Business context and reporting period
John Bean Technologies Corporation (the registrant named in this filing; the request metadata identifies JBT MAREL Corp) filed this unaudited Form 10-Q for the quarter ended September 30, 2017. JBT provides equipment, systems and services to food and beverage customers through FoodTech and to air transportation customers through AeroTech. Comparisons below are year over year.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $420.8m | $349.6m | $1,151.4m | $945.5m |
| Gross margin | 28.9% | 26.9% | 29.0% | 28.2% |
| Operating income / margin | $42.2m / 10.0% | $29.5m / 8.4% | $92.4m / 8.0% | $69.1m / 7.3% |
| Continuing-operations income | $26.4m | $20.6m | $62.3m | $44.6m |
| Net income | $25.8m | $20.6m | $61.1m | $44.5m |
| Diluted EPS from continuing operations | $0.82 | $0.69 | $1.97 | $1.50 |
| Adjusted EBITDA (non-GAAP) | $55.3m | $38.9m | $131.6m | $105.7m |
Revenue rose 20.4% in Q3 and 21.8% year to date. Management attributed the nine-month increase to $129.3m from acquisitions, $73.9m organic growth and $2.7m currency translation. Q3 operating margin improved 160 basis points; nine-month operating margin improved 70 basis points. The nine-month result included a $1.2m after-tax loss from discontinued operations.
Cash, debt and liquidity
- Nine-month operating cash flow was $68.0m, including $69.2m from continuing operations, versus $26.8m and $26.9m, respectively, in 2016. Investing used $129.2m, primarily reflecting acquisitions; financing provided $65.0m. Cash increased $5.2m to $38.4m.
- At September 30, total short- and long-term debt was approximately $404.0m. The company had $150.0m outstanding on its term loan and $247.8m drawn on its revolving facility, with $352.2m of stated revolver availability. About $177.9m, or 44% of debt, was exposed to floating rates.
- Current assets were $609.3m and current liabilities $475.3m. The filing reports liquidity of $290.4m, while separately reporting $38.4m cash and $352.2m revolver availability; those figures do not reconcile on their face and merit verification.
- JBT reported compliance with credit covenants and expected to remain compliant in the foreseeable future. The $600m credit facility and $150m term loan mature in February 2020.
Material changes and operating trends
- Q3 revenue growth included $51.6m from acquisitions, $14.0m organic growth and $5.6m currency translation. FoodTech revenue was $296.1m, with segment operating margin of 12.8% versus 12.0%; AeroTech revenue was $124.8m, with margin of 12.3% versus 10.6%.
- For the first nine months, FoodTech revenue rose to $816.6m, but segment margin declined to 10.9% from 12.1%, as higher acquired-company SG&A outweighed gross-margin gains. AeroTech revenue reached $334.8m and segment margin was 10.7%, compared with 10.5%.
- Inbound orders increased to $440.4m in Q3 from $346.8m, and to $1,262.8m for nine months from $998.2m.
- JBT issued 2.3m shares in March, receiving $184.1m net, and used proceeds partly to repay revolving borrowings. Acquisition cash spending was $103.1m in the nine-month cash-flow statement. Acquisitions during 2017 included Avure, AMSS and PLF; purchase accounting remained preliminary for certain balances.
- Nine-month restructuring expense fell to $1.3m from $9.4m. Management reported $6.3m cumulative cost savings through September 30 and expects plans to be completed by mid-2018.
Outlook, commentary and risks
The filing gives no specific revenue or earnings guidance. Management said operating cash flow and credit facilities were expected to fund working capital, R&D, restructuring, capital spending, pension contributions, anticipated share repurchases, acquisitions and other needs. Its Elevate strategy emphasizes product development, recurring revenue, operating initiatives and disciplined acquisitions.
- JBT expects to adopt the new revenue-recognition standard on January 1, 2018 using the modified-retrospective method. It estimates 30%–40% of revenue may be subject to change; some equipment and refurbishment revenue may be recognized over time, accelerating recognition versus current practice. The impact was still being quantified.
- Other exposures include interest-rate increases, foreign-exchange movements, acquisition integration and purchase-accounting adjustments, and the ability to maintain covenant compliance and access financing.
- A Delaware unclaimed-property audit covers 1986 through the present; JBT said a possible assessment could not be reasonably estimated. Management did not expect pending and threatened legal matters, individually or collectively, to materially harm results or financial position, but an unfavorable resolution could affect a particular future period.
- Performance bonds, letters of credit and other guarantees totaled $189.1m; a further $18.4m secured existing financial obligations. Net exposure on customer financing guarantees was $0.4m. Warranty liabilities were $15.0m at quarter-end.
- A new ERP system was first deployed in Q3, with implementation scheduled through 2020. Management reported effective disclosure controls and said it was monitoring internal controls during the rollout.
Most important facts for investors to verify
- Reconcile the reported $290.4m liquidity figure with cash and stated revolver availability, and assess borrowing capacity under covenant limits.
- Track FoodTech margin recovery and whether acquired-company costs are offset by sourcing, aftermarket and other Elevate initiatives.
- Confirm the eventual revenue-recognition transition impact, including timing effects and implementation readiness.
- Review acquisition returns, integration, preliminary purchase accounting and goodwill/intangible-asset assumptions.
- Monitor debt, floating-rate exposure, cash conversion and the outcome or potential exposure from the Delaware audit and other contingencies.