Greetings, and welcome to the Griffin Corporation Fiscal Third Quarter 2018 Earnings Conference Call. At this time, all participants will be in a listen only mode. A brief 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 Brian Harris, Chief Financial Officer.
Please go ahead.
Thank you. 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 in our various Securities and Exchange Commission filings. Finally, some of today's remarks will 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 Ramzi.
Good afternoon, and thanks for joining us today. This was an excellent quarter. Our results reflect the benefits of our portfolio reshaping and strong operational performance with a 44% increase in revenue to 5 $17,000,000 and a 47% increase in segment adjusted EBITDA to $59,000,000 The revenue increase driven by organic growth in the Home and Building Products segment, contribution from our acquisitions and pricing was partially offset by the reduced revenue in telephonics, which we were expecting. The improvement in EBITDA was driven by additional revenue, partially offset by higher input costs. Over the last year, we've undertaken significant steps to reshape and energize our portfolio of businesses, which include the acquisition of ClosetMaid in October, the sale of plastics in February and the acquisition of CornellCookson in June.
These actions, along with the bolt on at Aanes acquisitions made over the last 18 months, created an operating structure with a stronger free cash flow profile and a diversified portfolio of highly attractive leading brands in their respective categories. We are currently focused on integrating these businesses, in particular, aims with ClosetMaid and CornellCookson with Clopay. We have opportunities to improve margins further by leveraging procurement, distribution and warehousing, manufacturing and administrative functions as well as revenue enhancement opportunities. To provide further context on initiatives we're executing, our between them. We're working to integrate their respective products into this dealer network to leverage increased cross selling opportunities, while enhancing our product offerings to customers and into new markets.
We've received feedback from our dealers who are excited to have new leading products to offer their customers. Our ClosetMaid and CornellCookson businesses provide supply chain opportunities, which will make us even more efficient. These are just a couple of the examples of what we're working on to share resources, leverage our new and existing footprint and drive efficiencies on both the cost and operational basis. Moving to capital allocation, we're focused on using our improved free cash flow profile to reduce leverage while giving us flexibility to execute on bolt on acquisitions and to continue our quarterly dividend program. We expect free cash flow to exceed 100 percent of net income with a significantly reduced capital expenditure profile.
During the 3 9 months ended June 30, 2018, we repurchased 650,000 shares and 2,100,000 shares respectively of our common stock for a total of $12,700,041,000,000 or $19.51 $19.68 per share, respectively. At June 30, 2018, $8,000,000 remained under our existing board authorizations. And including the $50,000,000 additional authorization approved by our board earlier today, we have a total of $58,000,000 of board authorizations available. From August 2011 to June 30, 2018, we've repurchased 22,500,000 shares of our common stock for a total of $303,000,000 or $13.44 per share. Further, we announced earlier today our regular quarterly dividend of $0.07 per share payable on September 20, 2018 to shareholders of record on August 23, 2018.
And since inception in 2011, we've steadily increased our dividend at a 23% compound annual growth rate. I'm going to provide a little update on the segments before turning it over to Brian for a bit more financial discussion. So let's start with Home and Building Products. Sales increased 59 percent to $440,000,000 due to both the benefits from recent acquisitions and organic growth. Segment adjusted EBITDA improved 51 percent to $50,000,000 driven by the increase in revenue, partially offset by increased input costs.
We continue to see underlying strength in the U. S. Housing market with the steady multiyear housing recovery. Our leading products in doors and closet make businesses are well positioned to capture increased residential remodel and new residential and commercial construction activity, while rising homeownership rates support our AIMS business. As the U.
S. Economy continues to improve, we see further organic growth. Turning to telephonics. Fiscal third quarter revenue was $76,000,000 down 6% compared to the prior year period of $82,000,000 segment adjusted EBITDA from continuing operations was up 29% to 9,000,000 dollars Orders for the Q3 totaled $64,000,000 30 percent over the prior year and year to date we've secured 2 $20,000,000 in orders, up 9% over the same period last year. We remain optimistic in Telephonics' long term prospects.
We continue to see opportunities from an expansion of the US Navy fleet, increased funding for operational readiness, international commercial sales and building on our market leading positions in maritime surveillance radar, identification friend or foe communication systems and commercial transit communication systems. I'm going to turn it over to Brian, who will go through the financials in a bit more detail. Brian? Thanks, Ron. Gross profit for the quarter was $139,000,000 compared to $98,000,000 in the prior year.
Gross margin in the 3rd quarter decreased 50 basis points to 26 $900,000 compared to the prior year period, primarily due to the addition of CosiMaid, which, as we have stated in the past, initially has a lower margin than our base home and building products businesses. 3rd quarter selling, general and administrative expenses, excluding items that affect comparability, were $106,000,000 or 20.6 percent of sales compared to the prior year period of $81,000,000 or 22.5 percent of sales. The dollar increase is primarily the result of the acquisitions. 3rd quarter 2018 income from operations increased to $7,400,000 or $0.18 per share compared to the prior year period of $4,500,000 or $0.10 per share. Excluding items that affect comparability from both periods, current quarter income from continuing operations was $11,300,000 or $0.27 per share compared to the prior year period of $2,000,000 or $0.04 per share.
3rd quarter capital spending was $11,500,000 compared to the prior year of $7,000,000 For fiscal 2018, we expect capital spending to be approximately $50,000,000 Depreciation and amortization totaled $14,000,000 for the quarter, and we expect the full year depreciation and amortization to approximate $56,000,000 This is subject to us completing our acquisition accounting work, particularly for CornellCookson. As of June 30, 2018, we had $64,000,000 in cash and total debt outstanding of $1,140,000,000 resulting in a net debt position of $1,070,000,000 We had $265,000,000 available for borrowing under our revolving credit facility subject to certain loan covenants. Finally, regarding our guidance for the full year, we continue to expect 2018 segment adjusted EBITDA of $205,000,000 from our base businesses. We expect an additional DKK5 1,000,000 contribution from CornellCookson starting from the June 4 date of acquisition through the end of our fiscal year. Therefore, our segment adjusted EBITDA is now expected to be $210,000,000 for fiscal 2018.
Now I'll turn the call back over to Ron. Thanks, Brian. Before taking questions, let me make a few final remarks. As those of you who regularly participate in these calls know, it's not my practice to comment on the equity markets, the price of our stock. It's not that we don't care, quite the opposite is true.
As a substantial investor in Griffin, I'm deviating from the norm because I think it would be informative to discuss the recent offering of our shares by Goldman Sachs' affiliate. The investment that Goldman made in Griffin was made about 10 years ago and was very productive for us and for Goldman, which has been and continues to be supportive of our company. But the Goldman investment was never expected to be permanent and they exercised the registration rights for a public distribution of their shares. As a result of that offering, over 10% of our common equity reached the market and more significantly, our public float has increased by 25% or more. We believe the market for our shares is not fully adjusted to the substantial increase in the number of shares available for trading.
And while we believe that the increased liquidity is beneficial, we expect that as the stock migrates into the hands of longer term investors, the relationship between our stock price and our excellent performance will normalize. Our efforts over the past year have significantly changed Griffin, and I believe the improvements seen in this quarter's operating results are but the beginning of a substantial improvement yet to come. Our purchase of ClosetMaid marked our entry into home storage and organization, a highly strategic category for home and building products, where we believe we are now the market leader and well positioned for additional growth. Our acquisition of CornellCookson added a critical portfolio of commercial door products and an additional 400 professional dealers to Clopay Building Products. We believe our ability to provide a fuller offering of solutions for our customers will position us to increase our market share further.
We've also completed a number of smaller strategic acquisitions, which have provided us with new products and complementary categories such as cleaning and have strengthened our geographic presence in our home markets. And we've completed all these transactions at very attractive valuations. These actions are the culmination of 10 years of hard work. During this time, Griffin has evolved from a decentralized holding company to a more strategic and focused buyer and builder of businesses. We have a talented team at both the corporate and the operating company levels, which is the key to the success of our company.
We're well positioned to capture margin improvement between our existing and our acquired businesses, and we believe we are just starting to see the benefits of these businesses together within our portfolio. We're confident we can expand our segment adjusted EBITDA margins to 12% or better in the near term and accomplish this goal while generating cash in excess of our net income and continuing to grow the business. To sum up, I'm pleased with our performance through the 1st 3 quarters of fiscal 2018 and optimistic about our future. Our strategic actions have strengthened our company and will drive long term shareholder value. And with that, operator, we'll open it up for questions.
Thank you. We'll now be conducting a question and answer session. Thank you. First question is coming from the line of Bob Labick with CJS Securities. Please proceed with your questions.
Good afternoon and congratulations on a terrific quarter. Thanks, Bob. Thanks, Bob. I want to start with ClosetMaid. Just, obviously, you've had it now for a couple of quarters and this was a nice uptick in the sales.
I don't know if that's seasonal or if that's part of the initial synergies you might expect. But could you just talk about what you've learned over the last three quarters? How the integration is going and the opportunities for growth there? Sure. So the sales uptake is more seasonal.
We have 3rd and 4th into 4th quarter uptick generally, particularly in the 4th quarter as well for back to school. The so far, it's meeting our expectations, and the integration is just beginning. Now we announced that in March, and we'll see that coming to fruition really into 'nineteen and then the results of that benefit of having those integrated will be coming out into 'twenty. No problem. Bob, it's Ron.
I'll add that we couldn't be happier about how the prospects for how ClosetMaid and AIMS together will drive incremental growth. So really believe that this was a wonderful strategic addition for AIMS and the combination of those two businesses and the ability to both grow revenue and improve margins are still ahead of us. Okay, great. And on the Cornell side, obviously, it's been a couple of months. You did just increase your guidance a little bit previously.
I think you were being conservative to not include that. So same question, initial impressions in the 2 months and opportunities and how you think that's working out? Sure. Similarly, it's meeting our expectations. We have started off well for the June month and see things continuing into July.
And again, as Ron was mentioning, for Costa Mesa into AIMS, CornellCookson into Clopay, there are opportunities ahead of us that we will continue to look at over the next several quarters and carefully integrate those businesses. And we see a lot of benefits not only from cost but also revenue enhancing benefits as we leverage the dealer network between the 2 companies. Okay. Great. And then just thinking about raw material costs, I think you mentioned that as it relates to homebuilding products and then the impact of tariffs.
Can you talk a little bit about what you're seeing there, your ability to pass through and then also your ability to bundle your purchasing power coming with the greater scale in home and building products. How do you see all of that playing out? There are a number of issues there. But look, we've been saying going back to how we set guidance for 2018, there were 3 pressures, which are no surprise to us, higher input costs, higher labor costs and higher freight costs. Those were all things that were obvious to us going into this fiscal year.
Those things were all playing out during the fiscal year. We continue to see home and building products, particularly in the products, the markets that we're in doing exactly what we expect them to be doing this year, which is a slow, steady, continued recovery of the housing market. Higher input costs are clearly topical. The ability to pass them through is something that's going to happen by us and every other manufacturer. And ultimately, the question is going to be how much the U.
S. Consumer is going to be able to absorb those increased costs. We believe our businesses are extraordinarily well positioned in each of the products that we're involved with. And to your point, we absolutely believe that scale matters. We're going to be a bigger buyer of things like steel and wood, but there's all sorts of pressure along the way.
We are clearly a U. S. Manufacturer. So tariffs, while it increases input costs, may have the additional benefit of people buying American made goods. We're hopeful of that.
So this remains to be seen from what we see. Our businesses are strong, improving and all the noise that we are watching on all things that affect us, are going to continue to be out there, we're going to keep our head down and keep running the businesses as well as we have been. Okay, great. And then last one for me. Just obviously with the new composition of the businesses, can you talk a little about the seasonality of your cash flows?
And typically, it's been a second half of the fiscal year. It's a strong cash flow period, particularly Q4 in the past. Is that still the expectation or the case now and uses of cash as I know you do and will have strong free cash flow? Yes. Overall, that pattern will continue.
CornellCookson coming on has a little bit steadier cash flow, But overall, the pattern will remain the same with Q3 and Q4 being our cash generation quarters. Okay, great. And then that's perfect. Thank you very much. Thank you.
The next question comes from the line of Julio Romero with Sidoti. Please proceed with your question. Just a quick one. Can you talk about Telephonics? You had a nice order number there.
Just any commentary on that segment? And if you still expect backlog and revenue up in the totality of the second half of the year?
To the second part of your question, yes, we do continue to see backlog up in the second half of the year. That business right now is the same story. It's what we look at it as the bottom of the cycle. We see a lot of opportunity ahead of us with backlog increasing into 'nineteen, and we'll see that converting into revenue and earnings as we turn into 'twenty. There's a lot of opportunity ahead of us, both here in the U.
S. And internationally. We see a lot of interest in our products, particularly in our maritime surveillance and communication products. And we're very optimistic for the company. It's a long cycle company by its nature.
And currently, we're in that lower part, and we'll see that turnaround.
Got it. For this particular quarter, did CornellCookson have any revenue contribution this quarter?
Yes, it did. Yes. So they're running at that run rate. So we said 200 for the year, and they're running more or less onetwelve of that, call it $16,700,000
Got it. Got it. So just wanted to make sure, you said for your guidance, for your full year guidance, dollars 205,000,000 from the base, dollars 5,000,000 from CornellCookson. I guess you had also acquired Kel K throughout the year. So would that $205,000,000 be inclusive of Kel K or would any Kelke EBITDA be incremental to your full year guidance?
The $205,000,000 includes Kelke.
Got it. Understood. Yes. Thanks very much. I appreciate you taking my questions.
Okay. Thank you.
Next question is from the line of Justin Bergner with Gabelli and Company. Please proceed with your question.
Hey, good afternoon, Ron. Good afternoon, Brian.
Hi, Justin. Hi, Justin.
Nice quarter. And maybe you could just sort of help break down the organic growth of 13% in Home and Building Products a bit more for us in terms of aims versus Clopay, price versus volume? Anything that you can sort of add there would be helpful.
Sure. We saw a nice volume across both AIMs and Clopay. Building Products organic growth was around 15% as opposed to aims at 11% organic, and price was a factor in both of those, where we've gone out to our customers based on the what we're seeing with our input costs increasing and we have gotten price increases. So it's a combination of all those. And the only other thing, Justin, I'd add to it, a volatile weather pattern for Ames during the quarter, both the U.
S. And the U. K.
And that helps?
Oh, no. No, no, no. Okay. But again, weather is a fact with us. It's not an excuse, but we absorb some significant volatility of weather in the U.
S. And the U. K. And so that's growth. Okay.
My bad there. Secondly, on CornellCookson, the $5,000,000 of EBITDA seems like a pretty healthy margin sort of out of the gate versus that $200,000,000 of annual revenue that you'll be seeing for sort of 3 months and change. Sort of are the margins tracking ahead of where you expected them? Or are the margins also tracking in line to date?
No. Margin is tracking in line. We've got $5,000,000 on 4 months. We'll be we've put out there in the past that it's $200,000,000 at about 9% margin. So I think it's in that range.
And we'll steadily improve that over time. But at the time of the acquisition to now, it's tracking as we expected. And this is a business that as it gets integrated into Clopay, we fully expect to be able to continue to improve the blended margins of our home and building products business.
Okay. Was there any discussion of sort of speaking a little bit more optimistically about your segment adjusted EBITDA of the $205,000,000 prior to CornellCookson just sort of given the strong third quarter? Or should we still think of that as sort of a midpoint number that you expect to end up close to?
Well, I'll say this, Justin. We give guidance once a year at the beginning of the year. And as you've always heard me say, we do it in order to level set really for credit investors. For equity investors, we're nowhere near the peak of our earnings capability. So we're not going to change the year guidance nor our practice.
We acquired Cornell during the quarter. It has a $5,000,000 positive impact to that guidance for the year. So you should use 205 plus 5 as guidance from us. And we fully expect that our earnings power within these businesses, our best days are still ahead of us.
Okay. That's helpful. And just lastly, were there any parts of the business that disappointed during the quarter or we're sure the outlook looks a little bit less sanguine?
Well, I'd say that the telephonics business is something that you've heard us talk about as this is a bottoming, but this is measured in quarters years, not in any one quarter. So we continue to want to see the flow of defense dollars into our products. We're still incumbent. We're still the market share leader on the products that we sell. It's just we see the continued slow pace of money flowing through the defense budget, which we think will take us more than 2018 into 2019 and that it's going to be 2020 beyond that we'll start to see the benefits of all the things from an operating efficiency standpoint that we've done to telephonics.
So while that's not anything we're disappointed in, we can't make the hands of the clock move any faster. We're very excited about what's going on in telephonics in terms of their technology, in terms of their new programs, in terms of the potential for them to get international sales. But the core U. S. Business, and this isn't just the telephonics comment, this is an overall defense comment, is slow.
And the budget turn that started in December is going to get into the economy over a period of years. And we're going to be one of the beneficiaries of it. So we continue to look at what's going on in the telephonics business as planning for the future. And so on a quarter to quarter basis, we don't get all that disappointed that I'll get excited when I start to see the backlogs turn into orders, turn into profits, and I fully expect that's a 2020 and beyond conversation.
Thank you. At this time, I'll turn the floor back to management for closing remarks.
Thanks for joining us, and we'll look forward to speaking to you at the end of the year. Bye bye.
This will conclude today's teleconference. Thank you for your participation. You may now disconnect your lines at this time.