Q3 2021 Atkore Inc Earnings Call
Yeah.
Greetings and welcome to the AD Corp, third quarter earnings conference call at.
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I would now like the turn the conference you will very Dear host John Day true Vice President of Treasury and Investor Relations. Thank you you may begin.
Thank you and good morning, everyone I'm joined today by Bill Waltz, President and CEO as well as David Johnson, Chief Financial Officer.
We'll 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, any.
You referenced in our discussion today to EBITDA means adjusted EBITDA with that I'll turn it over to bill.
Thanks, John and good morning, everyone starting on slide 3 in the third quarter at core again delivered outstanding performance across our businesses and wedge shaped up to be another record quarter revenue was $854 million and adjusted EBITDA.
I was $274 million. This significant increase in earnings is driven primarily by the exceptional performance in our PVC of metal conduit businesses in the third quarter, we had very strong results across multiple product categories, and our volumes were up 24% versus prior year.
Are we.
We generated strong cash flow and we continued our balanced approach to capital deployment by repurchasing $75 million of stock.
We are also pleased that we completed our debt refinancing of process and extended our asset base loan credit facility.
Looking forward, we are increasing our FY 'twenty, 1 outlook and now expect to achieve adjusted EBITDA in the range of $855 million to $875 million and we raised our perspective on FY 'twenty to up to a range of 500, the $550 million.
I'll provide more detail on the outlook after David walks us through this quarters financials, but before I pass it off I want to congratulate and recognize all of our employees for their tremendous sharper in support of our customers with that I'll turn the call over to David to discuss the quarter. Thank.
Thank you Bill and good morning, everyone.
Moving to our consolidated results on slide 4 net sales increased 122% year over year, primarily due to higher average selling prices across many parts of our business.
Adjusted EBITDA increase of $274 million, which drove our adjusted EBITDA margin to 32% in the quarter, both up significantly versus the prior year.
Our adjusted EPS increased to $3.96.
As you look at our year over year comparisons. Please recall that we had negative impacts from temporary shutdowns related to the pandemic in Q3 last year.
Turning to slide 5 and our consolidated bridges.
Net sales increased by $469 million due to higher selling prices and increased volume of 24%.
The outstanding operational and commercial execution, our team was able to fully overcome the impact from higher input cost inflation and we grew adjusted EBITDA by 200, and the $11 million.
This profit growth was driven by our ability to service our customers. Despite the challenges associated with raw material supply as well as a very tight labor market.
Shifting to our segment results on slide 6.
The electrical segment, but our profit and margin improvement year over year with adjusted EBITDA of $212 million and adjusted EBITDA margins of about 40% due to the strong performance we have the across the segment.
We experienced strong volume growth in both North America, and the international which increased our sales by $64 million in the quarter.
And our safety and infrastructure segment net sales increased by 71 per cent from the prior year as the business was able to fully pass through higher input costs associated with raw materials free.
Labor and other items.
Volume growth of 24% of $27 million also drove part of the top line growth as we saw solid demand across multiple end markets adjust.
Adjusted EBITDA increased 58 per cent to $22 million and on the constant input cost basis margins would have been up over 200 basis points versus the prior year.
And now moving to our consolidated cash flow review on slide 7.
We ended the third quarter with $397 million in cash and we generated $284 million in free cash flow this year.
Our priorities are organic investments in our business strategic M&A and return capital to shareholders, primarily through share repurchases, while also maintaining a strong balance sheet.
During the third quarter, we invested approximately $40 million on organic investments, bringing our year to date total for capex of $34 million.
In addition, as Bill mentioned, we repurchased $75 million of stock in the quarter, bringing our total repurchases this year to $110 million.
Our healthy cash flow strong balance sheet, and overall financial strength provide us with the flexibility to execute on multiple fronts of driving value creation for our shareholders.
Turning to slide 8 I'd like to discuss the details of our recent debt refinancing.
In late May we completed the refinancing of our senior secured term loan expiring in 2023 with 2 new instruments.
As a result of this transaction, we lowered our overall effective interest expense, we separated and increase our maturity profile and we moved to a 50.50 split between fixed versus variable interest rate exposure.
In conjunction with these 2 transactions we received favorable updates from several of the rating agencies and we were able to extend our asset base loan facility into 2026.
With that I'd like to turn it over to bill to discuss our updated outlook.
Thanks, David.
Turning to our outlook on slide 9 we are raising our outlook for net sales adjusted EBITDA and adjusted EPS for the fiscal year 2021of.
The guidance reflects a number of factors our stronger than expected results here to date, the unprecedented and continued strength in PVC conduit and favorable macro trends. This is supported by a stronger than expected performance in our other businesses such as metal conduit.
Our fourth quarter 2021 outlook contemplates net sales up approximately 70% and adjusted EBITDA to be in the range of $250 million to $270 million.
For fiscal 2021 we now expect on net sales to be up approximately 60% and adjusted EBITDA to be in the range of $855 million to $875 million just as we did in the first half of the year our entire team continued to effectively navigate what remain.
<unk> is a very dynamic operating landscape through the third quarter.
We expect a combination of these dynamics and the macro tranches of sustained the pricing tailwind through Q4 and into early fiscal 'twenty 'twenty 2.
In connection with our increased fiscal 'twenty, 1 guidance and our clear understanding of the near term market. We are raising our perspective for fiscal 'twenty 2.
We now expect adjusted EBITDA to be in the range between $500 million and $550 million.
This considers the continued PVC conduit demand and our ability to meet the well also factoring in macro uncertainty such as labor supply constraints pricing and customer behavior, particularly in the back half of fiscal 'twenty 2.
Before we turn to Q&A I just wanted to reinforce how pleased we are with the team's execution and how excited we are for what the future holds true this tremendous company with that we'll turn it over to the operator to open up the line for questions.
Thank you.
As a reminder to ask the question. Please press star 1 on your California, Keybank. The we enjoy a question press the pound key.
Please stand by a lot of week on Val Dickie on a roster.
Your first question comes from Deane Dray from RBC capital markets. Your line is open.
Thank you and good morning, everyone, Hey, good morning, Deane Good morning Day, Hey, just a another outsized operating beat here and it really do appreciate that you're giving some a framework for fiscal 'twenty 'twenty 2 what some normalization, but still at very very healthy levels. So like the first question and bill.
Just you touched on this I'm talking about the sustainability of this supply and demand dynamic on both sides of the equation outsized demand.
And supply constraints in the industry. So just can you expand more on your thoughts on the sustainability of both.
On the supply side of it.
I know, it's hard to get competition too you know it takes time to build new plants and so forth or just your updated thoughts on the on the supply side and then on the man. It really interesting that you are seeing them more on metal conduit, so that would imply some growth.
Growth in non res seat, but I know, there's a number of embedded questions here, but if we could start there. Please yeah. Great question Deane lifetime pack. So I'll start with demand, we see demand low single digits going forward. So it's not that robust, but I think I can I'm generalizing, but I think I can speak for almost any products.
The line any competitor the challenge right now is not whether it's low single digit high single digit or quite frankly flat almost is the question of can you supply. It. So that's what's causing more of the constraint killing of the market up a couple of single digits. If we had more product I think we could do.
Usually sell of attended a good price.
This constraints come across the board right now for <unk>, we would probably say labors are actually the number 1 constrained last quarter I think I would we would have said material while materials still of constraint where that steel that lead times used to be 3 weeks are now 12 weeks and these are <unk>.
Rough estimates, depending on the supplier and the material and so forth.
All of which make forecasting more difficult in switching over more difficult same the PVC resin suppliers have just come off force majeure, where 3 of the 4 were unfortunate resort for what seems like most of the fiscal year, but still it's your hand to mouth getting additives and stuff like that so it's the challenge.
With all of those things I think as time goes forward. They should all start normalizing again and there for both the the mix thing Dean for you and the rest of the sell side and buy side.
You know, where we want to be transparent and therefore do not expect let's just say 850 million of 875 wherever we end up this year do not linear really expect that to reoccur next year, just like lumber prices went up from $600.1800 and dropped back to 600, there will be some norm.
Realization on the same thing I think that at Core's value prop will continue to hold forward into fiscal 'twenty 'twenty 2 and also the supply demand dynamics. You just asked about will carry forward you know with some variability in it you know challenge to predict.
Like anything in the world.
And then I'll just add you know the demand in the market to it's very hard to determine what it would be if labor wasn't of constraint on the only for the manufacturers, but also the construction companies, which as you recall, we had the labor shortage going into the pinned on making the obviously right now it's it's even.
More of a constraint. So I think the business is out there you know things are being designed and what have you. If you look at any of the the future indicators. So I think that that's a good indication for the future, but it is hard to really determine with this labor shortage exactly what volumes you know could be.
Got it and then just 2 follow ups here.
Can you comment on the mix with P V C.
Metal conduit and you called out some increased demand on the metal side is that.
Typically the non res doing better.
And then is there.
Is it any price elasticity I know we've talked about this before but it really just seems on the market will take as much as you can deliver right now and is that still the.
Price is not a barrier just wanted yeah.
Yeah again, great set of questions. So weak both residential was going strong and non residential as we've always explained since we sell to electrical distributors and then they sell to contractors, there's a little bit of difficulty in being overly precise quite frankly, even on electrical distributor.
At times can be hey of contractor walked up to will call picked up products I didnt ask them, where it was going so both seem to.
To be moving along well and all so and again I'm sure somebody will follow up and go on Hey data centers are really strong. So there's a lot of great vertical markets in the non res and commercial construction realm that are carrying forward, we called out metal conduit and I think if we didn't say in the prepared for.
The marks and other products just to make sure you and other investors P. V. C is going really well, but it's not a 1 trick pony. So we kind of laid out and go okay. What's the next Friday of doing next well, but our metal conduit business and metal framing all of our businesses right now are doing well because.
As I mentioned at the very beginning.
If you have the material you have a good say do ratio you're honest with your customers.
They are to your last part of the question I'm willing to pay more now of being there's always some price elasticity.
Oh on how much you can charge, but as you've seen the results.
You know, we I think we're paying them or some of the it depend on the competitor the market. The week, it's kind of an average thing for a competitor it feels like to say whatever I of course, charging will charge of 3% or 4% less but for a distributor of that trust them needs to have that material as you see in our results or what.
On to pay that slight premium and we are in many cases, I think pulling the industry forward with price increases.
And then the net 24% volume increase year over year broadly speaking was across all of the product line. So I think we did see strength across the entire portfolio.
That's real helpful. Thanks for all of the color and congrats thanks Dean.
Your next question comes from John Walsh from Credit Suisse. Your line is helping.
Hi, This is James.
Good morning.
Good morning.
So it looks like you added automation will you be opened your Pendleton facility.
Much longer do you think you can continue to GAAP productivity in the Tianjin.
$10 million to $15 million range.
Yeah, I would think that would go on.
I Wanna say forever, but there is no shortage of opportunities I know a lot of astute investors will ask about the ability to.
To drive productivity I'm really proud of our at core business system and what it does in the fundamentals that we drive with it but there's not a shortage of productivity opportunities across safety quality delivery and productivity. So you could probably model of that type of number.
Out for the next several years at least.
Gotcha Thats helpful.
If I could follow up any color around.
Right.
If you can please help us.
Of our aspiration in the us.
Safety market, yes.
So again great questions here the.
Final remains robust we are actively working on it again with this great financial year and I'm sure of questions to come at some point during the day with investors on our capital deployment and buying back stock is where January of lot of cash. So we're doubling down on even our resources to make sure we're connected to all.
The deals and the O without having deal fever, I mean, <unk> prides itself on is the strategic is it synergistic is it debt responsible on do we have the management bandwidth and that's kind of been the 4 rules since <unk> was formed and we continue to drive those kind of filters, but there are enough deals out there to keep.
Moving forward.
With and yes, we are expanding in the safety and infrastructure very much like the full 4 rules, we have to make sure. It fits our strategy I do think in the safety and infrastructure. There are some vertical markets that are going to grow much faster than GDP and I also think that there.
You know can be good synergies. So now it's just what is the appropriate deal for US you know with management of bandwidth right vertical channels and so forth, but we're actively working deals in both segments.
That's helpful. I appreciate the question. Thank you.
Great. Thank you.
Yeah.
Your next question comes from Chris Moore from T. J S kicking the can.
Your line is open.
Hey, good morning, guys I'm Christy good morning, Craig Good morning, good morning.
Obviously pricing has been you know the biggest driver of 20 of them results of this point and recognizing that your fiscal 'twenty..2 estimated EBITDA range you know the lax at this point lacks the clarity and detail of your 'twenty..1 guide can you maybe just talk a little bit more about what's in there for for example.
How do you look at volume growth in fiscal 'twenty, 2 versus on 'twenty, 1 or 'twenty.
Yeah, we haven't given a lot of the details of which we will obviously, Chris in 1 quarter's time, when we give our official guidance for next year, but broadly speaking I would say the kind of mid single digit volume number and then the normalization of pricing and then some continuation of M&A from.
The deals that we already have in this year that we've already announced that will lap of little bit into next year and then you know our typical productivity.
Improvements so I would say that in general those would be the buckets that would be built into that outlook.
Got it obviously much much of the focus is on the areas, where you're generating the exceptional results P. B C lately on the metal side and trying to predict when some of that will normalize.
Well you know what about the the flipside and markets that have been soft throughout COVID-19. Some of the non res like office and retail hotels do you see those as being potential tailwind in 'twenty 2.
Yeah, I think so Chris but there is a tailwind to go if you look at some of the segments. There are 3 per cent of our sales, 6% I'm, not being prescriptive say, which ones, which that there's enough other things that are going well you know obviously.
The data centers I think I just mentioned a couple of minutes ago. When I was addressing Dean's question warehousing continues to be strong and I am saying is strong with some of these things Dodge is looking at double digits and then also as we get into this latter half of 'twenty 'twenty 2 and into 2023.
<unk> predicts things like hotels and stores and restaurants of bounce back now it's off of this year's low but you know that's the reason relative to how we're performing this year is debt I think David answered it well and I did when we said you know low to mid single digit growth for next year. So if any.
The 1 travels I travel and sort of like you will realize that airports are totally back packed again and stuff like that.
Airlines are in vaccines, so lot of low right now probably for a little bit longer, but those things will bounce back in with all of the infrastructure Bill if it hits and other things.
We're pretty optimistic for the future here with growth.
Got it I'll jump back in line I appreciate it guys.
Thank you Chris.
Okay.
Your next question comes from Andy Kaplowitz from Citigroup. Your line is open.
Hey, good morning, guys came on.
Morning, Andy.
Hope everyone's well, you're predicting a slightly down Q4 versus Q3 in terms of EBITDA there doesn't appear to be that much historical seasonality between the 2 quarters. So could you give us some more color on what in your businesses is sequentially declining I mean, you've talked about P. D. C. A lot has that tailwind peaked at this point are you predicting at the.
Klein in commodity prices or volume and excited to be slightly off of any color would be helpful. Yeah. So we're arguing andy because both of US 1 of the answer here, but.
[laughter], but yeah, so how I think about the tier point, we flash quarter, what the quarter. We just delivered was $274 million and we're predicting $2.50 to $2.70. So the top end of the range of 270 is almost the same as the $2.74, and you know if we <unk>.
And we hit everything I think we could get there, but so theres nothing dramatic I think you know pricing probably of the spreads profit margins have probably Pete the cross different things and the only thing I would put in perspective is with the slug to 74 I make the analogy that literally you drove through of major city you got every day.
Green light literally as David and I, we called out metal conduit, we caught out P. B C. I and these unprepared remarks mentioned cable matter of framing every product line contributed very well and that even in the best of times just doesn't occur. So I don't think there's anything systemic as much.
As just being prudent on the range versus you know we're going to hit it out of the park exactly like we did in Q3 of this year, but by the way as David will remind our teams and I would like to remind investors and the best of the years at core would have $100 million in a quarter and here, it's a really great.
<unk> to go Hey, why are you only predicting $2.50 to 270.
These are pretty impressive numbers here.
You've definitely come pretty far so bill maybe I could follow up.
Could you update us on in terms of where you think PVC inventories or how far do you think the industry is at this point behind demand and are you assuming that inventories can catch up over the winter.
Yeah, I think it's great questions that I will give you estimates on but that's why the variance and even the words, we used on our projections for next year of anybody's forecast and most companies can't predict 2 weeks, let alone on a year out right.
Right now Andy I would say that lead times with and PVC conduit, which is what we sell most of us probably 4 to 8 weeks out of.
Where it's typically let's say 2 to 3 weeks there was a little bit of offset with that where distributors understanding that are now placing the orders for 8 weeks out just because they need to get their products on time I think some of the other markets. While we don't serve them and their competitors don't come into service like municipal on plumbing or even out farther.
I read a report from an industry per cent on Friday that was quite frankly predicting some of the plumbing in the municipal stuff would not get delivered until January if you place an order now so even much longer lead times in some product lines.
I think over time getting into the winter months. It does normalize because there is seasonality in the business and there for some of the reason why I think we have the appropriate numbers. The 500, the $5.50 in other words, we will continue to do much better than our old historical trends, which worst.
2 years ago, $3, 25, and $327 million, that's a massive step up on the same hand, as inventories come back and and things normalize.
To earlier questions, we won't be able keep quite the price premium so as much as we can look into our crystal ball balance all of those types of things, where you thought the of very appropriate and raised by $100 million forecast for next year of 500 of $550 million seem to hit all of those factors.
Very helpful. And then maybe I just wanted to understand what you're saying about volume, though in the sense that you know it was up 24 per cent, obviously easy comps you're talking about labor shortages and low single digit volume I guess of nonresident stepped it over time.
But if you look at underlying volume growth.
Tuck in the past about having you know a good probability of pacing above that.
Given your own new products cycle Theres, obviously, the specter of increased electrification out there, we kind of alluded to it a little bit in this conversation. But then also you know the infrastructure Bill is out there now I'm sure you've seen some of the details. So like you know when you put that all together you know what's the probability that out of course free growth of us.
Decently higher than that low single digit.
I would aspire and hope Andy I, just think like the infrastructure of Bill to say, yes. It's out there in draft form what ended up coming around what turns out to be shovel ready. So there's nothing there's no uptick that we've put into the numbers, but I think David also appropriately frame just the number to go.
To an earlier question Hey, what's the science, we have general guides, but could this number be 50 million more of lesser than the numbers. We have there's still a lot of variance out there. So and then specifically to the growth the.
The 24%, while the amazing realizes the comparison to last year when some of the things were shut down so as we go forward off of a reasonably good year this year.
It could be mid single digits, because the A&D to all your points, we don't have new M&A in there we don't have an infrastructure bill on there.
But I know what we typically performed where we try to hold price seen in the markets and then try to grow of 100 basis points above we will talk a lot over the coming quarters on investments in new products and things were just not ready to.
On publicly announce on products and patents and so forth there, but we are driving that can that at 100 of 200 basis points and if everything clicks could you walk into the mid single digits, Yes, there's a path to get there at this stage quite frankly talking over a year out I would still say the low to mid single digits, but youre law.
Jake has merit.
I appreciate it bill.
Thank you Andy Thank you indeed.
Yeah.
There is no further question at this time I would now like to turn the call over back to Bill.
Before we conclude let me summarize my 3 key takeaways from today's discussion first the outstanding results. We delivered in the third quarter are a credit to the great efforts by everyone in our organization.
We believe in the long term strength of our company and we will continue to deploy capital effectively to drive value for our stockholders as evidenced by the $75 million in stock we repurchased during the quarter.
Third and in closing we are very excited about the opportunities ahead of us for our business with that thank you for your support and interest in our core and we look forward to speaking with you during our next quarterly call. This concludes the call for today.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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Uh huh.