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Edited Transcript of LBY earnings conference call or presentation 30-Apr-19 3:00pm GMT

Q1 2019 Libbey Inc Earnings Call

TOLEDO May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Libbey Inc earnings conference call or presentation Tuesday, April 30, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Noe

Libbey Inc. - Financial Planning & Analysis Manager

* James Charles Burmeister

Libbey Inc. - Senior VP & CFO

* Michael P. Bauer

Libbey Inc. - CEO & Director

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Conference Call Participants

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* Azeem Haider

BlueMountain Capital Management LLC - High Yield Debt Analyst

* Jeremy Scott Hamblin

Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail

* Lee M. Jagoda

CJS Securities, Inc. - Senior MD & Analyst

* William Hurlock Hoffmann

Investcorp Credit Management Us Llc - Senior Analyst

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Presentation

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Operator [1]

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Good morning. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Libbey Inc. Q1 2019 Financial Results Conference Call. (Operator Instructions) Thank you.

Chris Noe, Financial Planning and Analysis Manager, you may begin your conference.

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Christopher Noe, Libbey Inc. - Financial Planning & Analysis Manager [2]

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Good morning, everyone, and thank you for joining us. Libbey's press release and supplemental financials were distributed last night and are available on the company's website in the Investor Relations section. The replay of today's live call will be provided on our website later today and will be available for the next 7 days. We have also provided a set of slides which will enhance our talking points, and those maybe found on our website at libbey.com.

On the call with me today are Mike Bauer, our Chief Executive Officer; Jim Burmeister, our Senior Vice President, Chief Financial Officer; and Mike Lindsey, our Vice President, Corporate Controller. After our prepared remarks, we will turn the call over to the operator and take your questions.

Before we get under way, we would like to say that today's call includes financial information for which our independent auditors have not yet completed their review. Although we believe that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, we can give no assurance that these assumptions will prove to be accurate.

Also, today's conference call will contain non-GAAP financial measures, including adjusted EBITDA; adjusted EBITDA margin; adjusted selling, general and administrative expense; adjusted selling, general and administrative margin; trade working capital; debt net of cash to adjusted EBITDA ratio and constant currency. Reconciliations to the nearest U.S. GAAP measures or definitions are available in our press release and supplemental financials.

Today's call will contain forward-looking statements under the Securities Act of 1933 and other federal securities laws. These statements are based on current expectations, estimates and projections about the market and the industry in which the company operates in addition to management's beliefs and assumptions. Forward-looking statements are not guarantees of performance, and actual operating results may be affected by a wide variety of factors. For a list of these factors, please refer to the forward-looking statement notice included within our SEC filings.

I would now like to turn the call over to our Chief Executive Officer, Mike Bauer, for his opening remarks. Mike?

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Michael P. Bauer, Libbey Inc. - CEO & Director [3]

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Thanks, Chris. Good morning, everyone, and thank you for joining us.

Since joining Libbey in late March, I've been focused on learning the business and getting to know the people and the culture. I've also had the opportunity to meet with a handful of customers, channel partners and end users. It's early days for me, but I'm incredibly excited about the talent in the organization and the opportunities that lie ahead. The investments we've made in customer service, e-commerce, new products and ERP are paying dividends and position us well to further leverage and expand our leading market position.

Let me share a few key observations on Q1. From an external perspective, market conditions for U.S. foodservice were impacted by the extreme weather conditions we saw in February and the lingering effects of the government shutdown, both of which impacted restaurant traffic during the quarter. In addition, currency, especially a weaker euro, had an unfavorable impact on our reported net sales.

Despite these headwinds and the ongoing intense competitive environment in which we operate, our USC region delivered low single-digit growth, which was offset by net sales declines in our EMEA and Latin America regions.

As a result, our consolidated reported net sales for the quarter declined 3.8% or 2.1% on a constant currency basis. Importantly, during the quarter, we also saw consolidated gross profit margins expand 90 basis points versus Q1 of 2018. Adjusted EBITDA for the quarter was $9.7 million, which was in line with our expectations.

I would now like to turn the call over to Jim Burmeister, who will provide deeper review of the first quarter results. Jim?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [4]

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Thanks, Mike, and good morning, everyone. Thank you for joining us today.

As Mike mentioned, our results this quarter were in line with our expectations, even with the headwinds of unfavorable weather in the U.S. and uncertainty in the European and Latin American economies. These pressures challenged our top line performance in the quarter and led to a 3.8% year-over-year decline in revenues. However, improved pricing, lower depreciation and a solid operational execution across our footprint enabled us to deliver a 90 basis point improvement in gross profit margin year-over-year and an absolute increase in dollars of gross profit.

Our adjusted EBITDA came in at $9.7 million, which is down from the $11.9 million in the first quarter of the prior year. We experienced higher health care costs in the quarter, which were driven by a few larger claims that came in during the back half of the quarter and were much higher than our annualized full year projections and run rate.

In addition, we experienced higher external warehousing costs in the quarter, driven by increased levels of inventory, which we are beginning to work down in Q2. The sum of these 2 items totaled around $1 million compared to the prior year.

Our full year expectations for these cost elements have not changed, and we are maintaining our previously provided full year guidance. Libbey's competitive and financial position remains strong, although we are, obviously, not immune to the macro issues currently challenging our broader competitive and economic environment.

As Mike highlighted, the government shutdown early in the quarter, combined with the unusually severe weather experienced across the country, impacted our USC region and resulted in weaker restaurant traffic numbers during the quarter. Black Box reported a 3.7% traffic decrease for the month of February alone, the lowest dip in almost 1.5 years.

Now on -- excuse me. Now on full quarter 2019. We continued to execute our Creating Momentum strategy. Our important component -- an important component of this strategy is the continued advancement of our e-commerce platform. E-commerce sales represented approximately 13% of the U.S. & Canada's total retail sales, which drove an 11% increase overall in the retail channel year-over-year. This is the largest improvement we have delivered in the U.S. retail since the initiative was started. And it helps us turn around the stated decline we have experienced in the years prior. Additionally, new products, which we define as products introduced within the previous 36 months, contributed approximately $12.5 million of sales or 7.1% of net sales during the first quarter.

The impacts we are seeing in the revenue from e-commerce and innovation from our new product introductions are demonstrating the benefits of our commitment towards executing against our strategy.

Our competitors continue to face significant financial and operational challenges, which reinforces our focus and commitment of providing our customers with exceptional service and security of supply, in addition to strong new product offerings.

Service has proven time and time again to be a key differentiator when customers are making purchasing decisions. We are delivering outstanding service every single day. And our on-time and in-full metric, or OTIF, continues to remain strong and well above 90%.

Our commitment to an industry-leading service standard will help us continue to execute our strategy and deliver growth and drive towards additional operational efficiencies with the implementation of our ERP system.

Turning to Slide 5. Let's spend a few minutes discussing this year's International Houseware Show that took place in Chicago towards the end of the first quarter. At the show, we introduced over 135 new products, which continues to reinforce our commitment to driving growth through innovation of new products for our consumers.

We introduced 60 new shapes into the beverageware category, and we highlighted a new line of improved lids and features for our bakeware and storageware products, which were based on consumer insights from focus group research. We also continue to roll out products for our floral and candle categories that reflect the latest trends, textures and patterns as well as stackable options for our beverageware and storage products. Overall, our team left the show highly encouraged by our customers' responses. It is clear that the intense focus we have had on new product development over the last few years is positioning us for long-term success.

Turning to Slide 6. You will see additional details on performance of our e-commerce platform in the first quarter. During the quarter, our e-commerce sales represented approximately 13% of retail sales for the U.S. & Canada, an increase of 39% versus the first quarter of last year. This demonstrates our continued progress towards our long-term target of 20%.

We are very pleased with our nearly 100% on-time shipping record. All orders were fulfilled through our third-party logistic providers. Late in the quarter, we extended our newly created health care product line called Intuitive Dining, to include product selection specifically designed for our e-commerce platform. You may remember that we launched this product line in our foodservice channel back in the fall of 2018. With this move, we are extending the launch into our retail channel. This secondary launch enables us to market to an aging population and their caregivers who may still be living at home and have -- but have specific physical needs requiring adaptive dining products. Over 25 SKUs of our Intuitive Dining line are now available through our e-commerce platform.

Turning to Slide 7. I'll begin with a review of our first quarter results.

Net sales came in at $175 million compared to $181.9 million for the first quarter of last year, a decrease of 3.8% year-over-year. Excluding $3.2 million of negative currency impacts, net sales were down 2.1%.

Gross profit increased during the first quarter by about 1% coming in at $34 million compared to $33.7 million in the prior year. Gross profit as a percentage of net sales improved by 90 basis points to 19.4% in the first quarter of 2018 compared to 18.5% last year. Lower depreciation and amortization and improved sales prices and product mix led to the improvement versus prior year.

In addition, we have improved our excess and obsolete inventory management, which led to lower inventory reserves being taken year-over-year. This was partially offset by higher shipping and storage costs as well as higher utility costs in our Latin America region.

First quarter selling, general and administrative expense was $32.6 million compared to $31.5 million in the prior year. This increase is primarily due to higher benefit and labor-related costs and costs related to our ERP deployment.

Interest expense for the quarter was $5.6 million, an increase from $5.1 million in the same period last year. The increase was attributable to higher variable-rate interest rates and increased utilization of our ABL credit facility.

The company recorded a tax benefit of $1.3 million in the first quarter compared to a benefit of $2.1 million in the same period in 2018. Cash taxes paid during the first quarter of 2019 and 2018 were approximately $1.2 million and $1.1 million, respectively. For the quarter, we recorded a net loss of $4.5 million compared to a net loss of approximately $3 million in the first quarter of 2018.

First quarter adjusted EBITDA, as detailed in table 1 of our press release, was $9.7 million compared to $11.9 million in the first quarter of 2018. Our adjusted EBITDA margin for the first quarter was 5.6% compared to 6.6% in the first quarter last year.

We have been actively managing our trade working capital, which we define as inventories and accounts receivable, less accounts payable. During the first quarter, trade working capital increased by $15.2 million to a quarter-end balance of $216.4 million, driven by normal seasonality of our business. This compares with $215.9 million at March 31, 2018.

Our inventories were partially offset by lower accounts receivable and higher accounts payable. We continue to balance inventory with the improved service levels that were achieved throughout 2018. We are committed to lowering our finished goods inventory throughout 2019, while maintaining these improved service standards.

During the quarter, capital expenditures were $10.4 million compared to $11.3 million in Q1 2018. Depreciation and amortization expense was $9.9 million compared to $11.9 million in the same period last year.

We had available capacity of $46.4 million under our ABL credit facility as of March 31, 2019, with $45 million drawn in loans outstanding and cash on hand of $15 million.

Moving to Slide 8. I'll provide a more detailed review of each of our reporting segments. In the U.S. & Canada, first quarter net sales were $109.9 million compared to $107.9 million in the first quarter of 2018, an increase of 1.8%. The increase was driven by improved price and product mix in our foodservice and retail channels. This was partially offset by unfavorable channel mix as well as lower unit volumes.

First quarter net sales in Latin America were $30.4 million compared to $34.3 in the first quarter of 2018, a decrease of 11.5%. Excluding the impact of currency, sales decreased by 10%. Results in the quarter were driven by lower volumes in retail and business-to-business channels. Export sales to other Latin American countries showed weakness during the quarter, as broader markets in the region were softening during -- versus 2018. Part of the sales reduction was offset by selling a richer mix of higher-margin products.

In our Europe, Middle East and Africa segment, net sales were $28 million in the quarter compared to $32.2 million in the first quarter of 2018, a decrease of 13%. Excluding the impact of currency, net sales decreased 6.6 -- 6.1%. Net sales in the quarter were lower primarily as a result of lower volumes in the business-to-business channels and retail channels. This was partially offset by improved price and product mix. Currency had a $2.3 million unfavorable impact on results during the quarter and the 2018 comparison period was partially -- was part of our record first half for EMEA.

In other, which primarily represents our operations in Asia Pacific, net sales were down roughly $800,000 or 10.5% in the quarter. Currency had a substantial impact during the quarter as sales were down 5.4% when excluding the impacts of foreign exchange.

Turning back to the consolidated company results, Slide 9 walks through the adjusted EBITDA performance impacts for the first quarter of 2019.

In the first quarter, adjusted EBITDA was $9.7 million compared to $11.9 million in the same quarter last year. Our first quarter 2019 results were impacted by higher shipping and storage costs on a year-over-year basis. Increased freight and warehousing were expected in the quarter, as we continue to build out our e-commerce capabilities and begin to work down our elevated inventory levels. Higher benefit expenses and unfavorable utility costs also weighed on this quarter's results. This was partially offset by favorable sales margins in addition to the lower inventory reserve that I mentioned earlier.

The impact of downtime on our results was similar year-over-year, as we had rebuilds of 2 smaller furnaces in the quarter compared to 1 large rebuild in the first quarter of 2018. Since a number of these factors were timing-related in terms of their impact on the quarter, relative to our future full year forecast, our overall performance at this time is still trending in line with our expectations as we communicated in the beginning of the year.

We continue to forecast net sales for the full year of 2019 to increase in the low single digits compared to 2018 on a U.S. GAAP basis. Our adjusted EBITDA margin forecast for the range of 8.5% to 10%, and we expect capital expenditures to be in the range of $35 million to $40 million. SG&A as a percent of sales is expected to be around 16%.

From a planning perspective, we do not expect the macro environment nor the competitive landscape to do us any favors. Additionally, we are not forecasting a repeat of the favorable currency impacts that we had in the second quarter of 2018.

While April results are trending with our expectations, we are keeping a very careful watch on the external environment and are ready to adjust our business plan as needed.

Our focus is on what we can control and continue to make progress against our strategic initiatives designed to maintain and grow our foothold as the strongest players in the global tableware industry.

We remain committed to the execution against these key strategic initiatives and driving cash earnings through a disciplined approach. Under Mike's guidance and leadership, Libbey will continue to adopt and develop differentiated products for our customers, allowing our business to realize improved margins, while continuing to explore new opportunities for our business.

With that, we'll now open the call for questions. Christine?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Lee Jagoda from CJS Securities.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [2]

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So just starting with the ERP implementation. Can you talk about the ERP expense that was in SG&A? And then the ERP that was capitalized in the -- in terms of CapEx? And how we should think about that trending throughout this year?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [3]

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Lee, this is Jim. We haven't broken out specifically in the quarterly results. I think if you look back over what we discussed in the past, we expect the full year spend this year to be around $8 million, with about a 60% split being capitalized. If you look at our Q1 when we file it though, we would like to note that the change in accounting rules around published systems is going to put that into an operating bucket for amortization versus the CapEx line. And we can talk more off-line about how that closed the cashless statement, but I do want to highlight that.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [4]

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Okay. And then within SG&A, was there any meaningful hit for the CEO transition in Q1?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [5]

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No.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [6]

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Okay. So then just switching to gross margins. Would you expect the Q1 gross margin to represent sort of the low point for fiscal '19? And to the extent you have planned downtime in Q2 to drive some more inventory out, what kind of sequential margin improvement is reasonable to assume?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [7]

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Sitting here at daily, I think, directionally, that's correct. I do want to put the asterisk that -- as we said, as the market conditions play out, we're going to be responsible about driving cash earnings and to the extent that we feather in additional downtime to manage inventories appropriately, that could impact it some.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [8]

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Okay. And then can you talk about sort of the demand environment in both Europe and Latin America? And then maybe comment a little more on the competitive dynamic given Durobor's news yesterday?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [9]

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Yes. And thank you for bringing that up. I'll start first with Europe as you mentioned. Durobor, one of the competitors we've talked about a few times in the past. For the last remaining glass tableware manufacturer in Belgium announced last night that they're going into bankruptcy again. We watch that cautiously, because that doesn't always mean that it never rises up again, but it is encouraging, at least for our standpoint, though we hate to see that happen to anybody. But from our standpoint, it does point to potential upsides in our demand. And so far, we're not hearing about any other stirrings or somebody else coming into revamp that business. So while we've seen a broader cautiousness in Europe, part of it general term across the region, part of it, as Brexit uncertainty continues, Durobor stepping down, that gives us a chance to have some upside in the back half of the year. In Latin America, I think we're seeing a mix of cautious demand in Mexico. We saw some softness also from South America and Central America, with some of the unrest going on there. That said, timing of certain program is also in the quarter though numbers make a big move in that sizable region. So we're still, again, looking towards what we expected and see more on track.

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Operator [10]

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Your next question comes from the line of Jeremy Hamblin from Dougherty & Company.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [11]

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I wanted to start with talking about the U.S. segment. You saw a notable improvement in profitability, which, I think, was impressive given that your foodservice segment was down on a sales basis. Could you just talk about the drivers of that? You did see growth in retail in B2B in that business segment. But you also saw 450 basis point improvement in your EBIT margin. Can you just talk about the drivers of that? And how we should be thinking about that moving forward?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [12]

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Sure. Thanks, Jeremy. It was a couple -- as we unpack, it was a couple of key drivers, especially for the USC. First, as you mentioned, within the region we saw growth in sales, which was great to see, although we still see pressure in the foodservice space. Our retail business is coming back. It's good to see get a good jump, double digits versus prior year, which has been a long time since we've seen kind of improvement after many years of decline before we started on our e-commerce path. Also, we're getting good traction in business-to-business. So when we talked about that in the past, I think there were nice long runs, palletized product, low handling that help drive performance. The other factor that you would also point out for the U.S. at least is last year, as I mentioned in my prepared remarks, we had a large rebuild of a furnace here in Toledo. This year in Q1, we had 2 smaller furnaces rebuilt in Mexico, which drove that downtime in Latin America but not in the U.S., so that's a big pickup as well.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [13]

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Okay. And then I want to kind of think about expectations here. The timing of which -- the commentary I think around Q2, you noted you're not likely to see any kind of currency benefits in the second quarter. So you had a pretty strong Q2 last year. So clearly, you're top of lap for the year. But I think based on your guidance that you're reiterating, it sounds like you're implying expectations for flat to negative sales here in Q2, which would imply a pretty healthy pickup to kind of 3% to 5% pickup in the back half of the year to get to your guidance range. Can you just talk about, one, is that expectation around Q2 appropriate? And then secondly, what gives you confidence on visibility in the back half of the year?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [14]

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Sure. I think Jeremy, you're bringing up good points around the comps for last year on a quarterly basis definitely skew towards a big front half and then bleeding off in the back half. And we're looking at a much more metered approach and off of great high comps in the front half of this year. You saw our results, which were in line with what we expected. But Q1 was off of last year, and I think your commentary on Q2 is directionally correct. The back half of last year was definitely a much easier comp, and when you look at the programs and things we have in place with large customers, again, we're coming back to maintaining the guidance that we have.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [15]

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Okay. So some of this is really based on some programs with customers that you have good visibility on today in the second half?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [16]

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Yes.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [17]

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Yes. Okay. And then the other question, just in terms of the international side of your business, which, obviously, struggled really in all the segments. What do you think that's -- is that reflecting competitive pressures? Is that reflecting localized economies? Is it -- part of it obviously is declines in foreign currency, but that's clearly not the majority of it either. Just can you provide a little bit more color on what you're seeing there? And is that concerning that could be pulling the USC business segment in that direction here when we move forward?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [18]

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Sure thing, and I'll -- unfortunately, it's hard to get all cylinders firing at the same time. But we are glad to see improvements in the U.S., and when I look at the international front, I think it's a mixed story. I think if you look at some markets, like, Latin America, they're definitely seeing some competitive pressure from increased imports from China. As the U.S. and Asia have had their trade war going on, some of that inventory has been flowing to other places. And it's been more competitive in retail channels for example, whereas put and take, we are planting some of that back. Europe is more of a question of general softness. We are seeing how things play out. Now if Durobor really goes down and stays down, which looks more to be the case this time, similar to what we saw 2 years ago when we saw a furnace leave the U.S. market and capacity went down, it creates both a volume and a pricing opportunity for the back half, which we really haven't factored in yet as we wait to see what happens there.

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Jeremy Scott Hamblin, Dougherty & Company LLC, Research Division - VP and Senior Research Analyst of Consumer & Retail [19]

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Okay. And then on the tariff front. That's obviously creating a lot of uncertainty as well. Is that changing some of your customer's order flow, the timing of it? Is it compressing the timing? What type of impact are you seeing from tariffs in terms of how restocking is being done? Any comments on that?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [20]

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We really haven't seen any material shifts, Jeremy. I think we're seeing some opportunities to bid on some business from a securities supply standpoint where customers were concerned about the uncertainty to your point. We haven't seen any major changes in the buying patterns though. And for example, as a look you at China specifically, or you have seen cases where there's a sort of higher tariffs, but the Chinese government has gone and reduced VAT on exports to countermand that. So really, it's more the uncertainty question where you started than anything material going on and transactional activity that I can see at least --

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Operator [21]

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Your next question comes from the line of Bill Hoffmann from Investcorp.

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William Hurlock Hoffmann, Investcorp Credit Management Us Llc - Senior Analyst [22]

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I wanted to chat a little bit about your thoughts on inventory. During the last year, you were running them higher with the expectation to support their service levels. Any thoughts on how much you can pull out this year and still maintain those service levels?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [23]

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Sure. Bill, it's good to catch up with you. When we talked about previously -- actually we're achieving great service levels right now. Actually, a little bit even higher than we saw during the back half of last year. So we're comfortable. We've gotten our block and tackling inside running well so we can sustain those levels as we now bleed down some inventory. And we previously guided that we're plot at least around $10 million out of the inventory, again focusing more this year on generating some cash as we get ready to go out and refire that.

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William Hurlock Hoffmann, Investcorp Credit Management Us Llc - Senior Analyst [24]

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Okay. I wonder if you can talk a little bit about what you're seeing in foodservice trends. I mean, obviously, things were really soft at the beginning of the year, January, February, but wonder if you could talk sort of how things have trended in March, April, on a monthly basis?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [25]

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Sure. I mean, we -- I think we did it a little bit in the prepared remarks. April, looking decent. But after doing this for 2 years and Mike's max is 35 days into the company, we have a degree of cautious optimism as we should. I think foodservice took some hits in Q1. The fact that we talked about, February alone with Black Box coming down 3.7%, that's a bigger dip than we've seen in quite a while. And that channel seems to be still selling into what is new normal is with traffic and with the percentage of takeout. That said, we're still very -- it's a great channel for us, and we're very strong there, and we'll see some more things we launch here in end of May and at the NRA Show. So it still had monitoring and trying to make sure we take share where we can across the table top. You've seen us over the last many years leverage our commanding position in glass and then expand on the rest of the table in dinnerware and flatware and that continues to be successful for us.

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William Hurlock Hoffmann, Investcorp Credit Management Us Llc - Senior Analyst [26]

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Okay. And how do you feel like you're penetrating? You mentioned some of these sort of health care products, et cetera. How are you penetrating those markets?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [27]

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Health care, it's -- we're very optimistic, but it's very early days. I think it's gotten great responses from the buying groups and the customer mid channels that we've spoken to in the smaller shows around that industry that we've gone to. We're also very encouraged by this additional offering we put in place here in the last 30 days on e-commerce because there's a growing part of the population that wants to stay at home and wants to be able to dine and interact with their friends and family with dignity, with some additional capabilities that some of the dinner and flatware items we have provided allow. So it's a good thing to see both from a pure health care industry standpoint but also from retail standpoint.

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William Hurlock Hoffmann, Investcorp Credit Management Us Llc - Senior Analyst [28]

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And final question. Can you just sort of address your thoughts on capital structure and dealing with a 2021 maturity?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [29]

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Sure. And we're very mindful of that. We've said in the past, and I'm still committed to, we are looking to find the right time window to go out and refinance that before it gets current. We had done things structurally over the last few years to increase our focus on capital allocation, to managing debt and paying it down, with the suspension of the dividend previously and now as we're getting better at, managing services and inventory at the same time, flushing more of that through to cash as well. So we're looking at it right now and looking for the best time to go out with something.

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Operator [30]

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Your next question comes from the line of Lee Jagoda from CJS Securities.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [31]

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Jim, just a couple more. Starting with D&A, obviously, it was lower. Is that a sustainable level based on the furnace activities and the efficiencies you're getting out of your rebuilds now?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [32]

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Lee, I think from a run rate basis, it's in the right direction. We've talked a lot in the last few years about things we're doing to expand asset life. We talked about the technology we use to look through in the furnaces and try to make sure that we're making much better calculated approaches to when we rebuild, to how long we can safely extend lives and still -- actually reduce risk of any failures. And you've seen that starting come through in this March down of how much depreciation we have as those assets last longer. We have a number of furnaces in the fleet right now that have actually gone past their full depreciation life and that's great. That's exactly what you want to see. So directionally, I think it's correct unless where I commit to a specific number, but you're seeing the fruits of that work inside our engineering and manufacturing base, which is great.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [33]

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Okay. And then you mentioned that this year you did the 2 smaller rebuilds in Mexico versus the 1 big one last year in Toledo. And I guess that would explain some of the margin shift from Latin America to U.S. and Q1. What are the other furnace plans you've got for the balance of the year? I mean, which regions are likely to be affected there?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [34]

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As you know, Lee, we don't really forecast that out broadly. I would say that the amount of furnace work though year-over-year is lower than last year. We will feather in though some control downtime, again as we manage inventories. As we are committed to driving cash this year.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [35]

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Which regions are likely to see some of the downtime?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [36]

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I think it's spread across, based on where the inventory sits and how they perform.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [37]

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Okay. And then do you happen to have the magnitude of the favorable currency impact on revenue in Q2 last year?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [38]

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In Q2 last year?

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Christopher Noe, Libbey Inc. - Financial Planning & Analysis Manager [39]

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EBITDA was $3 million.

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [40]

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EBITDA was about $3 million. Thank you, Chris.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [41]

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But from a revenue perspective, do you have that number currently?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [42]

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Chris is looking it up, and we'll give it to you on or off-line with releases, from Q2 last year. But you have a free analyst call on your follow-up.

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Lee M. Jagoda, CJS Securities, Inc. - Senior MD & Analyst [43]

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Okay. And then last one for me. Any update on the China facility strategic process that you let us know about last quarter?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [44]

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All of that is going well. And we have a number of options we are currently actively pursuing. But, obviously, in this scenario like that, there's nothing material to report until we get something done, so. But we're still committed to finding out the best answer, regardless of what it is.

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Operator [45]

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Your next question comes from the line of Azeem Haider from BlueMountain Capital.

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Azeem Haider, BlueMountain Capital Management LLC - High Yield Debt Analyst [46]

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I've a couple of quick ones. So I'm still new to this story. ERP implementation, is that pretty much all the way done? Or is there a piece of it that's still remaining to be implemented?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [47]

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No. Azeem, nice to meet you over the call here. We are actually in the early phases of an ERP deployment. The approach we've taken, and we talked about it quite a bit during our Investor Day last summer, but the current platforms that we have, we have a very fragmented set of ERPs, it's almost pretty stereotypical, but we have different ERPs in each one of our regions and sometimes multiple. So we've got 5 separate platforms out there today, all are 20-plus years old. And when you look at the benefits of leaping from that, archaic technology to a modern consolidated ERP platform we see great benefits in doing so. That said, we are in the early stages of it. We've been vocal about that to every extent possible. We're going to go "out of the box." And parallelized -- in my career, I've seen the different variations of how you do ERP platforms. And to be very disciplined around scope and approach and looking at all the core process that we do that are well -- well laid groundwork from other companies in prior decades, we're going to manage the cost and execution of that project, I believe well, compared to what normally people think of when they hear those 3 faithful letters. That said, we have some progress already to date. We've done -- all the foundational work was done last year, work on things like, master data. And earlier this year, we moved in the sales or the management processes as a pilot behind our e-commerce platform in North America. But we still have a couple of years to go.

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Azeem Haider, BlueMountain Capital Management LLC - High Yield Debt Analyst [48]

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Okay. Couple of years. Okay. That's how we should think about the timeline. And then just wanted to get some sort of color on the e-commerce sort of trend. It grew pretty nicely last quarter and this quarter. How should we be thinking about the growth trajectory rest of the year for the e-commerce? Is it something similar, more or less? How should we think about it?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [49]

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Sure. And just maybe as you're new to the story, I mean, the broader picture there as we step back, for years the company had been seeing our retail space falling off. We had originally had, I think, a pretty strong position in glass beverageware, although a lot of it private label in the U.S. And as e-commerce came of age, we saw the stronger position in brick-and-mortar retail being depleted by a very small share position online. In 2017, we lost a major initiative to address that. Having put in place improved content and the 3PL capability to support our customers, who want to provide 2-day shipping. What that has done for us and we're starting to see the results last year and in this first quarter is 2 things. One, retail sales itself had e-commerce portion of our sales growing. It grew very nicely this quarter. Also the improved content and improved approach. The research we've seen says that over half of the purchasing decisions is now going on in stores, in brick-and-mortar, is being influenced by online marketing and sales. So when I look at the overall turnaround in our retail channel, U.S., this quarter, driven by some of those efforts we've had for the last couple of years, which is great to see.

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Azeem Haider, BlueMountain Capital Management LLC - High Yield Debt Analyst [50]

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Got it. And then lastly, liquidity question. Still pretty decent, but seems a little down quarter-over-quarter. What is the level of liquidity you think you need to run the business overall?

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James Charles Burmeister, Libbey Inc. - Senior VP & CFO [51]

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Well, I think to your point, I think we have an adequate level of liquidity right now. We have been focused on over time working down the leverage. The leverage is still higher than I personally would like, of course, I'm the CFO and that's my job to think that. Last year, we talked quite a bit with folks about we intentionally brought it up a bit because we were not having the best service that we wanted to provide to our customers. And in our channels, that's very important. The expectation for the stock and on-time delivery and e-commerce supply, but also in foodservice, one of our most important channels, and in a highly competitive environment, our ability to fulfill and serve large distributors are trying to manage their businesses and manage their amount of inventory they need to take as a buffer, becomes a very important driver. So we took that inventory hit last year a bit. And now as we retain the highest service level and even before we get the benefits of a much more integrated ERP platform, the blocking and tackling of around managing that are giving us (inaudible) that will bring down and putting our $10 million back towards allocating on debt reduction. So I think we're on the right path.

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Operator [52]

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There are no further questions at this time. Mr. Mike Bauer, Chief Executive Officer, I turn the call back over to you.

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Michael P. Bauer, Libbey Inc. - CEO & Director [53]

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Thank you. Just want to say, appreciate everyone joining us today, and I look forward to meeting you over the coming months. And I wish everyone to have a great day.

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Operator [54]

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This concludes today's conference call. You may now disconnect.