Q1 2021 Atkore International Group Inc Earnings Call
Thank you for standing by and welcome to the core International first quarter fiscal 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. Please be advised this.
The conference is being recorded.
Thank you I'd now like to hand, the conference over to John <unk>, Vice President of Treasury and Investor Relations. Mr. Schweitzer. Please go ahead.
And good morning, everyone I'm joined today by Bill Waltz, President and CEO as well as David Johnson, Chief Financial Officer, We will take your questions after comments by Bill and David.
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 SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward looking statements.
In addition, and he referenced in our discussion today to EBITDA means adjusted EBITDA with that I'll turn it over to bill.
Thanks, John and good morning, everybody starting on slide three thanks to our operational focus and culture of teamwork at core continued to deliver strong financial performance across our businesses, resulting in another record quarter and it's just one example.
Adjusted EBITDA was $137 million and in the quarter up 76% from the prior year, we had strong performance across the business for metal conduit to solid execution and volume recovery and our international markets in particular, we saw better than expected.
Results and our PVC conduit business, driven by favorable pricing dynamics due to increased demand and industry supply constraints. This was a key enabler for us to achieve 27% adjusted EBITDA margins in the quarter.
It is important to remember that our P. B C kind of the story is not one that began in the past quarter or even in the past year, rather we recognized early on that this market has the potential to be a major growth category over the last decade through a combination of organic and and.
The organic investments, we built out this product line and expanded international footprint, becoming the leader and the market.
This position us very well to support and supply the strong residential data center and utility markets where seed.
In addition to delivering exceptional results across the business, we continue to prudently deploy capital in the quarter, specifically, we repaid $40 million and debt and bought back $35 million and stock. You'll also recall that we completed our previously announced act.
<unk> and a Queen city plastics and October.
Turning to slide four we have a few other recent advantaged and key business updates to share.
You'll see and our earnings material, we're now reporting and our two segments as electrical and safety and infrastructure. We made this decision to rename and reorganize our two segments to better reflect each segment's value proposition and go to market approach.
We are also very pleased to announce that our board recently approved a new two year $100 million stock repurchase authorization.
This new authorization underscores our confidence and our ability to continue to grow earnings and generate strong cash flows and ultimately demonstrates the strength and sustainability of accor and it's a long term franchise.
In addition, I want to highlight the launch of our first sustainability report and this report, which you can find on our website we share all of the activities that we are doing across the company in terms of health and safety diversity inclusion and energy management. This.
And is an area that is very important to us and we are glad to be showcasing our sustainability initiatives through this inaugural report.
Finally, as I said the team delivered outstanding results and Q1 underpinned by the Accor business system and a customer first mentality based on the strength of our business and our ability to deliver results. We are increasing our estimate for fiscal year 'twenty 'twenty one adjusted EBITDA.
And by $100 million with that I'll turn the call over to David who will walk us through the quarter and more detail.
Thank you Bill and good morning, everyone. As Bill mentioned, we are very pleased with the results and the first quarter moving.
Moving to our consolidated results on slide five net sales increased 14%, primarily due to higher average selling price was across many parts of our business.
Adjusted EBITDA increased to $137 million, which drove our adjusted EBITDA margin to approximately 27% and in the quarter up 940 basis points from the prior year.
Our adjusted EPS increased 100% up to one dollar and 88 cents as a strong profit growth and lower interest expense more than offset a higher tax rate and the quarter.
Turning to slide six.
Net sales increased by $64 million due to higher selling prices largely in our PVC and metal conduit products through outstanding operational and commercial execution and our team was able to fully overcome the impact on profitability from the decline in sales volume and higher input costs, we grew adjusted EBITDA.
And by $59 million, driven by our ability to service our customers.
Shifting to segment results on slide seven the electrical segment led our profit and margin improvement with adjusted EBITDA up $65 million and adjusted EBITDA margins above 34% due to the strong performance from our PVC and metal conduit products and international volume growth.
Turning to safety and infrastructure segment.
Net sales increased 1%, but adjusted EBITDA declined by $4 million margins contracted versus a very difficult comparable and the prior year and the business is working to quickly absorb and pass through our higher input costs.
In addition from a reporting standpoint, our prior period segment results have been restated to the new segment and presentation.
There were also no changes to our consolidated sales were operating income.
And now moving to our consolidated cash and liquidity on slide eight.
We ended the first quarter with $280 million and cash and generated $78 million and free cash flow and the quarter.
We continue to take a multi pronged approach to capital allocation as part of our commitment to drive value creation.
And that and we deployed over $80 million and the quarter by repaying $40 million and debt repurchasing $35 million of stock and completing the acquisition of Queen City plastics we.
We have made tremendous progress on our journey to strengthen our balance sheet over the past two years and our net leverage ratio ended the quarter at 1.3 times and now let me turn it back to Bill.
Thanks, David turning to slide nine I wanted to take a little deeper dive into our PVC conduit business.
As I mentioned in my opening remarks, we've been building this business over the past decade, we started in 2013 with our acquisition of heritage plastics and we continue today with her most recent acquisition of Queen City Classics, which was completed in the fall today.
Day, we had the largest network of manufacturing sites across the United States with a distribution range for this product optimized at approximately 500 miles or less from the original production on location.
This has proved beneficial for our business, especially this past quarter as we saw higher than unusual demand outpaces supply chain capacity throughout the industry.
Specifically, the rise and residential construction and accelerated by the COVID-19 pandemic drove the majority of stronger than expected demand that we saw for the PVC conduit and the quarter and in addition to these residential tailwind we saw increased PVC conduit demand as a result.
And the increase construction for data centers.
So far the demand for PVC conduit is continuing in Q2 and this is higher than what we typically see in the winter season.
As you May know across many industries supply is tight as manufacturers struggle to produce products with increased challenges everyone is facing today.
We're continuing to work hard to meet this demand as best we can with a constrained supply chain for the industry.
During Q1, we address this in balance by focusing on production of the products our customers need the most and we did so with very competitive lead times and at a higher selling price.
Our ability to meet the recent growth and PVC conduit demand. Despite constricted supply is a direct reflection of the core business system at work.
At core will continue to rise to the challenge going forward, providing competitive lead times and value and our tight supply industry and prioritizing and customer service and this has been and will remain a differentiator for us.
Turning to page 10.
And our outlook for 'twenty and 'twenty, one based on these market dynamics and the tremendous execution from our entire team we are increasing our outlook for net sales adjusted EBITDA and adjusted EPS. We now expect our net sales to be up approximately 16% to 20%.
And our adjusted EBITDA to be and the range of $440 million to $460 million up $100 million versus our prior estimate.
In addition, we expect to grow our adjusted EPS up to $5.65 to $5.95.
This updated outlook reflects our expectation that a significant portion of these price and value added service benefits that were experienced this quarter and our PVC conduit business will normalize as we move into the back half of the year.
In addition to updating our fiscal year 'twenty 'twenty. One guidance. We are also providing some initial perspective on our expectations for fiscal year 'twenty 'twenty two.
As you know it is not our typical practice to provide guidance two years out, but we believe the additional color is needed given the unusual supply and demand trends and exceptional performance that were seen in the current fiscal year.
Just on what we know today, we expect fiscal year 'twenty 'twenty, two adjusted EBITDA to be approximately $400 million. While this is down from what we anticipate achieving and fiscal year 'twenty 'twenty. One it is in line with our historic double digit growth rates when compared to fiscal year <unk>.
'twenty and 'twenty.
This perspective, maybe Barry and the future due to changes and assumptions or market conditions, and while we don't play and to make this a recurring and update we hope. This insight is helpful contacts for the investment community as they update their financial models and analysis coming out today's earning call.
We had a great first quarter, but we truly believe the best is yet to come for our core with that we'll turn it back to the operator to open up the line for questions.
Certainly at this time, if you'd like to ask a question. Please press star one on your telephone keypad.
Withdraw your question by pressing the town and Keith John Walsh with Credit Suisse. Your line is open.
Hi, good morning, everyone.
Good morning, John and good morning, John.
Hi.
Great performance and the quarter.
Wanted to understand the industry supply constraints, a little bit better. So part of your prepared remarks talk about just demand being higher than expected, but it seems like.
You know maybe was there something going on with channel inventory on the PV side did a competitor have any kind of production issues, where you might have picked up incremental share I guess I'm, just trying to understand that a little bit better because you seem to think you know it kind of normalizes and the back half and I just want to know what are the levy.
<unk> of that normalization.
And John phenomenal set of questions, there Bill and I'll address David can obviously add color.
A couple of things no one specific event the PVC conduit as we've explained and that pass is 50 plus percent tied to residential so even within and Atcor that market is everybody. You know it was up high single digits, maybe 10% grow it depends on what product and whose forecasting so.
Exceptionally strong markets to it's just I don't think any of our competitors had inventory just from a perception of COVID-19 and and packs and so forth and then it just ties to the ability to per twos, let's call. It high single digits to 10% growth.
And in the midst of Covid. So there's not like a facility went down and quite frankly, the only for soda went downwards. We had advertised our Pendleton facility was hit by a flood of about a year ago, but we've overcome that even without the facility, but you know honestly trying to get workers in demand and I'm speaking the industry workers.
Run three shifts full staffed when unemployment benefits are reasonable when you have COVID-19 when you have contract tracing and going on increased absenteeism I think some of the industry struggled where at core focus we ran our products, we ran seven and 24 with high productivity.
As I mentioned, it and our prepared remarks, we had a game plan that we only focus on a item. So just you know changeover times to switch to another item Youll, we reduce that we were candid with our lead times and the industry from one coast. The other coasts I appreciated that.
Yeah.
Alright. Thank you and then maybe just a follow up could you talk a little bit about the pricing youre seeing across maybe different parts of the product portfolio I mean, a lot of emphasis on the PVC side, but how about on the the metal conduit and and maybe some of the other products. Yeah. All good I mean, that's why I think even in my view.
Beginning on my prepared remarks, we did call out for example metal conduit you just referenced so this well PVC was extraordinary and this is.
And our story, we would still have good results, even without P. B C. Because the rest of the businesses continue to perform well mechanical our safety and infrastructure excuse me for 40 and slip.
You know that has as we've always explain a little bit more time lag where you have a contract in place for a quarter index. So there we expect to regain the strength and we had strong comps from a year ago, but everything is running basically two plan or and you know I can say better than planned.
Great well well pass the baton. Thanks again for all the color yeah. Thank you John.
Deane Dray with RBC capital markets. Your line is open.
Thanks, Good morning, everyone and I'll add my congrats on a strong quarter. Thank you, thanks, Dan and just to.
And broadened out some of the questions on the supply demand spike here.
Did you have.
Anything that in terms of did you pass on any business that you just couldn't supply.
Unmet demand in the quarter.
Dean I'll do it different way I don't know if we passed on supply, but what we did with Frank candid conversations our values with Accor is we kept our lead times to let's say a week. So in other words, if somebody wants and order, we're not going to take the order and then not hit a commitment so did we ordered.
We leverage for the price to go if you want our backlog and you want those precious commodity of getting orders and a weak high say do ratio, whereas others may and sure. It take the order and three weeks later, they're not delivering and we've all been through those frustration and that's not awkward and that's why customers switch to us even canceling orders.
But maybe dean implicit in that to go here's our price or if you want this quantity here's what it would take to get it and the week, because we're going to continue to deliver better than anybody.
I'm sure our competitors when our customers went to competitors.
As you can imagine you know that the timing of two or three week delay on a construction project waiting for PVC conduit. It just obviously timing and being able to count on a one week delivery, it's much more important and general to most customers.
As there bill.
And building out their construction sites.
That's real helpful was there anything on the raw material cost side, let's say resin.
And the.
You didn't mention it so yeah, no yeah, we and I think in past quarters like way back and I'm going to forget when August when the Hurricanes hit the golf coast. Our resin suppliers went through a force majeure, we personally manage through it because like for suppliers are two primary ones were the two on force majeure I forget how much detail.
And we brought up and in previous calls, but honestly, we work through that ourselves and we continued to perform well, whereas the rest of it and industry probably didn't even have that headwind. So there's long weighted answer to know it just day to the question from John earlier when markets are growing high single digits, maybe double day.
And the industry, you start, saying, Hey, I'll take any order and look at this pricing we continue to lead pricing, we continue to service well, but you get for five weeks of backlog and our competitor and that's not actually good for the industry.
Without having candor of your lead times, and we Reengineered our products focus on our AI Adams and.
And the team just stepped up like I knew they could and should and I'm always do.
Good and then if we look and the second half.
Comps get tougher and you've been clear that you're expecting.
To see a normalized.
Demand.
Can you frame for us what that.
Down to a normalized level looks like and I'll start and then turn yeah I'll start and then if David wants to add color on numbers again, just a thought where I mean, how many companies, making 350 million for target raised and their first quarter 100 million, so putting and framework, we're still going to have a great year and next year where are we.
Wanted to give some level of estimate whatever word I should use a 400 million D&O, where IP and then to your question I still think is phenomenal because that's well above yours or anybody's guidance, 10% plus compounded growth from $327 million. It's just we're performing exceptionally well now to all.
Those things were this quarter and the quarter, we're going into Q2, we think it's like beyond the Grand Slam to go some of the supply and balance demand imbalance will normalize and therefore, we're giving the SME is a $440 for 60 to get into how much and what numbers for this.
And second half David I don't know if there's any color or are they really dean and even if you look at the back half and you and kind of look at our full year minus or first quarter actual and our Q2 guide we're still.
Almost 10% EBITDA for the second half of the year. So it's still a solid performance, but again were for.
Forecasting at this point and time, what we see directly in front of Us and I'm sure. We'll have more information you know as the year unfolds, and then day and even to the point you brought up and the last quarter, where again, it's everybody recalls and Q4, we hit it out of the park there and so to your comment on a minute ago. These are on good comps of a year ago. So it's.
It's it's a team of around 3800 employees are just working in unison to be the customers' first choice.
And then just last question for me and.
And for for David on free cash flow conversion came up light versus what we typically see and the first quarter is but given the kind of demand and and inventory build.
I would imagine and there was some working capital pressures, but do you like us to take us through that please exactly. So if you look at our cash flow statement, and we had a pretty significant working capital increase and there's two elements for that deal. Obviously commodities are things like steel and what have you. So you will see that and your inventory, but obviously.
Our receivable days are flat, but they're up quite a bit and dollars again because of the pricing flowing through our balance sheet. So we were a little bit light. This quarter. You know Q2 is always a soft cash flow quarter for us because of certain elements around our tax payments from our rebate payments and what have you, but when you look at the full year and.
Total you know that 100% or slightly above net income we feel really strong with debt typical guidance that we'd go and that's where.
Real helpful. Thank you.
Thanks team.
Andy Kaplowitz with Citigroup Your line is open.
Hey, good morning, guys and good morning, and Andy.
Obviously strong pricing and the quarter your electrical business did have volume declines despite the strong pricing, which I know we've talked about so maybe you could give color regarding what you're seeing and the core and non res markets. At this point, how much of your volume decline and Claire and might've been kind of what you've been talking about day Youre just more selective with your selling.
Decisions.
I think is probably Andy around market. So we are we are expecting to be up low single digits for the fiscal year. So for the quarter itself I think it's just some of the lag. It is you know we're expecting some pick up and these numbers both volume and also grows we are being selective and odors.
And we charge a premium so are you know some of our products like our focus categories that we've.
And place to lease the name says focus on growth above the markets. They were up low to mid single digits. So we're taking share as we expected with those products.
The other thing out and getting into the weeds here, but there were two less days in the calendar. So you work that out over however, many days and a typical quarter or 60 days or something so there is a couple of nuances but.
Markets down low single digits, I think the markets themselves will improve to low single digit growth and the second half.
And residential debt data centers and things like that are continue to be strong.
Helpful. And then can you give us some more color into how to think about margins within your safety and infrastructure business moving forward. Obviously, you mentioned, a lag of reflecting higher steel costs and pricing, but would you expect to catch up to steal let's say and the second half for the year and could you at that point seem more normalized EBITDA margin, let's say on the mid teens.
Yeah I think.
You said it well Andy I know Q2 is probably going to be somewhere around flat in Q1. The second half we would expect to pick up the pricing when all the index has kicked in and what have you and we expect the back half for the year would be more typical in that.
Net 13 14 per cent type of Orange.
Got it and you did and answering some previous questions talk about the fiscal 'twenty to guide its a little unusual as you guys know to come out and now and talk about it so any other assumptions that you're thinking about whether it's markets acquisitions anything like that that can give us perspective on at this point yeah.
No a great question, Andy and I'll reiterate some of my earlier statements here and a moment, but.
No there's nothing to go Covid for cure Covid, not cured acquisitions and this is kind of a straight vanilla atcor running our business going forward and really not divert into any details beyond that the reason. We gave this number is just again as I think we've performed so well.
And again, how many companies out there have had 10% plus compounded growth and EBITDA for five seven years now and again through a pandemic to go from 327 to around 400, and we continue that trend what we didn't want to do and no matter where that was have anybody whether sell side buy side any shareholder out there.
They're grabbing hold of a 450 million and then applying for.
And on top so Josh and our values our transparency. We thought this is a pretty unusual situation. There are some companies out there that literally aren't even guiding for the quarter and here, we're giving you and estimate the market for literally a year out knowing there was lots of risk and as you. Just mentioned you know why or what assumptions are in there.
But there's nothing specific other than something to ground everybody with.
Appreciate it guys.
Thank you Andy and Kim.
I'll now turn the call back over to Bill Waltz for closing comments cool. Thank you and before we conclude let me summarize three key takeaways from today's discussion first the outstanding results were delivered and this quarter as a result of our strong operational focus by everybody on this team across the globe.
And our ability to prioritize our customers and get them the products. They need most as I described on our mission statement, it's all about being our customers' first choice second we continue to deploy capital effectively to grow our business strengthen our balance sheet and return cash to our stockholders and third and Clos.
<unk>, probably the most important thing we're excited about the future of Accor and it's on our expectations for growth. So with that thank you for your support and interest and at core and we look forward to speaking with you during our next quarterly call. This concludes the call for today. Thanks, everyone.
This concludes today's call. Thank you for your participation you may now disconnect.