Q1 2023 John Bean Technologies Corporation Earnings Call
Good morning, and welcome to JBT Corporation's first quarter 2023 earnings Conference call. My name is Andrea and I will be your conference operator today.
As a reminder, today's call is being recorded at.
At this time all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
He would like to withdraw your question Press Star one again.
I will now turn the call over to Jbt's, Vice President of corporate development and Investor Relations Patrick Meredith.
To begin today's conference. Please go ahead.
Thank you Andre good morning, everyone and welcome to our first quarter 2023 conference call with me on the call is our Chief Executive Officer, Brian deck, and Chief Financial Officer, Matt Meister in today's call. We will use forward looking statements that are subject to the safe Harbor language in today's press release and 8-K filings.
<unk> periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the Investor Relations section of our website.
Also our discussion today includes references to certain non-GAAP measures a reconciliation of these measures to the most comparable GAAP measure can be found in the Investor Relations section of our website now I'll turn the call over to Brian .
Thanks schedule and good morning, everyone.
Overall, we outperformed our expectations and what is particularly jbt's seasonally slowest quarter of the year.
As we have said before food tech continues to be driven by our resilient business model, a diverse product offering and value added acquisitions.
In the first quarter <unk> revenue and margins exceeded our guidance largely on the strength of recurring revenue.
At Aerotech, we are no longer in a path to recovery, where we are there with exceptional demand and record orders in the quarter.
With that I'll turn the call over to Matt to provide details on the first quarter and outlook for the second quarter.
Thanks, Brian JBT delivered solid Q1 results with double digit year over year growth of 13% on revenue at 30% on adjusted EBITDA.
At food Tech revenue increased 9% with growth of 2% organic and 10% from acquisitions, partially offset by a 3% negative foreign exchange impact.
The year over year growth exceeded our guidance due to the strength of recurring revenue.
Represented 56% of total revenue in the quarter.
And improving supply chain environment, enabling the delivery of more product than forecasted.
Food Tech adjusted EBITDA margins of 18, 1% improved 180 basis points over the prior year.
Driven by the favorable mix of recurring revenue and continued improvement in price cost.
At Aerotech first quarter revenues increased 25% and adjusted EBITDA margins of 10, 1% improved 300 basis points from the prior year period.
Aerotech year over year margin expansion resulted from volume driven leverage on fixed costs and the realization of pricing actions.
On a JBT consolidated basis adjust.
Adjusted EBITDA increased 30% or $16 million in the first quarter of 2023% to $70 million.
Adjusted earnings per share was <unk> 94.
With 88 in the first quarter last year.
Our strong operating performance was partially offset by higher.
<unk> amortization and higher interest expense and a lower discrete tax benefit.
The second quarter of 2023, we anticipate total year over year revenue growth of 5% to 9% and adjusted EBITDA margins of 14% at the midpoint.
Or an improvement of approximately 200 basis points.
At <unk>, we expect revenue growth of 55% to 10%.
With adjusted EBITDA margins of 18% 18, and three quarters percent.
At Aerotech, we are projecting revenue growth of 4% to 7% and adjusted EBITDA margins of 10% and three quarters to 11% and three quarters percent.
As a result of this continued topline growth margin expansion, we project second quarter GAAP earnings per share of <unk> 90 to $1 five.
Adjusted EPS of $1 10 to $1 25.
For the full year, our guidance is essentially unchanged with consolidated revenue growth of 7% to 10% and adjusted EBITDA growth of 23% or 170 basis points at the midpoint.
We still expect free cash flow conversion to be above 100% of net income for the full year.
With that let me turn the call back to Brian .
Thanks, Matt as we discussed last quarter, the backdrop of economic uncertainty remains a factor in the pace of food Tech customers investments decision, making as does the cost and availability of capital.
With that in mind food tech orders of $406 million or $417 million on a constant currency basis met our expectations.
We were encouraged by further stabilization in Europe , particularly in southern Europe , While North America moderation persisted.
Asia remains inconsistent and the Middle East and Africa showed continued strength.
Overall, we remain encouraged by the engagement with food tech customers entering the second quarter as they continue to be motive by motivated by the need for automation.
Operating efficiency and sustainability.
In terms of end markets, we enjoyed healthy order trends from food and fruit and vegetable convenience meals and ready to drink and functional beverages.
And we witnessed a modest sequential improvement in poultry investments after declines in the back half of 2022.
However, this market generally remains under pressure.
Lastly, our automated guided vehicle business continues to enjoy strength in demand.
Since our last call just two months ago, we've continued to sign customer contracts for our digital solution Amigo.
Its value proposition.
Proposition is resonating with customers and we remain excited about its potential for deepening our customer relationships.
Our internal technical and support teams are fully built.
With the core product development stage largely behind US we are increasingly focused on commercial commercialization and we are working side by side with customers to continually enhance the product.
Moving on to Aerotech.
Orders expanded 51% year over year to a record $232 million.
$50 million above any prior period with improved price recovery and robust demand across the infrastructure and commercial airlines and markets.
Regarding our intent to become a pure play food <unk> beverage solutions company.
Last quarter, we indicated separation is more likely to be realized through the sale of aerotech.
Indeed this is the path we are pursuing.
Our intent remains to be to execute by year end, while remaining cognizant of the capital market environment.
In the meantime, with a recovery in the commercial air demand growth in defense applications and continued robust airport infrastructure spending aerotech.
Aerotech backlog reached an all time high and we are quoting well into 2024.
Finally, I'd like to talk about Jbt's corporate responsibility and sustainability initiatives last week, we issued our 2022 ESG annual report sustainable solutions for our growing world.
As the population expands we need sustainable solutions to feed the future JBT.
<unk> has the solutions today, enabling enabling customers to enhance food yield quality and safety, while reducing food and packaging waste.
Our technology has also reduced the use of precious energy and water resources, while cutting operational emissions.
We believe jbt's dedication to a sustainable future will leave a positive legacy that can truly impact future generations.
In 2022, we estimate that more than 70% of Jbt's product and service revenue stemmed from equipment that delivered environmental benefits.
Sustainability and profitability are not mutually exclusive for JBT and our customers. Our solutions have always been built around enabling customers to reduce food production costs and improve profitability.
Omni booth further supports customer profitability and resource utilization to next level data intelligence that improves equipment efficiency and uptime.
The sustainable solutions make JBT and more competitive and critical to the food industry.
JBT is also supporting the development of sustainable Foods solutions for production of plant based proteins and dairy alternatives. Moreover.
Moreover, we're helping food innovators with cell based with cell based protein production, which can revolutionize the way through it is produced.
We recently joined the number of initiatives around the globe, reflecting our commitment to sustainability for example by partnering with the world's climate Foundation JBT joins a network of organizations committed to accelerating the transition to a low carbon climate resilient global economy.
Of course, none of our growth and progress would be possible without jbt's highly skilled and engaged workforce.
This year I sign the CEO action for diversity and inclusion pledge, reflecting our ongoing commitment to diverse to diversity inclusion equity and belonging bill.
We launched our first two employee network communities employee led teams at foster a diverse and inclusive workplace align with Jbt's core values.
I am, particularly proud of the progress we've made this year, increasing the representation of female and minority leaders at all levels of the organization.
My sincere thanks to all employees across the globe.
With that we'll take your questions operator.
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.
We will go first to Mig Bilbray at Robert W. Baird.
Thank you for taking the questions and good morning, everyone.
<unk>.
Yes.
I guess, where I would like to start is with a little more.
More color maybe on what Youre seeing in terms of food tech demand trends.
I'm curious the protein business, how you see that progressing through the year.
And I'm also curious from a from a pricing standpoint, how things are changing and where you sort of think you are on a price cost balance at this point.
Mhm.
Okay. So from a demand perspective, I would say, it's still mixed across the globe we're seeing.
Regional.
<unk> strengths and weaknesses right now as I mentioned in Europe is a little bit stronger North America some of the moderation persisted.
It was stronger in the fourth quarter, sorry in the first quarter.
Versus the third quarter last year, but not quite as strong as the fourth quarter and thats, mainly driven by poultry and even the pork industry. Both of those are a little bit challenged right now.
While we have seen in Europe , if you recall the first half of last year, while we saw some deferred investments in lower demand and typically what we see and that played out in this case.
Is that our customers can typically only go a couple of quarters before that drumbeat of food demand ultimately require some investment in that and Thats, where we think we are seeing there and ultimately we think that will play out in North America as well.
But at this point in North America is lower than I would say the normal baseline.
As it relates to price cost.
We are seeing we are getting into that upward upward limit on pricing generally speaking.
That said, we remain in a deflationary environment will continue we'll continue to.
Make sure we capture our increased cost.
But there is certainly more pressure on pricing than theres been in prior quarters.
That said, we feel we can maintain our margin profile.
Understood.
And then maybe a follow up on on your guidance.
The quarter played out quite a bit better than the way you initially guided.
You are not really carrying the Q1 beat to the full year outlook.
So maybe a little bit of commentary as to what is unique in the quarter that perhaps doesn't repeat on a go forward basis.
Really any other puts and takes to the outlook relative to what you previously expected.
Sure. There are two things two primary contributors to the quarter first we did have about $5 million of equipment revenue that moved out of Q2 and into Q1, as we mentioned a little bit better supply chain environment that allowed that so that certainly won't continue and we had pretty extraordinary recurring revenue business in the quarter and we think thats good.
To moderate.
<unk> back to normal levels, we will see obviously.
We've got a great recurring revenue franchise.
Continues to be a source of strength for JBT, regardless of the economic environment. So.
So we'll see how that plays out but that said, we are really cognizant and aware of that.
<unk>.
Our margins, obviously performed well, but there is in this economic environment, we didn't feel that this was.
And the environment for raising guidance. This is really being very cognizant of where we sit in the market.
And just to put a finer point on the recurring revenue.
What was it in a quarter that that maybe boosted this.
A portion of the food Tech business that you don't expect to be sustainable on a go forward basis.
Well just history and data hit data history would tell us.
You have fits and starts sometimes if you recall I think it was third quarter last year.
It declined for one quarter and it rebounded and this one has spiked and I will say what was pleasing I'll ever. It was it was strong globally every economic region showed strength in aftermarket.
Obviously, we hope that continues but historically the.
The data would suggest it goes back to normalized levels.
Okay, great. Thank you for the questions.
Sure.
We'll go next to John Joyner at BMO capital markets.
Excellent. Thank you very much for taking my questions.
So Brian just maybe to follow up on the pointed out.
The poultry markets and maybe this is probably an easy one but.
There has been some stabilization there and gradual improvement in poultry prices in North America.
Is that starting to help sentiment at all with the customer base kind of compared with the beginning of the year or is it too early to tell.
It's a little early but we did have an improved quarter on poultry investments that was nice to see it's hard to know if thats how sustainable that we.
It will be like I said, it did improve in the quarter, which was nice to see we will see where we go from here.
I agree that there is some stabilization, but but where it sits today is still relatively low in the grand scheme of things. Despite the improvement and I know that Theres a lot of work by our customers working on the efficiency.
Are things I don't expect that kind of demand from equipment perspective on new capacity it would be more about operating efficiency and thats. Some of the orders that we saw in our first quarter reflected.
Okay.
That's good color. Thank you and then.
Just regarding the ongoing rollout of omni blue across your product portfolio I believe at last check you had around five connected product lines.
You can correct me if thats not.
Right today, but because I'm going to lose a big focal investment for JBT and is there any update on the product categories that are now connected and you kind of mentioned this a little bit earlier, but what has been the kind of the early feedback so far from customers.
Sure.
So yes, we are in.
<unk> product lines that have been introduced in the six that were getting closer on.
A couple of product lines are fairly well developed.
And two less well developed in starting the commercialization.
In terms of the feedback customers are telling us the omni blue is a different differentiated product, which is really what you want to hear.
It's it's making us a more engaged vendor with them, it's making us more connected and.
And more connected to their outcomes and that's what I think they appreciate.
More than anything.
They like working with customers with vendors that.
Help them solve problems, that's what we're looking to do.
And they're looking for people that they can trust when it comes to making investments and so we are getting excellent feedback in that regard.
Okay excellent. Thank you Brian sure.
We'll move next to Lawrence de Maria William Blair.
Hi, Thanks, and good morning, everybody.
So Brian you touched on the Aerotech, obviously have a clear path to move forward. The question is really around on Aerotech at this point is obviously the proceeds and the reallocation.
I know theres some sensitivity around it obviously, but can you discuss maybe the tax basis of the assets and whether you think that can be avoided if restructures that can avoid obviously a big tax Bill and then the other side can you talk about your pipeline and the possibility of timing.
My site in conjunction with the sell side.
First question. Thanks.
Sure so on the <unk>.
Tax question as we had mentioned earlier in prior calls one of the reasons why it took us some time to make a formal declaration on a path of sale path was we were investigating some tax efficient options.
And we've exhausted those and we don't really feel that thats a viable path at this point given the state of the market, but we do strongly feel that a sale process.
Right right path for JBT.
Terms of the tax and tax basis.
Just to boil it down frankly, youre talking about about 100 million plus in taxes, obviously it depends on the.
Proceeds.
That's the general ballpark that we're working under today.
In terms of.
Redeployment right first of all obviously, we don't know precisely how the timing will work out with aerotech, but we are intent on getting that executed by the end of the year and being a pure play by the end of the year.
Our acquisition process is always on.
It's always been on we do continue to.
Bilateral conversations with with potential.
Companies.
I will say that the market is a little bit different than we've seen currently than we saw perhaps in 2021 and front half of 2022 or there are a lot of auctions and things of that nature today, it's more one on one conversations smaller.
Ill call groups of.
Interested parties that are talking to companies.
So it is a little which is actually good for JBT, because thats, how we develop quite a bit of our pipeline is engaging with those customers and we will certainly.
Inc. Continue to engage and look to redeploy that capital timing is never perfect. So we're just going to move forward with looking at good companies that maintain our disciplined process on acquisitions, recognizing that we will have more capital available at some point.
Bided Aerotech executes as we intended to.
Thanks for that very helpful. Brian and then secondly.
Obviously, some nice orders can you maybe.
I am greatly from a high level breakdown.
Price cost I'm, sorry price and volume in the backlog just trying to get a sense of the strength and obviously volume and compared price as well.
Yes, Larry it's Matt I think as we've sort of commented in the past pricing.
We've been able to effectively offset the input cost inflation that we've seen.
On the on the material side, and so price impact for us is in that high.
Single digit range, probably 7%, 8% kind of range.
And so there is certainly a decent amount of price included in that increase.
Of the backlog year over year, and certainly that has accelerated even more on the aerotech side as we've been able to.
Implement new pricing on that business here at the end of Q4 into the first part of Q1.
Okay. Thank you.
And as a reminder, if you would like to ask a question. Please press star one we'll pause for just a moment.
We do have a follow up question from John Joyner with BMO capital markets.
Okay.
Great. Thank you.
Maybe could you touch on the the record order intake for Aerotech It was clearly quite strong.
What were the drivers there around any particular projects or products that are.
Seeing high demand I mean, I think back to kind of dice was a few years ago.
Any color there would be helpful.
Sure.
Yes, it's frankly, it's pretty broad based it's the commercial airlines.
As a huge driver and thats across.
<unk>, even loaders as well as pushback tractors.
We are seeing quite a bit of activity on the fixed side. So the passenger boarding bridge side as some of the money coming from the infrastructure Bill is coming into play so we're seeing that play out.
Largely as expected and we expect that to be the source of strength for four for frankly for years as that money gets deployed so it's really broad based on the commercial airlines and.
<unk> was the infrastructure and then on the defense side, we're seeing some strength to.
Obviously, the world Geopolitically remains.
A tricky place. So we are seeing more demand there as well.
Okay excellent. Thank you.
And we will go next to Walter Liptak at Seaport Research.
Hey, Thanks, good morning, guys.
I wanted to ask.
A little bit more about omni blue and I apologize. If you went into some of this but can you just give us a refresh.
And sort of the spending levels that we've gone through and how much spending levels do we have laws left and maybe what inning are we in for.
Recognizing some revenue and offsetting some of those costs.
Yes, I'll take that.
Cost side.
First and then maybe Brian can talk about the revenue piece here, but from a from a investment perspective last year, we invested close to $40 million from a capex perspective, and an omni blue this year, that's going to come down significantly it's probably closer to.
12% to $14 million in 2023, so a significant reduction in the capital investment, which just represents.
Sort of that upfront investment that we're making in sort of the backbone I guess, if you will of the system and from an expense perspective.
I'd say as we can.
<unk> talked in the last call we started to push some of that expense out to the businesses.
In food Tech and so that's about.
2000, $14 million to $15 million of expense is about.
90 $10 million of that is DNA and then we'll have some additional expense in corporate about $5 million this year.
So stated with.
Supporting the overall omni blue environment, and continuing to sort of invest in.
Additional capabilities from.
From a.
Software and a capability perspective.
Yes.
And then commercially speaking we are still very very early right. So most of the 2022 was getting.
New customers signed up reference customers that are proved to help prove out the product.
And allow us to make any changes to the to the product as necessary and helped to develop the value proposition.
So now as we are getting further along in the actual development of the product we are shifting more resources to the commercial side. So in terms of innings, we're really in the first second inning.
From that perspective. This is Amin who is really is about this long term.
Engagement with our customers, making us a better partner, making.
Helping us be more engaged in their profitability.
It's really about these long term relationships and making that JBT, a better company to do business with and then when it comes to making decisions on equipment or otherwise that we're there for them and I'm, probably more than anything a fair.
Further as the conversation that we're having regarding our customer care business. So omni plu fits perfectly in with what we've been focused on developing our customer care business and investing resources with that over the last several years. So this is just an extension of that and really.
More than anything making.
Us.
On the spot with our customers, making them more successful because again as you know the care and feeding of this equipment is critical for the efficiency and uptime operation.
Okay, great thanks for that detail.
And then maybe just another one for me about the separation.
The calendar that you guys have had.
It looks like everything's on track, but I wondered if.
If you are still on the same calendar has anything moved around.
From the first half to the second half or later in the year. How are you thinking about the calendar for for <unk> right in and just for everyone's benefit will we the calendar was that we would pick a defined path in the front half of 2023, which we just announced with the intention for a sale.
And we had iterating that we the intent would be to execute in the back half of 2023 that remains our intent.
Certainly we are aware of the capital markets, but that's currently our intent and that's how we're proceeding.
Yes.
Okay, great. Thank you.
And we'll move next to Mig Bilbray at Robert W. Baird.
Hey, just two quick follow ups for me.
The first one is back to the discussion on <unk>.
Lou here.
Yeah.
Im curious what learnings you have had thus far from this program I.
I guess the way I would ask the question is do you view omni blue is truly an incremental opportunity to grow revenue.
The company or is this more of a.
Kind of a table stakes something but the company really needs in order to some of these customer relationships and Thats just sort of like the.
The chemicals that you would need frankly to service the customer and be in business at this point.
Sure I actually I think it's a little bit of both Mig I think generally speaking industrials do need to continue to invest in digital and digital assets.
And I do think part of it is just making sure we keep pace with that.
But really what we intended with omni blue and.
Do feel that there will be an uplift in the customer care side of the business because we still don't have a large wallet share. It's still net 30, 30% 35% range. So there is opportunities in terms of ease of doing business with and Thats critical when it comes to ordering parts on the <unk>.
<unk> floor and getting things quickly.
As a service element to this so there is a promise of.
Inventory availability and service availability and ease of.
Scheduling service.
Additionally, as we rollout omni flew to multiple products within the same line, which we're starting to do now allows them to have full visibility of the productivity of the line itself. So we are actually seeing some incremental interest on the equipment side.
As we as we deploy this so I do think it's an incremental uplift in terms of learnings.
I would say.
We realized selling software is different in selling equipment right. So in terms of the commercial conversion and onboarding, probably a little bit longer than we had originally anticipated however, the value proposition and the feedback on how it's a differentiated product.
As a lot of encouragement.
Go forward from here.
Okay. That's helpful.
My last question is on restructuring.
Maybe a little bit of context as to what you guys are doing here because the savings run rate since we look into 'twenty four is.
Pretty significant relative to the.
The spend that you have this year.
And I'm kind of curious as you're looking beyond 2023, and food Tech post separation.
Do you envision more opportunity to restructure the remain co if food tech business.
And if so.
Can you sort of give us a hint as to what are some of the main areas of opportunity going forward.
Yes, maybe I'll start.
We are expecting that total cost of sort of the restructuring efforts that we have in place to be.
Close to $9 million to $10 million and that includes some of the expense that we incurred in 2022, and so that savings of $9 million to $12 million again, I think we're kind of close to that one year payback on the restructuring effort. Once we hit the full run rate savings and as we've sort of commented.
Last year in our.
Our disclosures.
The restructuring is really around.
Most exclusively in food tech it is exclusively into tax sorry.
It's a lot of it is in Europe , making sure that we have the right cost structure and cost base for.
For the the environment that we're seeing.
<unk> not a tremendous amount at this point in time of consolidations of rooftops or anything like that it's really around just the base cost structure.
So we are going into your second question around remain co I think it's probably a little too early for us to have a lot of.
Visibility into what that might look like I think as we've always said we're constantly looking at the.
The efficiency of our operations.
We will continue to do that and.
And that will necessarily change.
Post any transaction with aerotech.
I think we will have to be.
Thoughtful about is sort.
Sort of as as we.
Remove that revenue from from JBT sort of the costs that we carry at corporate.
Overhang impacts the results.
And we will be cognizant of balancing that along with the efforts to redeploy.
Additional food tech business going forward.
Alright, thank you.
Yes.
And there are no further questions at this time I would like to turn the call back over to Mr. Brian <unk> for closing remarks.
Thank you all for joining us this morning, as always <unk> and Marley, we'll be available. If you have any follow up questions. Thank you.
Okay.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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