Greetings, and welcome to Griffin Corporation's Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brian Harris.
Thank you. You may begin.
Thank you, Rob. Good afternoon, everyone. With me on the call is Ron Kramer, our Chairman and Chief Executive Officer. Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today. As in the past, our comments will include forward looking statements about the company's performance based on our views of Griffin's businesses and the environments in which they operate.
Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and our various Securities and Exchange Commission filings. Finally, from today's remarks, we'll adjust for those items that affect comparability between reporting periods. These items are explained in our non GAAP reconciliations included in our press release. Now I'll turn the call over to Ron.
Thanks. Good afternoon, everyone. We're off to
a great start in the first half of fiscal twenty twenty one with our 2nd quarter revenue increasing 12%, adjusted EBITDA up 41% and adjusted EPS up 109% compared to the prior year quarter. These results were driven by continued demand for our comprehensive consumer product categories and supported by a strong housing market and repair and remodel activity. Our strategic actions to optimize our business remain on plan and we're realizing the early benefits of this work today. Highlighting this success is our increased cash generation profile coupled with our EBITDA margin expansion in both CP and HBP, which increased 220 and 190 basis points, respectively, over the prior year period. Our AIM strategic initiative is progressing on plan and on budget.
As previously announced, this investment will consolidate operations, increase automation, support e commerce growth and create new data and analytics platform for AIMS globally by the end of 2023. We expect this to further improve margins in the years ahead. As we move into our 2nd year of managing our business during a global pandemic, we prioritize protecting our employees and will continue to do so as restrictions in the United States begin to ease. Turning to our segments, in Consumer and Professional Products, we saw continued retail demand across all geographies and product lines. The AIM strategic initiative remains on schedule for completion by the end of 2023.
We reiterate our expectation to realize annual cash savings of $30,000,000 to $35,000,000 and inventory reductions of the same magnitude when the benefits of the initiative are fully realized. In Home and Building Products segment, we continue to see healthy demand for both residential and commercial door products, and we continue to see demand outstripping supply. In Defense Electronics, Telephonics revenue and profitability decreased from the prior year, primarily driven by reduced volume due to the timing of work performed and deliveries on certain communications and surveillance programs as well as the divestiture of SEG. Telephonics actions to improve its operational efficiency continue with the work to consolidate 3 facilities into 2, which will be completed in our fiscal Q4. Earlier this month, Telefonix was awarded $162,000,000 5 year support contract from Lockheed Martin for our multimode maritime surveillance radars for the U.
S. Navy's MHR-sixty maritime helicopters. We continue to see additional opportunities for our products in domestic applications as well as through the MH-sixty, Romanian military affairs to countries like South Korea and Greece. Backlog in the quarter was $354,000,000 with trailing 12 month book to bill of 1.1x.
Turning to
our balance sheet. We continue to have excellent flexibility in our capital structure to execute opportunities and return cash to shareholders through our quarterly dividends. We delevered to 3.1x net debt to EBITDA, marking 2 full terms of improvement over the prior year period. Additionally, we have $176,000,000 in cash $363,000,000 available on our revolving credit facility, providing ample liquidity and putting us in an excellent position to capitalize on our active pipeline of acquisition opportunities. Earlier today, our Board authorized an $0.08 per share dividend payable on June 17, 2021 to shareholders of record on May 20, 2021.
This marks the 39th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated in 2012. Griffin's evolved over the past decade from a decentralized holding company to a highly centralized operating focused conglomerate. We see growth through acquisitions driving our future, capitalizing on our strong bench of management talent. And regarding our management, Steve Lynch, the President of Clopay Corporation will retire at the end of our fiscal year. Steve has served as the President of Clopay with distinction for the past 12 years and has been part of Clopay since 2,001.
During his tenure, Steve navigated Clopay through the financial crisis of 2,009 and subsequently has transformed the business into the culture. Steve will continue working with Clopay as a consultant after his retirement. And effective with Steve's retirement, Vic Weldon will be appointed business, including supply chain, logistics, sales and operations, and has been Clopay's Chief Operating Officer since 2019. Vic has played an instrumental role in making Clopay the company that it is today, including leading the integration activities of the Cornell acquisition, which we completed in 2018. Vic is the ideal candidate to assume the role of President where he can apply his wealth of company, customer and industry knowledge to the role.
We're looking forward to Vic continuing Clopay's success. Let me turn it over to Brian, who will take you through some of the financials.
Thank you, Ron. I'll start by highlighting our Q2 consolidated performance. Revenue increased by 12% to $635,000,000 and adjusted EBITDA increased 41% to 67,800,000 dollars both in comparison to the prior year quarter. Adjusted EBITDA margin increased 220 basis points to 10.7%. Gross profit on a GAAP basis for the quarter was $170,000,000 increasing 12% over the prior year quarter.
Excluding restructuring related charges, gross profit was $174,000,000 increasing 13.2% over the prior year quarter with gross margin increasing 30 basis points to 27.4%. 2nd quarter GAAP selling, general and administrative expenses were 127,000,000 dollars compared to $226,000,000 in the prior year quarter. Excluding restructuring related charges from both periods, selling, general and administrative expenses were $123,000,000 or 19.3 percent of revenue compared to $122,000,000 or 21.5 percent in the prior year quarter. 2nd quarter GAAP net income was $17,000,000 or $0.32 per share compared to the prior year period of $1,000,000 or $0.02 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $25,000,000 or $0.48 per share compared to $10,000,000 in the prior year or $0.23 per share.
Corporate and unallocated expenses, excluding depreciation, were $12,000,000 in the current year quarter, in line with the prior year Q2. Our effective tax rate, excluding items that affect comparability from all periods, for the quarter was 30% and for the year to date period, it was 31.1%. Capital spending was $12,000,000 in the 2nd quarter compared to $9,000,000 in the prior year quarter. Depreciation and amortization totaled $15,900,000 for the 2nd quarter compared to $15,700,000 in the prior year Q2. Regarding our segment performance, Q2 revenue for CPP and HPP increased over the prior year quarter by 21% 16%, respectively, while DE decreased 26% or 19% excluding the impact of SEG disposition.
Adjusted EBITDA for CPP and HPP increased over the prior year by 50% 31%, respectively. Defense Electronics decreased 48%. During the Q2, AIMS incurred pretax restructuring related charges of approximately $7,500,000 supporting the AIM strategic initiative. Capital expenditures supporting the initiative was $3,200,000 in the quarter. At Telefonix, we are executing on our efficiency initiatives.
We have reduced count, and we expect to complete the consolidation of our 3 Long Island based facilities into 2 company owned facilities by the end of this fiscal year. The total cost of the facility consolidation will be approximately $4,000,000 which will primarily consist of capital expenditures occurring in 2021. Regarding our balance sheet and liquidity as of March 31, 2021, we had net debt of $883,000,000 and leverage of 3.1x as calculated based on our debt covenants. This is a 2 turn reduction from our prior year Q2 and a 0.3 turn reduction from our fiscal year end. As a reminder, Griffin uses cash in the 1st 6 months of its fiscal year, which will be more than offset by the generation of significant cash flow in the second half of the year.
Our cash and equivalents were $176,000,000 and debt outstanding was $1,060,000,000 Foreign availability under the revolving credit facility was 3 $60,000,000 subject to certain loan covenants. So regarding our 2021 guidance, As most of you know, we typically provide guidance once a year during our November earnings call and generally do not update that guidance during the course of the year. The guidance provided on our November call was revenue of approximately $2,400,000,000 and adjusted EBITDA excluding unallocated one time charges related to AIMs telephonics initiatives of $285,000,000 or better. With our Q2 behind us, we're continuing to see healthy demand for products across our portfolio. Recovering consumer activity and a strong housing market are contributing to constructive macroeconomic environment and homeowner focus on outdoor living and repair remodel projects continue.
While we are seeing the expected headwinds from cost inflation, some supply chain disruptions and a tight labor market, we are managing through those effects. As a result of our substantial outperformance in the first half of the year and with consideration to this year's Q3 and Q4 comparatives to strong prior year quarter results, we are expecting our fiscal 2021 performance will be substantially above our original guidance and in line with our trailing 12 months. That produced approximately $2,500,000,000 of revenue and $320,000,000 of adjusted EBITDA excluding unallocated and one time charges. Now I'll turn the call back over to
Ron. Thanks, Brian. We expect continued growth in the second half of fiscal twenty twenty one, driven by a strengthening global economy, a strong housing and repair and remodel environment, coupled with our industry leading product portfolio. We're active in evaluating potential acquisitions and opportunities to invest in our existing businesses and are actively exploring ways to further diversify and grow. We're pleased with the progress we've made on driving long term shareholder value.
However, there still are significant benefits to come from completing our strategic initiatives. Finally, I'd like to thank our 7,500 employees for their exceptional dedication, performance and perseverance throughout this challenging period. Operator, we'll take any questions.
Thank you. At this time, we'll be conducting a question and answer Our first question comes from the line of Bob Labick with CJS Securities. Please proceed with your question.
Thank you. Good afternoon and congratulations on the fantastic first half of the fiscal year.
Thanks, Bob.
Did I this is, I guess, rhetorical.
Did I hear you correctly? You're actually raising guidance? Crazy. But anyway, I'll get to my question. Very strong margins, you pointed it out in CPP and HPP, up nicely year over year.
How does that play out? Obviously, you mentioned you see some raw material and supply chain headwinds. You guys, I think, are better positioned than most in these situations. But can you just talk a little bit about how we should think about the margin profile? And what you are able to do to
mitigate some
of the raw material or supply chain issues out there?
Sure. I'll take this one. A couple of things. We continue to work on our efficiencies as always and work with our vendors. In addition, we have been working on passing price through.
Some of that work continues and will continue into Q3. And we'll have or should have the full benefit of that into our Q4.
Got it. Okay. Great. And then, obviously, you're still relatively early on in the AIMS initiative, but I think you're still suggesting that there's still room to run-in those margins as well. And obviously, it's fluctuations aside from short term things.
But is that right? We should still expect continued margin expansion from CPP over the next several years?
Absolutely. We're continuing to work that initiative and you'll continue to see the benefits from that initiative and that's really our best scorecard for the work we're doing. And we are we've already started to realize some of those benefits even with the additional costs we saw in Q2. Our margin overall across the businesses was still our gross margin rather was still up 300 basis points, give or take.
Bob, it's Ron. I'll just add to that. We've always talked about building for the long run and that we never worry about things that are happening in the short run that are out of our control. We try to stay focused on all the things that are. So managing through the initiative that we kicked off for margin improvement was obviously before we went into the COVID pandemic.
We've been able to not just manage our way through, but we've been able to somewhat prosper as a result of demand. We're very optimistic about what we have to do on a multiyear journey to both improve the margins in the AIMS business and the continued margin improvement story that if you look at where we were when Steve Lynch became President of Clopay and where we are today as we pass the baton, Margin improvement is part of the core DNA of what makes Griffin an ability to buy and improve businesses. We're going to continue to do the work on our Telephonics business and get that back into shape. That's what can happen as both the top line improves. But we see across our businesses margin improvement as the core of what we're doing.
Our next question comes from the line of Julio Romero with Sidoti and Please proceed with your question.
Hey, good afternoon, Ron and Brian.
Hi, Julio.
So I wanted to ask about your Home and Building Products segment. So I know you turn inventory about 4 times annually there and I think you value inventory at lower cost of market. Just wondering on the margin dynamic there over the next few quarters. Would you be in a position to benefit in the near term and then have margins moderate in that segment heading into the next fiscal year? Just maybe if you could speak to how margins should play out in that segment?
Well, in general, into the Q3, as we continue to work and the timing of the price increases, the lag as price increases come into play, Q3 could see some pressure. And we'll see the offset of that once we get into Q4 and beyond.
Okay, got it. So then it would be near term potential moderation while they're lagging price increases and then feel confident about your ability to pass that through?
Exactly. And today, we're really saying
that's really going to play out more towards the back end of this fiscal year. So but with clearly a confidence level that we chose to take this moment to increase our guidance for the year.
Absolutely. And I guess just my follow-up is if you could just give us a reminder on the seasonality within that segment. Typically, as I understand it, this is your weakest quarter. Is that correct in that segment?
Sure. Generally, Q2 and Q3 are the strongest quarters for CPP. Though honestly, during the pandemic, things have been different and we the demand has been strong and we expect remain strong through the balance of the year.
Our next question comes from the line of Josh Chan with Baird. Please proceed with your question. Good afternoon, Ron and Brian. Congrats on a strong quarter.
Hi, Josh. How are you?
Good. I appreciate the comments about the expected performance. I think that shows that kind of confidence on continued strong execution. So that's good to see. I guess my first question is on the sort of the headwinds that you're mitigating.
I mean, you talked about offsetting raw materials in the HBP business, but how are you thinking about the same dynamics in the CPP businesses? Any difference in terms of cadence and price and when that kind of offsets the raw materials?
Yes, it's similar. So we're still working the price increases into the Q3 and there'll be a lag. So we'll expect to have that done full benefit of it in the Q4. I would also just remind you that we had very good weather last year in Q3 and very strong comps last year, Q3 and Q4 for that matter. But our guidance overall says we'll be in line on the second half of
the year.
That's right. Okay. And then my second question is on your internal inventory. I guess it's stepped up from Q1 to Q2, which I think has happened before, but that's not that typical. So anything in particular that drove that kind of a higher inventory there?
Yes. There's a couple of things. 1, you have higher commodity costs that are pulling into inventory. There was FX impact from Australia and the U. K.
There's also been some advanced ordering for international locations out of China and for the U. S. As well to get material get product in place because as most of us are aware, and I'm sure you are as well, there are some lags in getting things from China. Our ports are backed up. So we're making sure we're ahead of that.
So we continue to supply our customers in a manner to which they are accustomed.
Our next question comes from Justin Bergner with Gabelli and Company. Please proceed with your question.
Good afternoon, Ron. Good afternoon, Brian.
Hi, Justin. Hi, Justin.
Few questions here. I guess just to pick up on the last question. So what are the primary products or materials that you're importing from China? And just sort of remind me how U. S.
Centric you are sort of in your manufacturing for CTP versus what you rely on internal or sorry, internal imports for?
Sure. So CPP, 90% of what we sell in North America, we make in North America. So when I talk about imports, that's the other 10%. A lot of that is either components, small components and some pots and planters. The other part of what I was speaking of is Australia and the UK also get products from China in particular and also from other places.
But the core of the company is, as Brian said, this is about American manufacturing and 90% that's sold in North America is manufactured in North America.
Got it. Sort of taking that point over to Home and Building Products, I mean, you mentioned that demand is exceeding supply. Maybe if you could just elaborate on that a bit. And are there any imports there of note that are sort of being challenged by supply chain issues, which give you an opportunity to take share given a greater ability to meet demand than some of your competitors?
No, we're actually suggesting that in that comment, we have a backlog and that there's such robust consumer and commercial demand that we're able to build a backlog for this business that gives us some confidence about what we see as the trends that are playing out and have played out. And that's balanced against the obvious inflationary pressures of steel, wood, freight, labor is tight across the country. But we are experiencing very strong demand and we couldn't be happier about it.
Yes. And the majority of HBP, elevator components feel and everything is sourced from
Our next question comes from the line of Keith Hughes with Truist Securities. Please proceed with your question.
Thank you. Question on CPP, another strong growth quarter. We are going to start coming against the difficult comps in the next several quarters. If you look at the pace of business and maybe your sales into April, not really looking for guidance here, but just the retrenchment in sales on those tough comps or is it just a momentum to pull us through for the next several quarters?
It was a little broken up what you said, but I believe you're just asking what we're seeing demand wise. Demand continues to be sharp. Across the board.
And what we're equally saying is that we expect those trends in pricing pressures to hit more in the Q3 and for us to be able to pass along some of those into the Q4. Yes.
And as a reminder, our Q3 last year was very strong with very good weather, particularly affecting CPP's excellent results last year, just as a note.
Our next question comes from the line of Trey Grooms with Stephens. Please proceed with your question.
Hey, good afternoon, Ron and Brian. And I have to also give you my congrats on a strong first
half. Thanks, Trey.
So I think most of the questions around cost have been kind of beaten to death here. I think I pretty well get it. But I guess if we're thinking about kind of switching gears over to the DE, Defense Electronics Business, timing issue in the quarter, should we expect this to continue in the fiscal Q3 Q4? Also how should we be thinking about the timing of the new contract win, when it flows through and the cadence there?
Sure. In general, we're expecting our second half to recover from our first half. There's just some delays in certain contracts coming in and timing of materials coming in and getting things back out the door. The business is doing fine. Nothing strange there.
It's just by nature, a bit of a lumpy business.
Right. Continue to have some confidence in the product category, intelligence, surveillance, reconnaissance. This is about building telephonics for the future. The consolidation of plant facility that we've been doing will show through as we get through this year into next year. But we remain very optimistic about Telefonica's core positioning, its products, where it stands with its incumbent position and in the ability to garner some of the foreign military sales that are just less predictable on timing.
This is about building the company and trying to grow into tomorrow.
Got it. And just for kind of modeling purposes, as the top line kind of comes back here in the back half with these kind of being lumpy and the timing issues, would you expect the margins to kind of also kind of rebound back to kind of historical type expectations?
Yes. We would expect the margins to improve into the end of the year.
Perfect. That's it for me. Thanks guys.
Thank you.
We've reached the end of the question and answer session. At this time, I'd like to turn the call back over to Ron Kramer for closing comments.
Thank you all for joining us. We'll be working hard and look forward to talking to you in August. Stay safe, stay healthy, everyone. Bye bye.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.