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Operator
Good morning. My name is Rain, and I will be your conference operator today. At this time, I would like to welcome everyone to ADCOR's first quarter fiscal year 2022 earnings conference call. All lines have been placed in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw a question, press the county. As a reminder, this conference call is being recorded. Thank you. I would now like to turn the conference over to your host, John Deitzer, Vice President of Treasury and Investment Relations. Thank you. You may begin.
John Deitzer
Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO, as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings in today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA. With that, I'll turn it over to Bill.
Bill Waltz
Thanks, John, and good morning, everyone. Starting on slide three, I'm pleased to report that Accor again delivered outstanding performance and record results in the first quarter. Despite continued challenges across the entire value chain and macroeconomic environment, we increased sales and profitability in the quarter. Our businesses are performing well, and we continue to execute our plans for capital deployment. During the quarter, we completed two acquisitions, one in the U.S. and one in Canada that I'll speak about in a moment, and we returned $105 million to shareholders via share repurchases. Given the outstanding performance and results in Q1, we are also increasing our expectations for adjusted EBITDA and adjusted EPS in fiscal 2022. Turning to slide four, we are increasing our expectations for adjusted EBITDA to a range of $875 to $925 million. This is up $225 million from our previous expectation as we continue to expect profitability levels in our PVC-related products and other parts of the business to remain strong in fiscal 2022. This now puts us in line with our outstanding FY21 performance. Given our robust cash position, we are now planning to repurchase at least $200 million in stock this year. We are committed to prudently using our capital to deliver value to our shareholders and plan to spend at least $1 billion over the next several years on capital expenditures, share repurchases, and M&A. With that, I'd like to turn to slide five and discuss our two most recent acquisitions. In December, we acquired Sasko Tubes and Roll Farming in Canada and Four Star Industries in South Carolina. Both of these acquisitions will increase our capabilities and help us better serve our customers. I'd like to welcome the employees from both companies, and we are very excited to have each of you become part of Accor. SASCO is a well-regarded brand in the industry, having been in operation for over 60 years. This acquisition complements Accor's existing product portfolio and enables us to provide a broader range of solutions for our customers in the U.S. and Canada. Four Star Industries is another strong performing company and increases our capabilities in the HDPE conduit space. We are very excited about adding this brand to our portfolio, and we expect this category to grow over the next several years with the recent infrastructure legislation and focus on expanding broadband internet access. HDP conduit is often the product of choice to protect power and data cables, and we believe Four Star will provide Accor with a great platform to grow in this market. At Accor, we are constantly looking forward, and while we are very pleased with our recent performance, we're even more excited about what's to come for the rest of the year and beyond. As we look to the future, we are committed to growing sustainably, and I'll give a brief update on some of our activities in that area at the end of today's call. As I mentioned before, all the success takes the whole team, and we are thankful for the hard work and dedication from our entire organization and grateful for everything they do to support our customers. With that, I'll turn the call over to David to discuss the quarter.
John
Thank you, Bill, and good morning, everyone. Moving to our consolidated results on slide six, net sales increased 65% year-over-year to $841 million. Adjusted EBITDA increased to $293 million, which drove our adjusted EBITDA margin to 35% in the quarter, both up significantly versus the prior year. Our adjusted EPS increased to $4.58. Turning to slide seven in our consolidated bridges, Net sales increased by $330 million, primarily due to higher selling prices and the contributions from acquisitions completed in early 2021. As we mentioned in our last earnings call in November, we expected volumes to be down in Q1 due to industry-wide challenges with labor availability, material shortages, project delays, and volatility related to steel prices and inventories. Our team grew adjusted EBITDA by $156 million, and we had EBITDA margin expansion in both segments. Shifting to our segment results on slide eight, the electrical segment increased adjusted EBITDA by $146 million and adjusted EBITDA margins by 920 basis points. In our safety and infrastructure segment, Net sales increased by 61% from the prior year, and adjusted EBITDA increased over 90%. And now a quick update on our capital deployment progress on slide nine. We deployed $150 million in Q1 between capital expenditures, M&A, and share repurchases, and we're on track to meet our plan to deploy over $1 billion in cash over the next two to three years. With that, I'll turn it back to Bill to review our ESG commitments.
Bill Waltz
Thanks, David. Turning to slide 10, we believe that sustainability is central to the strength, safety, and longevity of ACOR. This morning, we issued our second sustainability report, which sets four external targets for 2025 that we believe will help guide and focus our efforts and enable sustainable value creation. I invite you to read our sustainability report, which details our efforts around areas including health and safety, our supply chain, and diversity, equity, and inclusion. We are very pleased with the progress we made over the past several years in terms of ESG, and we appreciate the external recognition that we've recently received from several leading independent organizations. ActForce products are firmly in line with the macro trends around electrification and alternative energy, and we believe these external recognitions demonstrate that we have the company culture and employees who are able to turn these market trends into reality for all of our stakeholders in the years to come. With that, we'll turn it to the operator to open the line for questions.
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'll pause just for a moment to compile the Q&A roster. Your first question comes from the line of Andy Kaplowitz from CD Group. Your line is open.
Andy Kaplowitz
Good morning, guys. Good morning, Andy. Good morning, Andy. So obviously another significant guidance raised, but you're still suggesting a slowdown from the $300 million or so that you just reported. So is there anything you're seeing across your businesses that suggests your ability to price versus cost is normalizing yet? And what does this year's potential $900 million EBITDA tell you about the possibility that you could normalize higher than the $600 million that you talked about as a normal basis in 23 and beyond?
Bill Waltz
Yeah, so, Andy, I'll try to walk through sequentially. The 900 and the million there, the 875 to 925, is our best estimate at this time with two things, you know, starting to happen is competitor backlogs are down. Now, they used to be four days, and they went to 12 weeks. They're down to four, six weeks. So, you know, they're still up relatively high, and therefore the pricing. And you're starting to see a little bit more discounting. So, you know, that's what's giving us to use that number. If things continue like they are, could there be a path to a billion dollars, you know, potentially? I know that's what our team's driving, but that's, you know, there's a couple ifs in there that way too early to forecast beyond. the 875 to 925. As for next year, we're going to stay with the $600 million at this stage, and we'll talk more about 2023, probably around Q4 at this stage.
Andy Kaplowitz
Bill, very helpful. And then could you give us more color into what you're seeing in terms of organic volumes in your segments? If there's anything to read into in terms of the underlying markets? I know you said you expected volume heading into Q1, you know, supply chain, Omicron, labor. But could you give us a little more color to how these disruptions were interrupting volume and how you're thinking about volume in your segments moving forward? Yeah.
Bill Waltz
So we still think low single digits going forward. Almost, Andy, I am hard-pressed to find an indicator that's not positive. Architectural Billing Index, Architects, AII, Dodge Momentum Index, almost every sector of Dodge is forecast to be up this year except for recreational parks. So it seems to be there. It's just the first quarter was obviously tough as we walked through and should be no surprise. For us, we're still there for forecasting that to come back into the low mid-single digits. And through January, we are starting to see our electrical side of the business kind of in that mid-single digit. volume growth. So, and a little bit slower in S&I. And I think that's where people are still trying to time things like steel purchases and so forth that you can do in large solar and OEM opportunities that you don't see in the electrical side. So that's hopefully answered all your questions.
Andy Kaplowitz
It did. And any sort of incremental issues on the renewable side or, you know, what's the outlook for that business in 2022?
Bill Waltz
I don't know for specifically 22. We're definitely optimistic in investing for the future, everything from just the way electrification in general to drive for lower carbon emissions. For me, I think pretty self-evident in our organization. It's where the world's going to go, so we're investing. Now, how much it's 22 versus 2024 or one every year, that's still to be seen. Very much appreciated. Cool. Thanks, Andy. Thank you.
Operator
Your next question comes from Dean Drain from RBC Capital Markets.
Dean
Thank you. Good morning, everyone. Good morning, Dean. Hey, Bill, you had given a framework for however first quarter goes, the strength we see in the first quarter. Then if it was strong, you could see fiscal 22 growth being similar to fiscal 20. Now you've got first quarter in the books. Does the volume decline change your outlook at all, or are you looking at it holistically with price and the strength there?
Bill Waltz
Yeah, sorry, Dean, and either Parse or David can jump in. No, I think, obviously, a strong Q1 is a record, $293 million, the highest at-core in its history. You know, again, down volume, as we explained, and Andy followed up on. So, but no, with those things, for us to sit here and, you know, already say last year was, you know, just an amazing year, and going, nope, we're pretty sure we're going to repeat that, and to Andy's question is there a pathway way too soon but I would love nothing more we would love nothing more and you know q3 q4 earnings to talk about a billion dollars so we'll see as the year progresses so um we're on record to possibly set a record got it and you know this has been the topics come up uh before about how much of the margin would you hold on to uh in the um
Dean
in the normalization process. Any thoughts there?
Bill Waltz
No. Other than, well, yes, I guess, is that, oh, To say a precise number and a precise year is difficult. What we think would happen is it's not like it's a binary effect that all of a sudden one day you wake up and pricing goes back to what it was in 2019. So now whether that's a three-year trail, a two-year trail, a five-year trail, but that's what gives us confidence when we put a marker out there of $600 million. million, and that may, as David's explained in previous quarters, that may not be, to almost Andy's question, that may not be 2023. That could maybe be 2024, you know, like where we're above it for next year. We will face, you know, price changes. headwinds, but then the Accor business system takes over. And that's where M&A, their employment over a billion dollars, all the investments in organic, their productivity, that I think if you imagine one line of us continuing to crank behind the scenes in an upward fashion while we face the price headwind, it's a question of if and when we get to $600 million. I mean, internally, we'd love to never get to $600 million. But I don't know that date or time, if that makes sense.
John
And one other thing I'd point out, Dean, too, is when you look at the volume for the quarter, we had indicated it, but I would also say that with that kind of volume decline that we were able to hold pricing to where we were, I think it was a pretty nice indicator of how strong of a quarter it was. And all indicators are that, you know, there's a lot of business out there. It's a matter of supply chain. getting folks to be able to execute the projects, and we expect our volumes to pick up over the rest of the fiscal year.
Dean
That's real helpful. As you described all the factors that went into the volume decline, labor, raw material, project delays, volatility in steel price, and so forth, that's sector-wide, but you are unique in terms of being able to consistently pass through the raw material, cost increases. So, you know, that's all good news for us. And then just last question for me is, and this has come up a couple times, the M&A part of your growth algorithm. And, you know, we've seen a couple nice tuck-in deals with Sasko Tubes and Four Star. What's the funnel look like? And how do you look at the funnel? Is this Are there more capacity expansion? Is it product expansion like HDPE? Do you do a heat map with where growth is in the industry and you're more than 500 miles in terms of being able to ship? Yeah. Kind of take us through that M&A.
Bill Waltz
Yeah. So, Tina, it's almost a simple answer, all of the above. The funnel has been as healthy or healthier than it's ever been. Some of that, again, as we've explained, the desire to spend $1 billion and a large percentage of that we want to do on M&A. If not, where we think the stock price is, that's not a bad alternative. But we've doubled the size for our team, the focus of our executives and general managers on contacting deals and so forth. So well over 100 deals in the pipeline and being evaluated. A large number of those touched every quarter and followed up on. So from there, it's really just which ones are actionable, because as you saw in this quarter, you know, like using Sasko, it's a great company. I think we can bring our Accor business system to it. It helps us increase our sales in Canada. So there's lots of different synergies there. And then HDPE, you know, getting into a new product category also. that we will invest organically, and it's another M&A opportunity to come up. But you just think about that to go, all the focus on hardening the grid and putting electrical lines underground, all the focus on 5G and digital, all that requires all this cable, the infrastructure bill. So this is perfect for us. to get in a market that's growing dynamically, that we think we can bring value, and then we can bring the one order, one delivery, one invoice to and partner with our customers. If we can do things like this all day long, we just need to do more of them and bigger is about the only thing internally we're focused on because, again, we have a billion dollars here to deploy. Great to hear.
John
The only thing I would add, Dean, is we did say that, you know, for a while we had several acquisitions internationally, and we were waiting on kind of making sure we have the integration process done. Those businesses are running really well. We're growing kind of high single digits internationally. So the opportunities in Europe and some of the other footprint areas that were already in are other opportunities for us.
Dean
Great to hear. Thank you.
Bill Waltz
Thanks, Dean. Thanks, Dean.
Operator
Our next question comes from Chris Moore from CJS Securities. You'll answer it.
Chris Moore
Hey, good morning, guys. Thanks for taking a couple questions. So your pricing was up $368. It looks like your $266 electrical, $102 safety and infrastructure. Can you break it down a little bit further on the S&I side, the $102 just kind of – just all steel there?
John
Yeah, Chris, mainly when you look at S&I, the input to that business is mainly steel. So when you see what steel has done, now I know it's crested and come down slightly now, but when you look at it year over year, it's still up significantly. So that's the business opportunity to go and push that through. And so when you look at S&I's adjusted EBITDA is up 90% in the quarter. They've done a really good job of continuing, you know, to price appropriately for the market conditions.
Chris Moore
Got it. And just maybe one more on the volume side. So volume was down, you know, $50 million, something like that, Q1, but you're obviously able to hold price quite well. Just trying to understand, is it more, was it that decline more of a supply issue or just, you know, kind of breaking it down between supply and demand on the volume side?
Bill Waltz
It's best we can estimate, Chris. It's more our customers, just do they have the labor out there? I mean, you can't stock a Starbucks trying to get people to work when it's cold out and shift jobs. And then I'm winging number here a little bit, but 1% to 2% of employees every week calling out because they have COVID. You add on that, what extra percent? There are people who don't have COVID, but somebody in their family did. It's just tough. And then if we even have our products there, which I think in general we do a good job, but some other component that was waiting in a port didn't get there, or some other manufacturer had a challenge, or all the logistics was... freight and trucking right now. It just goes, just like the LA ports are backed up, unfortunately, job sites are backed up. So again, to the opening comments and questions, we feel the demand. When I'm out there, I'm hitting the road again, actually this evening to go see customers and sales agents for the rest of the week. Everybody feels the demands there. It's just trying to line up everything to get it solved. But I think as that lines up, Therefore, we go from, you know, down high single percents to actually growing low to mid-single digits because, again, every indicator is positive right now for the next couple of years.
Chris Moore
Perfect. Last one for me, just on free cash flow. Free cash flow is $88 million. Net income was $204. Obviously, inventory is up $75 million. Receivables are up. So in terms of the ability to kind of match that gap, net income, catch up in the second half of the year from where you sit now, or just kind of how you're looking at it?
John
Yeah, so a couple of things on the inventory. Certainly, on the steel side, supply chains have started to get caught up. So we're starting to get the raw material we have in probably a little bit higher than we typically would hold. So that was one element. The other element is We did have this volume reduction that we knew about, but probably not enough time to really adjust the psyops in time. So that's why you saw that growth in inventories. And even in the other net, there's accruals we paid out. Q2 is never a great cash flow quarter for us. And the reason for that is we typically have a couple tax payments, which this year will be pretty large tax payments given, you know, successes we've had on the earnings side. But we also pay out like our annual rebate programs and all that. So by and large, we expect a very strong second half of the year. But the first half will just have a little bit of this working capital build. Got it. I appreciate it, guys. Thanks, Chris. Thanks, Chris.
Operator
Your next question comes from John Walsh from Credit Suisse. Hi.
John Walsh
Good morning, everyone.
Bill Waltz
Good morning. Thank you, John.
John Walsh
So maybe just first question around kind of the PVC business. Obviously, it's something you guys spike out in your disclosures, very strong performance. Obviously, price is part of that. But just wanted to understand if, you know, something's changing in that market, either new uses for PVC acquisitions, etc., Just what are you kind of seeing there maybe versus the last couple of years, you know, versus the next couple of years forward on, and if that's kind of a structurally larger business going forward?
Bill Waltz
I think there's no real new entrance. There's always like HTP. Somebody can use HTP versus PVC. But they really, and I could get into all the intricacies of that, they really do have their own homes. Like in a city, it's going to be PVC. In a sub-development, it's going to be PVC. Along the highway, it's going to be HTP. And the same with FRE, fiberglass. They have their own niches. So I don't see that switching, Chris, as much. One area is just the growth, back to whether it's data, digital, sub-developments that are non-residential or residential homes, excuse me, that were slow over the last couple of years is now the millennials are buying homes and so forth, and that market's growing. I think the markets are poised to be strong, but not a lot of it. back and forth. Maybe, but I'm stretching here within water, more people using PVC than what used to be steel and cast iron piping and so forth. So a little bit more opportunity, but 80% status quo from
John
And I do think that some of the uses, to Bill's point, have really seen a pretty significant increase, like utilities bearing these power lines and all that. So some of the things that have been out there in California as far as investments, these investments are significantly higher than what we've seen in the past.
Bill Waltz
yeah so just to echo david i spoke more like from a one product substitution but yeah the markets are growing uh you know who in california is putting every electrical line underground that's a lot of pvc conduit great uh thank you and then maybe just two more quick ones here if i can uh one just on the m a front can
John Walsh
You remind us the financial metrics you target, whether it's from a return on invested capital perspective, et cetera. Obviously, there's been a nice and a steady diet. You've maintained a very strong return on invested capital.
John
Yeah. So, you know, really quickly without going through all the modeling, but we do look at it as a standalone and with synergies. We look – as returns of the amount of basis points above our cost of capital. So, you know, we're looking 300, 500 plus type of range, John, on this kind of cash flow basis.
John Walsh
Great. Maybe just the last one, obviously, you know, incredibly strong EBITDA, as you guys have been talking about a lot of question on, you know, sustainability of it. But You know, can you talk about what you're doing in terms of investments? So you have this strong performance. You know, are you thinking about taking up reinvestment levels? Are you moving into adjacent kind of markets where you think you'll be able to see some outgrowth over the next couple of years? Just any color around there?
Bill Waltz
Yeah, it's a great question, John. Well, every question's been good, but the absolute answer is yes in literally every facet. We realize we're in a unique situation last year, this year, and again, we're not going to get into specifics for 2023 here, but With that, how do we take advantage? And that's why, if you looked in previous years, we would have had CapEx at $30, maybe $40 million. And a rough number here, it's on the deck, but like $90 million, give or take, this year of CapEx. We're investing, again, 2 to 3x in things like digital. So whether that's finishing out ERP's systems for our organization, whether that's a new Accor.com, whether that's apps, just across the board with anything digital to make it easier for our customers. And then also organically, it's still in the single digits, but it's rapidly moving from new product development from the low single to the mid-single digits. And lots of products over the years were adding people in that organization to drive things. So I think across all facets, we're looking at how can we really accelerate organic growth We already mentioned we're investing more in how to accelerate M&A, and then we're putting the capital behind it. Literally, for example, we're pushing three or four key initiatives right now, as we always do. We'll have a senior leadership team in a month. That's where I'm going to challenge the general managers just to go, what other opportunities are out there? How can we skunk work things? just to make things move even faster. So I think we notice we're in this unique time, and now it's time to use the great talent that Accor has, its culture, its Accor business system, to truly take us to the next level.
John Walsh
Great. Thanks very much for taking questions.
Bill Waltz
Cool. Thanks, Sean. Thanks, Sean.
Operator
Thank you. This concludes the question and answer session. I would now like to turn the call over back to Bill Waltz for closing remarks.
Bill Waltz
Before we conclude, let me summarize my key three takeaways from today's discussion. First, Q1 was a great start to the year, and we have a strong outlook for earnings in 2022. Second, we are executing our capital deployment model with $150 million deployed in Q1. Third, sustainability and ESG are core to our products, customers, and employees, and we are very excited about what lies ahead in this area. With that, thank you for your support and interest in ACOR, and we look forward to speaking with you during our next quarterly call. This concludes the call for today.
Operator
This concludes today's conference call. You may now disconnect.
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