Q1 2020 Earnings Call
Good day, ladies and gentlemen, and welcome to the my sort of electronics fiscal year, 2021st quarter Conference call.
For this quarterly conference call. The company has prepared a powerpoint presentation entitled fiscal 2021st quarter earnings.
Which can be found at MISO dot com and the Investor Relations section.
As a reminder, this conference is being recorded.
This conference call does contain forward looking statements, which reflects management's expectations regarding future events and operating performance and speaks only to us or the date hereof.
These forward looking statements are subject to safe Harbor protection provided under the Securities Law Methode undertakes no duty to update any forward looking statements to conform these statements to actual results or changes in my thoughts expectations on a quarterly basis or otherwise.
Forward looking statements in this conference call include a number of risks and uncertainties. The factors that cause these actual results to differ materially from our expectations are detailed in my thoughts filings with the Securities and Exchange Commission, such as our annual and quarterly reports.
Such factors May include without limitation. The following number one dependence on a small number of large customers thinks it including two large automotive customers.
Two dependence on the automotive appliance commercial vehicle computer and communications industries.
Three international trade disputes, resulting in tariffs and our ability to mitigate Tara.
For timing quality and cost of new program launches.
Five the ability to withstand price pressure, including pricing reductions.
Six <unk> ability to successfully market and sell Dave or surface. This particle.
Seven currency fluctuations.
Number eight customary risks related to conducting global operations.
90 ability to withstand this business interruptions.
10 recognition of goodwill impairment charges.
11 ability to successfully benefit from Axa <unk> acquisitions and divestitures.
12 investment in programs prior to the recognition of revenue.
13 dependence on the availability of price and materials.
14 fluctuations in our gross margin.
15 dependence on our supply chain 16 income tax rate fluctuations.
17 ability to keep pace with rapid technological changes.
18 breach of our information technology systems.
19 ability to avoid design or manufacturing defects.
20 ability to compete effectively.
21 ability to protect our intellectual property.
22, successive Greg on and or our ability to implement and profit from new applications of the acquired technology.
23 significant adjustments to expense based on the probability of meeting certain performance levels and our long term incentive plan and 20 for cost and expenses due to regulations regarding conflict materials.
All lines are placed on a listen only mode for today's call and the floor will be open for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press Star zero.
At this time it is my pleasure to turn the floor over to your host for today Mr. Don Duda, Sir the floor is yours.
Thank you, Jeff and good morning, everyone.
Thank you for joining us today for fiscal 2021st quarter financial results Conference call.
I'm joined today by rugs Evans, our Chief Financial Officer.
Both Ron I have comments and afterwards, we will take your questions.
To start I will ask you to turn to slide four.
Our strong first quarter results, which include record sales as well as record EBITDA or a true mill to both sales growth and operational efficiencies.
The automotive segment outperformed relative to the global automotive market, which continued to be weak to weaken during the quarter.
Importantly, the segments organic revenue decline slowed to just 1.4% year over year, the lowest level in four quarters.
Versus a global automotive volume decline of about 10%.
Additionally, we saw the benefit of the initiatives, we took last year to reduce costs and improve profitability as well successful turf recovery efforts, Rob will cover this in his detailed remarks.
Also during the first quarter, new business wins and business development efforts in both automotive and industrial segments continued to capitalize on important trends, including safety and electrification.
Finally had to bear we continue to add new customers and made significant progress in lowering the average evaluation time.
Turning size five for a few comments on our key financial metrics year over year consolidated sales improved 21%.
In line with our internal expectations.
Additionally, GAAP net income improved 19%, while adjusted net income, which excludes expenses for initiatives to improve operations and acquisition related expenses, I mean bundle period improved 14%.
On slide six you can see our automotive segment is successfully navigating some significant industry and macro headwind headwinds.
While our Asian operations affected by the decline in passenger car sales and the ongoing trade and tariff dynamics.
The fact that our exposure to domestic Chinese Oems is limited to 8% of sales and somewhat mitigated the impact of these macro factors.
Additionally, we believe new products launching during fiscal 2020 should help us offset these headwinds in fact in euro the new launches of nearly offset the effect of the economic uncertainty and revised GDP forecast.
Breaking down sales of Tesla as well as new launches on the strong mix of products for as he leads and pickup trucks and bolster the north American operation.
It is important to note that the new launch as I just mentioned, we will continue to ramp throughout the next three quarters.
Please turn to slide seven.
Our boat business and sensors grew 11% year over year and is anticipated to grow from 56 million this year to over 94 million by fiscal 2022.
Further validating our strategy to move the company into a higher margin technology business.
Our highly patented Magnetoelastic technology also provides during a system sport integration vehicles and clinically position for automobiles as well as active role control to improve safety.
Moving to slide eight.
Our portfolio of technologies and solutions for the hybrid and electric vehicle market and RGB LTV LTV based ambient indirect lighting led to a solid quarter of new business awards totaling 30 million.
European automotive was awarded a Jaguar land Rover is common architecture program.
Dale our strategy to create common modules and standardizing on future electric and hybrid vehicles within their portfolio utilizes our power operate a tail gets paid slips stirring panel shift as well as going back to the instrument panel switches.
Well the five year program life annual revenue was 5 million launching in the second quarter of fiscal 2021.
Great Guy was awarded additional content arabians likely pick up and electric as you'll be models.
The reading Council Lam and the footwell important trade names.
Launching in the second quarter fiscal 2021.
With these new awards total content Caribbean vehicle between great content specific insight is 180 $888 for the pickup truck and $228 for the as you leave.
Great Camels also ordered the test will not a wine combination code book Reading light what does that mean annual revenue of 3 million launching in the third quarter of fiscal 2020.
With this award total content per vehicle across all nothing businesses for the Tesla model why is $160.
Notable leave for the test the model S and X methods total content per vehicle has grown to $300.
Our automotive group in Asia was awarded 11.
Just for Busbars onto Kieron electric transmission programs, both beginning in the third quarter fiscal 2022.
The bus bars are from PSC is new ideas through cross back and how they love Fest and senior vehicles.
Additionally, Nissan Mitsubishi and we're Gonna Busbar program for electric vehicle with average annual revenue of 11 million launching in the second quarter of fiscal 2021.
Pacific insight and Greek and lighting technologies and capabilities together with metals expertise in both power distribution solutions and automotive manufacturing will provide opportunity for market share gains and increased content across medical.
Moving to an update on the beer.
During the first quarter, we added five new customers, including our third pediatric hospital.
Additionally, our evaluation time for systems in hospitals averaged 48 days in the first quarter down from 77 days in the first quarter of last year.
We also began the first evaluation using our Gen two system and a Midwest Hospital network in the IC you.
Our Gen. Two system was designed for the patient carriers. The hospital that is care areas outside the operating room.
It has the same therapeutic territories as Gen. One system, yet as more compact and lightweight and provides the bedside clinician with more display information such as remaining surface like it also has an auto brightness features a patient can sleep better at night.
In closing our performance in the first quarter gives us confidence in our full year outlook and ability to execute in a very challenging macro environment.
At this point I'll turn the call would around a whole Reits are still detailing our financial results from the new guidance.
Thank you Don and good morning, everybody.
Please turn to slide nine.
First quarter sales improved 20.9% or 46.8 million to 270.2 million in fiscal 20 from 223.4 million in fiscal 19.
Sales from Gray con and new automotive launches more than offset the overall market weakness in Europe , and China as well as lower radio remote control appliance and data solution sales.
Foreign currency exchange continues to be a headwind as the euro and renminbi exchange rates were weaker than the prior year.
Moving on to slide 10.
On a GAAP basis first quarter net income increased 4.6 million to 28.3 million or 75 cents per share from 23.7 million or 63 cents per share in the same period last year.
First quarter GAAP net income benefited from the results of grade can and the net benefit we received from initiatives to reduce costs and improve profitability from last year, which included the absence of the expense for those actions we had.
Negatively impacting first quarter GAAP net income were lower radio remote control appliance and data solution sales.
Higher expenses for net interest intangible amortization income tax stock based compensation compensation in that tariffs as well as the impact of foreign currency translation.
Our first quarter tax rate of 20.5% was impacted by discrete items recorded during the period.
Excluding the.
Therefore in spite of a higher than anticipated effective tax rate in the first quarter. We now estimate that our tax rate will be in the range of 18% to 20% in fiscal 2020 slightly lower than the 18% to 21% of rate announced in June .
China tariffs continued to be a headwind, although we're aggressively working to mitigate the impact on our results in the first quarter. Our net tariff expense of 8.3 million also included Terra revenue reimbursement offsets related to fiscal 19, which were agreed to during the first quarter by some of our customers.
Therefore, the amount recognized in the first quarter does not represent a run rate for the remainder of the year.
We expect the net impact of tariffs to be higher for the remaining quarters of fiscal 20, but lower than the $8.5 million net expense, we estimated during our fiscal 19 earnings call.
We also are closely monitoring the announcement from last week, a tariff could increase to 30% from 25 beginning on October onest.
Currently we believe tariff for the fiscal year will be in a range of 4.5 million to $5.5 million at the current 25% tariff rate.
Moving to margins on slide 11.
First quarter GAAP gross margins and non-GAAP adjusted gross margins improved 120 basis points year over year in fiscal 20.
Gross margins improved due to greater sales, partially offset by the negative impact of foreign currency translation and reduced hetronic sales.
non-GAAP adjusted gross margins exclude expenses per initiatives to reduce costs and improve profitability in the applicable period.
First quarter, GAAP, selling and administrative expenses as a percentage of sales decreased 120 basis points year over year.
Positively impacted by the absence of the expense for operational improvements and the benefit of those improvements lower acquisition costs and foreign currency translations and by selling and administrative expense attributable to Greg can which has lower as a percentage of sales than method as a whole.
non-GAAP selling and administrative expenses as a percentage of sales, which exclude acquisition related costs and expense for operational improvements still improved 60 basis points year over year in the first quarter of fiscal 20.
Shifting to EBITDA on slide 12.
The company generated a record $50.3 million in the fiscal 2008 first quarter or 18.6% of sales.
Versus $36.8 million or 16.5% of sales in the same period last year. However.
Adjusting for expenses for initiatives to reduce overall cost and improve operational profitability and acquisition related costs in the applicable period.
First quarter 2019, adjusted EBITDA was $38.2 million or 17.1% of sales.
A few additional items to review.
Year over year intangible asset amortization expense in the fiscal 21st quarter increased $2.9 million or 152.6% to 4.8 million, primarily due to the amortization expense related to the grey card acquisition.
In fiscal 2001st quarter, we had invested approximately $13 million in capex, mainly to support programs.
Which is used for our bank covenants is approximately 1.6, we pay down nearly $11 million in debt during the quarter and since purchasing gray can weve reduced our debt by $85 million. We ended the quarter with just over $73 million in cash.
Move to slide 14.
I'll finish up my remarks with guidance as a reminder, the guidance ranges for fiscal 20 are based upon management's expectations regarding a variety of factors and involve a number of risks and uncertainties, which have been detailed in this morning's release and the Form 10-Q , and our Form 10-K .
As we announced this morning, we affirmed fiscal 20 sales in the range of $1.13 billion to $1.17 billion.
Pre tax income in the range of 150.3 million to $164.3 million.
And earnings per share in the range of $3.25 per share to $3.55 per share.
As discussed during our last earnings call. The majority of our new automotive and E. Bike program launches will not be at full production volumes until the second half of the fiscal year.
Additionally, the laundry care program is anticipated to launch in our fiscal third quarter.
While our estimated terra expenses now potentially lower than originally anticipated market choppiness related to a number of industry wide and macro headwinds will continue to impact our fiscal year.
These include the shift away from sedans and traditional passenger cars. The dollar strengthening against most major currencies and the anticipated softening in the commercial vehicles markets in the second half of our fiscal year.
For fiscal 20, we are estimated capital investment to be in the 48 to 54 million range and depreciation and amortization to be between 51 and $54 million.
Lastly, we expect our fiscal 20 free cash flow to be between 122 and $136 million.
In conclusion, please move to slide 15 to look at the key drivers of our anticipated EBITDA performance for fiscal 20.
Looking at EBITDA based on our $155 million of EBITDA in fiscal 19.
Adding EBITDA from new automotive and laundry.
Program launches of about $19 million.
Adding EBITDA from a full year of great time, which is about $21 million subtracting the impact of the loss to EBITDA from reduced passenger car production, which we estimate to be around $14 million.
Adding the benefit of the initiatives to reduce costs and improve profitability of about $11 million and adding back the onetime costs, we incurred in fiscal 2019 for acquisitions and restructuring of about $29 million.
Don that concludes my comments.
Ron Thank you very much and not just we're ready to take questions.
Certainly ladies and gentlemen, if you have a question or comment it is star one on your telephone with you asked after using a speakerphone you pick up your handset to provide the best sound quality.
Once again, ladies and gentlemen star one for any question.
Well pause just a moment to assemble the roster.
We'll go first to Chris Van Horn, B. Riley FBR.
Good morning, Thanks for taking my call and congrats on the quarter.
Good morning, Chris.
I just wanted to dig a little bit deeper if we could on the on the award activity because it seems like you had a strong quarter.
In terms of awards across the board here any any sort of drivers that stuck out to you either either from a competitive standpoint or just from a customer.
You know customer pickup perspective.
Sure.
We've said this in the past.
Mhm method a somewhat unique in that we are moving all season automotive manufacturer and we are in the bus bar business.
And so our awards under the Roseland by the Caf probably were in electrification come from that from that fact, we're we've supplied Tesla for a number of years, we had a good track record there.
So it's not necessarily surprising that we are getting other other business, we've announced the winners with Volkswagen.
No we've got room in and several others. So I think thats makes us somewhat unique and then and then some of the lighting wins is just great time doing a good job of of booking business and method as well.
And some quarters are better than others. As this was a good booking quarter I think last quarter was was was was a little lighter, but it wasn't it was a nice quarter I'm $30 million wins.
Hitting 21 and 22.
Most definitely helpful to have organic growth.
Okay got it.
And then maybe on that point I remember when you made the grant of the Grey card acquisition.
There was a lot of.
Theres a lot of possibilities are opportunities if you will.
To get with your existing customers, who you are supplying.
As well as kind of showcase some of the maybe traditional meso.
Capabilities just to sum of great cause customers have you seen that come to fruition.
We've done and then we talked about last quarter, we've done 10 days for the month.
Many of the key customers that has given us opportunities.
We've got some some nice opportunities that we're working on that at this point nothing nothing major to announce were but we are we're seeing progress there for sure.
Okay. Okay, I did notice during the quarter seems like acquisition related costs and profitability improvement costs.
Came down.
Almost eliminated if you will are there other do you see that coming back up in the out quarters or for the year.
Or do you feel like you've kind of made all the moves that you need to make in that department.
As I was talking about acquisitions first I mean, obviously, if we did an acquisition we would have some additional acquisition costs away in pumping ending.
That would significantly impact.
The PL.
And last year very very quickly we took actions to reduce our costs as we saw the declining revenues.
Again, we have nothing planned this year. So we don't we don't.
Anticipate any costs, there, but I.
Thats, a very challenging environment.
So I wouldn't rule that out if things went or decline further but we have nothing we have nothing planned.
Okay, Okay, and then I guess last for me.
The free cash flow profiles looking really strong.
Maybe two part question one.
Is that Capex Capex number that you gave us majority growth capex.
And then two with this free cash what are your kind of plans going forward dividend share repurchases et cetera.
Sure.
The majority of running middle income coming but the majority of the $48 million is for is for growth.
And as you know auto programs take a fair amount of capital to tell to launch and we got launches going on throughout the year here So close.
A good portion of that.
I'm drawing a blank on the.
But we are using as yet and so yes. So we are.
Certainly looking at.
This growing our business de leveraging.
Until we are going to to support organic growth and to support the growth of the business and possible future acquisitions and until then.
Just de leverage so.
No we pay a quarterly dividend and have for many years and we will continue to return capital to the shareholders in that regard, but mostly we would focus on future growth.
Organic and inorganic and our until we find that have an appropriate acquisition our mission is to reduce.
Our debt I think thats, the best way of observing the shareholders and let's go to <unk>.
Further as it goes way down to 1.6 debt to EBITDA ratio, we get it to 1.5, we then get some relief on our interest rate and unused line fees. So that's a pretty big number for us that we want to get too.
Two.
To do as quickly as we can.
Okay, great. Thanks, so much for the time this morning.
Thank you Chris.
A quick reminder, with star one if you had a question or comment we will go next to Steve Dyer, Craig Hallum Capital Group.
Hey, guys ready to go on for Steve.
Hi, good morning.
So you mentioned the.
Generation, two debeers system for patient care.
Outside of operating room do you expect a similar ramp I guess is the legacy product there or are there different structural dynamics between.
And operating room versus other patient care areas to the hospital.
No I.
Gen. Two was was slow to develop.
As we've done for the for the patient care areas, but also to go into.
Post acute.
It's a.
Does it.
A more advanced system that we have a generation one generation will continue to be used.
In.
Operating rooms were were not obsoleting that.
Just we felt that we needed a.
A smaller and then a portion of Gen. Two is a battery operated.
As I am I on.
And so it doesn't really change the basic therapeutic value, it's just a different.
A different controller.
So there is no reason to believe that you could die.
Launch faster or expand in the hospitals quicker with with this new generation two product.
It was designed with a lot of input from from post acute and when what we learn from from Gen. One I don't I don't think that would accelerate.
The beers adoption. Its debeers, we've said is a design and so you really have to go and improve the efficacy of the product whether it be gen. One are gen. Two.
Yes.
Yes go ahead, let me make one other point there.
When you when you go into I assuming on them.
Med surge.
There are more obviously more bad so there's there's a larger available market.
But again I don't think that the gen. Two.
Enables that assists us doing the the design in that we continue to do on.
In the operating rooms, no im sorry, I interrupted.
Yes, I was just going to ask one so presumably the gen. One in the operating room has proved out the efficacy and et cetera.
Well that carry over or do you need to go kind of start from step one here with this product or can you use some of that leverage some of that previous experience. There with this product in a hospital that has used.
Gen. One in the operating room no you don't have to go through another trial. The efficacy is proven now and we're doing a trial now and a new hospital system and they decided they wanted to use that Nic you first versus operating room.
And again Thats, a new new opportunities. So it's a it's a new trial, but.
Presumably that entire will be successful if they want to use an area. If they want to go into the operating and they wouldn't do another trial.
Got it all EBITDA there with the beer.
Switching over to industrial margins were really solid 37.4% in the quarter, where do you think that can go over the next few quarters kind of with all the cross currents with a bunch of synergy potential but also.
Softening the commercial market et cetera.
That's a very good question and we are going to see softening in the commercial market of the build into our second second half that does impact.
Margins.
We have a number of cost improvement programs going on particularly in our.
Chinese operation for Greg Hann.
Some of those will offset that.
Reduced margin from from volume.
But I don't I don't.
I wouldn't anticipate that we're going to see higher than what we forecasted that just there's too many headwinds and how that may have 21.
But I don't I don't see the.
We will hold our own let's put it that way by the initiatives that were that was our design.
Yes, I would just add to that may be that the hetronic is part of that group to as well so any headwinds there.
Could.
Could be greater margins, a little bit it was a great quarter. As you noted 37 or 37% margin I think our target we had a low to mid 30. So that's we really we crush of this quarter for sure and we have seen some softening of the Hetronic European business now.
We think that will continue into the second quarter, we'll see what happens in Q3 in Q4, but we've seen some softening there it's a very.
Good margin product for us so if we see decline that obviously affect margins.
And.
Maybe just to clarify I think I heard two different things there that this year relates all the headwinds, but potentially that margins could expand next year fiscal 21, and going forward, but I also heard kind of low to mid 30% gross margin, maybe I guess, well I think what we present, we've communicated we've communicated as our target business as a target this quarter was obviously higher than that.
But as I said, there's pressure on that margin.
Got it.
Last one for me and then I'll turn it over so on slide eight.
Sure on the content on on the two different.
The vehicles between two 300 Bucks.
How does that compare to.
Different platform see GM truck and SCB platform.
If I look at the average selling price on.
And right now were a combination of K two in Q1 as around $150. So.
I know a lot of volume.
But what we've seen with with Pete.
With.
Break on our own.
Busbar business, we've been able to.
Add content to these vehicles are quite nicely now again, it's not a 700000 units you see.
From from GBM.
They haven't sell prices higher.
And the margin is better.
Great. Thanks, guys and good luck.
Thank you.
Mr did at this time I have no other questions holding I'll turn the conference back for any additional or closing remarks.
Hi, Thank you, Jeff and thank everyone for listening and have a very safe and enjoyable lingering weaken.
Thank you ladies and gentlemen, this will conclude today's conference. We thank you for your participation you may disconnect. Your phone line at this time and have a great day.
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