Hammond Power reported Q3/22 financial results yesterday after market that came in ahead of expectations. As mentioned in our last note, we thought consensus was quite weak and there could be a 10-20% surprise in the Q3 financials; we were even surprised, with HPS beating revenue by 26% and EBITDA by 79%. We expect the stock to aggressively rally from here, similar to the Q1 and Q2 beats. The quarter was driven by all client categories, especially coming from the U.S distribution network. Hammond plans to make selective capex investments to expand manufacturing capacity and service capabilities, given the ballooning demand via backlog; we remind readers that Hammond’s current facilities can handle ~$500M in revenue.Highlights from the quarter include:

• Revenue of $149.0M vs. consensus of $118.5M (+56% YoY, +8% QoQ). Canada Sales were up 69% YoY, U.S./Mexico sales were up 53% YoY, India sales were up 21% YoY

• Order backlog increased 141% YoY and 15% sequentially due to price increases, strong demand, USD strength, and some delayed shipments. Management expects decelerating backlog growth into 2023

• Gross Margin of 29% compared to consensus of 26% and 27% in Q3 last year

• Adjusted EBITDA of $19.0M (13% margin) vs. consensus of $10.6M (9% margin) and $7.5M (8% margin) in Q3 last year. The margin expansion was due to operating leverage at higher volumes

• CFO of $16.5M and FCF of $13.4M (70% FCF conversion and 26% annualized FCF yield)

• Cash and equivalents of $48.5M and net cash of $12.6M