John Bean Technologies Q1 2023 Earnings Call Transcript

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April 26, 2023

There are 8 speakers on the call.

Operator

Good morning, and welcome to JBT Corporation's First Quarter 2023 Earnings Conference Call. My name is Audra, 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.

Operator

I will now turn the call over to JBT's Vice President of Corporate Development and Investor Relations, Kedrick Meredith. To begin today's conference, please go ahead.

Speaker 1

Thank you, Audra. Good morning, everyone, and welcome to our Q1 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 ks filing. JBT's periodic SEC filings also contain information regarding risk factors that may have an impact These documents are available in the Investor Relations section of our website.

Speaker 1

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.

Speaker 2

Thanks, Kedric, and good morning, everyone. Overall, we outperformed our expectations in what is typically JBT's seasonally slowest quarter of the year. As we have said before, FoodTech continues to be driven by a resilient business model, a diverse product offering and value added acquisitions. In the Q1, Flutek revenue and margins exceeded our guidance largely on the strength of recurring revenue. At AeroTech, we're no longer on a path to recovery, we are there with exceptional demand and record orders in the quarter.

Speaker 2

With that, I'll turn the call over to Matt to provide details on the Q1 and outlook for the Q2.

Speaker 3

Thanks, Brian. JBT delivered solid Q1 results with double digit year over year growth of 13% on revenue And 30% on adjusted EBITDA. At FoodTech, 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, which represented 56% of total revenue in the quarter In an improving supply chain environment, enabling the delivery of more products than forecasted. FoodTech 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.

Speaker 3

At AeroTech, 1st quarter revenues increased 25% and adjusted EBITDA margins of 10.1% improved 300 basis points from the prior year period. Arotech's year over year margin expansion resulted from volume driven leverage on fixed costs And the realization of pricing actions. On a JBT consolidated basis, adjusted EBITDA increased 30% $16,000,000 in the Q1 of 2023 to $70,000,000 Adjusted earnings per share was $0.94 We're $0.88 in the Q1 last year. A strong operating performance was partially offset by higher depreciation and amortization, Higher interest expense and a lower discrete tax benefit. For the Q2 of 2023, we anticipate Total year over year revenue growth 5% to 9% and adjusted EBITDA margins of 14% at the midpoint For an improvement of approximately 200 basis points.

Speaker 3

At FoodTech, we expect revenue growth of 5% to 10% With adjusted EBITDA margins of 18% to 18.75%. At AeroTech, we are projecting revenue growth of 4% to 7% Adjusted EBITDA margins of 10.75% to 11.75%. As a result of this continued top line growth and margin expansion, We project 2nd quarter GAAP earnings per share of $0.90 to $1.05 and adjusted EPS of $1.10 to 1 0.25 For the full year, our guidance is essentially unchanged with consolidated revenue growth of 7% to 10% and adjusted EBITDA growth of 23% We're 170 basis points at the midpoint. We still expect free cash flow conversion to be above 100% of net income for the

Speaker 2

full year. With that, let

Speaker 3

me turn the call back to Brian.

Speaker 2

Thanks, Matt. As we discussed last quarter, the backdrop of economic uncertainty Remains a factor in the pace of FoodTech customers' investments decision making as does the cost and availability of capital. With that in mind, FoodTech orders of $406,000,000 or $417,000,000 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.

Speaker 2

Overall, we remain encouraged By the engagement with FoodTech customers entering the Q2 as they continue to be motivated by the need for automation, Operating Efficiency and Sustainability. In terms of end markets, we enjoyed healthy order trends from fruit and vegetable, Convenience meals and ready to drink and functional beverages. And we witnessed some modest sequential improvement in poultry investments After declines in the back half of twenty twenty two, however, this market generally remains under pressure. Lastly, our automated guided vehicle business continues to enjoy strength and demand. Since our last call just 2 months ago, we have continued to sign customer contracts for our digital solution, OmniBlue.

Speaker 2

Its value proposition is resonating 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 commercialization and we are working side by side with customers continually enhance the product. Moving on to AeroTech. Orders expanded 51% year over year To a record $232,000,000 $50,000,000 above any prior period with improved price recovery and robust demand across the infrastructure And Commercial Airline to End Markets.

Speaker 2

Regarding our intent to become a pure play food and beverage solutions company, Last quarter, we indicated separation is more likely to be realized through the sale of our Otech. Indeed, this is the path we are pursuing. Our intent remains to execute by year end, while remaining cognizant of the capital market environment. In the meantime, with the recovery in commercial air demand, growth in defense applications and continued robust airport infrastructure spending, AeroTech's 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.

Speaker 2

Last week, we issued our 2022 ESG Annual Report, Sustainable solutions for a growing world. As the population expands, we need sustainable solutions to feed the future. JBT has those solutions today, 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.

Speaker 2

In 2022, we estimate that more than 70% of GBT's products and service revenue stem from equipment that delivered environmental benefits. Sustainability and profitability are not mutually exclusive for GBT and our customers. Our solutions have always been built around enabling customers to reduce food production costs and improve profitability. OmniBlue Furgler supports customer profitability and resource utilization through next level data intelligence that improves equipment efficiency and uptime. These sustainable solutions make JBT more competitive and critical to the food industry.

Speaker 2

JBT is also supporting the development of sustainable foods with solutions for production of plant based proteins and dairy alternatives. Moreover, we're helping food and innovators with cell based protein production, which can revolutionize the way food is produced. We recently joined a number of initiatives around the globe reflecting our commitment to sustainability. For example, by partnering with the World Climate 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.

Speaker 2

This year, I signed the CEO Action for Diversity and Inclusion pledge, reflecting our ongoing commitment to diversity, inclusion, equity and belonging. We launched and grew our first two employee network communities, employee led teams that foster diverse and inclusive workplace aligned with JBT's core values. I am particularly proud of the progress we 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.

Speaker 2

Operator?

Operator

Thank you. We'll go first to Mig Dobre at Robert W. Baird.

Speaker 4

Thank you for taking the questions, and good morning, everyone. Good morning. I guess where I would like to start is with a little more color maybe on what you're seeing in terms of FoodTech demand trends, I'm curious, the protein business, how you see that progressing through the year. And I'm also curious from a pricing standpoint how things are changing and where you sort of think you are On a price cost balance at this point?

Speaker 2

Okay. So from a demand perspective, I would say it's Still mixed across the globe. We're seeing regional strengths and weaknesses. Right now, as I mentioned, Europe is a little bit stronger. North America, some of the moderation persisted.

Speaker 2

It was stronger in the 4th quarter sorry, in the first quarter Versus the Q3 last year, but not quite as strong as the Q4. And that's mainly driven by poultry and even the pork industry, both of those A little bit challenged right now. What we've seen in Europe, if you recall the first half of last year, We saw some deferred investments in lower demand and typically what we see and it played out in this case is that Our customers can typically only go a couple of quarters before that drumbeat of food demand ultimately requires some investment and that's what we think we're seeing there. Ultimately, we think that will play out in North America as well. But at this point, North America is lower than I would say the normal baseline.

Speaker 2

As it relates to price cost, we are seeing we're getting to that Upward limit on pricing, generally speaking. That said, we remain in an inflationary environment. We will continue to I'll make sure we capture our increased costs, but there's certainly more pressure on pricing than there's been in prior quarters. That said, we feel we can maintain our margin profile.

Speaker 4

Understood. Then maybe a follow-up on your guidance. Obviously, the quarter played out quite a bit better than The way you initially guided, you're not really carrying the Q1 beat to the full year outlook. So maybe a little bit of commentary as to what is unique in a quarter that perhaps doesn't repeat on a go forward basis and Really any other puts and takes to the outlook relative to what you previously expected?

Speaker 2

Sure. There were 2 things, 2 primary contributors Good quarter. First, we did have about $5,000,000 of equipment revenue that moved out of Q2 and into Q1. As we mentioned, A little bit better supply chain environment that allowed that, but that certainly won't continue. And we had pretty extraordinary recurring revenue business in the quarter.

Speaker 2

We think that's going to moderate to back to normal levels. We'll see. Obviously, we've got a great recurring revenue franchise and Continue to be a source of strength for JBT regardless of the economic environment. So we'll see how that plays out. With that said, we are really cognizant and aware of the broader economic environment and how that might impact how we go forward from here.

Speaker 2

We do have a large relatively large go get still. We're reasonably well positioned in our backlog, but there still is go get MIG on our revenue. And our margins obviously performed well, but in this economic environment, we didn't feel that this was In the environment for raising guidance, it's just really being very cognizant

Speaker 4

of where we sit in the market. And just to put a finer point on the recurring revenue, what was it in the quarter that maybe boosted this A portion of the FoodTech business that you don't expect to be sustainable on a go forward basis?

Speaker 2

Well, just history and data data history would tell us. We do have fits and starts sometimes. If you recall, I think it was Q3 last year, it declined for 1 quarter and then it rebounded And this one spiked. And I will say what was pleasing, Oliver, was it was strong globally. Every economic region showed strength And aftermarket?

Speaker 2

Obviously, we hope that continues, but historically, the data would suggest that it goes back to normalized levels.

Speaker 4

Okay. Thank you for the questions.

Speaker 5

Sure.

Operator

We'll go next to John Joyner at BMO Capital Markets.

Speaker 6

Excellent. Thank you very much for taking my questions. So Brian, just maybe to follow-up on the point about The poultry markets, and maybe this is probably an easy one, but there has been some stabilization there and gradual improvement 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?

Speaker 2

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 that's How sustainable that we it will be. Like I said, it did improve in the quarter, which was nice to see. We'll see where we go from here.

Speaker 2

I agree that there is some stabilization, but where it sits today is still relatively low in the grand scheme of things despite The improvement. And I know that there's a lot of work by our customers working on the efficiency side of things. I don't expect that On a demand from equipment perspective on new capacity, it'd be more about operating efficiency and that's what some of the orders that we saw in the Q1 Reflected.

Speaker 6

Okay. That's good color. Thank you. And then just regarding the ongoing rollout of OmniBlue Across your product portfolio, I believe at last check,

Speaker 2

you

Speaker 6

had around 5 connected product lines. You can correct me if that's not Right, today. But because Omnivolu is 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?

Speaker 2

Sure. So yes, we are in 5 product lines that have been introduced and the 6 that we're getting closer on. Couple of product lines are fairly well developed and 2 less well developed and starting the commercialization. In terms of the feedback, customers Our telenas to OmniBlue is a differentiated product, which is really what you want to hear. It's making Us a more engaged vendor with them, it's making us more connected and more connected to their outcomes.

Speaker 2

And that's what I really think they appreciate. More than anything, they like working 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.

Speaker 6

Okay. Excellent. Thank you, Brian. Sure.

Operator

We'll move next to Laurence De Maria at William Blair.

Speaker 5

Hi, thanks and good morning everybody. So Brian you touched on AeroTech, obviously you have a clear path moving forward. The question is really around An irritate at this point is obviously the proceeds and the reallocation. So I know there's some sensitivities around that obviously, but can you discuss maybe the tax basis The asset and whether you think that can be avoided if restructures can avoid, obviously, big tax bill. And then the other side, can you talk about your pipeline And the possibility of timing a buy side in conjunction with the sell side is the first question.

Speaker 5

Thanks.

Speaker 2

Sure. So on the 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 sale path was we were investigating Some tax efficient options and we've exhausted those and we don't really feel that that's A viable path at this point given the state of the market, but we do strongly feel that a sale process It's the right path for JBT. In terms of the tax and tax basis, just I mean just to boil it down frankly, You're talking about $100,000,000 plus in taxes, obviously depends on the proceeds, But 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 Our intent on getting that executed by the end of the year and be, I think, a pure play by the end of the year, Our acquisition process is always on. It's always been on.

Speaker 2

We do continue to I have bilateral conversations with potential companies. I will say this, the market is a little bit different than we've seen currently than we saw perhaps in 2021 and front half of twenty twenty two Well, there are a lot of auctions and things of that nature. Today, it's a lot more 1 on 1 conversations, smaller, I'll call groups of interested parties that are talking to companies. So it's a little which is actually good for JBT because that's how we develop Quite a bit of our pipeline is engaging with those customers and we'll certainly continue to engage and look to redeploy that capital. Timing is never perfect.

Speaker 2

So we're just going to move forward with looking at good companies, Maintain our disciplined process on acquisitions, recognizing that we will have more capital available at some point Provided AeroTech executes as we intended to.

Speaker 5

Thanks for that. Very helpful, Brian. And then secondly, Obviously, some nice orders. Can you maybe, at least 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 in, obviously, volume and compared to price as well.

Speaker 3

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 material side. And so price impact for us is in that high single digit range, probably 7%, 8% kind of range. So there is certainly a decent amount of price included in that increase of the backlog year over year. And certainly that is 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 and the 1st part of Q1.

Speaker 5

Okay. Thank

Speaker 2

you.

Operator

We do have a follow-up question from John Joyner at BMO Capital Markets.

Speaker 6

Okay. Great. Thank you. Maybe could you touch on the record order intake for AeroTech? I mean, it was clearly quite strong.

Speaker 6

What were the drivers there around, I mean, any particular projects or products that are seeing high demand? I mean, I think back to kind of de icers a few years ago. Any color there would be helpful.

Speaker 2

Sure. Yes, it's frankly, it's pretty broad based. It's the commercial airlines is a huge driver And that's across deicers, 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 It's coming into play. So we're seeing that play out largely as expected and we expect that to be a source of strength For frankly for years as that money gets deployed.

Speaker 2

So it's really broad based on the commercial airlines And as well as the infrastructure. And then on the defense side, we're seeing some strength too. Obviously, the world remains geopolitically remains A tricky place, so we are seeing more demand there as well.

Speaker 4

Okay. Excellent. Thank you.

Operator

And we'll go next to Walter Liptak at Seaport Research.

Speaker 2

Hi, Walt. Hey, thanks. Good morning, guys. I wanted to

Speaker 7

ask a little bit more about OmniBlue. Apologize if you went into some of this, but can you just give us a refresh on sort of the spending levels that we've gone through And how much spending levels do we have left and maybe what inning are we in for recognizing some revenue And offsetting some of those costs?

Speaker 3

Yes. Well, I'll take the cost side First and then maybe Brian can talk about the revenue piece here. But from an investment perspective, last year We invested close to $40,000,000 from a CapEx perspective in OmniBlue. This year, that's going to Come down significantly, it's probably closer to $12,000,000 to $14,000,000 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.

Speaker 3

From an expense perspective, I'd say as we kind of talked in the last call, we started to Push some of that expense out to the businesses in FoodTech. And so that's about $14,000,000 to $15,000,000 of expense, about $9,000,000 to $10,000,000 of that is D and A. And then we'll have some additional Spats and corporate about $5,000,000 this year, associated with sort of supporting the overall OmniBlue environment and continuing to sort of invest And additional capabilities from a software and a capability perspective.

Speaker 2

And then commercially speaking, we're still very, very early, right? So most of 2022 Was getting new customers signed up, reference customers that are proved that help prove out the product And allow us to make any changes to the product as necessary and help 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 and what OmniBlue 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 JBT a better company to do business with.

Speaker 2

And then when it comes to making decisions on Equipment or otherwise that we're there for them. And probably more than anything, it furthers Conversation that we're having regarding our customer care business. So OmniBlue fits perfectly in Well, we've been focused on developing our customer care business and investing resources on with that over the last several years. 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

Speaker 7

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 is on track, but I wondered if you're still on the same calendar, is anything moved around From the first half to the second half or later in the year, how are you thinking about the calendar for Erical?

Speaker 2

Right. And just For everyone's benefit, what 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 iterated that we the intent would be to execute in the back half 2023. That remains our intent. Certainly, we're aware of the capital markets, but that's currently our intent and that's how we're proceeding.

Speaker 7

Okay, great. Thank you.

Operator

And we'll move next to Mig Dobre at Robert W. Baird.

Speaker 4

Hey, just two quick follow ups for me. The first one is back to the discussion on OmniBlue here. And I'm curious What learnings you have had thus far from this program? And I guess the way I would ask the question is, do you view OmniBlue as Truly an incremental opportunity to grow revenue for the company or is this more of a kind of a table stake Something that the company really needs in order to cement these customer relationships and it's just sort of like the kind of tools that you need frankly to service

Speaker 2

Sure. I actually I think it's a little bit of both, Mig. I think generally speaking industrials do need Continue to invest in digital and digital assets. And I do think a part of it is just making sure we keep pace with that. But really what we intended with OmniBlue and we are seeing the feedback and the value proposition there that this will drive revenue.

Speaker 2

We do feel that there will be an uplift in the customer care side of the business because we still I don't have a large wallet share. It's still in that 30%, 35% range. So there's opportunities In terms of ease of doing business with and that's critical when it comes to ordering parts on the shop floor and getting things quickly, There's a service element to this. So there's a promise of inventory availability and service availability and ease Of scheduling service. Additionally, as we roll out OmniBlue to multiple products within the same line, Which we're starting to do now.

Speaker 2

It 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 deploy this. So I do think it's an incremental uplift. In terms of learnings, I would say what we realized is selling software is different than selling equipment, Right. So in terms of the commercial conversion and the onboarding, probably a little bit longer than we had originally anticipated.

Speaker 2

However, the value proposition and the feedback on how it's a differentiated product gives us a lot of encouragement as how We'll go forward from here.

Speaker 4

Okay. That's helpful. And 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 as we look into 2024 Is pretty significant relative to the spend that you have this year. And I'm kind of curious as you're looking beyond 2023 in FoodTech post separation, do you envision more opportunity to Structure, the RemainCo, the FoodTech 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?

Speaker 3

Yes. Mig, I'll start. We're expecting the total cost of Sort of the restructuring efforts that we have in place to be close to $9,000,000 to $10,000,000 and that includes some of the expense that we incurred In 2022. And so with savings of $9,000,000 to $12,000,000 again, I think we're kind of close to that 1 year payback on the restructuring effort once we hit The full run rate savings. And as we've sort of commented last year and in Our disclosures, the restructuring is really around almost exclusively in FoodTech, or it is exclusively in FoodTech, sorry.

Speaker 3

And a lot of it is in Europe, making sure that we have the right cost structure and cost base for The environment that we're seeing in FoodTech, 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 going into your second question 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 efficiency of our operations. We'll continue to do that And that won't necessarily change post any transaction with Arotech. I think what we'll have to be thoughtful about is sort of as we Remove that revenue from JBT, sort of the costs that we carry at corporate and how that overhang impacts the results.

Speaker 3

And we'll be cognizant of balancing that along with the efforts to redeploy to an additional FoodTech business going forward.

Speaker 2

All right. Thank you.

Operator

And there are no further questions at this time. I would like to turn the call back over to Mr. Brian Deck for closing remarks.

Speaker 2

Thank you all for joining us this morning. As always, Kendrick and Marley will be available if you have any follow-up questions. Thank you.

Operator

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

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