JOHN BEAN TECHNOLOGIES CORPORATION Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, our Annual Report on Form 10-K and other materials filed or to be filed by us with theSecurities and Exchange Commission , as well as information in oral statements or other written statements made or to be made by us, contain statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," "foresees" or the negative version of those words or other comparable words and phrases. Any forward-looking statements contained in this Form 10-Q are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. These forward-looking statements include, among others, statements relating to the expected impact of the COVID-19 pandemic on our business and our results of operations, our plans to mitigate the impact of the pandemic, our strategic plans, our restructuring plans and expected cost savings from those plans, our liquidity and our covenant compliance. The factors that could cause our actual results to differ materially from expectations include but are not limited to the following factors: • the duration of the COVID-19 pandemic and the effects of the pandemic on our
ability to operate our business and facilities, on our customers, on our
supply chains and on the economy generally;
• fluctuations in our financial results;
• unanticipated delays or acceleration in our sales cycles;
• deterioration of economic conditions;
• disruptions in the political, regulatory, economic and social conditions of
the countries in which we conduct business;
• changes to trade regulation, quotas, duties or tariffs;
• risks associated with current and future acquisitions;
• potential effects of the
• fluctuations in in currency exchange rates;
• difficulty in implementing our business strategies;
• increases in energy or raw material prices and availability of raw materials;
• changes in food consumption patterns;
• impacts of pandemic illnesses, food borne illnesses and diseases to various
agricultural products;
• weather conditions and natural disasters;
• impact of climate change and environmental protection initiatives;
• risks related to corporate social responsibility;
• our ability to comply with the laws and regulations governing our
government contracts;
• acts of terrorism or war;
• termination or loss of major customer contracts and risks associated with
fixed-price contracts;
• customer sourcing initiatives;
• competition and innovation in our industries;
• our ability to develop and introduce new or enhanced products and services
and keep pace with technological developments;
• difficulty in developing, preserving and protecting our intellectual property
or defending claims of infringement;
• catastrophic loss at any of our facilities and business continuity of our
information systems;
• cyber-security risks;
• loss of key management and other personnel;
• potential liability arising out of the installation or use of our systems;
• our ability to comply with
operations and industries;
• increases in tax liabilities;
• work stoppages;
• fluctuations in interest rates and returns on pension assets;
• availability of and access to financial and other resources; and
• the factors described under the captions "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
our most recent Annual Report on Form 10-K and in this Quarterly Report on
Form 10-Q.
27-------------------------------------------------------------------------------- In addition, many of our Risk Factors and uncertainties are currently amplified by and will continue to be amplified by the COVID-19 pandemic. Given the highly fluid nature of the COVID-19 pandemic, it is not possible to predict all such Risk Factors and uncertainties and there may be additional risks that we consider immaterial or which are unknown. Refer to the section below titled "Impact of COVID-19 on our Business" as well as Item IA. Risk Factors in this Form 10-Q for additional information. If one or more of those or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by our forward-looking statements. The forward-looking statements included in this Form 10-Q are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or changes in circumstances or otherwise. Executive Overview We are a leading global technology solutions provider to high-value segments of the food and beverage industry with focus on proteins, liquid foods and automated guided vehicle systems. We design, produce, and service sophisticated products and systems for multi-national and regional customers through our FoodTech segment. We also sell critical equipment and services to domestic and international air transportation customers through our AeroTech segment. Our Elevate plan was designed to capitalize on the leadership position of our businesses and favorable macroeconomic trends. The Elevate plan is based on a four-pronged approach to deliver continued growth and margin expansion.
• Accelerate New Product &
development of innovative products and services to provide customers
with solutions that enhance yield and productivity and reduce lifetime
cost of ownership.
• Grow Recurring Revenue. We are capitalizing on our extensive installed
base to expand recurring revenue from aftermarket parts and services,
equipment leases, consumables and our Airport Services offerings.
• Execute Impact Initiatives. We are enhancing organic growth through
initiatives that enable us to sell the entire FoodTech portfolio
globally, including enhancing our international sales and support
infrastructure, localizing targeted products for emerging markets, and
strategic cross selling of products. In AeroTech, we plan to continue
to develop advanced military product offering and customer support
capability to service global military customers. Additionally, our
impact initiatives are designed to support the reduction in operating
costs including strategic sourcing, relentless continuous improvement
(lean) efforts, and the optimization of organizational structure.
• Maintain a Disciplined Acquisition Program. We are also continuing our
strategic acquisition program focused on companies that add
complementary products, which enable us to offer more comprehensive
solutions to customers, and meet our strict economic criteria for
returns and synergies.
We developed the JBT Operating System in 2018, introducing a new level of
process rigor across the Company beginning in 2019. The system is designed to
standardize and streamline reporting and problem resolution processes for
increased visibility, efficiency, effectiveness and productivity in all business
units.
Our approach to Environmental, Social and Corporate Governance (ESG) builds on
our culture and long tradition of concern for our employees' health, safety, and
well-being; partnering with our customers to find ways to make better use of the
earth's precious food resources; and giving back to the communities where we
live and work. Our FoodTech equipment and technologies continue to deliver
quality performance while striving to minimize food waste, extend food product
life, and maximize efficiency in order to create shared value for our food and
beverage customers. Our AeroTech equipment business offers a variety of power
options, including electrically powered ground support equipment, that help
customers meet their environmental objectives.We recognize the responsibility we
have to make a positive impact on our shareholders, the environment and our
communities in a manner that is consistent with our fiduciary duties. We have
commenced a comprehensive evaluation to determine which ESG topics are most
pressing for our business. We are gathering input from investors, customers,
employees and other stakeholders. The result will be a materiality matrix
informing our development of an ESG strategy, balanced to ensure we invest
responsibly in initiatives that can address the risks, and opportunities,
presented by ESG.
We evaluate our operating results considering key performance indicators including segment operating profit, segment operating profit margin, segment EBITDA (adjusted when appropriate) and segment EBITDA margins.
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--------------------------------------------------------------------------------Impact of COVID-19 on our Business
The COVID-19 pandemic has resulted and will continue to result in significant economic disruption and has adversely affected our business. The following uncertainties exist and may continue to have a negative impact on our overall financial results:
• our ability to obtain raw material from domestic and international
suppliers required to manufacture our products and execution of services;
• our ability to secure inbound and outbound logistics to and from our
facilities, with additional delays linked to international border
crossings and the associated approvals and documentation;
• our ability to access customer locations in order to executeinstallations, new product deliveries, maintenance and repair services;
• our ability to efficiently operate our facilities and meet customer
obligations due to modified employee work patterns resulting from social
distancing guidelines, absence due to illness and/or government ordered
closures;
• limitations on the ability of our customers to conduct their business, and
resulting impacts to our customers' purchasing patterns, from food and
travel disruption, social distancing guidelines, absence due to illness or
government ordered closures; and
• limitations on the ability of our customers to meet their financial
obligations to JBT.
Specifically, when compared to the prior year, and as a result of the global
shelter in place and social distancing requirements, the food industry has
experienced a notable rise in retail demand driven by packaged food purchases.
This increase in demand is offset by a continued decline in demand for food
service due to the reduced restaurant, travel and school activity. While our
FoodTech customers are present in both the retail and food services channels,
this shift in demand creates volatility and uncertainty in our customer's
purchasing patterns. Our inbound FoodTech orders in the second quarter were
significantly lower than in the first quarter of 2020, as our customers focused
on keeping their daily operations running. Our Protein business was especially
challenged because the meat processing industry, which has a relatively low
level of automation, was negatively impacted by plant slowdowns and shutdowns as
a result of the pandemic. Although the pandemic significantly impacted our
results of operations in this business, we also believe it presents an
opportunity to accelerate initiatives that were previously underway to bring
automation solutions to the Protein market. Our customers' Liquid foods
equipment is more highly automated, and end products such as juice, canned foods
and ready meals remain in high retail demand during the pandemic. As a result,
we are starting to observe increased demand for capacity upgrades, parts and
maintenance in this business.
For AeroTech, a large portion of the business is correlated to the passenger
airline industry. Passenger air travel had virtually halted world-wide as of the
end of the first quarter, slowly began to resume as areas re-open during the
second quarter, but is still not nearing pre-pandemic levels. This has continued
to directly impact our mobile equipment and airport services business, and we
expect this impact of the pandemic to continue for the remainder of the year.
Airport infrastructure spending, which is subject to long lead time contracts,
remained relatively stable in the first and second quarters, and, although our
projections have more uncertainty than in pre-pandemic periods, we expect demand
and inbound orders for these products to continue through 2020.
In both segments, we are also experiencing reduced aftermarket demand as we have
less access to customer facilities due to policies restricting visitors. We have
begun to see improvement in certain areas of the world as countries and regions
reopen, but these improvements may not continue if there is a resurgence in
COVID-19 cases and restrictions are reinstated. All of the uncertainties related
to the COVID-19 pandemic are impacting companies worldwide, which is driving our
customers across both segments to continue to reduce or suspend their capital
expenditures. These actions have had an adverse impact on our inbound orders in
the second quarter, and are expected to have an adverse impact on our results of
operations for the remainder of 2020. However, in the third quarter of 2020 we
expect inbound orders to increase compared to the second quarter of 2020, driven
largely by demand for replacement equipment.
Furthermore, the risk of an outbreak of COVID-19 in a single plant location may
lead to a temporary shut-down, which would negatively impact our results.
However, there is no concentration across our manufacturing facilities such that
a single plant closure would be expected to have a material impact to our
consolidated results.
Although we cannot reasonably estimate the duration and severity of these events
or the impact this will have on the global economy or our business, we believe
we will emerge from these events well-positioned for long-term growth. For a
discussion of the risks and uncertainties associated with the COVID-19 pandemic,
see "The COVID-19 pandemic could have a material adverse impact on our business
operations, results of operations, cash flows and financial position" in Item
1A. Risk Factors of this Quarterly Report.
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--------------------------------------------------------------------------------Our Strategy to Mitigate Impacts of COVID-19
In light of these uncertainties, our focus is to preserve liquidity while maintaining our ability to execute as a critical supplier to the essential food and air transportation industries. We have implemented incremental controls to further support our disciplined approach to working capital management. We are availing ourselves of benefits under the CARES Act including both deferred tax payments and tax credits related to COVID-19, as well as deferral of contributions to theU.S. defined benefit pension plan as a way to increase liquidity. We are reducing spending more broadly across the company including reductions in bonus and other employee compensation, reduced hiring, implemented furloughs and layoffs, reduced work hours, significantly reducing discretionary spending and travel, and limiting capital spending to critical needs. Human capital related cost reductions such as reductions in bonus and other employee compensation have been implemented company-wide, with a focus on reducing discretionary spending for the company as a whole. Furloughs and lay-offs are driven by individual business unit needs, and are based largely on current and anticipated customer demand within that business. We have developed contingency plans to further reduce costs and use of capital if the situation deteriorates. In addition, we are prepared to restore a portion of this spending as demand returns. As of the date of this filing, most of our factories, suppliers and warehouses remain operational. We have taken a number of steps under the guidance of ourCrisis Response Team to protect the health and safety of our workers in our facilities, including daily symptoms screening for clearance to work, social distancing in our workplaces, face covering requirements where social distancing is not possible, facilitation of work from home arrangements for our employees who can perform work functions remotely, and global travel restrictions consistent with CDC and local government guidelines. OurCrisis Response Team issues frequent guidance to our managers and employees to reinforce the protocols and policies designed to keep our employees safe, and maintain our business operations. Furthermore, we have largely maintained our supply chain to date through our geographically diversified supplier base, and are providing enhanced remote support options and extended hours to our customers to support them through the disruption caused by the pandemic. Despite reduced capital expenditures and cost cutting measures, we have protected our investment in product development most notably as it relates to accelerated demand for labor-saving automation. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees and our other stakeholders. Non-GAAP Financial Measures We present non-GAAP financial measures in this quarterly report on Form 10-Q. These non-GAAP financial measures exclude certain amounts that are included in a measure calculated underU.S. GAAP, or include certain amounts that are excluded from a measure calculated underU.S. GAAP. These calculations may differ from similarly-titled measures used by other companies. The non-GAAP financial measures are not intended to be used as a substitute for, nor should they be considered in isolation of, financial measures prepared in accordance withU.S. GAAP.
Additional details for each Non-GAAP financial measure follow:
• Adjusted income from continuing operations and Adjusted diluted earnings
per share from continuing operations: We adjust earnings for restructuring
expense and M&A related costs, which include integration costs and the
amortization of inventory step-up from business combinations, and
transaction costs for both potential and completed M&A transactions ("M&A
related costs").
• EBITDA and Adjusted EBITDA: We define EBITDA as earnings before income
taxes, interest expense and depreciation and amortization. We define
Adjusted EBITDA as EBITDA before restructuring expense, pension expense
other than service cost and M&A related costs.
• Segment Adjusted Operating Profit and Segment Adjusted EBITDA: We report
segment operating profit, which is the measure of segment profit or loss
required to be disclosed in accordance with GAAP. We adjust segment
operating profit for restructuring expense and M&A related costs. We
calculate segment Adjusted EBITDA by subtracting depreciation and
amortization from segment adjusted operating profit.
• Free cash flow: We define free cash flow as cash provided by continuing
operating activities, less capital expenditures, plus proceeds from sale
of fixed assets and pension contributions. For free cash flow purposes we
consider contributions to pension plans to be more comparable to payment
of debt, and therefore exclude these contributions from the calculation of
free cash flow.
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• Constant currency measures: We evaluate our results of operations on both
an as reported and a constant currency basis. The constant currency
presentation excludes the impact of fluctuations in foreign currency
exchange rates. We calculate constant currency percentages by converting
our financial results in local currency for a period using the average
exchange rate for the prior period to which we are comparing.
The tables included below reconcile each non-GAAP financial measure to the most
comparable GAAP financial measure.
The table below provides a reconciliation of cash provided by continuing
operating activities to free cash flow:
Six Months Ended June 30 ,
(In millions) 2020 2019
Cash provided by continuing operating activities$ 101.0 $ 13.1 Less: capital expenditures 16.2
17.8
Plus: proceeds from sale of fixed assets 1.7 0.6 Plus: pension contributions 0.4 3.1 Free cash flow (FCF)$ 86.9 $ (1.0 ) The table below provides a reconciliation of income from continuing operations as reported to adjusted income from continuing operations and adjusted diluted earnings per share from continuing operations. Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share data) 2020 2019 2020 2019 Income from continuing operations as reported$ 32.5 $ 34.0 $ 61.5 $ 53.7 Non-GAAP adjustments Restructuring expense 2.1 4.3 4.1 10.2 M&A related cost 1.0 10.8 3.5 11.5 Impact on tax provision from Non-GAAP adjustments(1) (0.7 ) (3.7 ) (1.8 ) (5.3 ) Adjusted income from continuing operations$ 34.9 $ 45.4 $ 67.3 70.1 Income from continuing operations as reported$ 32.5 $ 34.0 61.5 53.7 Total shares and dilutive securities 32.0 32.0 32.1 32.0 Diluted earnings per share from continuing operations$ 1.01 $ 1.06 1.92 1.68 Adjusted income from continuing operations$ 34.9 $ 45.4 67.3 70.1 Total shares and dilutive securities 32.0 32.0 32.1 32.0 Adjusted diluted earnings per share from continuing operations$ 1.09 $ 1.42 2.10 2.19
(1) Impact on income tax provision was calculated using our annual effective
tax rate of 23.8% and 24.5% for
31
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The tables below provide a reconciliation of net income to EBITDA and Adjusted
EBITDA:
Three Months Ended June 30, Six Months Ended June 30,
(In millions) 2020 2019 2020 2019
Net income $ 32.5 $ 33.7 $ 61.5 $ 53.4
Loss from discontinued
operations, net of taxes - 0.3 - 0.3
Income from continuing
operations as reported 32.5 34.0 61.5 53.7
Income tax provision 10.6 8.3 19.5 14.8
Interest expense, net 3.5 4.2 8.3 7.5
Depreciation and amortization 17.7 15.6 35.2 30.3
EBITDA 64.3 62.1 124.5 106.3
Restructuring expense 2.1 4.3 4.1 10.2
Pension expense, other than
service cost 1.0 0.5 2.0 1.0
M&A related cost 1.0 10.8 3.5 11.5
Adjusted EBITDA $ 68.4 $ 77.7 $ 134.1 $ 129.0 The tables below provide a reconciliation of segment operating profit to segment adjusted operating profit and segment Adjusted EBITDA:
Three Months Ended June 30, 2020
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 49.0 $ 10.3 $ (11.7 ) $ 47.6
Restructuring expense - - 2.1 2.1
M&A related cost 0.3 - 0.7 1.0
Adjusted operating profit 49.3 10.3 (8.9 ) 50.7
Depreciation and amortization 15.6 1.5 0.6 17.7
Adjusted EBITDA $ 64.9 $ 11.8 $ (8.3 ) $ 68.4
Revenue $ 302.8 $ 108.7 $ - $ 411.5
Operating profit % 16.2 % 9.5 % 11.6 %
Adjusted operating profit % 16.3 % 9.5 % 12.3 %
Adjusted EBITDA % 21.4 % 10.9 % 16.6 %
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Six Months Ended June 30, 2020
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 89.7 $ 28.8 $ (27.2 ) $ 91.3
Restructuring expense - - 4.1 4.1
M&A related cost 0.3 - 3.2 3.5
Adjusted operating profit 90.0 28.8 (19.9 ) 98.9
Depreciation and amortization 31.2 2.7 1.3 35.2
Adjusted EBITDA $ 121.2 $ 31.5 $ (18.6 ) $ 134.1
Revenue $ 612.5 $ 256.7 $ - $ 869.2
Operating profit % 14.6 % 11.2 % 10.5 %
Adjusted operating profit % 14.7 % 11.2 % 11.4 %
Adjusted EBITDA % 19.8 % 12.3 % 15.4 %
Three Months Ended June 30, 2019
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 51.3 $ 17.9 $ (22.2 ) $ 47.0
Restructuring expense - - 4.3 4.3
M&A related cost 4.9 0.6 5.3 10.8
Adjusted operating profit 56.2 18.5 (12.6 ) 62.1
Depreciation and amortization 13.7 1.2 0.7 15.6
Adjusted EBITDA $ 69.9 $ 19.7 $ (11.9 ) $ 77.7
Revenue $ 343.3 $ 149.9 $ 0.1 $ 493.3
Operating profit % 14.9 % 11.9 % 9.5 %
Adjusted operating profit % 16.4 % 12.3 % 12.6 %
Adjusted EBITDA % 20.3 % 13.2 % 15.8 %
Six Months Ended June 30, 2019
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 90.0 $ 28.0 $ (41.0 ) $ 77.0
Restructuring expense - - 10.2 10.2
M&A related cost 5.3 0.9 5.3 11.5
Adjusted operating profit 95.3 28.9 (25.5 ) 98.7
Depreciation and amortization 26.6 2.2 1.5 30.3
Adjusted EBITDA $ 121.9 $ 31.1 $ (24.0 ) $ 129.0
Revenue $ 637.9 $ 272.8 $ 0.1 $ 910.8
Operating profit % 14.1 % 10.3 % 8.5 %
Adjusted operating profit % 14.9 % 10.6 % 10.8 %
Adjusted EBITDA % 19.1 % 11.4 % 14.2 %
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