Maytronics Ltd. ($MTRN)

Ladies and gentlemen, thank you for standing by. Welcome to the Maytronics Ltd. Fourth Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, April 20, 2026. With us on the line today are Maytronics Chairman, Dov Ofer; Rafi Benami, CEO; Amit Magen, CFO; and Amiram Bracha, Director of Investor Relations and Business Development. Before I turn the call over to Mr. Dov Ofer, I would like to remind everyone that forward-looking statements for the respective company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risk and product and technology development and the effect of the company's accounting policies as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. Mr. Ofer, please go ahead.

Good morning. I would like to begin with a few remarks regarding 2025 from the perspective of the Board of Directors. 2025 was characterized by laying the foundations required for a turnaround in the company. These foundations relate to the management level through the launch of a new product line and many strategic business focused decisions. These steps were designed to leverage the company's core assets and its leading market position and to return the company to a path of growth and profitability while maintaining positive cash flow from operating activities. It is important to emphasize that we are in a progress. The work is already underway, but we expect the results to materialize gradually. I joined the company as Chairman of the Board less than a year ago. And in the second half of 2025, the Board led a structured effort to strengthen and align the senior management team. Approximately 2 months later, Rafi Benami assumed the role -- I'm sorry, approximately 2 months ago, Rafi Benami assumed the role of Chief Executive Officer, and Amit Magen joined as Chief Financial Officer a few months earlier. This reflects the deliberate effort to build a leadership team with relevant experience to lead the required transformation. On this occasion, I would like to congratulate Rafi and wish him every success. His extensive experience in global industrial technology companies and his proven track record in leading successful turnaround processes make him well suited to lead Maytronics into its next phase. The financial results for the fourth quarter and for the full year of 2025 reflect the application of updated managerial and accounting assessments and are part of a structured effort to address factors that have weighted -- weighed on the company's performance over time with the aim of building a healthy and stable foundation going forward. From here, the focus shifts to consistent, disciplined and determined execution. I will now turn the call over to Rafi.

Thank you, Dubbi, and good morning, everyone, and thank you for joining us this morning. This is my first conference call as the CEO of the company, and it is taking place at a challenging point in time for Maytronics. I would like to thank Dubbi and the Board of Directors for the trust they have placed in me to lead the company during this period. There is no doubt that the current reality calls for a focused leadership, thoughtful and decisive decision-making and a strong pace of execution, all of this in order to return the company to the right direction. I will go in to the [ flow ] of the matters. The results of 2025 reflect a complex picture. Business performance was below our plans and significantly below the company potential. We are navigating in a highly competitive market environment alongside with some internal challenges that have built up over the recent years in operations, strategic focus, and in execution. 2025 results also reflect the impact of provisions and updates we did in accounting estimates, all of this resulting in net loss of ILS 222 million. At the same time, it is important to note that in 2025, the company generate approximately ILS 292 million (sic) [ ILS 293.3 million ] in operation cash flow. This is enabling us to reduce $168 million (sic) [ ILS 168 million ] in our outstanding credit. I stepped into the role of Maytronics CEO in the beginning of February. In my initial weeks, all of them were focused on a thorough assessment of the company. I met with management teams in Israel and internationally. I visited our operating sites in North America and Europe and engaged directly with customers and some of our strategic partners. I reviewed in depth our operating plans, the financial performance, our business model, the product road map, cost structure, our supply chain and in general, our global organizational setup. The picture that emerge is clear. While there are gaps that require swift and decisive actions, Maytronics does have a strong core assets. A leading brand, a broad customer base, technology leadership, global footprint and above all, a highly committed and capable team. Maytronics is a leading global company operating in a market supported by structural growth drivers. And therefore, the long-term potential clearly exists. The management team focus is on maximizing these assets and translating them into improved financial performance. To close the existing gaps, we are taking immediate steps to stabilize and improve our performance, emphasizing the operational excellence, reducing our complexity, improving the efficiency of the company and above all, a tight management of our cost and inventory structure. In addition, we are in the midst of a process to reset the foundation for a profitable growth, starting with a sharper focus on our core business. This includes clearer prioritization in development alongside with narrowing and sharpening our product value proposition, as well as optimizing our global platforms. I want to stress that these are not conceptual initiatives. We are already moving into execution. We are supported by concrete decisions and tangible process. Looking forward, I see the period ahead of one of sharpening our business focus, allowing us to move back to our profitability in a disciplined and responsible way. With that, I will now turn the call over to Amit for a review of our financial results. I will then come back to briefly discuss our market trends, our view on 2026 and provide some more details around the management priorities I have already outlined for the company. Amit, the floor is yours.

Thank you, Rafi. I will now walk you through the key financial results for 2025 as well as the major accounting events reflected in the financial statements we released today. 2025 was a challenging year for the company. Our financial results reflect a complex picture characterized by a decline in business activity and internal challenges, primarily on the operational side. These factors led to lower sales and pressure on profitability. We concluded the year with a substantial operating loss of approximately ILS 133 million and a net loss of approximately ILS 222 million. The results were materially impacted by the recognition of significant intangible asset write-offs, impairments and provisions, which in aggregate amounted to approximately ILS 116 million. At the same time, the company generated strong positive operating cash flow of approximately ILS 292 million (sic) [ ILS 293.3 million ] compared to ILS 129 million last year. This significant improvement reflects the successful execution of measures implemented to improve working capital, primarily through a substantial reduction in inventory levels. Year-end inventory amounted to approximately ILS 590 million, representing a reduction of about ILS 247 million. In parallel, the company reduced its net debt as of December 31, 2025, to approximately ILS 592 million compared to ILS 760 million last year. Revenues for 2025 totaled approximately ILS 1.4 billion compared to ILS 1.62 billion in 2024, reflecting a decline of 13.6%. This decrease primarily reflects the competitive environment, logistical challenges in order fulfillment and currency effect as a whole. Excluding currency effects, the revenue decline was more moderate at 8.6%. Fourth quarter revenues totaled approximately ILS 205 million, representing a year-over-year decline of 15% or 5.4%, excluding currency effect. I would note that the fourth quarter revenues were impacted by delays in order deliveries due to severe weather conditions in the East Coast of North America during December, which led to the delays. At the segment level, revenues from residential pool robotic cleaners declined by approximately 17.9% in 2025 and 20.4% in the fourth quarter. This reflects weakness in North America and Europe, driven by operational challenges and currency effects, partially offset by growth in Oceania. Revenues from commercial pool robotic cleaners remained stable overall. Revenues from taxi products and other pool products declined by 3% in 2025. This was mainly driven by lower sales of pool covers in France due to the continued slowdown in new pool construction as well as lower sales of other products by ECCXI. These declines were partly a result of the product mix optimization process and lower sales of products imported from China due to the U.S. tariff impact. These negative effects were partially offset by the consolidation of Focus in Australia as of November 2024. Gross profit for 2025 amounted to approximately ILS 374 million, representing a decline of 35.9%. Gross margin declined to 26.7% compared to 36% last year. Gross profitability was impacted by several factors, some related to ongoing business trends, some onetime in nature and some exogenous. From an operational standpoint, the revenue mix in 2025, which prioritized the sale of existing inventory negatively impacted gross margin. This was driven by fixed cost absorption together with promotional initiatives aimed at reducing existing finished goods inventory, which pressured average selling prices. 2 significant exogenous factors also impacted margins. The appreciation of the ILS against the major currencies, primarily the U.S. dollar, reduced gross profit by approximately ILS 28.3 million. In addition, U.S. tariffs had a negative impacts on profitability. Beyond these factors, gross margin was significantly impacted by provisions for slow and obsolete inventory totaling approximately ILS 33.4 million, all of which were recorded in the fourth quarter. As a result and in combination with items discussed earlier, the fourth quarter ended with a gross loss of approximately ILS 39.3 million. Turning to operating expenses. I will focus primarily on the full year view. R&D expenses totaled approximately ILS 40.9 million, a decline of 13.7%, mainly driven by workforce reduction resulting in a roughly 15% decrease in payroll costs as part of efficiency measures as well as lower capitalization of development costs related to robotic products. Selling and marketing expenses amounted to approximately ILS 277.5 million, down 16% year-over-year. The decrease mainly reflects lower payroll expenses following efficiency initiatives as well as reduced online marketplace commissions, lower marketing and promotional expenses and logistics costs, primarily at ECCXI. General and administrative expenses totaled approximately ILS 139 million, a decrease of 7.4%, reflecting cost reduction measures, partly offset by higher depreciation related to right-of-use assets. Other expenses, net amounted to ILS 50.3 million compared to ILS 21 million last year. These expenses include several key components. Impairment of intangible assets of approximately ILS 59.9 million, reflecting a write-off of all remaining intangible assets related to pool water monitoring and control following the company's decision to refocus on its core activities. Goodwill impairment of about ILS 13.1 million related to the BF and ECCXI acquisition. Impairment of leasehold improvements and right-of-use assets totaling approximately ILS 9.5 million, following the company's decision to gradually exit the Dalton production site. These expenses were partly offset by net income of approximately ILS 35 million from the Iron Swords [ War Grant ]. Out of this impact, impairments recorded in the fourth quarter included approximately ILS 35.8 million relating to intangible assets in the pool monitoring and control activity and goodwill impairment at BF. As mentioned, we concluded the year with an operating loss of approximately ILS 133 million. Excluding onetime items, the operating loss is reduced to approximately ILS 16.9 million. Net finance expenses amounted to approximately ILS 59 million compared to ILS 51 million last year. The increase mainly reflects interest expenses on the loan used to acquire Focus in Australia, as well as higher FX-related expenses net of gains from hedging activities. Tax expenses totaled ILS 30.3 million compared to ILS 15.6 million last year, primarily reflecting a write-off of deferred tax assets in Israel. A few points regarding the balance sheet. As noted, inventory declined by approximately ILS 247 million. This was mainly driven by inventory optimization actions, resulting in a reduction of approximately ILS 166 million related to robotic products, reflecting a 35% quantative (sic) [ quantitative ] reduction. In addition, inventory of safety products and accessories declined by approximately ILS 36 million due to inventory optimization efforts at the U.S. subsidiary related to ECCXI's commercial activity. Currency appreciation, primarily of the ILS against the U.S. dollar and the Australian dollar contributed approximately ILS 47.5 million to the reduction in inventory balances compared to last year. Raw material inventory increased by approximately ILS 36 million, reflecting procurement in preparation for the production of new robotic models. During the first quarter, we recorded approximately ILS 33.5 million in expenses related to provision for slow-moving and obsolete inventory. We continue to actively adjust inventory levels to align with the demand and production capabilities. Trade receivables declined by approximately ILS 52.3 million, mainly due to lower sales volume in the fourth quarter and currency effects as most sales are denominated in foreign currencies. DSO improved to approximately 66 days compared to about 73 days last year. Cash flow used in investing activities amounted to approximately ILS 80 million, a decrease of about ILS 49 million, primarily due to lower capital expenditure and reduced capitalization of intangible assets as part of the company's efficiency measures. That concludes my review. I will now turn the call back to Rafi. Rafi, please.

Thank you, Amit. I will now briefly review the key market trends as we see them today and then outline our management focus for 2026. I will start with the market. The global pool industry is currently in a phase of stabilization following several years of decline from the peak experienced during the COVID period. Overall market indications, including the core aftermarket segment in which we operate. Do not point to a rapid return to this -- to those peak demand levels. Rather, we are operating in a more challenging environment characterized by moderate demand, the price sensitivity and intense competition. At the same time, it is important to emphasize that the structural foundation of the industry remains solid. Each year, new pools are added to the global pool base and the growing installed base of pool requiring ongoing maintenance, continue to generate sustained demand even if the overall growth rates are more moderate. From a geographical perspective, in North America, following a prolonged period of conservative inventory management, we are now seeing a cautious improvement in the channel confidence. In addition, the mass market channels continue to gain traction and expand, creating meaningful growth opportunity while also increasing the pressure on pricing and on margins. In Europe, the market trends are vary by geographic position, while some markets are starting to stabilize in terms of new pool concentration, others are still influenced by a more challenging macroeconomic environment. Accordingly, we are managing our activity selectively, adjusting our product offering and maintaining disciplined operational and financial approach. In Oceania, we delivered a solid season in 2025 despite intensified competition, and we expect to continue to benefit from the strength of our Australian subsidiary, which has a well-established market presence, a diversified portfolio and a very strong leadership team. Overall, we expect the competitive landscape to remain challenging, driven by ongoing product launches, elevated market activity across the industry, intensifying technological competition -- and in such a setting, sustained differentiation, consistent quality and dependable service over time are key for our success. In addition to these market trends, we are operating against a backdrop of external factors, including the U.S. tariffs, currency volatility, geopolitical challenges, for example, the conflict with Iran, all of this impacting production efficiency, supply chain and logistic costs. We are implementing a range of mitigation actions. However, in the near term, we expect to continue being affect by cost structure that are varying as of all the factors [indiscernible]. This is calling for a very strict cost control and a very strict discipline on working capital management. Our management focus for 2026 is centered on 3 core priorities. First, operational excellence and execution discipline. We are working to improve productivity, reduce procurement costs, enhance manufacturing and logistic processes and overall simplify our product portfolio. The second priority is a sharper business focus and competitive differentiation. We are concentrating our resources on our core activities, robotic full cleaning solutions. And the third priority is the development of updated long-term strategy. Alongside with the near-term actions that I just described, we are taking a much deeper and structural look at our business model, the future growth engine and what Maytronics should look like 5 years from now. The outcome of this strategic process is expected to place the company in a position where the challenges ahead are clearer and more manageable. Every transformation is ultimately a journey taking with people. We have the right people to embark on a value-creating journey together. With respect to our outlook for 2026, based on information currently available to us, we estimate that the first quarter revenues will be in the range of ILS 290 million to ILS 310 million. The midpoint of this range reflects a decline of approximately 13% monthly compared to the corresponding quarter last year. This is driven primarily by foreign exchange rates. One of the key takeaways for 2025 is the company's ability to generate strong operating cash flow even in a challenging environment. The outcome was driven by a combination of disciplined working capital management, adjustment to activity levels and a high level of discipline on cost and investment. As we look ahead to 2026, these principles continue to guide us. Cash flow remains a very central anchor in how we manage the business. And accordingly, we believe that the actions we are taking, supporting our ability to continue to generate positive and meaningful operational cash flow over the coming year. 2026 at this stage is not a year of broad -- bold declarations. It is a year of laying the foundation. Over time, we will work to provide greater visibility into the road ahead. Success will be measured by improving execution quality, stabilizing our profitability and rebuilding the trust with all of our stakeholders. With that, I will be happy to take your questions.

[Operator Instructions]

There are no questions at this time. Rafi, would you like to make your concluding statement?

Thank you all for joining us today and for your continued interest in the company. I believe Maytronics is well positioned to pursue meaningful opportunities as a leading player in the industry with strong fundamentals and attractive long-term characteristics. Creating value for our shareholders is a top priority for us, and we are looking forward to an open and constructive dialogue with you going forward. Thank you.

Thank you. This concludes the Maytronics Ltd. Fourth Quarter 2025 Conference Call. Thank you for your participation. You may go ahead and disconnect.