Q1 2020 Earnings Call
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Greetings and welcome to our core International first quarter earnings Conference call.
Okay.
If anyone should core operate assistance during the conference.
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Please press star zero on your telephone keypad.
As a reminder, and this conference is being recorded.
I would now let's turn the conference over to your host John Dicer, Vice President Investor Relations. Thank you Sir you may now begin.
Thank you and good morning, everyone with me today, our Bill Waltz, President and CEO as well as David Johnson, Chief Financial Officer.
I would like to remind everyone that during this call we may make projections or forward looking statements.
Regarding future events or financial performance of the company.
Such statements involve.
Risks and uncertainties such that actual results may differ materially.
Please refer to our I SIFI filings in today's press release, which identify important factors that could cause actual results.
It's the differ materially.
Knows.
Not projections or forward looking statements.
Yeah.
In addition, any reference in our discussion today to EBITDA mean.
Adjusted EBITDA with that I'll turn it over to.
Thanks, John Good morning, everyone I'm pleased to report that <unk> core it's off to a great start for the year.
For the first quarter, we're continuing to build upon the momentum.
Strong operational performance.
That we drove in 2019 <unk>.
Let me begin with a few highlights.
Some David will go over the quarter in segment results in more detail.
In the first quarter, we increased.
Adjusted EBITDA by 11% driven by solid volume growth.
In both segments.
Hey.
We grew adjusted EPS by 20.
He said.
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And drove our.
At the EBITDA position down to 2.1 times.
The solid financial results for the quarter aren't output from the hard work dedication of our our core employees. Our team continues to focus on taking care of our customers and delivering value for our.
Our stockholders.
It was result of.
[laughter].
This is.
<unk> execution from the.
Okay.
Yes, I get to increase our outlook for the year.
For adjusted EBITDA and adjusted Yes.
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We anticipate.
A full year 2020, adjusted EBITDA to be between 340.
Yeah.
$350 million and.
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[laughter].
Howard.
95 cents.
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And five cents.
With that.
I'll turn the call.
David.
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Walk.
This financials for the first quarter and more.
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Bill and good morning, everyone.
Yes.
Thanks in the first quarter was a very good.
Sorry.
The year.
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Hi, good results.
On slide three.
[laughter].
$447 million.
Down 1% versus the prior year.
Adjusted EBITDA increased 11% and our adjusted EBITDA margin increased 190 basis points up to 17.4%.
Adjusted EPS increased 27% as a solid operational performance and a favorable tax rate related to the benefit recognized from stock based compensation drove the significant year over year improvement.
We generated a free cash flow of $42 million, which was 27% increase versus the same period last year.
Turning to slide four.
Volume growth was solved this quarter of $14 million or 3%.
Recent acquisitions also added $12 million and remember that.
We've seen declines and market prices for several of our major input cost versus Q1 2019.
Therefore, the positive contributions from volume and M&A were offset by declines in our average selling prices, which reduced our sales by $30 million in the quarter.
Moving to the adjusted EBITDA Bridge, our adjusted EBITDA was 78 million up 11% or $8 million versus last year.
This increase was driven by profitable volume growth and productivity improvements in both segments.
These results are a good example, the export business with some network.
Moving to our segment results on slides five and six.
Electrical Raceway had a good quarter with approximately 2% volume growth driven by our PBC products and near double digit growth in our focus product categories.
We did experience some volume weakness in our international business this quarter, but this was more than offset by our domestic volume, which was up 3% for the quarter.
Adjusted EBITDA free electrical Raceway increased $2 million driven by the volume gains. We've previously mentioned and continued operational improvements.
Adjusted EBITDA margins increased 70 basis points to 20.6%.
Turning to the mechanical price and solutions segment. The business continued its recent trend of delivering significant year over year EBITDA growth and margin expansion.
We anticipate this to moderate next quarter and in the back half of the year as the business will have very strong prior year comparable.
Adjusted EBITDA in the quarter was up approximately $6 million and the MPN F. adjusted EBITDA margin was 15.6% this quarter of 560 basis points from Q1 2019.
During the quarter to business increased margins by selling additional value added solutions to customers and managing the overall profitability of the product portfolio.
On the topline the strong volume gains from the continue to ramp up of several large renewable projects, we're completely offset by declines in average selling price.
Turning to page seven we ended the first quarter with the cash balance of $164 million net cash flow from operating activities was $52 million, which generated a free cash flow of $42 billion in the quarter.
Our net debt position decline with the rise in our cash balance.
Coupled with our growth and earnings our leverage ratio improved to 2.1 times.
Bill back to you for our outlook, Thanks, David moving to our outlook for the second quarter and full year 2020 on slide eight for the second quarter, we anticipate our adjusted EBITDA range to be between 80 and $85 million and our adjusted EPS range to be between nine.
Andy and 95 cents.
Turning for the full year outlook, we remain positive and our view of the markets and we continue to expect low single digit volume growth for both segments.
We are increasing our outlook for adjusted EBITDA up by $5 million to a range of 340 $350 million for the year. We're also increasing our full year outlook for adjusted EPS up to a range of $3.95 to $4 and.
Five cents in summary, the first quarter was a great start to the year from a volume operational performance and financial perspective.
We look to continue that success for the remainder of the year.
Operator, please now open the line for questions.
Thank you will that be conducting the question answer session. If you want to ask your question. Please press star one on your telephone keypad and the confirmation telephone indicate your line is the question Q.
Give me press star too if you like to move your question from the Q.
Considering using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys.
Well at least what we pull for questions.
Thank you. Our first question is coming from the line of Deane Dray with RBC capital markets. Please proceed with your question.
Thank you good morning, everyone.
Good morning.
Hey, nice execution this quarter.
And maybe we can start with the dynamics on price cost so within price I think we've all been used to this and steady environment of rising raw material costs and the quick pass through.
Just remind us when that that trend turns and you got falling raw materials or just the the dynamics on the pricing and and how that plays out and how that's reflected this quarter.
Yeah. So great question Dean Amin. Thank you for the complements at the beginning.
With the Raceway segment, it's pretty real time, so again for both these commodities are both our segments, we like it when prices go up or down in years to continue to see that volatility and then a little bit to your point or maybe were point with the mechanical business, where there's a little bit more index price even contracts where.
We're able to hold onto it a little bit longer and therefore some of the reason not all the reason, but some of the reason we saw just such a great quarter for the mechanical business as commodity prices like steel dropped some in Q4.
Q1 excuse me.
That's helpful and then.
What's your sense on non raz playing out I mean, there's so much uncertainty right now in terms of the macro in non resin is always such a reflection on CEO confidence are you seeing at the margin any changes any push outs a green light on projects just any color there would be really help.
Paul here, yes, great Tom as much as we know it's literally steady no change low single digit, but I would tell you Dean I, even have more confidence in that now than I did probably three months ago purely from some of the factors like architectural billing index for the last three months have all been positive even when.
Back for the full year for a b. I it would be slightly up if you look at calendar Q4, it's up even more and then we just wrapped up meetings with distributors about two or three weeks ago. We at our largest sales agent conference in the country last week and everybody continues to forecasts have low so.
We will digit growth and the shortage of labor acts as a modifier governor out there to keep that pretty consistent. So obviously the farther we get into our fiscal year. The more competence, we have in that low single digit, but I see no changes.
Got it and just last one from me.
What are you baking in assumptions for new product introductions, this year's or anything that you would highlight.
Not really it's a low single digit it's built into our number it's slightly higher margin. It's obviously, a long term growth emphasis that we're putting a lot of focus on but dean it's a low single digit numbers. So therefore, you. If we grew 20% of 3% it gets into the rounding of whether were up one.
Percent, 2% or 3%.
Overall, that's real help that's real helpful. Thank you.
Thanks, Steve.
Our next question is from the line of Andrew Cap Lewis with Citi. Please proceed with your question.
Hey, good morning, guys.
Good morning, Andy.
The following up and his question just around the pipeline of opportunity in non res evaluating was good in the quarter you mentioned, maybe I'd Dodge momentum also looks better.
Any sort of actually improvement in the pipeline that you're seeing it seems like you might be hinting that you are assuming a little bit of improvement in peddling, but I want to put words directly in your mouth, yeah that maybe slightly more because again I think the low single digit I would have said more competence in other words, if I would have went back of last quarter I would have said low single digit I'd say.
Been kind of consistent for literally a year, but there were a couple of things a quarter ago that what I said, Hey, B. I was going below 50, therefore out nine months at the end of this fiscal year going into 2021, whether maybe in some concern and so forth, whereas now it's not like all excited swung superpower.
Positive, but the indicators seem to be aligned with what our voice of customer is continuously told us. So long single data. So I just think the risk has reduced as much as we can see yeah. I would say there were some macro indicators that made it turned slightly negative a few months ago, but that's been really consistent for quite some.
Time to the feedback from contractors agents in distributors, which gives us confidence in that low single digit number.
Got it Didnt you Didnt mention a little bit of international weakness impacting Raceway. So maybe you can give us a little more color and now we know it's not a large portion of the business, but does it have the ability to hold you back.
Just maybe a little more color there.
Yes sure so.
Basically the international's, 10% of our overall sales number but the business tends to be a little bit more project oriented. So you will have a quarter, where you're either going up against a tough comp or a quarter, where the project for this laying out more or less for Q2 versus Q1 saw him. So forth. So this.
This quarter in particular, we just had some timing on projects on the backlog is still looking pretty good can serve where we expected to be at this point in time, So I don't see of being a drag in the next three quarters. It would just wanted to highlight the fact that in the U.S. market up 3% in Q1 was we think a very strong.
Start to the year.
Got it and then you know just focusing on MTN asked for a second year adjusted EBITDA margin. There has stayed above your historical levels for the last several quarters. Another good report here at 15.6% you know, we don't price versus cautious, helping a bit but there's a combination of in crude price.
Thing productivity, you've talked about in the past the improved mix, how p. now maintain higher margin than you used to be able to achieve in that segment does that continue moving forward.
Yeah, we like we've said before but when we had some 17% kind of numbers that we feel that the longer term.
Position for the business would be 13% to 15% were slightly above that and the teams done a really good job not only I think going on price cost and productivity, but also more value add to our customers of secondary operations different value that we're bringing to the customers. So no I think.
During that 13 to 15 is more long long term outlook for that business given if commodities were stable over some point in time.
And then 15 million are still good productivity number for the year for both segments as you said in the past.
Yes, we're actually has a very good start to year in productivity in our funnel continues to be strong.
Andy If you wanted one of the thing I would I just wanted to call out on page four the deck, but literally when we gave strong numbers here, it's all volume and productivity. This is actually a quarter, where our price cost side that we don't want to drive. It obviously was actually a headwind for us and it did really the team with that core businesses. Some is what drove the strong results.
So really proud the team for what they may happen this quarter.
Thanks, guys appreciate it.
Thanks, Thank you.
Our next question is from the line of John Walsh from Credit Suisse. Please proceed with your question.
Hi, good morning.
Good morning, John.
Hi, a and I'll echo a a good solid quarter here to start the year.
Thank you wanted to have a quick discussion around kind of capital allocation priorities.
I'm, just thinking about the balance sheets and really good shape.
You kind of reiterated your Capex number shares are a little bit better just wanted to understand the priorities of deployment for repurchases and if there's any kind of small bolt on M&A or something larger in the pipeline that you're looking at.
Sure done I think it's pretty consistent when we look at our.
That ratio, we are comfortable it going below two if you compare us against our electrical peers now in general there between one to two tier one and a half is somewhat average for our electrical peers.
Well also be looking at tuck in M&A and just like we were able to deploy it was $100 million last year and tuck in M&A, we still feel that there's quite a few opportunities in our pipeline, they're priced appropriately and so for us it's no pay down debt capex.
And then you know take advantage of our tuck in M&A.
Gotcha. Okay. That's helpful. And then you know I guess following in on Andy's question on MPS I mean, the EBITDA came in better than we thought.
And I think are also your guide for this quarter were maintaining the full year from an absolute dollar basis. I know you were talking margin before but just wondering did was there any timing with renewables or you know is there anything you're assuming you obviously talked a little bit about price cost, but it would seem that you kind of.
Overdrive, the quarter and maintain the year.
Yeah, I think that John probably good characterization I don't think there's anything notable call out obviously, there's a job ship in December that go to shift in January and therefore, the 7% growth and we just have tough comps in the second half for the year. We have some large projects we had a great mix. So again trying to give you.
Everybody accurate guidance I wouldn't assume that that would continue at that type of a year over year increase in growth rate for the rest of year no reflects or anything bad to calm just it's what's compared to the end of last year.
Great. Thank you.
Sean you.
Our next question is from the line of Deepa Raghavan with Wells Fargo Securities. Please proceed with your question.
Hey, good morning off.
Good morning.
Yeah, Hey, few clarification questions.
On the guide last quarter I think you guys Guy that you've done you know again when you guys got a Q1 last quarter or you beat that by 11 cents right I mean versus your mid point you raised your full year guidance by about 15 cents for the full year.
You raised it by more than you know what you I think you expect it right I mean, what you did in Q1, so just curious what's driving that momentum, which segment or which you know which part on the Oh, which of the line items in the income statement is driving that.
Yeah, It's it's I would say deep a a little bit better on into the volume number in the mix number and productivity Civil War games like that guide out for the full year I'd say this a little bit BARDA in particularly in electrical Raceway and you can see that's why we changed the full year guides.
For electrical Raceway, and then we did roll through the favorable benefit in Q1 for home or I'd say discrete tax benefit that we you know recognized in Q1 and that's how you get from 11 to about 50.
Okay. It's a good the quarter one on we just felt you know we did have a strong quarter and things are firming up with the way we felt that the guidance typically after Q1, it probably wouldn't guide up in the full year that we felt like there in a position to be able to to move the guidance out.
Got it.
Just a clarification on that price pass throughs. So John did I hear you right that Oh, Yeah. Electrical Raceway you are passing through 100% of this commodity deflation even as we see in the mpls you're able to hold a is that a fair characterization.
That's why you're thinking for rest of the you're also I think the question is more how much are you able to hold onto that looks like you're telling me.
Nothing any are very little in that then this is that right.
Typically we don't break out the price cost between a dollars between the two segments, where we do say over all he looked at the bridge this quarter deep as it were down 30 million themselves in total and I would say were flat on EBITDA were actually down slightly in EBITDA. So in that case, we were passing.
Through lower commodity costs in or pricing, but holding our margin levels as we guided for the full year. We didn't say, there's going be we anticipate a headwind for the full year and mainly because the second half of last year, you know, especially in in peanuts.
We really had you know robust pricing in spreads in that case. So we were guiding that in the second half of your be negative.
First half the year first quarter, we were flat.
Got it your Expos race me again, my last question and it's just in I, just don't just a clarification point I mean trends low single digits, I mean, you're still kind of keeping it but I am sensing there's some under pacing.
In some verticals worsens expectation can you talk to how would that you know how that works you know not just not not I'm not just talking nonres low single digits, but wasn't andras low single digits. You know can you talk to verticals and also overall perspective can you talk about industrial worse is nonres Russian revenue trends.
Well, it's just how do you guided 90 days ago, Thank you and that'll be it.
Okay. Thanks, it but yeah, a couple of thoughts, Steve, but the way I would characterize it from the high level, then I'll get down to verticals for you is.
The the market the voice of customer has been consistent all along so nothing has changed and it's always been the low single digits, what I tried to affirming deep into its thinking some of the publications you've done with Wells Fargo is that third party information now seems to be aligning more with what we hear from our customer base of.
A low single digit so the confidence factor is are not necessarily change anything issue at the low single digit everybody seems to triangulate around that.
Across every indicator voice of customer distributor contractor.
Sales agent.
Whether group think are not very consistent information as for some of the verticals offices hotel data center seem to be strong I always puts the caution out there that we sell exclusively through distribution. So if we don't have a scientific level of precision there, but those seem to be.
The verticals going up we don't sell as much into industrial but same thing is I assume you and everybody else all I assume came out with a pretty good number yesterday for the industrial side. So maybe that's going to see a bounce back for the economies. We go forward.
Thanks, Great quarter.
Okay. Thank you again deeper.
So I think were Oh I'm sorry, yes. Please go ahead mr. out no operator to you if there's any more questions.
At this time there no additional questions I hand, the floor back to Mr. wall for closing remarks, Okay. Cool. Thank you. So before me we conclude let me summarize my T. Three takeaways for the quarter first we're off to a great start for 2020 in Q1 was very strong across multiple metrics second we continue to remain part.
It is on the non residential construction markets and expect to low single digit growth to continue for the Rangers easier and third we expect our strong financial performance from Q1 to continue and we raised our full year outlook on adjusted EBITDA to be between 340 and $350 million.
Collectively it's our team it's our culture, it's the our core business system that enable us to maintain and deliver on our commitments to our customers and our shareholders with that we want to thank you for your support and interest Synacor and we look forward to speaking with you again during our next quarterly call. So thank you discussed.
Close the call for today.
Thank you you may now disconnect your lines at this time, we thank you for your participation.