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 theU.K.'s exit from the E.U.; •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 ourU.S. 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 withU.S. and international laws governing our 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. 26 -------------------------------------------------------------------------------- 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. 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 &
•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 engaged in structured education for enhancing inclusive leadership skills in our organization, designed to ensure more diversity in our leadership and hiring practices. 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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During the third quarter of 2020, we initiated a management succession plan
after Tom Giacomini , the Company's former President and Chief Executive Officer,
resigned his employment with the Company. The Company named Brian Deck as
Interim President and Chief Executive Officer and Matt Meister as Interim Chief
Financial Officer effective September 24, 2020 . The company also named Alan
Feldman as Chairman of its Board of Directors.
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 execute installations, 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 third quarter were higher than the third quarter of 2019 as we begin to see improved access to customer plants and positive recovery for certain customers across the food industry, specifically for those in the quick service restaurant drive through businesses and those servicing the sustained "eat-at-home" trend. As these trends are expected to continue well into 2021, our customers are now investing more to support them, addressing immediate capacity needs and creating strong interest in FoodTech's broad product offerings. Although the pandemic has negatively impacted our full year inbound numbers and results of operations in this business compared to the prior year, we also believe it presents an opportunity to accelerate initiatives that were previously underway to bring automation solutions to the protein market. In addition, the liquid foods end products such as juice, canned foods and ready meals remain in high retail demand during the pandemic. As a result, customers with significant retail activity are increasing their demand for parts, services, and upgrades. For AeroTech, a large portion of the business depends on 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-opened during the second and third quarters, but is still well below 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 through the third quarter, 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 addition, the cost controls including restructuring, and diversity of revenue streams within the business, have allowed for AeroTech to remain solidly profitable despite these impacts and uncertainties. Within the AeroTech segment we are also experiencing reduced aftermarket demand due to lower equipment utilization by customers. We have begun to see improvement in certain areas of the world as countries and regions reopen, but these improvements may not continue if a broader resurgence in COVID-19 cases causes restrictions to be reinstated. Recurring revenue for the FoodTech segment for the quarter endedSeptember 30, 2020 increased compared to the same period last year, as most food processing companies sustained critical operations, despite the disruption of the pandemic, requiring maintenance and parts. 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, and are expected to have an adverse impact on our results of operations for the remainder of 2020. 28 -------------------------------------------------------------------------------- Furthermore, 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 temporary 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 Form 10-Q.
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, and invest in the key growth strategies evident for a recovery from this pandemic. We have implemented incremental controls to further support our disciplined approach to working capital management. We are also availing ourselves of benefits under the CARES Act including both deferred tax payments and tax credits related to COVID-19. We have reduced spending more broadly across the company including reductions in bonus and other employee compensation, reduced hiring, implemented furloughs and layoffs, reduced work hours, significantly reduced discretionary spending and travel, and limited 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 selectively resuming investments to ensure continued investment in product development, human capital, and customer support where market conditions are more favorable. 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 requirements 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. By excluding or including these items, we believe we provide greater transparency into our operating results and trends, and a more meaningful comparison of our ongoing operating results, consistent with how management evaluates performance. Management uses these non-GAAP financial measures in financial and operational evaluation, planning and forecasting. The adjustments generally fall within the following categories: restructuring costs, M&A related costs, pension-related costs, constant currency adjustments and other major items affecting comparability of our ongoing operating results. Beginning in the third quarter of 2020, we adjusted certain of our non-GAAP financial measures for management succession costs. OnSeptember 24, 2020 , we announced that our CEO stepped down following a leave of absence. Management succession costs in the third quarter of 2020 include severance paid to our former CEO, net of the reversal of stock based compensation expense for forfeited equity awards, and in future periods is expected to include costs related to filling executive positions in connection with this transition. We did not incur management succession costs in any prior periods presented in this report. We are excluding management succession costs from certain non-GAAP financial measures because they are not part of our regular compensation program, and we believe that excluding the effects of costs associated with the recruiting and transitioning of the most senior executive position allows more meaningful period-to-period comparisons of our ongoing operating results. 29 -------------------------------------------------------------------------------- The non-GAAP financial measures presented in this report 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 and M&A
related costs, which include integration costs and the amortization of inventory
step-up from business combinations, transaction costs for both potential and
completed M&A transactions ("M&A related costs"), and Management succession
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, pension expense other than service cost, M&A
related costs, and Management succession 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, 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.
•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:
Nine Months Ended September 30,
(In millions) 2020 2019
Cash provided by continuing operating activities $ 161.1 $ 35.1
Less: capital expenditures 22.7 29.2
Plus: proceeds from sale of fixed assets 1.2 1.3
Plus: pension contributions 0.6 7.2
Free cash flow (FCF) $ 140.2 $ 14.4
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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 September 30, Nine Months Ended September 30,
(In millions, except per share data) 2020 2019 2020 2019
Income from continuing operations as reported $ 17.2 $ 33.5 $ 78.7 $ 87.2
Non-GAAP adjustments
Restructuring related costs
Restructuring expense 7.1 1.3 11.2 11.5
Inventory impairment due to restructuring 1.9 - 1.9 -
M&A related cost 0.9 8.7 4.4 20.2
Management succession costs 3.5 - 3.5 -
Impact on tax provision from Non-GAAP
adjustments(1) (4.0) (2.5) (5.9) (7.8)
Adjusted income from continuing operations
111.1
Income from continuing operations as reported
78.7 87.2
Total shares and dilutive securities 32.1 32.1 32.1 32.0
Diluted earnings per share from continuing
operations $ 0.54 $ 1.04 2.45 2.72
Adjusted income from continuing operations
93.8 111.1
Total shares and dilutive securities 32.1 32.1 32.1 32.0
Adjusted diluted earnings per share from
continuing operations $ 0.83 $ 1.28 2.92 3.47
(1) Impact on income tax provision was calculated using our annual effective
tax rate of 24.7% for
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--------------------------------------------------------------------------------The tables below provide a reconciliation of net income to EBITDA and Adjusted EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2020 2019 2020 2019
Net income $ 17.2 $ 33.5 $ 78.7 $ 86.9
Loss from discontinued operations, net of
taxes - - - 0.3
Income from continuing operations as
reported 17.2 33.5 78.7 87.2
Income tax provision 7.1 8.7 26.6 23.5
Interest expense, net 2.9 5.9 11.2 13.4
Depreciation and amortization 18.0 17.2 53.2 47.5
EBITDA 45.2 65.3 169.7 171.6
Restructuring related costs
Restructuring expense 7.1 1.3 11.2 11.5
Inventory impairment due to restructuring 1.9 - 1.9 -
Pension expense, other than service cost 1.1 0.5 3.1 1.5
M&A related cost 0.9 8.7 4.4 20.2
Management succession costs 3.5 - 3.5 -
Adjusted EBITDA $ 59.7 $ 75.8 $ 193.8 $ 204.8 The tables below provide a reconciliation of segment operating profit to segment adjusted operating profit and segment Adjusted EBITDA:
Three
Months Ended
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 37.9 $
11.4 $ (21.0)
- - 7.1 7.1
Inventory impairment due to restructuring - 1.9 - 1.9
M&A related cost 0.7 - 0.2 0.9
Management succession costs - - 3.5 3.5
Adjusted operating profit 38.6 13.3 (10.2) 41.7
Depreciation and amortization 16.0 1.3 0.7 18.0
Adjusted EBITDA $ 54.6 $ 14.6 $ (9.5) $ 59.7
Revenue $ 301.0 $ 118.2 $ - $ 419.2
Operating profit % 12.6 % 9.6 % 6.8 %
Adjusted operating profit % 12.8 % 11.3 % 9.9 %
Adjusted EBITDA % 18.1 % 12.4 % 14.2 %
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Nine
Months Ended
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 127.6 $ 40.2 $ (48.2) $ 119.6
Restructuring related costs
Restructuring expense - - 11.2 11.2
Inventory impairment due to restructuring - 1.9 - 1.9
M&A related cost 1.0 - 3.4 4.4
Management succession costs - - 3.5 3.5
Adjusted operating profit 128.6 42.1 (30.1) 140.6
Depreciation and amortization 47.2 4.0 2.0 53.2
Adjusted EBITDA $ 175.8 $ 46.1 $ (28.1) $ 193.8
Revenue $ 913.5 $ 374.9 $ - $ 1,288.4
Operating profit % 14.0 % 10.7 % 9.3 %
Adjusted operating profit % 14.1 % 11.2 % 10.9 %
Adjusted EBITDA % 19.2 % 12.3 % 15.0 %
Three
Months Ended
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 42.5 $ 22.2 $ (16.1) $ 48.6
Restructuring related costs
Restructuring expense - - 1.3 1.3
M&A related cost 7.9 - 0.8 8.7
Adjusted operating profit 50.4 22.2 (14.0) 58.6
Depreciation and amortization 15.4 1.3 0.5 17.2
Adjusted EBITDA $ 65.8 $ 23.5 $ (13.5) $ 75.8
Revenue $ 334.3 $ 155.0 $ 0.1 $ 489.4
Operating profit % 12.7 % 14.3 % 9.9 %
Adjusted operating profit % 15.1 % 14.3 % 12.0 %
Adjusted EBITDA % 19.7 % 15.2 % 15.5 %
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Nine
Months Ended
Corporate
(In millions) JBT FoodTech JBT AeroTech (Unallocated) Consolidated
Operating profit $ 132.5 $ 50.2 $ (57.1) $ 125.6
Restructuring related costs
Restructuring expense - - 11.5 11.5
M&A related cost 13.2 0.9 6.1 20.2
Adjusted operating profit 145.7 51.1 (39.5) 157.3
Depreciation and amortization 42.0 3.5 2.0 47.5
Adjusted EBITDA $ 187.7 $ 54.6 $ (37.5) $ 204.8
Revenue $ 972.2 $ 427.8 $ 0.2 $ 1,400.2
Operating profit % 13.6 % 11.7 % 9.0 %
Adjusted operating profit % 15.0 % 11.9 % 11.2 %
Adjusted EBITDA % 19.3 % 12.8 % 14.6 %
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