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Operator: Good morning, and welcome to JBT Corporation Second Quarter 2024 Earnings Conference Call. My name is Krista, and I will be your conference operator today. As a reminder, today’s call is being recorded. [Operator Instructions] After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to JBT’s Vice President of Corporate Development and Investor Relations, Kedric Meredith, to begin today’s conference.

Kedric Meredith: Thank you, Krista. Good morning, everyone, and welcome to our Second Quarter 2024 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 8-K 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 GAAP measure can be found in the Investor Relations section of our website. Now I’ll turn the call over to Brian.

Brian Deck: Thanks, Kedric, and good morning, everyone. Let me start with the good news. As we said on last quarter’s call, we were optimistic that improving poultry industry economics and strong quote activity will begin to translate to higher orders. This played out in the second quarter, as JBI’s strong orders included an initial recovery in equipment demand from North American poultry producers. Additionally, AGV, our automated material handling business, rebounded nicely in the second quarter as expected. Overall, this translated to the second-best quarter in terms of orders for our food technology-in our food technology history and a 13% sequential improvement. With that said, JBT’s second quarter financial performance fell short of our expectations, essentially due to a revenue shortfall.

With much of that expected to be recovered in the back half of the year, we have refined our guidance to reflect 3% to 5% top line growth for the full year. Let me turn the call over to Matt, who will provide more detail on our second quarter performance and expectations for the full year. Then I’ll speak about market and geographic order trends, our latest ESG report and provide updates on the combination with Marel. Matt?

Matt Meister: Thanks, Brian, and good morning. For the second quarter of 2024, revenue of $402 million, which included a $4 million negative impact from foreign exchange translation, declined 6% year-over-year. That fell short of our expectations, primarily from the performance of book and ship orders, customer delivery scheduling and a now resolved system upgrade issue that temporarily delayed revenue recognized from that impacted site. We believe approximately $15 million of revenue shifted from the second quarter to the third quarter. On the margin side, we continue to realize the benefits from our restructuring actions and delivered better-than-expected cost savings from our supply chain initiatives. As a result, our second quarter gross profit margin of 35.6% improved 120 basis points year-over-year.

Adjusted EBITDA of $64 million declined 11% year-over-year, as the benefits from restructuring and supply chain initiatives were more than offset by the impact of lower volume. That said, we realized sequential improvement, as adjusted EBITDA increased 11% and our adjusted EBITDA margin expanded 120 basis points. Second quarter adjusted EPS was $1.05 versus $0.97 in the prior year as a result in the current year benefited from $9 million in net interest expense improvement. Year-to-date free cash flow of $14 million was lower than the prior year due to higher working capital. Our inventory increased, partially due to AGV’s growth profile and overall higher work in progress associated with our backlog timing. For the full year, we remain confident in our ability to achieve a free cash flow conversion rate in excess of 100%, as we convert our strong backlog to revenue and order demand continues to improve.

Brian mentioned earlier, we updated our full year organic revenue growth guidance to 3% to 5% to reflect our year-to-date performance, which is partially offset by additional contributions from AGV in the back half. Our updated guidance suggests a steeper quarterly progression in the back half than before. While our $700 million backlog is consistent with prior year, the scheduled conversion to revenue in the back half is approximately $90 million higher. This is the result of several long-term projects included in last year’s backlog that is shipping in 2024. Included in the forecasted backlog conversion is higher AGV revenue, which, as we’ve discussed previously, has been capacity constrained given the strong demand for warehouse automation.

However, changes to our manufacturing process and product standardization have improved our efficiency and lead times. As a result, we expect AGV will now contribute 2% to JBT’s total revenue growth for 2024, which is an incremental 1% from our previous guidance. All of this together provides confidence in our forecast of an approximately $90 million year-over-year increase in back half revenue, which, along with comparable book and ship volume to the back half of last year, would put us at the midpoint of our 2024 guidance. Based on our updates to revenue growth, we have narrowed our full year guidance for adjusted EBITDA and adjusted EPS. We now expect adjusted EBITDA of $295 million to $305 million, which maintains margin expectations at 17% to 17.5%.

Adjusted EPS has also been updated to $5.05 to $5.35. For the back half of 2024, in terms of quarterly cadence, we expect double-digit year-over-year revenue growth in each quarter and margins to improve sequentially as we move through the remainder of the year. Lastly, we updated our full year GAAP guidance to reflect our current expectation of $40 million in pre-closing M&A costs for the combination with Marel. With that, let me turn the call back to Brian.

Brian Deck: Thanks, Matt. Let me start with order trends. As I said at the top of the call, second quarter orders of $437 million represented our Food Technology’s second-best quarterly performance ever. We were pleased that the anticipated recovery in orders from North American poultry producers has started to materialize. Moreover, it is still early, and we’re not yet back to baseline demand levels. As such, we expect North American poultry industry orders to improve further in Q3. As for other areas of strength, we continue to enjoy robust demand at AGV, while fruit and vegetable demand was also quite strong in the quarter. On the other hand, the beverage industry did not meet our expectations, as manufacturers adjust to current consumer buying patterns.

And in general, the high cost of capital remains a headwind, particularly among our smaller customers. Geographically, Europe was stable and demand in the Middle East remained strong. The Asia Pacific region was disappointing as we continued to experience elongated order conversion cycles, while South America has a strong pipeline that appears promising for the foreseeable future. Putting it all together, the significant strength in the second quarter reflected JBT’s diversified end market exposure as well as initial recovery in North American poultry demand. As such, we anticipate another strong quarter of total inbound order rates in the third quarter. Switching gears. As you may have seen, we recently published JBT’s fourth annual Environmental, Social & Governance report, focused on how we are fortifying the future of food to enable a more resilient, sustainable and equitable food supply chain.

Sustainability is becoming an ever-larger factor in our customers’ purchasing decisions, and JBT’s innovative portfolio of solutions can improve our customers’ environmental footprint and operational performance. Our products make better use of precious resources, such as energy and water, while also helping to reduce food and packaging waste with improved processes for yield and food safety. As such, JBT’s innovative innovation creates a competitive advantage as we help customers meet their sustainability objectives. We’re also taking action to improve the environmental performance of IBT’s internal operations. We are calculating our Scope 3 emissions according to the greenhouse gas protocol to identify opportunities for reducing our carbon footprint and improving our supply chain sustainability.

Finally, let me provide updates on the proposed merger with Marel. On June 24, JBT launched the voluntary takeover offer to acquire all outstanding shares of Marel. Since then, we have held meetings with Marel shareholders in Iceland and London and delivered proxy materials for a 1BT shareholder vote to be held on August 8. As we discussed in detail on the special JBT investor call on June 20, we are increasingly confident in the industrial logic of the combination and the value creation opportunities for customers, shareholders and other stakeholders. By the end of the third year, post close, we believe we can capture revenue synergies of more than $75 million and cost synergies of more than $125 million, as we leverage our complementary products and services to enhance our value proposition with customers and benefit from our combined scale.

Since the June investor call, we have received an indication from our regulatory counsel that the U.K. is not considering a formal antitrust investigation, and we’re actively engaged with the remaining jurisdictions, including the EU. Regarding the secondary listing on the Icelandic exchange, we expect to file imminently. And we continue to plan for year-end 2024 closing. Moving to transaction execution. Our activity has now pivoted from a focus on legal and regulatory matters to planning for operational integration. We are working with our advisers and Marel to ensure day 1 readiness and have named an integration team with members from both companies to guide an integration planning process, with work streams already underway. This includes planning teams for operations, finance, IT, digital and procurement to name a few and an overarching team to support overall org design and talent selection and importantly, a team to support our cultural connectivity, purpose and communications.

Before we take your questions, let me extend my appreciation to JBT teams around the world, who are at the core of our success. And to the Marel team, thank you for your collaboration as we envision an even stronger combined entity with greater global resources and comprehensive solutions for our food and beverage customers. Now let’s open up the call. Operator?

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Meg Dobre with RW Baird. Please go ahead.

Meg Dobre: Thank you for taking the questions. Good morning, everyone.

Brian Deck: Good morning.

Meg Dobre: I guess my — good morning. My first question is really surrounding the system issues that you had in Q2. If I heard you correctly, you mentioned it was about $15 million of revenue in terms of the impact. That still doesn’t get us to where you initially guided Q2. Can you comment a little bit on the delta relative to your expectations? And what exactly is the base of these revenues being recovered in the back half? Is this all a Q3 event? Or does that stretch into Q4 as well?

Brian Deck: Sure. So if you look at the overall guidance, going from 4% to 6% down to 3% to 5%, there’s about a $15 million reduction at the midpoint. And really, that does represent, I would say, some weakness in specific end markets that we’re seeing. And while we missed the quarter by about $30 million, as you suggest, we’re going to regain about $15 million, most, if not all of that, in the third quarter, and I’ll have Matt talk a little bit of that and the cadence for the rest of the quarter in a minute. But we are seeing — despite some, say, select end market weakness, we are actually seeing some nice pockets of strength as well. I mentioned food and beverage. AGV is very strong, and we actually increased our guidance as it relates to that, which partially offset some of the other impacts that we’re seeing generally. But then in terms of the cadence, I’ll let Matt kind of address that and why we’re confident on the strength of the cadence from here.

Matt Meister: Yes, Thanks, Brian. Yes, I think as we mentioned in the prepared remarks, the $15 million that’s shifting from Q2 to Q3, that was made up of a couple of things. About half of that was the systems upgrade issue that you referenced, Meg, and the other half is some specific customer-related delays and timing of shorter-cycle book and ship orders. That is what we expect to shift into Q3. Beyond that, again, as we talked about, and we provided information in the prepared remarks, this forecast is really based off of a bottoms-up business-unit-by-business-unit detail. And we looked at a lot of the backlog timing, and that backlog timing is about $90 million — should deliver $90 million more in revenue than what we expect — than what we had last year at this time.

Again, in order for us to hit the numbers for the back half, it assumes a similar book and ship demand that we saw at the back half of last year. But that wasn’t necessarily overly high book and ship demand. So, we’re pretty confident that, that can continue, especially with the recovery in the poultry markets in North America and the strength that we’ve seen in other markets. So certainly, it is a big ramp and by no means, a slam dunk, but it’s the best forecast we have based on the information provided to us and the additional analysis we did on backlog and the book and ship assumptions of the business units.

Meg Dobre: Okay. You mentioned that orders there are progressing pretty well in Q3 and you expected a strong quarter in that regard. Can you give us a little more color or context around this? And look, if you’re going to convert $90 million more to — more backlog than you did last year, how should investors think about your backlog progression through the year? Is it fair to say that we’re bringing backlog down? So put differently, does that backlog burn become a headwind to 2025? Or do you think there is enough momentum that can build through the market for that not to be an issue?

Brian Deck: Yes, that’s a very good question, and we’ve looked at this quite a bit. So when we start thinking about going outside of 2024 into 2025, well, certainly, you’re going to see, I’ll say, a little bit — compared to last year at least, more depletion of your backlog, just given the high revenue. That said, we still expect some good orders here in the back half. So we’ll see how that turns out. But I think more importantly, when you think about 2025 and what’s happening, a couple of things. So just looking at some of the particular end markets, obviously, we do believe we’re going to — we are very early in the recovery in the North American poultry market. We’re nowhere near where they were back in post-COVID levels or even 2019 pre-COVID levels.

So there’s still quite a bit of room to run there. We’re also looking a couple of end markets are still showing signs of strength. Pharma looks pretty good in the back half of the year. Food and beverage looks very strong. There are some other areas of weakness, like CPG, and beverage kind of goes into that. But overall, if I look at our pipeline, which we measure, we look at kind of like best view and kind of warm orders, if you will, like we have more likelihood of converting to orders. That is — it’s actually the highest it’s been in over a year. So we actually feel good about kind of where we sit as we kind of prepare ourselves or take orders for 2025.

Meg Dobre: So can I follow-up on that comment of where the poultry market currently is? Can you put a finer point on where you are volume-wise or dollar-wise relative to pre-COVID levels or whatever you would define as a normalized level for the industry?

Brian Deck: Yes. We’re certainly within North America specifically, we’re still off 15%, 20% versus kind of where we otherwise would be. And as you know, that’s one of our — that is our largest end market as a whole. So now we saw, again, good decent progression, but quite a bit of ways to go.

Meg Dobre: Got it. And my final question is on margin. You talked about improvement sequentially, that all makes sense. Is it fair for us to expect margins to improve year-over-year as well in both quarters? And I’ll leave it at that. Thank you.

Matt Meister: Yes, Meg, I think that is absolutely what we should expect. It is a big increase, certainly in margins, and a lot of that is driven by the incremental flow-through on the higher volume. We typically estimate in the range of high 20s, low 30%. And I think with the volume increase, we should sort of be on the high end of that range. And then beyond that, there’s some benefits from a mix perspective with the recovery in poultry markets. That tends to be some of our more profitable products as well as the higher volume in AGV. They’ve done a really nice job in addressing their manufacturing efficiency and their margins. So those together, along with improvements that we’re expecting in aftermarket, especially on projects, that gives us a nice tailwind from a mix perspective.

And then we’ve honestly been very happy and seen a lot of success from the supply chain team and the effects they’ve had on costs — input costs, especially around materials. So we expect that to continue back — in the back half of the year. All of that would support the higher margin rates we’re expecting in the back half of the year. And that will improved sequentially. So Q3 will be better, and then Q4 will be better than Q3.

Meg Dobre: Got it. Thanks for the call.

Matt Meister: Thank you.

Operator: Your next question comes from the line of Ross Sparenblek with William Blair. Please go ahead.

Sam Karlov: Hey, good morning. This is Sam Karlov on for Ross. Thanks for taking my questions.

Brian Deck: Sure. Thank you.

Sam Karlov: So I guess I’ll start. In the press release, you guys noted that you’ve submitted regulatory filings related to Marel within all relevant jurisdictions. Just to be clear, are these formal submissions or still just informal?

Brian Deck: It depends on the jurisdiction because there are different processes in different jurisdictions. For example, the EU is — there’s a lot of, I’ll say, advocacy and back and forth before you actually formally submit. So versus the U.S., where you just submit it, and then the Q&A comes afterwards, this is a little bit of the opposite. So that’s underway. But in most other jurisdictions, those are formal.

Sam Karlov: Got it. That’s helpful. And then can you give us an update on your investor outreach efforts with Marel investors, specifically related to that 10% retail investor base?

Brian Deck: Yes. No, good question. So we had a really great week back in, I guess, this would have been late June, both in Iceland and in London. And it had — we had a broadcast and webcast call, which was, in part, strongly geared towards retail investors. So that was — and that was very well received and viewed within that market. So that really helped. There’s also a very specific, I’ll say, print campaign that happens in Iceland as well as part of that process. So it goes like newspaper ads, et cetera. So there’s a very strong process underneath. Separately, aside from the conference that was attended live as well as broadcast, we had one-on-ones with all of the major shareholders of Marel, again, across both London and Iceland.

And I think we hit something like, I think, 40 investors over the course of a week or so. So really deep penetration and really great to see the support. They, as a group, certainly understand and appreciate the opportunity here, the industrial logic. So, so far, so good in that regard.

Sam Karlov: Got it. That’s very helpful. And then just one last one. Can you give us a sense of how poultry orders progressed through the quarter and kind of into July? And then can you comment on kind of what you’re hearing from customers that kind of gives you that level of visibility into the second-half?

Brian Deck: Right. So I would say orders progressed. It actually started the second quarter a little bit slow, frankly, but then did progress throughout the quarter. And I would just generally say, that’s our general expectation for the third quarter. I haven’t seen the July numbers in any case. But generally speaking, we do see — expect some momentum throughout the quarter. In terms of kind of what we’re hearing more generally from our customers, it’s what you might expect. First of all, the fundamentals remain good. The poultry prices, the wholesale prices are remaining solid. They’ve kind of — they’ve held. They haven’t further increased versus this time last quarter as a whole. However, input costs have also remained stable.

So the general, I’ll say, price/cost dynamics for our customers have held. We haven’t seen some of the — I think some of the results are coming out later this week or next week on some of the big guys. But as we understand it, they’re doing well operationally. So we’re quoting on things like for the third — for the second quarter, it was more, I would say, further processing kind of more end-of-line type activities are further down the line. We are starting to see some quotes and activity on some of the upfront stuff. So that bodes well. It’s just starting to get deeper into — further into the lines, which is good to see. So overall, just good conversation. They’re investing. We’re seeing more releases of capex that they’ve told us about, and we continue to quote.

Sam Karlov: Got it. That’s helpful. I’ll leave it there.

Matt Meister: Okay. Thank you.

Operator: [Operator Instructions] And that does conclude our question-and-answer session for today. I will now turn the conference over to Mr. Brian Deck for closing remarks.

Brian Deck: Thank you all for joining us this morning. As always, Kedric and Marlee will be available if you have any follow-up questions. Thank you.

Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.