the company took pricing actions, including price increases put in place in September, but was not able to fully recover the costs in the quarter.
Asked about the pace of utilization and margin recovery, Vollering said Monterrey 4 began ramping in the first quarter and should “really take hold” in the second quarter. Monterrey 3’s under-absorption was expected to linger longer due to the nature of products made there, with improvement targeted toward the “tail end of the year,” potentially the fourth quarter. He said the under-absorption impact was “split evenly” between the two facilities.
Vollering also cautioned that further tariff changes could create additional lag in margins, even as the company works to offset cost changes with pricing over time.
Earnings, cash flow, and balance sheet
Despite margin pressure, Thomas said earnings were stable. HPS reported CAD 72.2 million in net earnings for 2025 and CAD 133.3 million in adjusted EBITDA, which he said was up from the prior year. Vollering added that adjusted EBITDA totaled CAD 38.7 million in the fourth quarter and increased about 2% for the full year versus 2024.
SG&A expenses were CAD 168 million for the year and CAD 52 million for the quarter, reflecting higher share-based compensation and higher sales volumes, particularly in the U.S. distribution channel. Excluding share-based compensation, SG&A for the quarter was CAD 43 million.
Working capital improved by CAD 9.5 million in the fourth quarter, despite higher sales, aided by inventory reductions. Net debt improved to CAD 15 million at year-end from CAD 28 million at the end of the third quarter. Cash provided by operations was CAD 32 million in the fourth quarter.
Capacity expansion, acquisitions, and strategic investments
Thomas said the company brought more than CAD 100 million of new capacity online at Monterrey 4 ahead of schedule and on budget, and described the facility as already contributing to backlog conversion. He also said HPS approved additional projects expected to add a combined CAD 100 million in custom transformer capacity across its footprint through 2026 and early 2027.
On the timeline to add capacity, Thomas said adding equipment to an existing footprint generally takes 9 to 12 months to ramp up, depending on vendor backlog, while building a new facility is typically around two years. He said Monterrey 4 was completed faster by working with a familiar developer and utilizing a building that was ready to be transformed.
Management also discussed portfolio expansion. Thomas reiterated that HPS signed a definitive agreement to acquire AEG Power Solutions for CAD 365 million. He described AEG as a global provider of industrial UPS systems, rectifiers, inverters, and power conversion technologies, with approximately CAD 326 million in revenue, more than 780 employees, and five manufacturing facilities across Europe and Asia. Thomas emphasized that AEG adds an installed base and a “meaningful recurring services and aftermarket revenue stream,” while increasing exposure to transportation electrification, industrial infrastructure, data centers, and energy transition projects. In response to a question, management said AEG’s production footprint is in Europe and Asia Pacific, not North America. Thomas said the company still anticipates closing the acquisition in Q2.
HPS also highlighted strategic minority investments. Vollering said the company made CAD 3 million of minority investments in Verdyn and SmartD in the fourth quarter. Thomas said both relate to power quality solutions, with SmartD focused on a “harmonic-less drive” product used in retrofit scenarios and applications sensitive to harmonics, while Verdyn addresses larger-scale, facility-wide power quality issues on a turnkey-style basis.
Looking ahead, Vollering said 2026 capital expenditures are expected to be “roughly the same” as 2025, after 2025 CapEx of CAD 35.5 million, and he noted the company is taking a “harder look” at inventory levels as a working capital opportunity.
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.
