Ladies and gentlemen, thank you for standing by. Welcome to the Maytronics Ltd First Quarter 2024 Results Conference Call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded, 22 May 2024. With us on the line today are Mr. Sharon Goldenberg, CEO, and Mr. Menachem Maymon, CFO. Before I turn the call over to Mr. Sharon Goldenberg, 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, risks in 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. Goldenberg, would you like to begin?
Yes, thank you. Good morning, everyone, and thank you for joining us. We are concluding the quarter with declining revenue and margins. Our first quarter of 2024 work plans reflected the decline in both revenue and profitability in the quarter, mainly as a result of the conservative nature of distribution channel buildup and the very high comparative numbers of the same quarter last year. Still, the quarterly results are lower than the work plans, mostly because of the sales mix of the early buy sales share of total sales in the quarter was higher, which reflects a drop in the ASP compared to the corresponding quarter and our plans, and also because of the stronger-than-expected impact of production costs on production volumes.
First quarter sales are mainly characterized by distribution channel buildup in North America and Europe for the upcoming season and by sales during the season in Oceania. As we said in the past, buildup patterns in the channel have changed, and although inventory levels among dealers are relatively low, their behavior in the quarter was very conservative, which, of course, affected distributor orders from manufacturers like us. An analysis of early buy sales in the Northern Hemisphere, and sales in the fourth quarter last year and the first quarter this year, demonstrates that we have maintained Dolphin positioning among all distributors, and we didn't lose market share, even the opposite. In North America, we see market share gains in this channel.
And still, these sales reflect a decline that is the result of the level of demand among distributors, the outcome of the amount of orders that they themselves get from dealers, which, as I said, was low. We estimate that demand among dealers in the Northern Hemisphere in the first quarter was affected by the cold, rainy weather and also by the nature of last year's season, which started late and was very short, which traditionally leads to postponement and conservative approach to build up for the following season. The weather also affected D2C's online sales. There are several points I want to mention about the company's sales through PPS and in the online channel in general. In the quarter, we witnessed a drop in search volumes. We estimate that this is related to the weather in the quarter.
We are encouraged that in spite of the drop in traffic, pool owners' demand, in terms of the number of Maytronics robots, remained similar to last year. Online sales of the Dolphin declined in value but were stable in volume. Here, again, we witnessed a drop in the ASP as part of end-user demand patterns and as a result of a decrease in the prices of certain models in the 2023 season, which, of course, didn't affect the first half, the first half last year. Despite these trends, Dolphin positioning in the e-commerce channel is very strong. The Amazon sales rank is evidence of this, and there are five Dolphin models on the list out of eight listed pool cleaners. The weather improved somewhat in the past few weeks, leading to confidence that, when the official season starts, it will drive stronger demand.
Preparations for the launch of Nia are moving ahead, and the models will start being sold gradually on Amazon during June. Three positive elements in the first quarter sales. The first one is Oceania. Oceania sales in the quarter were up 10%. This is the quarter that closes the season in the territory, and to sum up a season that started with very weak early buy sales, benefited from positive weather, was relatively long, and demonstrated solid demand, our sales in the season, which is Q1 of 2024 and Q3 and Q4 of last year, reflected 9.5% growth. This number is a positive point of reference for the way sales could develop in the markets in the Northern Hemisphere.
I also want to point out that the season closed with inventory levels that have normalized compared to the end of the 2022-2023 season. The second point is the ongoing trend of nice double-digit growth in PPS sales of pool-related products. We are very focused on leveraging the company's strong platform. We have expanded the product offering in the North American market. This trend will continue and is also expected to begin in the European market going forward. You recall that at the beginning of the year, we founded PPS Europe, a direct online sales channel in the European markets, which are generally less developed, and we believe that we have the ability to develop this channel in Europe, as well as to turn it into a meaningful growth driver.
PPS's online sales overall show single-digit growth, which is very positive compared to retail and e-tailer's trend in the off-season quarter in most territories, and in weather that was not ideal in the all-year-round markets in the Sun Belt. The third point is that quarterly sales to distributor channels in the Sun Belt in North America grew strongly, thanks, among other things, to the expansion of our penetration to distributor channels in several significant markets like Texas and Florida. The product mix and the fall in the ASP also had a substantial effect on our gross margin. We believe that the intensity of the decline compared to last year is because the macroeconomic environment has created a bias in end user demand toward cheaper products, and this is an ongoing trend that is part of the assumptions in our work plan.
The second element is early buy sales, which affected us in two main ways. One, the early buy sales share of total sales in the quarter was higher, and this, of course, affect the ASP. And two, early buy sales in the quarter reflect bigger discounts compared to last year. This factor was partly taken into account in the work plan and reflects the impact of price reduction on certain models during the 2023 season, which, of course, didn't affect the first half of last year, as well as bigger discounts due to a number of inventory sales transactions we made in the quarter at a price that demonstrates deeper discounts.
When factoring in the effects of this stock, inventory, mainly inventory that will allow for the quicker and more successful launch of more advanced models, decisions were made to sell at prices that reflects deeper discounts. These effects on gross profit were accompanied by other factors, such as the product segment mix and higher operational cost per cleaner due to last year's low production volumes. In addition to all the factors I mentioned, the Iron Swords War had a considerable effect on the company's activity that is reflected in revenue and in profit margins. Hiring difficulties for production line employees led to lower volumes being manufactured in relation to the original plans, while also paying bigger incentives to current employees and new hires.
The Skimmi launch was postponed because most of the engineers and the development teams who worked on the project before the war were recruited for many months, and we ran into engineering challenges. We were forced to transfer the Skimmi line to Israel for an interim period to rebuild engineering processes, and as a result, the operation of the Skimmi production line in Dalton was postponed and the ramp-up was delayed. The launch of the first Nia models was delayed for several weeks, both because of the unavailability of employees for testing processes in China and supply chain delays that affected testing in Israel. Many will talk more about this and about the direct impacts on the gross margin in general, but it's important to point out that there are significant indirect effects on the company.
In the short term, we estimate that most of the factors that affected the gross margin in the first quarter will taper off later in the year, and combined with production program that reflects growth in production volumes, which will contribute to margin improvement, we expect the gross margin to be maintained or even improved over the rest of the year. That said, based on the situation we currently see, we estimate that the intensity of the decline in the gross margin in the first quarter will harm the gross margin for the year. In 2024 and beyond, based on the strategic plan we revised in late 2023, we are strongly focused on realizing our cost reduction plan. The revised multi-year strategic plan defines, for the first time, that we address the company's cost structure, which we believe is a fast and accurate response to expected ASP trends.
You recall, we set a three-year goal of reducing the direct cost of producing a robot by 10%-15%, which basically means a meaningful improvement of the gross margin. At the same time, the goal here is to tailor the cost structure in a way that will enable the company to cope with the changing competitive environment, and these moves will allow us to deal with the impacts of the ASP forecast, and at least to maintain the gross margin. Since the beginning of the year, several work teams have been putting a lot of effort into procurement, indirect cost, and efficiency enhancement across the company. These are measures that, combined with a continued assimilation of automation and ongoing emphasis on lowering bill of material costs, are expected to deliver a reduction in costs in the short term.
In the medium term, based on the strategic plan, we have implemented the plan to make changes to robot planning and production processes, part of which will be integrated into our future platforms. These measures have the potential to make a significant change in the company's cost structure by combining platforms, reducing electronic components, making more use of generic parts, et cetera. We are only at the start of the process of tailoring direct costs in robot production, efficiency enhancement, and lowering OpEx, but our progress in the first quarter has led to confidence regarding the scale of the savings we can achieve. In the coming quarters, I believe we will be able to provide more information regarding milestones in the cost reduction process, and maybe even to revise the target.
In the first quarter, we completed the acquisition of the remaining minority interest in PPS, which will enable further steps to fully realize the synergies in the acquisition. Also, as I said earlier, we established PPS Europe in the quarter, and we anticipate a positive impact on sales in Amazon Marketplace in the territory as soon as the season begins during the second quarter. Establishment of PPS Europe was not accompanied by customer churn, and we continue to cultivate our partnerships throughout Europe, who are adjusting to a changing market environment. In terms of products, as we announced at the end of March, this year, we will be launching Skimmi, three robots under the new Nia brand, and also five updated or new models under the Dolphin brand, one of which is designed for the public market.
I will now let Manny take over for a review of the financial results, after which I will talk about the outlook.
Thank you, Sharon. Hi, everyone. I will go over the main items in the financial statement and present the highlights. We concluded the first quarter with revenues of ILS 456 million, down 13.1%. In terms of segments, revenues from sales of residential robotic pool cleaners were down 15%. Revenues from sales of commercial robotic cleaners were down 24%, which does not indicate a true decline in business in the segment, since in the corresponding quarter, revenues were up 70%, reflecting the supply of orders that accumulated at the time when the company had difficulty in meeting 2022 demand because of a shortage of dedicated components. The sales volume in the segment is reasonable for this time of the year.
Revenues from sales of safety products and other pool products were ILS 65 million in the quarter, up 9.3% compared to the same quarter last year. Growth is mainly thanks to stronger sales of related pool products of, by PPS. This business is a significant growth driver for PPS, and we consider PPS a meaningful platform for realizing the potential of e-commerce in the pool business overall. Regarding the geographical sales mix, in North America, sales were ILS 244 million, down 15%.
The company's quarterly sales to the brick-and-mortar channel, which account for most of the sales in North America in the first quarter, were also down due to the timing of the supply of early buy orders, the ASP effect, which Sharon talked about, and I will go into, more detail later on, and, dealers continuing to maintain low inventory levels, reflecting, conservative working capital management. In Europe, sales were ILS 159 million, down 14%. The demand in the European market remains more of a challenge than in other markets, with ongoing macroeconomic and geopolitical uncertainty, a decline in discretionary consumer spending, and the continuing sharp drop in the pool construction, affecting demand for build-up in the distribution channel.
Like in North America, inventory levels among dealers are relatively low, while distributors are holding relatively high inventory at the end of the quarter. This was been the situation in the channel for two quarters now with the expectations that the opening of the season will drive significant sales to the end users, which will have a positive upstream effect on orders from manufacturers like Maytronics. Oceania sales rose 10% and amounted to ILS 4.5 million, reflected, as Sharon explained, in-season sales that maintained the trend of the prior quarter after conservative pre-season build-up in the third quarter last year. Gross profit was one hundred and seventy-seven point three million shekels, down 26% compared to the same quarter last year. The gross margin declined to 38.9%, compared to 45.9% last year.
The decline in the gross margin in the quarter was greater than the work plans took into account, although it should be noted that the work plan was less profitable than last year, and I will talk about the effect on the margin and also the gap versus the work plan now. Regarding the ASP, 2023 as a whole, and especially the first quarter, were positively impacted by price increases made in 2022 and 2023. At the same time, as part of coping with the level of demand in 2023, in mid-2023, an adjustment was made to the sales prices of a number of robot models sold to end users, mostly by PPS.
During 2023, these adjustments offset the effects of the price increases only to a certain extent, so we continued to experience a nice increase in the ASP. Another effect that was on the gross margin regarding production volumes and their impact on the direct and indirect costs of manufacturing robot sales. I will start with the fact that in the first quarter, our production was lower than the work plans, a direct impact of the war. We didn't stop production, but had difficulties in hiring production workers for the ramp-up we needed to make in the first quarter. Also, delays in receiving raw materials and components due to the longer delivery times led to the use of air freight, which of course is much more expensive.
In addition to that, we had effects of the mix, such as the sales mix of the Liberty, which happily was high in light of market demand, but its profitability is still relatively low compared to other models. The related products and other products mix at PPS were high with the less profitability. And a decline in the commercial segment compared to the corresponding quarter in 2023, of course, we saw this effect as well. Regarding operating expenses, the work plans focus on tight control over all OpEx items, and we succeeded in lowering them more than planned. R&D expenses were ILS 12.4 million, down 26% compared to the same quarter last year.
The decline is reflected in both robot R&D and the pool water monitoring, control and water treatment segment. Selling and marketing expenses were ILS 69 million, down 2%. The decline is mostly due to lower shipping rates and wage costs. On the other hand, PPS's selling and marketing expenses rose. Operating profit was ILS 60.3 million shekels, reflecting a decline of 48% compared to the last year, mainly as a result of the decline in revenue and in gross margin, and despite the lower operating expenses. Net finance expenses were ILS 10.3 million, compared to ILS 18 million in the same quarter last year. The decline is mainly due to the net income of ILS 4.6 million from the revaluation of foreign currency and hedges, compared to a net expenses that were last year of ILS 5.4 million shekels.
Outstanding, outstanding, credit was ILS 897 million, down ILS 50 million compared to last year. Interest expenses were ILS 13.4 million, up ILS 2.6 million, and lower compared to ILS 14.9 million in the fourth quarter. The effective tax rate rose to 20.5% compared to 10.2% last year. The increase is mainly due to a change in the profit mix in the group. And finally, in the P&L, the net income was ILS 39.7 million, down 55%.... Cash flows from operating activities consumed in the quarter were ILS 69 million. In general, in the first quarter, we have the early buys, early buy sales that are strong, and the relatively, the customer collection is low.
Still, we achieved an improvement in operating working capital, thanks to a better collection, inventory de-stocking, and an increase in trade payables, all of which led to significant decline of ILS 117 million in operating cash flow consumed by the company in the quarter. Inventory balance was lowered by ILS 78.1 million due to the inventory correction efforts that led to a decline of 30% in the volume of robot inventory. On the other hand, we recorded an increase of ILS 77 million in inventory, in the inventory balance of related pool products, which is mostly attributed to the growth of PPS business in this segment, and to purchases of related products by PPS, on which pre-season discounts were received.
The company is continuing to work on adjusting inventory levels to the volume of demand and its production capacity, and is applying measures to reduce its inventory. The balance of trade receivables declined by ILS 87.4 million, in light of the revenue decline and an improvement in average customer days in the first quarter. Average customer days in the quarter were 97 days, compared to 99 days in the same quarter last year. That's it for me. Sharon will now take over. Sharon, please go ahead.
Thank you, Manny. Sum up, the first quarter was a challenge. A quarter that is mostly by nature a period of buildup in the distribution channel that was characterized by a cautious and conservative approach among distributors, and mainly among dealers. The volume of orders for inventory buildup in the quarter reflects the uncertainty surrounding demand for discretionary products at the time, when high interest rates and inflation continue to place a burden on consumer spending. Last season, 2023, was negatively affected by the nature of consumer spending in a short pool season. Both have a strong influence on demand coming from the distribution channel, which is managing working capital very conservatively, given inventory holding costs in today's high interest rate environment.
At the close of the quarter, clearly, inventory levels among dealers are relatively low, and at the end of the first quarter, distributors, having stock up for the season, are holding relatively high inventory. Once the season officially begins, this should power up replenishment orders. I want to emphasize the fact that after the acquisition of PPS, the share of Q1 revenue is lower than in the past, whereas the share of Q2 and Q3 revenue is higher. Due to the combination of the change in buildup patterns and revenue being pushed back to the second and third quarter, the timing of the start of the season and its length create more uncertainty at the beginning of the year than they did in the past regarding annual revenue.
The basic assumption for our 2024 revenue outlook was a standard season in terms of length, length and start time in the northern hemisphere, and as we said in March, this means that the season starts in mid-May, and usually ends around the end of August, middle of September, in markets that are not all year-round markets. The weather in the first quarter, which affects both sales in all year-round markets and pool construction, was suboptimal, and this has an effect on the general sentiment in the industry. Also, as things stand at present, although the weather improved in April and May, it will be hard to say that the full-blown season has officially begun.
As for the margins, the effect of the war, as I described earlier, which led to a certain delay in product launches, higher labor cost in production, and the use of air freight, combined with the effects of the competition and sizable investment by Chinese rivals in e-commerce, have created stronger margin pressure than we originally estimated. As I mentioned, the company is very focused on advancing a multi-year plan to improve the cost structure. These measures, together with the other actions to improve efficiency, are expected to start bearing fruit in the second half of this year and onwards.
Putting all of this together, plus the fact that the first quarter didn't meet our original estimates regarding revenue and margin profit, led us to revise our outlook, and we estimate that in 2024, revenues will grow within a range of -2% to +4%, and the gross margin is expected to be between 40% and 41%. Thank you, and we'll be happy to take any questions.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to decline from the polling process, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. I repeat, if you have a question, please press star one. There are no questions at this time. Mr. Goldenberg, would you like to make your concluding statement?
Yeah, thank you. Just to say that, we're focused on managing the challenges we face by prioritizing income opportunities, while also placing strong emphasis on cost management. Amira, Manny, and myself are available, if needed, for any questions you may have, and thank you very much for joining us today.
Thank you. This concludes the Maytronics Ltd. first quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.