Acosta CEO Alejandro Bas kicked off the company's
first-quarter earnings call by highlighting the progress on its transformation plan, though the company said its “financial performance continues to be challenged.” Looking back at the first quarter, Bas said the company saw a similar year-over-year decline in revenue as compared with the fourth quarter of fiscal 2018, when revenue fell 13.1%. However, Bas added that in the last month of the first quarter, the company saw benefits on profitability from its transformation plans.
According to Bas, the company’s transformation plan consists of four elements: productivity initiatives surrounding services contracted and services employed, eliminating areas that have not been integrated from prior acquisitions, consolidating teams and driving down labor costs.
CFO Matt Laurie stated during the call that the “vast majority” of the transformation plan was implemented in the first quarter. He said Acosta “continue[s] to shape how [it is] operating this business” and “continue[s] to right size business units.” He added that while the vast majority of initiatives were implemented in the first quarter, the company will begin to see the full effect in the second quarter, stating that “in Q2 we’ll be running close to 100%.”
During the Q&A session, Bas stated that although he sees business as “stable” over the next two or three months, the company “can’t control volume.” He added that Acosta “need[s] to get out there and focus on selling new services to clients.” CFO Matt Laurie later added during the call that the company didn’t see pricing pressure in the first quarter and that “volume last year was a big headwind,” but “volume [is] lessening heading into 2019.”
Bas also acknowledged industry headwinds, stating that “consumption is low [and] brands are struggling.” Citing Kraft, a former Acosta client that has since taken its business in-house, Bas said Acosta continues to talk to Kraft and is trying to identify new opportunities to service it. “We just need to understand what we can do for these clients, what to perform and how to negotiate a price that is attractive to them and margin accretive to us,” Bas said. Bas disclosed during the call that Acosta has more than 1,150 clients.
Laurie added that the company expects capital expenditures to reach $15 million during 2019. He said the company’s adjusted EBITDA margin for the quarter was 14.5%, down 110 basis points from the same period a year earlier. He attributed the drop to fixed cost deleveraging and revenue decline and said that the company is looking to “right size” the business as part of its transformation.
Laurie said on the call that
the company ended the quarter with $91 million in liquidity and leverage of 8.2x, up sequentially from 7.7x, which he attributed to lower pro forma EBITDA in the first quarter. “We believe we have sufficient liquidity and continue to evaluate financing options consistent with the
revolving facility amendment,” he said. Responding to analysts asking for additional color, Laurie said the company is “not ready to talk timing.”
Acosta’s 7.75% bonds due 2022 were quoted at 16.5 prior to the call, according to ADI, and have since stayed relatively flat. The company’s term loan was quoted at 50/52 today, unchanged from before the call.