Welcome to JBT Marel's Earnings Conference Call for the First Quarter of 2025. My name is Bailey, and I will be your conference operator today. As a reminder, today's call is being recorded at this time. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I'll now turn the call over to JBT Marel's Senior Director of Investor Relations, Marlee Spangler, to begin today's conference.

Thank you, Bailey. Welcome, everyone, and thank you for joining our conference call. With me on the call today is our Chief Executive Officer, Brian Deck; President, Arni Sigurdsson; 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 today's Press release and 8-K filing. JBT Marel'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 measures can be found in the Investor Relations section of our website. With that, I'll turn the call over to Brian.

Thanks, Marlee. We are very pleased with JBT Marel's performance in the first quarter, highlighted by better-than-anticipated revenue, adjusted EBITDA, and margins versus our guidance. We also enjoyed strong year-over-year improvement in margins and orders. Our top line benefited from strength in recurring revenue as well as solid operational execution on the equipment. In terms of our margin performance, we enjoyed the flow through from the higher volume and good expense control. We were equally pleased with the order flow. With another solid quarter of demand up 12% year over year, following record fourth quarter levels. We experienced increased demand from the Poultry industry, continuing a recovery we enjoyed over the last few quarters as we benefit from the industry's robust fundamentals. We also benefited from our diversified end market participation with healthy orders in meat, beverage, pharma, and pet food. In terms of geography, we saw fairly broad-based strength across global regions. While we are excited about the financial performance and the continued order strength, we are even more enthused about the company we have created as JBT Marel, highlighted by our more comprehensive product offerings, enhanced service capabilities, increased scale, and even greater value proposition in our customer partnerships. On the integration front, we are making excellent progress. Arni will provide some color on that in a few moments. We understand that the impact of US tariff policy and the macroeconomic uncertainty it has created is top of mind for investors. While the situation is fluid, we believe in the short term JBT Marel is at least as well-positioned to manage the near-term impacts as our peers. On an intermediate to longer term basis, we believe that we are better positioned given our global footprint and available capacity in the US, Europe, and Brazil, which provides the flexibility to reposition where we assemble equipment and source and manufacture parts. However, any long-term actions involve time and resources to implement and therefore require more clarity on the trade environment. As you read in our earnings release, we have temporarily suspended our full year financial guidance and moved to providing second quarter guidance only. While our first quarter results and second quarter guidance reflect the company's strong competitive position, healthy end markets, and good execution, we have less visibility for the back half of the year due to the difficulty in predicting the potential impact of slower economic growth, higher prices, and uncertainty on our customers' investment decisions. While we have not seen widespread changes in customer behavior to date, we have had a handful of lost or delayed orders. We are monitoring customer behavior closely as the spectrum of tariffs becomes real and as uncertainty continues, including reciprocal tariffs and how that manifests changes in order flow. As we get greater certainty on tariff rates, especially as they impact the European Union, we hope to reinstate full-year guidance. On the cost side, we have done a thorough analysis of the geographic origins of equipment and components, calculating the impact of today's tariff rates on cost of goods sold. We currently estimate the annualized cost impact to be approximately $50 million to $60 million or $12 million to $15 million per quarter before any mitigating actions. This includes costs associated with buying parts, as well as the higher cost of importing equipment manufactured at JBT Marel's non-US sites to serve our US customers. Of course, we are taking actions to mitigate the impact of tariffs as we look to secure concessions from suppliers and implement select pricing actions. Given the timing of tariff enactment, our inventory on hand, and our mitigating actions, for the remainder of 2025, we believe the negative cost impact of $12 million to $15 million per quarter could be reduced by more than half. While we look for greater clarity in the macroeconomic environment, the fact that roughly half of JBT Marel's top line comes from resilient recurring revenue is a particular asset to our business in uncertain times. Looking past tariffs, we are more confident than ever in the benefits of the JBT Marel combination and our ability to better collaborate with our customers on the commercial side, capture cost synergies, and bring even greater value to our customers as we transform the future of food.

Thanks, Brian. As Brian said, we are excited about the progress we are making uniting our two organizations. First and foremost, our team has delivered continuity for customers, as demonstrated by our first quarter results. As of early April, we reached a major milestone in the implementation of JBT Marel's new organization. The new organizational structure includes a go-to-market strategy that adopts an end-market focus. We believe this customer-centric approach enables our commercial organization to bring deeper process and industry-specific knowledge to our customers and enhances JBT Marel's ability to sell the full breadth of our product offerings. To that end, we have continued to secure orders that combine our complementary capabilities, serving the poultry industry as well as other end markets. Speaking of the Poultry industry, one of JBT Marel's largest and most attractive end markets, not only are we benefiting from the current ongoing recovery in the Poultry industry, but we believe it is the protein with the strongest long-term growth outlook. As for JBT Marel, we are excited about the advantages created by the combination, as we now bring the most comprehensive portfolio of solutions, services, and software covering primary, secondary, and further processing, uniquely positioning us to support customers across the entire production value chain. Beyond our ability to cross-sell our existing products, we are integrating full-line solutions that address critical customer needs. For example, we can enable seamless traceability across the poultry value chain from primary and secondary processing steps such as evisceration, chilling, cut-up, and deboning, bone detection, and intelligent portioning, continuing to subsequent value-added further processing. All of this is supported by real-time analytics and actionable software insights that enhance food safety and production efficiency. This is an example of what makes JBT Marel the leading partner in solutions for a sustainable food industry. As I said, our combined organization is working together, leveraging our combined strengths to deliver value for customers. That can be seen in the continued strength of our first quarter orders, with combined orders of $916 million reflecting healthy year-over-year growth for the JBT segment and record orders for the Marel segment. While it's been just four months since completing our business combination, we are very pleased with the progress we've made already. As Matt will elaborate on, we are on track to achieve our stated cost synergies and the commercial benefits of the merger.

Thanks, Arni. I will begin with a quick recap of our first quarterly report for the combined company. Consolidated JBT Marel revenue exceeded the midpoint of our guidance by $19 million, which was primarily driven by better-than-expected equipment shipments and strong recurring revenue. Additionally, the negative effect from foreign exchange translation was about $6 million less than our expectation. Our consolidated adjusted EBITDA margin of 13.1% outperformed the midpoint of our guidance by 60 basis points, driven by volume flow through, favorable mix, and good expense control. Since we accounted for Marel as an acquisition, the prior year period reflects only the JBT legacy results. We provided supplemental disclosures in the press release and earnings presentation to show comparisons for the combined company, as well as the individual segments. The JBT segment revenue increased 4% year-over-year, or 5.6% growth on a constant currency basis. JBT segment adjusted EBITDA of $61 million increased 6%, and segment adjusted EBITDA margin improved 30 basis points to 14.9%. Marel segment revenue was flat versus prior year, but on a constant currency basis, grew 2%. Segment adjusted EBITDA of $51 million increased 19% year-over-year. Segment margin improved 190 basis points to 11.5%, benefiting from favorable mix with higher aftermarket and pet food revenue, along with savings from the restructuring actions the company implemented in 2024 and initial benefits from synergy actions. Our first quarter free cash flow was $18 million, which included approximately $42 million in one-time M&A related payments. In the quarter, we incurred $11 million in restructuring costs and anticipate full-year restructuring costs of about $25 million to $30 million. We expect our restructuring actions to generate savings of approximately $20 million to $25 million in the year and annual run rate savings of $50 million to $60 million as we exit the year. Regarding our other synergies from cost of goods sold, we expect to realize meaningful savings during the year from categories such as supplier rationalization, logistics efficiencies, and make versus buy decisions. This is expected to deliver approximately $15 million in year savings and run rate savings of approximately $30 million exiting 2025, all prior to any tariffs impact. Altogether, that puts us on track to achieve total in-year cost synergies of $35 million to $40 million in 2025 and annual run rate savings of $80 million to $90 million as we exit the year. With this, we remain confident in our ability to achieve our targeted run rate synergy savings of $150 million as we exit 2027. In terms of debt leverage, we are extremely pleased with the progress we have made in a short period. As of the end of the first quarter, leverage was 3.8 times, which is an improvement from just below 4 times at the close of the transaction in January. And as measured under our banking agreement, which includes the benefit of certain run-rate synergy savings, we ended the first quarter at 3.2 times. With approximately $1.3 billion in liquidity, we have significant financial flexibility to continue to fund our operations, provide stability, and we remain confident that we can reduce our bank leverage to less than three times by year-end 2025, even with the increased macroeconomic uncertainty. Finally, as Brian mentioned, we have suspended full-year guidance for 2025 due to the uncertainty from the impact of tariff decisions, especially on the second half of the year. That said, with better near-term visibility, we are providing guidance for the second quarter of the year. For the quarter, we expect to generate revenue of $885 million to $915 million, which includes a favorable FX impact of $10 million to $15 million, an adjusted EBITDA margin of 14.5% to 15.25%, and adjusted EPS of $1.20 to $1.40.

Thanks, Matt. Given our high-level recurring revenue along with the global footprint and diversified supply chain enjoyed by JBT Marel, we believe we are well-positioned to withstand the pressures of the current economic environment. Beyond the short-term impacts of tariffs, we believe we are in an enviable position of serving attractive markets with the most comprehensive and compelling portfolio of solutions. Let me close by extending my sincere thanks to the entire JBT Marel team for their commitment and customer focus as we work to deliver the benefits of our business combination. I'm proud of what we've accomplished so far and even more excited about what's to come. Now, let's open the call to questions.

Your first question comes from the line of Mirc Dobre with R.W. Baird. Your line is open.

Thank you for taking the questions. Good morning, everyone. Brian, maybe we can start with just some updated thoughts around how you thought about the guidance. You've obviously pulled it for the full year, but I'm curious if this is just a function of sort of being conservative relative to what clearly is an uncertain environment, or if you've actually seen customer behaviors change through the month of April. Maybe you can comment on that specifically. And I'm also curious as to what you're seeing globally, right? US customers versus folks in Europe or other parts of the world.

Thank you for the question. We believe it's more about being cautious given the current lack of clarity. We want to see how the situation develops a bit more. There are still many uncertainties with the Trump administration, and we are unsure how exactly that will unfold. We did consider whether to withdraw our guidance. Other companies have taken different approaches; some maintain their guidance but clarify that it's not inclusive of tariffs, while others present very broad ranges that aren't particularly useful. Ultimately, we chose to maintain our stance. We haven't noticed any significant changes in customer behavior, with only a few orders being lost, deferred, or delayed—definitely a small number. Specifically, the Poultry industry seems to be performing well. However, we chose to be a bit conservative as we await further developments. That said, we are very proud of our performance in the first quarter and are happy with how the second quarter is shaping up. We'll see how things evolve from here.

I see. And is there any color on behavior, say US customers versus international, anything to sort of parse out there?

There's a little bit. So, you've got kind of two situations. You have, obviously, globally, you do have some concerns as to the price of the equipment, right. And what either the US Tariffs or any reciprocal tariffs have on that. So I just think there's a general more conversations on cost, et cetera. There's obviously, given the US Tariffs, there's more conversations there. But there's also on the non-US customers, some of our non-US customers import food into the US. So then the question is, should they build that equipment? Should they build that factory or add that equipment in the US, or should they add it, let's say Mexico, right? If there's going to be food tariffs, are they better off just building it in the US? So, there's just a lot of back and forth on those conversations. I think the good news generally is all these conversations are continuing. The demand profile is there. We just don't know exactly how this will play out and if it defers some decisions for a month or two as the smoke clears a little bit? We really just need some clarity on tariffs, both on the particular US side but also any reciprocal tariffs.

Understood. On your recurring revenue, I mean, it's pretty clear that the CapEx component of your business or new equipment is where you would see some kind of an impact, if there would be one. But I'm curious, when you look at the recurring component of your business, is there a potential headwind there as well from these tariffs? How do you think about that?

I think that's unlikely. We had a strong performance in parts orders during the first quarter, even before we had any clarity on tariffs, which were announced in early April. There was no noticeable change from February to March, which indicates stability. We anticipate this trend will persist. There will be discussions regarding parts pricing as we consider how to address any increased costs for imports, which account for about a third to half of our parts. While more than half of our parts are sourced from US suppliers, we do rely on some international sources. We are weighing the moderate cost impacts, but overall, the robust level of food production gives us confidence in the market for our parts.

Okay. Lastly, I want to ask about your comments on repricing backlog. Could you explain how that mechanism works? Additionally, of the existing backlog, which totals $1.3 billion, how much of that is related to US orders or customers? I'll leave it there. Thank you.

For JBT Marel, approximately 40% of our revenue comes from the US, with a significant portion manufactured in the US. About 15% of our backlog is related to parts and refurbishments, which is less relevant. Regarding repricing the backlog, this process varies by customer and contract, depending on the original negotiations and whether we can adjust prices. We're currently navigating this and have some capacity to adjust prices, but it won't apply to every order. However, we can certainly modify the prices on existing quotes in our pipeline for future orders.

Thank you.

Okay. Thanks.

Your next question comes from the line of Ross Sparenblek with William Blair. Your line is open.

Hey, good morning, gentlemen.

Good morning.

Maybe just starting with the backlog. I know you guys called out some order delays, but was there a definitional change with that because based on our estimates, I think we're around $1.45 billion for the backlog, which is a little bit higher than what you guys reported. I know FX was a bit of a headwind, moving to a tailwind. Just anything else to think through there on why there could be a $140 million kind of differential?

Not really, Ross. I think there was certainly some FX in there. I think also, just as we tried to align the two businesses together, there may be some adjustments that are made to the closing backlog and opening backlog for the acquisition. So I think it's probably just a little bit of noise in how we characterize some of the backlog as we tried to align the policies of the two companies.

Okay, that's reassuring. So no cancellations don't really get the sense based off customer conversations that they need to opt out.

No.

And then just maybe take it through kind of some of the strength there. Can you give us a sense of like the lead times in the first quarter, knowing that Marel is a little bit longer cycle? Last quarter seemed to be more of kind of mid-stream, implying delivery in 2025, or anything that’s large and lumpy to call out.

Sure. So, yes, so you're right. It is all over the board and it is product by product line. And just to give you a feel for it, it's anywhere as short as 45 days and as long as 12 months, 15 months, it is quite a broad range. You are correct in that the Marel on their large projects, particularly in poultry and meat, those do tend to be in that ballpark of the 12-month to 15-month range. We did see some nice order strength on that in the first quarter. So I'd say slight elongation, and we are clearly already quoting into 2026. That said, still, the vast majority of our backlog will be shipped in the current year as we sit here. So I can't give you like a great answer because it's just all over the board. But that said, our lead times are not extending at this point. We still have the capacity to meet the demand that's out there. As poultry gets stronger and stronger, we have to make sure we work on that closely. But all in all, from an operations, manufacturing operations perspective, we're well situated.

Perfect. Thank you, Brian. And just one last one, if I could. Marel's margin is pretty strong in the quarter. I do believe the first quarter is a seasonal low for aftermarket mix. So, just trying to understand some of the strength there, and maybe if you could help us quantify some of the benefits from early synergy capture, if there were some.

Yes, Ross, I mean this is Arni here. I mean some of the strength that we saw was clearly due to some of the actions that we have been taking on the business, which explains it. And I think it's also helpful that you're seeing that kind of like-for-like on a GAAP basis now, because we have been taking actions on lowering capitalization of innovation and stuff like that that is now fully on a like-for-like basis. But we also saw some good strength in some of the business, such as on pet food, where we saw both growth and margin enhancement. So I think overall, just very pleased with the progress and also just considering that we're seeing continued strength on the order side and the driver in Q1 was kind of poultry, we saw a lot of strength on the other end markets in Q4, but they were still kind of at a healthy level in Q1.

Yes, Ross. Just to add to that, I think Arni touched on the volume strength and the order strength we saw in the legacy Marel business. But we are definitely seeing flow-through benefits from the restructuring actions that the business took at the end of last year in anticipation of the consolidation, as well as some early benefits on the synergy actions that we took. That's primarily on the Marel side as well.

Yes, Arni, regarding the question about the lower capitalization of R&D, is that simply a translational issue, or does that mean you are optimizing the R&D spending?

Yes, so we have been taking actions all kind of prior to the transaction. We were looking at that even kind of in the second half of 2023. So you kind of saw that in 2024. But we are as the two companies are coming together, what we're doing is really kind of combining the full innovation portfolio, aligning how we measure it. And in the past, Marel has been more about talking about a specific percentage that we invest in innovation. But I think we're moving more towards just kind of measuring the output and figuring out that way, what is the right level. We also have some overlap between the two businesses that we're looking at. So yes, we have been taking actions, but we're still kind of working through finding the optimal investment in the right places, because now we also have a bigger company with a bigger portfolio, and we need to evaluate kind of where do we get the best return on investment.

Awesome. Very helpful guys. Congrats on the quarter. Thank you.

Thank you.

Your next question comes from the line of Justin Ages with CJS Securities. Your line is open.

Hi. Good morning all.

Good morning.

You gave some good color on poultry demand, containing recovery. We're just hoping you could give us an update on something from last quarter, which is the weakness seen in the fish and whitefish, in particular. So, just any thoughts around that end market would be helpful.

Yes. So on the fish side, I mean, whitefish continues to be a challenged market. So, just to give you a data point, the quota in the Barents Sea is kind of being reduced by 25% in 2025. So we are kind of seeing a challenge there. But what is exciting, though, is due to that there is more investment going into farming on the whitefish side, for example, on cod, for example, in Norway, which is more kind of a very attractive business for players such as JBT Marel. But I think the real bright spot is the salmon industry. That has been improving over the last few quarters. You see that the challenges on the biological side have been improving. So there's been basically challenges in salmon farming, which has lowered the quality of the fish and creates certain restrictions on whether you can export, but that has been improving. So actually, salmon prices have been coming down, which helps with demand, and that is feeding into production growth that we expect in the low to mid-single digits for 2025 and even slightly higher in 2026. So I think that is kind of promising. And we see a bit more activity as we look at the pipeline. But we're not out of the woods, and we want to see a little bit more strength coming into the numbers. But I would say overall, the salmon industry is moving in the right direction.

All right. That's helpful, thanks. And then just on the recurring versus non-recurring split, I know, some strength there, but just wondering how much of recurring kind of ticking past that 50% mark is related to the new digital offerings that were touted at the combined entity versus just shifting of equipment orders.

The main reason we exceeded 50% this quarter is due to the seasonal impact on equipment revenue recognition. When you review our upcoming 10-Q, you'll notice that the revenue from equipment and parts will balance out as equipment shipments rise throughout the year. On the software side, revenue from both sectors of our business remained stable from quarter to quarter. Our software and digital teams are eager to integrate our two products. Marel has developed what we refer to as line software solutions, which integrate various components to enhance overall line efficiency, while JBT has focused on optimizing individual equipment pieces, aided by our OmniBlu software. Marel has also made progress in this area. We are in the early stages of combining our equipment optimization software, and while we haven't yet seen significant revenue synergies, more developments are expected.

That's helpful. Thanks for taking the questions.

Thank you.

Your next question comes from Mirc Dobre with R.W. Baird. Your line is open.

All right. I got back in the queue. Since we didn't talk about cost mitigation, I guess I'm going to have to bring that up.

No problem.

Yes, thanks for taking a follow-up. So Slide 7, very helpful. Appreciate all the detail there. So I guess two questions. It sounds to me like you're saying Q2 is really not going to experience a lot of these negative cost drags because you have inventory and so on. And the guidance certainly looks that way. How do we think about the second half here? Because it sounds like you're saying you think you have tools to be able to offset maybe half of these costs. But I don't know if that's immediate, if that happens as soon as Q3, if it takes a little bit longer, maybe talk us through that.

We expect to be affected in the second quarter, and this is reflected in our guidance with an estimated impact of about $3 million, as we are already paying tariffs. Some of these costs will be capitalized in our inventory, and they will be recognized as we sell the products. However, we anticipate that costs will increase in the latter half of the year as we manage our inventory. The figures on Slide 7 indicate an impact of $12 million to $15 million per quarter. A key concern is the fluctuation of tariff rates, which is why we have shared details on our purchasing activities for your analysis. Changes in European tariffs will influence our costs. Overall, we are optimistic about our ability to reduce these costs significantly, especially in the latter half of the year as we implement our strategies. We have several initiatives in place to manage this situation; we intend to resist price increases and we are rarely dependent on a single supplier for parts. This allows us to shift our demand to domestic suppliers for more favorable pricing or to find new suppliers within the U.S. We are also considering our make versus buy options, utilizing available production capacity at our U.S. facilities, as well as in Brazil and possibly India. Adjusting these supplier relationships takes time, longer than simply switching vendors. We also need to consider our equipment shipments, particularly from the Netherlands, but we have production capabilities in the U.S. and Brazil that we can leverage. There are many factors at play, including the uncertainties around tariffs and their financial impact. Nonetheless, we are actively working to address these challenges and I feel confident that we can reduce the impact by at least half, especially by combining cost-saving measures with increases in pricing.

That's very helpful. As I think about 2026, and assuming that the assumptions on Slide 7 remain in place with the tariffs unchanged, do you believe you will be able to fully mitigate the impact of these tariffs by that time? Can this be achieved with pricing for your 2026 product? Or should we expect that the quarterly impact of approximately $6 million to $7 million will still affect 2026?

I believe that this will simply become a cost of doing business for us and our customers that will be integrated into the business model. Our customers will need to ensure they continue to receive a return on their investment, so this will be an ongoing discussion. I also think this will be integrated into our cost structures. If we need to move manufacturing, that might extend into early 2026, but by the second quarter or the latter part of 2026, we should have a better alignment, assuming we have clarity on the actual tariff rates.

And Mirc, maybe just to add, what we've also talked about is just how do we see this as an opportunity, because a lot of our peers in the market are situated kind of similarly to JBT Marel. So if you look on the legacy model side, a lot of the competitors are based in Europe when we're in Europe, but with the scale and the global reach and just the fact that we have kind of two supply chains that we are now bringing together, we haven't brought them together fully already. So as we kind of can think about, I think we have more flexibility and more opportunity to adapt to the changing environment. So, I think that's something that we're also kind of looking toward as we think further ahead.

And just to actually further the point. And I know this did ask a little bit, but on Arni's last point, we have a tremendous business in Brazil. The combined business, we have three large factories and one smaller manufacturing factory. And then we have a large distribution center for parts as well as a customer innovation center there. So we do have the ability to, again, as Arni said, move some global supply chains around. And Brazil could be a really nice answer for us if we think Europe is just simply going to be too expensive, and we need to alleviate if we have any constraints in the US or higher costs in the US.

Understood. Last question is really on integration. It sounds like things are going well. I'm curious if, say, for instance, there is an adverse effect on demand either in the back half or maybe even stretching into 2026. What does that mean for your integration effort? Do you get to maybe pull forward some synergies? Do you have that ability? Or maybe it's the opposite, where if you are dealing with lower volumes, and you do have to make changes to your manufacturing footprint, as previously discussed, then that actually makes the integration process more complicated and maybe raises the risks to you being able to deliver on those synergies that you outlined. Curious your thoughts on this.

It is a bit mixed. So certainly on the cost side, on the SG&A, etc., logistics, whatnot, we can continue those. And if the demand environment changes, we have a history from our continuous improvement side of being able to react appropriately for the demand environment. So we feel that we have that in our tool chest, and we can manage that appropriately. The potential offset that obviously would be not so much on the manufacturing side because I think we can get that utilization one way or another and get that efficiency one way. If we move stuff around, the risk would be more so on how much materials you buy, right? So what's the pure volume of raw materials, parts, etc., and getting the synergy savings on that combined purchase. So that would be more of the risk in a lower-demand environment.

All right. Appreciate it. Good luck.

Thank you.

And there are no further questions at this time. Mr. Brian Deck, I turn the call back over to you for closing remarks.

Thank you all for joining us this morning. As always, Marlee will be available if you have any additional questions.

Thank you. This concludes today's conference. You may now disconnect.