Q4 2023 John Bean Technologies Corp Earnings Call
Good morning, and welcome to JBT Corporation's fourth quarter and full year 2023 earnings Conference call. My name is Andre and I will be your conference operator today.
As a reminder, today's call is being recorded.
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'd like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad. If you 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.
Thank you all Jeff Good morning, everyone and welcome to our year end 2023 conference call with me on the call is our Chief Executive Officer, Brian deck, and Chief Financial Officer, Matt moisture.
In today's call. We will use forward looking statements that are subject to the safe Harbor language in yesterday's press release and 8-K filings.
Jbt's 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.
Yeah.
<unk> good morning, everyone.
A lot has occurred since our last call a few months ago. So let me dive in.
As you know JBT announced its intention to pursue a merger with morale.
We believe this merger would be transformative for our customers and shareholders.
Bringing together two exceptional providers of food and beverage solutions with synergistic products, great technology and globally recognized brands.
I'll provide more color on that but first about our financial performance.
We are very pleased with JBT as strong results in 2023.
On a 5% increase in full year revenue adjusted EBITDA increased 20%.
We also generated strong free cash flow with a conversion well over 100%.
Moreover, we introduced financial guidance for 2024, which reflects further revenue growth and continued margin expansion.
With that I'll turn the call over to Matt who will walk you through our 2023 performance and our guidance for 2020 for Matt.
Thanks, Brian and good morning, our full year and fourth quarter performance reflected a significant year over year improvement in profitability.
And outperformed the guidance, we provided on our last earnings call.
For the full year revenue increased 5% and gross margins improved 190 basis points year over year.
Driven primarily by the benefits from restructuring savings enhanced operating efficiency, a favorable mix of recurring revenue and our supply chain initiatives.
Adjusted EBITDA grew 20% year over year to $273 million and adjusted EBITDA margin increased 210 basis points to 16, 4%.
Yeah.
From an EPS perspective, we delivered diluted earnings per share from continuing operations of $4 <unk>.
Compared with $3 23 in 2022 and <unk>.
Adjusted EPS of $4 10 versus $3 67.
We were also very pleased with our 2023 cash flow performance.
The full year, excluding any impact from aerotech free cash flow was $167 million, representing a conversion rate of 129%.
Our year over year increase in free cash flow was driven by strong operating results and better inventory management and the supply chain constraints experienced in 2022 improved.
As of yearend, our net debt to adjusted EBITDA ratio was 0.6 types.
A slight increase from the end of the third quarter due to the tax payment associated with the sale of Aerotech.
The fourth quarter of 2023 strong execution resulted in an adjusted EBITDA margin of 18, 2%.
260 basis point improvement year over year.
Adjusted EPS, which excludes the 33 discrete tax benefit on the sale of a subsidiary increased 24%.
Regarding our guidance for 2024, we are projecting solid topline growth of 5% to 7% or 4% to 6% organic which exclude the benefit from FX of 1%.
Our organic revenue guidance includes approximately 1% from price as you work to stay price cost neutral.
How about 1% to 2% impact from equipment market growth.
We expect North American poultry demand to show some recovery in the back half of the year.
Additionally, we expect to see growth from our <unk> business as we deliver on strong backlog that has been built from demand for warehouse automation.
Finally, we are forecasting continued growth in our recurring aftermarket revenue as we invest in resources to support improved customer equipment uptime as well as benefit from continued ramp and omni Blu adoption.
'twenty 'twenty four we are forecasting adjusted EBITDA of $295 million to $310 million.
Representing year over year growth of 11% at the midpoint.
Our margin guidance of 17% to 17, 5% reflects a year over year improvement of approximately 85 basis points at the midpoint.
This increase is the result of continued benefit from our ongoing supply chain initiatives and operating leverage along with restructuring savings of $7 million to $9 million.
Yeah.
We expect full year net interest income of $4 million and a tax rate of 22% to 23%.
<unk> and adjusted earnings per share guidance of $5 five to $5 45.
At the midpoint, our adjusted EPS guidance represents a year over year increase of 28%.
And finally, we anticipate free cash flow conversion of more than 100%, which includes capex of about $50 million to $60 million.
Included in our full year guidance is approximately $15 million in M&A costs for the first half of the year related to the intended merger offer for morale.
As a reminder, these M&A costs are excluded from adjusted EBITDA and adjusted EPS.
On a reported GAAP basis, we have updated our guidance ranges versus our preliminary outlook from January 19th.
To reflect revised M&A cost assumptions we.
We will continue to provide updates on estimated costs from this potential merger as we move throughout the year.
Yes.
First quarter is traditionally our seasonally slowest in terms of revenue and profitability.
And that we expect will continue in 2024.
Given the timing of the anticipated recovery in North American poultry markets. We expect that 2020 for second half revenue to be approximately 53% of the total versus 51% in 2023.
We are forecasting margin improvement in each sequential quarter of 'twenty 'twenty four as market conditions are expected to improve and supply chain actions flow through to the results.
With that let me turn the call back to Brian.
Yes.
Thanks, Matt.
During 2020 forward with good order momentum and backlog.
Fourth quarter orders were solid $418 million in full year orders increased 5% year over year.
In the fourth quarter similar to the third we enjoyed strengthening order trends in Europe, and Asia, including from the poultry industry.
While we have yet to see improved orders from North American poultry customers the industry's price cost dynamics are improving.
We recently returned from the annual IPP, otherwise known as the poultry show where attendance was among the best ever.
Mood was more upbeat and the conversations constructive.
Overall, our interactions support our belief that we are entering a period of recovery in equipment demand from that market.
Switching gears.
Gears, because we've talked about for the last few years JBT is greatest opportunity for margin improvement rests in our supply chain initiatives.
Given post pandemic supplies chain pressures during 2021 and 2022.
We are hyper focused on continuity of supply.
In 2023 supply chain conditions improved, allowing us to shift our focus and resources to optimizing costs and inventory management.
With the sale of Aerotech, we can focus our supply chain efforts on a more homogeneous supply base.
We are engaged in our strategic sourcing initiative consolidating jbt's spend concentrate purchasing where we can improve the economic delivery.
And quality of our supply base.
We're also engaged in a process of value engineering as we work to standardize components and reduced complexity of product design without compromising our quality our performance promise to our customers.
This will lower costs improve manufacturing efficiency and facilitate inventory management.
We plan to build on the supply chain success, we captured in 2023 and generate some 25 to 50 basis points of incremental margin expansion in 2024.
As you can see from our strong performance in 2023, and our 2020 for guidance.
<unk> prospects remain bright.
Selecting our business are strong resilient business model, a diverse product and end market mix and our value added acquisitions.
Beyond what we've already achieved the proposed merger with morale represents a unique opportunity to create broad stakeholder value.
Yes.
We have not we have not yet launched the tender offer for morale, which we now believe will like.
Like most likely occur in the second quarter.
And of course, the proposed merger is subject to respective shareholder approval and regulatory clearance.
We will share more about the transaction on a conference call we plan to hold post launch.
And in the meantime, here's what we can share.
We believe the combination will accelerate growth by capturing cross sell opportunities across our complementary portfolios.
And through an expanded global commercial footprint and customer care resources.
The combined company would offer and even Fuller line solutions and protein pet food and plant based protein processing.
Scalable R&D would expand our ability to develop innovative solutions to address customer priorities.
Including the growing demand for automation and sustainable solutions.
Yeah.
The enhanced reached as a customer care organization with improved service levels make it easier to do business with the combined company.
Furthermore, by leveraging our complementary and comprehensive digital solutions.
<unk>, omni blue and morals and Nova.
Optimize equipment uptime and efficiency for customers.
And further the digital engagement ecosystem.
Yes.
Even before considering revenue synergies, which could be meaningful we have identified cost synergies of more than $125 million that we expect to capture within three years of completing the transaction.
We believe.
Our ongoing supply chain initiatives would improve the collective cost base.
Additionally, we expect benefits from leveraging our collective G&A spend and optimizing manufacturing efficiency.
Importantly, we will advance the business in a way that respects and supports morale is heritage.
We anticipated that the company that the combined company will be named at JBT morale.
<unk> shareholders are expected to have representation on the combined board of directors proportional to their pro forma ownership.
And we are committed to building a best in class talent organization.
Plan is to add a European headquarters in Iceland, and the Companys shares will have a secondary listing on NASDAQ Iceland.
Yes.
Assuming the transaction closes at year end 2020 for the combined company is expected to have a net leverage ratio of less than 335 times.
Which is prior to any cost synergies.
And given the strong cash flow profile and improving EBITDA of the combined business.
We would expect leverage to be well below three times by the end of 2025.
With all the activities surrounding the intention to merge with morale.
Gains business as usual for JBT.
Our priority as always is to provide superior solutions and service to customers.
And it is jbt's employees around the globe that make that happen every day.
With that let's 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 take our first question from Lawrence de Maria William Blair.
Thank you and good morning, everybody.
I just wanted to check in on these tenders so I think.
You're saying most likely in <unk>.
At IP P. I think the messaging with diligence you have 46 more weeks and then the tender shell I guess a question first of all this is the time frame flipping a little bit and I would think it would have been sooner and secondly have you started the regulatory approval process yet.
Right so as it relates to the timing specifically as.
As we've.
I've covered all of the regulatory requirements as part of both Iceland and.
And the U S on the surface on the sell side.
The work streams associated with that we just found that we need a little bit more time to get through all of that prior to launch.
So nothing particularly.
<unk> with that it's just a matter of getting through the work streams and.
And as part of that we are on that.
I Trust side while.
While we Havent formally filed yet we do continue that process.
In terms of the data collection, and understanding, which which jurisdictions, we're going to file and so theres a tremendous amount of work.
Associated with that and Thats and frankly antitrust is the longer pole in.
The tent and Thats going to drive that.
Overall timing of the transaction.
We're still focused on completing everything by the end of 2024.
Okay. Thank you.
And then.
Secondly, if youre going youre going through this process and learning.
Two questions first.
It kind of confirmed what you think your round the overlap is more complementary versus competitive and secondly have you started to talk to morale shareholders.
Dialing.
For approval from them and if so what's the feedback been so far and I'll pass it on thank you.
Right. So on the first question indeed the ports.
Portfolio is complementary mostly complimentary as we expected.
So we don't see it from an antitrust perspective, a particular issue.
However from a customer perspective, we think it's great value, creating so it is.
Confirming some of our suspicions and hypotheses around.
What the combined company could look like and the value accretion.
And offerings that we could provide on a combined basis.
In terms of engaging with morale shareholders. No. We have not started that yet that would not start until after we launched the tender offer.
Obviously, we'd like to have some a formal in front of them in order to speak to so that won't occur until until the launch itself.
Okay. Thank you good luck.
Thank you.
Well move next to Walter Liptak at Seaport Research.
Hi, good morning, well thanks, good morning, good morning.
Wanted to ask first maybe a fundamental question about.
Just the 2020 for outlook and it sounds like.
Or.
A pretty big part of the.
EPS growth is coming from margin improvement and so I wonder if you could just walk us through maybe some of the buckets of where that is going to come from is it some of the restructuring is already done.
They're more restructurings that have caf in supply chain et cetera.
Yes, well, it's Matt I'd say it's.
Yes.
Peer growth in EBITDA dollars I'd say, it's probably 50 50 between.
The volume benefit that we're getting from the sales growth and then the margin improvement that we expect.
And those margin improvements are going to come from that.
The restructuring savings from the actions that we've already taken so those actions are for the most part already done there is a little bit that's going to happen here in the first quarter, but it's very small.
Those savings for 2024 expected to be between $7 million to $9 million and we should be able to hit full run rate by the end of the second half. So that's a big portion of the benefit.
And then and then the other piece of it is the supply chain benefits that we saw in 2023 benefiting the bottom line now continuing into 2024 with additional actions being taken by the supply chain team to drive cost out through both value engineering as well as.
Sourcing resourcing activities.
And certainly the margins are going to continue to get better as we grow because of <unk>.
Getting leverage on the fixed costs, which will somewhat be offset by some investments we need to make to support the organic growth that we want to we want to volatile.
Okay Alright, great.
On the volume part of that.
Margin answer.
How much of the volume do you think is coming from the aftermarket parts sales are we seeing benefits from omni blue.
Or is this.
The orders that are are just flowing through from from equipment.
Yes, I would say in terms of mix for 2024, we're still expecting that 50 50 ish type mix.
And we are seeing as part of that.
Certainly seeing an improvement and additional contribution from the omni plu side.
We are starting to see some nice momentum.
In in new customers adopting it but also convert converting our old.
<unk> platform is those contracts.
Apps. So good good momentum there. So we are excited about about that but no.
No major mix changes in 2020.
For like I said, we.
We do have some a little bit higher on the equipment growth side, particularly because of the HEV that we mentioned along with some recovery in the back half of the year on the protein side.
Okay, great. Okay. Thank you.
Thanks.
We will go next to Mig Debrett RW Baird.
Yes, good morning.
Good morning, the questions.
Can we put a finer point on Q1, maybe you talked about the seasonality here, but maybe.
Maybe frame how you how you sort of see revenue either year over year or sequentially and what's the starting point for margin for the year as well.
Yes.
<unk> revenue in the quarter is going to be.
Certainly better than we saw last year in Q1, we do see growth.
Not to the same level of growth that we're seeing for the full year, but certainly is because of the back half nature of the recovery in North American poultry.
There is some.
Modest growth in the first quarter and then on a margin perspective.
We said year over year, there will be improvements in margins and I would say.
Hey.
75 to 100 basis point improvement that we're seeing for the full year, we would expect to see that every quarter is an improvement year over year.
That's helpful. Thank you.
Looking through your slide deck, you on slide five you kind of call out.
Strong performance that you had in recurring revenue.
If my math is.
Right.
The $95 million growth that you've had in recurring revenue.
That would be double digit growth if I'm not mistaken in 'twenty three so I guess I'm curious as to what's been driving that growth.
And recurring and.
As you're looking at 24.
Your implied guidance calls for growth in recurring revenue, but obviously much much lower than what <unk> had in 'twenty three so I guess I'm just kind of curious as to what.
Be changing here, it's just a function of tougher comps.
Right, Yes, there's a couple of things I would say the primary thing that we saw was particularly again in North America. As there was some deferral of Capex investment more spending on refurbished mentioned projects in keeping things.
I'll say more stable and keeping that output strong without having to make new equipment.
Purchases, so obviously as they switch a little bit from new from that to new equipment in 2024, you'll see a little bit of moderation back to the mean, so that would I would say is the primary driver.
Where there is some sort of.
I don't know like pricing benefits or something of the sort that might have been disproportionately benefiting.
Recurring revenue in 'twenty three.
I would say generally yes, I would say a little bit we obviously, we see.
We captured price increase on.
Both equipment and on.
And then aftermarket I wouldn't say, they're materially different one thing I should mention however.
Mig is that we bought Bev Corp at the what I think.
August of 2022, and that is a 60% plus recurring revenue business. So you do get a full year benefit of that as well. So some of that would be inorganic in that high growth rate.
That's interesting so if you recall they've got about if you recall <unk> got about $90 million or so of revenue and about 60, 65% recurring revenue you get the full year benefit of that instead of the four months that we added that we enjoyed in 2022.
Yes that makes sense, okay. Thank you for that clarity.
Yes.
In terms of the.
The OE side.
Of the business.
Yes.
I guess on that.
Misunderstanding things here it looks like OE was down maybe in 'twenty, three and I am curious was poultry the only source of pressure that you had in OE or were there other verticals that decline as well and as you look at 'twenty four.
In poultry specifically.
Is there a way to sort of frame for us what the swing would be I mean like I don't know if this business is running at.
75% of what you would call mid cycle or or what and what sort of recovery do you factor in into 24. Thank you.
Right so in 2023.
North American poultry was clearly those buyers say largest contributor too.
Alright, the equipment side had.
Yes.
Some slightly slightly negative growth in 2023.
Primary corporate of that was the lower order book coming into the year and throughout the year frankly.
On equipment orders.
Other areas that reverted to I'll say more normalized levels with pet food pet food in 2022, and 2021 for that matter who is tremendous.
It remains a debate and.
A decent market in 2023, but compared to the.
The real robustness that we saw in 2021 and 2022 reverted so those were the two.
The two main ones and then I'm sorry, what was the second part of your question.
Yes, as you think about 2024.
Where do you think you've been running in terms of what you would consider to be normalized demand.
<unk>.
And markets that have compressed I guess, you were clear about pet food, but im not clear in poultry in terms of where you are versus what's normal demand and what do you factor in in 'twenty four in terms of a bounce back in growth.
Right so.
We I would say in North America.
More than 20% down versus I would say a normal mid cycle year.
On equipment.
That got somewhat bolstered by the aftermarket, but on the equipment side north of 20% lower than what we normally would be we don't see that full recovery. This year right. Because we don't think that's going to we expect to start receiving orders here in the front half and converting that to revenue in the back half.
I would say kind of in.
I will say halfway recovery, if you will in the back half of the year.
Great. Thanks for the color I appreciate it.
Sure.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad will pause just a moment.
And there are no further questions at this time I would like to turn the conference over to Mr. Brian <unk> for closing remarks.
Thank you all for joining us this morning, as always Kendrick and Marley, we'll be available if you have any follow up questions.
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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