Greetings, and welcome to the Griffin Corporation First 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. It is now my pleasure to introduce your host, Mr.
Brian Harris, Chief Financial Officer. Thank you, sir. You may begin.
Thank you, Donna. Good morning, 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 company's performance based on our views of Gripen'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 in our various Securities and Exchange Commission filings. Finally, some of today's remarks will adjust for those items that affect comparability between 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, and good morning, everyone. We're off to a great start to fiscal 2021 with our 1st quarter revenue increasing 11%, adjusted EBITDA up 35% and adjusted EPS up 56% compared to the prior year quarter. We saw strong demand across all our consumer product categories supported by a robust housing market and a healthy repair and remodel activity. Our portfolio repositioning, strategic initiatives and operational improvements continue to drive enhanced free cash flow generation as well as margin expansion and our cash performance for the quarter was exceptional. During the Q1, all three of our segments increased adjusted EBITDA and EBITDA margin compared to the prior year quarter.
This improved performance also resulted in significantly improved free cash flow generation. Recall, our Q1 typically results in cash usage due to the seasonality of our businesses. This year, we increased our free cash flow by $40,000,000 generating $9,000,000 in cash compared to a cash usage of $31,000,000 in the prior year period. Our net leverage is now 3.1 times EBITDA compared to 3.4 times at September 30, 2020, and is down by 1.7 turns when compared to the 4.8 times leverage at the end of the Q1 in fiscal 2020. We've made good progress with the AIM strategic initiative, which remains on schedule and on budget.
This investment will consolidate operations, increase automation, support e commerce growth and create a new data and analytics platform for AIM's globally by the end of 2023. We expect this to further improve margins in the years ahead. In the quarter, we also executed 2 strategic portfolio actions. 1st, we closed the divestiture of our Systems Engineering Group, SEG, which was non core for Telephonics, primary business of Defense Electronics Products and Systems. Sale of SCG creates immediate value to Griffin shareholders, allows Telefonix to focus more of its resources on growing its core defense electronics and systems product lines and provides SCG with the benefit of being part of a parent organization more focused on government technical services.
The SCG team did an outstanding job growing this business as part of Telephonics, and we wish them well in their future. Our second portfolio action in the quarter was the acquisition of Quattro Design in Australia, a leading manufacturer and supplier of large landscaping products made from glass fiber reinforced concrete. These products are used in residential, commercial and public sector projects, helping to diversify our AIM to Australia operations with expanded set of products and new sales channels. This is our 6th acquisition in Australia in the last 7 years, expect more. Health and safety updates.
Since the onset of the COVID-nineteen pandemic last March, ensuring the health and safety of our employees customers has been continues to be our top priority. We've proactively implemented health and safety measures across all of our global facilities and as local and national authorities have circulated and incorporated additional guidelines for employee health and safety, we reacted immediately, decisively, and we've spared no expense in dealing with the COVID-nineteen risk. All of our facilities are operational. However, we remain mindful of the continued seriousness of the situation in both Europe and the United States. In the previous shutdown, all of our U.
S. Facilities redeemed essential businesses and we expect that to continue. Turning to the segments. Consumer and Professional Products, we saw continued retail demand across all geographies, including early spring orders from customers in North America and increased demand in Australia. The AIM strategic initiative remains on schedule for completion by the end of 2023, and 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.
Brian will provide more detail about the status of the initiative during his comments. Moving to Home and Building Products segment, continue to see healthy demand for both residential and commercial door products and a favorable mix for rolling steel products in particular. In Defense Electronics, Telephonics revenue and profitability increased over the prior year and order demand was strong in the quarter with a book to bill of almost 1 point three times. Backlog increased as well ending the quarter at $389,000,000 Telephonics is taking actions to improve its operational efficiencies by streamlining its organization and consolidating facilities, which Brian will also discuss in a little more detail. Turning to the balance sheet, we're in an excellent financial position with ample liquidity to fund our growth in all of our segments, while pursuing opportunistic acquisitions and with leverage down to 3.1 times.
Finally, earlier today, our Board authorized an $0.08 per share dividend payable on March 18, 2021, to shareholders of record on February 18, 2021. This marks the 38th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated in 2012. 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 Q1 consolidated performance. Revenue increased 11% to $609,000,000 and adjusted EBITDA increased 35% to $75,000,000 both in comparison to the prior year quarter. Normalized gross profit for the quarter was $177,000,000 increasing 16% over prior year quarter, while gross margin expanded 120 basis points to 29%. 1st quarter normalized selling, general and administrative expenses were $117,000,000 or 19.2 percent of revenue compared to $114,000,000 or 20.8 percent in the prior year quarter.
1st quarter GAAP net income was $29,500,000 or $0.55 per share compared to the prior year period of $10,600,000 or $0.24 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $29,800,000 or $0.56 per share compared to the prior year of $15,600,000 or $0.36 per share. Corporate and unallocated expenses excluding depreciation were $12,000,000 in the quarter, in line with the prior year Q1. Effective tax rate, excluding items that affect comparability, for the quarter was 32% compared to 32.2% for the full fiscal year 2020. Capital spending was $12,000,000 in the Q1 compared to $13,000,000 in the prior year quarter.
Depreciation and amortization totaled $15,300,000 for the Q1 compared to $15,800,000 in the prior year Q1. Regarding our segment performance, revenue for CPP, HBP and DE increased over the prior year with increases of 21%, 4% and 3%, respectively. Adjusted EBITDA for CPP, HPT and DE also increased over the prior year with increases of 49%, 19% and 25%, respectively. As Ron said earlier, the extended earnings initiative announced in November 2020 will by 1 year with expected completion now by the end of 2023. When fully implemented, these actions will result in annual cash savings of $30,000,000 to $35,000,000 with an equivalent reduction in inventory both based on fiscal 2020 operating levels.
The cost to implement this new business platform will include one time charges and capital investments of approximately $65,000,000 each. During the Q1, AIMS incurred pre tax restructuring related exit costs of approximately $3,000,000 supporting the AIM strategic initiative. Capital expenditure supporting initiatives were $2,000,000 in the quarter. At Terrafonics, we began executing on our efficiency initiative and footprint consolidation in the Q4 last year. We implemented a voluntary employee retirement plan and had a subsequent reduction in force announced in the Q4 last year, which resulted in total headcount reduction of 90 people.
In the Q1, we incurred severance charges of $2,100,000 coupled with an additional charge of $5,600,000 primarily related to valuing inventory expected recovery amounts due to exiting older weather radar product lines. Additionally, we are working on consolidating 3 Long Island based facilities into 2 company owned facilities. These total costs the total cost of the facility consolidation will be approximately $4,000,000 which primarily consists of capital expenditures occurring in 2021. Regarding our balance sheet and liquidity, as of December 31, 2020, we had net debt of $815,000,000 and leverage of 3.1 times as calculated based on our debt covenants. This reflects 1.7 terms of delevering from the prior year Q1.
Our cash and equivalents were $234,000,000 and debt outstanding was $1,050,000,000 Foreigner availability under the revolving credit facility was $370,000,000 subject to certain loan covenants. Regarding our 2021 financial guidance, as most of you know, we give guidance once a year during our November earnings call and do not update that guidance during the course of the year. The guidance provided at our last November call was revenue of approximately $2,400,000,000 and adjusted EBITDA excluding unallocated and one time charges related to AIMS and Telefonica's initiative of $285,000,000 or better. With our Q1 behind us and if we look into January 2021, we continue to believe there is upside potential to our guidance. Now I'll turn the call back over to Ron.
Thanks, Brian. First, I'd like to highlight that we recently published our commitment to an environmental, social and governance program on our Web site. We believe ESG practices are important to drive sustainable and long term growth. We will continue to enhance our ESG reporting and communication and are in the process of further organizing and formalizing our efforts, expect to hear more from us on this topic. I'd like to emphasize that Griffin's top priority continues to be ensuring the health and safety of our employees, our customers and our communities.
I give a special thanks to our 7,500 employees who as a team have helped us to continue business operations while maintaining a safe working environment, and their efforts are incredibly appreciated. In closing, Griffin is in excellent shape in a very uncertain world. We have strengthened our balance sheet. We've taken strategic actions to streamline and enhance our portfolio. We continue to believe the diversity of our businesses, our emphasis on S.
Manufacturing and our focus on leading brands and essential products has created a platform for growth and sustainable competitive advantages. Griffin continues to be a compelling investment story. We realize the margin potential embedded in our strategic initiatives, coupled with deploying cash on the balance sheet to capitalize on opportunistic acquisitions, we're creating a clear and actionable path to significantly increase shareholder value. Our best is yet to come. Operator, we'll take any questions.
Thank you. Our first question this morning is coming from Bob Layback of CJS Securities. Please go ahead.
Good morning. Congratulations on a great start to fiscal 2021.
Thanks. Thanks, Bob.
So for the first question,
I wanted to ask if we could dig in a little bit. You've had very significant margin expansion, both CPP and HPP and really impressive. On CPP, obviously, you have the AIMS initiative to come on top of this. But what's been the primary drivers behind HPT margins and CPP's current strength as well? Just give us a kind of sense of where that's been and are they sustainable?
Do you still have levers to pull to keep going? And how you're thinking about the strong margins you showed?
I'll remind you that our margin improvement story has been evolving over the last several years, and this has been a steady continuation of things that we've been talking about for the last several years. So pre COVID, our businesses were doing well. We have laid out a continuous improvement about improving margins. And in both the AIMS business and the Clopay business, we were integrating significant acquisitions, purchase of ClosetMaid into Aims and the purchase of CornellCooks into Clopay. That story has been evolving quarter over quarter.
This is starting to showcase a lot of the things that were already in process over the last 2 years. And we've been talking about this being a multiyear journey of margin improvement, and we're nowhere near finished with both businesses in getting to levels that we want to get to over the next few
years. Okay, great. And then just kind of taking that over to Telephonics. You said book to bill has approached 1.3x. Can you just talk about the kind of drivers behind the strong bookings and where margins can go in that business as well?
Sure. I'll take this one, Bob. So we have a healthy pipeline in telephonics, evidenced by a good bookings quarter. As far as the margins, we continue to believe that we'll exit this year at an annualized 10% margin. As we've mentioned in the last call and it continues to be the case, several more challenging programs are sunsetting, some sunset last year and some sunset this year.
That coupled with the initiatives that we've taken there to reduce headcount and optimize the business, we should see continued improvement in margin throughout the year.
Thank you. Our next question is coming from Julio Romero of Sidoti and Company. Please go ahead.
Hey, good morning.
Good morning. Good morning.
I wanted to dig a little more into HBP. You are tracking well above your 15% EBITDA margin target there. I think it's been that way for a couple of quarters. And I know you've called out some of the drivers in the past. And I think, Ron, I heard you mentioned that you still think there's upside to margins in HBP.
Maybe if you could just talk about what potentially could continue to bring margins up going forward in HBP?
We continue to see robust demand across both the residential and the commercial business. We obviously are still in the early days of the integration of the CornellCookson business into the Clopay footprint of manufacturing. We're going to continue to make the investments in the business to support the demand that we see for both homebuilding, repair and remodel as well as commercial. And the margin improvement story is going to be one that is going to evolve based on both volume, mix and there will always be issues, like the price of steel that will be a pass through item for us and for most of Corporate America. There's input cost pressures that are building.
There's inflation. We take that as a positive for a recovering economy. And the ability to mitigate those input costs continue to pass along price increases as a result is what the balance of this year is going to look like. And we continue to believe that we can do that successfully, maintain and or improve our margins by doing it.
Yes. I'd just like to add to that. We saw a good product mix, particularly on our commercial side this quarter, which is really the result of the investment we made in expanding the mountaintop facility by 50%. And the reason we did that was to meet not only core demand, but to allow us to support the rollout of new products, those new products are being accepted well by the marketplace, such things like our Entry Defender product.
Got it. And I guess for my follow-up, if you could just talk about the Quadro Design acquisition, any color into the margin profile there? And then just a quick refresher on what attracts you to the Australian market in general? Thanks.
Sure. So in general, we've been investing in the Australian market for the last about 8 years since that or 7 or 8 years since we started expanding there. It went from a $10,000,000 or so business to business that's Australian dollars, so business approaching $250,000,000 to $300,000,000 Australian dollar business. It's an excellent marketplace. In this case, this acquisition diversifies our customers.
So this customer is more of a construction or the government or residential buildings that get built, they put large pots and planners and park benches at their facilities. And the margin of the business is generally at least at the beginning and we'll improve it. It's in line generally with our margins in our other businesses.
Thank you. Our next question is coming from Josh Chan of Baird. Please go ahead.
Hi, good morning, Ron and Brian. Congrats on a good quarter.
Thank you.
How are you doing, Josh?
Good. Doing well. So my first question is on the AIMS business, very strong growth. Could you talk a little bit about sell through rates versus sell in and any sense of where retail inventory is at the channel
currently? Sure. So in general, demand is very high and it's outside. So sell through rates have been very strong. Generally, I would say inventory in at the home centers and out in the marketplace is relatively low.
All right. That's good to hear. So presumably, there'll be kind of an opportunity in the coming quarters as you kind of refill that in the quarter?
Exactly, yes. We continue to see, as you saw, not only in the Q1, but even through January, we continue to see strong demand in the business and restocking should be occurring and continue to occur as those things go in and then back out to customers through the remainder of at least the second quarter, if not beyond.
All right. That's great. And then I guess my follow-up question is, Ron kind of alluded to this earlier about the steel pricing. And could you kind of just walk through how long it takes for the higher steel prices to kind of hit your P and L? And to what extent do you think that the price increases could match the timing there?
Or will there be a lag? Can you just kind of walk through the different businesses and what would you expect from that dynamic there? Thanks.
Sure. It varies by product and by product line. But in general, there will be a little bit of a lag as there has been in the but we do expect that we'll be able to pass through price increases in a reasonable amount of time and we don't expect at this point a significant impact as a result of the price increases because of steel price increases as well pass through price increases in at least reasonable amounts of time.
And I just add to it. This is building up throughout the economy. The component prices are part of the recovery. As both fiscal policy starts to put people back to work and as infrastructure spending, which has been talked about for the better part of the last decade, actually starts to come to fruition. We believe the demand side for products is going to continue to improve, and we'll do everything we can with increased input costs to pass them along to our customers.
We'll ultimately pass them along to the consumer, and the consumer is going to have to get the stimulus and the recovery, and we're very optimistic about what we see going on.
Thank you. Our next question is coming from Justin Bergner of G. Research. Please go ahead.
Good morning, Ron. Good morning, Brian.
Good morning, Justin. Good morning.
Nice quarter. Just wanted to delve into a couple of things other analysts have asked about. On Home and Building Products, you mentioned that the commercial business mixed strong in the portfolio. Is that the rolling steel doors business that you acquired with CornellCookson? Or is that typical doors just sold into the commercial setting?
Because if it's the CornellCookson business, that's obviously much if it mixed up, that'd be much higher than the margin you're targeting.
Yes. So we are seeing improved margins in the CornellCookson business. And it's being driven by the new products both by the integration of the businesses and the overall improvement of operations as well as the new CornellCookson products that have been rolled out over the last year or so.
Okay. And I guess what would cause you to lift the 15% plus margin target for home and building products at some point in the future? I realize there might be some hesitancy to publish too high of a number, but would you consider raising that target at some point?
I'm sorry, at some point, we're never done improving our businesses. And we will continue to make the investments, build for long term. And the margin expansion story is one that happens over time. We bought CornellCookson. I think when we bought it, we had talked about it running at an 8% or 9% EBITDA margin.
Our story is about operational improvement. We're in a world that has more capital than opportunity. And our edge is our ability to buy businesses, fix them and operate them increasingly better. And the story of what we've done with Clopay, not just this quarter, not over the last year, but over the last 10 plus years, has been about investing and building a business, adding on acquisitions. The margin improvement story is still ahead of us.
And you mark moments in time getting to a 15% target a few years ago was aspirational. We're clearly above that at the moment. We continue to believe there's upside to that business. It will be slow, it will be steady, but we're spending the time and the money to make each of these businesses better.
Thank you. Our next question is coming from Keith Hughes of Truist. Please go ahead.
Thank you. Kind of building on some questions here in your commercial doors and you talked some positive comments on mix. But total units in commercial doors, how did they compare to prior year?
So in the commercial business, units vary and how you look at those. So overall, the units were up slightly, but the mix was much stronger. So there was some volume benefit, but mostly mix benefit of that side of business.
Okay. And if we go to the residential side of doors, we've all seen the storage of homebuilding and the pickup, or the orders for homes picking up. Have you do you feel like in this quarter, do you feel any of the influence of the surge orders or is that something to come in the
business. It's been going on for quite a few quarters and continues through the Q1 and then through January. So certainly, the housing market strength and the need for housing and the fact that home prices are steady and growing really, those all contribute to a healthy garage door and for that matter overall economy and then it helps our consumer professional products business as well.
Okay. Thank you.
Our next question is coming from Trey Grooms of Stephens. Please go ahead.
Hi, good morning.
This is actually Noah Macosko on for Trey. Just wanted to say congrats on a great quarter.
Thank you. Thank you.
So my first question here, I wanted to dig in a little bit more on the AIMs and CCP sales growth. 20% organic was really impressive. You talked about, I believe if I heard correctly, strong sell through and opportunity to continue to fill the retail channel. I'm just wondering if you kind
of that out, do you think any of
that was demand pulled forward? Or do you still feel really good about the
growth for that going forward?
So we see a very good demand for the products overall. We can't put a finger whether it's demand pull forward or not, but the demand for our products actually started before. The overall marketplace is strong. Suburban people moving out of the cities into the suburbs started before the pandemic, stronger during the pandemic, we believe it will continue. Household formations are up.
People investing in their homes when home prices are up, they have confidence to invest in their homes, things we expect to continue.
And I'd just add to it, a recovering economy, infrastructure spending, all of those things going to happen when we come out of COVID on the incremental demand drivers. So I don't buy the pull forward argument for us or for most of the economy.
All right. That makes sense. And then a quick follow-up here. There's been a lot of talk about steel cost inflation. But I'm wondering if you're seeing any other buckets of inflation in either the AIMs or Clopay business, whether it's other materials, freight, labor or anything like that?
So in the word, yes.
Yes. And there's always something. So labor is clearly both scarce and expensive, and that's something that we've been dealing with over many years. That's part of the initiative to streamline and automate in facilities. Freight is something that is an ongoing challenge.
And so input costs across the board have been building. That's part of the mitigation that you try to do each year and then pass through those costs is part of the ongoing challenge for us as we go into the balance of this year.
Mr. Kramer, I'd like to turn the floor back over to you for any closing comments.
Thanks, everyone. Stay safe, stay healthy. Bye bye.
Ladies and gentlemen, thank you for your participation. You may disconnect your lines and log off the webcast at this time and have a wonderful day.