Q4 2019 Earnings Call
Furthermore as we discussed during our third quarter earnings call the union labor issues impact at some of our commercial vehicle customers and presented us with additional challenges that negatively impacted production schedules. All the strikes were certainly sources of frustration for our team and certainly our customers. I'm glad that they were resolved quickly, and are no longer an issue moving forward our fourth-quarter unfolded generally as we anticipated and despite these demand shifts. We're pleased that our results match the updated expectations. We established last October for revenue and adjusted ebitda. I'm particularly particularly encouraged by the ongoing progress. We're making with the former DMV locations, and I'm very excited about the opportunities for growth in collaboration. Now that we are efficiently operating as one company.
We quickly and diligently adjusted are.
Structure following the demand shift in the third and fourth quarters and as previously mentioned did complete the consolidation of the companies Virginia plant and shift consolidations across several facilities additionally higher customer shut down days increased health care costs and lower engineered scrap revenues during the fourth quarter had an impact on the business those things we overcame and I'm pleased with our speed of changes made on the cost side as we prepare for twenty twenty as you probably saw the issue of Financial and Market Outlook in January, which tied will review later, but I want to spend a few minutes discussing our current thinking regarding the markets that we serve as well as our recent results.
We provided our Outlook by market which will give you a sense of our anticipated breakdown of business for the year. Keep in mind that this information is directional and not likely change as the year progresses and new programs ramp up While others may be reduced or discontinued with that caveat in place. We expect the following breakdown by March. We anticipate the commercial vehicle Market will comprise approximately 32% of net sales and is expected to be down twenty-five to thirty five per month compared to 2019.
the construct
Kitchen Market is expected to represent approximately 22% of net sales and be 8 to 12% lower than 2019, a sports is expected to be somewhat of a bright spot being 5 to 9% higher compared to last year and accounting for 20% of our net sales.
We expect the agriculture Market to contribute 8% of net sales and be down six to nine percent when compared to 2019.
The military Market also a bright spot will comprise approximately 8% of net sales one to 3% higher in comparison to 2019. And finally we expect the remaining 10% of twenty-twenty sales to be attributed to the all other markets. We serve down 48% compared to 2019. I'll spend a few minutes diving into what we've seen at each market the hopefully give you a sense for how we arrived at our forecast in line with our updated October guidance and the owner all Market weakness. Our commercial vehicle sales continued to Trend down during the fourth quarter while we had been preparing for this full back for quite some time. The speed was great timing was sooner than expected when we started 2019. We originally believed that the demand pulled back would occur during the first half of 2020, but it's starting wage.
Late September much.
Earlier than initially forecasted as customers decided to be stock and significantly reduce their inventories. We expect that RAV4 classy truck demand to continue throughout twenty-twenty but believe that maintaining our strong relationships with our customers including the DMP customers and having open dialogue will help us maintain and expand our Market position during the downturn similarly the construction and egg markets both continued to fall sequentially in Q4 compared to Q3 off as customers continued to reduce their inventory would be socking efforts.
It is our belief that talking will continue in 2020 and that we will begin to see stabilization and modest improvements as the year progresses. As I mentioned within the overall Market weakness Powersports continues to be a bright spot for us the relative strength in this market speaks to the progress. We've made in market share growth and the addition of a meaningful a meaningful new OEM partnership in this market space. We also continue to generate positive traction within the military Market based on faith Twins and production demands going forward. We expect that this Market will continue to provide new opportunities for Revenue growth and the other Market Choice serve. We are anticipating generally softer market demand across a number of different markets including mining rail and power generation while we are confidential.
we can demonstrate our
And adaptability and the medium-to-long-term our forecast range reflects it both the Mac Legacy and DMP businesses will continue to be adversely affect impacted by market factors primarily out of our control in the short term in particular William schedules with more dedicated capacity associated with commercial vehicle Market make this segment more difficult to realign in the short-term. Also in the near-term. We are seeing the benefit of the flexible automation wage and capital Investments that we made in 2019, which have dated the necessary cost adjustments that come with volume changes. We've been able to realize efficiency improvements summer and at a faster rate will have lower than initially planned Capital expenditures in 2020.
We are firm Believers in focusing our attention to factors within our control and firmly believe that the Investments and Automation and the cost improvements that we've implemented faith in the company for success in the medium-to-long-term.
Provided this contacts. There are several Key Programs and customer relationships that I'd like to mention throughout 2019. We saw several volume increases with certain military projects for light vehicles. And we believe that these orders and our share will continue to grow in 2020. We continue to win more jlt business and we look forward to launching a new programs and the coming months and year ahead. I'm also pleased to report that we have added a new customer in a new industry and will be supporting Warehouse can bears and package management. This is our first contract with this blue-chip customer in the marketplace and a great opportunity to grow a long-term relationship. In addition. We recently want an Outsourcing project with one of our largest Powersports customers as they continue to align their capacities after the consolidation of one of their facilities.
and the
Special vehicle Market, we continue to see customers focus on their next Generation product reflecting both voice of the customer improvements and changes to the trucks for future regulatory changes that continues to participate in new product development. And we've recently had some key wins that will grow our share with product launches Beyond 20 28
We continue to focus on cross-selling in twenty-twenty with continued traction and leveraging the full neck capabilities with the prior DMP customer base our engineering and sales teams continue to drive additional quotation activity and we're actively engaged with our customers new product engineers in design for manufacturability leading to initial prototype orders. So while we acknowledge that the positive developments all have varying sizes of time frames. We are excited to expand market share cross-selling capabilities and embark on New Opportunities forming new relationships with new customer and enter grow and grow in New Industries.
Dying back to my opening.
I'm also pleased to report the integration of the DMP acquisition is now substantially complete and that the teams have now been operating as a single streamlined and cost-effective Company for the past several months. We fully expect to realize the related full-year Financial benefits and 20 20 in to discover new value-added opportunities from a stronger more seamless and Alignment team both an operations and sales in the coming years. I approach regarding potential Acquisitions Remains the Same we continue to carefully evaluate opportunities for growth through product and process adjacency and market and Geographic expansion will maintain our disciplined approach consider both current and future market dynamics and assess each potential opportunity with a rigorous return on future investment Club.
focused on that approach
As a reminder in conjunction with our third quarter earnings our board of directors also approved a significant increase in our share buyback threshold from 4 million range get the $25 million through $20.21 as we discussed last quarter. We strongly believe that the author rate authorization of this increase to the share repurchase program program reiterates. Our conviction that the stock is undervalued at current levels. We have already begun to utilize the capital available under this program, although sparingly and we will continue to be opportunistic and diligent in regard to buying back the shares to maximize the full potential of our investment.
Before I pass a call on to Todd. I just wanted to take a moment to recognize that the company ended the year and terrific financial position at the end of 2019. We had lowered outstanding balance to approximately 73 million compared to approximately a hundred and eighty million at the end of the prior-year in 2019. We made a solid and meaningful Capital Investments. It's strengthened our cost position and throughput capabilities. We're pleased with the progress that we're making in these areas in the coming years will continue to prioritize strengthening our cost position our balance sheet and generating a substantial percentage of free cash flow from adjusted ebitda wage know and the call to Todd to discuss their financial results and guidance.
Thanks, Bob.
I'll begin with a look at our 2019 full year financial performance with some color on our fourth quarter before providing commentary on our balance sheet liquidity and outlook for 20 28 as more than our press release. We recorded full year net sales of 519.7 million has compared to 354.5 million for 2018 an increase of 165.2 million the DMV locations account for a hundred eighty eight point six million of the change and with slightly offset by declines in our Legacy business for the fourth quarter that sales were a hundred and five point three million ask you to 91.4 million for the same prior-year. An increase of ten point nine million the former DMV locations contributed 333.1 million of the change of that my declines in our Legacy my business.
What was the last minute the max Legacy business and former GMP businesses are adversely impacted by sudden declines in market demand that began in late third-quarter and continue through Thursday work order to use the clients were most apparent in the commercial vehicle Agricultural and construction end markets served. These market demand changes will be stocking activities which had a more pronounced impact on the Legacy Mech businesses. Then the former DMV locations, especially in the fourth quarter the stocking status from lower retail sales resulting in customer decisions decisions to reduce our inventory Levels by reducing and curtailing near-term production schedules in addition several key customers in the CV market experience laborers union issues spanning to third and fourth quarters of 2019 negatively impacting production schedules for both the former DMP and the Legacy Mac locations.
for the full year
Nineteen manufactured margins were 58.7 million as compared to Fifty Point Six Million for the prior-year an increase of 8.1 million the former DMV locations contributed to a 1.1 million of the change were offset by declined to the Legacy neck location for the fourth quarter manufactured margins were four million as compared to ten point four million the same price range. On a percentage basis manufacturing margin percentages were 11.3% for the full year as compared to 14.3% for the prior year or a decline of 305 points or the fourth quarter manufactured margin percentages were 3.9% as compared to 11.4% for the same prior-year period or a decline of seven hundred fifty basis points off.
The sudden declines in market demand these stocking and impact of customer labor issues adversely impacted volumes in the labor absorption associated with them in a late third-quarter through the fourth quarter about you circumstances along with the cost connected with working through the consolidation of the company's Virginia facilities ship consolidations across multiple facilities increased health care costs a couple of you were working days in the fourth quarter negatively impacted our costs and collectively produce an unusually high amount of under absorbed manufacturing expenses and lower manufacturing margins most notably in the fourth quarter with our cost structure now better position. We expect that manufacturing margins in manufacturing Market percentages will return to more normalized levels.
I'll spend a few minutes touching on our extent activity for both the full year and the 4th.
Amortization expenses were ten point seven million for the full year of 2019 as compared to four point 1 million for 2018 for the fourth quarter amortization expenses were two point six million as compared to one point three million for the same prior-year. The increase is for these comparable periods, solely related to the amortization of identifiable intangible assets from the DMV a position depreciation expenses were 22.3 million for the full year 2019 as compared to sixteen point. Four million for 2018 for the fourth quarter depreciation wage is worth 5.7 million as compared to 4.3 million for the same prior-year. EMP accounted for three million and seven million of increases for year-over-year and quarter-over-quarter comparative respectively the remaining increase in depreciation expense ways to continue investment new Automation and Technologies.
Profit sharing bonuses and deferred compensation expenses were 25.1 million for the full year 2019 as compared to eight point 1 million for 2018 and decrease the $17 off. The increase was due to one-time expenses of ten point two million in Deferred Compensation Plan expense and 9.9 million and long-term incentive plan or else if expense both driven by the ideal, these one-time expenses were slightly offset by two point six million dollar declined and annual bonus adjustments related to the client financial performance stemming from the aforementioned Market changes for the fourth quarter of 2019 profit sharing bonuses. And the first conversation extent is were a negative point two million as compared to two point seven million for the same prior-year. Similarly. The decrease was due to adjustments related to the decline financial performance previously mentioned.
other
In general and administrative expenses were twenty five point five million for the full year 2019 as compared to twelve point three million for 2018. The increase of 13.2 million was driven by 5.71 time. I peel related expenses 5.3 million of net comparative contributions from the DMV locations with the balance mostly attributable to additional costs associated with being a public company.
For the fourth quarter other selling General and administrative expenses were 5.2 million as compared to three point eight million for the prior-year quarter an increase of one point four million similarly the increase in by 7 million from the former DMV locations with the balance mostly attributable to additional costs associated with being a public company.
The contingent consideration payable related to the colonel was adjusted to zero during the third quarter of 2019 result in a six-point 1 million dollar nine cash rebate application adjustment for the year. The company's position that Colonel payment is due has been confirmed with the MPS former shareholders.
Interest expense was six point seven million for the full year of 2019 as compared to three point nine million for 2018. The two point eight million dollar increase is due to higher levels slightly off a significant pay down during the second quarter of 2019 with the use of IPO proceeds.
Interest expense for the fourth quarter of 2019 was 9 million as compared to one point five million for the same prior-year. This decline is due to lower comparable test levels and in that positive cash flow generated by the business during the fourth quarter combined with favorable interest rates obtained through the amended and restated credit agreement that became effective at the end of the third quarter.
Income tax benefits for 4.1 million and 3.9 million for the full year and fourth quarters of 2019 respectively. These benefits are the results of the comes Legacy business converting from s to a C corporation on May 12th, 2019. Couple with the one time i t o n d m p a position related expenses incurred during the year and the unusually high under absorbed manufacturing expenses incurred during the fourth quarter. We anticipate an effective tax rate for 526% going forward.
You better and adjusted ebitda for both the full year. And so the fourth quarter even in even a margin percent for 30.9 million and 5.9% respectively for the full year 2019 ask about a 41.8 million and 11.8% respectively for the four 2018. The ten point nine million dollar decline in Thibodaux was mostly driven by the one time. I feel increasing transferred the first conversation and else helped a couple with one time and Deonte related expenses along with the adverse impact of the sudden market demand changes be stocking a customer labor issues. These items were slightly offset by the DMV contingent consideration revaluation adjustment in addition of DMP.
Adjusted ebitda and adjusted even a margin percent for 53.1 million and 10.2% respectively for the full year of 2019 as compared to 43.7 million and 12.5% respectively for 2018. The increase in adjusted ebitda was primarily driven by the acquisition of the MPE slightly offset for the under absorbed manufacturing cost to the aforementioned authors impacts associated with market demand changes be stocking and customer-related labor issues for the 4th fourth quarter of 2019. Even on adjusted ebitda each declined phone no more than three million dollars as compared to the prior-year. Even a margin percent adjusted even a margin percent also declined for the fourth quarter of 2019 as compared to the same prior-year ma'am. He's the clients were similarly driven by the market dynamics previously discussed with our cost structures not a better position. We expect our even a numbers and metrics or return to more normalized wage.
I'd like to address our balance sheet and liquidity figures cash flow provided by operating activities was 33.3 Million during the full year of 2019 as compared to thirty six point seven million 4:20 a.m. The three point four million dollar decline was due to the ten point six million dollar tip payout plus approximately five million dollars of payment specific to the IPO which are offset by strong cash flow generated by the Legacy Mac and former DMV locations Capital expenditures were 25.8 million for the full year 2019 as compared to Seventeen point nine million for 2018 with 7.9 million dollar increase relates to the addition of the MP in conjunction with the timing of certain new technology and automation Investments. This accelerated timing also allows us to increase our efficiency improvements at a faster rate and will reduce our plan Capital expenditures for 20 20, which are now expected to be between 12 million and $16.
outstanding debt
Which includes long-term debt revolving credit notes was 72.6 Million for the year. I did 2019 as compared to 179.9 million for 2018 hundred seven point three million dollars a month is attributable to the hundred one point eight million dollars of proceeds received from the I feel in and in addition to healthy cash flows generated by the business during the year slightly being offset by 1 time-related ideal expenses and share BuyBacks as previously disclosed the company's board of directors approved an increase in the company shared buyback program and a third quarter of this year the $25 million dollars through 2021. The company is utilized two point six million dollars available under this program as of December 31st, 2019.
Additionally, we completed an amended and restated credit agreement during the third quarter of this year this new agreement simplifies our debt structure while providing increased borrowing capacity of up to three hundred million dollars off three combination of a $200 revolving credit line and a hundred million dollar accordion this new agreement also provides more capable of pricing and less restrictive covenant.
End of 2019 are amended and restated credit agreement provides us with approximately $225 million in capacity. We are firmly committed to ensuring that the company maintains its strong financial position. As long as we continue to survey the market for attractive Acquisitions that fit our strategy along with opportunistically exercise and share repurchase program in the coming years are decisions regarding acquisition and share repurchases will continue to allow that are stated goal of a debt-to-ebitda leverage ratio of three times or less.
With that I'd like to reiterate our outlook for 2020 which Bob highlighted few moments ago.
Based on the company's prior either performance the overall economic climate current customer guidance and Industry Trends will be are reaffirming our 2020 Outlook as follows at sales are expected to be between 425 million and 465 million dollars adjusted but it's expected to be between 39 million and fifty million which excludes stock-based compensation for 2023 cash flows expect to be greater than 50% of adjusted ebitda with that said, I'll turn the call back over to Bob for closing remarks. Thank you Todd despite the challenges that surfaced near the end of the year. We're still confident.