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Q3 2008 COLFAX CORP Earnings Conference Call - Final.

Article Excerpt
OPERATOR: Good day and welcome, everyone, to the Colfax Corporation third quarter earnings conference call. Today's call is being recorded. With us today is John Young, President and CEO, Scott Faison, Senior Vice President and CFO, and Mitzi Reynolds, Vice President of Investor Relations. At this time I would like to turn the call over to Mitzi Reynolds. Please go ahead, ma'am.

MITZI REYNOLDS, VP, IR, COLFAX CORPORATION: Thanks, Tina. Good morning everyone, and thanks for joining us. I'd like to point out that our earnings release and 10-Q are available in the Investor section of our website, colfaxcorp.com. We will also be using a slide presentation to supplement today's call, which can also be found on the Investor section of the Colfax website. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call. In addition, a replay of this call will be available for approximately two weeks. The replay number is 888-203-1112 or 719-457-0820 for international participants. The access code is 9343586. The information is listed in the press release.

I would also like to note that in order to help you understand the Company's direction, we'll be making some forward-looking statements during the call, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties including those set forth in our SEC filings. It is possible that actual results might differ materially from any forward-looking statements that we might make today. The forward-looking statements speak only as of the date that they are made and we do not assume any obligation or intent to update any forward-looking statements except as required by law.

During the presentation we will describe certain of the more significant factors that impacted our year over year performance. Please refer to the accompanying slide presentation and the MD&A of our third quarter Form 10-Q filed this morning for details regarding additional factors that impacted year over year performance.

With respect to any non-GAAP financial measures during the call today, the accompanying information required by SEC Regulation G relating to those measures can be found in our earnings press release under the Investor section of the Colfax website.

Now I'd like to turn it over to John.

JOHN YOUNG, PRESIDENT AND CEO, COLFAX CORPORATION: Thank you, Mitzi. Good morning, everyone. Before I get into the third quarter results, I wanted to take a few minutes to give you our thoughts on today's economic uncertainties and what it means for Colfax. These are certainly unprecedented and challenging economic conditions in the world today. However, we had a strong quarter. We expect the fourth quarter to be even better and the trends entering 2009 remain positive.

We are confident in our business, because we have a broad portfolio of products serving diverse end markets on a global basis. Our performance and critical applications is unmatched. That doesn't mean that we are immune to the global economic crisis, but it does mean we believe that we are well positioned. The fundamental global drivers in our end markets remain positive, including increasing demand for energy in the advancement of the world's developing economies.

We are also very fortunate to be in a strong financial position. At quarter end our debt to adjusted EBITDA was just under 1. As a result of our successful IPO in May, we were able to significantly reduce our overall debt level. We also entered into a new credit agreement in May, which expires in 2013. We have significant availability under our revolver, about $130 million, and approximately $50 million in cash today.

We want to maintain our conservative balance sheet and are constantly evaluating our cash flow alternatives. Our main priorities are to reinvest in our businesses and to pursue acquisitions. Acquisitions continue to be a key component of our growth strategy and our flexible balance sheet allows us to take advantage of these opportunities.

We also announced today that our Board has approved a $20 million stock repurchase program. We believe that we have sufficient cash and credit availability to fund our growth initiatives as well as a stock buyback program. This action reflects our commitment to improving the investment value of the company's stock while also growing the company.

We are closely monitoring the impact of these challenging economic conditions on our businesses and will adjust accordingly. We believe that we can react quickly as demand changes and that our Colfax business system gives us a distinct competitive advantage, especially during unsettled market conditions.

In summary, we're confident that our long-term strategy and solid financial condition has well positioned us to perform in a challenging economic environment.

Now for a more detailed look at our results. First I'll cover some of the third quarter's more significant highlights and some of the key performance measures that we achieved. I will follow that with a review of our strategic end markets and a current outlook. And finally, I'll review the financial results and then we'll open it up for a question and answer session.

As we announced in the press release issued this morning, Colfax had a strong third quarter. Adjusted net income was $12.1 million or $0.28 per share, a 34% increase over last year's third quarter. Net sales for the quarter were $153.5 million, an increase of 22% including organic growth of 14%. We had organic growth in all end markets and most notably in Commercial Marine, Global Navy and Power Generation, each of which were up 19%.

Adjusted operating income increased 22% to $20.3 million while the margin remained flat. Adjusted EBITDA increased 19% to $24 million and the margin decreased 50 basis points. These margins were negatively impacted by higher professional and other costs associated with becoming a public company and unrealized...

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