John Bean Technologies Corporation

Good morning and welcome to JBT Corporation's third quarter 2024 earnings conference call. My name is Prila 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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star one again. Thank you. I will now turn the call over to JBT's Director of Investor Relations, Marlee Spangler, to begin today's conference.

Thank you, Prila. Good morning, everyone, and welcome to our third quarter 2024 earnings 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 yesterday's press release and 8K filing. 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 gap measure can be found in the investor relations section of our website. Now, I'll turn the call over to Brian.

Thanks, Marlee. Good morning, everyone. We were very pleased with JVT's results for the third quarter. As expected, we posted double-digit year-over-year revenue growth and captured meaningful margin expansion. Moreover, we continue to generate strong orders and benefit from the ongoing recovery and demand from the global poultry and market. Overall, our progress and performance in the third quarter reinforces our confidence in our full year expectations of 3 to 5% revenue growth in 2024 and adjusted EBITDA growth of 10% at the midpoint of our guidance. Matt will walk you through an analysis of the third quarter. He will also discuss the securing of commitments for financing the Morrell merger. Then I will speak about end market and geographic trends, discuss updates on the combination with Morrell, and provide some highlights on our exceptional automated guided vehicle business.

Matt? Thank you and good morning. As Brian mentioned, we achieved strong growth and margin improvement in the third quarter of 2024. Revenue of 454 million increased 12.4% year-over-year. As anticipated, we converted our strong backlog to revenue and recovered the revenue shortfall from the second quarter. Adjusted EBITDA of 82 million increased 23% year-over-year. And our adjusted EBITDA margin of 18% increased 160 basis points. This year-over-year improvement was driven by higher volume flow through as well as cost savings from both our restructuring program and supply chain initiatives. The adjusted EPS in the third quarter was $1.50 versus $1.11 in the prior year. EPS benefited primarily from our strong operational performance and positive net interest income. Year-to-date, we generated free cash flow of $79 million. For reference, on a trailing 12-month basis as of September 30th, we achieved free cash flow of $184 million. Our strong performance in the third quarter is the result of higher income and improved working capital management. And for the full year, we remain confident in our ability to achieve a free cash flow conversion rate in excess of 100%. Given JVT's strong year-to-date performance and backlog, we are reiterating our full-year guidance for revenue, adjusted EBITDA, and adjusted EPS. We are, however, updating guidance for income from continuing operations and GAAP EPS to reflect our plan to settle all outstanding obligations of JVT's pension plan through a combination of voluntary lump sum settlements and the purchase of an annuity contract. In the fourth quarter, we expect a portion of eligible participants to elect to receive lump sum settlements from the plan. As a result, we expect to incur approximately $30 million in non-cash pre-tax charges during the quarter. This brings our full year estimate for income from continuing operations to $116 to $125 million and gap EPS to $3.60 to $3.90. Additionally, in the first quarter of 2025, we expect to settle the remaining obligations of the plan and anticipate further non-cash pre-tax charges of approximately $145 million. Given the plan's fully funded status, we anticipate these actions will have an immaterial impact on cash flow. Lastly, as outlined in our press release, in October we secured financing commitments contingent on the completion of the merger with Morrell. Once executed, we will issue a $900 million term loan fee and expand our existing revolving credit facility to $1.8 billion. Funds from this new capital structure, along with cash on the balance sheet, be used to pay the cash portion of the transaction, refinance Morrell's outstanding debt, and pay transaction-related expenses. As a first-time issuer in the Term Loan B market, we are very pleased with the overall demand and pricing structure. With an offering that was more than three times oversubscribed, we were able to upsize and achieve favorable pricing. Additionally, we believe that lenders' willingness to add a leverage-based pricing step down indicates confidence in management's ability to de-lever the business. As we have stated, we are committed to reducing JVT's leverage to less entry times by year-end 2025. With that, I'll turn the call back to Brian.

Thanks, Matt. Let me start with order trends. Orders, which totaled $440 million in the quarter, increased 10% from the prior year period. We feel good about what the order strength means for the current state of our business. and it positions us well as we plan for 2025. Driving the overall gains in orders, we enjoyed continued recovery in demand from the poultry end market, which showed improvement globally. Pet food, food and vegetable, and pharma end markets also experienced healthy demand in the quarter. Orders at AGV normalized from the record second quarter. While there were pockets of weakness, including certain CPG areas like beverages, our overall strength is a function of GBT's broad portfolio and end market and customer exposure. As we have said, we have the diversified portfolio to serve our food and beverage customers regardless of changing consumer preferences. Geographically, we experienced nice pickup and order activity in Asia and a good quarter in Europe. North America also experienced good order momentum. As we mentioned last quarter, our AGV business is posting record sales and orders. Secular demand for facility automation, which is critical to addressing labor shortages and high costs, remains robust. Within the factory and warehouse automation market, AGV boasts of differentiated product. the results of decades of experience, the quality of our technology, and the ability to integrate with customers' operations. Over the past few years, we have invested heavily in AGV's R&D and adjusted its business model. Specifically, we have focused on the intelligence, safety, and service element of our value proposition while focusing on larger, scalable projects with our customers as opposed to bespoke projects. This strategy is paying off. We are seeing customers who installed AGV at one or two warehouses return to us as they seek to establish an expanded automation solution across their enterprise. Additionally, with the introduction of our proprietary motion operating system, we have moved to a subscription model, which requires a multi-year software contract along with a parts and service contract. This allows for a high touch premium value proposition based on delivering the highest performance and safety throughout the life of our systems, with constant access to the most recent software features and cybersecurity upgrades. With this model, we expect recurring revenue continue to grow meaningfully as we build out the installed base. At the same time, as we discussed last quarter, Changes to our manufacturing process and product standardization have improved internal efficiency and cost. As a result, we have enhanced our ability to deliver AGV systems and reduced lead times to address ongoing robust demand. Moving on to even bigger developments, on the merger with Merau, we continue to focus on integration planning and day one preparedness. including an evaluation of our future organizational structure. In our planning, we are viewing our businesses through the lens of the customer to create a go-to-market structure that aligns with their needs. We have also sought to capitalize on the respective strengths of JBT and Morrell's complementary portfolios, enabling us to optimize operational synergies while providing the most comprehensive solutions to customers. On the regulatory front, we are nearing the final stages of completing the required approvals. We have been engaged in an in-depth pre-notification process and dialogue with the European Commission and have received feedback that we will be able to formally file our notification to the EC in the coming days. Once we submit this merger filing, a 25-day business review period begins. after which we anticipate receiving formal approval. In terms of the voluntary takeover itself, JBT and Morrell will work with FSA in Iceland to determine the appropriate extension which will provide adequate time following the regulatory approvals for Morrell shareholders to tender their shares. JBT and Morrell will issue press releases related to the extension of the offer. Based on these most recent developments, the timeline to close remains on or about the end of 2024. And based on our extensive outreach and conversations with Merrell shareholders, we remain confident that they are supportive of the merger. Lastly, I want to thank the JBT team members. JBT's growth, operational excellence, and passionate commitment to our customers wouldn't be possible without our people around the world. Now let's open up the call. Operator?

Thank you. And we will now begin the question and answer session. If you would like to ask a question, simply press a star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Again, please press star one to join the queue. One moment, please, for your first question. And your first question comes from the line of McDebray with RW Bear, please go ahead.

Thank you. Good morning, everyone. Good morning. So, Brian, you spent maybe more time than normal talking about AGV, and it sounds like this is a portion of the business that is doing quite well. It would be great to get a bit of a reminder from you in terms of the size of this business at this point, especially since It's been growing so much. And I'm curious how margins look like for this product. Is this positive for MIPS, or is it maybe a little bit below your average portfolio margin?

Great. So thanks for the question. So in terms of revenue, they will be a little bit north of $150 million this year, with impressive growth, like you said, north of 30% growth this year. And in terms of from a margin perspective, if you look at JBT's guidance for the year is 17% to 17.5%. They are above that range. We're striving for 20% plus this year.

Interesting. And, you know, as you think about this business and its potential, I'm sort of curious as to how you think, you know, two, three years out. And, you know, is there anything within the AGV business that would be able to either cross-sell or cross-pollinate with what Morello is doing, some of their customers? Yeah, I would love some comments on that as well.

Sure. So, yes, and just if you think about the portfolio that they have, anywhere where you have warehouse automation, it's applicable. Certainly quite a few of our CPG customers, beverage customers, are using these operations, these AGV vehicles. I would say probably the easiest area, if you will, to cross-sell with this would be on their pet food business, so their winger acquisition from a couple years ago. There are potentially opportunities as you go downstream with some of the other end markets that they have once they get into a warehouse stage, that is a potential. But certainly on, I would say, the more traditional CPG type and pet food type items, that's the clear opportunity.

Got it. Then maybe on a core business, poultry sounds better. I'd love a little more insight as to what you're hearing from customers there. I mean, Frankly, why are things getting better? How sustainable do you think this is into 2025?

Right. So it's good news. They continue to make good money. We continue to have good conversations with them. We are aware of several projects that they are working on, either from, I would say, a brownfield perspective, but also from... a refurbishment or replacement of individual lines. So as they, obviously they've had some pent up or deferred investment over the years, we do generally feel good about it. So I think it never snaps back at the pace you would really want it to go, but we do have a consistent kind of say improvement month over month, quarter over quarter. Our pipeline is good. We saw some, what was really nice to see in the third quarter was some orders on the primary side. So, you know, JVT is not a huge player on the primary side. We do chillers and some other systems. But what's nice about that, that's where morale is particularly strong. So we're hoping that is a precursor to some of the strength that we would hope to see into 2025 and thereafter. I think in terms of visibility, I would say we probably have a good 18 to 24 months visibility as we sit here. Obviously that could change if the fundamentals change, but the fundamentals are hanging in there for sure, both from an input perspective. We've seen some seasonal declines in the poultry prices, but overall they remain at levels where our customers are quite profitable. So generally we feel good about that, and we would expect kind of this uh, slow but steady March to, uh, to get back to full recovery. Uh, and I think it kind of depends on it, you know, if we're talking, uh, primary or secondary or end of line, uh, as to when you get to those full recoveries, but, uh, either, uh, 25 or perhaps 2026 full recovery.

I guess my, my final question and, you know, this, uh, I don't know if you actually want to answer this or tackle the topic, but we've got an election here coming up in a few days, and the whole discussion around immigration and deportations from Mr. Trump have certainly made headlines. And I do remember during the first Trump administration, there was some disruption that protein processors have had ice raids, things of that sort that have impacted their labor force. In your discussions with customers, are they sort of looking at this as something that will need to be addressed on their end, meaning this whole idea that we're going to need some additional automation or equipment that is maybe more efficient in order to sort of manage the inherent risk to their labor force that could develop down the line? Thank you.

Yeah, it's a very interesting and applicable question. I will say over the last, what we have heard over the last few years is that labor has been more available and I would say more of our efforts have been on improving yield efficiency, et cetera, and a little bit less what we saw during the Trump administration on pure labor replacement. So, Under a circumstance where you have tighter controls on immigration, I frankly would expect more opportunities on going from, say, manual cut-up lines where you have folks standing shoulder to shoulder with knives and whatnot to more automated solutions. That would generally be the thesis under a Trump administration. Obviously, we'll have to see how long it takes for that to play out and whatnot, but that would generally... bode well for companies like JBT and Murrow. Appreciate it. Thank you. Thanks.

Your next question comes from the line of Prosper and Black with William there. Please go ahead.

Hey, good morning, gentlemen. Good morning. Hey, can you really help us size the poultry contribution to orders in the quarter and then also your expectations for orders X in the year and in 2025? is trying to get a sense of seasonality versus potential acceleration as we think about the cadence for next year.

Yeah, so in terms of the incremental orders versus the second quarter, something in the range of 10 to 15 million more ballpark. And I would say we're still, that does not yet bring us, I would say, fully back to kind of where we otherwise need to be, as I mentioned with Meg, where we get to full recovery, but some decent improvements in the quarters, specifically, as I mentioned, on the primary side.

Got it. Okay. So, 10 to 15-mortar poultry quarter-by-quarter, I mean... In North America, specifically.

In North America. Yeah. Now, what was interesting... Ross, so that was North America. We actually saw some improvements outside of North America as well, specifically Asia. So that was nice to see because, as you know, Asia is kind of a lumpy business for us. They tend to do fuller lines, but we are starting to see some investments in poultry in Asia, and actually Europe had a decent quarter as well.

No, that's a perfect segue. I'm trying to understand, I mean, is it more of, a geographic angle between why you're seeing more of an acceleration in your poultry orders versus Morrell thus far? We obviously haven't seen their third quarter results. Or is it kind of brownfield, greenfield, upstream, downstream, as you kind of noted, with the strength in your business in the quarter?

I won't specifically talk to Morrell and kind of where they've been, but I will just generally say JVT does play further along in the line. It's kind of your second assumption. They are more upfront on in full processing type primary secondary lines. JBT is further down the line Generally, which so they're not as full line solutions They tend to be you know, one or two or three pieces of equipment which are have shorter shorter sales cycles and shorter lead times Versus a full system. So just a little bit different place where we play in the lines Okay and then

Thinking about the Morrell timeline here, 25-day EU notice, I think that kind of mitigates any concerns from remedy, which is a positive. But can you just remind us of what other countries outside of Europe we should be watching out for as it relates to filings?

Yes. So we're really pleased with where we are with the EU. That's been a very long process, a very collaborative process we've had with them, multiple back and forths. So to get to this stage, that's a major milestone for those that are familiar with the EC filing process. So them giving us the green light to go ahead and the formal filing to kick off this 25-day waiting period is very, very positive. We have one other jurisdiction that we're finalizing. I would characterize it as Australia, dotting some I's and crossing a few T's. That is out there, but we feel confident that will play itself out within this same timeframe, which basically brings us to full regulatory expectation approvals by the end of November. And then we would, again, extend the VTO, the voluntary takeover offer period to probably a couple weeks after that. We're working with Morrell

on precisely the dates that we choose and then we will announce that here in short order perfect all right if i can maybe just get one more in uh now you've had more time with the business to look under the hood uh should we expect maybe uh upward revision to synergy targets once the acquisition is closed or maybe you can give us our early read there it just looks like real margins and based off consensus aren't where they really need to be in regards to the pro forma targets and maybe there's a little more cost out that will be required to hit your accretion goals?

Well, I would say we have done quite a bit of work over the last six months. We have gotten to know them quite a bit. We certainly have a funnel and pipeline, if you will, to deliver on the $125 million of all-in synergies. So I would just say we're confident in that. If we get to the point where we think we can do more, we'll certainly let you know. But really, there's only so much you can do until you actually combine businesses in terms of visibility, perfect visibility. So I think it's appropriate to just stick with the 125, as I said here.

Yeah, I think the margin improvement that we're also expecting is going to come from again, further recovery in the protein markets and how that benefits morel in the higher volume. So not only are there synergies, but there's also just the recovery in volumes, which will help drive improved margins at the morel site.

And certainly they're also, I mean, they are also doing their own improvement efforts kind of regardless of, I would say, synergy opportunity.

All right. That's perfect. I'll leave it here. Congrats, guys. Thank you.

Your next question comes from the line of Walter Liptak with Seaport Research. Please go ahead.

Hi. Thank you. Good morning, everyone. Congratulations on a nice quarter. I wanted to ask about the order strength and, you know, the recovery that we're seeing in the poultry market. So, it seems like it's still, you know, early days, but as we look at it geographically, Where do you expect most of this, where do you see the recovery strength coming from? Is it, you know, it sounds like Asia's doing well, Europe's doing well.

I would say, yeah, I would say the pace of improvement, probably North America, remains our biggest opportunity. For those that have been following, you know, for years, North America was always just always the strongest market for us, and it hasn't been over the last two years or so. So typically that's our go-to in terms of strength and consistency. And so that's why I do think just in terms of getting back to that level of strength and consistency is what we're looking forward to. That would be the primary.

Okay. All right. Great. And then, you know, the aftermarket sales, we haven't talked too much about that on this call, but the growth, you know, how did you feel about the 5% plus, you know, revenue growth? And, you know, can you tell us about some of the initiatives that you've had to keep that, you know, growing and, you know, maybe any positives or negatives around aftermarket?

Yeah. Sure. No, we're very happy with the 5% growth. As you know, that's a more stable business than the equipment side. I think we had a 20% plus equipment growth in the quarter, and that's obviously reflective of some of the recoveries and the strength and the backlog and whatnot that we've been talking about over the past few years. So if we can continue to deliver consistent mid-single-digit aftermarket growth, kind of in good times and bad, that's a really good answer, obviously considering that does have a better margin profile. In terms of the things that we are doing, It is really about provide there's a couple things, but the most important things that we have to continue to focus on is on time delivery on part so we're doing some. Additional work on making sure we've got the right parts in the right places and really focusing on on that. Certainly continue to penetrate with our Omni blue digital offering helps us in terms of those relationships. with our customers and having that more engaged model. And then lastly, our service network, making sure we've got, again, the right people in the right places, the responsiveness. So it's about having the right metrics, looking through the eyes of the customer and what are the metrics that they feel are important, not just things that you think about from a business perspective like inventory turnover and whatnot, like really kind of flipping those metrics. And that's the focus that we've had. And The combination with Morrell adds to our ability on the aftermarket side meaningfully. Again, they've got some really well-developed parts distribution centers, so we're working with that, how to optimize the usage of that, but also a pretty impressive service network in terms of their people and their coverage. So, and that's usually one of the biggest constraints in terms of being able to serve our customers effectively. Our service techs are quite valuable and they know the business and the products and the customers quite well. So that's a really wonderful opportunity as we come together.

Okay, great. Okay, thanks a lot.

Thank you. And once again, if you would like to ask a question, you can press the star followed by the number one on your telephone keypad. And there are no further questions at this time. I would like to turn it back to Mr. Ryan Beck for closing remarks.

Thank you all for joining us this morning. As always, Marley will be available if you have any follow-up questions. Thank you. Have a great day.

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