- Net Sales: $220.2 million, increased by $11.8 million or 5.7% year-over-year.
- Adjusted Gross Profit: $79.6 million, increased by $11 million or 16% year-over-year.
- Adjusted Gross Margin: 36.1%, up from 32.9% in the previous year.
- SG&A Expenses: $51.7 million, decreased by $0.7 million or 1.3% year-over-year.
- Adjusted Operating Income: $28.8 million, increased by 51.5% year-over-year.
- Adjusted EBITDA: $38.9 million, increased by 57.4% year-over-year.
- Adjusted EBITDA Margin: 17.7%, up from 11.9% in the previous year.
- Adjusted Earnings Per Share (EPS): $0.39, up from $0.35 in the previous year.
- Material Handling Segment Net Sales: $22.7 million increase or 15.9% year-over-year.
- Material Handling Segment Adjusted EBITDA: $41.5 million, increased by 39% year-over-year.
- Distribution Segment Net Sales: $54.3 million, decreased by $10.9 million or 16.7% year-over-year.
- Distribution Segment Adjusted EBITDA: $3.8 million, decreased by 20.1% year-over-year.
- Free Cash Flow: $9.9 million, down from $16.7 million in the previous year.
- Capital Expenditures: $4.4 million for the quarter.
- Cash on Hand: $37.3 million at quarter end.
- Leverage Ratio: 2.6x under the credit agreement.
- Annual Cost Savings: Expected $5 million from consolidation initiatives, with total annual cost savings of $7 million to $9 million.
- Revised Full Year Guidance: Net sales growth of 5% to 10%, adjusted EPS of $1.05 to $1.20.
Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong performance from the recently acquired Signature Systems business, contributing significantly to the company's growth.
- Adjusted EBITDA of $38.9 million and an adjusted EBITDA margin of 17.7%, marking one of the strongest quarters in recent history.
- Operational improvement initiatives and cost reduction efforts have led to an expansion in gross margin, operating margin, and adjusted EBITDA margin.
- Successful integration of Signature Systems, with $8 million in annualized cost synergies expected by 2025.
- Continued investment in growth opportunities, particularly in the infrastructure and military end markets, with promising new product launches like the Diamond track.
Negative Points
- Soft demand in key end markets such as recreational vehicle, marine, and automotive aftermarket, leading to a cautious outlook.
- Lowered full-year adjusted earnings per share guidance to a range of $1.05 to $1.20 due to continued demand challenges.
- Decline in sales volumes and pricing in the distribution segment, resulting in a decrease in adjusted EBITDA margin.
- Cyclical cooling demand in the food and beverage end market, particularly in the seed box business.
- Increased interest expense related to the term loan used to finance the Signature Systems acquisition, impacting net income.
Q & A Highlights
Q: I'd like to ask about the sustainability of material handling margins following the Signature deal. Should we think that this quarter is a normalized level for the segment?
A: We did have some improvement in the margin from the Signature Systems acquisition. We continue to see strong margins, but we project a slight decline in gross margin in the second half of the year due to conservativeness regarding trends in key end markets.
Q: Can you provide any latest thoughts on the distribution segment and what you're seeing in that business? Are mid-single-digit percent margins in distribution sustainable?
A: We reported a 7% EBITDA margin for the distribution segment. The retail tire business is off directionally 10% year over year, impacting operating leverage. The 7% margin is a fair number going forward, given the current market conditions.
Q: Can you speak to any productivity gains that you've made in either segment that enabled the footprint consolidation?
A: We've improved operational excellence, increasing throughput and efficiency, allowing us to consolidate facilities. This has been a result of better scheduling and operational practices, enabling us to do more with less.
Q: With the defense business ramping, do you have available capacity for an accelerated ramp in orders from the new sector products?
A: Yes, we have added capacity and improved operational efficiency, allowing us to meet increased demand. We maintain capacity to handle future market peaks.
Q: Can you provide an update on the capacity additions in Signature Systems and when they will be fully operational?
A: We have a capacity addition in 2024 and another in 2025. The goal is to double the business in terms of revenue and EBITDA over the next three to four years. These additions will support that growth.
Q: How is the integration of Signature Systems going to date?
A: The integration is going well both qualitatively and quantitatively. The cultures are meshing well, and the financial performance and cost-out initiatives are on track.
Q: Can you help me better understand the difference in cash flow conversion year over year?
A: We see ourselves as a 60% cash flow conversion business. The increase in working capital is due to the Signature acquisition, but we expect this to normalize over time.
Q: What are your thoughts on the cadence for the distribution segment, given some positive market commentary?
A: We are seeing sales come back. We reoriented our sales force, which took longer to deliver gains. We are addressing pricing and gaining back business, but we don't expect the market to recover until 2025.
Q: Do you see the military ammunition carrier business ramping evenly over the quarters, or will it be lumpy?
A: The ramp can be lumpy due to the timing of contract approvals. Once contracts are in place, production runs 24/7. We expect good growth over the next several years.
Q: Are there additional military contracts in the pipeline, and how significant could they be?
A: Yes, we are negotiating with several countries, primarily in Europe. Each contract could add $10 million to $15 million in top-line revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
