Barco NV (BAR) Earnings Call Transcript & Summary

[Audio Gap] conference call on the results of Barco. I'm pleased to introduce to you Mr. Jan De Witte, CEO; Ms. Ann Desender, CFO; Carl Vanden Bussche, IRO. [Operator Instructions] As a reminder, this conference call is being recorded. Please go ahead.

Good morning, ladies and gentlemen. Carl Vanden Bussche, Head of Investor Relations. Welcome to this conference call on the first quarter results. Perhaps 2 words about the call in the current environment. It's good to see the need for increased disclosures and, to some extent, also some extra management availability at this time. And for this reason, we have this conference call. And today with me, our CEO, Jan De Witte; and our CFO, Ann Desender, will be joining the call. They will both present the quarterly results first and will also provide extra perspective on the current environment and how we are working to mitigate the impact. We will do so following the presentation, which you have received following your registration to the call. And if you would have -- you would not have received the presentation, please drop an e-mail to Ann Bouckaert or myself, and we will resend it immediately. Presentation will also become available on our portal on barco.com later today. And indeed, as the operator already told so, following the presentation, we foresee some time for Q&A. But please mind, we do have a hard stop at 10:00 a.m. That's it for the introduction. Let's kick it off here. Jan, you have the floor.

Thank you, Carl, for the introduction. So when we last had analyst call in mid-February, we already gave the first indication of COVID and the impact that, at that time, we saw of COVID in China. However, at that point, we did not expect it to go global as fast and ferocious as it has gone. And clearly as of the last 2 weeks of March, we started to see the different COVID-related lockdowns of all through Europe and then Americas and translate into business impact. In the meantime, we've closed and communicated the first quarter numbers, yes, showing a low single-digit top line decline with mixed trends behind that. Healthcare strong, still modest growth in Entertainment and a weak Enterprise performance. In parallel, yes, a lot of attention and energy went into the implementation of a broad set of operational and business actions, all aimed at keeping our people safe, supporting our customers, yes, while keeping Barco financials robust. This first quarter had many different drivers inside it, different ways that COVID impacted the market segments and the diversity of different geographic lockdown dynamics. Hence, the first quarter is not really a quarter that lends itself to easy extrapolation. And therefore, we decided to set up this additional call to give more color and insight into the drivers behind the numbers and how we see them evolve, yes, but also to indicate where our crystal ball is, not clairvoyant, enough to fully predict the future. And that's mainly caused by uncertainty in the timings and sequences where the different governments will start to unlock their markets, the recessionary impacts that will entail, yes, but also and specifically in the case of Entertainment, yes, the question how fast people confidence and behaviors will move back to a somewhat new normal. So what we plan to do in this call, and that's the agenda on Page 4, is to go give more [Audio Gap] Sales down with 2.9%. Orders bigger than sales, and in that sense, we were able to increase our order book in the first quarter compared to the beginning of the year with about EUR 20 million order book up in all of the divisions. If we compare our order book year-over-year, that's a flat situation. If we look at the divisional level on sales then, yes, Healthcare, clearly on top with a double-digit growth. Entertainment still within the mid plus single digits, so 6% up year-over-year despite actually the impact of China and COVID in particular as of the beginning of the quarter there. In the other regions, yes, clear that the impact on Entertainment, likewise on Enterprise started only as of the end of March, so we'll have more severe impact on the second half. Enterprise had the more weaker performance in the first quarter, landed there minus 22% year-over-year. Orders still up in operator -- in meeting experience, that's down, and operator experience, Control Rooms and sales both down in the both activities. One good news in that sense, if we look to China, the hits as of January there, we did see a pickup again as of March. So for the further quarters, yes, looking to these delockings and where we can then also have back picking up after so much bad news. If we look to the Slide 7, actually, an overview of the impact of, yes, call it, COVID on the particular business segments and regions where we have, call it, put it -- or the one is where we have tailwinds neutral, where there is, yes, hardly no impact and then where there's headwinds, where this can be a medium or a more material negative impact. China, as indicated before, so the most impacted in the first quarter, in particular, on Entertainment and Enterprise. The rest of the world, there, yes, the hits came or the impact as of the end of the quarter. Entertainment, actually, before this impact, really had a good start of the year across the different regions, except for China then actually. And also, in venues and hospitalities, the new offering or the launch actually which we did on the expanded portfolio end of last year, was well received and since had the pickup in orders. Enterprise on Control Rooms last quarter was a really strong quarter. So there, the comparison days is not the most easy one. But there, we really saw project pushouts at large -- a double hit actually. You have the oil and gas crisis impact and then COVID in the particular different countries. ClickShare, with the ClickShare conference, good pickup in orders, but we only started to ship these in the end of the March, of the quarter as planned, actually. So there, the kind of impact, which we had foreseen as some lower in the first quarter, yes, got then a double dip in that sense of the COVID impact. Then on Healthcare, that's the one with the tailwind, actually. And you saw the double-digit top line growth in the first quarter. There, in particular, if we look one layer down actually, there has been clearly extra demands for diagnostic displays and for radiology. Surgical was a little lower but still growth, of course, because that's the area, the operator room and the hospital, where there is lesser activity. But that I will come back further on. So with that, I hope that this more granularity gives you some extra insights. I give the word back to Jan to give [Audio Gap] That we already were facing COVID as of the end of January in our China business has helped us to be proactive and focused when COVID finally came to the West by the March time line. We have a global response team in place since end of January that's tracking and steering different country actions and communications. We put early focus on on-site sanitary and social distancing measures. And we're happy to see that today, our workforce so far has been largely spared from infections. In total, up until now, we've had 4 confirmed infection cases, infections that most likely started in the personal environment of people. All employees have left the hospital by now. At this point in time, more than 80% of our office population outside of China is doing telework from home, and that's since about the end of March. On the other hand, China, yes, which has been doing telework, yes, for a good part of the first quarter, is back in office since early April. Our global supply of materials is back to more than 90% normal, I would say, since early March already, yes, and is dealing well with the transitory logistics and production blips as lockdowns entered different countries. I really must say our supply chain operations teams are doing a tremendous job here in dealing with, yes, the weekly changes in the world. Our factory operations. Overall, we've shown solid manufacturing and supply chain agility and resilience during the past months. We pretty much kept all of our factories running, apart from local regulations that provoked some short stoppages. Our Healthcare factories are also recognized as essential enterprises in Belgium, in Italy and in China. Of course, in some of our factories, we run at partial capacity, but that is more market demand related, not people or supply related, okay? So yes, with that, let's switch to what we see in our markets, starting with Entertainment on Page 10. [Audio Gap] are in lockdown pretty much across the globe. Yes, the good news is that we see theaters and studios collaborate well on movie programming for major releases, yes, that pushed out to the second half of the year, yes, clearly aiming together for a soft restart in the June-July period. Early concerns, yes, a month ago around exhibitor cash issues with the big players like the AMCs, the Cinemarks, the Cineworlds and so on are starting to reside as a result of different support programs like in U.S. but also access to debt for these players, be it quite expensive debt. China theaters. Cinema theaters plan to reopen in the month of May. That's a date that has slipped a bit in the past months as Chinese exhibitors realize that it would take some time for people to overcome fears to go back into a cinema. So based on that learning over the past couple of months, yes, the timing they're aiming for now is the month of May. With regards to replacement opportunity, and that's mainly in the Western European and North American market. Yes, here, we see theaters eyeing June, July restarts. But we assume, based on China experience, a prudent ramp-up of their activity in the third and fourth quarter given the need for confidence building of the spectators that typically go to the cinema. And capital investments in new projectors, yes, will trail the people coming back to the cinema timing a bit. We did not see any cancellations on the pretty solid order book that we have, but we do see delivery dates shift out, yes, towards the second half of the year. In terms of expansion opportunities, and here, we talk mainly new build cinemas in hotspots like the Middle East, India, Latin America. Here, we expect pushouts linked with, yes, deployment delays of those new builds but, again, no cancellations. These projects are often parts of broader 2020 deployment and building plans, and we expect these to restart, yes, the moment that these countries start to unlock their economies and activities. In terms of cinema service, here, we show some, I would say, limited impact during the lockdown and expect this to recover again when business reopens, yes, for cinema exhibition. In the Venues and Hospitalities, 2 big parts. First is the events part of V&H. Now the events sector is, I would say, severely hit, yes, with event cancellations over the summer and pushouts globally, yes, of activity until after the summer. So here, we expect again a slow pickup after the summer, definitely not before. In the ProAV segment, and that's mainly about fixed installs for museums, theme parks, projection mapping both indoor and outdoor. That part is showing more resilience with lockdown again causing some delays but no cancellations. Again, here, yes, equipment typically is part of longer-term investment plans that will start, yes, to recover within a few months after easing of the lockdown constraints. Yes, in China, for example, we already see signs of pickup in the ProAV segment as of early April. And then simulation, yes, this is mainly projectors that we sell for installations like flight simulation. Again, we see resilience here but, again, some projects shifting out because people have tough access to their sites. Although we see some offsetting with stronger demand for real-scale simulators, what we see is that pilot training hours in flight simulators are going up now that pilots are flying less real time but still want to keep up their skills. So that's Entertainment. Enterprise, and starting there with corporate, yes, which is essentially ClickShare. ClickShare is showing clear softness during the lockdown of companies and offices. Yes, we do expect to see recovery on the back of a strong value proposition when businesses start to unlock and get part of their employees back to office. Specifically on ClickShare Conference, yes, the new proposition which we launched end of January, yes, we're expecting and also aiming for working towards traction in the early phase after restrictions ease up. And what we see is the following. First, and that's the silver lining for us on COVID, COVID is forcing a real video conferencing breakthrough. I think very few people in the workforce will not have worked with video conferencing during the lockdown. And with that, the accessible market for ClickShare Conference is rapidly expanding. During the lockdown, what we've seen is that end users have been investing and are still investing their money into more laptops, more peripherals like headsets and enabling their people to do telework and video conferencing. Now upon unlocking of companies, what we expect to happen is hybrid operation, yes, where you will have a situation where part of the workforce is working in offices, is working in meeting rooms and part of the organization will work from home but still will want to work together, right, into joint video conferencing activities and managers are aiming and pushing for strong engagement or reengagement of their workforce. And that plays to the ClickShare Conference value proposition, a value proposition that itself is well received and remains well received. We've seen that at the launch at Infocom and in the weeks thereafter. Also and equally important, our channel sees ClickShare conference as a facilitator and upsell opportunity for their video conferencing offerings on which they are riding today. Also, our channel partners see ClickShare products as an early revenue catch-up opportunity during their unlocking given the market dynamic, also given the relative ease of selling volumes of ClickShare. Yes, one area within corporate where COVID is another tailwind is for weConnect. That's our virtual classroom offering, yes, where we have taken the opportunity to massively demo our infrastructure in several countries in Europe, in North America and Australia, also supporting universities with urgent installs and testing of technology. So that's an opportunity that we see as a clear one after COVID after universities start to implement remote classes as part of a normal offering. In terms of Control Rooms, first, the market itself is resilient. This is about critical infrastructure. This is about crisis management infrastructure. Those investments will happen, but we are seeing projects shifted out into second quarter and later. And that's due in part by the weaker demand from oil and gas industry customers, specifically in the Middle East, compounded by the COVID-19-related project delays where sites and projects are locked down, okay? So yes, definitely, our Control Room is getting a double whammy at this point in early in the year. We do see the expanded value proposition on Control Rooms, yes, which is about more software offerings showing their value added. And we're working, taking the opportunity of some of the COVID slowness to expand our commercial coverage into these markets, yes, also training our own people and our channel partners on the new propositions. [Audio Gap] first quarter strongholds and will remain so over the remainder of the year. We've seen intensified demand for diagnostic imaging products in this place. That's linked to its, yes, OEMs stepping up their capacity on X-ray-related gear, CT scanners. Yes, let's not forget that COVID is essentially a lung disease. Yes, every diagnosis goes through some sort of X-ray scanning. We also believe that we capture some share in this market as some of our competitors are not able or were not able to deliver. Another element is we saw very strong demand for our remote radiology solution. That's a clinical diagnostic display, yes, and the connectivity technology specifically developed for cloud packs and home reading. And given a lot of caregivers who can work from home like radiologists work from home, we definitely saw a boom in this product, which we launched early December last year. So definitely, the right proposition at the right time, yes, enabling remote radiology. Demand for surgical solutions remains solid. We did see some pushouts from the first half to the second half, and that's linked to hospitals turning some of their operating rooms temporarily into intensive care units to deal with COVID patients. That has delayed some of the operating room specific work. Now once hospitals get over their COVID peaks, we will see those OR rooms turn back into real OR rooms and the projects catching up as hospitals have a big challenge now of catching up their growing backlog of elective surgeries. There's 2 growth initiatives in Healthcare that, yes, we impacted. Yes, first, the launch of Demetra, the skin cancer scanner launched in U.S., we postponed that to the second half. In fact, the Congress where we wanted to launch it got canceled. But also, it's not the right time to spend marketing money in launching, yes, anything new in health care that does not cater to specific COVID needs. So we don't spend our money after the summer when it will have more impact. We also have a remote collaboration solution in oncology called Synergi that we launched last year, also seeing a gain of traction in this early growth opportunity. It enables remote collaboration for specific oncology multidisciplinary teams. It's also an application that is now approved as a Cerner bolt-on application. So yes, we can start to mine a leading installed base of Cerner EMR systems. [Audio Gap] that I'm just used to give a bit of color on Q1. But if you apply to beyond Q1, then what we see is one Entertainment facing significant headwinds, specifically with delays in the replacement market in cinema and in the events business within the Venues and Hospitalities markets. Enterprise facing headwind both in corporates and Control Rooms. Here, the headwind really will be correlated with the timing of unlocking of economies and the recessionary depth, I would say. And then Healthcare enjoying tailwinds mainly driven by the diagnostic imaging space, yes, while surgical, yes, we call it neutral, yes, not too much impacted except maybe for some timing shifts. [Audio Gap] If you turn to Page 14, what are we doing about it? And we have 2 pages there that I'll cover together with Ann. Yes, but first, we keep up our focus on health and safety of our employees. That's the condition to keep all of our operations running. Yes, we keep focused on guaranteeing a safe working environment, applying government guidelines, applying best practices and, frankly, a lot of common sense on top of that. This goes back to sanitary, social distancing measures on sites, expanded homework protocol and rotation. We reconfigured today already our production layouts, people flows, workflows, all to ensure minimizing of proximity, ensuring social distance. Second, we decided early on that Barco remains open for business. That's also what we communicated to our partners and to our end users. So we keep our operations running worldwide as much as possible. We continue to manufacture, ship, deploy, support, service our customers and partners, be it in several areas at lower capacity in line with the demand. We've also redeployed resources to step up support in those areas where we see COVID resulting into an upswing in activity, like in diagnostic imaging, like into virtual classroom, yes, and other tailwind opportunities. And we're also preparing for the next phase. Yes, there is an other end to this COVID. So with our commercial teams, yes, they're all remaining close touch with customers, on the one hand, to support them; on the other hand, to also build the funnel post COVID. We're investing idle time into stepped-up training, virtual training, in many cases, using our weConnect technology for customers and partners, again, preparing for acceleration capability after the lockdown. And then in terms of governance and investor relations, yes, we try to use the technology means as much as possible to stay as good and possible connected with our shareholders and analysts. And of course, yes, and that's what Ann is going to cover, we're executing on a broad set of actions to mitigate [Audio Gap]

Thank you, Jan. In order to mitigate the impact on our profitability of the impacts which we clearly have, we have taken a significant amount of measures. In that respect, I must say, while in the previous years throughout our processes and culture, where we have worked heavily on becoming a more resilient platform, having our fit to lead, have gone through that, this is now also really working out, I would say, to help us out also in this phase that we are going through now. Now giving some flavor on what we decided early on. It's a combination of cost avoidance, cost shifts and cost-outs, I would say, starting with aligning activity rates throughout the organization in the different regions where there is softening demand, though that's not the case for Healthcare but it is in the other markets. The more we have, call it, clear-cut things as freezing hirings for any noncritical vacancies, stopped any nonessential contractors/temps. What we also do internally is internal redeployments from areas where there is reduced activity to where there is extra peak and extra people needed. Again there, that's primarily towards Healthcare and Healthcare activities but also in a couple of functions. And then we apply throughout the different regions and almost all of the countries these possible temporary unemployment mechanisms. We've shifted particular investments where, I would say, the return is more on longer term towards -- or the second half of -- or longer out. Yes, a more easy example there is marketing spend. Jan indicated the example of Demetra launch but also where there were no trade shows and these things, type of things where it does not make sense to spend any marketing money now. We save that for later. Some IT projects, some R&D projects more shifting out without just cutting blindly, I would say, in any innovation, that's not what we are doing. And then all of the typical more discretionary spendings, but if you add that all up together, that's quite sizable. So yes, the travel is one which we get for free, I would say, or obliged to. Marketing is another one. But there are quite some things throughout the organization which we could do, and we didn't left one over to really fully go for it. If we look to -- next to the P&L and cost and profitability, then, of course, our cash, yes, you all know that Barco has a strong balance sheet, net cash position. So in that sense, unlike other companies, yes, we have there some more power, I would say, to weather this storm, managing though also clearly and very closely working capital. In the first quarter, yes, there was some impact on inventories, but that's done to be managed throughout the year. Clear and likely it will be for all of the companies, credit control, credit management, expanded payment terms is something that's well balanced, we will cope with and -- but without taking any risks, I would say, or avoiding any risks on true credit exposures. So with that, I hope I gave kind of flavor on the significant measures which we are taking to really mitigate the impact on profitability. [Audio Gap] And I'll repeat that our balance sheet is strong, provides us ample liquidity to support the business activity. And on top, we have good focus on cash management. This allows us to sustain the dividend as we communicated it earlier in the first quarter. In terms of the outlook, we believe we have a reasonable visibility on the second quarter financial performance. We definitely expect the second quarter to be weaker than the first quarter, yes, and resulting in a sales decline for the first half of the year of approximately minus 10% to minus 15%, correlated function of different unlocking scenarios in the geographies where we operate. In terms of 2020 outlook. With the unclarity both on timing of government decisions on easing the restrictions and on the economic impact, our visibility for the year is still too limited at this time, and therefore, we're withdrawing our full year outlook for 2020 that we communicated in February. We intend to give a full 2020 outlook when we have the first half behind us. And at that time, we assume that the unlocking scenarios and how they impact economies will be much clearer by then. So before we go into Q&A, let me maybe conclude with the following. On the first, we tried with this call this morning to give you more color and insight to what we see in our markets and what we're doing about it. And clearly, for today, we do not have all the answers, but I'm very pleased with how our team are playing close to the ball with skill and creativity. In 2018 and 2019, I often got the remark, including from some of you on the phone, that Barco was repairing the roof while the sun was still shining. And I must say today that we're happy. It feels really good to have a solid roof above our heads, yes, and a resilient and agile way of operating with a team that knows how to navigate through a storm like this one. I think our approach and outlook is realistically cautious, acknowledging where we expect to see impact but also where not. And we're taking measures to be prepared for different scenario levels. Now while we're going through and managing the motions, we also realize that this is a transitionary storm that we're going through in the turbulence that we're feeling. The underlying strength in our business model and our fundamentals are not really changing. Our market fundamentals remain intact. Yes, Barco is a mission-critical capital goods investment company. Some investments may be pushed out, yes, but will not disappear, right, even in cinema, where, again, I'm happy to see the studios and exhibitors collaborate very well to navigate this storm together. We're also happy with the portfolio that leverages capabilities in multiple markets. We're definitely not a one-trick pony but a business with segments that will see different types of exposures to COVID will, in part, level out each other. And all of them remain solidly positioned in the market. So looking at conclusion, the strong position of Barco and our balance sheet, together with our focus on preserving profitability and business continuity, allows us to play both offense and defense, yes, at the same in a time like this, I would say, both on the short-term horizon but also on a long-term horizon. And so with that, I'm going to Carl to host a short Q&A.

Yes. For the Q&A session, the operator will tell you in a minute how that will work. [Operator Instructions] From our side, we also will try to keep our responses in a concise way and be mindful about time. Back to the operator now.

[Operator Instructions] The first question is from Matthias Maenhaut from Kepler.

Can you hear me?

Yes, we do, Matthias.

Matthias Maenhaut, Kepler Cheuvreux. Maybe 2 questions from my end. Maybe firstly, can you help us understand a little bit more on how come that while, on the one hand, you have, I would say, sufficient visibility to provide a sales guidance, but you still do not provide a margin guidance? And so could you give us maybe a little bit more color on what are the elements that can still shift substantially and that prevent you from giving guidance on profitability and margins? I appreciate that you say that you will be -- that you worked on becoming more resilient. But any more color on any numbers would be much appreciated. And then, secondly, maybe on the sales guidance of 10% to 15%, if I look at Q1, it's minus -- it's down 3%. For Q2, it seems to imply at the midpoint that you will be down 20%. How should we think about that divisionally-wise? And will the delta come entirely from Entertainment or do you see further weakening in Enterprise as well? That are my 2 questions.

Okay. Perhaps, Matthias, I'll take your second question first, and then Ann will take the first question. So indeed, I think in terms of assessment, you're right then to translate our half year guidance into the quarter -- the second quarter down at approximately 20%. Reading from our insights into the businesses, we do believe that Healthcare will continue on a strong course for the second quarter continued, let's say. And then indeed, we expect to see more impact and more headwinds in the Entertainment division in the second quarter. And then Enterprise, to see whether that's going to be down compared to the first quarter performance, yes or no, that's also where we have some extra buffer in the range 10% to 15% on the group. So I think with that, that's a bit our reading into the first quarter with the reasonable visibility that we have.

On your question, Matthias, relating to EBITDA margin for the first half or for the full year, yes, it's clear, with the limited visibility on the second half, with the only reasonable, I would say, visibility on the first quarter -- on the second quarter, that -- but today, we cannot give an outlook on EBITDA margin on the full year. On the first half before, yes, we never -- we neither did. On the more uncertainties, yes, I would say, there is a difference on the top line minus 10% or minus 15%. So that's still a different impact also on the EBITDA. And likewise, as we are moving forward every week, every month, actually, and the amount of extra shifts of certain projects first to second half and further out on a couple of containment actions which we are doing, yes, that also has its impact. Now on the color, I would say, or how can I summarize here, yes, we have worked hard to become a resilient company. Yes, as of the start and maybe you could say as we were already hit as of January and with China, it was clear that we were early on thinking on what if this comes across towards the other. So it's not that we are hit by surprise in any way, I would say, at the end of a quarter and, oops, what do we now have to do. So in that sense, limiting the impact on profitability. So that's the overall color and to the extent that we can give you. So I hope that, in that sense, then more to come, but be rest assured that we are working hard to preserve also our profitability level.

If I may, just a short follow-up. Is it possible to give a range if we could see like a situation plays out as you see it right now and you could give a range between sales down 15% and 10% could also be somewhat of a guidance?

We decided not to do so. Otherwise, it would have been in our presentation, Matthias.

The next question is from Marc Hesselink.

Maybe can you talk a little bit more on, as much as you can do it right now, which you're going to see beyond this COVID-19? You addressed, I think, in ClickShare the opportunities in hybrid meeting rooms and virtual classrooms. That confidence, where do you see it? Is that the discussion that you have today with your clients because, again -- maybe also to play it the other way around a little bit, and you can also argue that for maybe a very long time, we don't have a lot of meetings in companies. So therefore, just wondering how you got to that confidence. I understand the intuitive move. Second one, a little bit similar on the longer-term for Digital Cinema. Also there, maybe for a long time, cinema will not be the same as it is today. What are you discussing today with your clients? When they say they are seeing the push-outs right now, but how confident are they for the year, for the medium term?