Q1 2022 Atkore Inc Earnings Call
Speaker 1: Good morning. My name is Shrin and I will be your conference operator today. At this time, I would like to welcome everyone to Adcor's first quarter fiscal year 2022 earnings conference call. All lines have been...
Good morning, My name is lean and I will be conference operator today.
At this time I would like to welcome everyone to that Core's first quarter fiscal year 2022 earnings conference call.
All lines have been placed in a listen only mode.
Speaker 1: After the speaker's remarks, there will be a question and answer session.
After the Speakers' remarks, there will be a question and answer session.
Speaker 1: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Brisket Baccy.
Speaker 1: As a reminder, this conference call is being recorded.
As a reminder, this conference call is being recorded.
Speaker 1: I would now like to turn the conference over to your host, John Deutscher, Vice President of Treasury and Investor Relations. Thank you.
I would now like to turn the conference celebrating here.
John <unk>, Vice President of Treasury, and Investor Relations thinking 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 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.
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 reference in our discussion.
They to EBITDA means adjusted EBITDA with that I'll turn it over to Bill.
Thanks, John and good morning, everyone. Starting on slide three I'm pleased to report that our core again delivered outstanding performance and record results in the first quarter. Despite continued challenges across the entire value chain and macroeconomic environment.
We increased sales and profitability in the quarter.
Our businesses are performing well and we continue to execute our plans for capital deployment.
During the quarter, we completed two acquisitions one in the U S and one in Canada, then I'll speak about in a moment and we returned $105 million to shareholders via share repurchases given the outstanding performance and results in Q1, we're also increasing our expectations for adjusted.
EBITDA and adjusted EPS in fiscal 'twenty two.
Turning to slide four we are increasing our expectations for adjusted EBITDA to a range of $875 million to $925 million.
This is up $225 million from our previous expectation as we continue to expect profitability levels in our PBC related products in other parts of the business to remain strong in fiscal 'twenty to 'twenty. Two this now puts us in line with our outstanding FY 'twenty.
One performance.
Gave me and a robust cash position, we are now planning to repurchase at least $200 million in stock. This year, we are committed to prudently using our capital to deliver value to our shareholders and plan to spend at least $1 billion over the next several years on capital expenditures share repurchase.
<unk> and M&A with that I'd like to turn to slide five and discuss our two most recent acquisitions.
In December we acquired SaaS co tubes, and roll, forming and Canada, and four star industries in South Carolina.
Both of these acquisitions will increase our capabilities and help us better serve our customers I'd like to welcome the employees from both companies and we are very excited to have each of you become part of accor.
SaaS go was a well regarded brand in the industry have you been in operation for over 60 years. This acquisition complements <unk> existing product portfolio enables us to provide a broader range of solutions for our customers in the U S and Canada.
Four star Industries is another strong performing company and it increases our capabilities in the H D. P. E. Conduit space. We are very excited about adding this brand to our portfolio and we expect this category to grow over the next several years with the recent infrastructure legislation.
Its focus on expanding broadband internet access.
<unk> conduit is often the product of their choice to protect power and data cables and we believe four star will provide <unk> with a great platform to grow in this market.
At our core we are constantly looking forward and while we are very pleased with our recent performance. We're even more excited about what's to come for the rest of the year and beyond as we look to the future. We are committed to growing sustainably and I'll give a brief update on some of our activities in that area at the end of today's call.
As I mentioned before all of this success. It takes the whole team and we are thankful for the hard work and dedication from our entire organization and grateful for everything they do to support our customers with that I'll turn the call over to David to discuss the quarter.
Thank you Bill and good morning, everyone moving to our consolidated results on slide six net sales increased 65% year over year to $841 million.
Adjusted EBITDA increased to $293 million, which drove our adjusted EBITDA margin to 35% in the quarter.
Both up significantly versus the prior year.
Our adjusted EPS increased to $4 58.
Turning to slide seven and our consolidated bridges.
Net sales increased by $330 million, primarily due to higher selling prices and the contributions from acquisitions completed in early 2021.
As we mentioned in our last earnings call in November we expected volumes to be down in Q1 due to industry wide challenges with labor availability material shortages.
Delays and volatility related to steel prices and inventories.
Our team grew adjusted EBITDA by $156 million, and we had EBITDA margin expansion in both segments.
Shifting to our segment results on slide eight.
The electrical segment increase adjusted EBITDA by $146 million and adjusted EBITDA margins by 920 basis points.
And our safety and infrastructure segment net sales increased by 61% from the prior year and adjusted EBITDA increased over 90%.
And now a quick update on our capital deployment progress on slide not.
We deployed $150 million in Q1 between capital expenditures.
M&A and share repurchases and we are on track to meet our plan that took place over 1 billion in cash over the next two to three years.
With that I'll turn it back to Bill to review our ESG commitments.
Thanks, David turning to slide 10.
We believe that sustainability is central to this strength safety and longevity of accor.
This morning, we issued our second sustainability report, which sets for external targets for 2025 that we believe will help guide and focus our efforts and enable sustainable value creation.
I invite you to read our sustainability report, which details our efforts around areas, including health and safety, our supply chain and diversity equity and inclusion we are very pleased with the progress we made over the past several years in terms of ESG and we appreciate their external recognition that we recently.
We received from several leading independent organizations.
<unk> products are firmly in line with the macro trends around electrification and alternative energy and we believe these external recognitions demonstrate that we have the company culture and employees, who are able to turn these market trends into reality for all of our stakeholders in the years to come.
With that we'll turn it to the operator to open the line for questions.
Thank you.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
So just for a moment to compile the Q&A roster.
Your first question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.
Hey, good morning, guys. Good morning, Andy Good morning, Andy.
Obviously, another significant guidance raise but you're still suggesting a slowdown from the $300 million or so that you. Just reported so is there anything youre seeing across your businesses that suggests your ability to price versus cost is normalizing yet and what does this year's potential 900 million EBITDA would tell you about.
The possibility that you could normalize higher than the $600 million that you talked about it as a normal basis in 'twenty three and beyond.
Yeah, So Andy I'll try to walk through sequentially.
Yeah.
And the 900 and the Maryland and there the 875 to 925 is our best estimate at this time with two things.
It's starting to happen as competitor backlogs are down now they used to be four days and they went to 12 weeks are down to four six weeks. So you know if.
They're still up relatively high and therefore, the pricing and you're starting to see a little bit more discounting so.
That's what's giving us to use that number if things continue like they are could there be a path to $1 billion potentially I know that's what our team is driving but that's you know theres a couple of ifs in there that it's way too early to forecast beyond.
The 875% to 925 as for next year.
We're going to stay with this 600 million at this stage and we'll talk more about 2023.
I'll be around Q4 at this stage.
Bill very helpful. And then could you give us more color into what youre seeing in terms of organic volumes in your segments. If there's anything to read into in terms of the underlying markets. I know you said you expected volume headwind in Q1.
Apply chain on Mackay on labor, but could you give us a little more color to how these disruptions were interesting volume and how you're thinking about volume in your segments. Rolling forward. Yeah. So we still think low single digits going forward almost Andy I'm hard pressed to find an indicator that's not positive you know architectural billing index.
The architects.
Dodge momentum index almost every sector of Dodge is forecast to be up this year, except for recreational parks.
So it seems to be there. It's just the first quarter was obviously tough as we walk through and should be no surprise for US were so therefore, you know forecasting that to come back into the low mid single digits and through January we are starting to see like our electrical side. The best since you know kind of in that mid single digit.
<unk> growth, so and a little bit slower than S and I and I think that's where people are still trying to time things like steel purchases and so forth that you can do in large solar and OEM opportunities that you don't see an electrical side. So.
Hope we answered all your questions.
And any sort of incremental issues on the renewable side or what's the outlook for that business in 'twenty two.
I don't know for specifically 22, we're definitely optimistic in investing for the future everything from just the way you know electrification in general to drive for you know a lower carbon ambitions right.
For me I think pretty self evident in our organization, it's where the world is going to go. So we're investing now how much it's 22 versus 2024 or one every year thats still to be seen.
Very much appreciate it.
Cool Thanks Sandy.
Yeah.
Your next question comes from Deane Dray from RBC capital markets.
Thank you and good morning, everyone.
Good morning Deane.
Hey, Bill you had given.
As a.
Framework for however, first quarter goes the strength that we see in the first quarter.
And.
If it was strong you could see a fiscal 'twenty two growth being similar to fiscal 'twenty one.
Is yep.
Now you've got first quarter in the books.
Does the the volume decline change your outlook at all or are you looking at it holistically with price.
The strength there.
Okay.
Sorry, Deane in either parts or David can jump in.
I think obviously a strong Q1 was a record 293 million, it's our highest quarter in its history.
You know what again down volume as we explained in Andy followed up on so but know what those things for us to sit here and you already say last year was just an amazing year and gone up we're pretty sure we're going to repeat that and then to Andy's question is there a pathway way too soon but I would love nothing more we would love nothing more than.
Q3, Q4 earnings to talk about $1 billion. So we will see as the year progresses. So were.
We're on record to possibly set a record.
Got it and you know this has been the topics come up.
For about how much of the margin would you hold on to.
In the.
In the normalization process.
Any thoughts there no.
No other than Oh, yes, I guess is that go.
This a precise number in a precise year is difficult what we think would happen is it's not like it's a binary effect that also had in one day, you wake up and pricing goes back to what it was in 2019.
Now whether that's a three year trail of two year trail or a five year trail, but that's what gives us confidence when we put a marker out there $600 million and that May is as David has explained in previous quarters that may not be almost andy's question that may not be 'twenty 'twenty three that could maybe be 'twenty 'twenty four.
We're above it for next year, we will face.
You know price headwinds, but then the <unk> business system takes over and Thats, where M&A that deployment over a billion dollars all of the investments in organic their productivity that I think if you imagine one line of us continuing to crank behind the scenes and an upward fashion, while we faced a price headwind.
It's a question of if and when we get to 600 million I mean internally, we loved to never get to 600 million but.
I don't know that date or time, if that makes sense and one other thing I'd point out too is when you look at the volume for the quarter. We had indicated it but I would also say that with that kind of a volume decline, but we were able to hold pricing, where we work I think it's a pretty nice indicator of how strong of a quarter. It was an all.
Caters are that.
There's a lot of business out there, it's a matter of supply chain.
Getting folks to be able to execute the projects and we expect our volumes to pick up over the rest of this fiscal year.
That's real helpful. As you described all the factors that went into the volume decline labor.
Raw material project delays volatility in steel prices and so forth.
That sector wide, but you are unique in terms of being able to.
Consistently pass through the raw material cost increases so that's.
So that's all good news for us.
And then just last question for me is and this has come up a couple of times the M&A.
Part of your growth algorithm and we've seen a couple of nice tuck in deals with SaaS go tubes, and four star what's up.
I will look like.
And how do you look at the funnel is this are there more like capacity expansion is it product expansion like H D. P. E. Do you do a heat map with.
Where growth is in the industry and you're more than 500 miles.
In terms of being able to ship. So you kind of take us through that M&A yeah. So.
It's almost as simple answer all of the above.
The funnel has been as healthy or healthier than it's ever been some of that you know again as we've explained.
Here to spend $1 billion in a large percentage of that we wanted to do on M&A, if not where we think the stock prices that's not a bad alternative.
But we've doubled the size of our team the focus of ours.
Decade is in general managers on.
Contacting deals and so forth. So you know well over 100 deals.
Oh in the pipeline and being evaluated a large number of those touched every quarter and followed up on so from there. It's really just which ones are actionable because as you saw this quarter.
Quarter like using SaaS go it's a great company I think we can bring our <unk> business system to them.
Helps us increase our sales in Canada. So there's lots of different synergies there and then H D. P E youre getting into new product category that we will invest.
Two additional organically and it's another M&A opportunity to come up but you just think about that to go all the focus on hardening the grid and putting electrical lines underground all the focus on five <unk> and digital all of that requires all of those cable the infrastructure Bill. So this is like perfect for us.
To get in in a market that's growing dynamically that we think we can bring value and then we can bring that one order one delivery one invoice to and partner with our customers. This is if we can do things like this all day long. We just didn't you do more of them in bigger is about the only thing internally, we're focused on because again.
We have $1 billion here to deploy.
Great day.
I would add Deane as we did say that you know for a while we had several acquisitions internationally and we were waiting on kind of making sure. We have the integration process done in this businesses are running really well where.
And kind of high single digits internationally, so the opportunities in Europe , and some of the other footprint areas that we're already in or other opportunities for us great to hear thank you.
Thanks team.
Yeah.
Our next question comes from Chris Moore from CJS Securities. Your line is open.
Hey, good morning, guys. Thanks for taking a couple of questions.
So your pricing was up 368, it looks like your $2 66, electrical <unk> hundred two safety and infrastructure and can you break it down a little bit further.
On the F&I side, the 102, just kind of Oh.
Steel there or what's what's yeah, Chris mainly when you when you look at F&I the input to that business is mainly steel. So when you see what steel has done no no. Its crest didn't come down slightly now, but when you look at it year over year, it's still up significantly so that's the business opportunity to go in.
And then push that through and so when you look that you know that's a nice adjusted EBITDA was up 90% in the quarter they've done a really good job of continuing to price appropriately for the market conditions.
Yeah.
Got it.
And just maybe one more on the.
On the volume side, so volume was down 50 million something like that Q1, but obviously with the whole pre.
Quite well.
Just trying to understand is it more was it debt declined more of a supply issue or I'm.
Just.
You know kind of breaking it down between supply and demand on the volume side I would do it.
As best we can estimate Chris it's more our customers just do they have the labor out there I mean, you can't stock is Starbucks trying to get people to work when it's cold out and ship jobs and then yeah.
Winging number here, a little bit, but 1% to 2% of employees every week, calling out because they have COVID-19 you add on that what extra percent. There are people that don't have COVID-19 , but somebody in their family did its just tough and then if we even have our products there, which I think in general we do a good job.
But some other component that was waiting in a port didn't get there or some other manufacturer was.
Had a challenge or all of the logistics with.
Freight and trucking right now.
<unk> goes just like the L. A ports are backed up unfortunately job sites are backed up so again to the opening comments and questions. We feel the demand when I'm out there hitting the road again actually this evening to go see customers and sales agents for the rest of the week everybody feels the demands there is just trying to line up.
Everything to get it solved, but I think as that lines up therefore, we go from.
Down high single percent actually growing low to mid single digits. Because again every indicator is positive right now for the next couple of years.
Perfect.
Just one from me just on free cash flow free cash was 88 million net income was 204, obviously inventory is up $75 million receivables are up.
So in terms of the ability to to kind of match that that GAAP net income.
Catch up in the second half of the year from where you sit now or just kind of how you're how you're looking at it yeah, Chris a couple of things on the inventories certainly you know on the steel side supply chains are starting to get caught up. So we're starting to get you know the raw material, we have been probably a little bit higher than we typically would hold so that was.
One element the other element is we did have this volume reduction that we knew about but probably not enough time to really adjust the psi ops in time. So that's why you saw that that growth in inventories and even in the other net there's some accruals we paid out Q2's never a great cash flow quarter for us and then.
The reason for that is we typically have a couple of tax payments, which this year will be pretty large tax payments given the successes we've had on the earnings side, but we also pay out like our annual rebate programs and all that so by and large we expect a very strong second half of the year, but the first half we will just have a little bit.
This working capital build.
Got it I appreciate it guys.
Thanks, Chris Thanks, Chris.
Yeah.
Your next question comes from John Walsh from Credit Suisse. Your line is open.
Hi, Good morning, everyone nice good morning chip.
Thank you John .
Maybe just first question around kind of the PVC business. Obviously, it's something you guys Spike out in your disclosures very strong performance. Obviously price is part of that but just wanted to understand if something is changing in that market either new uses for P.
E C Act.
Acquisitions et cetera, just what are you kind of seeing there maybe versus the last couple of years versus the next couple of years forward on and if thats kind of a structurally larger business going forward.
I think it's there's no real new entrants you know theres always like H D. P. Somebody can use H D P versus PVC, but they really and I could get into all the intricacies of that they really do have their own homes like in the city, it's going be PVC and or sub development.
Development is gonna be PVC, along the highway is going to be H D. P and the same with FRE fiberglass like they have their own niches. So I don't see that switching Chris as much.
One area is just the growth back to whether it's data digital sub developments that you know kind of nonresidential or residential homes excuse me that you know we're slow over the last couple of years is now the millennials are buying homes and so forth in that market is growing I think the markets are poised to be strong.
But not a lot.
Atkins for it may be but I'm stretching here within water more people using PVC than what you're used to be steel and cast iron pipe in and so forth, so a little bit more opportunity, but 80% status quo from users and I do think that some of the uses of to Bill's point too.
<unk> seen a pretty significant increase like utilities bearing these power lines and all of that so some of the things that have been out there in California as far as investments and these investments are significantly higher than what we've seen in the past.
So just to Echo David I spoke more like from a one product substitution, but yes. The markets are growing are you know who and California's putting in every electrical mine underground thats a lot of PVC conduit.
Great. Thank you and then maybe just two more quick ones here. If I can one just on the M&A front can you remind us the financial metrics you target, whether it's from a return on invested capital perspective et cetera.
Obviously theres been a nice steady diet.
Maintain the various.
Mr Cap.
Yeah. So you know.
Really quickly without going through all the modeling, but we do look at it as a standalone and with synergies. We look at is the returns of the amount of basis points above our cost of capital. So we're looking 300 500, plus type of a range John on a discounted cash flow basis.
Great.
And then maybe just a last one obviously.
Incredibly strong EBITDA as you guys have been talking about a lot of question on sustainability of it but.
Can you talk about what Youre doing in terms of investments. So you have this strong performance are you thinking about taking up reinvestment levels are you moving into adjacent markets, where do you think you'll be able to see some outgrowth over the next couple of years, just any color around there, yes, it's a great question John .
While every question it's been good but.
The absolute answer is yes, and literally every facet we realize we're in a unique situation last year. This year and you know again, we're not going to get into specifics for 2023 here, but with that how do we take advantage. So that's why if you looked in previous years, we would've had capex at 30, maybe $40 million.
No rough number here, it's on the DAC, but like 90 million give or take this year of Capex, we're investing.
Again, two to three acts and things like digital so whether that's finishing out ERP systems for our organization, whether that's a new at core dotcom, whether that's apps.
Just across the board with anything digital to make it easier for our customers and then also organically.
It's still in the single digits, but it's rapidly moving from new product development from the low single digits to the mid single digits, so and lots of products over the years, we're adding people in that organization to drive thing. So I think across all facets. We're looking how can we really accelerated.
Organic growth, we already mentioned, we are investing more in how to accelerate M&A and then we're putting the capital behind it. So I'm literally for example, we're pushing three or four key initiatives right now as we always do we'll have a senior leadership team in a month and that's where I'm going to challenge the general managers just to go.
What other opportunities are out there how can we skunk works things just to make things move even faster. So I think we noticed who are in this unique time and now this time to use the great talent that accor has its culture its core business system to truly take us to the next level.
Great. Thanks, very much for taking the questions.
Thanks, Sean Thanks, Sean.
Yes.
Thank you.
This concludes the question and answer session I would now like to turn the call over back to Bill Waltz for closing remarks.
Before we conclude let me summarize my key three takeaways from today's discussion first Q1 was a great start to the year and we have a strong outlook for earnings in 2022 second we are executing our capital appointment model with 150 million.
Deployed in Q1 third sustainability and ESG are core to our products customers and employees and we are very excited about what lies ahead in this area with that thank you for your support and interest in <unk> 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 you may now disconnect.
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